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 April 1, 2000 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
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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, 2000, approximately $488,000.
As of June 1, 2000, the registrant's transfer agent reported as issued and
outstanding:
10,857,068 Shares of Class A Common Stock
1,301,141 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 and certain of its directors and
officers own 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 6% of PEC's common stock is owned by non-affiliated persons.
The Peaches Stores
The following table sets forth the number of "Peaches" retail 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 April 1, 2000 (the "2000 fiscal year"):
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Number of stores:
At beginning of period 12 12 13 13 19
Opened during period 0 1 0 0 0
Closed during period 0 (1) (1) 0 (6)
-- -- -- -- --
At end of period 12 12 12 13 13
Subsequent to the close of the 2000 fiscal year, PEC closed one of its
stores for which the lease expired. The eleven "Peaches" stores which are in
operation are located in the following four states: Florida (five 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. 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".
E-Commerce
In July 2000, PEC launched its e-commerce site, www.peachesmusic.com. The
site offers over 250,000 different items, including compact discs, cassettes,
DVD's as well as digital
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downloading. As of the date of this filing, the web site has not had a material
impact on PEC's financial condition or results of operations.
Trademarks
PEC is the registered owner of and owns nationwide rights to the trade
name, 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. They have distinct,
wood paneled 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.
The vast majority of PEC's products are purchased directly from the five
major music distributors. Such distributors are: BMG (Bertelsman Music Group),
EMD (EMI Music Distribution), Sony Music, Universal Distribution and WEA
(Warner/Elektra/Atlantic). PEC does not have material long-term purchase
agreements with any of such distributors. Such arrangement is typical in the
industry.
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 principal suppliers may have a
materially adverse effect on PEC's financial condition and 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.
Under current industry practice, PEC is able to return merchandise, subject
to certain limitations, to all of its major 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.
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<PAGE>
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 2000 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, 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 super book
stores, 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. In addition, the expansion of e-commerce has also
resulted in competition from outside the normal geographic spheres of
competition.
Employees
As of the last day of the 2000 fiscal year, URT and PEC (hereinafter,
collectively, the "URT Companies") had approximately 220 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.
Management Agreements
During the 2000 fiscal year, as in the prior fiscal year, there were three
agreements in place pertaining to the management of PEC. Two of such agreements
were between URT and PEC and the third was between URT and Allan Wolk, URT's
Chairman, President and Chief Executive Officer. Pursuant to such agreements
(hereinafter collectively referred to as the "Management Agreements") the
following arrangements were in effect: URT was required to provide to PEC during
such period the services of Mr. Wolk as PEC's Chairman, President and Chief
Executive Officer; PEC was required to pay to Mr. Wolk during such period, so
long as he continued to provide such services, a salary in the amount described
below; the amount so paid by PEC to Mr. Wolk pursuant to such arrangements was
credited against the amount payable by URT to Mr. Wolk pursuant to the
employment agreement between them (see "EXECUTIVE COMPENSATION" below); and URT
and PEC were required to continue to equitably apportion taxes so long as they
continue to file a consolidated federal return. The salary payable by PEC to
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<PAGE>
Mr. Wolk pursuant to the Management Agreements, as revised by agreement between
URT and PEC, was $250,000 during the 1999 fiscal year and $248,000 during the
2000 fiscal year.
The Management Agreements expired on March 31, 2000, but have been extended
by URT and PEC on a month-to-month basis during the current fiscal year pending
the negotiation and preparation of proposed replacement agreements. Such
extension has been on the same terms as the Management Agreements, except that
the compensation payable by PEC to Mr. Wolk has been further reduced to a rate
of $240,000 per annum during the period of such negotiations pursuant to an oral
understanding between the two companies
During both the 2000 and 1999 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 on the
part of an institutional lender and is also subject to mortgages on the part of
URT and Allan Wolk (see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
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".
As part of its on-going long- term strategic planning, PEC may sell its
leasehold interest(s) in one or more of its stores.
Item 3. LEGAL PROCEEDINGS
In February, 2000, PEC amicably resolved a lawsuit with one of its
landlords which had been commenced by PEC in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, about representations made by the
landlord to PEC concerning the shopping center in which one of PEC's Orlando
stores is located.
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
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<PAGE>
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 Pink Sheets, LLC.
Bid Prices Asked Prices
------------ -------------
High Low High Low
1998
Quarter ended March 31, .03 .03 .05 .05
Quarter ended June 30, .05 .03 .08 .05
Quarter ended September 30, .05 .05 .08 .07
Quarter ended December 31, .05 .045 .07 .065
1999
Quarter ended March 31, .06 .045 .07 .065
Quarter ended June 30, .06 .05 .07 .06
Quarter ended Sept. 30, .05 .05 .06 .06
Quarter ended Dec. 31, .05 .05 .06 .055
2000
Quarter ended March 31, .13 .05 .135 .055
Quarter through June 1, .08 .06 .09 .08
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:
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<PAGE>
Bid Prices Asked Prices
------------ -------------
High Low High Low
1998
Quarter ended March 31, .025 .025 .12 .12
Quarter ended June 30, .025 .025 .12 .12
Quarter ended Sept. 30, .025 .025 .12 .12
Quarter ended Dec. 31, .025 .025 .12 .12
1999
Quarter ended March 31, .03 .025 .12 .12
Quarter ended June 30, .03 .03 .12 .12
Quarter ended Sept. 30, .03 .03 .12 .12
Quarter ended Dec. 31, .03 .03 .12 .12
2000
Quarter ended March 31, .04 .03 .12 .10
Quarter through June 1, .04 .04 .10 .10
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, 2000, based on
information supplied by URT's transfer agent:
Number of Record
Title of Class Holders
-------------- ----------------
Class A Common Stock, $.01 par value 4,492
Class B Common Stock, $.01 par value 1,135
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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>
April 1, April 3, March 28, March 29, March 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Net sales $15,377,711 $17,480,467 $17,077,501 $18,109,119 $23,626,489
Net loss (738,339) (646,684) (874,862) (1,161,786) (2,161,535)
Basic and diluted earnings per share (1) (0.06) (0.05) (0.07) (0.09) (0.17)
Weighted average number of common
shares outstanding (1) 12,158,209 12,158,209 12,158,209 12,637,634 12,637,634
Balance Sheet Data:
Working capital excluding liabilities
subject to compromise in 1996 267,795 957,004 1,531,303 3,174,312 9,188,083
Total assets 4,387,114 5,460,034 6,783,328 8,068,055 12,788,918
Current portion of long-term
obligations 54,234 108,280 732,319 730,239 124,774
Long-term obligations 415,525 469,759 578,127 1,337,190 810,367
Liabilities subject to compromise -- -- -- -- 5,671,434
Shareholders' equity 1,081,730 1,823,328 2,466,753 3,341,615 4,503,401
</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 APRIL 1, 2000 ("2000") COMPARED TO FISCAL YEAR ENDED
APRIL 3, 1999 ("1999")
Net Sales. The Company's net sales decreased during fiscal 2000 by $2.1
million or 12%. Factors that contributed to the decrease are a 6.4% decline in
comparable store sales, the fact that the Company operated one more store during
most of fiscal 1999, as well as the fact that fiscal 1999 was a 53 week year
compared to fiscal 2000 which was a 52 week year.
Cost of Sales. The Company's cost of sales as a percentage of net sales
decreased from 59.3% in fiscal 1999 to 58.1% in fiscal 2000. The decrease is
primarily due to increases in certain retail selling prices.
Expenses. Selling, general and administrative expenses (SG&A), including
depreciation, increased as a percentage of net sales from 44.6% in fiscal 1999
to 46.8% in fiscal 2000. The increase is primarily due to the decrease in sales.
FISCAL YEAR ENDED APRIL 3, 1999 ("1999") COMPARED TO FISCAL YEAR ENDED
MARCH 28, 1998 ("1998")
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Net Sales. The Company's net sales for 1999 increased $403,000 or 2.4
percent compared to 1998. The increase is primarily due to the fact that the
Company operated one more store for a portion of 1999 offset by a comparable
store decrease of 1.6 percent.
Cost of Sales. The Company's cost of sales, as a percentage of net sales,
decreased from 61.5 percent in 1998 to 59.3 percent in 1999. Such decrease is
primarily attributable to an increase in certain retail prices and increases in
purchase discounts.
Expenses. Selling, general and administrative expenses, including
depreciation, expressed as a percentage of net sales increased to 44.6% in 1999
compared to 43.8% in 1998. The increase is primarily attributable to expenses
incurred throughout the Company's first quarter of 1999 relating to the new
store that did not actually open until after the first quarter began.
FISCAL YEAR ENDED MARCH 28, 1998 ("1998") COMPARED TO FISCAL YEAR ENDED
MARCH 29, 1997 ("1997")
Net Sales. 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.
Cost of Sales. 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 confirmation of PEC's
Amended Plan of Reorganization ("Plan of Reorganization") on January 17, 1997,
following its voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code (the "Chapter 11 proceeding"). Such decrease is also attributed
to increases in other purchase discounts and an increase in certain retail
selling prices.
Expenses. 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.
During 1998, Company's primary suppliers initiated steps to help protect
the retail marketplace from certain low cost retailers of music. These steps
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, helped the
Company to restore itself to a more competitive position. Another factor which
had a positive effect on the Company's performance is the increase in gross
profit percentage. 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
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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.
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, cash equivalents on hand and financing will provide sufficient
liquidity to maintain adequate working capital for operations.
At April 1, 2000, the Company had long-term obligations of $415,525.
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.
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.
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.
For a discussion of the Company's possible liability for severance payments
to its Chairman, see "EXECUTIVE COMPENSATION."
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides guidance for revenue recognition under certain
circumstances. It is effective during fiscal year 2001. Management is reviewing
the effect, if any, of SAB 101 on the Company's consolidated results of
operations, financial position and cash flows.
In June 1998, the Financial Accounting Standards Board, or FASB, issued FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". FAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities . It requires the Company to measure all derivatives at
fair value and to recognize them on the balance sheet as an asset or liability,
depending on the Company's rights or obligations under the applicable derivative
contract. In July 1999, the FASB issued FAS No. 137 which deferred the effective
date of adoption of FAS 133 for one more year. The Company does not currently
own any derivative instruments and does not anticipate that FAS 133 will have
any effect on its results of operations, financial position or cash flows.
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<PAGE>
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires all costs
related to the development of internally used software, other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage, are required to be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 was adopted by the Company during fiscal 2000 and did not have a material
effect on the Company's financial position or results of operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company owns no derivative financial instruments or derivative
commodity instruments. The Company's exposure to changes in interest rates is
limited to cash, cash equivalents, investments and long term debt. Changes in
interest rates by 10% would not have a material impact on the company's
financial condition or results of operations.
Item 8. FINANCIAL STATEMENTS
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URT INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 -- F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of April 1, 2000 and April 3, 1999 F-3
Consolidated Statements of Operations and Comprehensive Income for Each of the Years in
the Three-Year Period Ended April 1, 2000 F-4
Consolidated Statements of Shareholders' Equity for Each of the Years in the Three-Year
Period Ended April 1, 2000 F-5
Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period
Ended April 1, 2000 F-6
Notes to Consolidated Financial Statements F-7 to F-16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Directors and Shareholders
URT Industries, Inc. and Subsidiaries
Hallandale, Florida
We have audited the accompanying consolidated balance sheet of URT Industries,
Inc. and Subsidiaries (the Company) as of April 1, 2000, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 April 1, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 12, 2000
F-1
<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 April 3, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended April 3, 1999. 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 financial statements referred to above present fairly, in
all material respects, the financial position of URT Industries, Inc. and
Subsidiaries as of April 3, 1999, and the results of their operations and their
cash flows for each of the years in the two-year period ended April 3, 1999 in
conformity with generally accepted accounting principles.
KPMG LLP
Fort Lauderdale, Florida
May 28, 1999
F-2
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URT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2000 AND APRIL 3, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 853,347 $ 927,982
Marketable investment securities -- 439,640
Inventories 2,058,373 2,309,600
Current portion due from officers/shareholders -- 42,769
Prepaid expenses and other current assets 172,224 291,809
----------- -----------
Total current assets 3,083,944 4,011,800
Property and Equipment 1,120,337 1,249,289
Due from Officers/Shareholders -- 3,385
Other Assets 182,833 195,560
----------- -----------
Total assets $ 4,387,114 $ 5,460,034
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,116,659 $ 2,240,109
Accrued liabilities 645,256 706,407
Current portion of long-term obligations 54,234 108,280
----------- -----------
Total current liabilities 2,816,149 3,054,796
Long-Term Obligations 415,525 469,759
Deferred Rent 58,279 63,030
Minority Interest in Subsidiary 15,431 49,121
----------- -----------
Total liabilities 3,305,384 3,636,706
----------- -----------
Commitments, Contingencies and Subsequent Events -- --
Shareholders' Equity:
Common stock, $.01 par value; 30,000,000 shares authorized;
15,317,454 shares issued and outstanding 153,175 153,175
Additional paid-in capital 5,542,152 5,542,152
Accumulated deficit (3,595,262) (2,856,923)
Unrealized holding gain -- 3,259
----------- -----------
2,100,065 2,841,663
Treasury stock, 3,159,245 common shares at cost (1,018,335) (1,018,335)
----------- -----------
Total shareholders' equity 1,081,730 1,823,328
----------- -----------
Total liabilities and shareholders' equity $ 4,387,114 $ 5,460,034
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED APRIL 1, 2000
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales $ 15,377,711 $ 17,480,467 $ 17,077,501
------------ ------------ ------------
Costs and Expenses:
Cost of sales 8,940,342 10,361,351 10,501,123
Selling, general and administrative expenses 6,963,336 7,488,565 7,244,524
Depreciation and amortization 237,745 305,226 274,943
------------ ------------ ------------
16,141,423 18,155,142 18,020,590
------------ ------------ ------------
Loss from Operations (763,712) (674,675) (943,089)
------------ ------------ ------------
Other Income (Expense):
Interest expense (56,564) (101,174) (167,085)
Interest income 29,970 45,052 105,614
Other income 15,018 57,938 99,264
Realized gain on sale of investment securities 3,259 -- --
------------ ------------ ------------
(8,317) 1,816 37,793
------------ ------------ ------------
Loss before Income Taxes and Minority Interest (772,029) (672,859) (905,296)
Provision for Income Taxes -- -- --
------------ ------------ ------------
Loss before Minority Interest (772,029) (672,859) (905,296)
Minority Interest in Net Loss of Consolidated Subsidiary 33,690 26,175 30,434
------------ ------------ ------------
Net Loss (738,339) (646,684) (874,862)
Other Comprehensive Income:
Unrealized gain arising during the period -- 3,259 --
------------ ------------ ------------
Comprehensive Loss $ (738,339) $ (643,425) $ (874,862)
============ ============ ============
Basic and Diluted Net Loss Per Common Share $ (0.06) $ (0.05) $ (0.07)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED APRIL 1, 2000
<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, 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)
Net Loss -- -- -- -- -- --
Unrealized Gain arising during the period -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 3, 1999 13,764,588 1,552,866 153,175 2,907,520 251,725 (1,018,335)
Net Loss -- -- -- -- -- --
Unrealized Loss arising during the period -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 1, 2000 13,764,588 1,552,866 $ 153,175 2,907,520 251,725 $(1,018,335)
=========== =========== =========== =========== =========== ===========
<CAPTION>
Accumulated
Additional Other
Paid-In Accumulated Comprehensive
Capital Deficit Income Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
Net Loss -- (646,684) -- (646,684)
Unrealized Gain arising during the period -- -- 3,259 3,259
----------- ----------- ----------- -----------
Balance, April 3, 1999 5,542,152 (2,856,923) 3,259 1,823,328
Net Loss -- (738,339) -- (738,339)
Unrealized Loss arising during the period -- -- (3,259) (3,259)
----------- ----------- ----------- -----------
Balance, April 1, 2000 $ 5,542,152 $(3,595,262) $ -- $ 1,081,730
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED APRIL 1, 2000
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (738,339) $ (646,684) $ (874,862)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 237,745 305,226 274,943
Realized gain on sale (3,259) -- --
Minority interest in net (loss) income of consolidated subsidiary (33,690) 21,825 (30,434)
Changes in operating assets and liabilities:
(Increase) decrease in:
Inventories 251,227 123,833 422,061
Prepaid expenses and other current assets 119,585 95,239 (54,094)
Other assets 12,727 6,092 (20,362)
Increase (decrease) in:
Accounts payable (123,450) 225,435 642,805
Accrued liabilities (61,151) (194,918) (172,051)
Deferred rent (4,751) 196 (93,202)
----------- ----------- -----------
Net cash provided by (used in) operating activities (343,356) (63,756) 94,804
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of marketable investment securities -- (1,469,002) (2,624,119)
Proceeds from sale of marketable investment securities 439,640 2,065,361 1,591,379
Purchases of property and equipment (108,793) (190,182) (180,192)
Repayments from officers/shareholders 46,154 36,870 25,693
----------- ----------- -----------
Net cash provided by (used in) investing activities 377,001 443,047 (1,187,239)
----------- ----------- -----------
Cash Flows from Financing Activities:
Repayment of long-term obligations (108,280) (732,407) (756,983)
----------- ----------- -----------
Net cash used in financing activities (108,280) (732,407) (756,983)
----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents (74,635) (353,116) (1,849,418)
Cash and Cash Equivalents, Beginning 927,982 1,281,098 3,130,516
----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 853,347 $ 927,982 $ 1,281,098
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 56,564 $ 101,174 $ 167,085
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
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 non-operating subsidiary, whose business was discontinued
in 1984, and its 87.5 percent-owned subsidiary, Peaches Entertainment
Corporation (Peaches).
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.
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 year ended April 1,
2000 consists of 52 weeks. The fiscal year ended April 3, 1999
consisted of 53 weeks. The fiscal year ended March 28, 1998 consisted
of 52 weeks.
Cash Equivalents
The Company considers highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
There were no cash equivalents at April 1, 2000. Cash equivalents
totaled $345,528 at April 3, 1999. 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.
Marketable Investment Securities
The Company follows the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Securities consisting of
Treasury bills and equity investments are considered
available-for-sale at April 3, 1999 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
shareholders' equity. Realized gains and losses are included in
interest and other income. There were no investments in marketable
securities at April 1, 2000.
Inventories
Inventories, which are 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-7
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost and 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.
Advertising
Advertising costs are charged to expense as incurred.
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 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. A valuation allowance is
provided if it is more likely than not that the Company will not
realize the benefits of a deferred tax asset.
Use of Estimates
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 revenue
and expenses during the reported period.
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.
F-8
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lives Assets to be Disposed of. 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 exceeds 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.
Recent Accounting Pronouncements
In fiscal year 1999, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set
of financial statements. Comprehensive income consists of net income
and net unrealized gains (losses) on securities and is presented in
the consolidated statement of operations and comprehensive income. The
Statement requires only additional disclosures in the consolidated
financial statements; it does not affect the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides guidance for revenue recognition under
certain circumstances. The staff accounting bulletin is effective
during fiscal year 2001. SAB 101 is not expected to have an effect on
the Company's consolidated results of operations, financial position
and cash flows.
In June 1998, the Financial Accounting Standards Board, or FASB,
issued FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". FAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires us
to measure all derivatives at fair value and to recognize them on the
balance sheet as an asset or liability, depending on our rights or
obligations under the applicable derivative contract. In July 1999,
the FASB issued FAS No. 137 that deferred the effective date of
adoption of FAS 133 for one more year. The Company currently has no
derivative instruments or hedging activities.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1
requires all costs related to the development of internally used
software other than those incurred during the application development
stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and
amortized over the estimated useful life of the software. SOP 98-1 was
adopted by the Company during the fiscal year 2000 and did not have a
material effect on the Company's financial position or results of
operations.
F-9
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain amounts in the 1999 and 1998 consolidated financial statements
have been reclassified to conform to the 2000 presentation.
NOTE 2. LIQUIDITY
As of April 1, 2000, the Company reflected shareholders' equity of
approximately $1.1 million. Since 1993, the Company has incurred operating
losses and has an accumulated deficit of approximately $3.6 million at
April 1, 2000. Factors which have had a positive effect on the Company's
performance include the increase in gross profit percentage and reduction
of certain expenses. The Company's ability to achieve sustained profitable
operations is dependent on continuing to obtain products at competitive
prices, restructuring operations to minimize cash expenditures, and
successfully competing with larger retailers who have 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.
NOTE 3. BUSINESS AND CREDIT CONCENTRATIONS
Competition
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' 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.
Significant Vendors
The Company purchased approximately 72 percent of its merchandise from
five principal suppliers during each of the fiscal years ended April
1, 2000 and April 3, 1999, respectively. Purchases from given
suppliers are, to a greater extent, determined by which of them is
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,
if the Company were to lose one of its principal suppliers, it may
have a material adverse effect on the Company's results of operations
and financial position.
F-10
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. BUSINESS AND CREDIT CONCENTRATIONS (Continued)
Cash and Cash Equivalents
The Company maintains deposits at financial institutions that, from
time to time, may exceed federally insured limits. At April 1, 2000,
the Company had deposits in excess of federally insured limits of
approximately $407,000. The Company maintains its cash with high
quality financial institutions, which the Company believes limits
these risks.
NOTE 4. NET LOSS PER COMMON SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share,
which establishes new standards for computing and presenting earnings per
common share.
Basic and diluted net loss per common share has been computed by dividing
net loss by the weighted average number of shares outstanding during the
period. The two-class methods 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, net loss per common share is
identical for each class of stock.
Basic and diluted net loss per common share were calculated as follows:
<TABLE>
<CAPTION>
April 1, April 3, March 28,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Basic and diluted:
Net loss $ (738,339) $ (646,684) $ (874,862)
============ ============ ============
Weighted average shares 12,158,209 12,158,209 12,258,209
============ ============ ============
Net loss per common share $ (.06) $ (.05) $ (.07)
============ ============ ============
</TABLE>
NOTE 5. DUE FROM OFFICERS/SHAREHOLDERS
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Unsecured loans 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 at 8 percent $ -- $ 46,154
Less current portion -- (42,769)
-------- --------
$ -- $ 3,385
======== ========
</TABLE>
The promissory note agreements with the two officers/shareholders are
payable with interest at 8% in 96 monthly installments through March 21,
2000.
Under amended and restated employment agreements with these
officers/shareholders (Note 9), the required loan payments are credited as
compensation for the officer/shareholder. Effective March 1996, a former
officer/shareholder was required to repay the loan in monthly installments
of $471.
F-11
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Land $ 395,570 $ 395,570
Building 538,093 538,093
Leasehold improvements 529,803 1,194,053
Furniture and equipment 629,912 678,470
Building under capitalized lease 206,964 206,964
---------- ----------
2,300,342 3,013,150
Less accumulated depreciation and amortization 1,180,005 1,763,861
---------- ----------
$1,120,337 $1,249,289
========== ==========
</TABLE>
Depreciation expense attributable to the capital lease was approximately
$10,300 for each of the years in the three-year period ended April 1, 2000.
NOTE 7. LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Capital lease obligation, due in monthly installments of $3,382,
including interest at 17.5%; final payment due March 2005. $134,622 $150,137
Mortgage payable, due in monthly installments of $2,981, plus interest
at prime plus .5% (9.5% at April 1, 2000); collateralized by the
mortgaged property with depreciated cost of approximately $355,000;
final balloon payment of approximately $263,000 due September 2002. 335,137 370,912
Settlement agreement with former officer/shareholder; due in monthly
installments of $5,699; final payment due and paid January 2000. -- 56,990
-------- --------
469,759 578,039
Less current portion 54,234 108,280
-------- --------
$415,525 $469,759
======== ========
</TABLE>
The capital lease pertains to the building portion of property owned by one
director and one former director. The rent expense on the land portion of
this lease was approximately $97,000, $129,000 and $113,000, respectively,
for each of the years in the three-year period ended April 1, 2000.
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year:
2001 $ 40,584
2002 40,584
2003 40,584
2004 40,584
2005 40,584
---------
Total minimum lease payments 202,920
Less amount representing interest (68,298)
---------
Present value of minimum lease payments $ 134,622
=========
F-12
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. LONG-TERM OBLIGATIONS (Continued)
Maturities of long-term obligations, excluding the capital lease
obligation, are as follows:
Fiscal year:
2001 $ 35,775
2002 35,775
2003 263,587
---------
$ 335,137
=========
The Company has a standby letter of credit of $81,000 available to a
landlord. The standby letter of credit is fully collateralized by a
certificate of deposit, which is included in other assets. In addition, one
of the Company's banks is obligated to provide an irrevocable letter of
credit of $150,000. No letters of credit were drawn upon as of April 1,
2000 and April 3, 1999.
NOTE 8. ACCRUED LIABILITIES
2000 1999
--------- ---------
Gift certificate and credit slip liability $ 133,603 $ 156,818
Payroll and related benefits 41,970 42,670
Sales and other taxes payable 104,303 131,556
Accrued overhead expenses 123,277 255,916
Other 242,103 119,447
--------- ---------
$ 645,256 $ 706,407
========= =========
NOTE 9. COMMITMENTS AND CONTINGENCIES
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 during the years ended April 3, 1999 and
March 28, 1998, respectively. There was no percentage rent incurred
during the year ended April 1, 2000. Most of the leases contain
renewal options.
The aggregate minimum rental commitments at April 1, 2000 under all
non-cancelable operating leases, which have various expiration dates
through 2017, are approximately as follows:
Fiscal year:
2001 $1,097,000
2002 772,000
2003 697,000
2004 537,000
2005 360,000
Thereafter 2,697,000
----------
$6,160,000
==========
F-13
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS AND CONTINGENCIES (Continued)
Leases (Continued)
Rental expense under non-cancelable operating leases, included in
selling, general and administrative expenses in the accompanying
consolidated statements of operations, amounted to approximately
$1,350,000, $1,417,000, and $1,175,000, respectively, for each of the
years in the three-year period ended April 1, 2000.
Rental expense on a store owned by two directors and/or their
relatives was approximately $174,000, $164,000, and $131,000,
respectively, for each of the years in the three-year period ended
April 1, 2000.
Legal Matters
The Company is a party to various 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 would not have a material adverse
effect on the financial position or results of operations of the
Company.
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
$780,000, including amounts payable by Peaches to such officer under
the revised Management Agreement. 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 5).
The respective employment agreement provides the officer with the use
of an automobile, full medical coverage, reimbursement for life
insurance policies, paid vacations and severance pay if the Company
refuses to renew the employment agreement upon expiration, or in the
event of termination upon mutual consent or termination in certain
other events.
Management Agreement
During the 2000 fiscal year, as in the prior fiscal year, there were three
management and intercorporate agreements in place between URT and Peaches.
Two of such agreements were between the Company and Peaches and the third
was between the Company and the Company's Chairman, President and Chief
Executive Officer. Pursuant to such agreements (hereinafter collectively
referred to as the "Management Agreements"), the following arrangements
were in effect: URT was required to provide to Peaches during such period
the services of their Chairman, President and Chief Executive Officer;
Peaches was required to pay the executive's compensation during such
period, so long as he continued to provide such services, a salary in the
amount described below; the amount so paid by Peaches pursuant to such
arrangements was credited against the amount payable by URT pursuant to the
employment agreement in effect and URT and Peaches were required to
continue to equitably
F-14
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS AND CONTINGENCIES (Continued)
Management Agreement (Continued)
apportion taxes so long as they continue to file a consolidated
federal return. The salary payable by Peaches pursuant to the
Management Agreements, as revised by further agreement, was $250,000
during the 1999 fiscal year and $248,000 during the 2000 fiscal year.
The Management Agreements expired on March 31, 2000, but have been
extended on a month-to-month basis during the current fiscal year
pending the negotiation and preparation of proposed replacement
agreements. Such extension has been on the same terms as the
Management Agreements, except that the compensation payable by Peaches
has been reduced to a rate of $240,000 per annum during the period of
such negotiations.
NOTE 10. SHAREHOLDERS' EQUITY
Authorized shares of common stock as of April 1, 2000 and April 3, 1999
were 20,000,000 Class A and 10,000,000 Class B 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.
NOTE 11. INCOME TAXES
2000 1999 1998
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
---- ---- ----
-- -- --
---- ---- ----
Deferred:
Federal -- -- --
State -- -- --
---- ---- ----
$ -- $ -- $ --
==== ==== ====
Differences between the 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 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at applicable statutory tax rate of loss
before income taxes $(251,000) $(220,000) $(308,000)
Add:
State income tax benefit, net of federal benefit (23,000) (36,000) (34,000)
Change in valuation allowance 226,000 225,000 707,000
Adjustments to net operating loss carryovers and other
deferred tax assets 9,000 24,000 (387,000)
Other 39,000 7,000 22,000
--------- --------- ---------
Income tax provision for the year $ -- $ -- $ --
========= ========= =========
</TABLE>
F-15
<PAGE>
URT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11. INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at April 1, 2000 and April 3, 1999 are
presented below:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs capitalized
for tax purposes $ 61,000 $ 64,000
Property and equipment, net, principally due to differences
in depreciation 314,000 296,000
Accrued rent, principally due to accrual for financial
reporting purposes 44,000 25,000
NOL carryforward 2,738,000 2,497,000
Accrued expenses 7,000 48,000
Other 30,000 38,000
----------- -----------
Total gross deferred tax assets 3,194,000 2,968,000
Less valuation allowance (3,194,000) (2,968,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
At April 1, 2000, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $6,900,000 which is available
to offset future federal taxable income, if any, through 2014.
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 April 1, 2000 and April
3, 1999, was $3,194,000 and $2,968,000, respectively. The net change in the
total valuation allowance for the years ended April 1, 2000 and April 3,
1999 was an increase of approximately $226,000 and $225,000, respectively.
F-16
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In March, 2000, URT selected Rachlin Cohen & Holtz LLP ("RCH") to replace
KPMG LLP ("KPMG") as its independent public accountants. The decision to change
auditors was approved by resolution of the full board of directors.
There were no disagreements with KPMG, during either of the two most recent
fiscal years, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of KPMG, would have caused KPMG to make
reference to the subject matter of the disagreements in connection with its
audit report with respect to financial statements of URT and there was no
disagreement or difference of opinion with KPMG regarding any "reportable
event," as that term is defined in Item 304(a)(1)(v) of Regulation S-K. KPMG's
report on the financial statements of URT for each of the past two fiscal years
did not contain any adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
Neither URT nor anyone on behalf of URT consulted RCH, during either of the
two most recent fiscal years, regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the financial statements of URT or
any matter that was either the subject of a disagreement, within the meaning of
Item 304(a)(1)(iv) of Regulation S-K, or any reportable event, as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
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), Director 62
Brian Wolk Executive Vice-President, Chief Legal 35
Officer, General Manager-Store Operations
and Merchandising, Director
Jason Wolk Executive Vice-President, Chief 33
Financial Officer (Principal Financial
and Accounting Officer), General Manager-
Internet Operations, Treasurer, Director
-13-
<PAGE>
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 by KPMG Peat
Marwick LLP, an international accounting and consulting firm. 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.
The term of office of each director continues until the next annual meeting
of the stockholders and until his or her successor is elected. Allan Wolk has an
employment agreement with URT (See "EXECUTIVE COMPENSATION--Employment
Contracts").
-14-
<PAGE>
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 2000 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 $100,000 and who served as executive
officers during the 2000 fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Long
Options/ Term
Stock Incen.
Other Restricted App. Plan All
Name and Fiscal Salary Bonus Annual Stock Rights Pay-outs Other
Position Year ($) ($) Compensation($) Award(s)($) (#) ($) Compensation($)
-------- ---- --- --- --------------- ----------- --- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan Wolk, 2000 539,597 -0- 86,190(1) -0- -0- -0- -0-
Chairman, 1999 546,849 -0- 100,169(1) -0- -0- -0- -0-
Pres. & CEO 1998 679,474 -0- 110,358(1) -0- -0- -0- -0-
</TABLE>
-------------
(1) Such amounts include life insurance premiums ($50,970 for the 2000 fiscal
year) and amounts credited to Mr. Wolk under his employment agreement
against amounts owed to URT.
Employment Contracts
Until March 31, 2000, Mr. Wolk was employed under an employment agreement
dated October 1, 1994 (the "1994 Agreement"). 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
replaced). 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. Mr. Wolk further agreed to forego an additional $94,450 in
compensation during the 2000 fiscal year, and agreed to forgo an additional
$37,203 in compensation during the 1999 fiscal year and $37,679 in compensation
during the 1998 fiscal year, thereby reducing his salary compensation during
such periods by such amounts.
-15-
<PAGE>
Pursuant to the arrangements described above under "BUSINESS-MANAGEMENT
AGREEMENTS", PEC paid a salary to Mr. Wolk in the amount described in such
section, and such amount was credited against the compensation so 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 on March 31, 2000 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
death, URT would be 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
-16-
<PAGE>
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 2000 fiscal year and the
date of this filing, the payment to Mr. Wolk would have been approximately $2
million.
The 1994 Agreement also permitted 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.
Following the expiration of the 1994 Agreement on March 31, 2000, URT and
Mr. Wolk have entered into negotiations with respect to a proposed new
employment agreement between them. URT and Mr. Wolk have also signed three
letter agreements with respect to the severance pay provisions of the 1994
Agreement which are described above. Pursuant to such agreements Mr. Wolk has
agreed not to assert his right to severance pay under such provisions before
December 1, 2000, provided that negotiations for a new employment agreement are
still ongoing, and URT has agreed that all of Mr. Wolk's rights under such
provisions of the 1994 Agreement are preserved. Should Mr. Wolk become entitled
to severance pay pursuant to such provisions by reason of any failure by URT to
agree to employ Mr. Wolk on terms no less favorable than those contained in the
1994 Agreement, such an occurrence would have a material impact on URT's
financial condition and results of operations.
Compensation Committee Interlocks
and Insider Participation
URT does not have a compensation committee or other board committee
performing equivalent functions. During the 2000 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 of URT's common stock which was owned by each person who, on June 1,
2000, owned, beneficially, more than 5% thereof, and the number of shares of
each class of such stock owned
-17-
<PAGE>
beneficially, directly or indirectly, by each executive officer and director and
by all directors and executive officers as a group on such date:
-18-
<PAGE>
Account & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
-------------- ---- ---------------- --------
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%
Class B Common Executive Officers
Stock, par value and Directors
$.01 per share
Allan Wolk 786,654(5) 58.4%
All officers and
directors as a
group (1 person) 786,654 58.4%
* Less than one percent.
--------
(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 Music, Inc.'s reported president and 100% shareholder, as
to which no confirmation of ownership has been made by URT's transfer agent. The
total of such 160,000 shares reported as owned by John T. Gervasoni and the
1,195,550 shares reported as owned by Scorpio Music Inc. is 1,355,550, or
approximately 12.5% of the outstanding URT Common A shares.
(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.
-19-
<PAGE>
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. In
September 1998, PEC entered in an addendum to lease with Allan Wolk and
Sheffield Wolk under which the following lease changes were agreed to: the
expiration date of such lease was extended for a period of five years, until
March 31, 2008, at an increased rental rate during such five year period; PEC
obtained an option to renew the lease for up to two successive five-year renewal
terms (until March 31, 2018), at further increased rental rates, if such options
are exercised; and the repair and fire insurance provisions were modified. The
lease addendum was approved by the directors who had no direct personal interest
in the transaction. In the opinion of management, the terms were as reasonable
as those which could have been obtained from unaffiliated third parties.
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 $160,000 during the five year period ending
March 31, 2000; 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 a specified
amount, 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.
In April, 2000, PEC's landlord, Allan Wolk and Sheffield Wolk, agreed with
PEC to extend the above-described Orlando, Florida lease to March 31, 2010, to
reduce the rent payable under the lease to $145,000 per year from April 1, 2000
through such revised expiration date, and to grant PEC the option to re-new the
lease for up to two successive five-year periods at a reduced rent of $152,250
per annum during the first five-year period and at a reduced rent of $159,862
per annum during the second five-year period. Such arrangements were approved by
the directors (Allan Wolk abstaining).
-20-
<PAGE>
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 permitted 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 has now been fully repaid. 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 Mr. Wolk's 1994 employment agreement with URT, Mr. Wolk was
entitled to be credited, as additional compensation the amount of $2,935 per
month during the period of his employment until the amount owed was repaid. As a
result of such arrangements, during the 2000 fiscal year, Mr. Wolk was credited
with a total of $35,220 with respect to the above-described indebtedness.
In April, 1989, URT's board of directors authorized URT to enter into
agreements with its 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 Chapter 11 Plan of Reorganization in
February, 1997, 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. 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. PEC agreed to reimburse to URT any amounts for which URT might become
liable pursuant to such guaranty on the part of URT. The loan from URT and the
agreement to reimburse URT for any guaranty-related indebtedness were secured by
a mortgage on PEC's Mobile, Alabama store.
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. On or about March 31, 1999, URT, in order to further
strengthen PEC's financial condition, agreed to forgive the remaining $350,000
principal balance, excluding interest. Such interest is payable at the prime
rate charged by Chase Manhattan Bank, N.A.
-21-
<PAGE>
On or about July 10, 1998, URT and its Chairman, Allan Wolk, agreed that,
effective as of October 1, 1997, Alan Wolk would be authorized to associate with
other companies, whether as director, officer, shareholder, employee or
otherwise, provided, however, that no such other company competes or transacts
any material amount of business with URT or its affiliates, and he continues to
devote so much of his working time to the business affairs of URT and PEC as may
be required to properly perform his duties to URT and PEC. Such arrangements
were approved by the directors (Allan Wolk abstaining).
On or about July 22, 1998, two of the directors and officers of URT and
PEC, Brian Wolk and Jason Wolk, each received from URT, in recognition of
substantial services provided to URT and PEC, 1,200,000 shares of the PEC common
stock owned by URT. Such shares were transferred subject to the condition that
if either such individual had voluntarily left the employ of PEC, or his
employment had been terminated by PEC for cause, during the 24 month period
ending July 21, 2000, then such individual would have been required to sell his
1,200,000 shares back to URT for the amount which the parties agreed to be the
value of such 1,200,000 shares upon execution of the agreement. Such condition
did not occur, with the result that the above- described shares are no longer
subject to any re-sale back to URT. The issuances of shares to Brian Wolk and
Jason Wolk were approved by the directors of URT (with the affected individual
abstaining as to the vote with respect to the arrangements with him).
On or about June 12, 2000, URT and PEC entered into an agreement under
which URT agreed that in the event that certain conditions were met, which
subsequently were met, and 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
year ending April 1, 2001, then URT would take any necessary action to see that
funds are available to cover any shortfalls up to April 1, 2001. Similar
arrangements were in place during the prior two fiscal years.
On or about September 15, 1998, URT loaned the sum of $150,000 to PEC. Such
amounts were repaid by PEC to URT on or about December 24, 1998. On or about
April 20, 1999, URT loaned the sum of $275,000 to PEC (the "April, 1999 loan").
Such amounts had been required to be repaid, without interest, on or before
December 29,1999. On or about August 1, 2000, URT and PEC entered into an
agreement under which the following arrangements were agreed to: PEC will use
its best efforts to obtain the approval of the holder of the first mortgage on
its Mobile, Alabama property to a proposed arrangement under which PEC would
transfer such Mobile, Alabama property to URT, URT would forgive the $275,000
debt owed by PEC to it pursuant to the April, 1999 loan, URT would be
responsible for the amounts owed pursuant to the outstanding loan from the
holder of such first mortgage in accordance with the same loan repayment
schedule which is already in place with PEC, PEC would remain responsible for
the amounts owed pursuant to the existing second and third mortgages to Allan
Wolk and URT, URT would lease the Mobile, Alabama property to PEC for a period
of ten years with a ten year renewal option at a rent of $90,000 per annum
($103,500 per annum during the renewal term, if any) and URT, upon satisfaction
of certain conditions, would deed over to Peaches a minority interest in such
property. Such agreement further provides that if the approval of the holder of
such first mortgage is not obtained by November 1, 2000, then URT and PEC shall
not pursue such proposed arrangements between them, and URT will instead extend
the date by which the April, 1999 loan must be repaid to September 1, 2001. In
anticipation of the possible approval of
-22-
<PAGE>
the holder of such first mortgage URT and PEC have entered into a lease, which
is expressly subject to such approval and the consummation of the
above-described proposed arrangements between URT and PEC, under which URT would
lease the Mobile, Alabama property to PEC on the terms and conditions described
above. Such arrangements were approved by the directors.
On or about May 11, 2000, URT's Chairman, Allan Wolk, loaned the sum of
$200,000 to PEC. Such loan is required to be repaid by PEC by no later than
December 20, 2000 with interest at the rate of 12% per annum. As security for
such loan, PEC agreed to provide a mortgage on its Mobile, Alabama store, and
URT, as an inducement to the loan of such funds on such terms, agreed to
subordinate its second mortgage with respect to such store to the mortgage so
granted to Mr. Wolk. Such arrangements were approved by the directors (Allan
Wolk abstaining).
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
Independent Auditors' Reports F-1
URT Industries, Inc. and Subsidiaries
Consolidated Financial Statements:
Consolidated Balance Sheets as
of April 1, 2000 and April 3, 1999 F-3
Consolidated Statements of Operations for each of the
years in the three year period ended April 1, 2000. F-4
Consolidated Statements of Shareholders' Equity for each
of the years in the three year period ended April 1, 2000. F-5
Consolidated Statements of Cash Flows for each of the
years in the three year period ended April 1, 2000. F-6
Notes to Consolidated Financial Statements. F-7
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
-23-
<PAGE>
notes thereto.
3. Exhibits.
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(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.
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(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.
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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 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, incorporated by reference to Exhibit 10(zzzz) of
URT's 10-K Annual Report dated July 13, 1998.
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10.1 Letter Agreement dated October 1, 1997 between URT and Allan Wolk
pertaining to services and salary of Allan Wolk, incorporated by
reference to Exhibit 10.1 of URT's 10-K Annual Report dated July 13,
1998.
10.2 Loan Forgiveness Agreement dated November 29, 1997 between URT and PEC,
incorporated by reference to Exhibit 10.2 of URT's 10-K Annual Report
dated July 13, 1998.
10.3 Letter Agreement dated May 26, 1998 between URT and PEC pertaining to
salary of Allan Wolk, incorporated by reference to Exhibit 10.3 of
URT's 10-K Annual Report dated July 13, 1998.
10.4 Letter Agreement dated May 26, 1998 between URT and Allan Wolk
pertaining to salary of Allan Wolk, incorporated by reference to
Exhibit 10.4 of URT's 10-K Annual Report dated July 13, 1998.
10.5 Letter Agreement dated July 9, 1998 between URT and PEC pertaining to
operating requirements during fiscal 1999, incorporated by reference to
Exhibit 10.5 of URT 10-K Annual Report dated July 13, 1998.
10.6 Stock Acquisition Agreement dated July 22, 1998 between URT and Brian
Wolk pertaining to shares acquired by Brian Wolk, incorporated by
reference to Exhibit 10.6 of URT's 10-K Annual Report dated July 26,
1999.
10.7 Stock Acquisition Agreement dated July 22, 1998 between URT and Jason
Wolk pertaining to shares acquired by Jason Wolk, incorporated by
reference to Exhibit 10.7 of URT's 10-K Annual Report dated July 26,
1999.
10.8 Letter Agreement dated as of October 1, 1997 between URT and Allan Wolk
pertaining to services of Allan Wolk, incorporated by reference to
Exhibit 10.8 of URT's 10-K Annual Report dated July 26, 1999.
10.9 Promissory Note dated September 15, 1998 made by PEC to URT, as payee,
incorporated by reference to Exhibit 10.9 of URT's 10-K Annual Report
dated July 26, 1999.
10.10 First Addendum to Lease dated September 30, 1998 between Allan Wolk and
Sheffield Wolk, as Landlord, and PEC, as tenant, pertaining to Ft.
Lauderdale Store, incorporated by reference to Exhibit 10.10 of URT's
10-K Annual Report dated July 26, 1999.
10.11 Loan Forgiveness Agreement dated November 29, 1998 between URT and PEC,
incorporated by reference to Exhibit 10.11 of URT's 10-K Annual Report
dated July 26, 1999.
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10.12 Letter Agreement dated December 23, 1998 between URT and PEC pertaining
to services of Allan Wolk, incorporated by reference to Exhibit 10.12
of URT's 10-K Annual Report dated July 26, 1999.
10.13 Letter Agreement dated December 23, 1998 between URT and Allan Wolk
pertaining to services of Allan Wolk, incorporated by reference to
Exhibit 10.13 of URT's 10-K Annual Report dated July 26, 1999.
10.14 Letter Agreement dated May 28, 1999 between URT and PEC pertaining to
operating requirements during fiscal 2000, incorporated by reference to
Exhibit 10.14 of URT's 10-K Annual Report dated July 26, 1999.
10.15 Promissory Note dated April 19, 1999 made by PEC to URT, as payee,
incorporated by reference to Exhibit 10.15 of URT's 10-K Annual Report
dated July 26, 1999.
10.16 Letter Agreement dated July 9, 1999 between URT and PEC pertaining to
salary of Allan Wolk, incorporated by reference to Exhibit 10.16 of
URT's 10-K Annual Report dated July 26, 1999.
10.17 Second Amendment to Lease dated April 1, 2000 between Allan Wolk and
Sheffield Wolk, as landlord, and PEC, as tenant, pertaining to Orlando
store, incorporated by reference to Exhibit 10.85 of PEC's 10-K Annual
Report dated October 25, 2000.
10.18 Promissory Note dated May 11, 2000 from PEC in favor of Allan Wolk
Individual Retirement Account Rollover, incorporated by reference to
Exhibit 10.86 of PEC's 10-K Annual Report dated October 25, 2000.
10.19 Mortgage with Assignment of Rents, Security Agreement and Fixture
Filing dated May 11, 2000 between PEC, as mortgagor, and Allan Wolk
Individual Retirement Account Rollover, as mortgagee, incorporated by
reference to Exhibit 10.87 of PEC's 10-K Annual Report dated October
25, 2000.
10.20 Subordination Agreement dated May 11, 2000 between PEC, URT and Allan
Wolk Individual Retirement Account Rollover, incorporated by reference
to Exhibit 10.88 of PEC's 10-K Annual Report dated October 25, 2000.
10.21 Letter Agreement dated July 10, 2000 between URT and Allan Wolk
pertaining to fiscal 2000 salary of Allan Wolk.
10.22 Letter Agreement dated July 11, 2000 between URT and Allan Wolk
pertaining to non-waiver of rights under 1994 employment agreement.
10.23 Letter Agreement dated August 1, 2000 between URT and PEC pertaining to
Mobile, Alabama property and 1999 loan from URT to PEC, incorporated by
reference to Exhibit 10.89 of PEC's 10-K Annual Report dated October
25, 2000.
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10.24 Letter Agreement dated August 28, 2000 between URT and Allan Wolk
pertaining to non-waiver of rights under 1994 employment agreement.
10.25 Letter Agreement dated April 14, 2000 between URT and PEC pertaining to
fiscal 2000 compensation payable by PEC to Allan Wolk, incorporated by
reference to Exhibit 10.90 of PEC's 10-K Annual Report dated October
25, 2000.
10.26 Lease Agreement dated August 1, 2000 between URT and PEC pertaining to
Mobile, Alabama property, incorporated by reference to Exhibit 10.91 of
PEC's 10-K Annual Report dated October 25, 2000.
10.27 Letter Agreement dated June 12, 2000 between URT and PEC pertaining to
operating requirements during the year ending April 1, 2001.
10.28 Letter Agreement dated October 27, 2000 between URT and Allan Wolk
pertaining to non-waiver of rights under 1994 employment agreement
22 Subsidiaries of URT.
27 Financial Data Schedule
(b) Reports on Form 8-K.
A Form 8-K dated March 29, 2000 was filed by URT on or about such date
for the purpose of reporting on URT's change of accountants.
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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, thereon to duly authorized.
URT INDUSTRIES, INC.
By: /s/ Allan Wolk
----------------------------
Allan Wolk,
Chairman of the Board
Dated: November 22, 2000
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 November 22, 2000
----------------------------
Allan Wolk,
Chairman of the Board ,
President (Principal
Executive Officer) and Director
By: /s/ Brian Wolk November 22, 2000
----------------------------
Brian Wolk, Executive
Vice President, Chief Legal
Officer and Director
By: /s/ Jason Wolk November 22, 2000
----------------------------
Jason Wolk, Executive
Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer), Treasurer,
Secretary and Director
