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 l934
For the fiscal year ended April 1, 1995 Commission File No. 0-12375
PEACHES ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-2166041
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3451 Executive Way, Miramar, Florida 33025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 432-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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 l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES NO X
--------- ---------
The aggregate market value (based on the average high and low, bid and asked
prices) of the voting stock held by non-affiliates of the registrant was, as of
May 30, 1995, approximately $377,800.
At May 30, l995, the registrant's transfer agent reported as issued and
outstanding:
19,781,270 Shares of Common Stock
<PAGE>
PART I
Item 1. BUSINESS
Peaches Entertainment Corporation ("PEC" or the "Company"), a Florida
corporation, was incorporated in March, 1982. Its executive offices are located
at 3451 Executive Way, Miramar, Florida 33025. Its telephone number is
305-432-4200. PEC is 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".
URT Industries, Inc. ("URT"), a Florida corporation, presently owns
approximately 87% of PEC's issued and outstanding shares of common stock and all
of its issued and outstanding shares of preferred stock and controls PEC. The
remaining approximately 13% of PEC's issued and outstanding shares of common
stock is owned by non-affiliated persons.
URT entered into the retail business in November, 1981 and since April,
1982, such business has been operated by PEC.
The Peaches Stores
The following table sets forth the number of 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 PEC's last five
complete fiscal years ended April 1, 1995:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Number of stores:
At beginning of period 20 21 22 21 20
Opened during period 1 0 0 2 2
Closed during period (2) (1) (1) (1) (1)
-- -- -- -- --
At end of period 19 20 21 22 21
Between April 1, 1995 and the date of this filing, PEC closed two
additional stores, leaving, at present, a total of 17 "Peaches" stores (the
"'Peaches' stores") in operation in five states. Such states are Florida (10
stores), Virginia (3 stores), North Carolina (2 stores), South Carolina (1
store)
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<PAGE>
and Alabama (1 store). PEC does not have any present plans to open any
additional stores during the 1996 fiscal year.
PEC leases all but one of its stores. It has options to renew most of
its leases for various periods. The utilized space of the stores ranges from
approximately 7,000 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.
Two of the Florida stores, one in Fort Lauderdale and the other in
Orlando, are currently leased from the Chairman of PEC and his brother, a former
director of PEC. The store in North Miami Beach, Florida is leased from two
directors and two children of such former director. See "Certain Relationships
and Related Transactions".
For information concerning real property owned by PEC, see
"Properties".
Trademarks
PEC is the registered owner of and owns nationwide rights to the
tradename, service mark and trademark "PEACHES" (the "Trademarks") in connection
with the operation of the Retail Business.
Operation of the Peaches Stores
The "Peaches" stores are all similar in appearance. They have distinct,
wood panelled interiors, are decorated in a manner which identifies them as
"Peaches" stores and carry a wide selection of prerecorded music as well as
recorded and blank video tapes, accessory items and specialty items such as
T-shirts and crates. Some stores are free standing and others are contiguous to
other stores in shopping centers. At present, each "Peaches" store is managed by
an individual director who is responsible for ordering, pricing and displaying
merchandise sold in the store, hiring and firing personnel and other matters
relating to store administration. PEC has implemented a computerized inventory
control system at each of its stores.
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<PAGE>
As of May 15, 1995, PEC purchased merchandise from approximately 54
suppliers, among whom the principal ones were BMG, CEMA, PGD, SONY, UNI and WEA.
Approximately 77% of the merchandise purchased during the fiscal year ended
April 1, 1995 (the "1995 fiscal year") came from such six principal suppliers.
Purchases from given suppliers are, to a great extent, determined by which of
them are manufacturing or distributing the most popular prerecorded music at a
given time. PEC is not obligated to purchase merchandise from any supplier. It
has numerous alternate sources of supply for inventory. The loss of any
particular supplier would not have a materially negative effect on PEC's results
of operations, although in some cases, the expenses would be greater if such
alternate sources were utilized. Merchandise is generally delivered directly by
suppliers to the stores.
The usual terms received from suppliers provide for payment to be made
within 60 days from the end of the month in which a purchase is 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,
without limitation, to all suppliers, who charge a slight penalty if returns
exceed certain percentages of the dollar amounts of gross purchases. Up to the
present time, the suppliers' return policies have not had any adverse effect on
PEC's business.
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. Based on
management's experience to date, retail business sales fluctuate during the year
and are generally at their highest levels during the holiday season, i.e.,
between October and December. During the last three fiscal years, sales between
January and March were approximately 24% of total sales for each year; sales
between April and June were approximately 23% of total sales; sales between July
and September were approximately 22% of total sales; and sales between October
and December were approximately 31% of total sales.
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<PAGE>
Competition
The retail sale of prerecorded music and video products is highly
competitive. There are hundreds of retail stores and department, discount and
variety stores and supermarkets which offer such merchandise to the public.
PEC's share of the retail market in the Southeastern United States is not
significant. Recently, in addition to usual competition, there has been a
proliferation of non-traditional music outlets, such as appliance and computer
retailers and superbookstores, some of whom have used very aggressive price
cutting tactics including selling some products below actual cost in order to
attract customers and sell non-music and video products.
Employees
As of May 5, 1995, PEC employed 339 persons in all capacities. It is
not a party to any collective bargaining agreements. Relations with employees
have been satisfactory and there have been no work stoppages.
Management Agreement Between URT and PEC
On April 3, 1994, when the 1995 fiscal year began, a management
agreement was in effect between URT and PEC (hereinafter, collectively, the "URT
Companies"). Such agreement provided that it would remain in effect through
March 30, 1996; that PEC would pay URT an annual fee of 3-1/2% of its net sales,
subject to a maximum amount of $1,400,000; that URT would provide PEC with the
services of Allan Wolk as president and chairman of PEC; that URT would pay PEC
for certain accounting and administrative services performed by PEC at the rate
of $39,600 per annum (subject to periodic equitable adjustment depending upon
the amount of such services); and that so long as URT and PEC filed consolidated
income tax returns, their respective liabilities for such taxes would be
equitably apportioned as provided in such agreement. Such agreement was amended
as of October 2, 1994 to provide that for the above described services, instead
of the compensation described above, PEC would be required to pay URT, in equal
weekly installments, a fee of $500,000 during the period from October 2, 1994
through April 1, 1995 and a fee at the rate of $750,000 per annum for the period
from April 2, 1995 until March 30, 1996. During both the 1994 and 1995 fiscal
years, Mr. Wolk devoted approximately 75% of his working time to the business of
PEC. As a result of the above-described arrangements, PEC paid URT a management
fee of $1,024,386 for the 1995 fiscal year, as compared to $1,263,010 for the
1994 fiscal year, and URT paid expenses as described above of approximately
$39,600 for each of such fiscal years.
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<PAGE>
Item 2. PROPERTIES
PEC's headquarters are located in Miramar, Florida in a building which
is leased by PEC. Such building contains a total of approximately 26,000 square
feet, approximately 11,000 square feet of which is office space and
approximately 15,000 square feet of which is warehouse 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. All
other "Peaches" stores are leased. For information concerning such other stores
operated by PEC, see "Business--The Peaches Stores".
During the 1995 fiscal year, PEC purchased land in Lafayette,
Louisiana, with the intention of constructing a store. However, it subsequently
decided not to construct a store and, after the end of such fiscal year, sold
the land for an amount approximately equal to its original purchase price.
Item 3. LEGAL PROCEEDINGS
In April, 1991, Service Merchandise Company, Inc. ("Service") commenced
an action against PEC in the North Carolina General Court of Justice, Superior
Court Division, Mecklenburg County, based on PEC's closing of a store which it
had leased in Charlotte, North Carolina and its refusal to pay rent with respect
to such store from and after February, 1991. Before closing the store, PEC had
attempted to sublease it to a subtenant, but Service refused to consent to the
sublease. In such action, Service sought a judgment for rent arrears plus its
reasonable attorneys' fees and expenses, and for an order requiring PEC to pay
the rent required to be paid under the lease through July 31, 1997, less any
amounts recovered from a current tenant or any subsequent occupant of such
premises. PEC asserted various defenses including the failure of Service to
mitigate damages by refusing to consent to the sublease of the premises by PEC
to a financially responsible and reputable company. Following a trial in
December, 1993, a judgment was issued in favor of Service in February, 1995, for
rent due to such date and PEC remains liable under the lease through July 31,
1997. Under such judgment PEC was ordered to pay the sum of $405,460 to
plaintiff, which amount was duly paid by PEC to Service in March, 1995.
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<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
PEC's Common Stock is quoted by market makers on the over-the-counter
market. The following table sets forth the high and low, bid and asked
quotations for PEC's common stock for the calendar periods indicated, based on
information supplied by the National Quotation Bureau, Incorporated:
Bid Prices Asked Prices
----------- ------------
High Low High Low
1993
- ----
Quarter ended March 31, 1/16 1/16 1/4 1/4
Quarter ended June 30, 1/16 1/16 1/4 1/4
Quarter ended Sept. 30, 1/16 1/16 1/4 1/4
Quarter ended Dec. 31, 1/16 1/16 5/16 1/4
1994
- ----
Quarter ended March 31, 1/16 1/16 5/16 1/4
Quarter ended June 30th, 1/16 1/16 5/16 1/4
Quarter ended Sept. 30, 1/16 .02 5/16 1/8
Quarter ended Dec. 31, 1/32 .02 9/32 .12
1995
- ----
Quarter ended March 31, 1/32 1/32 9/32 7/32
Quarter through May 30, 1/32 1/32 9/32 7/32
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.
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<PAGE>
Dividends
There has been no payment of dividends on PEC's Common Stock since its
inception and payment of dividends on such stock in the future will depend on
its earnings and needs. PEC is required to pay dividends on its outstanding
shares of preferred stock.
Approximate Number of Equity Security Holders
The following table indicates the approximate number of holders of
record of each class of PEC's common equity securities as of May 30, 1995, based
on information supplied by PEC's transfer agent:
Number of Record
Title of Class Holders
-------------- ----------------
Common Stock, $.01 par value 1,578
-8-
<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, 1995 April 2, 1994 April 3, 1993(1) March 28, 1992 March 30, 1991
------------- ------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Net sales $ 31,960,953 36,303,455 37,861,389 35,565,512 35,514,312
Net income (loss) (1,995,408) (108,456) 296,426 (328,890) 732,820
Income (loss) per common share (0.10) (0.01) 0.01 (0.02) 0.03
Weighted average number of common shares
outstanding 19,781,270 19,781,270 19,781,270 19,781,270 19,781,270
Balance sheet data:
Working capital 2,058,184 3,550,371 3,514,978 2,679,448 2,885,666
Total assets 11,224,889 13,390,533 14,025,154 12,698,325 12,988,122
Current portion of long-term
obligations 110,028 131,173 174,579 188,524 65,139
Long-term obligations 929,654 705,109 836,282 1,010,861 858,117
Shareholders' equity 3,890,277 5,945,685 6,114,141 5,877,715 6,266,605
Store data:
Weighted average square feet of selling
space 130,157 137,145 139,850 145,279 136,473
Weighted average sales per square foot of
selling space 246 265 271 245 260
Number of stores open at end of period 19 20 21 22 21
</TABLE>
There were no cash dividends declared for common stock in any of the periods
presented.
(1) Includes 53 weeks of operations.
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 1, 1995 (1995) COMPARED TO FISCAL YEAR ENDED APRIL 2,
1994 (1994)
Net sales for 1995 decreased 12.0% compared to 1994. Such decrease is attributed
to an 8.2% decrease in comparable store sales, and a 3.8% decrease in sales in
those stores that opened or closed during 1995 versus 1994.
During the last few years, non-traditional music retailers such as appliance and
computer retailers and super bookstores have begun to sell prerecorded music and
video products. They have adopted policies of selling music product at near or
below wholesale cost as a means of attracting customers to sell other products.
During the current fiscal year, the effect of this competition was encountered
in some of our markets and will be expanded to some others in the future. The
Company has reduced prices which has resulted in lower sales and lower gross
profit. The Company believes that it will remain competitive due to its
locations, selection of product and superior customer service.
The cost of sales for 1995 was lower than that for 1994 due to the decrease in
net sales. Cost of sales as a percentage of net sales has increased from 62.7%
in 1994 to 63.7% in 1995 due to a reduction in retail pricing in an effort to
meet the increased competition.
Selling, general, and administrative (SG&A) expenses in 1995 decreased 6.3%
compared to 1994. Such decrease is attributable to a decrease in comparable
store expenses (1.1%), a decrease in store operating expenses of stores that
opened or closed during 1995 versus 1994 (2.9%), a decrease in corporate
overhead (1.9%), and a decrease in the cost of store openings (0.4%). SG&A
expenses, as a percentage of net sales increased from 33.7% in 1994 to 35.8% in
1995 due to the fixed nature of certain expenses and the decrease in net sales
in addition to the aforementioned items.
Store closing costs increased in 1995 over 1994 due to the fact that the cost of
closing 1 store is included in 1994, and the cost of closing 4 stores is
included in 1995.
In 1994, the Company adopted the provisions of Financial Standards No. 109 (SFAS
109) "Accounting for Income Taxes," which established new financial accounting
and reporting standards for income taxes. Such adoption resulted in a cumulative
adjustment of approximately $74,000 of income which has been reflected in the
statement of operations for 1994.
The Company incurred a net loss of approximately $1,995,000 in 1995 versus a net
loss of approximately $108,000 in 1994 due to costs of closing 4 stores, the
loss on litigation, and the reduction in net sales and gross profit as described
above.
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<PAGE>
FISCAL YEAR ENDED APRIL 2, 1994 (1994) COMPARED TO FISCAL YEAR ENDED APRIL 3,
1993 (1993)
Net sales for 1994 decreased 4.1% compared to 1993. Such decrease is attributed
to the fact that 1993 included 53 weeks of operations (1.7%), a decrease in
comparable store sales (1.6%), store closings due to inclement weather (0.3%)
and a decrease in sales in those stores that opened or closed during 1994 versus
1993 (0.5%).
The cost of sales for 1994 was lower than that for 1993 due to decreased net
sales. Cost of sales as a percentage of net sales for both 1994 and 1993 was
62.7%.
Selling, general, and administrative (SG&A) expenses in 1994 increased 1.8%
compared to 1993. Such increase is attributable to an increase in comparable
store expense (1.9%) an increase in corporate overhead (1.6%), an increase in
the cost of store openings (0.8%), offset by a decrease in store expenses that
opened or closed during 1994 versus 1993 (1.5%), and a decrease due to the fact
that 1993 included 53 weeks of operations (1.0%). SG&A expenses, as a percentage
of net sales increased from 31.8% in 1993 to 33.7% in 1994 due to the fixed
nature of certain expenses and the decrease in net sales in addition to the
aforementioned items.
In 1994, the Company adopted the provisions of Financial Standards No. 109 (SFAS
109) "Accounting for Income Taxes," which established new financial accounting
and reporting standards for income taxes. Such adoption resulted in a cumulative
adjustment of approximately $74,000 of income which has been reflected in the
statement of operations for 1994.
The Company incurred a net loss of approximately $108,000 in 1994 versus net
income of approximately $296,000 in 1993 due to the decrease in net sales and an
increase in certain SG&A expenses as discussed above, Approximately $55,000 of
net income in 1993 is due to the fact that 1993 included 53 weeks of operations.
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<PAGE>
FISCAL YEAR ENDED APRIL 1, 1993 (1993) COMPARED TO FISCAL YEAR ENDED MARCH 28,
1992 (1992)
Net sales for 1993 increased 6.4% compared to 1992. Such increase is
attributable to the fact that 1993 included 53 weeks of operations (1.8%), an
increase in comparable store sales (3.8%), and an increase in sales in those
stores that opened or closed during 1993 versus 1992 (0.8%).
Cost of sales for 1993 increased compared to 1992 due primarily to increased
sales volume as described above. Cost of sales as a percentage of net sales for
1993 (62.7%) was lower than that for 1992 (63.7%) due to the amortization of
$131,000 relating to the cost of video cassettes which were test marketed and
discounted in 1992.
Selling, general, and administrative (SG&A) expenses for 1993 decreased 0.7%
compared to 1992. Such decrease is attributed to a decrease in expenses of
comparable stores (3.4%), an increase in expenses of stores opened or closed in
1993 versus 1992 (1.0%), an increase attributable to the fact that 1993 included
53 weeks of operations (1.0%), an increase in corporate overhead (1.2%), and a
decrease in expenses incurred in connection with the opening of stores (0.5%).
SG&A expenses, as a percentage of net sales decreased from 34.1% in 1992 to
31.8% in 1993 due to the fixed nature of certain expenses and the increase in
net sales.
Store closing costs increased in 1993 over 1992 because the costs incurred with
the closing of the store due to Hurricane Andrew in 1993 was higher than the
negligible cost of closing the store in 1992.
The Company achieved net income of approximately $296,000 in 1993 versus a net
loss of approximately $329,000 in 1992 due to the increase in net sales which
was partially offset by the increases in certain SG&A expenses as discussed
above. Approximately $55,000 of net income in 1993 is due to the fact that 1993
included 53 weeks of operations.
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<PAGE>
Liquidity and Capital Resources
The Company had working capital of $2,058,184 at April 1, 1995 compared to
working capital of $3,550,371 at April 2, 1994 and a current ratio (the ratio of
total current assets to total current liabilities) of 1.35 to 1 at April 1, 1995
compared to a current ratio of 1.57 to 1 at April 2, 1994.
The Company has historically maintained a strong cash position and management
believes that this will continue in the future.
At April 1, 1995, the Company had long-term obligations of $929,654. Management
anticipates that its ability to repay its long-term obligations will be
satisfied primarily through funds generated from its operations.
Management believes that the Company has excellent relationships with its banks
and suppliers and does not anticipate any significant difficulties in financing
operations at current levels.
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations and the opening of any new stores during the next few years.
Inflation trends have not had an impact upon revenues because increases in costs
have been passed along to customers.
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third fiscal quarter, which includes the Christmas
selling season.
The Company has 2,500 shares of $100 par, 11%, Series A Cumulative Preferred
Stock and 2,500 shares of $100 par 13%, Series B Cumulative Preferred Stock,
issued, and outstanding. On an annual basis, the Company pays dividends of
$60,000 to its preferred shareholders based on its dividend requirements.
In July 1995, the Company will be selling its leasehold in a store to the
landlord for $325,000.
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<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KPMG Peat Marwick LLP
One Biscayne Tower Telephone 305 358 2300 Telefax 305 577 0544
Suite 2900
2 South Biscayne Boulevard
Miami, FL 33131
Independent Auditors' Report
Directors and Shareholders
Peaches Entertainment Corporation
Miramar, Florida:
We have audited the accompanying balance sheets of Peaches Entertainment
Corporation as of April 1, 1995 and April 2, 1994, and the related statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended April 1, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 Peaches Entertainment
Corporation as of April 1, 1995 and April 2, 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended April 1, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
June 9, 1995
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Balance Sheets
April 1, 1995 and April 2, 1994
Assets 1995 1994
---- ----
Current assets:
Cash and cash equivalents $ 1,537,293 3,610,205
Inventories 5,578,737 5,842,316
Prepaid expenses and other current assets 289,413 316,521
Land held for sale (note 9) 300,000 --
Refundable income taxes 257,229 36,000
----------- -----------
Total current assets 7,962,672 9,805,042
Property and equipment, net (notes 2 and 3) 3,072,869 3,011,842
Deferred income taxes (note 8) -- 337,321
Other assets 189,348 236,328
----------- -----------
$11,224,889 13,390,533
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable (note 10) -- 75,000
Current portion of long-term
obligations (note 3) 110,028 131,173
Accounts payable 4,130,530 4,614,580
Accrued liabilities (note 4) 1,663,930 1,433,918
----------- -----------
Total current liabilities 5,904,488 6,254,671
Long-term obligations (note 3) 929,654 705,109
Deferred rent 500,470 485,068
----------- -----------
7,334,612 7,444,848
----------- -----------
Shareholders' equity (note 6):
Preferred stock, $100 par value;
50,000 shares authorized;
5,000 shares issued and outstanding 500,000 500,000
Common stock, $.01 par value;
40,000,000 shares authorized;
20,107,850 shares issued;
19,781,270 shares outstanding 201,079 201,079
Additional paid-in capital 1,284,471 1,284,471
Retained earnings 1,964,622 4,020,030
----------- -----------
3,950,172 6,005,580
Treasury stock, 326,580 common shares,
at cost (59,895) (59,895)
----------- -----------
Total shareholders' equity 3,890,277 5,945,685
Commitments and contingencies (note 5)
----------- -----------
$11,224,889 13,390,533
=========== ===========
See accompanying notes to financial statements.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Operations
For each of the years in the three-year period ended April 1, 1995
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 31,960,953 36,303,455 37,861,389
------------ ------------ ------------
Costs and expenses:
Cost of sales 20,347,493 22,762,742 23,750,684
Selling, general and administrative expenses 11,473,660 12,245,048 12,034,086
Store closing costs 548,701 278,377 229,882
Loss on litigation (note 5) 431,692 -- --
Management fees 1,024,386 1,263,010 1,321,967
------------ ------------ ------------
33,825,932 36,549,177 37,336,619
------------ ------------ ------------
Income (loss) from operations (1,864,979) (245,722) 524,770
------------ ------------ ------------
Other (expense) income:
Interest expense (82,332) (88,971) (107,487)
Interest income 48,891 58,522 69,143
------------ ------------ ------------
(33,441) (30,449) (38,344)
------------ ------------ ------------
Income (loss) before provision
(benefit) for income taxes
and cumulative effect of
change in accounting for
income taxes (1,898,420) (276,171) 486,426
Provision (benefit) for income taxes (note 8) 96,988 (94,000) 190,000
------------ ------------ ------------
Income (loss) before cumulative
effect of change in
accounting for income taxes (1,995,408) (182,171) 296,426
Cumulative effect of change in accounting for
income taxes -- 73,715 --
------------ ------------ ------------
Net income (loss) $ (1,995,408) (108,456) 296,426
============ ============ ============
Net income (loss) per common share:
Income (loss) before cumulative effect of
change in accounting for income taxes (.10) (.01) .01
Cumulative effect of change in accounting for
income taxes -- -- --
------------ ------------ ------------
Net income (loss) per common share $ (.10) (.01) .01
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Shareholders' Equity
For each of the years in the three-year
period ended April 1, 1995
<TABLE>
<CAPTION>
Preferred stock Common stock Treasury stock Capital
---------------- -------------------- ----------------- in excess Retained
Shares Amount Shares Amount Shares Amount of par earnings Total
-------- ------ ------ ------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 28, 1992 5,000 $500,000 20,107,850 $201,079 326,580 $(59,895) 1,284,471 3,952,060 5,877,715
Net income -- -- -- -- -- -- -- 296,426 296,426
Payment of preferred
stock dividend to
Parent ($0.12 per share) -- -- -- -- -- -- -- (60,000) (60,000)
----- -------- ---------- -------- ------- -------- --------- ---------- ----------
Balance, April 3, 1993 5,000 500,000 20,107,850 201,079 326,580 (59,895) 1,284,471 4,188,486 6,114,141
Net loss -- -- -- -- -- -- -- (108,456) (108,456)
Payment of preferred
stock dividend to
Parent ($0.12 per share) -- -- -- -- -- -- -- (60,000) (60,000)
----- -------- ---------- -------- ------- -------- --------- ---------- ----------
Balance, April 2, 1994 5,000 500,000 20,107,850 201,079 326,580 (59,895) 1,284,471 4,020,030 5,945,685
Net loss -- -- -- -- -- -- -- (1,995,408) (1,995,408)
Payment of preferred
stock dividend to
Parent ($0.12 per share) -- -- -- -- -- -- -- (60,000) (60,000)
----- -------- ---------- -------- ------- -------- --------- ---------- ----------
Balance, April 1, 1995 5,000 $500,000 20,107,850 $201,079 326,580 $(59,895) 1,284,471 1,964,622 3,890,277
===== ======== ========== ======== ======= ======== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows
For each of the years in the three-year period ended April 1, 1995
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,995,408) (108,456) 296,426
----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation and amortization 559,450 518,240 508,803
Loss on abandonment of leasehold improvements -- 141,828 --
Deferred income taxes 337,321 (133,715) (32,000)
Changes in assets and liabilities affecting
cash flows from operating activities:
(Increase) decrease in:
Inventories 263,579 188,165 (228,081)
Prepaid expenses and other current
assets 27,108 58,223 196,604
Refundable income taxes (221,229) (36,000) 94,000
Other assets 46,980 (65,985) (3,974)
Increase (decrease) in:
Accounts payable (484,050) (402,842) 828,079
Accrued liabilities 230,012 30,781 275,870
Long-term obligations 334,573 -- --
Income taxes payable -- (45,659) 45,659
Deferred rent 15,402 51,134 129,319
----------- ----------- -----------
Total adjustments 1,109,146 304,170 1,814,279
----------- ----------- -----------
Net cash (used in) provided by
operating activities (886,262) 195,714 2,110,705
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (920,477) (176,480) (67,845)
Involuntary conversion of property and equipment from
Hurricane Andrew -- -- 239,380
----------- ----------- -----------
Net cash (used in) provided by
investing activities (920,477) (176,480) 171,535
----------- ----------- -----------
Cash flows from financing activities:
Increase in notes payable -- 75,000 --
Repayment of note payable (75,000) -- --
Repayment of long-term debt (131,173) (174,579) (188,524)
Dividends paid (60,000) (60,000) (60,000)
----------- ----------- -----------
Net cash used in financing
activities (266,173) (159,579) (248,524)
----------- ----------- -----------
</TABLE>
(Continued)
-18-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash
and cash equivalents $(2,072,912) (140,345) 2,033,716
Cash and cash equivalents, beginning of year 3,610,205 3,750,550 1,716,834
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,537,293 3,610,205 3,750,550
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during
the period for:
Interest $ 82,332 88,971 107,487
=========== =========== ===========
Income taxes, net of refunds $ (19,104) 63,651 82,761
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 1, 1995, April 2, 1994 and April 3, 1993
(1) Business and Summary of Significant Accounting Policies
(a) Business
Peaches Entertainment Corporation (the "Company") is engaged in the
business of retailing prerecorded music, video and accessory items,
principally in the southeastern United States.
The Company is an 87%-owned subsidiary of URT Industries, Inc. (the
"Parent").
(b) Fiscal Year
The Company's fiscal year consists of the 52 or 53 weeks ending on the
Saturday closest to the end of March. The fiscal years ended April 1,
1995, April 2, 1994 and April 3, 1993 consisted of 52 weeks, 52 weeks
and 53 weeks, respectively.
(c) Cash Equivalents
The Company considers highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Cash equivalents totaled approximately $89,000 and $1,819,000 at April
1, 1995 and April 2, 1994, respectively.
The Company has an agreement to purchase securities overnight under
agreements to resell ("repos"). At April 1, 1995 and April 2, 1994,
the outstanding repos, included above, approximated $37,000 and
$990,000, respectively, which approximated market. The repos are
collaterized by U.S. Government and agency securities.
(d) Inventories
Inventories, comprised of compact discs, cassettes, videos and
accessories, are stated at the lower of cost (principally average)
including freight in, or market.
(e) Property and Equipment
Property and equipment are stated at cost. The assets are depreciated
over their estimated useful lives ranging from 5 to 31-1/2 years using
both straight-line and accelerated methods. The Company's policy is to
retire assets from its accounts as they become fully depreciated.
(f) Income Taxes
The Company files a consolidated income tax return with its Parent.
Any applicable tax charges or credits are allocated to the Company on
a separate return basis. 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.
(Continued)
-20-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Effective April 4, 1993, the Company adopted the provisions of
Financial Accounting Standards Board's SFAS No. 109, Accounting for
Income Taxes and has reported the cumulative effect of that change in
the method of accounting for income taxes in the statements of
operations. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. 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.
(g) Income (Loss) Per Common Share
Income (loss) per common share was computed by dividing net income
(loss) after deducting preferred dividend requirements by the weighted
average number of common shares outstanding during the years. The
weighted average number of common shares outstanding was 19,781,270
for the years ended April 1, 1995, April 2, 1994 and April 3, 1993.
(h) Store Closing Costs
Store closing costs are recorded in the period the Company decides to
close the store. Such costs include the book value of abandoned
leasehold improvements, provision for the present value of future
lease obligations, less estimated sub-rental income as well as other
costs incident to the store closing.
(i) Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
(2) Property and Equipment
Property and equipment consist of the following at April 1, 1995 and April
2, 1994:
1995 1994
---- ----
Land $ 395,570 395,570
Building 538,093 538,093
Leasehold improvements 3,356,279 3,063,957
Furniture and equipment 1,587,697 1,504,660
Building under capitalized lease (note 3) 206,964 206,964
----------- -----------
6,084,603 5,709,244
Less accumulated depreciation and amortization (3,011,734) (2,697,402)
----------- -----------
$ 3,072,869 3,011,842
=========== ===========
(Continued)
-21-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(3) Long-term Obligations
Long-term obligations consists of the following at April 1, 1995 and April
2, 1994:
1995 1994
---- ----
Capital lease obligation, due in
monthly installments of $3,382,
including interest at 17.5%; final
payment due March 2005 $ 191,096 197,605
Mortgage payable, due in equal
installments of $2,981 per month,
including interest at prime plus
0.5%; collateralized by the
mortgaged property with depreciated
cost of $836,297; final balloon
payment of $427,500 due September 1997 514,013 549,788
Lease obligation on closed store, net
of sublease rentals, including
interest at 10%, payable in monthly
installments until November 2004 334,573 --
Note payable, with interest at 10%;
repaid December 1994 -- 88,889
----------- -----------
1,039,682 836,282
Less current portion (110,028) (131,173)
----------- -----------
$ 929,654 705,109
=========== ===========
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 $99,000 for each of the years in the three-year period ended
April 1, 1995.
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year Amount
----------- ------
1996 $ 40,600
1997 40,600
1998 40,600
1999 40,600
2000 40,600
Thereafter 202,760
--------
Total minimum lease payments 405,760
Less amount representing interest 214,664
--------
Present value of minimum lease payments $191,096
========
(Continued)
-22-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Maturities of long-term obligations, excluding the capital lease
obligation, to maturity, are as follows:
Fiscal year Amount
----------- ------
1996 $102,284
1997 519,818
1998 37,639
1999 32,968
2000 35,021
Thereafter 120,856
--------
$848,586
========
In addition, the Company has a standby letter of credit of $64,800
available to a landlord that was not drawn upon as of April 1, 1995. The
letter of credit is fully collateralized by a certificate of deposit, which
is included in other assets.
(4) Accrued Liabilities
Accrued liabilities consist of the following at April 1, 1995 and April 2,
1994:
1995 1994
---- ----
Gift certificate and credit slip liability $ 484,501 426,547
Other 1,179,429 1,007,371
---------- ---------
$1,663,930 1,433,918
========== =========
(5) Commitments and Contingencies
(a) Leases
The Company is a lessee under various operating leases, several of
which provide for percentage rent. An insignificant amount of
percentage rent was incurred in each of the years in the three-year
period ended April 1, 1995. Most of the leases contain renewal
options.
The aggregate minimum rental commitments under all noncancelable
operating leases are as follows:
Fiscal year Amount
----------- ------
1996 $1,781,240
1997 1,664,207
1998 1,543,502
1999 1,340,440
2000 1,181,966
Thereafter 5,799,015
-----------
$13,310,370
===========
(Continued)
-23-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Rental expense under noncancelable operating leases, included in
selling, general and administrative expenses in the accompanying
statements of operations amounted to $2,367,765, $2,531,000 and
$2,559,000, respectively, for each of the years in the three-year
period ended April 1, 1995.
Rental expense on two stores owned by two directors and/or their
relatives was $234,000 for each of the years in the three-year period
ended April 1, 1995.
(b) Legal Matters
The Company has been party to a lawsuit involving the Company's
closing of a store which it had leased in Charlotte, North Carolina
and its refusal to pay rent with respect to such store from and after
February, 1991. In February 1995, the court entered a judgment
ordering the Company to pay the sum of $405,460 to plaintiff. The
Company recorded a charge to operations for the year ended April 1,
1995 related to the loss on such litigation and paid such amount in
March 1995.
(c) Employment Agreement
As amended October 1, 1994, the Company entered into an amended and
restated employment agreement (the agreement) with an officer which
expires September 30, 1996 unless sooner terminated. The average
annual base compensation under such agreement is approximately
$242,000. The Company also agreed to engage the officer as a
consultant during the period from the date immediately following the
period of employment until September 3, 2005, with average annual base
compensation of approximately $81,000. The employment agreement
provides such officer with the use of an automobile, full medical
coverage and reimbursement for life insurance policies.
(d) Management Agreement
For the year ended April 3, 1993, the Company paid management fees to
its Parent ("URT") for specified corporate services at the rate of
3.5% of net sales and certain expenditures of URT. The management fee
agreement was in effect until March 28, 1993.
On March 29, 1993, the Company entered into a management and
intercorporate agreement with URT whereby (i) the Company was required
to pay URT an annual fee of 3.5 percent of its net sales, subject to a
maximum amount of $1,400,000; (ii) URT was required to provide the
Company with the services of the person who is the president and
chairman; (iii) URT was required to pay the Company for certain
accounting and administrative services performed by the Company at the
rate of $39,600 per annum (subject to periodic equitable adjustment
depending upon the amount of such services); and (iv) so long as URT
and the Company filed consolidated income tax returns, their
respective liabilities for such taxes would be equitably apportioned
as provided in such agreement.
(Continued)
-24-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
The March 29, 1993 agreement was amended to provide that for the above
described services, instead of the compensation described above, the
Company would be required to pay URT $500,000 from October 1, 1994
through April 1, 1995 and $750,000 from April 2, 1995 until March 30,
1996.
(6) Shareholders' Equity
For each of the years in the three-year period ended April 1, 1995, the
Company had 2,500 shares of $100 par, 11%, Series A Cumulative Preferred
Stock and 2,500 shares of $100 par, 13%, Series B Cumulative Preferred
Stock authorized, issued and outstanding. The Company can issue up to
50,000 shares of preferred stock, and the directors have the authority to
issue such shares in one or more additional series. Each share of Series A
and Series B Cumulative Preferred Stock is entitled to one vote and has the
same voting powers as the common stock, except that all matters on which
the vote of shareholders is required must, in order to be approved, receive
the requisite vote of either (i) both the Series A and Series B, voting as
separate classes or (ii) the common stock and either the Series A or Series
B, voting as separate classes. The shares of Series A stock may be
convertible into shares of the Company's common stock upon the holders'
compliance with certain surrender and notice provisions. The conversion
price should be the higher of (a) the market value of a share of common
stock or (b) the net worth per share of common stock of the Company as of
the date of the most recent balance sheet filed with the Securities and
Exchange Commission prior to the conversion date. In no event shall the
conversion price be less than $.10 per share. The liquidating value for
both the Series A and Series B shares is par value plus all accrued and
unpaid dividends.
(7) Pension Plan
Effective September 15, 1994, the Company decided to curtail its
noncontributory defined benefit plan which it had maintained with its
Parent. As a result of this curtailment all future benefit accruals were
eliminated and accrued benefits became fully vested.
The following table sets forth the plan's funded status at April 1, 1995
and April 2, 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$833,486 in 1995 and $679,896 in 1994 $(833,486) (699,785)
========= =========
Projected benefit obligation for service rendered to date (833,486) (946,487)
Plan assets at fair value 852,982 931,885
--------- ---------
Plan assets less than projected benefit obligation 19,496 (14,602)
Unrecognized amounts:
Net (gain) loss 19,033 (68,573)
Prior service costs -- 24,282
Obligation at transition -- 52,768
--------- ---------
Accrued pension costs $ 38,529 (6,125)
========= =========
</TABLE>
(Continued)
-25-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Net pension cost for each of the years in the three-year period ended April
1, 1995 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 13,330 128,990 125,369
Interest cost on projected benefit obligation 83,137 62,124 48,453
Actual return on plan assets (43,011) (50,905) (17,980)
Net amortization and deferral (9,854) 1,022 (32,884)
--------- --------- ---------
Net periodic pension cost $ 43,602 141,231 122,958
========= ========= =========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 5.75% and 8.0% and 0% and 4.5%, as of
April 1, 1995 and April 2, 1994, respectively. The expected long-term rate
of return on assets was 7.0%.
(8) Income Taxes
The provision (benefit) for income taxes consists of:
1995 1994 1993
---- ---- ----
Current:
Federal $(240,333) (36,000) 203,000
State -- -- 19,000
--------- --------- ---------
(240,333) (36,000) 222,000
Deferred:
Federal 291,834 (58,000) (40,000)
State 45,487 -- 8,000
--------- --------- ---------
337,321 (58,000) (32,000)
--------- --------- ---------
$ 96,988 (94,000) 190,000
========= ========= =========
Reasons for differences between income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate of 34% to pretax
income (loss) were:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income tax (benefit) at applicable statutory tax
rate of income before income taxes $(645,000) (94,000) 167,000
Add:
State income tax expense (benefit), net of
Federal benefit (79,000) -- 18,000
Change in valuation allowance 811,258 -- --
Other 9,730 -- 5,000
--------- --------- ---------
Income tax provision (benefit) for the year $ 96,988 (94,000) 190,000
========= ========= =========
</TABLE>
(Continued)
-26-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Deferred income tax benefit resulting from timing differences in the
recognition of revenue and expense for tax and financial purposes for the
year ended April 3, 1993 were as follows:
1993
----
Book over (under) tax depreciation on
property and equipment $ (1,000)
Capitalization of inventory costs (2,000)
Excess of book over tax rent expense 53,000
State tax benefit (14,000)
Other (4,000)
--------
$ 32,000
========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at April 1, 1995 and April 2, 1994 are
presented below.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to additional costs
capitalized for tax purposes $ 50,051 47,500
Property and equipment, net, principally due to
differences in depreciation 187,037 138,811
Accrued rent, principally due to accrual for financial
reporting purposes 202,758 179,474
Provision for store closings 208,114 --
NOL carryforward 126,026 --
Other 89,272 23,536
--------- ---------
Total gross deferred tax assets 863,258 389,321
Less valuation allowance (863,258) (52,000)
--------- ---------
Net deferred tax assets $ -- 337,321
========= =========
</TABLE>
At April 1, 1995, the Company has a net operating loss carryfoward for
federal income tax purposes of $126,026 which is available to offset future
federal taxable income, if any, through 2010.
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.
(9) Sale of Land
On May 17, 1995, the Company sold an unimproved parcel of land in
Lafayette, Louisiana. As of April 1, 1995, the net book value of the land
approximated the sales price.
(Continued)
-27-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(10) Store Closings
During 1993, the Company closed the Cutler Ridge, Florida store which was
destroyed by Hurricane Andrew and entered into an agreement with the
landlord to terminate the lease. The costs associated with the closing are
included in store closing costs for the year ended April 3, 1993.
During 1994, the Company closed the Aventura, Florida store and entered
into an agreement to terminate the lease. The costs associated with the
closing are included in store closing costs for the year ended April 2,
1994. As part of the agreement to terminate the lease, the Company executed
a note to the former landlord in the amount of $75,000 payable in twelve
monthly installments through March 1995.
The Company recorded a charge relating to four store closings of
approximately $595,500 for the year ended April 1, 1995. The charge
includes the write-off of leasehold improvements, loss incurred due to the
present value of future lease obligations, less estimated sub-rental income
and other costs incident to the store closings, offset by approximately
$47,000 of deferred rent.
-28-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of PEC are:
Name Position Age
---- -------- ---
*Allan Wolk Chairman of the Board,
President, Chief
Executive Officer and
Director 57
*David Jackowitz Executive Vice-President,
Treasurer and Director 54
*Ann Krouse Director 48
*Brian Wolk Vice-President and Director 29
*Jason Wolk Vice-President and Director 27
Allan Wolk has been the Chief Executive Officer and a director of PEC since
its formation in 1982. He has also been the Chief Executive Officer of URT since
its formation. He has been engaged in the prerecorded music business for more
than 35 years, principally in the rack merchandising and retail segments
thereof.
David Jackowitz has been the Executive Vice-President and a director of PEC
since its formation. He was employed by URT from 1970 to 1991, when he became an
employee of PEC. He has been the President of URT since 1978. Prior to his
employment by URT, he was principally engaged as a certified public accountant.
- ----------
* Each of the indicated individuals is also a director of URT and, except for
Ann Krouse, an executive officer of URT.
-29-
<PAGE>
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 has been a director of URT and PEC since 1994
and a vice-president of both companies since June of 1995.
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. Prior to his full time employment by
the URT Companies, he had been employed as an accountant by KPMG Peat Marwick.
He has been a director of URT and PEC since 1994 and a vice-president and the
secretary of both companies since June of 1995.
Ann Krouse has been a director of PEC since February, 1983. She has
been Executive Vice-President of Educational Communications, Inc., an
unaffiliated company, which is a biographical publisher in Illinois, for more
than five years.
Ann Krouse is Allan Wolk's sister. Brian Wolk and Jason Wolk are his
sons.
The term of office of each director continues until the next meeting of
the stockholders and until his or her successor is elected. Mr. Wolk and Mr.
Jackowitz have employment agreements with URT and PEC, respectively (See
"Executive Compensation--Employment Contracts"). Under the management agreement
referred to above, PEC has the right to use the services of Mr. Wolk. (See
"Business--Management Agreement Between URT and PEC").
Item 11. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by PEC for
services rendered in all capacities to it during the 1995 fiscal year and the
two prior fiscal years to (i) PEC's chief executive officer ("CEO") and (ii)
each of the other most highly compensated executive officers of PEC whose cash
compensation exceeded $100,000.
-30-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------ ---------------------------------
Awards Payouts
---------------------- --------
Long
Options/ Term
Other Stock. Incen. All
Annual Restricted App. Plan Other
Name and Fiscal Salary Bonus Compensa- stock Rights Pay-outs Compensa-
position Year ($) ($) tion($) award(s)($) (#) ($) tion($)
- -------- ---- ------ ----- --------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan
Wolk, 1995 -0-(1) -0- -0-(1) -0- -0- -0- -0-
Chairman 1994 -0-(1) -0- -0-(1) -0- -0- -0- -0-
& CEO 1993 -0-(1) -0- -0-(1) -0- -0- -0- -0-
David 1995 289,897 -0- (3) -0- -0- -0- -0-
Jackowitz, 1994 326,889 -0- 33,646(2) -0- -0- -0- -0-
Exec 1993 316,384 -0- (3) -0- -0- -0- -0-
Vice-Pres.
& Treas.
</TABLE>
- ----------
(1) Mr. Wolk is employed and compensated under an employment agreement with
URT which continues in effect until March 31, 2000. PEC receives the
services of Mr. Wolk under the Management Agreement. (See
"Business--Management Agreement Between URT and PEC").
(2) Includes life insurance premiums ($23,494 in fiscal 1994) and amounts
credited to Mr. Jackowitz under his employment agreement against monthly
payments owed by him to URT under a promissory note and a stock purchase
agreement, all as described below.
(3) Pursuant to applicable rules, information is not included with respect to
annual compensation which does not exceed the lesser of $50,000 or 10% of
the salary and bonus reported for the named executive officer.
Employment Contracts
When the 1995 fiscal year began, Mr. Jackowitz was employed by PEC
under an employment agreement dated as of March 31, 1992. Effective October 1,
1994, PEC and Mr. Jackowitz entered into a new employment agreement which is
presently in
-31-
<PAGE>
effect. Under his 1994 Agreement, Mr. Jackowitz' employment period will expire
on September 30, 1996 instead of September 30, 2000, the expiration date of his
1992 Agreement (although PEC has the right under the 1994 Agreement to terminate
his employment at any time after September 30, 1995). Thereafter, he is required
to act as a consultant to the URT Companies until September 3, 2005 concerning
company matters but is not required to spend more than ten hours per month in
doing so. Mr. Jackowitz' 1994 Agreement reduced the annual rate of his base
salary to $258,833 for the period from October 1, 1994 through March 31, 1995,
and to $225,000 for the period from April 1, 1995 to September 30, 1996 (while
his employment continues) as compared to a base salary at the annual rate of
$309,490 together with cost of living increases based on increases in the
consumer price index and proportional adjustments in compensation based on
increases in U. S. individual income tax rates, which were provided for in the
1992 Agreement. The 1994 Agreement also provided that Mr. Jackowitz is entitled
to a credit as additional compensation in the amount of $471 per month (as
opposed to $846 per month under the 1992 Agreement) except (as had also been
provided under the 1992 Agreement) that if he died or became disabled during the
term of his employment agreement, all such credits (in such reduced amount)
which he would have received if he had survived and not become disabled would be
accellerated to the date of death or disability. Such credits are required to be
paid both during his employment and consulting periods until the promissory
notes against which they are to be applied have been paid in full. Such credits
represent monthly amounts which are payable by him under certain promissory
notes. The credits under the 1992 Agreement had also been applied against his
obligations under a stock purchase agreement described below.
Mr. Jackowitz' 1994 Agreement retained provisions which were in his
1992 Agreement requiring PEC, during his period of employment, to furnish him
with an automobile, reimburse him for business expenses including socially
related business expenses incurred by him, and provide him with hospital and
medical benefits while he is employed by PEC.
Mr. Jackowitz' 1994 Agreement also provides that during the first
twelve months of the consulting period, Mr. Jackowitz will be compensated at the
rate of $213,000 per annum and during each year of the balance of the consulting
period at the rate of $65,000 per annum, provided, however, that if the
consulting period should commence before October 1, 1996, other than as a result
of death, voluntary resignation or conviction of a crime involving any act of
dishonesty which was intended to harm the URT Companies, his compensation during
the consulting period
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would be at the rate of $225,000 per annum during the first year, $125,000
during the second year, and $65,000 per annum during the balance of the
consulting period. If Mr. Jackowitz is unable to perform his consulting services
as a result of sickness, accident or other cause outside of his control, PEC is
still obligated under his 1994 Agreement to continue to pay him the compensation
required to be paid during the consulting period.
The 1994 Agreement further provides that during the consulting period,
PEC will use its best efforts to cause Mr. Jackowitz and his wife to be included
in PEC's health insurance plan, as in effect at the time of the end of his
employment period and, in such event, PEC will be required to pay for the cost
thereof but not to exceed $485 per month; but that if they are unable to be
included, PEC will be responsible for the cost incurred by Mr. Jackowitz for
such purpose up to $485 per month; and that PEC will also pay him $500 per month
to pay for the costs of any automobile which is used by him during the
consulting period.
In his 1992 Agreement, PEC was required to pay or reimburse Mr.
Jackowitz for the premiums on term or other life insurance coverage to be
selected by PEC and payable to his designee in the amount of $1,000,000 if he
died before age 70 and $750,000 if he died after age 70. The 1994 Agreement
provides that from and after January 1, 1995, PEC is no longer required to do so
but that on the first days of January during 1995 through 2000, it will pay to
him as additional compensation, the amount of $10,000 per annum to enable him to
obtain a policy of life insurance on his life from any insurance company which
he selects.
The 1994 Agreement also provides that during the consulting period or
any period during which he is disabled, as above described, Mr. Jackowitz will
not own or operate or work for any company which owns or operates any retail
stores which sell pre-recorded audio products or divulge any information
relating to PEC's finances, leases, properties, personnel or manner in which it
conducts business.
Compensation Committee Interlocks and Insider Participation
PEC does not have a compensation committee or other board committee
performing equivalent functions. During the last completed fiscal year, all
deliberations concerning executive officer compensation or any other
arrangements between
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PEC and any executive officers were conducted by PEC'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 PEC, except for
certain changes in the manner of funding life insurance coverage for Mr.
Jackowitz which is required to be provided under his employment agreement, as
above described.
Pension Plan
The URT Companies had adopted a defined benefit pension plan and trust
(the "Pension Plan") effective April 1, 1985. Such Plan was amended during the
1995 fiscal year to provide that no present or future employee of the URT
Companies who was not a participant in the Pension Plan on September 9, 1994 was
eligible to become a participant in the Pension Plan, and that effective as of
September 14, 1994, no further accrual of benefits would be made under the Plan
except to the extent, if any, that such accruals were required by law. In March
of 1995, the URT Companies decided to terminate the Pension Plan effective May
12, 1995 and will file documents with the Internal Revenue Service for such
purpose. Upon receiving an appropriate determination letter from the Internal
Revenue Service or the expiration of the period in which the Pension Benefit
Guaranty Corporation can issue a notice of non-compliance, whichever is sooner,
the assets of the Pension Plan will be distributed to Pension Plan participants.
Interests in the Pension Plan have been computed on the basis of compensation
and service.
As a result of the termination of the Pension Plan, the following
officer will be entitled, at age 65, to receive a single life annuity, payable
monthly, in the following annual amount:
Name of Individual Annual Amount
------------------ -------------
David Jackowitz $48,921.60
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 30, 1995, URT owned 17,213,370 shares of PEC Common Stock,
constituting approximately 87% of the issued and outstanding shares of such
Common Stock, and all of PEC's issued and outstanding shares of Series A
Preferred Stock and Series B Preferred Stock. All of such shares of PEC stock
are owned directly with voting and investment power.
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As set forth in the following table, Allan Wolk and members of his
immediate family own approximately 29% of 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 and Chairman and President of PEC, Mr. Wolk may be
deemed to have effective control of PEC.
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 May 30, 1995, owned, beneficially, more than 5% thereof, and the number of
shares of each class of such stock owned beneficially, directly or indirectly,
by each executive officer and director and by all directors and executive
officers as a group on such date:
Amount & 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)(5) 28.5%
David Jackowitz 245,850 2.2%
Lawrence Strauss
and Allan Wolk,
as Trustees 33,072(2)(5) *
Ann Krouse 12,096(4) *
Brian Wolk 12,980(6) *
Jason Wolk 17,480(6) *
All officers and
directors as a
group (5 persons) 3,515,664 31.4%
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Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------------- --------
Other
-----
Scorpio Music, Inc.
P. O. Box A
Trenton, N.J. 08691 1,195,800(7) 10.7%
Class B Common Executive Officers and Directors
Stock, par value --------------------------------
$.01 per share Allan Wolk 786,654(3)(5) 57.6%
David Jackowitz 7,922 *
Ann Krouse 3,024(4) *
All officers and
directors as a
group (3 persons) 797,600 58.4%
- ----------
(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.
(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.
(3) Includes 780,174 shares owned by Allan Wolk and 6,480 shares owned by his
wife.
(4) Includes 3,456 shares of Class A Stock and 864 shares of Class B Stock
owned by Paul Krouse, husband of Ann Krouse.
(5) Allan Wolk has renounced all voting and investment power with respect to
those shares of URT which are held by him for his children and those which
are held by a trust for the benefit of children of Allan Wolk's brother.
All such powers as trustee are exercised exclusively by the co-trustee.
Each director believes that his or her spouse will vote the shares owned by
him or her in favor of proposals which he or she favors. However, each of
such directors disclaims beneficial ownership of any shares owned by his or
her spouse or held for the benefit of his children or others.
(6) Such shares are held in the name of Allan Wolk, as custodian, but are not
included under the shares listed as beneficially owned by Allan Wolk.
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(7) Based on information supplied by URT's transfer agent. Does not include
160,000 shares reported in a Schedule 13D, dated June 14, 1989, as owned by
John T. Gervasoni, Scorpio's president and 100% shareholder, as to which no
confirmation of ownership has been made by URT's transfer agent.
(*) Less than one percent.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their purchase in 1983 from an unaffiliated third party
seller, Allan Wolk and his brother, Sheffield Wolk, a former director of URT,
are the owners of the land and building on which the PEC store in Fort
Lauderdale, Florida, is located. Such property was and continues to be subject
to a lease with PEC as tenant, which had been negotiated by the prior owner.
During the 1995 fiscal year, PEC made and paid for certain renovations to the
premises. Based on the provisions of the lease, the owners agreed to be
responsible for $26,225 of such cost which, with interest, is being deducted by
PEC over a period of 36 months.
In September, 1984, PEC entered into a long term lease with the mother
of Allan Wolk, Sheffield Wolk and Ann Krouse, of premises owned by her in North
Miami Beach, Florida (the "North Miami Beach lease"). It was approved by
disinterested directors. As a result of her death, the premises are now owned by
Allan Wolk (one-third interest), Ann Krouse (one-third interest), and two
children of Sheffield Wolk, each of whom has a one-sixth interest. The lease
term commenced on September 1, 1984 and is for a period of twenty years with two
additional five year terms. The lease is a triple net lease. The rental consists
of a net minimum rent plus 5% of net sales in excess of $1,400,000 up to
$1,800,000 and 2-1/2% of net sales in excess of $1,800,000. The net minimum rent
during the first five years of the term was $95,000 per annum. There are annual
increases in such minimum rent, before the adjustments described below, of
$10,000 during each of the next three five year periods and annual increases of
$7,500 during each of the last two five year periods.
In October, 1990, the North Miami Beach lease was amended for the
purpose of including within the demised premises an adjoining parking area which
is also owned by the owners of the store site. Such adjoining parking area was
required by PEC for the purpose of complying with applicable zoning
requirements. As a result of the inclusion of such adjoining
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parking area in the demised premises covered by the existing lease, PEC agreed
to pay additional annual net minimum rent ranging from $9,000 in the first four
years (commencing as of September 1, 1990) to $14,000 in the final five years
covered by the amendment to such lease. The amendment was also approved by
disinterested directors.
In December, 1984, PEC entered into a long-term lease with Allan Wolk
and Sheffield Wolk for premises owned by them in Orlando, Florida. The lease
term commenced in December, 1984, and is for a period of twenty years with two
additional five year terms. The lease is a triple net lease. The lease provides
for a net minimum rental rate of $125,000 per annum from the rental commencement
date through March 31, 1985; a rate of $140,000 per annum during the following
five year period; a rate of $145,000 per annum during the next five year period;
a rate of $160,000 during the next five year period; and increases of $5,000
during every five year period thereafter. Notwithstanding the foregoing,
commencing with the sixth rental year, if net sales at the store during any
rental year are less than $1,800,000, the annual net minimum rental rate for
such year will be the same as that which had been in effect during the preceding
five year period. The lease was approved by disinterested directors.
Management believes that the terms of such North Miami Beach and
Orlando leases are as reasonable as those which could have been obtained from
unaffiliated third parties.
In April, 1989, PEC's board of directors authorized PEC to enter into
agreements with its officers and directors under which directors and officers
would be entitled to be indemnified by PEC and have their expenses advanced to
them in the event of any claim against them in their capacities as officers and
directors. On or about May 22, 1989, such agreements were entered into with all
who were then officers and directors of PEC.
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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 14
Independent Auditors' Report
Peaches Entertainment Corporation
Financial Statements:
Balance sheets as of April 1, 1995 and
April 2, 1994. 15
Statements of operations for each of
the years in the three year period
ended April 1, 1995. 16
Statements of shareholders' equity for
each of the years in the three year
period ended April 1, 1995. 17
Statements of cash flows for each of
the years in the three year period
ended April 1, 1995. 18
Notes to financial statements. 20
2. Financial Statement Schedules
Schedules have been omitted which are
not applicable or where the required
information is shown in the financial
statements or the notes thereto.
3. Exhibits.
Exhibit No.
- -----------
3.1 Articles of Incorporation of Peaches Entertainment Corporation
("PEC") dated March 3, 1982, incorporated by reference to Exhibit No.
3.3 to URT Industries', Inc. ("URT") and PEC's Registration Statement
No. 2-81065.
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<PAGE>
3.1-1 Amendment to PEC's Articles of Incorporation dated January 17, 1983,
incorporated by reference to Exhibit No. 3.3-1 to URT's and PEC's
Registration Statement No. 2-81065.
3.2 By-Laws of PEC incorporated by reference to Exhibit No. 3.4 to URT's
and PEC's Registration Statement No. 2-81065.
3.3 Form of Amendment to PEC's Articles of Incorporation, incorporated by
reference to Exhibit No. 3.5 to PEC's Registration Statement No.
2-81065.
10.35 Lease dated July 1, 1984 between Shirley Wolk and PEC applicable to
North Miami Beach, Florida premises, incorporated by reference to
Exhibit No. 13.46 to URT's Registration Statement No. 2-63747.
10.36 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.
10.40 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 No. 10(ss) to URT's Form 10-K
Annual Report for the year ended March 29, 1986.
10.47 Indemnification Agreement dated May 22, 1989 between Allan Wolk and
PEC, incorporated by reference to Exhibit 10.47 to PEC's Form 10-K
Annual Report dated June 27, 1989.
10.48 Indemnification Agreement dated May 22, 1989 between David Jackowitz
and PEC, incorporated by reference to Exhibit 10.48 to PEC's Form
10-K Annual Report dated June 27, 1989.
10.50 Indemnification Agreement dated May 22, 1989 between Ann Krouse and
PEC, incorporated by reference to Exhibit 10.50 to PEC's Form 10-K
Annual Report dated June 27, 1989.
10.54 Lease dated December 22, 1989 between Sunbeam Properties, Inc. and
PEC applicable to Miramar, Florida premises, incorporated by
reference to Exhibit 10.54 to PEC's Form 10-K Annual Report dated
June 27, 1991.
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<PAGE>
10.57 Management and Intercorporate Agreement dated as of March 29, 1993
between URT and PEC, incorporated by reference to Exhibit 10(dddd) to
URT's Form 10-K Annual Report dated June 25, 1993.
10.58 Amended and Restated Employment Agreement, dated December 14, 1994,
between David Jackowitz and PEC, incorporated by reference to Exhibit
10(ffff) to URT's Form 10-K Annual Report dated June 29, 1995.
10.59 Agreement dated as of October 1, 1994 to Mangement and Intercorporate
Agreement dated May 29, 1993 between URT and PEC, incorporated by
reference to Exhibit 10(iiii) to URT's Form 10-K Annual Report dated
June 29, 1995.
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEACHES ENTERTAINMENT CORPORATION
By: s/Allan Wolk
---------------------------
Allan Wolk,
Chairman of the Board
and President
Dated: June 29, 1995
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 June 29, 1995
-----------------------------
Allan Wolk,
Chairman of the Board
and President
(Principal Executive
Officer) and Director
By: s/David Jackowitz June 29, 1995
-----------------------------
David Jackowitz, Treasurer
(Principal Financial and
Accounting Officer) and
Director
By: s/Brian Wolk June 29, 1995
-----------------------------
Brian Wolk,
Director
By: s/Jason Wolk June 29, 1995
-----------------------------
Jason Wolk,
Director
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