UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 27, 1997 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 I.D. No.)
Incorporation or Organization)
1180 E Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At September 27, 1997, there were outstanding:
39,781,270 shares of common stock
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets-September 27, 1997
(Unaudited) and March 29, 1997 3
Condensed Statements of Operations and Retained
Deficit-Three Months Ended September 27, 1997
and September 28, 1996 (Unaudited) 4
Condensed Statements of Operations and Retained
Deficit-Six Months Ended September 27, 1997
and September 28, 1996 (Unaudited) 5
Condensed Statements of Cash Flows-Six Months
Ended September 27, 1997 and September 28, 1996
(Unaudited) 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEACHES ENTERTAINMENT CORPORATION
Condensed Balance Sheets
September 27, 1997 and March 29, 1997
<TABLE>
<CAPTION>
Assets September 27, March 29,
1997 1997
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,159,994 1,456,070
Inventories 2,813,055 2,855,494
Prepaid expenses and other current assets 197,910 260,008
----------- ---------
Total current assets 4,170,959 4,571,572
Property and equipment, net 1,339,635 1,439,731
Other assets 165,039 158,762
----------- ---------
$ 5,675,633 6,170,065
=========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations 757,978 730,239
Accounts payable 1,756,630 1,371,869
Accrued liabilities 872,597 956,005
----------- ---------
Total current liabilities 3,387,205 3,058,113
Long-term obligations 1,091,663 1,337,190
Due to parent 734,562 704,813
Deferred rent 133,559 156,036
----------- ---------
Total liabilities 5,346,989 5,256,152
=========== =========
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares authorized;
5,000 shares issued and outstanding 500,000 500,000
Common stock subscribed (20,000,000 shares) -- 350,000
Common stock, $.01 par value; 40,000,000 shares authorized;
39,889,120 and 19,889,120 shares issued, respectively 548,892 198,892
Additional paid-in capital 1,284,471 1,284,471
Retained deficit (1,984,939) (1,399,670)
----------- ---------
348,424 933,693
Treasury stock, 107,850 common shares, at cost (19,780) (19,780)
----------- ---------
Total shareholders' equity 328,644 913,913
Commitments and contingencies
----------- ---------
$ 5,675,633 6,170,065
=========== =========
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Three months ended September 27, 1997 and September 28, 1996
(Unaudited)
September 27, September 28,
1997 1996
---- ----
Net sales $ 3,808,512 3,888,049
----------- ---------
Costs and expenses:
Cost of sales 2,347,920 2,479,044
Selling, general and administrative expenses 1,674,012 1,783,511
Depreciation and amortization 65,700 77,518
----------- ---------
4,087,632 4,340,073
----------- ---------
Loss from operations (279,120) (452,024)
----------- ---------
Other (expense) income:
Interest expense (58,491) (18,318)
Interest income 6,899 5,274
----------- ---------
(51,592) (13,044)
----------- ---------
Loss before reorganization costs
and income taxes (330,712) (465,068)
Reorganization costs:
Professional fees -- (97,538)
----------- ---------
Loss before income taxes (330,712) (562,606)
Provision for income taxes -- --
----------- ---------
Net loss (330,712) (562,606)
Retained deficit, beginning of period (1,639,227) (1,027,324)
Preferred stock dividend (15,000) --
----------- ---------
Retained deficit, end of period $(1,984,939) (1,589,930)
=========== =========
Net loss per common share $ (.01) (.03)
=========== =========
See accompanying notes to condensed financial statements.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Six months ended September 27, 1997 and September 28, 1996
(Unaudited)
September 27, September 28,
1997 1996
---- ----
Net sales $ 7,932,863 8,193,870
----------- ---------
Costs and expenses:
Cost of sales 4,901,010 5,303,196
Selling, general and administrative expenses 3,302,022 3,619,570
Depreciation and amortization 131,400 151,884
----------- ---------
8,334,432 9,074,650
----------- ---------
Loss from operations (401,569) (880,780)
----------- ---------
Other (expense) income:
Interest expense (119,142) (36,931)
Interest income 9,442 19,286
----------- ---------
(109,700) (17,645)
----------- ---------
Loss before reorganization costs
and income taxes (511,269) (898,425)
Reorganization costs:
Professional fees (44,000) (195,076)
----------- ---------
Loss before income taxes (555,269) (1,093,501)
Provision for income taxes -- --
----------- ---------
Net loss (555,269) (1,093,501)
Retained deficit, beginning of period (1,399,670) (496,429)
Preferred stock dividend (30,000) --
----------- ---------
Retained deficit, end of period $(1,984,939) (1,589,930)
=========== =========
Net loss per common share $ (.01) (.06)
=========== =========
See accompanying notes to condensed financial statements.
-5-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows
Six months ended September 27, 1997 and September 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
September 27, September 28,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (555,269) (1,093,501)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 131,400 151,884
Deferred rent (22,477) (8,673)
Changes in assets and liabilities affecting cash flows from operating
activities:
(Increase) decrease in:
Inventories 42,439 1,530,515
Prepaid expenses and other current assets 62,098 (349,138)
Refundable income taxes -- (702)
Other assets (6,277) 27,707
Increase (decrease) in:
Accounts payable 384,761 555,463
Accrued liabilities (83,408) 247,047
Liabilities subject to compromise -- (1,693,812)
----------- -----------
Net cash used in operating activities (46,733) (633,210)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (31,304) (31,547)
----------- -----------
Net cash used in investing activities (31,304) (31,547)
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (217,788) (67,799)
Dividends paid (30,000) --
Due to parent 29,749 --
----------- -----------
Net cash used in financing activities (218,039) (67,799)
----------- -----------
Net decrease in cash and cash equivalents (296,076) (732,556)
Cash and cash equivalents, beginning of period 1,456,070 1,917,566
----------- -----------
Cash and cash equivalents, end of period $ 1,159,994 1,185,010
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 38,811 36,931
=========== ===========
Supplemental disclosure of non-cash operating and investing activities relating
to the reorganization:
Liabilities subject to compromise, March 30, 1996 $ 5,671,434
Less: inventory returns for credit (1,693,812)
-----------
Liabilities subject to compromise, September 28, 1996 $ 3,977,622
===========
</TABLE>
See accompanying notes to condensed financial statements.
-6-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all footnotes and information necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been made.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in the Peaches Entertainment Corporation (the "Company") annual
report on Form 10-K for the year ended March 29, 1997.
As of September 27, 1997, the Company was an 93.5 percent-owned subsidiary
of URT Industries, Inc. (the "Parent").
The results of operations for the six months ended September 27, 1997, are
not necessarily indicative of the operating results to be expected for the
year ending March 28, 1998. The Company's business is seasonal.
Historically, approximately 21 percent of the Company's sales have occurred
in the second fiscal quarter.
Inventories, which consist of compact discs, tapes and accessories, are
stated at the lower of cost (principally average) or market.
Certain reclassifications have been made to the (unaudited) September 28,
1996 quarterly financial information to conform to the presentation used in
the (unaudited) September 27, 1997 financial information.
(2) Reorganization and Emergence From Chapter 11
On January 16, 1996 (the "Petition Date"), Peaches Entertainment
Corporation commenced reorganization proceedings under Chapter 11 of the
United States Bankruptcy Code. An amended plan of reorganization was
confirmed by the Bankruptcy Court on January 17, 1997 (the "confirmation
date"), and became effective February 3, 1997 (the "effective date"),
subject to satisfaction of certain conditions which were satisfied February
19, 1997. All of the allowed claims were either paid on the effective date
or are reflected in current and long-term obligations in the financial
statements, payable primarily over a two year period from the effective
date. The mortgage holder will receive 100 percent of the allowed claim,
with interest, except the balloon payment was extended from September 1997
to September 2002.
(3) Loss Per Common Share
Net loss per common share was computed by dividing net loss, less preferred
stock dividends, by the weighted average number of total common shares
outstanding during the periods.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(4) Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS") No.
109, Accounting for Income Taxes. The Company files a consolidated tax
return with its Parent. Any applicable tax charge or credits are allocated
on a separate return basis. For the six month period ended September 27,
1997, there was no (benefit) provision for income taxes as the Company has
net operating loss carryforwards for federal income tax purposes.
(5) New Accounting Pronouncements
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 is
effective for financial statements issued for periods ending after December
15, 1997. Statement 128 establishes standards for computing and presenting
earnings per share ("EPS"), simplifies the standards previously found in
APB No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. The Company will begin disclosing EPS in
accordance with Statement 128 beginning with the quarter ended December 27,
1997.
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Item 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations for the Six Months Ended September 27, 1997, Compared to
the Six Months ended September 28, 1996.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of other sections of this filing or other filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates, and are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected.
Results of Operations
Net sales for the six months ended September 27, 1997 (such six month period is
hereafter referred to as "1997") decreased by approximately 3.2 percent compared
to the six months ended September 28, 1996 (such six month period is hereafter
referred to as "1996"). Such decrease is attributed to a decrease in comparable
store sales (3.2 percent).
The cost of sales for 1997 was lower than that for 1996 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales has decreased
from 64.7 percent in 1996 to 61.8 percent in 1997 primarily due to the fact that
the Company began to receive discounts associated with normal trade terms
throughout 1997, increases in other purchase discounts and an increase in
certain retail selling prices.
Selling, general and administrative (SG&A) expenses in 1997 decreased by 9.0
percent compared to 1996. Such decrease is attributable to a decrease in
comparable store expenses (5.1 percent), and a decrease in corporate overhead
(3.9 percent). SG&A expenses as a percentage of net sales decreased from 46.0
percent in 1996 to 43.3 percent in 1997 primarily due to overhead reductions.
Recently, the Company's primary suppliers have taken steps to help protect the
retail marketplace from certain low cost retailers of music. These steps include
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 above, should help the Company to restore
itself to a competitive position in subsequent fiscal years. Other factors
which, in management's opinion, should help the Company to restore itself to a
competitive position in the future are the closing of the six unprofitable
stores which were closed during 1996, the closing of the former headquarters and
warehouse, the termination of other unprofitable business arrangements as
described herein and concentration on advantages which Peaches has over certain
of its competitors, including large inventory, convenient store locations and a
high level of customer service, which includes the ability of the customer to
sample virtually all music before purchasing and an extremely efficient special
order program.
-9-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
The Company incurred a net loss of approximately $555,000 in 1997 versus a net
loss of approximately $1,094,000 in 1996. The significant reduction in net loss
is attributed to an increase in gross profit percentage and a decrease in
expenses as discussed above.
Liquidity and Capital Resources
The Company had working capital of $783,754 at September 27, 1997 compared to
working capital of $1,513,459 at March 29, 1997 and a current ratio (the ratio
of total current assets to total current liabilities) of 1.2 to 1 at September
27, 1997 compared to a current ratio of 1.5 to 1 at March 29, 1997.
At September 27, 1997, the Company had long-term obligations of $1,091,663.
Management anticipates that its ability to repay its long-term obligations will
be satisfied primarily through funds generated from its operations.
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations. Management would attempt to obtain financing for the opening of
any new stores during the next few years.
Inflation trends have not had an impact upon revenue 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.
For a discussion of recent developments and uncertainties affecting the
Company's liquidity and capital resources, see notes 2 and 3 to the financial
statements (Confirmation of Amended Plan of Reorganization and Liquidity) on
Form 10-K for the year ended March 29, 1997.
In February 1997, the FASB issued Statement of Financial Accounting Standard No.
128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards previously found in APB No. 15,
"Earnings Per Share," and makes them comparable to International EPS Standards.
The Company will begin disclosing EPS in accordance with Statement 128 beginning
with the quarter ended December 27, 1997.
-10-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K dated November 12, 1997 was filed on or about
such date to report on the timing of this filing.
-11-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEACHES ENTERTAINMENT CORPORATION
Registrant
Date: 12/3/97 /s/ Allan Wolk
--------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 12/3/97 /s/ Jason Wolk
--------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the six month period ended
September 27, 1997, and is qualifed in its entirety by reference to such
financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> SEP-27-1997
<CASH> 1,159,994
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,813,055
<CURRENT-ASSETS> 4,170,959
<PP&E> 3,929,029
<DEPRECIATION> 2,589,394
<TOTAL-ASSETS> 5,675,633
<CURRENT-LIABILITIES> 3,387,205
<BONDS> 0
0
500,000
<COMMON> 548,892
<OTHER-SE> (720,248)
<TOTAL-LIABILITY-AND-EQUITY> 5,675,633
<SALES> 7,932,863
<TOTAL-REVENUES> 7,932,863
<CGS> 4,901,010
<TOTAL-COSTS> 4,901,010
<OTHER-EXPENSES> 3,433,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,142
<INCOME-PRETAX> (555,269)
<INCOME-TAX> 0
<INCOME-CONTINUING> (555,269)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (555,269)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
