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 March 29, 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
incorporation or organization) Identification No.)
1180 East Hallandale Beach Boulevard, Hallandale, Florida 33009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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 closing bid and asked prices)
of the voting stock held by non-affiliates of the registrant was, as of June 2,
1997, approximately $57,000.
As of June 3, 1997 the registrant's transfer agent reported as issued and
outstanding:
39,781,270 Shares of Common Stock
<PAGE>
PART I
Item 1. BUSINESS
Peaches Entertainment Corporation ("PEC" or the "Company"), a Florida
corporation, was incorporated in 1982. Its executive offices are located at 1180
East Hallandale Beach Boulevard, Hallandale, Florida, 33009. Its telephone
number is 954-454-5554. 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 94% 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 6% of PEC's issued and outstanding shares of common
stock are owned by non-affiliated persons.
Confirmation of Amended Plan of Reorganization
PEC emerged from bankruptcy protection during the last quarter of the
fiscal year ended March 29, 1997 (the "1997 fiscal year"), following its filing
of a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the Southern District of Florida (the "Bankruptcy Court") on or about
January 16, 1996 (the "Petition Date"). During the pendency of such proceeding
(the "Chapter 11 proceeding"), PEC continued to manage its affairs and operate
its business as a debtor-in-possession (subject to the approval of the
Bankruptcy Court with respect to transactions outside of the ordinary course of
business), while it developed a Plan of Reorganization that would allow it to
continue in business. PEC's Amended Plan of Reorganization, dated October 23,
1996, as modified by the Bankruptcy Court's Order of January 17, 1997 (the "Plan
of Reorganization"), was confirmed by the Bankruptcy Court on such date, and
became effective on February 19, 1997 (the "Effective Date"). For a discussion
of the Plan of Reorganization and other action taken in connection with the
Chapter 11 proceeding, see "LEGAL PROCEEDINGS" below.
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 March 29, 1997:
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Number of stores:
At beginning of period 13 19 20 21 22
Opened during period 0 0 1 0 0
Closed during period (0) (6) (2) (1) (1)
--- --- --- --- ---
At end of period 13 13 19 20 21
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<PAGE>
The thirteen "Peaches" stores (the "'Peaches' stores") which are presently
in operation are located in the following four states: Florida (seven stores),
Virginia (three stores), North Carolina (two stores), and Alabama (one store).
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. PEC has options to renew
most of its leases for various periods.
Two of the Florida stores, one in Fort Lauderdale and the other in Orlando,
are currently leased from the Chairman of PEC and his brother, a former director
of PEC. (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 implementing guidelines for
ordering, pricing and displaying merchandise sold in the store, hiring and
firing personnel and other matters relating to store administration, including
re-orders of merchandise. The adoption of such guidelines, relationships with
landlords, the purchase and allocation of new releases, advertising and related
other matters are handled by the home office. PEC has a computerized inventory
control system in place at each of its stores.
As of the last day of the 1997 fiscal year, PEC purchased merchandise from
approximately 61 suppliers, among whom the principal ones were BMG, CEMA, PGD,
SONY, UNI, WEA, and Bassin. Approximately 76% of the merchandise purchased
during the 1997 fiscal year came from such seven 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 products at a
given time, as well as the credit and other terms on which such suppliers are
willing to sell to PEC. PEC is not obligated to purchase merchandise from any
supplier. It has numerous alternate sources of supply for inventory, although in
some cases, the expenses are or would be greater if such alternate sources are
utilized. Merchandise is delivered directly by suppliers to the stores.
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<PAGE>
Prior to the Chapter 11 proceeding, the usual terms received by PEC from
suppliers provided for payment to be made within 60 days from the end of the
month in which a purchase was made. In addition, PEC normally received an
additional 30 to 120 days to pay for certain purchases during the course of the
year. Such terms are usual in the industry.
Prior to the Chapter 11 proceeding, PEC was also able to return
merchandise, without limitation, to all of its major suppliers, who charged a
penalty if returns exceeded certain percentages of the dollar amounts of gross
purchases. Such return policies did not have any adverse effect on PEC's
business.
For a short period after the Chapter 11 filing, PEC was not able to obtain
delivery from any of its principal suppliers of merchandise, except Bassin
(which supplied the inventory which might otherwise have been ordered through
other suppliers), and was not able to return merchandise in accordance with the
return policies described above. Eventually, during the course of the Chapter 11
proceeding, all of PEC's principal suppliers resumed shipping merchandise to PEC
and agreed to allow PEC to make returns of unneeded inventory for credit against
pre-petition indebtedness. In some cases, suppliers also agreed to ship
merchandise on credit. During the pendency of the Chapter 11 proceeding, PEC was
able to obtain approximately 80% of its inventory on credit, and was able to
return most of its unused inventory for credit against pre-petition
indebtedness. Because of the resumption in deliveries from suppliers, as well as
the use of alternate sources of merchandise, the Chapter 11 filing did not have
a materially negative effect on PEC's ability to obtain inventory or to return
unused inventory for credit, although the cost of such inventory was generally
higher than it would otherwise have been and the terms for the return of unused
inventory were sometimes different than those which were in effect prior to the
Petition Date.
Subsequent to the Effective Date, all of PEC's seven principal suppliers
and most of its other suppliers have agreed on terms with respect to payment for
merchandise and the return of unused merchandise for credit which are the same
or similar to the terms which were in effect prior to the Chapter 11 proceeding.
Advertising in local newspapers and media is determined by 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 21% of total sales for each
year; sales between April and June were approximately 25% of total sales; sales
between July and September were approximately 23% 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. In recent years, 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 to sell them non-music related products, such as computers.
For a discussion of action taken to attempt to address such competitive factors,
see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
Employees
As of the last day of the 1997 fiscal year, PEC employed approximately 257
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.
Intercorporate Agreements
Effective as of January 1, 1996, there have been three agreements in place
pertaining to the management of PEC. Pursuant to such agreements, the following
arrangements are in effect: for the period from January 1, 1996 through March
31, 2000, URT will continue to provide to PEC the services of Mr. Wolk as PEC's
Chairman, President and Chief Executive Officer; and PEC is required to pay to
Mr. Wolk during such period, so long as he continues to provide such services, a
salary in the amount described below (see "EXECUTIVE COMPENSATION").
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<PAGE>
During the 1997 fiscal year, Mr. Wolk devoted approximately 75% of his
working time to the business of PEC.
Item 2. PROPERTIES
Since April, 1996, PEC's headquarters have been located in Hallandale,
Florida in a building which is leased by PEC. Such building contains a total of
approximately 6,000 square feet of office space. Prior to April, 1996, PEC's
headquarters had been located in a larger and more expensive facility of
approximately 26,000 square feet in Miramar, Florida in a building which was
leased by PEC and included both office and warehouse space. The new headquarters
has no warehouse space, as all merchandise is shipped directly from suppliers to
stores. The move to smaller facilities with no warehouse space, and the
elimination of payroll expenses associated with the old warehouse facility, has
resulted in savings to PEC in excess of $200,000 per year. The lease for the old
headquarters was among the leases which PEC rejected in connection with the
Chapter 11 proceeding pursuant to its rights under the Bankruptcy Code. (See
"LEGAL PROCEEDINGS").
PEC owns real property in Mobile, Alabama on which it constructed and
operates a "Peaches" store. Such property is subject to a first mortgage to an
institutional lender and to a second mortgage to URT. PEC made all payments on
the first mortgage as they became due during the Chapter 11 proceeding, and
negotiated a longer payout of such mortgage during the course of such
proceeding. The second mortgage secures a debt owed by PEC to URT as a result of
a loan which was made by URT to PEC in January, 1997 in order to enable PEC to
satisfy certain of its obligations to creditors under the Plan of
Reorganization. (See "LEGAL PROCEEDINGS").
All "Peaches" stores, other than the Mobile, Alabama store discussed
immediately above, are leased. For information concerning such other stores
operated by PEC, see "BUSINESS--The Peaches Stores".
Item 3. LEGAL PROCEEDINGS
PEC's above-described voluntary petition for relief under Chapter 11 of the
Bankruptcy Code resulted in the below-described Plan of Reorganization. The Plan
of
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<PAGE>
Reorganization, as so confirmed by the Bankruptcy Court, provided for the
following:
(a) All unsecured creditors, including all of PEC's inventory suppliers,
but excluding landlords under leases rejected by PEC, are entitled to 100% of
their allowed claims (the total of which is approximately $4,922,000). PEC's
seven principal suppliers (whose allowed claims total approximately $4,372,000
out of such $4,922,000) were entitled to, and received, payment and inventory
returns equal to approximately 70% of their allowed claims (80% in the case of
one such supplier) within approximately 60 days after the Effective Date. The
balance of the payments to such seven principal suppliers (approximately
$1,284,000) is payable with interest at the prime rate charged by Chase
Manhattan Bank, N.A. over a period of 24 months commencing in March, 1997. The
amounts due to such suppliers are secured by a perfected first lien and security
interest in the inventory originally distributed by such suppliers or which is
otherwise in the possession of and owned by PEC. The remaining unsecured
creditors (whose allowed claims total approximately $550,000) were entitled to
and received the full amount of their allowed claims on the Effective Date.
(b) Landlords under the leases which were rejected by PEC in connection
with the bankruptcy filing were entitled to approximately $311,000 (30% of the
approximately $1,000,000 in allowed claims with respect to such leases), all of
which was paid on the Effective Date.
(c) PEC's sole secured creditor, the holder of the first mortgage with
respect to the store property owned by PEC in Mobile, Alabama, whose allowed
claim was approximately $466,000, will receive 100% of such amount, with
interest, in accordance with the amortization schedule previously in effect,
except that the balloon payment on such mortgage which would otherwise have been
due in September, 1997 was extended to September, 2002.
(d) The priority tax claim in the approximate amount of $118,000 which is
owed to the Florida Department of Revenue will be payable with interest over a
period of two years commencing 30 days from the Effective Date.
(e) The priority administrative claims, including professional fees in the
approximate amount of $200,000 which were incurred in connection with the
reorganization, were paid on the Effective Date.
In order to enable PEC to effect the Plan of Reorganization on the terms
described above, URT, in exchange for the issuance to it of 20,000,000 shares of
PEC's authorized common stock (including 218,730 treasury shares), agreed that,
subject to the terms of the Plan, it would contribute $350,000 to the capital of
PEC, waive an aggregate of $75,000 of dividends payable by PEC to URT, guarantee
the approximately $1,284,000 which is due to the principal suppliers after the
Effective Date pursuant to the arrangements described in subparagraph (a) above,
and lend $700,000 to PEC on the Effective Date (For additional information
pertaining to such arrangements between PEC and URT, see "CERTAIN
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<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS").
During the course of the Chapter 11 proceeding, the Bankruptcy Court issued
orders authorizing the following additional action:
(a) PEC's rejection of the unexpired portion of the leases covering PEC's
former corporate headquarters in Miramar, Florida, as well as the six
unprofitable stores closed by PEC during the 1996 fiscal year (See "PROPERTIES"
and "BUSINESS--The Peaches Stores").
(b) PEC's rejection of the unexpired portion of the lease covering a store
in Charlotte, North Carolina which had been closed by PEC during the 1991 fiscal
year and as to which PEC had been responsible for the shortfall between the
amount payable under PEC's lease for such store and the amount being paid by a
subtenant of such store.
(c) PEC's assumption of the unexpired portion of the leases covering PEC's
new corporate headquarters and the twelve leased stores which PEC had decided to
keep in operation.
(d) PEC's execution of a settlement agreement with its former Executive
Vice-President under which the amounts payable to him under an employment and
consulting agreement with him were reduced from a sum exceeding $870,000, if
such agreement had remained in effect, to the sum of $282,500 (payable over four
years commencing February, 1996), and under which such former officer executed a
confidentiality agreement and an indemnification agreement with PEC.
(e) PEC's entry into post-petition agreements with its suppliers of
inventory under which PEC was permitted to return merchandise to such suppliers
for a credit against pre-petition claims, and under which PEC was entitled to
purchase merchandise on credit from certain of such suppliers (See "BUSINESS -
Operation of the Peaches Stores").
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
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<PAGE>
PEC's Common Stock is quoted by market makers on the over-the-counter
market. The following table sets forth the closing high and low, bid and asked
quotations for 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
1995
Quarter ended March 31, 1/32 1/32 9/32 7/32
Quarter ended June 30, 1/32 1/32 9/32 7/32
Quarter ended Sept. 30, 1/32 1/32 9/32 7/32
Quarter ended Dec. 31, 1/32 1/32 9/32 7/32
1996
Quarter ended March 31, 1/32 .001 9/32 7/32
Quarter ended June 30, .03125 .03125 .21875 .15625
Quarter ended Sept. 30, .03125 .001 .15625 .15625
Quarter ended Dec. 31, .03125 .005 .15625 .05
1997
Quarter ended March 31 .005 .001 .05 .05
Quarter through June 2. .001 .001 .05 .05
The above over-the-counter quotations represent prices between dealers, do
not include retail markups, markdowns or commissions and do not necessarily
represent actual transactions.
Dividends
There has 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 upon
its earnings and needs. PEC is required to pay dividends on its outstanding
shares of preferred stock (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources"). In connection with the Chapter 11 proceeding, the owner of such
preferred stock, URT, waived dividends on such stock for the period beginning
January 1, 1996 and ending March 29, 1997 (See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS").
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<PAGE>
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 June 3, 1997, based on
information supplied by PEC's transfer agent:
Number of Record
Title of Class Holders
-------------- -------
Common Stock, $.01 par value 1,509
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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>
March 29, March 30, April 1, April 2, April 3,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating statement data:
Net sales $ 18,109,119 23,626,489 31,960,953 36,303,455 37,861,389
Net (loss) income (865,313) (2,416,051) (1,995,408) (108,456) 296,426
Income (loss) per common share (.04) (.12) (0.10) (0.01) 0.01
Weighted average number of common shares
outstanding 20,055,243 19,781,270 19,781,270 19,781,270 19,781,270
Balance sheet data:
Working capital excluding liabilities
subject to compromise in 1997 $ 1,513,459 6,083,691 2,058,184 3,550,371 3,514,978
Total assets 6,170,065 9,442,616 11,224,889 13,390,533 14,025,154
Current portion of long-term obligations 730,239 124,774 110,028 131,173 174,579
Long-term obligations 1,337,190 810,367 929,654 705,109 836,282
Shareholders' equity 913,913 1,429,226 3,890,277 5,945,685 6,114,141
Store data:
Weighted average square feet of selling
space 88,012 88,012 130,157 137,145 139,850
Weighted average sales per square foot of
selling space $ 206 268 246 265 271
Number of stores open at end of period 13 13 19 20 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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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
From time to time, PEC (sometimes referred to herein as 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
Annual Report or other filings. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
respective dates, and are subject to certain risks, uncertainties and
assumptions. 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
FISCAL YEAR ENDED MARCH 29, 1997 (1997) COMPARED TO FISCAL YEAR ENDED MARCH 30,
1996 (1996)
Net sales for 1997 decreased 23.4% compared to 1996. 13.3% of such decrease is
attributed to the fact that 1996 included sales for stores that had been open
during 1996 and were closed during or near the end of 1996. The balance of such
decrease (10.1%) is attributed to comparable store sales.
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 decreased
from 64.8% in 1996 to 63.2% in 1997 due to increased purchase discounts in 1997
and the fact that 1996 reflected the effects of buying a portion of PEC's
inventory during the Chapter 11 proceeding from alternate sources with higher
prices. However, a portion of 1997 also included buying a portion of the
inventory from alternate sources at higher prices. The Company did not receive
discounts associated with normal trade terms until the first quarter of the
fiscal year commencing March 30, 1997 ("fiscal 1998").
Selling, general, and administrative (SG&A) expenses in 1997 decreased 20.4%
compared to 1996. Such decrease is attributed to a decrease in store operating
expenses of stores that had been open during 1996, but were closed during or
near the end of 1996 (15.0%), a decrease in corporate overhead (0.3%), and a
decrease in comparable store expenses (5.1%). SG&A expenses, as a percentage of
net sales, increased from 40.2% in 1996 to 41.8% in 1997 due to the fixed nature
of certain expenses and the decrease in net sales in addition to the
aforementioned items.
The Company incurred a net loss of approximately $865,000 in 1997 versus a net
loss of approximately $2,416,000 in 1996. The significant reduction of net loss
is attributed to the success of the Chapter 11 reorganization. However, such
success was offset by professional fees
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and lost gross profit as a result of not obtaining similar terms from trade
creditors to those that existed prior to the Chapter 11 proceeding until
approximately the first quarter of fiscal 1998. Also, further overhead
reductions will not be evident until fiscal 1998.
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 immediately below, 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 include the fact that the
Company's Plan of Reorganization was confirmed during the last quarter of 1997.
The benefits of the reorganization include the termination of the leases
associated with the six unprofitable stores which were closed during 1996, the
closing of the Company's former headquarters and warehouse and the termination
of other unprofitable business arrangements as described herein. Another factor
which, in management's opinion, should help the Company to restore itself to a
competitive position, is the Company's concentration on advantages which it 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 product before purchasing and a timely
special-order program.
FISCAL YEAR ENDED MARCH 30, 1996 (1996) COMPARED TO FISCAL YEAR ENDED APRIL 1,
1995 (1995)
Net sales for 1996 decreased 26.1% compared to 1995. Such decrease is attributed
principally to the closing of unprofitable stores during 1996, as well as the
effect of the opening of new stores during 1996 by certain of PEC's competitors.
11.8% of such decrease was attributable to comparable store sales and 14.3% of
such decrease was attributable to stores that opened or closed during 1996
versus 1995.
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.
The Company continued to suffer the effect of such competition during 1996 and,
as a result, filed its voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the early part of the last quarter of 1996.
The cost of sales for 1996 was lower than that for 1995 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales increased from
63.7% in 1995 to 64.8% in 1996 due to a reduction in retail prices in an effort
to meet the increased competition, a change in terms with PEC's principal
suppliers during the Chapter 11 proceeding and the effects of buying a portion
of PEC's inventory during the Chapter 11 proceeding from alternate sources with
higher prices.
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<PAGE>
Selling, general, and administrative (SG&A) expenses in 1996 decreased 17.1%
compared to 1995. Such decrease is attributed to a decrease in store operating
expenses of stores that opened or closed during 1996 versus 1995 (15.0%) and a
decrease in corporate overhead (2.5%), offset by an increase in comparable store
expenses (0.4%). SG&A expenses, as a percentage of net sales, increased from
35.9% in 1995 to 40.2% in 1996 due to the fixed nature of certain expenses and
the decrease in net sales in addition to the aforementioned items.
The Company incurred a net loss of approximately $2,416,000 in 1996 versus a net
loss of approximately $1,995,000 in 1995 due principally to the costs associated
with the closing of four stores, professional fees associated with the Chapter
11 proceeding and the reduction of net sales and gross profits as described
above. The two other stores closed during 1996 are reflected in the financial
statements for 1995.
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.
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 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 attributed 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.
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 four stores, a
loss on litigation, and the reduction in net sales and gross profit as described
above.
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Liquidity and Capital Resources
The Company had working capital of $1,513,459 at March 29, 1997, compared to
working capital of $412,257 at March 30, 1996 (including liabilities in the
amount of $5,671,434 which were subject to compromise on such date). The Company
had a current ratio (the ratio of total current assets to total current
liabilities) of 1.5 to 1 at March 29, 1997, compared to a current ratio of 1.6
to 1 at March 30, 1996 (including the liabilities so subject to compromise on
such date).
At March 29, 1997, the Company had long-term obligations of $1,337,190
(excluding $704,813 due to URT). Management anticipates that the Company's
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 which it may plan to open 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 issued and outstanding 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. All of such shares are owned by URT. During the 1997
fiscal year, the Company did not pay any dividends to URT with respect to its
preferred stock, due to URT's waiver of the dividends payable with respect to
such stock. The total dividends otherwise payable with respect to the
outstanding preferred stock is $60,000 per annum (See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS").
In March, 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets to be Disposed Of, which became effective for fiscal years beginning
after December 15 ,1995. This standard establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets and certain intangibles to be disposed of. The Company
adopted this standard in 1997, and it did not have a material impact on the
financial condition or operating results of the Company.
-15-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PEACHES ENTERTAINMENT CORPORATION
Table of Contents
Independent Auditors' Report 17
Financial Statements:
Balance Sheets as of March 29, 1997 and March 30, 1996 18
Statements of Operations for each of the years in the three
year period ended March 29, 1997 19
Statements of Shareholders' Equity for each of the years in
the three year period ended March 29, 1997 20
Statements of Cash Flows for each of the years in the three
year period ended March 29, 1997 22
Notes to Financial Statements 24
16
<PAGE>
Independent Auditors' Report
Directors and Shareholders
Peaches Entertainment Corporation
Hallandale, Florida:
We have audited the accompanying balance sheets of Peaches Entertainment
Corporation (the "Company") as of March 29, 1997 and March 30, 1996, and the
related statements of operations, shareholders' equity and cash flows for each
of the years in the three-year period ended March 29, 1997. 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 March 29, 1997 and March 30, 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended March 29, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
May 30, 1997, except as to note 2
which is as of June 9, 1997
Ft. Lauderdale, Florida
17
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Balance Sheets
March 29, 1997 and March 30, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,456,070 1,917,566
Inventories 2,855,494 4,954,260
Prepaid inventory 39,733 254,249
Prepaid expenses and other current assets 220,275 279,346
Refundable income taxes -- 9,136
----------- -----------
Total current assets 4,571,572 7,414,557
Property and equipment, net 1,439,731 1,843,708
Other assets 158,762 184,351
----------- -----------
$ 6,170,065 9,442,616
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities not subject to compromise
Current liabilities:
Current portion of long-term obligations 730,239 124,774
Accounts payable 1,371,869 103,038
Accrued liabilities 956,005 1,103,054
----------- -----------
Total current liabilities 3,058,113 1,330,866
Long-term obligations 1,337,190 810,367
Due to Parent 704,813 --
Deferred rent 156,036 200,723
----------- -----------
Total liabilities not subject to compromise 5,256,152 2,341,956
Liabilities subject to compromise -- 5,671,434
----------- -----------
Total liabilities 5,256,152 8,013,390
----------- -----------
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 as of
March 29, 1997) 350,000 --
Common stock, $.01 par value; 40,000,000 shares
authorized; 19,889,120 shares and 20,107,850 shares
issued as of March 29, 1997 and March 30, 1996 198,892 201,079
Additional paid-in capital 1,284,471 1,284,471
Retained deficit (1,399,670) (496,429)
----------- -----------
933,693 1,489,121
----------- -----------
Treasury stock, 107,850 and 326,580 common shares,
at cost, as of March 29, 1997 and March 30, 1996 (19,780) (59,895)
----------- -----------
Total shareholders' equity 913,913 1,429,226
----------- -----------
Commitments and contingencies
----------- -----------
$ 6,170,065 9,442,616
=========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Operations
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 18,109,119 23,626,489 31,960,953
------------ ---------- ----------
Costs and expenses:
Cost of sales 11,453,125 15,316,441 20,347,493
Selling, general and administrative expenses 7,570,528 9,513,941 11,473,660
Store closing costs -- 189,623 548,701
Loss on litigation -- -- 431,692
Management fees -- 562,500 1,024,386
------------ ---------- ----------
19,023,653 25,582,505 33,825,932
------------ ---------- ----------
Loss from operations (914,534) (1,956,016) (1,864,979)
------------ ---------- ----------
Other (expense) income:
Interest expense (88,345) (111,451) (82,332)
Interest income 30,832 22,566 48,891
------------ ---------- ----------
(57,513) (88,885) (33,441)
------------ ---------- ----------
Loss before reorganization costs, income (972,047) (2,044,901) (1,898,420)
taxes and extraordinary gain
Reorganization costs:
Professional fees (379,645) (88,223) --
Store closing costs -- (282,927) --
------------ ---------- ----------
(379,645) (371,150) --
------------ ---------- ----------
Loss before income taxes and extraordinary gain (1,351,692) (2,416,051) (1,898,420)
Provision for income taxes -- -- 96,988
------------ ---------- ----------
Loss before extraordinary gain (1,351,692) (2,416,051) (1,995,408)
Extraordinary gain due to reorganization (note 9) 486,379 -- --
------------ ---------- ----------
Net loss $ (865,313) (2,416,051) (1,995,408)
============ ========== ==========
Net loss per common share $ (.04) (.12) (.10)
============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Shareholders' Equity
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
Preferred stock Common stock subscribed Common stock
------------------------- --------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 2, 1994 5,000 $ 500,000 -- $ -- 20,107,850 $ 201,079
Net loss -- -- -- -- -- --
Payment of preferred stock
dividend to Parent -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, April 1, 1995 5,000 500,000 -- -- 20,107,850 201,079
Net loss -- -- -- -- -- --
Payment of preferred stock
dividend to Parent -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 30, 1996 5,000 500,000 -- -- 20,107,850 201,079
Net loss -- -- -- -- -- --
Contributed capital -- -- 20,000,000 350,000 (218,730) (2,187)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 29, 1997 5,000 $ 500,000 20,000,000 $ 350,000 19,889,120 $ 198,892
=========== =========== =========== =========== =========== ===========
</TABLE>
20
<PAGE>
Treasury stock Capital Retained
------------------------ in excess earnings
Shares Amount of par (deficit) Total
---------- ---------- ---------- ---------- ----------
326,580 $ (59,895) 1,284,471 4,020,030 5,945,685
-- -- -- (1,995,408) (1,995,408)
-- -- -- (60,000) (60,000)
--------- ---------- ---------- ---------- ----------
326,580 (59,895) 1,284,471 1,964,622 3,890,277
-- -- -- (2,416,051) (2,416,051)
-- -- -- (45,000) (45,000)
--------- ---------- ---------- ---------- ----------
326,580 (59,895) 1,284,471 (496,429) 1,429,226
-- -- -- (865,313) (865,313)
(218,730) 40,115 -- (37,928) 350,000
--------- ---------- ---------- ---------- ----------
107,850 $ (19,780) 1,284,471 (1,399,670) 913,913
======== ========== ========== ========== ==========
See accompanying notes to financial statements.
21
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows
For each of the years in the three-year period ended March 29, 1997
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (865,313) (2,416,051) (1,995,408)
----------- ---------- ----------
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Extraordinary gain (486,379) -- --
Depreciation and amortization 448,862 455,156 559,450
Loss on abandonment of leasehold
improvements -- 190,601 --
Deferred income taxes -- -- 337,321
Deferred rent (44,687) (299,747) 15,402
Changes in assets and liabilities affecting
cash flows from operating activities:
(Increase) decrease in:
Inventories 25,200 624,477 263,579
Prepaid inventory 214,516 (254,249) --
Prepaid expenses and other current
assets 59,071 10,067 27,108
Refundable income taxes 9,136 248,093 (221,229)
Other assets 25,589 4,997 46,980
Increase (decrease) in:
Accounts payable 1,268,831 (4,027,492) (484,050)
Accrued liabilities (147,049) (420,893) 230,012
Long-term obligations -- (61,022) 334,573
Liabilities subject to compromise (1,854,514) 5,671,434 --
Changes due to reorganization activities:
Loss on abandonment of leasehold
improvements -- 296,509 --
----------- ---------- ----------
Net cash (used in) provided by
operating activities (1,346,737) 21,880 (886,262)
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (44,885) (168,331) (920,477)
Proceeds from disposition of land, property and
equipment -- 615,243 --
----------- ---------- ----------
Net cash (used in) provided by
investing activities (44,885) 446,912 (920,477)
----------- ---------- ----------
Cash flows from financing activities:
Due to Parent 704,813 -- --
Capital contribution 350,000 -- --
Repayment of long-term obligations (124,687) (43,519) (206,173)
Dividends paid -- (45,000) (60,000)
----------- ---------- ----------
Net cash provided by (used in)
financing activities 930,126 (88,519) (266,173)
----------- ---------- ----------
22 (Continued)
</TABLE>
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net (decrease) increase in cash and
cash equivalents $ (461,496) 380,273 (2,072,912)
Cash and cash equivalents, beginning of year 1,917,566 1,537,293 3,610,205
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,456,070 1,917,566 1,537,293
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 88,345 111,451 82,332
=========== =========== ===========
Income tax payments (refund), net $ -- (248,093) (19,104)
=========== =========== ===========
<CAPTION>
Supplemental schedule of non-cash operating and investing activities relating to
the reorganization:
<S> <C>
Liabilities subject to compromise, March 30, 1996 $5,671,434
Less: Inventory returns for credit 2,073,566
Cash paid 1,854,514
Extraordinary gain (primarily as a result of lease
rejection claims - note 9) 486,379
----------
Long-term obligation, March 28, 1997 (note 6) $1,256,975
==========
</TABLE>
See accompanying notes to financial statements.
23 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
March 29, 1997, March 30, 1996 and April 1, 1995
(1) Organization and Basis of Presentation
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 93.5
percent-owned subsidiary of URT Industries, Inc. (the "Parent").
(2) Confirmation of Amended Plan of Reorganization
On January 16, 1996 (the "Petition Date"), the Company commenced
reorganization proceedings under Chapter 11 of the United States Bankruptcy
Code. On January 17, 1997, the Company's plan of reorganization was
confirmed by the Bankruptcy Court for the Southern District of Florida
("Bankruptcy Court"). In Chapter 11, the Company continued to manage its
affairs and operate its business as debtor-in-possession while it developed
a plan of reorganization to restructure and allow its emergence from
Chapter 11. As debtor-in-possession in Chapter 11, the Company could not
engage in transactions outside of the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court.
Under Chapter 11 proceedings, litigation and actions by creditors to
collect certain claims in existence at the petition date ("prepetition")
were stayed, absent specific bankruptcy court authorization to pay such
claims, which are reflected as "liabilities subject to compromise" at March
30, 1996.
As debtor-in-possession, the Company had the right, subject to Bankruptcy
Court approval and certain other limitations, to assume or reject certain
executory contracts, including unexpired leases. Any claim for damages
resulting from the rejection of an executory contract or an unexpired lease
was treated as a general unsecured claim in the Chapter 11 proceedings. The
Company affirmed 13 leases (5 of which were modified on terms more
favorable to the Company) and rejected 8 leases.
On August 5, 1996, the Company filed its plan of reorganization with the
Bankruptcy Court. An amended plan of reorganization was filed on October
23, 1996. The amended plan of reorganization, as modified by the Bankruptcy
Court's order of January 17, 1997, was confirmed by the Bankruptcy Court on
such date (the "confirmation date"), and became effective February 3, 1997
(the "effective date"), subject to satisfaction of certain conditions which
were satisfied by February 19, 1997. The principal terms of the confirmed
plan are as follows:
o All unsecured creditors, including all inventory suppliers, but
excluding landlords under leases rejected by the Company, are entitled
to 100 percent of their allowed claims (the total of which is
approximately $4,922,000). The Company's seven principal suppliers
(whose allowed claims total approximately $4,372,000 out of such
$4,922,000) are entitled to and received payment and inventory returns
equal to approximately 70 percent of their allowed claims (80 percent
in the case of one such supplier) within approximately 60 days after
the effective date, and the balance (approximately $1,284,000) is
payable with interest at prime over a period of 24 months commencing
March 1997. The remaining unsecured creditors (whose allowed claims
total approximately $550,000)
24 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
were entitled to and received the full amount of their allowed
claims on the effective date. The amounts owed to the principal
suppliers are secured by a perfected first lien and security
interest in the inventory originally distributed by the secured
parties which was sold to the Company or is otherwise in the
possession and owned by the Company.
o Landlords under the leases rejected by the Company in connection
with the bankruptcy filing were entitled to 30 percent of the
allowed claims with respect to such leases, all of which was paid
on the effective date.
o The mortgage holder will receive 100 percent of the allowed
claim, with interest, in accordance with the amortization
schedule previously in effect, except that the balloon payment on
such mortgage which would otherwise have been due in September
1997 was extended to September 2002. All mortgage payments under
the amortization schedule were paid timely during the Chapter 11
proceedings.
o The priority tax claim in the approximate amount of $118,000,
which is owed to the Florida Department of Revenue, will be
payable with interest at 8 percent over two years from the
effective date.
o The priority administrative claims, including professional fees
in the approximate amount of $200,000 which have been incurred in
connection with the reorganization, were paid on the effective
date.
In order for the Company to be able to effect the plan of
reorganization on the terms described above, the Parent, in exchange
for the issuance to it of 20 million shares of the Company's
authorized common stock (including 218,730 treasury shares),
contributed $350,000 to the capital of the Company, waived an
aggregate of $75,000 of dividends payable by the Company to the
Parent, guaranteed, subject to the terms of the Plan, the
approximately $1,284,000 which is due the principal suppliers in
accordance with the foregoing, and loaned $700,000 to the Company. The
loan will be repaid to the Parent with interest at prime over a period
of four years beginning on the third anniversary of the effective
date, is subordinate to the amounts owed to the principal suppliers,
and is secured by inventory and all the assets of the Company. As a
result of the above transaction, the Parent is the beneficial owner of
approximately 93.5 percent of the Company's issued and outstanding
shares of common stock and all of its issued and outstanding shares of
preferred stock.
In March 1997, the Parent and the Company agreed that if the Company's
financial statements for its 1997 fiscal year show total shareholders'
equity of less than $1,000,000, the above-described $700,000 loan
would be reduced by an amount equal to the lesser of $200,000 or the
difference between $1,000,000 and the total shareholders' equity of
the Company as of the end of its 1997 fiscal year, without taking such
debt reduction into account, and cause the amount of such aggregate
debt reduction to be transferred to the capital account of the Company
in exchange for shares of a new class of cumulative preferred stock,
entitled Series C preferred stock, in an amount as shall be determined
by dividing the amount of such aggregate debt reduction by $100. Any
Series C preferred stock to be so issued will have a par value of $100
and a cumulative preferred dividend of 10% per annum. The approval of
the holders of a majority of the shares of Series C preferred stock,
voting as a separate class, shall be required with respect to all
matters on which the shareholders have a right to vote. On June 9,
1997, the above agreement was rescinded.
25 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(3) Liquidity
As discussed in note 2, the Company's Amended Plan of Reorganization was
confirmed by the bankruptcy court and became effective February 3, 1997.
The Company believes that it has benefited from its reorganization which
includes the closing of six unprofitable stores which were closed during
1996 and the modification of five store leases, the closing of the former
headquarters and warehouse, and the termination of other unprofitable
business arrangements. Also, 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.
(4) Summary of Significant Accounting Policies
(a) Fiscal Year
The Company's fiscal year consists of 52 or 53 weeks ending on the
Saturday closest to the end of March. The fiscal years ended March 29,
1997, March 30, 1996 and April 1, 1995 consisted of 52 weeks,
respectively.
(b) 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 $-0- and $1,082,100 at March
29, 1997 and March 30, 1996, respectively. The carrying amount
approximates fair value because of the short-term maturity of these
investments. The fair values are estimated based on quoted market
prices for these or similar instruments.
(c) Inventories
Inventories, comprised of compact discs, cassettes, videos and
accessories, are stated at the lower of cost (principally average)
including freight in, or market.
(d) Property and Equipment
Property and equipment are stated at cost. The assets are depreciated
over their estimated useful lives ranging from five to 31.5 years
using both straight-line and accelerated methods. The Company's policy
is to retire assets from its accounts as they become fully
depreciated.
26 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(e) 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.
The Company accounts for income taxes under the provisions of
Financial Accounting Standards Board's ("SFAS") No. 109, which
generally requires recognition of deferred tax liabilities and assets
for the future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined on differences between the
financial reporting and tax bases of assets and liabilities and are
measured by applying enacted tax rates and laws for the taxable years
in which those differences are expected to reverse. Under SFAS No.
109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date.
(f) Loss Per Common Share
Loss per common share was computed by dividing net 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 20,055,243 for the
year ended March 29, 1997 and 19,781,270 for the years ended March 30,
1996 and April 1, 1995.
(g) 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.
(h) Reorganization Costs
Reorganization costs include: (a) professional fees relating to legal,
accounting and consulting services provided in connection with the
Chapter 11 proceedings and (b) costs and expenses associated with the
closing of locations.
(i) Use of Estimates by Management
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates.
27 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to be
Disposed Of, on March 31, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations or liquidity.
(k) New Accounting Standard
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
Earnings per Share, which supersedes ABP Opinion No. 15, Earnings per
Share, was issued in February 1997. SFAS 128 requires dual
presentation of basic and diluted earnings per share (EPS) for complex
capital structures on the face of the income statement. Basic EPS is
computed by dividing income by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise or conversion of securities into common
stock, such as stock options. SFAS 128 is required to be adopted for
year-end 1998; earlier application is not permitted. Management does
not expect the basic or diluted EPS measured under SFAS 128 to be
materially different than the primary or fully-diluted EPS measured
under APB No. 15.
(l) Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
(5) Property and Equipment, net
Property and equipment consist of the following at March 29, 1997 and March
30, 1996:
1997 1996
---- ----
Land $ 395,570 395,570
Building 538,093 538,093
Leasehold improvements 1,732,924 1,867,903
Furniture and equipment 1,029,642 1,602,467
Building under capitalized lease 206,964 206,964
----------- -----------
3,903,193 4,610,997
Less accumulated depreciation
and amortization (2,463,462) (2,767,289)
----------- -----------
$ 1,439,731 1,843,708
=========== ===========
28 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(6) Long-term Obligations
Long-term obligations consist of the following at March 29, 1997 and March
30, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Capital lease obligation, due in monthly
installments of $3,382, including
interest at 17.5%; final payment due
March 2005 $ 174,139 183,353
Mortgage payable, due in equal installments of
$2,981 per month, plus interest at prime plus 0.5%;
collateralized by the mortgaged property with depreciated
cost of $802,178; final balloon payment of $284,500 due
September 2002 (note 2) 442,462 478,238
Settlement agreement with former
director/shareholder, due in monthly
installments of $5,699, final payment due
January 2000 193,853 273,550
Promissory notes, due in installments of $26,744 for 21 months
and two payments of $347,675 (due February 1998 and 1999),
plus interest at prime; collateralized by
inventory and guaranteed by the Parent (note 2) 1,256,975 --
----------- -----------
2,067,429 935,141
Less current portion (730,239) (124,774)
----------- -----------
$ 1,337,190 810,367
=========== ===========
</TABLE>
The capital lease pertains to the building portion of property owned by one
director and one former director. The rent expense on the land portion of
this lease was $113,000 for 1997 and 1996 and $99,000 for 1995.
The following represents future minimum lease payments under the capital
lease obligation:
Fiscal year Amount
----------- --------
1998 $ 40,600
1999 40,600
2000 40,600
2001 40,600
2002 40,600
Thereafter 121,560
--------
Total minimum lease payments 324,560
Less amount representing interest (150,421)
--------
Present value of minimum lease
payments $174,139
========
29 (Continued)
<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
----------- -----------
1998 $ 719,277
1999 746,023
2000 92,853
2001 35,775
2002 35,775
Thereafter 263,587
-----------
$ 1,893,290
===========
The Company has a standby letter of credit of $64,800 available to a
landlord that was not drawn upon as of March 29, 1997. The letter of credit
is fully collateralized by a certificate of deposit, which is included in
other assets. In addition, the Company has an irrevocable letter of credit
of $150,000 that was not drawn upon as of March 29, 1997.
(7) Accrued Liabilities
Accrued liabilities consist of the following at March 29, 1997 and March
30, 1996:
1997 1996
---- ----
Gift certificate and credit slip liability $ 184,884 371,647
Payroll and related benefits 99,701 196,699
Sales and real estate taxes payable 188,087 280,191
Accrued overhead expenses 267,102 125,231
Other 216,331 129,286
---------- ----------
$ 956,005 1,103,054
========== ==========
(8) Due to Parent
In order for the Company to effect the plan of reorganization, the Parent
loaned $700,000 to the Company. The loan will be repaid to the Parent with
interest at prime over a period of four years beginning on the third
anniversary of the effective date. The loan is subordinate to the amounts
owed to principal suppliers and is secured by inventory and all the assets
of the Company.
(9) Liabilities Subject to Compromise
Liabilities subject to compromise at March 30, 1996 include the following:
Lease rejection claims $ 600,000
Trade and other miscellaneous claims 5,071,434
----------
$5,671,434
==========
30 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
Liabilities subject to compromise under the Chapter 11 proceedings include
substantially all trade and other payables as of the petition date. As
discussed in note 2, payment of these liabilities, including the maturity
of debt obligations, were stayed while the Company continued to operate as
a debtor-in-possession.
On January 17, 1997, the Company's plan of reorganization was confirmed by
the Bankruptcy Court and the Company recorded an extraordinary gain of
$486,379 primarily as a result of the settlement of lease rejection claims
(note 2).
(10) 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 March 29, 1997. Most of the leases contain renewal
options. In connection with the Chapter 11 filing, the Company
affirmed 13 leases (5 of which were modified on terms more favorable
to Peaches) and rejected 8 leases.
The aggregate minimum rental commitments under all noncancelable
operating leases at March 29, 1997 are as follows:
Fiscal year Amount
----------- ----------
1998 $1,195,769
1999 1,038,225
2000 698,232
2001 653,551
2002 334,395
Thereafter 2,900,248
----------
$6,820,420
==========
Rental expense under noncancelable operating leases, included in
selling, general and administrative expenses in the accompanying
statements of operations amounted to $1,217,000, $1,853,000 and
$2,367,000, respectively, for each of the years in the three-year
period ended March 29, 1997.
Rental expense on stores owned by two directors and/or their relatives
was $131,250, $215,417 and $251,667, respectively, for each of the
years in the three-year period ended March 29, 1997.
31 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
(b) Legal Matters
The Company has been party to a lawsuit involving the Company's
closing of a store which it had based 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.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of its business. In the
opinion of management, all such matters are without merit or involve
such amounts that unfavorable disposition will not have a material
impact on the financial position or results of operations of the
Company.
(c) Employment Agreement
On March 18, 1996, the United States Bankruptcy Court Southern
District of Florida approved the settlement of an employment agreement
with a former officer. The Company is to pay an amount of $273,550
over a period of four years (note 6). Under the original terms of the
employment, the officer would have been entitled to in excess of
$870,000 in the aggregate.
(d) Management Agreement
On March 29, 1993, as amended, the Company entered into a management
and intercorporate agreement (the "Management Agreement") with the
Parent whereby the Company was required to pay the Parent an annual
fee; the Parent was required to provide the Company with the services
of the person who is the president and chairman; the Parent was
required to pay the Company for certain accounting and administrative
services performed by the Company; and so long as the Parent and the
Company filed consolidated income tax returns, their respective
liabilities for such taxes would be equitably apportioned as provided
in such agreement. Effective as of the close of business on December
31, 1995, the Management Agreement was terminated and replaced with
three new agreements which became effective January 1, 1996. In lieu
of paying a management fee to the Parent, the three new agreements
require payment to the Parent's president and chairman as long as he
continues to provide services similar to those performed under the
original Management Agreement.
(11) Shareholders' Equity
For each of the years in the three-year period ended March 29, 1997, the
Company had 2,500 shares of $100 par, 11 percent, Series A Cumulative
Preferred Stock and 2,500 shares of $100 par, 13 percent, Series B
Cumulative Preferred Stock authorized, issued and outstanding. The Parent
is the owner of all outstanding shares of Preferred Stock. In connection
with the reorganization, the Parent agreed to waive dividends in its shares
for the period beginning January 1, 1996 and ending March 29, 1997. 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
32 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
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. In March 1997, the conversion
feature was eliminated. The liquidating value for both the Series A and
Series B shares is par value plus all accrued and unpaid dividends.
(12) Pension Plan
Effective September 15, 1994, the Company curtailed 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 net impact of this curtailment and
settlement in plan liabilities is a loss of $24,949, which is reflected in
selling, general and administrative expenses in fiscal year 1995.
(13) Income Taxes
The provision for income taxes consists of:
1997 1996 1995
---- ---- ----
Current:
Federal $ -- -- (240,000)
State -- -- --
------- -------- --------
-- -- (240,000)
Deferred:
Federal -- -- 292,000
State -- -- 45,000
------- -------- --------
-- -- 337,000
------- -------- --------
$ -- -- 97,000
======= ======== ========
Reasons for differences between income tax provision and the amount
computed by applying the statutory federal income tax rate of 34 percent to
pretax loss were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax benefit at applicable statutory tax rate of
loss before income taxes $(294,000) (821,000) (645,000)
Add:
State income tax benefit, net of federal benefit (31,000) (81,000) (79,000)
Change in valuation allowance 185,000 852,000 811,000
Capitalized reorganization expenses and other
permanent differences 50,000 -- --
Adjustments to net operating loss and other deferred
tax assets 76,000 -- --
Other 14,000 50,000 10,000
--------- --------- ---------
Income tax provision for the year $ -- -- 97,000
========= ========= =========
</TABLE>
33 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 29, 1997 and March 30, 1996
are presented below.
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996
---- ----
<S> <C> <C>
Inventories, principally due to additional costs
capitalized for tax purposes $ 106,000 87,000
Property and equipment, net, principally due to
differences in depreciation 221,000 152,000
Accrued rent, principally due to accrual for financial
reporting purposes 58,000 91,000
Provision for store closings -- 80,000
NOL carryforward 1,409,000 1,100,000
Accrued expenses 72,000 177,000
Other 35,000 29,000
----------- -----------
Total gross deferred tax assets 1,901,000 1,716,000
Less valuation allowance (1,901,000) (1,716,000)
----------- -----------
Net deferred tax assets $ -- --
=========== ===========
</TABLE>
At March 29, 1997, the Company has a net operating loss carryforward for
federal income tax purposes of approximately $3,796,000 which is available
to offset future federal taxable income, if any, through 2012.
A valuation allowance is provided to reduce deferred tax assets to a level
which, more likely than not, will be realized. The net deferred assets
reflect management's estimate of the amount which will be realized from
future profitability which can be predicted with reasonable certainty. The
valuation allowance for deferred tax assets as of March 29, 1997 and March
30, 1996 was $1,901,000 and $1,716,000, respectively. The net change in the
total valuation allowance for the years ended March 29, 1997 and March 30,
1996 was an increase of approximately $185,000 and $852,000, respectively.
(14) Fair Value of Financial Instruments
The fair value of the Company's long-term debt and due to Parent is
estimated by discounting the future cash flows for each instrument at rates
currently offered to the Company for similar debt instruments of comparable
maturities, which approximates the carrying value.
(15) Business and Credit Concentrations
The retail sale of prerecorded music and video products is highly
competitive. The Company's share of the retail market in the Southeastern
United States is not significant. However, management believes the Company
has certain competitive advantages, including more convenient store
locations, a large selection of inventory and superior customer service.
34 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
The Company purchased approximately 76 percent of its merchandise from
seven principal suppliers during the fiscal year ended March 29, 1997.
Purchases from given suppliers are, to a great extent, determined by which
of them are manufacturing or distributing the most popular prerecorded
music products at a given time, as well as the credit and other terms on
which such suppliers are willing to sell to the Company.
The Company is not obligated to purchase merchandise from any supplier. The
loss of any particular supplier would not have a materially negative effect
on the Company's results of operations; however, a combination of lost
suppliers may have a materially negative effect on the Company's results of
operations. In addition, expenses would be greater if such alternate
sources were utilized.
35
<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
As of the date of this filing, the directors and executive officers of PEC
are:
Name Position Age
Allan Wolk Chairman of the Board,
President (Chief Executive
Officer) and Director 59
Brian Wolk Executive Vice-President and Director 31
Jason Wolk Executive Vice-President, Chief Financial Officer
(Principal Financial and Accounting Officer),
Treasurer and Director 29
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 40 years, principally in the rack merchandising and retail segments
thereof.
Brian Wolk, an attorney, has been employed by PEC in various capacities and
at various times since 1982 and has been employed by it, full time, since 1992.
He is a son of Allan Wolk. He has been a director of PEC and URT since 1994 and
a vice-president of both companies since June, 1995. He was appointed Executive
Vice-President of both companies in March, 1996.
Jason Wolk, a certified public accountant, has been employed by PEC in
various capacities and at various times since 1983 and has been employed by it,
full time, since 1994. He is a son of Allan Wolk. Prior to his full time
employment by PEC, he had been employed as an accountant by KPMG Peat Marwick
LLP. He has been a director of PEC and URT since 1994 and a vice-president and
the secretary of both companies since June, 1995. He was
-36-
<PAGE>
appointed Treasurer and Chief Financial Officer (Principal Financial and
Accounting Officer) of both companies in September, 1995, and was appointed
Executive Vice-President of both companies in March, 1996.
The term of office of each director continues until the next annual meeting
of the stockholders and until his or her successor is elected. Mr. Wolk has an
employment agreement with URT. Under the management agreements referred to
above, PEC has the right to use the services of Mr. Wolk (See
"BUSINESS--Management Agreements 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 1997 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 $100,000 and who served as executive officers during the
1997 fiscal year:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------------------------------- ----------------------------------------
Awards Payouts
------------------------- -------
Long
Options/ Term
Other Stock Incen. All
Annual Restricted App. Plan Other
Name and Fiscal Salary Bonus Compensa- stock Rights Pay-outs Compensa-
position Year ($) ($) tion($) award(s)($) (#) ($) tion($)
- -------- ---- --- --- ------- ----------- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allan Wolk, 1997 491,667(1) -0- -0- (1) -0- -0- -0- -0-
Chairman, 1996 125,000(1) -0- -0- (1) -0- -0- -0- 308,222(2)
Pres. & CEO 1995 -0- (1) -0- -0- (1) -0- -0- -0- -0-
</TABLE>
-37-
<PAGE>
- ----------
(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 intercorporate agreements described above. Pursuant
to such agreements, effective as of the first day of the last quarter of
the 1996 fiscal year (January 1, 1996), PEC is required to pay a salary to
Mr. Wolk in the amount of $500,000 per annum, except that the salary so
payable to Mr. Wolk has been reduced to $400,000 effective March 1, 1997
and continuing until February 28, 1999.
(2) Such amount represents a one-time distribution to Mr. Wolk as a result of
the termination, effective May 12, 1995, of the PEC defined benefit plan
and trust.
Employment Contracts
There are no employment contracts or severance agreements in place between
PEC and any of its executive officers. However, pursuant to the arrangements
described above, PEC is obligated to pay a salary to Allan Wolk, its Chairman,
President and Chief Executive Officer (See "BUSINESS--Management Agreements
Between URT and PEC").
Compensation Committee Interlocks and Insider Participation
PEC does not have a compensation committee or other board committee
performing equivalent functions. During the 1997 fiscal year, all deliberations
concerning executive officer compensation or any other arrangements between 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.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this filing, URT owns approximately 37,213,370 shares of
PEC common stock, constituting approximately 94% of the issued and outstanding
shares of such common stock, and all of PEC's issued and outstanding shares of
Series A and Series B preferred stock. All of such shares of PEC stock are owned
directly with voting and investment power.
-38-
<PAGE>
As set forth in the following table, Allan Wolk and members of his
immediate family own approximately 30% 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 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, as of June
3, 1997, 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:
<TABLE>
<CAPTION>
Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------- --------
<S> <C> <C> <C>
Class A Common Executive Officers
Stock, par value and Directors
$.01 per share
Allan Wolk 3,194,186(1) 29.4%
Allan Wolk and
Lawrence Strauss,
as Trustees 33,072(2) *
Brian Wolk 12,980(3) *
Jason Wolk 17,480(3) *
---------
All officers and
directors as a
group (3 persons) 3,257,718 30.0
Other
Scorpio Music, Inc.
P. O. Box A
Trenton, N.J. 08691 1,195,550(4) 11.0%
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Amount & Nature
of Beneficial Percent
Title of Class Name Ownership of Class
- -------------- ---- --------- --------
<S> <C> <C> <C>
Class B Common Executive Officers and Directors
Stock, par value
$.01 per share Allan Wolk 786,654(5) 58.4%
=========
All officers and
directors as a
group (1 person) 786,654 58.4%
</TABLE>
(1) Includes 3,150,786 shares owned by Allan Wolk, 25,920 shares owned by his
wife and 17,480 shares held by him for his daughter. However, Mr. Wolk has
renounced all voting and investment power with respect to those shares of
URT which are held by him for his daughter. He believes that his wife will
vote the shares owned by her in favor of proposals which he favors, but
disclaims beneficial ownership of any shares owned by her or held for the
benefit of his daughter.
(2) Such shares are held by Lawrence Strauss and Allan Wolk as trustees for the
benefit of children of Sheffield Wolk, Mr. Wolk's brother. Allan Wolk has
renounced all voting and investment power with respect to those shares of
URT which are so held in trust for the benefit of children of Mr. Wolk's
brother. All such powers as trustee are exercised exclusively by the
co-trustee, and Mr. Wolk disclaims beneficial ownership of such shares.
(3) Such shares are held in the name of Allan Wolk, as custodian. However, Mr.
Wolk has renounced all voting and investment power with respect to those
shares of URT which are held by him for his two sons, and disclaims
beneficial ownership of such shares. Such shares, being listed separately
here, are not included under the shares listed as beneficially owned by
Allan Wolk.
(4) Based on information supplied by URT's transfer agent. Does not include
160,000 shares reported in a Schedule 13D, dated June 14, 1989, as owned by
John T. Gervasoni, Scorpio's reported president and 100% shareholder, as to
which no confirmation of ownership has been made by URT's transfer agent.
(5) Includes 780,174 shares owned by Allan Wolk and 6,480 shares owned by his
wife. Mr. Wolk believes that his wife will vote the shares owned by her in
favor of proposals which he favors, but disclaims beneficial ownership of
such shares.
(*) Less than one percent.
-40-
<PAGE>
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 PEC,
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 the cost of such renovations which, with interest, is being deducted
by PEC over a period of 36 months.
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 and, in the
opinion of management, is as reasonable as those which could have been obtained
from unaffiliated third parties.
Because of the profitability of the above-referenced Fort Lauderdale and
Orlando stores, the leases for such two stores were among the leases which PEC
elected to assume during its Chapter 11 proceeding with the approval of the
Bankruptcy Court (See "LEGAL PROCEEDINGS").
In April, 1989, PEC's board of directors authorized PEC to enter into
agreements with its officers and directors under which they 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. Such
agreements were entered into with all then-existing officers and directors of
PEC on or about May 22, 1989. On or about July 14, 1995, and pursuant to the
further authorization of the board of directors on such date, PEC entered into
indemnification agreements with the two additional officers and directors, Brian
Wolk and Jason Wolk, who were appointed to their respective positions subsequent
to 1989. The indemnification agreements so entered into with Brian Wolk and
Jason Wolk are in the same form as the indemnification agreements entered into
in 1989 with the then-existing officers and directors.
-41-
<PAGE>
In order to enable PEC to effect the Plan of Reorganization on the terms
described above, URT, in exchange for the issuance to it of 20,000,000 shares of
PEC's authorized common stock (including 218,730 treasury shares), has:
contributed $350,000 to the capital of PEC; waived an aggregate of $75,000 of
dividends payable by PEC to URT with respect to the period running from January
1, 1996 to March 31, 1997; loaned $700,000 to PEC; and agreed that, subject to
the terms of the Plan of Reorganization, it would guarantee the approximately
$1,284,000 which is due to PEC's principal suppliers after the Effective Date
pursuant to the arrangements described in "LEGAL PROCEEDINGS" above. In order to
facilitate the issuance of such shares to URT, URT also waived its right to
convert to common stock the Series A preferred stock of PEC which is owned by
URT. The loan from URT is required to be paid back by PEC with interest at the
prime rate charged by Chase Manhattan Bank, N.A. over a period of four years
beginning on the third anniversary of the Effective Date. The debt so owed by
PEC to URT is subordinate to the amounts owed to PEC's principal suppliers, and
is secured by a second mortgage on PEC's Mobile, Alabama property.
On or about March 25, 1997, URT and PEC agreed that if the total
shareholders' equity of PEC, as of the end of the 1997 fiscal year, is less than
$1,000,000, then the above-described $700,000 loan from URT to PEC would be
reduced by an amount equal to the lesser of $200,000 or the difference between
$1,000,000 and such total shareholders' equity as of the end of the 1997 fiscal
year, without taking such debt reduction into account, and cause the amount of
such aggregate debt reduction to be transferred to the capital account of PEC in
exchange for shares of a new class of cumulative preferred stock. Such agreement
between URT and PEC was terminated by them on or about June 9, 1997.
-42-
<PAGE>
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. Financial Statements
Table of Contents 16
Independent Auditors' Report 17
Peaches Entertainment Corporation
Financial Statements:
Balance sheets as of March 29,
1997 and March 30, 1996 18
Statements of operations for each of
the years in the three year period
ended March 29, 1997 19
Statements of shareholders' equity
for each of the years in the three
year period ended March 29, 1997 20
Statements of cash flows for each
of the years in the three year period
ended March 29, 1997 22
Notes to financial statements. 24
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
-43-
<PAGE>
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.
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.
10.54 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.
-44-
<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 No. 1 dated as of October 1, 1994 to Management 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.
10.60 Letter Agreement dated January 1, 1996 between URT and PEC
pertaining to termination of Management and Intercorporate
Agreement dated March 29, 1993, incorporated by reference to
Exhibit 10(jjjj) to URT's Form 10-K Annual Report dated April.
25, 1997.
10.61 Letter Agreement dated January 1, 1996 between URT and PEC
pertaining to services of Allan Wolk, incorporated by reference
to Exhibit 10(kkkk) to URT's Form 10-K Annual Report dated April
25, 1997.
10.62 Indemnification Agreement dated July 14, 1995 between Brian Wolk
and PEC, incorporated by reference to Exhibit 10.67 to PEC's
10-K Annual Report dated April 25, 1997.
10.63 Indemnification Agreement dated July 14, 1995 between Jason Wolk
and PEC, incorporated by reference to Exhibit 10.63 to PEC's
10-K Annual Report dated April 25, 1997.
10.64 PEC's Amended Plan of Reorganization, dated October 23, 1996,
incorporated by reference to Exhibit 1 to PEC's Form 8-K dated
April 7, 1997.
10.65 Order Confirming PEC's Amended Plan of Reorganization, as
Modified, dated January 17, 1997, incorporated by reference to
Exhibit 2 to PEC's Form 8-K dated April 7, 1997.
10.66 URT Promissory Note dated January 27, 1997 made by PEC to URT,
incorporated by reference to Exhibit 10.66 to PEC's 10-K Annual
Report dated April 25, 1997.
10.67 Security Agreement dated January 27, 1997 between PEC and URT,
incorporated by reference to Exhibit 10.67 to PEC's 10-K Annual
Report dated April 25, 1997.
-45-
<PAGE>
10.68 Mortgage Agreement with Assignment of Rents, Security Agreement
and Fixture Filing dated January 27, 1997 by PEC in favor of
URT, incorporated by reference to Exhibit 10.68 to PEC's 10-K
Annual Report dated April 25, 1997.
10.69 Reimbursement Agreement dated January 27, 1997 between PEC and
URT, incorporated by reference to Exhibit 10.69 to PEC's 10-K
Annual Report dated April 25, 1997.
10.70 Subordination Agreement dated January 27, 1997 between PEC, URT
and selected creditors, incorporated by reference to Exhibit
10.70 to PEC's 10-K Annual Report dated April 25, 1997.
10.71 Subordination Agreement dated January 27, 1997 between PEC, URT
and creditor, incorporated by reference to Exhibit 10.71 to
PEC's 10-K Annual Report dated April 25, 1997.
10.72 Surrender and Waiver Agreement dated January 27, 1997 between
PEC and URT, incorporated by reference to Exhibit 10.72 to PEC's
10-K Annual Report dated April 25, 1997.
10.73 Waiver Agreement dated March 1, 1997 between PEC and URT,
incorporated by reference to Exhibit 10.73 to PEC's 10-K Annual
Report dated April 25, 1997.
10.74 Stock Purchase Agreement dated March 24, 1997 between PEC and
URT, incorporated by reference to Exhibit 10.74 to PEC's 10-K
Annual Report dated April 25, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K.
PEC filed a report on Form 8-K, dated April 7, 1997, on or about
such date, in order to report on the Plan of Reorganization. It
filed an additional report on Form 8-K, dated May 29, 1997, on
or about such date in order to report the pro-forma financial
data required pursuant to such Plan of Reorganization.
-46-
<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
Dated: June 27, 1997
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
Title Date
----- ----
By: s/Allan Wolk June 27, 1997
----------------------------
Allan Wolk,
Chairman of the Board,
President (Principal
Executive Officer) and Director
By: s/Brian Wolk June 27, 1997
----------------------------
Brian Wolk, Executive
Vice President and Director
By: s/Jason Wolk June 27, 1997
----------------------------
Jason Wolk, Executive
Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer), Treasurer,
Secretary and Director
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the year ended March 29,
1997, and is qualified in its entirety by reference to such financial
statements: (Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-29-1997
<PERIOD-END> Mar-29-1997
<CASH> 1,456,070
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,855,494
<CURRENT-ASSETS> 4,571,572
<PP&E> 3,903,193
<DEPRECIATION> (2,463,462)
<TOTAL-ASSETS> 6,170,065
<CURRENT-LIABILITIES> 3,058,113
<BONDS> 0
0
500,000
<COMMON> 548,892
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<TOTAL-LIABILITY-AND-EQUITY> 6,170,065
<SALES> 18,109,119
<TOTAL-REVENUES> 18,109,119
<CGS> 11,453,125
<TOTAL-COSTS> 11,453,125
<OTHER-EXPENSES> 7,570,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,345
<INCOME-PRETAX> (1,351,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,351,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 486,379
<CHANGES> 0
<NET-INCOME> (865,313)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
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