UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 28, 1996 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 Incorporation or (I.R.S. Employer I.D. No.)
Organization)
1180 E. Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES NO X
---- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At September 28, 1996, there were outstanding:
19,781,270 shares of common stock
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets-September 28, 1996 (Unaudited)
and March 30, 1996 3
Condensed Statements of Operations and Retained Earnings
(Deficit)-Three Months Ended September 28, 1996 and
September 30, 1995 (Unaudited) 4
Condensed Statements of Operations and Retained Earnings
(Deficit)-Six Months Ended September 28, 1996 and
September 30, 1995 (Unaudited) 5
Condensed Statements of Cash Flows-Six Months Ended
September 28, 1996 and September 30, 1995 (Unaudited) 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 3. Default Upon Mortgage Payable 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEACHES ENTERTAINMENT CORPORATION
Condensed Balance Sheets
September 28, 1996 and March 30, 1996
<TABLE>
<CAPTION>
Assets September 28, March 30,
1996 1996
------ ------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,185,010 $ 1,917,566
Inventories 3,423,745 4,954,260
Prepaid inventory 601,886 254,249
Prepaid expenses and other current assets 280,847 279,346
Refundable income taxes 9,838 9,136
----------- -----------
Total current assets 5,501,326 7,414,557
Property and equipment, net 1,723,371 1,843,708
Other assets 156,644 184,351
----------- -----------
$ 7,381,341 $ 9,442,616
=========== ===========
Liabilities and Shareholders' Equity
Liabilities not subject to compromise
Current liabilities:
Current portion of long-term obligations 114,212 124,774
Accounts payable 658,501 103,038
Accrued liabilities 1,350,101 1,103,054
----------- -----------
Total current liabilities 2,122,814 1,330,866
Long-term obligations 753,130 810,367
Deferred rent 192,050 200,723
----------- -----------
Total liabilities not subject to compromise 3,067,994 2,341,956
Liabilities subject to compromise 3,977,622 5,671,434
----------- -----------
Total liabilities 7,045,616 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, $.01 par value; 40,000,000 shares
authorized; 20,107,850 shares issued 201,079 201,079
Additional paid-in capital 1,284,471 1,284,471
Retained deficit (1,589,930) (496,429)
----------- -----------
395,620 1,489,121
Treasury stock, 326,580 common shares, at cost (59,895) (59,895)
----------- -----------
Total shareholders' equity 335,725 1,429,226
Commitments and contingencies
----------- -----------
$ 7,381,341 $ 9,442,616
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Earnings (Deficit)
Three months ended September 28, 1996 and September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Net sales $ 3,888,049 5,326,936
----------- -----------
Costs and expenses:
Cost of sales 2,479,044 3,384,239
Selling, general and administrative expenses 1,861,029 2,448,843
Management fees -- 187,500
----------- -----------
4,340,073 6,020,582
----------- -----------
Loss from operations (452,024) (693,646)
----------- -----------
Other (expense) income:
Interest expense (18,318) (36,685)
Interest income 5,274 7,788
----------- -----------
(13,044) (28,897)
----------- -----------
Loss before reorganization costs and
provision for income taxes (465,068) (722,543)
Reorganization costs:
Professional fees (97,538) --
----------- -----------
Loss before provision for income taxes (562,606) (722,543)
Provision for income taxes -- --
----------- -----------
Net loss (562,606) (722,543)
Retained (deficit) earnings, beginning of period (1,027,324) 1,473,780
Preferred stock dividend -- (15,000)
----------- -----------
Retained (deficit) earnings, end of period $(1,589,930) 736,237
=========== ===========
Net loss per common share $ (.03) (.04)
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Earnings (Deficit)
Six months ended September 28, 1996 and September 30, 1995
(Unaudited)
September 28, September 30,
1996 1995
---- ----
(Unaudited)
Net sales $ 8,193,870 $ 11,595,216
------------ ------------
Costs and expenses:
Cost of sales 5,303,196 7,382,051
Selling, general and administrative expenses 3,771,454 4,988,530
Management fees -- 375,000
------------ ------------
9,074,650 12,745,581
------------ ------------
Loss from operations (880,780) (1,150,365)
------------ ------------
Other (expense) income:
Interest expense (36,931) (57,417)
Interest income 19,286 9,397
------------ ------------
(17,645) (48,020)
------------ ------------
Loss before reorganization costs and
provision for income taxes (898,425) (1,198,385)
Reorganization costs:
Professional fees (195,076) --
------------ ------------
Loss before provision for income taxes (1,093,501) (1,198,385)
Provision for income taxes -- --
------------ ------------
Net loss (1,093,501) (1,198,385)
Retained (deficit) earnings, beginning of period (496,429) 1,964,622
Preferred stock dividend -- (30,000)
------------ ------------
Retained (deficit) earnings, end of period $ (1,589,930) $ 736,237
============ ============
Net loss per common share $ (.06) $ (.06)
============ ============
See accompanying notes to condensed financial statements.
5
<PAGE>
(Continued)
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows
Six months ended September 28, 1996 and September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,093,501) $(1,198,385)
----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 151,884 244,898
Deferred rent (8,673) 29,027
Changes in assets and liabilities affecting cash flows
from operating activities:
(Increase) decrease in:
Inventories 1,530,515 625,601
Prepaid inventory (347,637) -
Prepaid expenses and other current assets (1,501) 61,731
Refundable income taxes (702) (631)
Other assets 27,707 42,951
Increase (decrease) in:
Accounts payable 555,463 (878,926)
Accrued liabilities 247,047 (298,292)
Long-term obligations (34,194) -
Liabilities subject to compromise (1,693,812) -
----------- -----------
Net cash used in operating activities $ (667,404) $(1,372,026)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (31,547) (133,242)
Proceeds from sale of property and equipment - 615,243
------------ -----------
Net cash (used in) provided by investing
activities (31,547) 482,001
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (33,605) (36,180)
Dividends paid - (30,000)
----------- -----------
Net cash used in financing activities $ (33,605) $ (66,180)
----------- -----------
(continued)
</TABLE>
6
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Net decrease in cash and cash equivalents $ (732,556) $ (956,205)
Cash and cash equivalents, beginning of year 1,917,566 1,537,293
----------- -----------
Cash and cash equivalents, end of year $ 1,185,010 $ 581,088
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 36,931 $ 48,020
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
7
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
September 28, 1996 and September 30, 1995
(Unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all footnotes and information necessary for a fair
presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. However, in
the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation have been made.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in Peaches Entertainment Corporation (the "Company") annual report
on Form 10-K for the year ended March 30, 1996.
As of September 28, 1996, the Company was an 87 percent-owned subsidiary of
URT Industries, Inc. (the "Parent").
The results of operations for the six months ended September 28, 1996, are
not necessarily indicative of the operating results to be expected for the
year ending March 29, 1997. The Company's business is seasonal.
Historically, approximately 24 percent of the Company's sales have occurred
in the second fiscal quarter.
Inventories, which consist of compact discs, tapes and accessories, are
stated at the lower of cost (principally average) or market.
Certain reclassifications have been made to the (unaudited) September 30,
1995 quarterly financial information to conform to the presentation used in
the (unaudited) September 28, 1996 financial information.
(2) Reorganization and Emergence From Chapter 11
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")
are stayed, absent specific Bankruptcy Court authorization to pay such
claims. The Company believes that appropriate provisions have been made in
the accompanying financial statements for the prepetition claims that could
be estimated at the date of these financial statements, which are reflected
as "liabilities subject to compromise." Additional claims (liabilities
subject to compromise) may arise subsequent to the filing date resulting
from the rejection of executory contracts, including leases and from
(continued)
8
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
the determination of the court (or as agreed to by parties-in-interest) of
allowed claims for contingencies and disputed amounts.
As debtor-in-possession, the Company has 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
is 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. Among the principal terms of the
confirmed plan are the following:
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) were 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) 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.
(continued)
9
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
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 of the assets of the Company. As a result of the above
transactions, 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 pursuant to such arrangement 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, would be required with respect to all matters on which the
shareholders have a right to vote.
(3) Loss Per Common Share
Net loss per common share was computed by dividing net loss, less preferred
stock dividends, by the weighted average number of total common shares
outstanding during the periods.
(4) Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS") No.
109, "Accounting for Income Taxes." The Company files a consolidated tax
return with its Parent. Any applicable tax charge or credits are allocated
on a separate return basis. For the six month period ended September 28,
1996, there was no (benefit) provision for income taxes as the Company has
net operating loss carryforwards for federal income tax purposes.
10
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(5) Liabilities Subject to Compromise
Liabilities subject to compromise include the following:
September 28, March 30,
1996 1996
---- ----
(Unaudited)
Lease rejection claims $ 600,000 600,000
Trade and other miscellaneous claims 3,377,622 5,071,434
--------- ---------
$3,977,622 5,671,434
========= =========
Subsequent to the petition date, the Company negotiated agreements with all
of its major suppliers, with the approval of the Bankruptcy Court, which
permitted the Company to make returns of unneeded inventory for credit
against prepetition indebtedness. On January 17, 1997, the Company's plan
of reorganization was confirmed by the Bankruptcy Court. The Company
recorded an extraordinary gain of approximately $488,000, primarily as a
result of the settlement of lease rejection claims (note 2) during the
fourth quarter of fiscal 1997.
11
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Six Months Ended September 28, 1996, Compared to
the Six Months ended September 30, 1995.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of other filings. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates, and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should any of the underlying assumptions prove incorrect, actual results of
current and future operations may vary materially from those anticipated,
estimated or projected.
Results of Operations
Net sales for the six months ended September 28, 1996 (such six month period is
hereafter referred to as "1996") decreased by approximately 29.3 percent
compared to the six months ended September 30, 1995 (such six month period is
hereafter referred to as "1995"). Such decrease is attributed to a decrease in
comparable store sales (11.8 percent), and a decrease in sales in those stores
that closed during 1996 versus 1995 (17.5 percent).
During the last few years, nontraditional 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 on January 16, 1996.
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 are the closing of the six
unprofitable stores which were closed during 1996, the closing of the former
headquarters and warehouse, the termination of other unprofitable business
arrangements as described herein and concentration on advantages which Peaches
Entertainment Corporation has over certain of its competitors, including large
inventory, convenient store locations and a high level of customer service.
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 has increased
from 63.7 percent in 1995 to 64.7 percent in 1996 due to a reduction in retail
prices in an effort to meet the increase competition, a change in terms with the
Company's principal suppliers during the Chapter 11 proceeding and the effects
of buying a portion of the Company's inventory during the Chapter 11 proceeding
from alternate sources with higher prices.
12 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Selling, general and administrative (SG&A) expenses in 1996 decreased by 24.4
percent compared to 1995. Such decrease is attributable to a decrease in
comparable store expenses (1.3 percent), a decrease in store operating expenses
of stores that opened or closed during 1996 versus 1995 (19.9 percent) and a
decrease in corporate overhead (3.2 percent). SG&A expenses as a percentage of
net sales increased from 43.0 percent in 1995 to 46.0 percent 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 $1,093,000 in 1996 versus a net
loss of approximately $1,198,000 in 1995 due to the reduction in net sales and
gross profit as described above, in addition to reorganization costs of
approximately $195,000.
Liquidity and Capital Resources
The Company had working capital of $3,378,512 at September 28, 1996 (excluding
liabilities subject to compromise in 1996) compared to working capital of
$6,083,691 at March 30, 1996 and a current ratio (the ratio of total current
assets to total current liabilities) of 2.6 to 1 at September 28, 1996
(excluding liabilities subject to compromise in 1996) compared to a current
ratio of 5.6 to 1 at March 30, 1996. The amount of the liabilities subject to
compromise at September 28, 1996 is $3,977,622.
At September 28, 1996, the Company had long-term obligations of $753,130
(excluding liabilities subject to compromise of $3,977,622). Management
anticipates that its ability to repay its long-term obligations will be
satisfied primarily through funds generated from its operations.
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations. Management would attempt to obtain financing for the opening of
any new stores during the next few years.
Inflation trends have not had an impact upon revenue because increases in costs
have been passed along to customers.
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third fiscal quarter, which includes the Christmas
selling season.
For a discussion of recent developments and uncertainties affecting the
Company's liquidity and capital resources, see note 2 to the financial
statements (Reorganization and Emergence from Chapter 11).
13 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
OTHER INFORMATION
PART II
Item 1. Legal Proceedings
(i) Bankruptcy filings
On January 16, 1996 (the "Petition Date"), Peaches Entertainment
Corporation (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") are stayed, absent specific Bankruptcy Court
authorization to pay such claims. The Company believes that
appropriate provisions have been made in the accompanying financial
statements for the prepetition claims that could be estimated at the
date of these financial statements, which are reflected as
"liabilities subject to compromise." Additional claims (liabilities
subject to compromise) may arise subsequent to the filing date
resulting from the rejection of executory contracts, including leases,
and from the determination of the court (or as agreed to by
parties-in-interest) of allowed claims for contingencies and disputed
amounts.
As debtor-in-possession, the Company has 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 is 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 was confirmed by
the Bankruptcy Court on January 17, 1997 (the "confirmation date"),
and became effective February 3, 1997 (the "effective date") subject
to all conditions precedent being satisfied in which all conditions
precedent were satisfied on February 19, 1997. Among the principle
terms of the confirmed plan, subject to certain changes contained in
the order of approval, are the following:
o All unsecured creditors, including all the Company's 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) were entitled to and received
payment and inventory returns equal to approximately 70 percent
of their allowed claims (80
14 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
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) 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 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 of the assets of the Company. As a
result of the above transactions, 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 pursuant to such arrangement
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, would be
required with respect to all matters on which the shareholders have a
right to vote.
15 (Continued)
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Item 3. Defaults Upon Mortgage Payable
As a result of the bankruptcy filing, the Company was in default under the
indentures governing the mortgage payable. As discussed in note 2 of the
notes to the condensed financial statements on Form 10-Q for the six-month
period ended September 28, 1996, under Chapter 11 proceedings, litigation
and actions by creditors to collect certain claims in existence at the
petition date are stayed, absent specific Bankruptcy Court authorizations
to pay such claims. On January 17, 1997, the plan of reorganization was
confirmed by the Bankruptcy Court and became effective February 3, 1997,
subject to satisfaction of certain conditions which were satisified on
February 19, 1997. The confirmed plan of reorganization provided for the
repayment of the mortgage payable under the original note provisions,
except that the balloon payment was extended to September 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K dated July 12, 1996 and August 23, 1996 were filed by
the Company on or about such dates to report that the Company did not file
its Form 10-K for the year ended March 30, 1996 and its Form 10-Q for the
quarter ended June 29, 1996 by the dates by which they were scheduled to be
filed due to the Company's petition for relief under Chapter 11 of the U.S.
Bankruptcy Code and delays in finalizing the plan of reorganization.
16
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEACHES ENTERTAINMENT CORPORATION
Registrant
Date: 5/29/97 /s/ Allan Wolk
---------- --------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 5/29/97 /s/ Jason Wolk
---------- --------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the six month period ended
September 28, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> SEP-28-1996
<CASH> 1,185,010
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,423,745
<CURRENT-ASSETS> 5,501,326
<PP&E> 4,642,544
<DEPRECIATION> 2,919,173
<TOTAL-ASSETS> 7,381,341
<CURRENT-LIABILITIES> 2,122,814
<BONDS> 0
0
500,000
<COMMON> 201,079
<OTHER-SE> (365,354)
<TOTAL-LIABILITY-AND-EQUITY> 7,381,341
<SALES> 8,193,870
<TOTAL-REVENUES> 8,193,870
<CGS> 5,303,196
<TOTAL-COSTS> 5,303,196
<OTHER-EXPENSES> 3,771,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,931
<INCOME-PRETAX> (1,093,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,093,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,093,501)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
