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 December 27, 1997 Commission File No. 0-12375
PEACHES ENTERTAINMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2166041
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
1180 E. Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES __X__ NO ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At December 27, 1997, there were outstanding:
39,781,270 shares of common stock
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets-December 27, 1997 (Unaudited)
and March 29, 1997 3
Condensed Statements of Operations and Retained
Deficit-Three Months Ended December 27, 1997 and
December 28, 1996 (Unaudited) 4
Condensed Statements of Operations and Retained
Defict-Nine Months Ended December 27, 1997 and
December 28, 1996 (Unaudited) 5
Condensed Statements of Cash Flows-Nine
Months Ended December 27, 1997 and
December 28, 1996 (Unaudited) 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEACHES ENTERTAINMENT CORPORATION
Condensed Balance Sheets
December 27, 1997 and March 29, 1997
<TABLE>
<CAPTION>
Assets December 27, March 29,
1997 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,195,746 1,456,070
Inventories 2,762,829 2,855,494
Prepaid expenses and other current assets 224,806 260,008
----------- -----------
Total current assets 5,183,381 4,571,572
Property and equipment, net 1,304,016 1,439,731
Other assets 151,301 158,762
----------- -----------
$ 6,638,698 6,170,065
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations 758,510 730,239
Accounts payable 2,419,098 1,371,869
Accrued liabilities 1,091,432 956,005
----------- -----------
Total current liabilities 4,269,040 3,058,113
Long-term obligations 982,061 1,337,190
Due to parent 374,719 704,813
Deferred rent 68,545 156,036
----------- -----------
Total liabilities 5,694,365 5,256,152
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares
authorized; 5,000 shares issued and outstanding 500,000 500,000
Common stock subscribed (20,000,000 shares) -- 350,000
Common stock, $.01 par value; 40,000,000 shares authorized;
39,889,120 and 19,889,120 shares issued, respectively 548,892 198,892
Additional paid-in capital 1,659,190 1,284,471
Retained deficit (1,743,969) (1,399,670)
----------- -----------
964,113 933,693
Treasury stock, 107,850 common shares, at cost (19,780) (19,780)
----------- -----------
Total shareholders' equity 944,333 913,913
Commitments and contingencies
----------- -----------
$ 6,638,698 6,170,065
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Three months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Net sales $ 5,116,742 5,360,117
----------- -----------
Costs and expenses:
Cost of sales 3,156,675 3,368,983
Selling, general and administrative expenses 1,586,029 1,854,320
Depreciation and amortization 65,700 61,959
----------- -----------
4,808,404 5,285,262
----------- -----------
Income from operations 308,338 74,855
----------- -----------
Other (expense) income:
Interest expense (56,075) (17,908)
Interest income 3,707 5,420
----------- -----------
(52,368) (12,488)
----------- -----------
Income before reorganization costs and income
taxes 255,970 62,367
Reorganization costs:
Professional fees -- (107,722)
----------- -----------
Net income (loss) before income taxes 255,970 (45,355)
Provision for income taxes -- --
----------- -----------
Net income (loss) 255,970 (45,355)
Retained deficit, beginning of period (1,984,939) (1,589,930)
Preferred stock dividend (15,000) --
----------- -----------
Retained deficit, end of period $(1,743,969) (1,635,285)
=========== ===========
Basic and diluted earnings per share (note 3) $ .01 (.01)
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Nine months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Net sales $ 13,049,605 13,553,987
------------ ------------
Costs and expenses:
Cost of sales 8,057,685 8,672,179
Selling, general and administrative expenses 4,888,051 5,458,331
Depreciation and amortization 197,100 229,402
------------ ------------
13,142,836 14,359,912
------------ ------------
Loss from operations (93,231) (805,925)
------------ ------------
Other (expense) income:
Interest expense (175,217) (54,839)
Interest income 13,149 24,706
------------ ------------
(162,068) (30,133)
------------ ------------
Loss before reorganization costs and income
taxes (255,299) (836,058)
Reorganization costs:
Professional fees (44,000) (302,798)
------------ ------------
Loss before income taxes (299,299) (1,138,856)
Provision for income taxes -- --
------------ ------------
Net loss (299,299) (1,138,856)
Retained deficit, beginning of period (1,399,670) (496,429)
Preferred stock dividend (45,000) --
------------ ------------
Retained deficit, end of period $ (1,743,969) (1,635,285)
============ ============
Basic and diluted earnings per share (note 3) $ (.01) (.06)
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows
Nine months ended December 27, 1997 and December 28, 1996
(Unaudited)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (299,299) (1,138,856)
----------- -----------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 197,100 213,843
Deferred rent (87,491) (15,558)
Changes in assets and liabilities affecting cash flows from operating
activities:
(Increase) decrease in:
Inventories 92,665 46,078
Prepaid expenses and other current assets 35,202 93,803
Other assets 7,461 31,149
Increase (decrease) in:
Accounts payable 1,047,229 806,435
Accrued liabilities 135,427 423,936
----------- -----------
Net cash provided by operating activities 1,128,294 460,830
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (61,385) (26,282)
----------- -----------
Net cash used in investing activities (61,385) (26,282)
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (326,858) (96,191)
Dividends paid (45,000) --
Due to Parent (330,094) --
Capital contribution 374,719 --
----------- -----------
Net cash used in financing activities (327,233) (96,191)
----------- -----------
</TABLE>
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<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Net increase in cash and cash equivalents $ 739,676 338,357
Cash and cash equivalents, beginning of period 1,456,070 1,917,566
---------- ----------
Cash and cash equivalents, end of period $2,195,746 2,255,923
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 115,722 54,839
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
-7-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
December 27, 1997 and March 29, 1997
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all footnotes and information necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been made.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in the Peaches Entertainment Corporation (the "Company" or
"Peaches") annual report on Form 10-K for the year ended March 29, 1997.
As of December 27, 1997, the Company was a 93.5 percent-owned subsidiary of
URT Industries, Inc. (the "Parent").
The results of operations for the nine months ended December 27, 1997, are
not necessarily indicative of the operating results to be expected for the
year ending March 28, 1998. The Company's business is seasonal.
Historically, approximately 30 percent of the Company's sales have occurred
in the third 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) December 28,
1996 quarterly financial information to conform to the presentation used in
the (unaudited) December 27, 1997 financial information.
(2) Reorganization and Emergence From Chapter 11
On January 16, 1996 (the "Petition Date"), Peaches Entertainment
Corporation commenced reorganization proceedings under Chapter 11 of the
United States Bankruptcy Code. An amended plan of reorganization was
confirmed by the Bankruptcy Court on January 17, 1997 (the "confirmation
date"), and became effective February 3, 1997 (the "effective date"),
subject to satisfaction of certain conditions which were satisfied February
19, 1997. All of the allowed claims were either paid on the effective date
or are reflected in current and long-term obligations in the financial
statements, payable primarily over a two year period from the effective
date. The mortgage holder will receive 100 percent of the allowed claim,
with interest, except the balloon payment was extended from September 1997
to September 2002.
-8-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(3) Earnings Per Share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which establishes new standards for computing and presenting
earnings per share ("EPS"). Earnings per share for all prior periods have
been restated to reflect the provisions of this Statement.
Basic and diluted earnings per share have been computed by dividing net
income (loss), less preferred dividends by the weighted average number of
shares outstanding during the period. Convertible Series A Preferred Stock
outstanding as of December 28, 1996 were not included in the computation of
diluted earnings per share for the nine-month period ended December 28,
1996 as the inclusion would be antidilutive. In March 1997, the convertible
feature was eliminated.
Basic and diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------- -------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Basic:
Net income (loss) less
preferred dividends $ 240,970 (45,355) (344,299) (1,138,856)
============== ========== ========== ===========
Weighted average shares 39,781,270 19,731,270 39,781,270 19,781,270
============== ========== ========== ===========
Basic earnings per share $ .01 (.01) (.01) (.06)
============== ========== ========== ===========
Diluted:
Net income (loss) less
preferred dividends $ 240,970 (45,355) (344,299) (1,138,856)
============== ========== ========== ===========
Weighted average shares 39,781,270 19,731,270 39,781,270 19,781,270
============== ========== ========== ===========
Diluted earnings per share $ .01 (.01) (.01) (.06)
============== ========== ========== ===========
</TABLE>
(4) Due to Parent
As discussed in note 2, in order for Peaches to be able to effect the plan
of reorganization, the Parent loaned $700,000 to Peaches. 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. In the Company's
third quarter of 1997, the Parent forgave $350,000 of principal and $24,719
of accrued interest. The forgiveness has been accounted for as an
additional capital contribution by the Parent at December 27, 1997.
-9-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(5) 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 nine month period ended December 27,
1997, there was no (benefit) provision for income taxes as the Company has
net operating loss carryforwards for federal income tax purposes.
(6) Year 2000 Impact
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations. The Company has assessed that it will be required to upgrade
portions of its software which was originally purchased from outside
vendors, so that its computer systems will properly utilize dates beyond
December 31, 1999. These upgrades are currently available, and the Company
believes that these upgrades will not have a material impact on the ongoing
results of operations or financial position of the Company. However, if
such modifications and conversions are not possible or are not completed
timely, the Year 2000 Issue could have a material impact on the operations
of the Company.
In addition, the Company is assessing the status of its suppliers'
resolution of their potential Year 2000 problems, and what impact, if any,
it will have on the Companies' ongoing results of operations.
(7) Subsequent Event
In January 1998, the Company entered into a lease agreement for the
operation of a new store in Orlando, Florida. This will be the Company's
fourth store in the Orlando area. This store is expected to open either
late in the Company's fourth quarter ending March 28, 1998 or early first
quarter of the next fiscal year.
-10-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
Item 2. Management's Discussions and Analysis of Financial Condition
and Results of Operations for the Nine Months Ended December 27,
1997, Compared to the Nine Months ended December 28, 1996.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of other sections of this filing or other filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates, and are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should any of the underlying assumptions prove
incorrect, actual results of current and future operations may vary materially
from those anticipated, estimated or projected.
Results of Operations
Net sales for the nine months ended December 27, 1997 (such nine month period is
hereafter referred to as "1997") decreased by approximately 3.7 percent compared
to the nine months ended December 28, 1996 (such nine month period is hereafter
referred to as "1996"). Such decrease is attributed to a decrease in comparable
store sales (1.8 percent), and a decrease due to a store closing during the
Company's third quarter of 1997 (1.9 percent).
The cost of sales for 1997 was lower than that for 1996 due principally to a
decrease in net sales. Cost of sales as a percentage of net sales has decreased
from 64.0 percent in 1996 to 61.7 percent in 1997 primarily due to the fact that
the Company began to receive discounts associated with normal trade terms
throughout 1997, increases in other purchase discounts and an increase in
certain retail selling prices.
Selling, general and administrative (SG&A) expenses in 1997 decreased by 10.5
percent compared to 1996. Such decrease is attributable to a decrease in
comparable store expenses (5.5 percent), a decrease in corporate overhead (3.2
percent), and a decrease due to a store closing during the Company's third
quarter of 1997 (1.8 percent). SG&A expenses as a percentage of net sales
decreased from 40.3 percent in 1996 to 37.5 percent in 1997 primarily due to
overhead reductions.
Recently, the Company's primary suppliers have taken steps to help protect the
retail marketplace from certain low cost retailers of music. These steps include
not disbursing cooperative advertising funds to retailers which engage in low
cost selling practices in violation of the minimum advertised pricing policies
of such suppliers. Management believes that such initiatives, in combination
with the other factors mentioned above, have helped the Company to restore
itself to a more competitive position. Other factors which, in management's
opinion, which have helped the Company to restore itself to a more competitive
position 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 and concentration on advantages which
Peaches has over certain of its competitors, including large inventory,
convenient store locations and a high level of customer service, which includes
the ability of the customer to sample virtually all music before purchasing and
an extremely efficient special order program.
-11-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
The Company incurred a net loss of approximately $299,000 in 1997 versus a net
loss of approximately $1,139,000 in 1996. The significant reduction in net loss
is attributed to an increase in gross profit percentage and a decrease in
expenses as discussed above.
Liquidity and Capital Resources
The Company had working capital of $914,341 at December 27, 1997 compared to
working capital of $1,513,459 at March 29, 1997 and a current ratio (the ratio
of total current assets to total current liabilities) of 1.2 to 1 at December
27, 1997 compared to a current ratio of 1.5 to 1 at March 29, 1997. At December
27, 1997, the Company had long-term obligations of $982,061. Management
anticipates that its ability to repay its long-term obligations will be
satisfied primarily through funds generated from its operations.
Management anticipates that cash generated from operations and cash equivalents
on hand will provide sufficient liquidity to maintain adequate working capital
for operations. Management would attempt to obtain financing for the opening of
any new stores during the next few years.
Inflation trends have not had an impact upon revenue because increases in costs
have been passed along to customers.
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third fiscal quarter, which includes the Christmas
selling season.
For a discussion of recent developments and uncertainties affecting the
Company's liquidity and capital resources, see notes 2 and 3 (Confirmation of
Amended Plan of Reorganization and Liquidity) to the financial statements which
are included in the Company's annual report on Form 10-K for the year ended
March 29, 1997.
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations. The Company has
assessed that it will be required to upgrade portions of its software which was
originally purchased from outside vendors, so that its computer systems will
properly utilize dates beyond December 31, 1999. These upgrades are currently
available, and the Company believes that these upgrades will not have a material
impact on the ongoing results of operations or financial position of the
Company. However, if such modifications and conversions are not possible or are
not completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
In addition, the Company is assessing the status of its suppliers' resolution of
their potential Year 2000 problems, and what impact, if any, it will have on the
Companies' ongoing results of operations.
In February 1997, the FASB issued Statement of Financial Accounting Standard No.
128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards previously found in APB No. 15,
"Earnings Per Share," and makes them comparable to International EPS Standards.
In December 1997, the Company adopted the provisions of Statement 128. Earnings
per share for all prior periods have been restated to reflect the provisions of
this Statement.
In January 1998, the Company entered into a lease agreement for the operation of
a new store in Orlando, Florida. This will be the Company's fourth store in the
Orlando area. This store is expected to open either late in the Company's fourth
quarter ending March 28, 1998 or early first quarter of the next fiscal year.
The Company will use mostly cash generated from operations and partial bank
financing to build the new store.
-12-
<PAGE>
PEACHES ENTERTAINMENT CORPORATION
OTHER INFORMATION
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on or about
February 10, 1998 and an additional Report on Form 8-K on or
about November 12, 1997 for the purpose of reporting a
filing delay with respect to this Form 10-Q and a prior Form
10-Q.
-13-
<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: 2/27/98 /s/ Allan Wolk
------------- --------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 2/27/98 /s/ Jason Wolk
------------- --------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's financial statements as of and for the nine month period ended
December 27, 1997, and is qualified in its entirety by reference to such
financial statements:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-28-1998
<PERIOD-END> Dec-27-1997
<CASH> 2,159,746
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,762,829
<CURRENT-ASSETS> 5,183,381
<PP&E> 3,959,110
<DEPRECIATION> 2,655,094
<TOTAL-ASSETS> 6,638,698
<CURRENT-LIABILITIES> 4,269,040
<BONDS> 0
0
500,000
<COMMON> 548,892
<OTHER-SE> (104,559)
<TOTAL-LIABILITY-AND-EQUITY> 6,638,698
<SALES> 13,049,605
<TOTAL-REVENUES> 13,049,605
<CGS> 8,057,685
<TOTAL-COSTS> 8,057,685
<OTHER-EXPENSES> 5,085,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175,217
<INCOME-PRETAX> (299,299)
<INCOME-TAX> 0
<INCOME-CONTINUING> (299,299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299,299)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
