SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 2, 1998
ALLIANCE ENTERTAINMENT CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13054 13-3645913
- -------------------------------------------------------------------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
4250 Coral Ridge Drive, Coral Springs, Florida 33065
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 346-0110
<PAGE>
Item 5. Other Events
On August 4, 1998, Alliance Entertainment Corp. (the "Company") filed
the Trustee's Monthly Reporting Package for the Month Ended June 30, 1998
(the "Trustee's Report"). The Company is required to file this report with the
United States Bankruptcy Court and the United States Trustee pursuant to
Bankruptcy Rule 2015 and the United States Trustee's "Operating Guidelines and
Financial Reporting Requirements." The Trustee's Report contains monthly
unaudited consolidating financial statements of Alliance Entertainment Corp. and
its debtor-in-possession subsidiaries, prepared in accordance with the American
Institute of Certified Public Accountants Statement of Position 90-7: "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." for the one
month period reported therein.
Certain matters discussed in the Trustee's Report are forward-looking
statements intended to qualify for the safe harbors from liability established
by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital expenditures,
earnings, sales, liquidity and capital resources, and accounting matters. Actual
results in each case could differ materially from those currently anticipated in
such statements, by reason of factors such as future economic conditions,
including changes in customer demand, legislative, regulatory and competitive
developments in markets in which the Company operates; and other circumstances
affecting anticipated revenues and costs.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 99.1 Trustee's Monthly Reporting Package for the Month Ended
June 30, 1998
<PAGE>
SIGNATURE
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.
ALLIANCE ENTERTAINMENT CORP.
By: /s/ Eric Weisman
------------------------------------
Name: Eric Weisman
Title: President
and Chief Executive Officer
Date: August 10, 1998
<PAGE>
EXHIBIT INDEX
Exhibit 99.1 Trustee's Monthly Reporting Package for the Month
Ended June 30, 1998
TRUSTEE'S MONTHLY REPORTING PACKAGE
FOR THE MONTH ENDED JUNE 30, 1998
ALLIANCE ENTERTAINMENT CORP. et al.
(Name of Debtor)
97 B 44673 through 97 B 44687 (BRL) (Jointly Administered)
(Case Numbers)
Willkie Farr & Gallagher
(Debtors' Attorneys)
/s/ David E. Hawthorne
------------------------------------------------
Signed by:
David E. Hawthorne, Executive Vice President, Chief Financial Officer
(Preparer)
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Unaudited)
June 30, 1998
(Amounts in Thousands)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,432
Accounts receivable, net 48,392
Inventory 55,079
Prepaid expenses and advances 3,433
Due From Affiliates
Refundable income taxes 2,047
-------------
Total current assets 110,383
INVESTMENTS 5,585
PROPERTY AND EQUIPMENT 25,910
COPYRIGHTS 3,808
COST IN EXCESS OF NET ASSETS
OF BUSINESSES ACQUIRED 44,655
COVENANTS NOT TO COMPETE 2,229
OTHER ASSETS 4,935
-------------
$ 197,505
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Excess of outstanding checks over
bank balance $ 256
Notes payable 29,999
Current maturities of long-term debt 638
Accounts payable and accrued expenses 35,673
-------------
Total current liabilities 66,566
LONG-TERM DEBT 6,531
LIABILITIES SUBJECT TO SETTLEMENT
UNDER THE REORGANIZATION CASE 417,573
STOCKHOLDERS' EQUITY
Common stock 4
Preferred Stock 5
Additional paid-in capital 146,965
Employee notes for stock purchase (52)
Retained earnings (deficit) (440,087)
Foreign Currency translation adjustment
-------------
(293,165)
-------------
$ 197,505
=============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
MONTH ENDED June 30, 1998
(Amounts in Thousands)
<S> <C>
Net Sales $ 22,698
Cost of sales 19,505
-------------
Gross profit 3,193
Selling, general and administrative expenses 3,642
Amortization of intangible assets 491
-------------
4,133
-------------
(940)
-------------
Reorganization items 1,174
Other income (expense)
Equity in net income (loss) of unconsolidated
entities 62
Amortization of deferred financing costs (137)
Other income (expense) - net (9)
Interest expense (1,244)
-------------
(1,328)
-------------
Income(loss) before income taxes (3,442)
Provision for income taxes
-------------
Net income (loss) $ (3,442)
=============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED June 30, 1998
(Amounts in Thousands)
<S> <C>
Net Income (Loss) $ (3,442)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 902
Equity in net income (loss) of unconsolidated
entities (62)
Reorganization items 1,174
Changes in working capital and other, net 3,495
Net cash provided by (used in) operating -------------
activities before reorganization items 2,067
-------------
Reorganization items:
Chapter 11 professional fees paid (1,174)
-------------
Net cash used by reorganization items (1,174)
-------------
Net cash provided by (used in)
operating activities 893
-------------
Cash Flows From Investing Activities
Purchase of property and equipment (362)
(Increase) decrease in investments
(Increase) decrease in copyrights (37)
(Increase) decrease in other assets 200
Net cash provided by (used in) -------------
Investing Activities (199)
-------------
Cash Flows From Financing Activities
Increase (decrease) in excess of out-
standing checks over bank balance 108
Net financing proceeds to affiliates (1,255)
Proceeds from Borrowings 1,000
Payments on Borrowings (3,017)
Net Cash provided by (used in) -------------
Financing Activities (3,164)
-------------
Net increase (decrease) in cash: (2,470)
Cash
Beginning 3,902
-------------
Ending $ 1,432
=============
* The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET (Unaudited)
June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassification Subsidiaries*
---------- ----------- ----------- ---------- ---------- ----------------- --------------
ASSETS
CURRENT ASSETS
Cash and Cash
equivalents $ 693 $ 274 $ 398 $ 67 $ $ $ 1,432
Accounts receivable,
net 48,673 (361) 40 40 48,392
Inventory 55,079 55,079
Prepaid expenses 3,084 254 95 3,433
Due from affiliates 7,935 61,003 1,374 257 (70,569)
Refundable income taxes 36 2,011 2,047
Deferred income taxes
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current assets 115,500 63,181 1,867 107 297 (70,569) 110,383
INVESTMENTS, at cost 943 8,721 (4,079) 5,585
PROPERTY AND EQUIPMENT 6,768 31 18,913 198 25,910
COPYRIGHTS 3,808 3,808
COST IN EXCESS OF
NET ASSETS OF
BUSINESS ACQUIRED 44,655 44,655
COVENANTS NOT TO
COMPETE 198 2,031 2,229
DEFERRED INCOME TAXES
OTHER ASSETS 157 3,883 134 761 4,935
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 127,374 $ 122,502 $ 20,914 $ 1,066 $ 297 $ (74,648) $ 197,505
========== =========== =========== ========== ========== ================= ==============
LIABILITIES AND STOCKHOLDERS
EQUITY
CURRENT LIABILITIES
Excess of outstanding
checks over bank
balance $ 256 $ $ $ $ $ $ 256
Notes payable (6,557) 34,860 1,696 29,999
Current maturities of
long-term debt 223 415 638
Accounts payable
and accrued expenses 26,802 8,618 228 25 35,673
Income tax payable
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current
liabilities 20,724 43,478 643 1,721 66,566
LONG-TERM DEBT 666 5,865 6,531
DEFERRED INCOME TAXES
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
THE REORGANIZATION CASE 179,193 267,653 14,479 3,182 538 (47,472) 417,573
STOCKHOLDERS' EQUITY
Common Stock 3,123 4 1 13 (3,137) 4
Preferred Stock 5 5
Additional paid-in
capital 26,300 146,965 (26,300) 146,965
Employee notes for
stock purchase (52) (52)
Retained earnings
(deficit) (102,632) (335,551) (73) (3,838) (254) 2,261 (440,087)
Foreign currency
translation adjustment
---------- ----------- ----------- ---------- ---------- ----------------- --------------
(73,209) (188,629) (73) (3,837) (241) (27,176) (293,165)
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 127,374 $ 122,502 $ 20,914 $ 1,066 $ 297 $ (74,648) $ 197,505
========== =========== =========== ========== ========== ================= ==============
*The following subsidiaries do not have any operating activity: Alliance
Ventures, Inc. AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET (Unaudited)
June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
------------ ----------- ----------- ---------- ------------- -------- ----------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 34 $ $ $ $ $ $ 659 $ 693
Accounts receivable, net 60 2,359 1,094 (496) 3,570 42,086 48,673
Inventory 805 1,694 5,472 47,108 55,079
Prepaid expenses and
advances 26 2,383 432 243 3,084
Due from Affiliates (2,102) 8,805 698 1,372 (886) 127 (79) 7,935
Refundable income taxes 36 36
Deferred income taxes
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current assets (1,203) 11,190 698 6,579 (1,382) 9,601 90,017 115,500
INVESTMENTS, at cost 542 401 943
PROPERTY AND EQUIPMENT 205 623 5,940 6,768
COPYRIGHTS 3,808 3,808
COST IN EXCESS OF NET ASSETS
OF BUSINESSES ACQUIRED
COVENANTS NOT TO COMPETE 198 198
DEFERRED INCOME TAXES
OTHER ASSETS 2 12 19 43 81 157
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ (1,201) $ 11,202 $ 698 $ 11,153 $ (1,382) $ 10,267 $ 96,637 $ 127,374
============= ============ ============ ============ ============== ========== ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Excess of outstanding
checks over bank balance $ $ 5 $ $ 86 $ $ 165 $ $ 256
Notes payable (1,576) 3,979 754 (1,706) (8,008) (6,557)
Current maturities of
long-term debt 223 223
Accounts payable and
accrued expenses 1,910 (279) 1,180 31 1,010 22,950 26,802
Income Tax Payable
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current liabilities 334 (274) 5,245 785 (531) 15,165 20,724
LONG-TERM DEBT 666 666
DEFERRED INCOME TAXES
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
REORGANIZATION CASE 72,094 13,571 1,392 6,453 7,333 13,078 65,272 179,193
STOCKHOLDERS' EQUITY
Common Stock 1,000 5 22 2,095 1 3,123
Preferred Stock
Additional paid-in capital 16,117 7 27 10,149 26,300
Employee notes for stock
purchase
Retained earnings (deficit) (90,746) (2,107) (694) (594) (9,500) (4,375) 5,384 (102,632)
Foreign Currency
Translation Adjustment
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
(73,629) (2,095) (694) (545) (9,500) (2,280) 15,534 (73,209)
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ (1,201) $ 11,202 $ 698 $ 11,153 $ (1,382) $ 10,267 $ 96,637 $ 127,374
============= ============ ============ ============ ============== ========== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
MONTHS ENDED June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassifications Subsidiaries*
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Net sales $ 22,592 $ $ $ 106 $ $ $ 22,698
Cost of sales 19,491 14 19,505
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Gross Profit 3,101 92 3,193
Selling, general
and administrative
expenses 3,276 356 (39) 49 3,642
Amortization of
intangible assets 16 475 491
---------- ------------- ---------- ---------- ---------- ----------------- --------------
3,292 831 (39) 49 4,133
---------- ------------- ---------- ---------- ---------- ----------------- --------------
(191) (831) 39 43 (940)
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Reorganization items 1,174 1,174
Other income
(expense)
Equity in net income
(loss) of unconsolidated
entities 62 62
Amortization of
deferred financing
costs (135) (2) (137)
Other income (expense)
- net (5) (3) (1) (9)
Interest expense (550) (646) (37) (11) (1,244)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
(555) (722) (39) (12) (1,328)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
Income before
income taxes (746) (2,727) 31 (3,442)
Provision for
income taxes ---------- ------------- ---------- ---------- ---------- ----------------- -------------
Net income (loss) $ (746) $ (2,727) $ $ 31 $ $ $ (3,442)
========== ============= ========== ========== ========== ================= =============
*The following subsidiaries do not have any operating activity: Alliance
Ventures, Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
MONTH ENDED June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
------------ ----------- ----------- ---------- ------------- -------- ---------- ------------
Net sales $ $ $ $ 560 $ $ 490 $ 21,542 $ 22,592
Cost of sales 293 290 18,908 19,491
------------- ----------- ----------- ----------- ------------- -------- ---------- ------------
Gross Profit 267 200 2,634 3,101
Selling, general and
administrative expenses 60 225 275 2,716 3,276
Amortization of
intangible assets 16 16
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
60 241 275 2,716 3,292
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(60) 26 (75) (82) (191)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Reorganization items
Other income (expense)
Equity in net income
(loss) of unconsolidated
entities
Amortization of deferred
financing costs
Other income (expense)
- net (2) (3) (5)
Interest expense (377) (70) (50) (46) (7) (550)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(377) (72) (53) (46) (7) (555)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Income (loss) before
income taxes (437) (46) (53) (121) (89) (746)
Provision for
income taxes
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Net income (loss) $ (437) $ $ $ (46) $ (53) $ (121) $ (89) $ (746)
============ =========== =========== =========== ============= ======== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance
Alliance Eliminations Entertainment
Entertainment AE Land Matrix and Corp. and
Sub-total Corp. Corp Software Execusoft Reclassifications Subsidiaries*
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net Income (loss) $ (746) $ (2,727) $ $ 31 $ $ $ (3,442)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization 125 613 155 9 902
Equity in net income (loss)
of unconsolidated entities (62) (62)
Reorganization items 1,174 1,174
Changes in working
capital and other, net 2,498 1,042 (58) 12 1 3,495
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities before
reorganization items 1,877 40 97 52 1 2,067
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Reorganization Items:
Chapter 11 professional
fees paid (1,174) (1,174)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash used by
reorganization items (1,174) (1,174)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities 1,877 (1,134) 97 52 1 893
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Investing Activities
Purchase of property
and equipment (343) (19) (362)
(Increase) Decrease in
Investments
Investments
(Increase) Decrease in
Copyrights (37) (37)
Increase in other assets 18 428 (246) 200
Net cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Investing Activities (362) 428 (19) (246) (199)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Financing Activities
Increase (decrease) in
excess of outstanding
checks over bank balance 108 108
Net financing proceeds
to affiliates (3,240) 1,798 (43) 231 (1) (1,255)
Proceeds from issuance
of stock
Proceeds for redemption
of stock
Proceeds from Borrowings 1,000 1,000
Payments on Borrowings (17) (3,000) (3,017)
Net Cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Financing Activities (3,149) (202) (43) 231 (1) (3,164)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Effect of foreign
currency translation
Net increase (decrease)
in cash: (1,634) (908) 35 37 (2,470)
Cash
Beginning 2,327 1,182 363 30 3,902
========== ============ ========== =========== ========== ================== ===============
Ending $ 693 $ 274 $ 398 $ 67 $ $ $ 1,432
========== ============ ========== =========== ========== ================== ===============
*The following subsidiaries do not have any operating activity: Alliance
Ventures Inc., AEC Americas, Inc., FL Acquisition Corp. and AEC Acquisition
Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED June 30, 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Independent Passport Passport Castle AEC
National Music Music Concord Communications One Way One Stop
Distributors Distribution Worldwide Records (U.S.) Records Group Sub-total
---------------- -------------- --------- --------- --------------- -------- --------- -----------
Net Income (loss) $ (437) $ $ $ (46) $ (53) $ (121) $ (89) $ (746)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20 17 88 125
Equity in net income (loss)
of unconsolidated entities
Reorganization items
Changes in working capital
and other, net 2,250 (90) 397 (59) 2,498
Net cash provided by (used
in) operating activities ---------------- -------------- --------- --------- --------------- -------- --------- ----------
before reorganization items 1,813 (116) (53) 293 (60) 1,877
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Reorganization items:
Chapter 11 professional
fees paid
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash used by
reorganization items
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash provided by (used in)
operating activities 1,813 (116) (53) 293 (60) 1,877
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Investing
Activities
(Purchase) disposal of property
(Increase) decrease
in investments (2) (341) (343)
(Increase) decrease
in copyrights (37) (37)
(Increase) decrease
in other assets 18 18
Net cash provided by
(used in)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Investing Activities (37) (2) (323) (362)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Financing
Activities
Increase (decrease) in excess
of outstanding checks
over bank balance (2) (55) 165 108
Net financing proceeds to
affiliates (1,777) 208 53 (503) (1,221) (3,240)
Proceeds from issuance of stock
Payments for redemption of stock
Proceeds from Borrowings
Payments on Borrowings (17) (17)
Payments on Borrowings
Net Cash provided by
(used in) ---------------- -------------- --------- --------- --------------- -------- -------- ----------
Financing Activities (1,779) 153 53 (338) (1,238) (3,149)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Effect of foreign currency
translation
Net increase (decrease) in
cash: 34 (47) (1,621) (1,634)
Cash
Beginning 47 2,280 2,327
================ ============== ========= ========= =============== ======== ======== ==========
Ending $ 34 $ $ $ $ $ $ 659 $ 693
================ ============== ========= ========= =============== ======== ======== ==========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS
Unaudited Interim Financial Information
The unaudited consolidating financial statements of Alliance Entertainment Corp.
and subsidiaries (the "Company"), have been prepared in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7:
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7") and generally accepted accounting principles applicable to a going
concern, which principles, except as otherwise disclosed, assume that assets
will be realized and liabilities will be discharged in the normal course of
business. The Company filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") on July 14, 1997 (the "Filing"). The
Company is presently operating its business as a debtor-in-possession subject to
the jurisdiction of the United States Bankruptcy Court for the Southern District
of New York (the "Bankruptcy Court").
Except as set forth, the unaudited consolidating balance sheet as of June 30,
1998 and the unaudited consolidating statements of operations and cash flows for
the month ended June 30, 1998 (interim financial information), have generally
been prepared on the same basis as the audited financial statements. The
financial statements include all adjustments believed by management to be
necessary to fairly reflect the Company's financial position and results of
operations in accordance with generally accepted accounting principles. The
preparation of these financial statements has required the development by
management of a number of significant estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements. Significant estimates inherent in the preparation of the
accompanying financial statements include management's estimate of future cash
flows used as a basis to assess the recoverability of long-lived assets,
adjustments to reduce the carrying value of inventory and accounts receivable to
net realizable value and estimates of cost incurred in connection with
restructuring and related activities. These accounting estimates are subject to
material change in the near term. In addition, the accompanying financial
statements are unaudited and, upon completion of the annual financial statement
audit by the Company's independent accountants for the year ended December 31,
1998 may require further adjustments. Excluded from the Filing were the
following non-debtor subsidiaries of the Company's Proprietary Products Group,
including: Castle Communications plc (and its related affiliates); The St. Clair
Entertainment Group, Inc.; and Red Ant Entertainment LLC ("Red Ant") (and its
related affiliates). Accordingly, the accompanying financial statements have
been prepared excluding their financial position, results of operations and cash
flows. The results of operations of those businesses and the Company's
underlying equity therein have been presented under the equity method of
accounting. In the opinion of the Company, the interim financial information is
considered preliminary and may not include all adjustments, necessary for a fair
statement of the results of the interim period.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial information. These
statements should be read in conjunction with the Company's financial statements
for the year ended December 31, 1997. The results of operations for the month
ended June 30, 1998, may not be indicative of the operating results for the full
year or any future interim period.
The Company experienced significant operating losses in 1996 and 1997 and
continued to post a year-to-date operating loss in 1998. The Company's ability
to continue as a going concern is dependent upon the Companies ability to
consummate ("go effective") the Court approved Plan of Reorganization including
obtaining post confirmation financing, achievement of profitable operations, and
the resolution of the uncertainties of the reorganization case discussed below.
Restructuring and Other Charges
During the month ended June 30, 1998, approximately $.5 million was paid and
charged against liabilities established by the Company at December 31, 1997 for
restructuring and other non-recurring charges relating to its consolidation
plans. As of June 30, 1998, approximately $7.0 million remains to be paid in
future periods.
<PAGE>
Reorganization under Chapter 11; Pre-Petition Credit Agreement
On June 30, 1997, the Company failed to make the full amortization payment of
$1.5 million on its senior secured credit facility (the "Pre-petition Credit
Agreement") and additionally failed to satisfy a financial covenant requiring
the Company raise $35 million of equity prior to July 1, 1997 and as a result
was in default under the provisions of its Pre-petition Credit Agreement. Under
the terms of its Pre-petition Credit Agreement and as a result of the existing
defaults, the Company's banks had the right to accelerate the maturity of
approximately $187 million of outstanding indebtedness.
Additionally, as a result of the defaults under the Pre-petition Credit
Agreement, the Company was unable to make a July 15, 1997 interest payment due
and payable on the Company's $125 million of 11.25% Senior Subordinated Notes
due 2005.
On July 14, 1997, as a result of the defaults under the Pre-petition Credit
Agreement, the pending payment default on the Company's Senior Subordinated
Notes and an overall inability to operate the Company's business under the
existing liquidity restraints, the Company and fourteen of its wholly-owned
subsidiaries filed voluntarily under Chapter 11 of the Bankruptcy Code in order
to facilitate the reorganization of the Company's core businesses and the
restructuring of the Company's long-term debt, revolving credit and trade and
other obligations. The Company continues to operate with its existing directors
and officers as a debtor-in-possession subject to the Bankruptcy Court's
supervision and orders. Excluded from the filing were certain businesses in the
Company's Proprietary Products Group, including: Castle Communications plc (and
its related affiliates); The St. Clair Entertainment Group, Inc.; and Red Ant
Entertainment LLC ("Red Ant") (and its related affiliates). The filing was made
in the U.S. District Court for the Southern District of New York in Manhattan.
The filing of the petition under Chapter 11 of the Bankruptcy Code resulted in
the occurrence of an Event of Default under the Company's: (i) Indenture
relating to its 11.25% Senior Subordinated Notes due 2005; (ii) Credit
Agreement; (iii) 6% Exchangeable Notes; and (iv) Mortgage Bond for its
distribution facility in Coral Springs, Florida.
Pursuant to the provisions of the Bankruptcy Code, all of the Company's
liabilities as of July 14, 1997, were automatically stayed upon the Company's
filing of its petition for reorganization. In addition, absent approval from the
Bankruptcy Court, the Company is prohibited from paying any pre-petition
obligations. In hearings held on July 14 and 16, 1997, the Bankruptcy Court
approved the Company's request for payment of certain pre-petition wages and
benefits, use of the Company's cash management system and retention of legal and
financial professionals.
In the Company's Chapter 11 case, substantially all liabilities as of the date
of the Filing are subject to settlement under a plan of reorganization to be
voted upon by the Company's creditors and stockholders and confirmed by the
Bankruptcy Court. Schedules have been filed by the Company with the Bankruptcy
Court setting forth the assets and liabilities of the Company as of the date of
the Filing as shown by the Company's accounting records. Differences between
amounts shown by the Company and claims filed by creditors are being
investigated and resolved. The ultimate amount and settlement terms for
pre-petition liabilities are subject to a plan of reorganization, and
accordingly, are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real
estates leases, employment contracts, personal property leases, service
contracts and other executory pre-petition leases and contracts, subject to
Bankruptcy Court approval. The Company cannot presently determine or reasonably
estimate the ultimate liability which may result from the filing of claims for
any rejected contracts or from leases which may be rejected at a future date.
The principal categories of claims classified as "Liabilities Subject to
Settlement Under the Reorganization Case" are identified below. All amounts
presented below may be subject to future adjustments depending on Bankruptcy
Court actions, further developments with respect to disputed claims,
determination as to the security of certain claims, the value of any collateral
securing such claims, or other events.
<PAGE>
<TABLE>
<CAPTION>
Liabilities Subject to Settlement (000's)
-------
Under the Reorganization Case June 30, 1998
- ----------------------------- ---------------------
<S> <C>
Accounts payable and accrued expenses $131,811
Pre-Petition Credit Agreement 148,483
11.25% Senior Subordinated Notes due 2005 125,000
6% Exchangeable Notes 10,805
Other Promissory Notes 1,395
Obligations under capital leases 4
Accounts payable Non-Debtor Subsidiaries 75
--------
$417,573
========
</TABLE>
On June 25, 1998, the Bankruptcy Court approved the Company's Disclosure
Statement for its Plan of Reorganization. The Plan of Reorganization includes
all Debtors except for Concord Jazz. The Plan of Reorganization for Concord Jazz
will be filed separately. The approval of the Disclosure Statement allows the
Company to commence the solicitation of votes for approval of its Plan of
Reorganization. Plan materials and ballots were mailed on July 1, 1998. The
deadline for returning the ballots was July 24, 1998, and a hearing to confirm
the Plan was held on July 30, 1998. On July 30, 1998 the Court approved the Plan
of Reorganization. Also, the Court approved the sale of the Company's U.K.
subsidiary, Castle Communication to London-based Rutland Trust PLC. The sale was
consummated on July 20, 1998.
In the event that a plan of reorganization is successfully consummated by the
Company, continuation of the business after reorganization will be dependent
upon the success of future operations and the Company's ability to meet its
obligations as they become due. In the event that such a plan of reorganization
is not consummated, the ability of the Company to continue as a going concern
depends on the success of future operations and the ability of the Company to
generate sufficient cash from operations and financing sources to meet its
obligations as they become due and to finance its operations. The accompanying
financial statements have been prepared on a going concern basis, which, except
as disclosed, contemplates continuity of operations, realization of assets and
discharge of liabilities in the ordinary course of business. As a result of the
Chapter 11 filing, the Company may have to sell or otherwise dispose of assets
and discharge or settle liabilities for amounts other than those reflected in
the financial statements. Further, a plan of reorganization could materially
change the amounts currently recorded in the financial statements. The financial
statements do not give effect to all adjustments to the carrying value of
assets, or amounts and classification of liabilities that might be necessary as
a consequence of the proceeding. The appropriateness of using the going concern
basis is dependent upon, among other things, confirmation of a plan of
reorganization, success of future operations and the ability to generate
sufficient cash from operations and financing sources to meet obligations.
<PAGE>
In addition, valuation methods used in Chapter 11 reorganization cases vary
depending on the purpose for which they are prepared and used and are rarely
based on generally accepted accounting principles, the basis on which the
accompanying financial statements are prepared. Accordingly, the values set
forth in the accompanying financial statements are not likely to be indicative
of the values presented to or used by the Bankruptcy Court. As a result,
valuations of the Company based on the accompanying financial statements may be
significantly higher than valuations used by the Company in determining the
amounts to be received, if any, by each class of creditors under a plan of
reorganization.
DIP Financing
In connection with the Company's Chapter 11 filing, on July 16, 1997, the
Company entered into a DIP Financing Agreement with Chase Manhattan Bank
providing for a maximum of $50 million of debtor-in-possession ("DIP") financing
subject to approval by the Bankruptcy Court. The DIP Financing Agreement is
intended to address the Company's immediate working capital needs and to support
the Company's operations during its Chapter 11 proceedings. The Company's use of
the full DIP Financing Agreement was approved by the Court.
The DIP Financing Agreement provides for borrowings under a revolving credit and
a letter of credit facility. Loans under the revolving credit facility bear
interest at either the Alternate Base Rate (as defined in the DIP Financing
Agreement) plus 1.5% or at the Adjusted LIBOR Rate (as defined in the DIP
Financing Agreement) plus 2.75%. Loans under the letter of credit facility bear
interest at the Alternate Base Rate plus 1.5%. The terms of the DIP Financing
Agreement contain certain restrictive covenants including: limitations on the
incurrence of additional guarantees, liens and indebtedness; limitations on the
sale of assets and the making of capital expenditures. The DIP Financing
Agreement also requires that the Company meet certain minimum earnings before
taxes and other expenses as defined through the end of 1998.
Under the DIP Financing Agreement, Chase Manhattan Bank has been given a
perfected first priority lien on all property and assets of the Company and its
fourteen wholly-owned debtor-in-possession subsidiaries. The banks who are
parties to the Pre-Petition Credit Agreement, as well as certain other secured
creditors of the Company, have been granted replacement liens on the Company's
assets (junior to the lien granted under the DIP Financing Agreement) to
adequately protect such creditors' secured claims against the Company prior to
its Chapter 11 filing.
The DIP Financing Agreement expires on January 31, 1999, or earlier upon the
occurrence of certain events, including confirmation of a plan of reorganization
by the Bankruptcy Court, a sale of substantially all of the assets of the
Company, or failure by the Company to receive a final order confirming a plan of
reorganization.
On March 18, 1998, the Company and Chase Manhattan agreed to an amendment to the
DIP Financing Agreement. The terms of the amendment modify certain covenants
related to (1) permitted capital expenditures, (2) minimum earnings before
interest, taxes, depreciation and amortization, as defined, (3) minimum carrying
value of inventories, and (4) the amount of permitted selling, general and
administrative expenses relating to certain non core operations. The amendments
were approved by the bankruptcy court on April 1, 1998.
Post Confirmation Financing
The Company is currently negotiating a post confirmation revolving credit
facility. The revolving credit facility is necessary for the successful
consummation of the Plan of Reorganization. The company expects to complete the
negotiations and enter into a definitive agreement in August.
<PAGE>
Indebtedness
As a result of the Filing, substantially all debt outstanding at July 14, 1997,
was classified as liabilities subject to settlement. No principal or interest
payments are made on any pre-petition debt (excluding interest payments on the
Pre-petition Credit Agreement with Chase Manhattan Bank) without Bankruptcy
Court approval or until a reorganization plan defining the repayment terms has
been approved.
Generally, interest on pre-petition debt ceases accruing upon the filing of a
petition under the Bankruptcy Code. However, if debt is collateralized by an
interest in property whose value (minus the cost of preserving such property)
exceeds the amount of the debt, post-petition interest may be payable. Other
than those noted above, no other determinations have yet been made regarding the
value of the property interests which collateralize various debts. Although
interest may be paid pursuant to an order of the Bankruptcy Court, other than
interest on the Pre-petition Credit Agreement, it is uncertain whether any other
post-petition interest will be payable or paid. The Company believes at this
time that it is unlikely that such interest will be paid. Contractual interest
expense not recorded on certain pre-petition debt (11.25% Senior Subordinated
Notes due 2005, 6% Exchangeable Notes and other promissory notes) totaled
approximately $1.2 million for the month ended June 30, 1998.
Income Taxes
Based upon current operations of the Company and other factors, an income tax
benefit was not recorded for the Company and its fourteen wholly owned
subsidiaries which filed under Chapter 11 for the month ended June 30, 1998. The
Company anticipates that pre-tax losses, if any, which may be realized during
the fiscal year ending December 31, 1998, will not result in the recording of
any additional tax benefit by the Company. Further, any net operating loss carry
forwards prior to, and subsequent to the filing date, may be severely reduced by
the bankruptcy case.
Reorganization Items
The Company recorded the following expense and income items during the month
ended June 30, 1998, directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations:
(000's)
Month Ended
June 30, 1998
-------------------
Professional fees $1.174
Professional fees represent estimates of expenses incurred, primarily for legal,
consulting and accounting services provided to the Company and the creditors
committee (which are required to be paid by the Company while in Chapter 11).
Interest income represents interest earned on cash invested during the Chapter
11 proceeding.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
Trade Payables and Insurance
May 31, 1998
To the best of the Company's knowledge, all post-petition trade payables
are current and all insurance policies, including all applicable workers'
Compensation and disability insurance policies, are fully paid as of June
30, 1998.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Court Reporting Schedules - Tax Payments and Collections
Month ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Wages Paid $1,751,477.61 Schedule I
Payroll Taxes Withheld 417,528.90 Schedule II
Payroll Taxes Incurred 118,905.78 Schedule III
Gross Taxable Sales 70,955.67 Schedule IV
Sales Tax Collected 4,601.66 Schedule IV
Payment of Payroll Taxes - Schedule V
Payment of Tax Payments 7,601.31 Schedule VI
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule I
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended June 12 and June 26
GROSS WAGES PAID
<TABLE>
<CAPTION>
<S> <C>
Two Week Period Ended
Date Gross Wages
- --------------------- --------------
June 12, 1998 $ 949,696.23
June 26, 1998 801,781.38
--------------
Total $1,751,477.61
==============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule II
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended June 12 and June 26
PAYROLL TAXES WITHHELD
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Periods Ended Payroll Tax
Date Tax Type Withheld
- --------------------- ------------------ -----------
June 12, 1998 Federal Income Tax $166,873.83
FICA & MEDI w/h 55,977.54
State w/h 9,199.80
Local w/h 1,507.75
June 26, 1998 Federal Income Tax 118,544.07
FICA & MEDI w/h 54,942.19
State w/h 9,777.20
Local w/h 706.52
-------------
TOTAL $417,528.90
=============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule III
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended June 12 and June 26
PAYROLL TAXES INCURRED
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Period Ended Employer Payroll Amount
Date Tax Contributions Incurred
- --------------------- --------------------- -----------
June 12, 1998 FICA & MEDI Expenses $55,977.39
FUTA 848.20
Disability/SUI 3,433.24
June 26, 1998 FICA & MEDI Expenses 54,965.31
FUTA 810.56
Disability/SUI 2,871.08
-----------
TOTAL $118,905.78
===========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule IV
Schedules of Sales and Meals Tax Collected
Month Ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Sales Tax Gross Taxable
Taxing Jurisdiction Collected Sales
- -----------------------------------------
Florida Department of Revenue $3,136.72 $52,278.67
State Board of Equalization - California 445.00 5,397.00
New York Department of Revenue 9.84 123.00
New York Department of Revenue 510.00 6,262.00
New Jersey Department of Revenue 22.00 363.00
State of Michigan - Department of Treasury 155.10 2,585.00
State of Board of Equalization - California 323.00 3,947.00
--------- ----------
$4,601.66 $70,955.67
========= ==========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule V
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended June 12 and June 26
PAYMENT OF TAXES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Tax Period Tax Type Taxing Jurisdiction Date Paid Amount Paid
- ----------- -------- ------------------- --------- -----------
</TABLE>
The Company's payroll is processed by a third party payroll service.
Accordingly, at each payroll period the Company transfers funds to the payroll
service who in turn makes payments directly to the appropriate taxing
jurisdiction on the Company's behalf.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule VI
Schedules of Tax Payments
Month Ended June 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Tax Jurisdiction Tax Type Amount Paid Date Paid
- -------------------------------------------- ---------------------------- ---------------- --------------------
Florida Department of Revenue Florida Sales and Use Tax $ 3,106.72 June 18, 1998
State Board of Equalization - California California Sales and Use Tax 635.00 June 18, 1998
City of Albany, New York Property Tax 3,792.00 June 11, 1998
New York Department of Revenue New York Sales and Use Tax 67.59 June 16, 1998
-------------
TOTAL $ 7,601.31
=============
</TABLE>
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------------------x
In re :
: Chapter 11
ALLIANCE ENTERTAINMENT CORP., et al, : Case No. 97 B 44673
: through 97 B 44687 (BRL)
Debtors. :
: (Jointly Administered)
- ------------------------------------------------x
Verification Under Penalty of Perjury
STATE OF FLORIDA )
) ss:
COUNTY OF BROWARD )
David Hawthorne, being duly sworn, deposes and says:
1. I am Executive Vice President, Chief Financial Officer of Alliance
Entertainment Corp. The foregoing operating statements of Alliance Entertainment
Corp. and subsidiaries were prepared under my direction.
2. The foregoing operating statements are true and correct to the best of
my knowledge, information and belief.
/s/ David E. Hawthorne
--------------------------------
David E. Hawthorne
Sworn to before me this
30th day of July, 1998
/s/ John Longmire
- ---------------------------
Notary Public
