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): March 31, 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.)
352 Park Avenue South, New York, New York 10010
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 685-6303
<PAGE>
Item 5. Other Events
On March 31, 1998, Alliance Entertainment Corp. (the "Company") announced
its earnings for the month ended February 28, 1998. The Company reported a
consolidated net loss of $4.5 million on net sales of $22.8 million. The
reported loss includes $2.2 million in interest and reorganization expenses. The
operating loss for core operations in the reporting period was $445,000 on net
sales of $22.3 million, including the negative impact of Chapter 11 on
operations. The Company also announced that it expects that the equity in a
reorganized Company would be distributed to the Company's current creditors or
new equity partners, and that under the plan of reorganization, current stock in
the Company will be cancelled.
Also on March 31, 1998, Alliance Entertainment Corp. (the "Company") filed
the Trustee's Monthly Reporting Package for the Month Ended February 28, 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 press release and 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 Press Release dated March 31, 1998
Exhibit 99.2 Trustee's Monthly Reporting Package for the Month Ended
February 28, 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/David E. Hawthorne
----------------------------
Name: David E. Hawthorne
Title: Executive Vice President
and Chief Financial Officer
Date: April 2, 1998
<PAGE>
EXHIBIT INDEX
Exhibit 99.1 Press Release dated March 31, 1998
Exhibit 99.2 Trustee's Monthly Reporting Package for the Month
Ended February 28, 1998
ALLIANCE ENTERTAINMENT CORP. REPORTS CONTINUED IMPROVEMENT
NEW YORK, March 31/PRNewswire/ -- Alliance Entertainment Corp. (OTC: AETTQ
- - news) today reported an improvement in its core operating business for the
month ended February 28, 1998. In its monthly operating report filed with the
Office of the United States Trustee, the Company reported a consolidated net
loss of $4.5 million on net sales of $22.8 million. The reported loss includes
$2.2 million in interest and reorganization expenses.
The Company reported that the operating loss for core operations in the
reporting period was $445,000 on net sales of $22.3 million, including the
continued negative impact of Chapter 11 on operations.
"We continue to see a steady improvement in performance as the Company
meets plan month after month," Eric Weisman, Alliance's president and chief
executive officer, said. "In addition, the Company continues to see additional
improvements resulting from cost reductions and other operational initiatives
that have been implemented since the Chapter 11 filing.
"The last four months -- the first time in more than two years that the
core business has consecutively met its targets for that length of time --
demonstrate the soundness of the Company's business plan." Mr. Weisman also
stated that the Company is "on track with our objective to emerge from Chapter
11 this summer."
Mr. Weisman went on to say that several parties interested in pursuing an
equity partnership-based plan of reorganization have met with the
representatives of the Company, including its financial advisors The Blackstone
Group and Zolfo Cooper, and that within the next 45 days, the Company expects to
decide with its creditor constituencies on whether to pursue a stand-alone or
equity-partner based plan.
"I fully expect that in either case," Mr. Weisman said, "the equity in the
newly reorganized Alliance Entertainment Corp. will be distributed to the
Company's current creditors or new equity partners, and that under the plan of
reorganization, current stock in the Company will be cancelled."
Alliance Entertainment Corp. is the largest wholesaler of prerecorded music
and related products. In addition, Alliance through its Concord and Castle
subsidiaries, is a developer and marketer of catalog content in several genres.
The Company currently employs approximately 800 people in the United States,
Canada and the United Kingdom and maintains headquarters in Coral Springs, Fla.
Alliance Entertainment Corp. and certain of its subsidiaries filed to reorganize
under Chapter 11 on July 14, 1997.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of 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," "anticipates," or words of similar import. Similarly, statements that
describe the Company's future plans, objectives, estimates or goals are
forward-looking statements. There are certain important factors that could cause
results to differ materially from those anticipated by forward-looking
statements made herein. Investors are cautioned that all forward-looking
statements involve risks and uncertainty.
TRUSTEE'S MONTHLY REPORTING PACKAGE
FOR THE MONTH ENDED FEBRUARY 28, 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)
February 28, 1998
(Amounts in Thousands)
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,385
Accounts receivable, net 66,386
Inventory 59,044
Prepaid expenses and advances 3,535
Due From Affiliates (1,955)
Refundable income taxes 2,071
-------------
Total current assets 136,466
INVESTMENTS 8,028
PROPERTY AND EQUIPMENT 25,816
COPYRIGHTS 3,602
COST IN EXCESS OF NET ASSETS
OF BUSINESSES ACQUIRED 45,602
COVENANTS NOT TO COMPETE 3,183
OTHER ASSETS 5,134
-------------
$ 227,831
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Excess of outstanding checks over
bank balance $ 355
Notes payable 33,500
Current maturities of long-term debt 632
Accounts payable and accrued expenses 32,018
-------------
Total current liabilities 66,505
LONG-TERM DEBT 6,607
LIABILITIES SUBJECT TO SETTLEMENT
UNDER THE REORGANIZATION CASE 429,380
STOCKHOLDERS' EQUITY
Common stock 4
Preferred Stock 5
Additional paid-in captial 146,965
Employee notes for stock purchase (52)
Retained earnings (deficit) (421,583)
Foreign Currency translation adjustment
-------------
(274,661)
-------------
$ 227,831
=============
*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 February 28, 1998
(Amounts in Thousands)
<S> <C>
Net Sales $ 22,771
Cost of sales 19,838
-------------
Gross profit 2,933
Selling, general and administrative expenses 3,969
Amortization of intangible assets 497
-------------
4,466
-------------
(1,533)
-------------
Reorganization items 943
Other income (expense)
Equity in net income (loss) of unconsolidated
entities (596)
Amortization of deferred financing costs (137)
Other income (expense) - net (2)
Interest expense (1,277)
-------------
(2,012)
-------------
Income(loss) before income taxes (4,488)
Provision for income taxes
-------------
Net income (loss) $ (4,488)
=============
*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 February 28, 1998
(Amounts in Thousands)
<S> <C>
Net Income (Loss) $ (4,488)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 891
Equity in net income (loss) of unconsolidated
entities 596
Reorganization items 943
Changes in working capital and other, net 10,554
Net cash provided by (used in) operating -------------
activities before reorganization items 8,496
-------------
Reorganization items:
Chapter 11 professional fees paid (943)
-------------
Net cash used by reorganization items (943)
-------------
Net cash provided by (used in)
operating activities 7,553
-------------
Cash Flows From Investing Activities
Purchase of property and equipment (132)
(Increase) decrease in investments
(Increase) decrease in copyrights 113
(Increase) decrease in other assets 19
Net cash provided by (used in) -------------
Investing Activities
-------------
Cash Flows From Financing Activities
Increase (decrease) in excess of out-
standing checks over bank balance (407)
Net financing proceeds to affiliates
Proceeds from Borrowings (2,518)
Payments on Borrowings
Net Cash provided by (used in) -------------
Financing Activities (2,925)
-------------
Net increase (decrease) in cash: 4,628
Cash
Beginning 2,757
-------------
Ending $ 7,385
=============
* 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)
February 28, 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 $ 3,899 $ 3,145 $ 260 $ 81 $ $ $ 7,385
Accounts receivable,
net 66,044 245 50 47 66,386
Inventory 59,044 59,044
Prepaid expenses 3,326 173 36 3,535
Due from affiliates 6,949 46,291 960 (452) 250 (55,953) (1,955)
Refundable income taxes 2,071 2,071
Deferred income taxes 837 (837)
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current assets 140,099 51,088 1,256 (321) 297 (55,953) 136,466
INVESTMENTS, at cost 944 12,806 (5,722) 8,028
PROPERTY AND EQUIPMENT 6,149 37 19,415 215 25,816
COPYRIGHTS 3,602 3,602
COST IN EXCESS OF
NET ASSETS OF
BUSINESS ACQUIRED 45,602 45,602
COVENANTS NOT TO
COMPETE 198 2,985 3,183
DEFERRED INCOME TAXES 286 (286)
OTHER ASSETS 176 4,818 140 5,134
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 151,454 $ 117,050 $ 20,811 $ (106) $ 297 $ (61,675) $ 227,831
========== =========== =========== ========== ========== ================= ==============
LIABILITIES AND STOCKHOLDERS
EQUITY
CURRENT LIABILITIES
Excess of outstanding
checks over bank
balance $ 355 $ $ $ $ $ $ 355
Notes payable 13,898 19,204 398 33,500
Current maturities of
long-term debt 217 415 632
Accounts payable
and accrued expenses 22,496 9,372 125 25 32,018
Income tax payable
---------- ----------- ----------- ---------- ---------- ----------------- --------------
Total current
liabilities 36,966 28,576 540 423 66,505
LONG-TERM DEBT 742 5,865 6,607
DEFERRED INCOME TAXES
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
THE REORGANIZATION 183,495 262,185 14,479 3,182 538 (34,499) 429,380
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) (99,172) (320,633) (73) (3,712) (254) (2,261) (421,583)
Foreign currency
translation adjustment
---------- ----------- ----------- ---------- ---------- ----------------- --------------
(69,749) (173,711) (73) (3,711) (241) (27,176) (274,661)
---------- ----------- ----------- ---------- ---------- ----------------- --------------
$ 151,454 $ 117,050 $ 20,811 $ (106) $ 297 $ (61,675) $ 227,831
========== =========== =========== ========== ========== ================= ==============
*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)
February 28, 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 $ $ $ $ $ $ $ 3,899 $ 3,899
Accounts receivable, net 3,277 3,008 919 (503) 7,303 52,040 66,044
Inventory 3,884 1,620 4,544 48,996 59,044
Prepaid expenses and
advances 26 2,529 435 336 3,326
Due from Affiliates (1,701) 8,744 698 1,388 (884) 107 (1,403) 6,949
Refundable income taxes
Deferred income taxes 837 837
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current assets 5,460 11,778 698 6,456 (1,387) 12,389 104,705 140,099
INVESTMENTS, at cost 542 402 944
PROPERTY AND EQUIPMENT 222 686 5,241 6,149
COPYRIGHTS 3,602 3,602
COST IN EXCESS OF NET ASSETS
OF BUSINESSES ACQUIRED
COVENANTS NOT TO COMPETE 198 198
DEFERRED INCOME TAXES 36 250 286
OTHER ASSETS 16 12 19 43 86 176
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ 5,476 $ 11,790 $ 698 $ 10,877 $ (1,387) $ 13,118 $ 110,882 $ 151,454
============= ============ ============ ============ ============== ========== ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Excess of outstanding
checks over bank balance $ 23 $ 5 $ $ 171 $ $ 156 $ $ 355
Notes payable 3,292 3,186 519 138 6,763 13,898
Current maturities of
long-term debtm 217 217
Accounts payable and
accrued expenses 1,516 627 64 1,688 18,601 22,496
Income Tax Payable
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
Total current liabilities 4,831 5 3,984 583 1,982 25,581 36,966
LONG-TERM DEBT
DEFERRED INCOME TAXES 742 742
LIABILITIES SUBJECT
TO SETTLEMENT UNDER
REORGANIZATION CASE 72,260 13,880 1,392 7,024 7,327 13,105 68,507 183,495
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) (88,732) (2,107) (694) (180) (9,297) (4,064) 5,902 (99,172)
Foreign Currentcy
Translation Adjustment
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
(71,615) (2,095) (694) (131) (9,297) (1,969) 16,052 (66,749)
------------- ------------ ------------ ------------ -------------- ---------- ------------ ----------
$ 5,476 $ 11,790 $ 698 $ 10,877 $ (1,387) $ 13,118 $ 110,882 $ 151,454
============= ============ ============ ============ ============== ========== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
MONTHS ENDED February 28, 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 $ 22,676 $ $ $ $ $ $
Cost of sales 19,804 34 19,838
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Gross Profit 2,872 61 2,933
Selling, general
and administrative
expenses 3,414 328 (37) 264 3,969
Amortization of
intangible assets 15 482 497
---------- ------------- ---------- ---------- ---------- ----------------- --------------
3,429 810 (37) 264 4,466
---------- ------------- ---------- ---------- ---------- ----------------- --------------
(557) (810) 37 (203) (1,533)
---------- ------------- ---------- ---------- ---------- ----------------- --------------
Reorganization items 943 943
Other income
(expense)
Equity in net income
(loss) of unconsolidated
entities (596) (596)
Amortization of
deferred financing
costs (135) (2) (137)
Other income (expense)
- net (1) (1) (2)
Interest expense (610) (630) (35) (2) (1,277)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
(611) (1,362) (37) (2) (2,012)
---------- ------------- ---------- ---------- ---------- ----------------- -------------
Income before
income taxes (1,168) (3,115) (205) (4,488)
Provision for
income taxes ---------- ------------- ---------- ---------- ---------- ----------------- -------------
Net income (loss) $ (1,168) $ (3,115) $ $ (205) $ $ $ (4,488)
========== ============= ========== ========== ========== ================= =============
*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 February 28, 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 $ $ $ $ 495 $ $ 552 $ 21,629 $ 22,676
Cost of sales 259 312 19,233 19,804
------------- ----------- ----------- ----------- ------------- -------- ---------- ------------
Gross Profit 236 240 2,396 2,872
Selling, general and
administrative expenses 243 256 238 2,677 3,414
Amortization of
intangible assets 15 15
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
243 271 238 2,677 3,429
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(243) (35) 2 (281) (557)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Reorganization items
Other income (expense)
Equity in net income
(loss) of unconsolidated
entities
Amortization of deferred
financing costs
Other income (expense)
- net 1 1
Interest expense (378) (61) (46) (47) (78) (610)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
(378) (61) (47) (47) (78) (611)
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Income (loss) before
income taxes (621) (96) (47) (45) (359) (1,168)
Provision for
income taxes
------------ ----------- ----------- ----------- ------------- -------- ---------- -----------
Net income (loss) $ (621) $ $ $ (96) $ (47) $ (45) $ (359) $ (1,168)
============ =========== =========== =========== ============= ======== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE ENTERTAINMENT CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
MONTH ENDED February 28, 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) $ (1,168) $ (3,115) $ $ (205) $ $ $ (4,488)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization 110 618 154 9 891
Equity in net income (loss)
of unconsolidated entities 596 596
Reorganization items 943 943
Changes in working
capital and other, net 10,954 (417) 18 (1) 10,554
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities before
reorganization items 9,896 (1,375) 172 (197) 8,496
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Reorganization Items:
Chapter 11 professional
fees paid (943) (943)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash used by
reorganization items (943) (943)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Net cash provided by
(used in) operating
activities 9,896 (2,318) 172 (197) 7,553
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Investing Activities
Purchase of property
and equipment (129) (3) (132)
(Increase) Decrease in
Investments
Investments
(Increase) Decrease in
Copyrights 113 113
Increase in other assets (5) 24 19
Net cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Investing Activities (21) 24 (3)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Cash Flows From Financing Activities
Increase (decrease) in
excess of outstanding
checks over bank balance 170 (577) (407)
Net financing proceeds
to affiliates (8,529) 8,516 (137) 150
Proceeds from issuance
of stock
Proceeds for redemption
of stock
Proceeds from Borrowings
Payments on Borrowings (18) (2,500) (2,518)
Net Cash provided by
(used in) ---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Financing Activities (8,377) 5,439 (137) 150 (2,925)
---------- ------------ ---------- ----------- ---------- ------------------ ---------------
Effect of foreign
currency translation
Net increase (decrease)
in cash: 1,498 3,145 35 (50) 4,628
Cash
Beginning 2,401 225 131 2,757
========== ============ ========== =========== ========== ================== ===============
Ending $ 3,899 $ 3,145 $ 260 $ 81 $ $ $ 7,385
========== ============ ========== =========== ========== ================== ===============
*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 February 28, 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) $ (621) $ $ $ (96) $ (47) $ (45) $ (359) $ (1,168)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20 16 74 110
Equity in net income (loss)
of unconsolidated entities
Reorganization items
Changes in working capital
and other, net 1,759 (415) 576 9,034 10,954
Net cash provided by (used
in) operating activities ---------------- -------------- --------- --------- --------------- -------- --------- ----------
before reorganization items 1,138 (491) (47) 547 8,749 9,896
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Reorganization items:
Chapter 11 professional
fees paid
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash used by
reorganization items
---------------- -------------- --------- --------- --------------- -------- --------- ----------
Net cash provided by (used in)
operating activities 1,138 (491) (47) 547 8,749 9,896
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Investing
Activities
(Purchase) disposal of property
(Increase) decrease
in investments (1) (128) (129)
(Increase) decrease
in copyrights 113 113
(Increase) decrease
in other assets (5) (5)
Net cash provided by
(used in)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Investing Activities 112 (133) (21)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Cash Flows From Financing
Activities
Increase (decrease) in excess
of outstanding checks
over bank balance 16 104 50 170
Net financing proceeds to
affiliates (1,154) 275 47 (597) (7,100) (8,529)
Proceeds from issuance of stock
Payments for redemption of stock
Proceeds from Borrowings
Payments on Borrowings (18) (18)
Payments on Borrowings
Net Cash provided by
(used in) ---------------- -------------- --------- --------- --------------- -------- -------- ----------
Financing Activities (1,138) 379 47 (547) (7,118) (8,377)
---------------- -------------- --------- --------- --------------- -------- -------- ----------
Effect of foreign currency
translation
Net increase (decrease) in
cash: 1,498 1,498
Cash
Beginning 2,401 2,401
================ ============== ========= ========= =============== ======== ======== ==========
Ending $ $ $ $ $ $ $ 3,899 $ 3,899
================ ============== ========= ========= =============== ======== ======== =========
</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
February 28, 1998, and the unaudited consolidating statements of operations and
cash flows for the month ended February 28, 1998 (interim financial
information), have generally been prepared on the same basis as the audited
financial statements except that the unaudited 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 as 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 years ended December 31,
1997 and 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
(Form 10-K) for the year ended December 31, 1996. The results of operations for
the month ended February 28, 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 confirmation of a plan of
reorganization by the Bankruptcy Court, the ability to maintain compliance with
debt covenants under the Revolving Credit and Guaranty Agreement ("DIP Financing
Agreement"), achievement of profitable operations, and the resolution of the
uncertainties of the reorganization case discussed below.
<PAGE>
Restructuring and Other Charges
During the month ended February 28, 1998, approximately $.1 million was
paid and charged against a liability established by the Company at December 31,
1996 for restructuring and other non-recurring charges relating to the
consolidation plan announced in November, 1996. As of February 28, 1998,
approximately $8.5 million remains to be paid in future periods.
Reorganization under Chapter 11; Pre-Petition Credit Agreement
On June 30, 1997, Alliance Entertainment Corp. ("Alliance" or 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 blocked from making 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.
<PAGE>
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.
<TABLE>
<CAPTION>
Liabilities Subject to Settlement (000's)
-------
Under the Reorganization Case February 28, 1998
- ----------------------------- ---------------------
<S> <C>
Accounts payable and accrued expenses $148,001
Pre-Petition Credit Agreement 144,100
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
--------
$429,380
========
</TABLE>
Alliance intends to present a plan of reorganization to the Bankruptcy
Court to reorganize the Company's core business and restructure the Company's
long-term debt, revolving credit and trade obligations. Under provisions of the
Bankruptcy Code, the Company has the exclusive right to file a plan at any time
prior to April 30, 1998 and to solicit acceptance of a plan of reorganization
until June 30, 1998, each subject to possible extension as approved by the
Bankruptcy Court.
In the event that a plan of reorganization is approved by the Bankruptcy
Court, 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 approved by the Bankruptcy Court and a Restructuring Plan 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 are subject to the approval of the bankruptcy court and are not
effective until such approval is obtained.
The Bankruptcy Court is scheduled to review the amendment to the DIP
Financing Agreement at a hearing currently scheduled on April 1, 1998, which, if
approved, would allow the Company to demonstrate compliance with the Agreement
and allow operating flexibility on a short term basis. However, there are no
assurances that the Court will approve the amendment or that objections to the
amendment will not be entertained. The Company may not be in compliance with the
existing covenants based on certain interpretations of the required covenant
calculations and, as a result, could be in default of the terms of the DIP
Financing Agreement as of March 31, 1998.
<PAGE>
Sale of Red Ant Subsidiary
On July 23, 1997, the Company and Chase Manhattan amended the DIP Financing
Agreement to provide up to $1.25 million of funding for Red Ant and its
affiliated entities on a non-bankruptcy basis to facilitate the solicitation of
bids from third parties to purchase Alliance's interests in Red Ant. On August
15, 1997, the court approved the sale of 90% of the Company's interest in Red
Ant and its affiliates to Cypress Ventures, Inc. an affiliate of Wasserstein
Perella & Co. ("CVI"), for aggregate cash consideration of $625,000, a twelve
month promissory note in the amount of $425,000 bearing interest at 8% and an
additional commitment from CVI to provide new working capital for Red Ant (in
the form of mezzanine indebtedness senior in priority to the equity interest
holders of Red Ant) up to an amount of approximately $11 million with $3 million
to be provided upon consummation of the sale to CVI.
The sale was completed on August 19, 1997. The Company has taken a non-cash
charge of $17.9 million related to the write-off of the goodwill and its
underlying investment on its Red Ant subsidiary, including $1,050,000 of funding
provided under the DIP Financing Agreement.
Indebtedness
As a result of the Filing, substantially all debt (exclusive of the DIP
Financing Agreement) 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 $1.1 million for the month ended February 28, 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 February 28, 1998.
The Company anticipates that pre-tax losses, if any, which may be realized
during the fiscal year ending December 31, 1997, 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.
<PAGE>
Reorganization Items
The Company recorded the following expense and income items during the
month ended February 28, 1998, directly associated with the Chapter 11
reorganization proceedings and the resulting restructuring of its operations:
(000's)
Month Ended
February 28, 1998
-------------------
Professional fees $ 943
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.
Asset Impairment and Restructuring Charges
On September 22, 1997, the Company announced plans to close operations of
Independent National Distributors, Inc. ("INDI"), the Company's independent
distribution subsidiary by the end of first quarter 1998. During the month of
September, the Company recorded a $42.1 million restructuring and asset
impairment charge in connection with the closure and liquidation of these
operations. Included in the $42.1 million was a non-cash charge of $21.9 million
related to the write-off of goodwill.
In December, 1997, the Company incurred charges of approximately $115.9
million related to losses from non-core operations and non-recurring and
restructuring charges attributed to write downs of inventory and accounts
receivable impacted by the closure of various operations, costs related to the
consolidation of the Company's Santa Fe Springs facility into its Coral Springs,
Florida facility and asset impairment charges due to discontinuing certain
business and sales of non-core assets.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
Trade Payables and Insurance
February 28, 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 February
28, 1998.
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Court Reporting Schedules - Tax Payments and Collections
Month ended February 28, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Gross Wages Paid $2,013,570.85 Schedule I
Payroll Taxes Withheld 501,015.30 Schedule II
Payroll Taxes Incurred 197,068.53 Schedule III
Gross Taxable Sales 42,984.55 Schedule IV
Sales Tax Collected 2,894.33 Schedule IV
Payment of Payroll Taxes - Schedule V
Payment of Tax Payments 33,227.61 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 February 6 and February 20
GROSS WAGES PAID
<TABLE>
<CAPTION>
<S> <C>
Two Week Period Ended
Date Gross Wages
- --------------------- --------------
February 6, 1998 $ 958,038.23
February 20, 1998 1,055,532.62
--------------
Total $2,013,570.85
==============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule II
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended February 6 and February 20
PAYROLL TAXES WITHHELD
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Periods Ended Payroll Tax
Date Tax Type Withheld
- --------------------- ------------------ -----------
February 6, 1998 Federal Income Tax $147,629.33
FICA & MEDI w/h 73,289.79
State w/h 14,812.81
Local w/h 2,557.89
February 20, 1998 Federal Income Tax 162,501.32
FICA & MEDI w/h 80,748.57
State w/h 17,545.06
Local w/h 1,930.53
-------------
TOTAL $501,015.30
=============
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule III
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended February 6 and February 20
PAYROLL TAXES INCURRED
<TABLE>
<CAPTION>
<S> <C> <C>
Two Week Period Ended Employer Payroll Amount
Date Tax Contributions Incurred
- --------------------- --------------------- -----------
February 6, 1998 FICA & MEDI Expenses $73,289.93
FUTA 5,175.76
Disability/SUI 16,793.94
February 20, 1998 FICA & MEDI Expenses 80,748.24
FUTA 4,842.78
Disability/SUI 16,217.88
-----------
TOTAL $197,068.53
===========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule IV
Schedules of Sales and Meals Tax Collected
Month Ended February 28, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Sales Tax Gross Taxable
Taxing Jurisdiction Collected Sales
- -----------------------------------------
Florida Department of Revenue $1,636.61 $27,276.83
State Board of Equalization - California 712.72 8,639.00
New York Department of Revenue 2.00 25.00
New York Department of Revenue 208.33 2,598.29
New Jersey Department of Revenue 21.60 359.90
State of Michigan - Department of Treasury 34.50 574.95
State of Board of Equalization - California 278.57 3,510.58
--------- ----------
$2,894.33 $42,984.55
========= ==========
</TABLE>
<PAGE>
ALLIANCE ENTERTAINMENT CORP.
(Debtor-In-Possession)
Schedule V
Court Reporting Schedules for Payroll Tax Payments and Collections
Two week periods ended February 6 and February 20
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 February 28, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Tax Jurisdiction Tax Type Amount Paid Date Paid
- -------------------------------------------- ---------------------------- ---------------- --------------------
Florida Department of Revenue Florida Sales and Use Tax $ 1,606.61 February 19, 1998
State Board of Equalization - California California Sales and Use Tax 641.00 February 19, 1998
State of Delaware Franchise Tax 30,020.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 510.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
State of Delaware Franchise Tax 50.00 February 25, 1998
-------------
TOTAL $ 33,227.61
=============
</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 NEW YORK )
) ss:
COUNTY OF NEW YORK )
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
31st day of March, 1998
/s/ Maryann Vertucci
- ---------------------------
