UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 2, 1999 Commission File No. 0-12375
PEACHES ENTERTAINMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Florida 59-2166041
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
1180 E Hallandale Beach Blvd., Hallandale, FL 33009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (954) 454-5554
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
At December 9, 1999, there were outstanding:
39,781,170 shares of common stock
PEACHES ENTERTAINMENT CORPORATION
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - October 2, 1999, April 3, 1999 and September 26,
1998 (Unaudited) 3
Condensed Statements of Operations and Retained Deficit - Three Months Ended
October 2, 1999 and September 26, 1998 (Unaudited)
4
Condensed Statements of Operations and Retained Deficit - Six Months Ended
October 2, 1999 and September 26, 1998 (Unaudited)
5
Condensed Statements of Cash Flows - Six Months Ended October 2, 1999 and
September 26, 1998 (Unaudited) 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEACHES ENTERTAINMENT CORPORATION
Condensed Balance Sheets
October 2, 1999, April 3, 1999 and September 26, 1998
(unaudited)
October 2, April 3, September 26,
1999 1999 1998
----------- ----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 567,991 615,665 451,890
Inventories 2,265,410 2,309,600 2,643,727
Prepaid expenses and other current assets 167,136 247,122 235,716
----------- ----------- -----------
Total current assets 3,000,537 3,172,387 3,331,333
Property and equipment, net 1,220,362 1,235,570 1,391,511
Other assets 195,709 174,991 187,726
----------- ----------- -----------
$ 4,416,608 4,582,948 4,910,570
=========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations $ 75,494 108,280 573,038
Current portion of due to Parent 485,185 15,185 --
Accounts payable 2,121,371 2,240,109 2,093,655
Accrued liabilities 602,092 680,193 972,639
----------- ----------- -----------
Total current liabilities 3,284,142 3,043,767 3,639,332
Long-term obligations 443,042 469,759 518,625
Due to parent 45,555 45,555 397,031
Deferred rent 84,043 63,030 62,950
----------- ----------- -----------
Total liabilities 3,856,782 3,622,111 4,617,938
----------- ----------- -----------
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares authorized;
5,000 shares issued and outstanding 500,000 500,000 500,000
Common stock, $.01 par value; 40,000,000 shares authorized;
39,781,170 shares issued 397,813 397,813 397,813
Additional paid-in capital 2,009,190 2,039,190 1,719,190
Retained deficit (2,347,177) (1,976,166) (2,324,371)
----------- ----------- -----------
Total shareholders' equity 559,826 960,837 292,632
Commitments and contingencies
----------- ----------- -----------
$ 4,416,608 4,582,948 4,910,570
=========== =========== ===========
See accompanying notes to condensed financial statements
3
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Three months ended October 2, 1999 and September 26, 1998
(Unaudited)
October 2, September 26,
1999 1998
----------- -----------
Net sales $ 3,426,062 3,924,914
----------- -----------
Cost and expenses:
Cost of sales 1,958,344 2,336,793
Selling, general and administrative expenses 1,624,191 1,711,791
Depreciation and amortization 49,228 58,378
----------- -----------
3,631,763 4,106,962
Loss from operations (205,701) (182,048)
----------- -----------
Other (expense) income:
Interest expense (14,198) (35,008)
Interest income 1,371 1,377
----------- -----------
(12,827) (33,631)
Net loss before income taxes (218,528) (215,679)
Provision for income taxes -- --
----------- -----------
Net loss (218,528) (215,679)
Retained deficit, beginning of period (2,128,649) (2,108,692)
----------- -----------
Retained deficit, end of period $(2,347,177) (2,324,371)
=========== ===========
Basic and diluted earnings per share $ (0.01) (0.01)
=========== ===========
See accompanying notes to condensed financial statements.
4
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Six months ended October 2, 1999 and September 26, 1998
(Unaudited)
October 2, September 26,
1999 1998
----------- -----------
Net sales $ 7,084,201 7,794,674
----------- -----------
Costs and expenses:
Cost of sales 4,134,672 4,655,597
Selling, general and administrative expenses 3,200,167 3,394,316
Depreciation and amortization 97,009 116,339
----------- -----------
7,431,848 8,166,252
----------- -----------
Loss from operations (347,647) (371,578)
----------- -----------
Other (expense) income:
Interest expense (28,705) (72,262)
Interest income 5,341 6,049
----------- -----------
(23,364) (66,213)
Loss before income taxes (371,011) (437,791)
Provision for income taxes -- --
----------- -----------
Net loss (371,011) (437,791)
Retained deficit, beginning of period (1,976,166) (1,886,580)
----------- -----------
Retained deficit, end of period $(2,347,177) (2,324,371)
=========== ===========
Basic and diluted loss per share $ (0.01) (0.01)
=========== ===========
See accompanying notes to condensed financial statements.
5
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows
Six months ended October 2, 1999 and September 26, 1998
(Unaudited)
October 2, September 26,
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss $ (371,011) (437,791)
---------- ----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 97,009 116,339
Deferred rent 21,013 116
Changes in assets and liabilities affecting cash flows from
operating activities:
(Increase) decrease in:
Inventories 44,190 (210,294)
Prepaid expenses and other current assets 79,986 72,703
Other assets (20,718) (6,801)
Increase (decrease) in:
Accounts payable (118,738) 78,981
Accrued liabilities (78,101) 149,969
---------- ----------
Net cash used in operating activities (346,370) (236,778)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (81,802) (158,118)
---------- ----------
Net cash used in investing activities (81,802) (158,118)
---------- ----------
Cash flows from financing activities:
Repayment of long-term obligations (59,502) (218,783)
Dividends paid (30,000) (30,000)
Due to parent 470,000 14,875
---------- ----------
Net cash provided by (used in) financing activities 380,498 (233,908)
---------- ----------
Net decrease in cash and cash equivalents (47,674) (628,804)
Cash and cash equivalents, beginning of period 615,665 1,080,694
---------- ----------
Cash and cash equivalents, end of period $ 567,991 451,890
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 28,705 9,707
========== ==========
See accompanying notes to condensed financial statements.
6
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
October 2, 1999 and September 26, 1998
(unaudited)
(1) Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all footnotes and information necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation have been made.
It is suggested that the accompanying unaudited condensed financial
statements be read in conjunction with the financial statements and notes
included in the Peaches Entertainment Corporation (the "Company") annual
report on Form 10-K for the year ended April 3, 1999.
As of October 2, 1999, the Company was a 87.5 percent-owned subsidiary of
URT Industries, Inc. (the "Parent").
The results of operations for the six months ended October 2, 1999, are not
necessarily indicative of the operating results to be expected for the year
ending April 1, 2000. The Company's business is seasonal in nature, with
the highest sales and earnings historically occurring in the third quarter
of its fiscal year, which includes the holiday selling season.
Inventories, which consist of compact discs, tapes and accessories, are
stated at the lower of cost (principally average) or market.
Certain reclassifications have been made to the (unaudited) September 26,
1998 quarterly financial information to conform to the presentation used in
the (unaudited) October 2, 1999 financial information.
(2) Earnings Per Share
Basic and diluted loss per share have been computed by dividing net loss,
less preferred dividends by the weighted average number of shares
outstanding during the period.
Basic and diluted loss per share were calculated as follows:
Six months Six months
Ended Ended
October 2, September 26,
1999 1998
------------- -----------
Basic and diluted:
Net loss less preferred dividends $ (401,011) (467,791)
============= ===========
Weighted average shares 39,781,170 39,781,170
============= ===========
Basic and diluted loss per share (.01) (.01)
============= ===========
7
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
October 2, 1999 and September 26, 1998
(unaudited)
(3) Income Taxes
The Company follows Statement of Financial Accounting Standard ("SFAS") No.
109, Accounting for Income Taxes. The Company files a consolidated tax
return with its Parent. Any applicable tax charge or credits are allocated
on a separate return basis. For the six month period ended October 2, 1999,
there was no (benefit) provision for income taxes as the Company has excess
net operating loss carryforwards for federal income tax purposes.
8
PEACHES ENTERTAINMENT CORPORATION
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations for the Three Months and Six Months Ended
October 2, 1999, Compared to the Six Months ended September 26, 1998.
From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "estimate,"
"project" and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as a part of other sections of this Annual Report or other
filings. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their respective dates, and
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should any of the underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected.
RESULTS OF OPERATIONS
Sales. The Company's net sales decreased during the second quarter ended October
2, 1999 of the Company's fiscal year ended April 1, 2000 by 12.7 percent
compared to the second quarter of fiscal 1999. A 5.6 percent decrease is
primarily attributable to the fact that the Company operated one less store as
well as a 7.1 percent comparable store decline. Sales for the twenty-six weeks
ended October 2, 1999 were down by 9.1 percent which is primarily due to the
fact that comparable sales for the twenty-six weeks ended October 2, 1999 were
down 5.7 percent and a 3.4 percent decrease attributable to the Company
operating one less store.
Cost of Sales. The Company's cost of sales as a percentage of net sales
decreased from 59.5 percent in the previous year's second quarter to 57.1
percent for the second quarter ended October 2, 1999, as well as from 59.7
percent in the previous year's first twenty-six weeks to 58.4 percent in the
current year's twenty-six weeks ended October 2, 1999. The decreases in cost of
sales as a percentage of sales are primarily attributable to increases in
certain retail prices.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses, including depreciation, in the second quarter of 2000 fiscal year
decreased by 5.5 percent compared to the second quarter of 1999 fiscal year.
SG&A expenses, including depreciation for the first six months of 2000 fiscal
year decreased by 6.1 percent compared to the first six months of 1999 fiscal
year. The above decreases are primarily attributable to the fact that the
Company operated one less store in the first six months of fiscal 2000. SG&A
expenses as a percentage of net sales increased to 48.8 percent for the second
quarter ended October 2, 1999 compared to 45.1 percent in the prior year second
quarter and SG&A expenses as a percentage of net sales increased from 45 percent
in the first six months of fiscal 1999 to 46.5 percent in the first six months
of fiscal 2000.
Net Loss. The Company incurred a net loss of approximately $219,000 for the
second quarter ended October 2, 1999 compared to a net loss of approximately
$216,000 for the second quarter ended September 26, 1998. The net loss for the
twenty-six weeks ended October 2, 1999 was approximately $371,000 compared to a
net loss of approximately $438,000 for the twenty-six weeks ended September 26,
1998. The decrease in net loss is primarily attributable to the fact that the
twenty-six weeks ended September 26, 1998 included costs associated with opening
of one new store. The reduction in net loss is also attributable to an increase
in gross profit percentage, a decrease in interest expense offset by a decrease
in comparable store sales.
9
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources. Cash generated from operations and cash
equivalents are the Company's primary source of liquidity. Management
anticipates that the cash generated from operations, cash equivalents on hand
and financing will provide sufficient liquidity to maintain adequate working
capital for operations. Management anticipates that it would use funds generated
from operations as well as possible financing, for the opening of any new
stores, which it may plan to open this fiscal year. For a discussion of
uncertainties affecting the Company's liquidity and capital resources, see note
3 to the financial statements on form 10-K for the year ended April 3, 1999.
Long-Term Obligations. At October 2, 1999, the Company had long-term obligations
of $443,042. Management anticipates that its ability to repay its long-term
obligations will be satisfied primarily through funds generated from its
operations.
OTHER MATTERS
Impact of Inflation. Although the Company cannot accurately determine the
precise effect of inflation on its operations, management does not believe
inflation has had a material effect on the results of operations in the last
three fiscal years. When the cost of merchandise items has increased, the
Company has been able to pass the increase on to its customers.
Seasonality. The Company's business is seasonal in nature, with the highest
sales and earnings historically occurring in the third fiscal quarter, which
includes the Christmas selling season.
Year 2000 Compliance. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any of the Company's computer programs that have data-sensitive software may
recognize a date using "00" as year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations.
The Company has assessed that it is required to upgrade portions of its software
which was originally purchased from outside vendors, so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company has
purchased its upgraded software and testing and implementation was completed in
November 1999. The cost of the upgrade of the Company's was approximately
$20,000. The cost of the new hardware was approximately $40,000. Additionally,
the Company is dependent on basic public infrastructure, such as
telecommunications and utilities, in order to function normally. Significant
long-term interruptions of this infrastructure could have an adverse effect on
the operations of the Company. Additionally, the Company must rely on assurances
from suppliers and vendors that their information systems and key services will
be Year 2000 compliant, and the Company currently has no practical alternatives
if these major suppliers experience problems. Therefore, even if the Company, in
a timely manner, successfully implements the necessary changes to its computer
systems, some problems may not be identified or corrected in time to prevent
material adverse consequences or business interruptions to the Company, and
there can be no absolute assurance that there will not be a material adverse
effect on the Company's operations, liquidity or financial condition as a result
of the Year 2000 issue.
10
PEACHES ENTERTAINMENT CORPORATION
OTHER INFORMATION
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
11
PEACHES ENTERTAINMENT CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEACHES ENTERTAINMENT CORPORATION
Registrant
Date: ____________________ --------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: ____________________ ---------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
12