UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 26, 1998 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 March 8, 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 - December 26, 1998 (Unaudited) and
March 28, 1998 3
Condensed Statements of Operations and Retained Deficit - Three Months Ended
December 26, 1998 and December 27, 1997 (Unaudited) 4
Condensed Statements of Operations and Retained Deficit - Nine Months Ended
December 26, 1998 and December 27, 1997 (Unaudited) 5
Condensed Statements of Cash Flows - Nine Months Ended December 26, 1998 and
December 27, 1997 (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 12
SIGNATURES 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PEACHES ENTERTAINMENT CORPORATION
Condensed Balance Sheets
December 26, 1998 and March 28, 1998
Assets December 26, March 28,
1998 1998
----------- -----------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,576,469 $ 1,080,694
Inventories 2,821,832 2,433,433
Prepaid expenses and other current assets 263,578 308,419
----------- -----------
Total current assets 4,661,879 3,822,546
Property and equipment, net 1,345,558 1,349,732
Other assets 184,369 180,925
----------- -----------
$ 6,191,806 $ 5,353,203
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term obligations $ 493,436 $ 732,319
Accounts payable 3,033,582 2,014,674
Accrued liabilities 1,019,828 822,670
----------- -----------
Total current liabilities 4,546,846 3,569,663
Long-term obligations 488,625 578,127
Due to parent 413,466 382,156
Deferred rent 61,911 62,834
----------- -----------
Total liabilities 5,510,848 4,592,780
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares authorized;
5,000 shares issued and outstanding 500,000 500,000
Common stock, $.01 par value; 40,000,000 shares authorized;
39,781,170 shares issued 397,813 397,813
Additional paid-in capital 1,704,190 1,749,190
Retained deficit (1,921,045) (1,886,580)
----------- -----------
Total shareholders' equity 680,958 760,423
----------- -----------
Commitments and contingencies
$ 6,191,806 $ 5,353,203
=========== ===========
See accompanying notes to condensed financial statements.
3
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Operations and Retained Deficit
Three months ended December 26, 1998 and December 27, 1997
(Unaudited)
December 26, December 27,
1998 1997
----------- -----------
Net sales $ 5,331,522 $ 5,116,742
----------- -----------
Costs and expenses:
Cost of sales 3,141,285 3,156,675
Selling, general and administrative expenses 1,692,210 1,586,029
Depreciation and amortization 58,429 65,700
----------- -----------
4,891,924 4,808,404
Income from operations 439,598 308,338
----------- -----------
Other (expense) income:
Interest expense (37,312) (56,075)
Interest income 1,040 3,707
----------- -----------
(36,272) (52,368)
Net income before income taxes 403,326 255,970
Provision for income taxes -- --
----------- -----------
Net income 403,326 255,970
Retained deficit, beginning of period (2,324,371) (1,984,939)
----------- -----------
Retained deficit, end of period (1,921,045) (1,728,969)
=========== ===========
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
Nine months ended December 26, 1998 and December 27, 1997
(Unaudited)
December 26, December 27,
1998 1997
------------ ------------
Net sales $ 13,126,196 $ 13,049,605
------------ ------------
Costs and expenses:
Cost of sales 7,796,882 8,057,685
Selling, general and administrative expenses 5,086,526 4,888,051
Depreciation and amortization 174,768 197,100
------------ ------------
13,058,176 13,142,836
------------ ------------
Income (loss) from operations 68,020 (93,231)
------------ ------------
Other (expense) income:
Interest expense (109,574) (175,217)
Interest income 7,089 13,149
------------ ------------
(102,485) (162,068)
Loss before reorganization costs and income taxes (34,465) (255,299)
Reorganization costs:
Professional fees -- (44,000)
------------ ------------
Loss before income taxes (34,465) (299,299)
Provision for income taxes -- --
------------ ------------
Net loss (34,465) (299,299)
Retained deficit, beginning of period (1,886,580) (1,399,670)
------------ ------------
Retained deficit, end of period $ (1,921,045) $ (1,698,969)
============ ============
Basic and diluted loss per share $ -- $ (0.01)
============ ============
See accompanying notes to condensed financial statements.
5
PEACHES ENTERTAINMENT CORPORATION
Condensed Statements of Cash Flows
Nine months ended December 26, 1998 and December 27, 1997
(Unaudited)
December 26, December 27,
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $ (34,465) $ (299,299)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 174,768 197,100
Deferred rent (923) (87,491)
Changes in assets and liabilities affecting
cash flows from operating activities:
(Increase) decrease in:
Inventories (388,399) 92,665
Prepaid expenses and other current assets 44,841 35,202
Other assets (3,444) 7,461
Increase (decrease) in:
Accounts payable 1,018,908 1,047,229
Accrued liabilities 197,158 135,427
----------- -----------
Net cash provided by operating activities 1,008,444 1,128,294
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (170,594) (61,385)
----------- -----------
Net cash used in investing activities (170,594) (61,385)
----------- -----------
Cash flows from financing activities:
Repayment of long-term obligations (328,385) (326,858)
Dividends paid (45,000) (45,000)
Due to parent 31,310 (330,094)
Capital contribution -- 374,719
----------- -----------
Net cash used in financing activities (342,075) (327,233)
----------- -----------
Net increase in cash and cash equivalents 495,775 739,676
Cash and cash equivalents, beginning of period 1,080,694 1,456,070
----------- -----------
Cash and cash equivalents, end of period $ 1,576,469 $ 2,195,746
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 28,600 $ 115,722
=========== ===========
See accompanying notes to condensed financial statements.
6
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
(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 March 28, 1998.
As of December 26, 1998, the Company was a 87.5 percent-owned subsidiary of
URT Industries, Inc. (the "Parent").
The results of operations for the nine months ended December 26, 1998, are
not necessarily indicative of the operating results to be expected for the
year ending April 3, 1999. 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) December 27,
1997 quarterly financial information to conform to the presentation used in
the (unaudited) December 26, 1998 financial information.
(2) Earnings Per Share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which establishes new standards for computing and presenting
earnings per share ("EPS"). Earnings per share for all prior periods have
been restated to reflect the provisions of this Statement.
Basic and diluted earnings (loss) per share have been computed by dividing
net earnings (loss), less preferred dividends by the weighted average
number of shares outstanding during the period.
(Continued)
7
PEACHES ENTERTAINMENT CORPORATION
Notes to Condensed Financial Statements
Basic and diluted loss per share were calculated as follows:
Nine months Nine months
Ended Ended
December 26, December 27,
1998 1997
----------- -----------
Basic and diluted:
Net income (loss) less preferred dividends $ (79,465) $ (344,299)
=========== ===========
Weighted average shares 39,781,170 39,781,170
=========== ===========
Basic and diluted loss per share (--) (.01)
=========== ===========
(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 nine month period ended December 26,
1998, there was no (benefit) provision for income taxes as the Company has
excess net operating loss carryforwards for federal income tax purposes.
(4) New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general purpose financial statements
and is effective for fiscal years beginning after December 31, 1997. The
adoption of Statement 130 did not have a material impact on the Company's
financial position, results of operations or cash flows.
In 1997, the FASB issued Statement of Financial Accounting Standard No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that these enterprises report
selected information about operating segments in interim financial reports
to shareholders. Statement 131 is effective for financial statements for
the periods beginning after December 15, 1997. The adoption of Statement
131 is not expected to have an effect on the Company because it operates in
a single segment.
(Continued)
8
PEACHES ENTERTAINMENT CORPORATION
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations
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 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 increased during the third quarter ended December
26, 1998 of the Company's fiscal year ending April 3, 1999 by $214,780 or 4.2
percent compared to the third quarter of fiscal 1998. Comparable store sales for
the third quarter were down 1.3 percent. Sales for the thirty-nine weeks ended
December 26, 1998 increased by $76,591 or .6 percent which is primarily due to
the fact the Company operated one more store in the third quarter of fiscal 1999
offset by the fact that comparable sales for the thirty-nine weeks ended
December 26, 1998 were down 2.3 percent.
Cost of Sales. The Company's cost of sales as a percentage of net sales,
decreased from 61.7 percent in the previous year's third quarter to 58.9 percent
for the third quarter ended December 26, 1998, as well as from 61.8 percent in
the previous year first thirty-nine weeks to 59.4 percent in the current years
thirty-nine weeks ended December 26, 1998. The decreases in cost of sales as a
percentage of sales are primarily attributable to increases in certain retail
prices and increases in purchase discounts.
Selling, General and Administrative. Selling, general and administrative
expenses including depreciation, expressed as a percentage of net sales
increased to 32.8 percent for the third quarter ended December 26, 1998 compared
to 32.2 percent in the prior year third quarter. The increase is primarily
attributable to a decrease in comparable store expenses of .53 percent and a
decrease in corporate overhead of 1.5 percent, offset by an increase in expense
associated with the opening of the new store in Orlando, Florida. Selling,
general and administrative expenses including depreciation, expressed as a
percentage of net sales increased to 40.1 percent for the thirty-nine weeks
ended December 26, 1998 compared to 38.9 percent the thirty-nine weeks ended
December 27, 1997. The increase is primarily attributable expenses incurred
throughout the Company's first quarter of 1999 fiscal year relating to the new
store that did not actually open until late in the Company's first quarter of
1999 fiscal year.
Net Income (Loss). The Company had net income of approximately $403,000 for the
third quarter ended December 26, 1998 compared to net income of approximately
$256,000 for the third quarter ended December 27, 1997. The increase in net
income is primarily attributable to the increase in gross profit percentage
discussed above. The net loss for the thirty-nine weeks ended December 26, 1998
was approximately $34,000 compared to a net loss of approximately $299,000 for
the thirty-nine weeks ended December 27, 1997. The decrease in net loss is
primarily attributable to the increase in gross profit discussed above.
(Continued)
9
PEACHES ENTERTAINMENT CORPORATION
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 used cash on hand as well as funds received
from its landlord for the building of the new store which opened in May 1998.
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 March 28, 1998.
Long-Term Obligations. At December 26, 1998, the Company had long-term
obligations of $488,625. Management anticipates that its ability to repay its
long-term obligations will be satisfied primarily through funds generated from
its operations or from possible financing.
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 will be required to upgrade portions of its
software which was originally purchased from outside vendors, so that its
computer systems will properly utilize dates beyond December 31, 1999. The
Company has not incurred any costs as of December 26, 1998 relating to year 2000
compliance. The Company anticipates that the cost of the upgrade of its software
from outside vendors will be approximately $20,000. The Company expects to
purchase its upgraded software in April, 1999, and that testing and
implementation will be completed by June, 1999. The Company is also in the
process of completing its inventory of computer information technology and
noninformation technology hardware systems to assess year 2000 compliance. The
Company's five largest music suppliers dominate the music distribution industry.
The Company believes that those five major suppliers will be 2000 ready.
However, the Company currently has no practical alternatives if these major
suppliers experience problems. Thus, there can be no absolute assurance that
there will not be a material adverse effect on the Company's operations,
liquidity or financial condition, if Year 2000 modifications are not properly
completed in a timely manner by either the Company, or its suppliers, banks or
any other entity with whom the Company conducts business.
(Continued)
10
PEACHES ENTERTAINMENT CORPORATION
New Accounting Policies. In June 1997, the FASB issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" ("Statement 130").
Statement 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal year beginning after December
31, 1997. The adoption of Statement 130 did not have a material impact on the
Company's financial position, results of operations or cash flows.
In 1997, the FASB issued Statement of Financial Accounting Standard No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("Statement
131"). Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that these enterprises report selected information about
operating segments in interim financial reports to shareholders. Statement 131
is effective for financial statements for the periods beginning after December
15, 1997. The adoption of Statement 131 is not expected to have an effect on the
Company because it operates in a single segment.
(Continued)
11
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
On or about February 16, 1999, the Company filed a Form 8-K dated
February 16, 1999 for the purpose of reporting on the projected
date of this filing.
(Continued)
12
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: 3/12/99 /s/ Allan Wolk
--------------------------------------------
Allan Wolk, Chairman of the Board, President
(Principal Executive Officer)
Date: 3/12/99 /s/ Jason Wolk
--------------------------------------------
Jason Wolk, Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
13