Item 1. BUSINESS
Peaches Entertainment Corporation ("PEC" or the "Company"), a Florida corporation, began business in 1982. It is engaged in the operation of retail stores which sell prerecorded music, videos, and related products (the "Retail Business") in the Southeastern part of the United States under the name "PEACHES".
URT Industries, Inc. ("URT"), a Florida corporation, and certain of its directors and officers presently own approximately 93.5% of PEC's issued and outstanding shares of common stock and all of its issued and outstanding shares of preferred stock, and control PEC. The remaining approximately 6.5% of PEC's issued and outstanding shares of common stock are owned by non-affiliated persons.
The Peaches Stores
The following table sets forth the number of "Peaches"stores (the "'Peaches' stores") which were open at the beginning of the year, which opened during the year, which closed during the year and which were open at the end of the year, with respect to PEC's last five complete fiscal years ending with the fiscal year ended April 3, 1999 (the "1999 fiscal year"):
1999 1998 1997 1996 1995 ---- ---- ---- ---- ----
Number of stores: At beginning of period 12 13 13 19 20 Opened during period 1 0 0 0 1 Closed during period (1) (1) (0) (6) (2) --- --- --- --- ---
At end of period 12 12 13 13 19
The twelve "Peaches" stores which are in operation are located in the following four states: Florida (six stores), Virginia (three stores), North Carolina (two stores), and Alabama (one store). The utilized space of the stores ranges from approximately 7,000 square feet to approximately 14,000 square feet. Each store either has its own parking area or is located in a shopping center which provides parking. PEC has options to renew most of its leases for various periods.
Two of the Florida stores, one in Fort Lauderdale and the other in Orlando, are currently leased from the Chairman of PEC and his brother, a former director of PEC. (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
For information concerning real property owned by PEC, see "Properties".
Trademarks
PEC is the registered owner of and owns nationwide rights to the tradename, service mark and trademark "PEACHES" (the "Trademarks") in connection with the operation of the Retail Business.
Operation of the Peaches Stores
The "Peaches" stores are all similar in appearance, except for PEC's mall-type store. They have distinct, wood panelled interiors, are decorated in a manner which identifies them as "Peaches" stores and carry a wide selection of prerecorded music as well as recorded and blank video tapes, accessory items and specialty items such as T-shirts and crates. Some stores are free standing and others are contiguous to other stores in shopping centers. At present, each "Peaches" store is managed by an individual director who is responsible for re-orders of merchandise and displaying merchandise sold in the store, hiring and firing personnel and other matters relating to store administration. Certain other matters, including pricing, relationships with landlords and the purchase and allocation of new releases, are handled by the home office. PEC has a computerized inventory control system in place at each of its stores.
As of the last day of the 1999 fiscal year, PEC purchased merchandise from approximately 60 suppliers, among whom the principal ones during most of fiscal 1999 were BMG, EMI, PGD, SONY, Universal and WEA. Approximately 72% of the merchandise purchased during the 1999 fiscal year came from such principal suppliers. In PEC's fourth quarter of fiscal 1999, Seagram Co., Ltd, the owner of Universal, completed its purchase of PGD. This action has brought PEC's number of principal suppliers from six to five. Although PEC does not anticipate an adverse effect as a result of the above, it is unknown what impact, if any, this acquisition would have on the ongoing results of operations of PEC.
Purchases from given suppliers are, to a great extent, determined by which of them are manufacturing or distributing the most popular prerecorded music products at a given time, as well as the credit and other terms on which such suppliers are willing to sell to PEC. PEC is not obligated to purchase merchandise from any supplier. It has numerous alternate sources of supply for inventory. However, a loss of one of its principal suppliers may have a materially adverse effect on PEC's results of operations.
Merchandise is delivered directly by suppliers to the stores. The usual terms received by PEC from suppliers provide for payment to be made within 60 days from the end of the month in which a purchase was made. In addition, PEC normally receives an additional 30 to 120 days to pay for certain purchases during the course of the year. Such terms are usual in the industry.
Under current industry procedure, PEC is able to return merchandise, subject to certain limitations, to all of its major suppliers, who charge a net penalty if returns exceed certain percentages of the dollar amounts of gross purchases. Such return policies do not have a materially adverse effect on PEC's business.
Advertising in local newspapers and media is determined by consultation between each store director and PEC management. PEC also engages in cooperative advertising with suppliers who pay a portion of the cost. In addition to the director, each "Peaches" store is staffed with managers, cashiers and sales and stock room personnel. The stores are open seven days a week.
Quarterly results are affected by the timing of holidays, the timing and strength of new releases, new store openings/closings and sales performance of existing stores. During the 1999 fiscal year, sales between April and June were approximately 22% of total sales; sales between July and September were approximately 22% of total sales; sales between October and December were approximately 31% of total sales; and sales between January and March were approximately 25% of total sales.
Competition
The retail sale of prerecorded music and video products is highly competitive. There are hundreds of retail, department, discount and variety stores and supermarkets which offer such merchandise to the public. PEC's share of the retail market in the Southeastern United States is not significant. In recent years, in addition to usual competition, there has been a proliferation of non-traditional music outlets, such as appliance retailers and super bookstores, some of whom have used very aggressive price cutting tactics including selling some products below actual cost in order to attract customers and sell non-music and video products. For a discussion of actions taken to address such competitive factors, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Employees
As of the last day of the 1998 fiscal year, PEC had approximately 238 employees. It is not a party to any collective bargaining agreements. Relations with employees have been satisfactory and there have been no work stoppages.
Intercorporate Agreements
There are three agreements in place pertaining to the management of PEC. Two of such agreements are between URT and PEC and the third is between URT and Allan Wolk, PEC's Chairman, President and Chief Executive Officer. Among the arrangements which are in place pursuant to such agreements are the following: for the period from January 1, 1996 through March 31, 2000, URT will continue to provide to PEC the services of Mr. Wolk as PEC's Chairman, President and Chief Executive Officer; PEC is required to pay to Mr. Wolk during such period, so long as he continues to provide such services, a salary in the amount described below; and URT and PEC will continue to equitably apportion taxes so long as they continue to file a consolidated federal return. The salary so payable by PEC to Mr. Wolk pursuant to such arrangements is $500,000 per annum, except that such amount was reduced to $400,000 per annum, effective March 1, 1997 and continuing until February 28, 1999, and except further that such amount was further reduced to $300,000 per annum, effective January 1, 1998 and continuing until March 28, 1998, and to $250,000 per annum, effective April 1,
1998 and continuing until April 3, 1999.
As a result of the above-described arrangements, the salary required to be paid by PEC to Allan Wolk was reduced from $375,000 during the 1998 fiscal year to $250,000 during the 1999 fiscal year. During both the 1999 and 1998 fiscal years, Mr. Wolk devoted approximately 75% of his contractual working time to the business of PEC.
Item 2.
Item 2. PROPERTIES
PEC's headquarters are located in Hallandale, Florida in a building which is leased by PEC. Such building contains a total of approximately 6,000 square feet of office space.
PEC owns real property in Mobile, Alabama on which it constructed and operates a "Peaches" store. Such property is subject to a first mortgage to an institutional lender.
All "Peaches" stores, other than the Mobile, Alabama store discussed immediately above, are leased. For information concerning such other stores operated by PEC, see "BUSINESS--The Peaches Stores".
Item 3.
Item 3. LEGAL PROCEEDINGS
In April, 1999, PEC instituted a legal action in the Circuit Court of the Ninth Judicial Circuit of Orange County, Florida against the landlord with respect to one of its Orlando, Florida stores. Among the allegations in the complaint are fraudulent misrepresentations as to the nature of the landlord's shopping center. PEC is seeking all available remedies in both law and equity. The action is presently pending.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
PEC's Common Stock is quoted by market makers on the over-the-counter market. The following table sets forth the closing high and low, bid and asked quotations for PEC's Common Stock for the calendar periods indicated, based on information supplied by the National Quotation Bureau, Incorporated:
Bid Prices Asked Prices ---------- ------------ High Low High Low
Quarter ended March 31 .005 .001 .05 .05 Quarter ended June 30, .001 .001 .05 .05 Quarter ended Sept. 30, .001 .001 .05 .05 Quarter ended Dec. 31, .001 .001 .05 .05
Quarter ended March 31, .001 .001 .05 .05 Quarter ended June 30, .001 .001 .10 .05 Quarter ended September 30, .01 .001 .10 .08 Quarter ended December 31, .01 .01 .08 .08
Quarter ended March 31, .06 .01 .125 .08 Quarter through June 1, .03 .03 .09 .09
The above over-the-counter quotations represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent actual transactions.
Dividends
Since its inception, there has been no payment of dividends on PEC's Common Stock. Payment of dividends on such stock in the future will depend upon PEC's earnings and needs.
PEC is required to pay dividends on its outstanding shares of preferred stock (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources").
Approximate Number of Equity Security Holders
The following table indicates the approximate number of holders of record of each class of PEC's common equity securities as of June 2, 1999, based on information supplied by PEC's transfer agent:
Number of Record Title of Class Holders -------------- -------
Common Stock, $.01 par value 1,452
Item 6.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data
The following table sets forth selected financial data and other operating information of the Company. The selected financial data should be read in conjunction with the financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
There were no cash dividends declared for common stock in any of the periods presented.
(1) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128 which requires the disclosure of basic earnings per share and diluted earnings per share. Earnings per share for all prior periods have been restated to reflect the provisions of this Statement.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, PEC (sometimes referred to herein as 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. These risks include, but are not limited to: changes in the competitive environment for the Company's products, including the entry or exit of non-traditional retailers of the Company's products to or from its markets; the release by the music industry of an increased or decreased number of "hit releases"; general economic factors in markets where the Company's products are sold; and other factors discussed in this filing and the Company's other filings. 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
FISCAL YEAR ENDED APRIL 3, 1999 ("1999") COMPARED TO FISCAL YEAR ENDED MARCH 28, 1998 ("1998")
Net sales for 1999 increased $403,000 or 2.4 percent compared to 1998. The increase is primarily due to the fact that the Company operated one more store for a portion of 1999 offset by a comparable store decrease of 1.6 percent.
Cost of sales, as a percentage of net sales, decreased from 61.5 percent in 1998 to 59.3 percent in 1999. Such decrease is primarily attributable to an increase in certain retail prices and increases in purchase discounts.
Selling, general and administrative expenses, including depreciation, expressed as a percentage of net sales increased to 40.5 in 1999 compared to 39.9 in 1998. The increase is primarily attributable to expenses incurred throughout the Company's first quarter of 1999 relating to the new store that did not actually open until after the first quarter began.
The Company had a net loss of $90,000 in 1999 compared with a net loss of $468,000 in 1998. The reduction of net loss is primarily attributable to the increase in gross profit percentage discussed above, a decrease in interest expense as well as an approximately $45,000 reduction of net loss due to the fact that fiscal 1999 was a 53 week year while fiscal 1998 was a 52 week year.
FISCAL YEAR ENDED MARCH 28, 1998 ("1998") COMPARED TO FISCAL YEAR ENDED MARCH 29, 1997 ("1997")
Net sales for 1998 decreased by 5.7% compared to 1997. Such decrease is attributed to a 3.2% decrease in comparable store sales, and a 2.5% decrease in sales due to one store that closed in 1998.
The cost of sales for 1998 was lower than that for 1997 due principally to a decrease in net sales. Cost of sales as a percentage of net sales decreased from 63.2% in 1997 to 61.4% in 1998 due principally to the fact that during the first quarter of 1998 the Company began to receive discounts associated with normal trade terms as a result of the conclusion of the Chapter 11 proceeding. Such decrease is also attributed to increases in other purchase discounts and an increase in certain retail selling prices.
Selling, general and administrative expenses, including depreciation and amortization ("SG&A") in 1998 decreased by 10.1% compared to 1997. Such decrease is attributed to a decrease in corporate overhead (7.8%) and a decrease due to the closing of one of the Company's stores (2.5%), offset by an increase in comparable store expenses (0.2%). SG&A expenses, as a percentage of net sales, decreased from 42% in 1997 to 40% in 1998 primarily due to such overhead reductions.
The Company incurred a net loss of $468,000 in 1998 versus a net loss of $865,000 in 1997. The significant reduction of net loss is attributed to an increase in gross profit percentage and a decrease in expenses as discussed above.
The Company's primary suppliers have taken steps to help protect the retail marketplace from certain low cost retailers of music. These steps have included not disbursing cooperative advertising funds to retailers which engage in low cost selling practices in violation of the minimum advertised pricing policies of such suppliers. Management believes that such initiatives, in combination with the other factors mentioned immediately below, have helped the Company to restore itself to a more competitive position. Another factor which has had a positive effect on the Company's performance is the increase in gross profit percentage. Also, the Company's Chapter 11 Plan of Reorganization was confirmed during the last quarter of 1997. The benefits of the reorganization included the termination of the leases associated with the six unprofitable stores which were closed during 1996, the closing of the Company's former headquarters and warehouse, and the termination of other unprofitable business arrangements. Other competitive advantages over certain competitors include a large selection of inventory, convenient store locations, a high level of customer service and the widely recognized "Peaches" name.
FISCAL YEAR ENDED MARCH 29, 1997 ("1997") COMPARED TO FISCAL YEAR ENDED MARCH 30, 1996 ("1996")
Net sales for 1997 decreased 23.4% compared to 1996. 13.3% of such decrease is attributed to the fact that 1996 included sales for stores that had been open during 1996 and were closed
during or near the end of 1996. The balance of such decrease (10.1%) is attributed to comparable store sales.
The cost of sales for 1997 was lower than that for 1996 due principally to a decrease in net sales. Cost of sales as a percentage of net sales decreased from 64.8% in 1996 to 63.2% in 1997 due to increased purchase discounts in 1997 and the fact that 1996 reflected the effects of buying a portion of PEC's inventory during the Chapter 11 proceeding from alternate sources with higher prices.
SG&A expenses in 1997 decreased 21.4% compared to 1996. Such decrease is attributed to a decrease in store operating expenses of stores that had been open during 1996, but were closed during or near the end of 1996 (15.0%), a decrease in corporate overhead (0.3%), and a decrease in comparable store expenses (6.1%). SG&A expenses, as a percentage of net sales, increased from 40.2% in 1996 to 41.8% in 1997 due to the fixed nature of certain expenses and the decrease in net sales in addition to the aforementioned items.
The Company incurred a net loss of $865,000 in 1997 versus a net loss of $2,416,000 in 1996. The significant reduction of net loss is attributed to the success of the Chapter 11 proceeding. However, such success was offset by professional fees and lost gross profits as a result of not obtaining similar terms from trade creditors to those that existed prior to the Chapter 11 proceeding until approximately the first quarter of 1998, at which time the Company's primary suppliers provided terms with respect to purchases and returns that were the same as those in place prior to the Petition Date. Also, further overhead reductions were not evident until 1998.
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 accompanying this Form 10-K.
At April 3, 1999, the Company had long-term obligations of $469,759. 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.
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.
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.
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 expects that testing and implementation will be completed by August, 1999. The total anticipated cost of the upgrade of the Company's software is approximately $20,000. However, there can be no absolute assurance that the Company can successfully implement the necessary upgrades to its computer systems. 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.
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 years beginning after December 31, 1997. Adoption of Statement 130 did not have a material effect 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 Company operates as one segment.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company owns no derivative financial instruments or derivative commodity instruments. The Company's exposure to changes in interest rates is limited to cash, cash equivalents, investments and long-term debt. Changes in interest rates by 10% would not have a material impact on the Company's financial position or results of operations.
Item 8.
Item 8. FINANCIAL STATEMENTS
PEACHES ENTERTAINMENT CORPORATION
Financial Statements
April 3, 1999 and March 28, 1998
(With Independent Auditors' Report Thereon)
PEACHES ENTERTAINMENT CORPORATION
Page ----
Independent Auditors' Report
Financial Statements: Balance Sheets as of April 3, 1999 and March 28, 1998
Statements of Operations for each of the years in the three-year period ended April 3, 1999
Statements of Shareholders' Equity for each of the years in the three-year period ended April 3, 1999
Statements of Cash Flows for each of the years in the three-year period ended April 3, 1999
Notes to Financial Statements
Independent Auditors' Report
Directors and Shareholders Peaches Entertainment Corporation Hallandale, Florida:
We have audited the accompanying balance sheets of Peaches Entertainment Corporation (the "Company") as of April 3, 1999 and March 28, 1998, and the related statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended April 3, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Peaches Entertainment Corporation as of April 3, 1999 and March 28, 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended April 3, 1999 in conformity with generally accepted accounting principles.
May 28, 1999 Ft. Lauderdale, Florida
KPMG LLP
PEACHES ENTERTAINMENT CORPORATION
Balance Sheets
April 3, 1999 and March 28, 1998
See accompanying notes to financial statements.
(F-3)
PEACHES ENTERTAINMENT CORPORATION
Statements of Operations
For each of the years in the three-year period ended April 3, 1999
See accompanying notes to financial statements.
(F-4)
PEACHES ENTERTAINMENT CORPORATION
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended April 3, 1999
(F-5)
See accompanying notes to financial statements.
(F-6)
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows
For each of the years in the three-year period ended April 3, 1999
(F-7)
PEACHES ENTERTAINMENT CORPORATION
Statements of Cash Flows
For each of the years in the three-year period ended April 3, 1999
In 1998, the Parent forgave $374,719 of the Due to Parent, which is reflected as a capital contribution in the accompanying financial statements.
In 1999, the Parent forgave $350,000 of the Due to Parent, which is reflected as a capital contribution in the accompanying financial statements.
See accompanying notes to financial statements.
(F-8)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(1) Organization and Basis of Presentation
Peaches Entertainment Corporation (the "Company") is engaged in the business of retailing prerecorded music, video and accessory items, principally in the Southeastern United States. The Company operates in a single-industry segment, the operation of a chain of retail entertainment stores. The Company is a 87.5 percent-owned subsidiary of URT Industries, Inc. (the "Parent").
(2) Confirmation of Amended Plan of Reorganization
On January 16, 1996 (the "Petition Date"), the Company commenced reorganization proceedings under Chapter 11 of the United States Bankruptcy Code. An amended plan of reorganization was confirmed by the Bankruptcy Court on January 17, 1997 (the "confirmation date"), and became effective February 3, 1997 (the "effective date"), subject to satisfaction of certain conditions which were satisfied February 19, 1997. All trade and nontrade suppliers received 100 percent of their allowed claims which were either paid on the effective date or are reflected in current and long-term obligations in the financial statements, payable primarily over a two-year period from the effective date. As of April 3, 1999, all trade and non-trade suppliers have been paid 100 percent of their allowed claims. The mortgage holder will receive 100 percent of the allowed claim, with interest, except the balloon payment was extended from September 1997 to September 2002. Landlords, under the leases rejected by the Company in connection with the bankruptcy filing, were entitled to 30 percent of the allowed claims with respect to such leases, all of which were paid on the effective date. The Company recorded in 1997 an extraordinary gain of $486,379 primarily as a result of the settlement of lease rejection claims.
(3) Liquidity
As of April 3, 1999, the Company has a net worth of approximately $1 million. Since 1993, the Company has incurred operating losses and has an accumulated deficit balance of approximately $2 million at April 3, 1999. In 1996, the Company commenced reorganization proceedings under Chapter 11 and in the last quarter of 1997 the Company's plan of reorganization was confirmed. The Company believes that it has benefited from its reorganization, which includes the termination of the leases associated with the six unprofitable stores which were closed during 1996, the closing of the Company's former headquarters and warehouses, and the termination of other unprofitable business arrangements.
Additionally, the Company's primary suppliers have taken steps to help protect the retail marketplace from certain low-cost retailers of music including non-traditional music outlets, such as appliance retailers and super book stores, some of whom have used very aggressive price cutting tactics including selling some products below actual cost in order to attract customers and sell non-music and video products. These steps have included not disbursing cooperative advertising funds to retailers which engage in low cost selling practices in violation of the minimum advertised pricing policies of such suppliers. Management believes that such initiatives, in combination with the other factors mentioned immediately above, have helped the Company to restore itself to a more competitive position. Other factors which have had a positive effect on the Company's performance are the increase in gross-profit percentage and reduction of certain expenses. The Company's ability to achieve substained profitable
(F-9)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
operations is dependent on continuing to obtain products at competitive prices, restructuring operations to minimize cash expenditures and successfully competing with larger retailers who have greater capital resources than the Company. Management believes that cash flow from operations or additional financing available from other sources will be sufficient to fund operations during the next fiscal year. There is no assurance that such events will occur or such financing will be available.
(4) Summary of Significant Accounting Policies
(a) Fiscal Year
The Company's fiscal year consists of 52 or 53 weeks ending on the Saturday closest to the end of March. The fiscal years ended April 3, 1999 consisted of 53 weeks. The fiscal years ended March 28, 1998 and March 29, 1997 consisted of 52 weeks, respectively.
(b) Cash Equivalents
The Company considers highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash equivalents totaled approximately $337,000 and $399,000 at April 3, 1999 and March 28, 1998, respectively. The carrying amount approximates fair value because of the short-term maturity of these investments. The fair values are estimated based on quoted market prices for these or similar instruments.
(c) Inventories
Inventories, comprised of compact discs, cassettes, digital video disks, videos and accessories, are stated at the lower of cost (principally average) including freight-in, or market.
(d) Property and Equipment
Property and equipment are stated at cost. The assets are depreciated over their estimated useful lives ranging from 5 to 31.5 years using both straight-line and accelerated methods. The Company's policy is to retire assets from its accounts as they become fully depreciated.
(e) Income Taxes
The Company files a consolidated income tax return with its Parent. Any applicable tax charges or credits are allocated to the Company on a separate return basis. Provision is made for deferred income taxes which result from certain items of income and expense being reported for tax purposes in periods different than those reported for financial reporting purposes. These items relate principally to the methods of accounting for store leases with future scheduled rent payment increases, inventory and the utilization of different methods of depreciation for financial statement and income tax purposes.
(F-10)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
The Company accounts for income taxes under the provisions of Financial Accounting Standards Board's ("SFAS") No. 109, which generally requires recognition of deferred tax liabilities and assets for the future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined on differences between the financial reporting and tax bases of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(f) Reorganization Costs
Reorganization costs include professional fees relating to legal, accounting and consulting services provided in connection with the Chapter 11 proceedings.
(g) Use of Estimates by Management
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.
(h) Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The adoption of this Statement did not have a material impact on the Company's financial position, results of operations or liquidity.
(F-11)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(i) Reclassifications
Certain amounts in the 1998 and 1997 financial statements have been reclassified to conform with the 1999 presentation.
(5) Earnings Per Share
In December 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per Share, which establishes new standards for computing and presenting earnings per share. Earnings per share for all prior periods have been restated to reflect the provisions of this Statement.
Basic and diluted earnings per share have been computed by dividing net loss, less preferred dividends by the weighted average number of shares outstanding during the period.
Basic and diluted earnings per share were calculated as follows:
(6) Property and Equipment, Net
Property and equipment consist of the following at April 3, 1999 and March 28, 1998:
1999 1998 ----------- -----------
Land $ 395,570 395,570 Building 538,093 538,093 Leasehold improvements 1,166,518 1,456,260 Furniture and equipment 645,577 677,333 Building under capitalized lease 206,964 206,964 ----------- ----------- 2,952,722 3,274,220 Less accumulated depreciation and amortization (1,717,152) (1,924,488) ----------- -----------
$ 1,235,570 1,349,732 =========== ===========
(F-12)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(7) Long-term Obligations
Long-term obligations consist of the following at April 3, 1999 and March 28, 1998:
The capital lease pertains to the building portion of property owned by one director and one former director. The rent expense on the land portion of this lease was approximately $113,000 for 1999, 1998 and 1997.
The following represents future minimum lease payments under the capital lease obligation:
Fiscal year Amount ----------- ------ 2000 $ 40,600 2001 40,600 2002 40,600 2003 40,600 2004 40,600 Thereafter 40,600 -------- Total minimum lease payments 243,600
Less amount representing interest 93,463 --------
Present value of minimum lease payments $150,137 ========
(F-13)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
Maturities of long-term obligations, excluding the capital lease obligation, to maturity, are as follows:
Fiscal year Amount ----------- ------ 2000 $ 92,765 2001 35,775 2002 35,775 2003 263,587 2004 -- Thereafter -- --------
$427,902 ========
The Company has a standby letter of credit of $75,600 available to a landlord that was not drawn upon as of April 3, 1999. The standby letter of credit is fully collateralized by a certificate of deposit, which is included in other assets. In addition, one of the Company's banks is obligated to provide an irrevocable letter of credit of $150,000. No letters of credit were drawn upon as of April 3, 1999.
(8) Accrued Liabilities
Accrued liabilities consist of the following at April 3, 1999 and March 28, 1998:
1999 1998 -------- --------
Gift certificate and credit slip liability $156,818 155,873 Payroll and related benefits 42,670 102,244 Sales and real estate taxes payable 131,556 141,446 Accrued overhead expenses 223,741 259,017 Other 125,408 164,090 -------- --------
$680,193 822,670 ======== ========
(9) Due to Parent
In order for the Company to be able to effect the plan of reorganization, the Parent, in exchange for the issuance to it of 20 million shares of the Company's authorized common stock (including 218,730 treasury shares), contributed $350,000 to the capital of the Company, waived an aggregate of $75,000 of dividends payable by the Company to the Parent, guaranteed, subject to the terms of the Plan, the approximately $1,284,000 which is due the principal suppliers (all of which have been paid as of April 3, 1999) in accordance with the foregoing, and loaned $700,000 to the Company. The loan was required be repaid to the Parent with interest at prime over a period of four years beginning on the third anniversary of the effective date and is subordinate to the amounts owed to principal suppliers and is secured by inventory and all the assets of the Company. In 1998, the Parent forgave $350,000 of principal and $24,719 of accrued interest. In 1999, the Parent forgave $350,000. The forgiveness has been accounted for as an additional capital contribution by the Parent.
(F-14)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(10) Commitments and Contingencies
(a) Leases
The Company is a lessee under various operating leases, several of which provide for percentage rent. An insignificant amount of percentage rent was incurred in each of the years in the three-year period ended April 3, 1999. Most of the leases contain renewal options.
The aggregate minimum rental commitments under all noncancelable operating leases at April 3, 1999 are as follows:
Fiscal year Amount ----------- ----------- 2000 $ 1,229,827 2001 1,148,775 2002 986,891 2003 948,733 2004 901,761 Thereafter 5,246,565 -----------
$10,462,552 ===========
Rental expense under noncancelable operating leases, included in selling, general and administrative expenses in the accompanying statements of operations, amounted to $1,380,000 and $1,160,000 and $1,217,000, respectively, for each of the years in the three-year period ended April 3, 1999.
Rental expense on stores owned by two directors and/or their relatives was $164,062, $131,250, and $131,250, respectively, for each of the years in the three-year period ended April 3, 1999.
(b) Legal Matters
The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of its business. In the opinion of management, all such matters are without merit or involve such amounts that an unfavorable disposition will not have a material impact on the financial position or results of operations of the Company.
(F-15)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(c) Employment Agreement
On March 18, 1996, the United States Bankruptcy Court Southern District of Florida approved the settlement of an employment agreement with a former officer. The Company is to pay an amount of $273,550 over a period of four years (note 7). Under the original terms of employment, the officer would have been entitled to in excess of $870,000 in aggregate.
(d) Management Agreement
On March 29, 1993, as amended, the Company entered into a management and intercorporate agreement (the "Management Agreement") with the Parent whereby the Company was required to pay the Parent an annual fee; the Parent was required to provide the Company with the services of the person who is the president and chairman; the Parent was required to pay the Company for certain accounting and administrative services performed by the Company; and so long as the Parent and the Company filed consolidated income tax returns, their respective liabilities for such taxes would be equitably apportioned as provided in such agreement. Effective as of the close of business on December 31, 1995, the Management Agreement was terminated and replaced with three new agreements which became effective January 1, 1996 through March 31, 2000. In lieu of paying a management fee to the Parent, the three new agreements require payment to the Parent's president and chairman as long as he continues to provide services similar to those performed under the original Management Agreement.
(11) Shareholders' Equity
For each of the years in the three-year period ended April 3, 1999, the Company had 2,500 shares of $100 par, 11 percent, Series A Cumulative Preferred Stock and 2,500 shares of $100 par, 13 percent, Series B Cumulative Preferred Stock authorized, issued and outstanding. The Parent is the owner of all outstanding shares of Preferred Stock. In connection with the reorganization, the Parent agreed to waive dividends in its shares for the period beginning January 1, 1996 and ending March 29, 1997. The Company can issue up to 50,000 shares of preferred stock, and the directors have the authority to issue such shares in one or more additional series. Each share of Series A and Series B Cumulative Preferred Stock is entitled to one vote and has the same voting powers as the common stock, except that all matters on which the vote of shareholders is required must, in order to be approved, receive the requisite vote of either (i) both the Series A and Series B, voting as separate classes or (ii) the common stock and either the Series A or Series B, voting as separate classes. The shares of Series A stock may be convertible into shares of the Company's common stock upon the holders' compliance with certain surrender and notice provisions. In March 1997, the conversion feature was eliminated. The liquidating value for both the Series A and Series B shares is par value plus all accrued and unpaid dividends.
(F-16)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
(12) Income Taxes
The provision for income taxes consists of:
Reasons for differences between income tax provision and the amount computed by applying the statutory federal income tax rate of 34 percent to pretax loss were:
(F-17)
PEACHES ENTERTAINMENT CORPORATION
Notes to Financial Statements
April 3, 1999, March 28, 1998 and March 29, 1997
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at April 3, 1999 and March 28, 1998, are presented below.
At April 3, 1999, the Company has a net operating loss carryforward for federal income tax purposes of approximately $4,291,120 which is available to offset future federal taxable income, if any, through 2013.
A valuation allowance is provided to reduce deferred tax assets to a level which, more likely than not, will be realized. The net deferred assets reflect management's estimate of the amount which will be realized from future profitability which can be predicted with reasonable certainty. The valuation allowance for deferred tax assets as of April 3, 1999 and March 28, 1998 was $2,146,000 and $2,027,000, respectively. The net change in the total valuation allowance for the years ended April 3, 1999 and March 28, 1998 was an increase of approximately $119,000 and $126,000, respectively.
(13) Fair Value of Financial Instruments
The fair value of the Company's long-term debt and due to Parent is estimated by discounting the future cash flows for each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities, which approximates the carrying value.
(F-18)
(14) Business and Credit Concentrations
The retail sale of prerecorded music and video products is highly competitive. The Company's share of the retail market in the Southeastern United States is not significant. The number of stores and types of competitors faced by the Company's stores increased significantly, including non-mall discount stores, consumer electronics superstores and other mall based music, video and book specialty retailers expanding into non-mall multimedia superstores of their own. The Company's stores operate in a retail environment in which many factors that are difficult to predict and outside the Company's control can have a significant impact on store and Company sales and profits. These factors include the timing and strength of new product offerings and technology, pricing strategies of competitors, openings and closings of competitors' stores, the Company's ability to continue to receive adequate product from its vendors on acceptable credit terms, effects of weather and overall economic conditions, including inflation, consumer confidence, spending habits and disposable income.
The Company purchased approximately 77 percent and 74 percent of its merchandise from seven principal suppliers during the fiscal year ended April 3, 1999 and March 28, 1998, respectively. Purchases from given suppliers are, to a great extent, determined by which of them are manufacturing or distributing the most popular prerecorded music products at a given time, as well as the credit and other terms on which such suppliers are willing to sell to the Company. The Company is not obligated to purchase merchandise from any supplier. However, if the Company was to lose one of its principal suppliers, it may have a material adverse effect on the Company's results of operations and financial position.
(F-19)
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of the date of this filing, the directors and executive officers of PEC are:
Name Position Age ---- -------- ---
Allan Wolk Chairman of the Board, President (Chief Executive Officer) and Director 61
Brian Wolk Executive Vice-President, Chief Legal 34 Officer, General Manager-Store Operations and Merchandising, and Director
Jason Wolk Executive Vice-President, Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Director 32
Allan Wolk has been the Chief Executive Officer and a director of PEC since its formation in 1982. He has also been the Chief Executive Officer of URT since its formation. He has been engaged in the prerecorded music business for more than 40 years, principally in the rack merchandising and retail segments thereof.
Brian Wolk, an attorney, has been employed by PEC in various capacities and at various times since 1982 and has been employed by it, full time, since 1992. He is a son of Allan Wolk. He has been a director of PEC and URT since 1994 and a vice-president of both companies since June, 1995. He was appointed Executive Vice-President of both companies in March, 1996.
Jason Wolk, a certified public accountant, has been employed by PEC in various capacities and at various times since 1983 and has been employed by it, full time, since 1994. He is a son of Allan Wolk. Prior to his full time employment by PEC, he had been employed as an accountant by KPMG Peat Marwick LLP. He has been a director of PEC and URT since 1994 and a vice-president and the secretary of both companies since June, 1995. He was appointed Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) of
both companies in September, 1995, and was appointed Executive Vice-President of both companies in March, 1996.
The term of office of each director continues until the next annual meeting of the stockholders and until his or her successor is elected. Mr. Wolk has an employment agreement with URT. Under the management agreements referred to above, PEC has the right to use the services of Mr. Wolk (See "BUSINESS-Intercorporate Agreements").
Item 11.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued by PEC for services rendered in all capacities to it during the 1999 fiscal year and the two prior fiscal years to (i) PEC's chief executive officer ("CEO") and (ii) each of the other most highly compensated executive officers of PEC whose cash compensation exceeded $100,000 and who served as executive officers during the 1999 fiscal year:
Summary Compensation Table
- ---------- (1) Mr. Wolk is employed and compensated under an employment agreement with URT which continues in effect until March 31, 2000. PEC receives the services of Mr. Wolk under the management agreements described above. Pursuant to such agreements, PEC is required to pay a salary to Mr. Wolk, and the amount so paid by PEC to Mr. Wolk is credited against the amount payable by URT to Mr. Wolk pursuant to the employment agreement between them (See "BUSINESS- Intercorporate Agreements").
Employment Contracts
There are no employment contracts or severance agreements in place between PEC and any of its executive officers. However, pursuant to the arrangements described above, PEC
is entitled to the services of Allan Wolk, its Chairman, President and Chief Executive Officer, through March 31, 2000, and PEC is obligated to pay a salary to him.
Compensation Committee Interlocks and Insider Participation
PEC does not have a compensation committee or other board committee performing equivalent functions. During the 1999 fiscal year, all deliberations concerning executive officer compensation or any other arrangements between PEC and any executive officers were conducted by PEC's full board of directors, provided, however, that no director voted on compensation payable to him as an executive officer or any other arrangement between him and PEC.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of June 2, 1999, URT and its directors and officers owned approximately 93.5% of the issued and outstanding shares of the PEC common stock and URT owned all of PEC's issued and outstanding shares of Series A and Series B preferred stock. All of such shares of PEC stock are owned directly with voting and investment power.
As set forth in the following table, Allan Wolk and members of his immediate family own approximately 30% of URT's Class A common stock and approximately 58% of URT's Class B common stock. The two classes of URT's common stock are identical except that each class votes separately so that all matters requiring the vote of stockholders require the approval of both classes of common stock voting as separate classes. By reason of such ownership and his position as Chairman of URT and Chairman of PEC, Mr. Wolk may be deemed to have effective control of PEC.
The following table contains information concerning the number of shares of each class of URT's common stock which was owned by each person who, as of June 2, 1999, owned, beneficially, more than 5% thereof, and the number of shares of each class of such stock owned beneficially, directly or indirectly, by each executive officer and director and by all directors and executive officers as a group on such date:
*Less than one percent.
- -------- (1) Includes 3,150,786 shares owned by Allan Wolk, 25,920 shares owned by his wife and 17,480 shares held by him for his daughter. However, Mr. Wolk has renounced all voting and investment power with respect to those shares of URT which are held by him for his daughter. He believes that his wife will vote the shares owned by her in favor of proposals which he favors, but disclaims beneficial ownership of any shares owned by her or held for the benefit of his daughter.
(2) Such shares are held by Lawrence Strauss and Allan Wolk as trustees for the benefit of children of Sheffield Wolk, Mr. Wolk's brother. Allan Wolk has renounced all voting and investment power with respect to those shares of URT which are so held in trust for the benefit of children of Mr. Wolk's brother. All such powers as trustee are exercised exclusively by the co-trustee, and Mr. Wolk disclaims beneficial ownership of such shares.
(3) Such shares are held in the name of Allan Wolk, as custodian. However, Mr. Wolk has renounced all voting and investment power with respect to those shares of URT which are held by him for his two sons, and disclaims beneficial ownership of such shares. Such shares, being listed separately here, are not included under the shares listed as beneficially owned by Allan Wolk.
(4) Based on information supplied by URT's transfer agent. Does not include 160,000 shares reported in a Schedule 13D, dated June 14, 1989, as owned by John T. Gervasoni, Scorpio Music, Inc.'s reported president and 100% shareholder, as to which no confirmation of ownership has been made by URT's transfer agent. The total of such 160,000 shares reported as owned by John T. Gervasoni and the 1,195,550 shares reported as owned by Scorpio Music Inc. is 1,355,550, or approximately 12.5% of the outstanding URT Common A shares.
(5) Includes 780,174 shares owned by Allan Wolk and 6,480 shares owned by his wife. Mr. Wolk believes that his wife will vote the shares owned by her in favor of proposals which he favors, but disclaims beneficial ownership of such shares.
As set forth in the above table and footnotes, Allan Wolk and members of his immediate family own approximately 30% or URT's Class A common stock and approximately 58% of URT's Class B common stock. The two classes of URT's common stock are identical except that each class votes separately so that all matters requiring the vote of stockholders require the approval of both classes of common stock voting as separate classes. By reason of such ownership and his position as Chairman of URT, Mr. Wolk may be deemed to have effective control of URT.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of their purchase in 1983 from an unaffiliated third party seller, Allan Wolk and his brother, Sheffield Wolk, a former director of PEC, are the owners of the land and building on which the PEC store in Fort Lauderdale, Florida is located. Such property was and continues to be subject to a lease with PEC as tenant, which had been negotiated by the prior owner. During the 1995 fiscal year, PEC made and paid for certain renovations to the premises. Based on the provisions of the lease, the owners agreed to be responsible for $26,225 of the cost of such renovations which, with interest, is being deducted by PEC over a period of 36 months.
In December, 1984, PEC entered into a long-term lease with Allan Wolk and Sheffield Wolk for premises owned by them in Orlando, Florida. The lease term commenced in December, 1984, and is for a period of twenty years with two additional five year terms. The lease is a triple net lease. The lease provides for a net minimum rental rate of $125,000 per annum from the rental commencement date through March 31, 1985; a rate of $140,000 per annum during the following five year period; a rate of $145,000 per annum during the next five year period; a rate of $160,000 during the next five year period; and increases of $5,000 during every five year period thereafter. Notwithstanding the foregoing, commencing with the sixth rental year, if net sales at the store during any rental year are less than a specified amount, the annual net minimum rental rate for such year will be the same as that which had been in effect during the preceding five year period. The lease was approved by disinterested directors and, in the opinion of management, is as reasonable as those which could have been obtained from unaffiliated third parties.
In April, 1989, PEC's board of directors authorized PEC to enter into agreements with its officers and directors under which they would be entitled to be indemnified by PEC and have their expenses advanced to them in the event of any claim against them in their capacities as officers and directors. Such agreements were entered into with all then-existing officers and directors of PEC on or about May 22, 1989. On or about July 14, 1995, and pursuant to the further authorization of the board of directors on such date, PEC entered into indemnification agreements with the two additional officers and directors, Brian Wolk and Jason Wolk, who were appointed to their respective positions subsequent to 1989. The indemnification agreements so entered into with Brian Wolk and Jason Wolk are in the same form as the indemnification agreements entered into in 1989 with the then-existing officers and directors.
In order to enable PEC to effect its Chapter 11 Plan of Reorganization in February, 1997, URT, in exchange for the issuance to it of 20,000,000 shares of PEC's authorized common stock (including 218,730 treasury shares), took the following steps: contributed $350,000 to the capital of PEC; waived an aggregate of $75,000 of dividends payable by PEC to URT with respect to the period running from January 1, 1996 to March 31, 1997; loaned $700,000 to PEC; and agreed that, subject to the terms of the Plan of Reorganization, it would guarantee the approximately $1,284,000 then payable to PEC's principal suppliers. In order to facilitate the issuance of such shares to URT, URT also waived its right to convert to common stock the Series A preferred stock of PEC which is owned by URT. The loan from URT was required to be paid back by PEC with interest at the prime rate charged by Chase Manhattan Bank, N.A..
On or about November 29, 1997, URT, in order to further strengthen PEC's financial condition, agreed to forgive repayment of one-half of the $700,000 which was loaned by URT to PEC, together with the interest then accrued on the $350,000 so forgiven. On or about March 31, 1999, URT, in order to further strengthen PEC's financial condition, agreed to forgive the remaining $350,000 principal balance, excluding interest. Such interest is required to be repaid in accordance with the terms of the original loan documents described above.
On or about September 15, 1998, URT loaned the sum of $150,000 to PEC. Such amounts were repaid by PEC to URT on or about December 24, 1998. On or about April 20, 1999, URT loaned the sum of $275,000 to PEC. Such amounts are required to be repaid on or before December 29, 1999.
On or about July 22, 1998, two of the directors and officers of URT and PEC, Brian Wolk and Jason Wolk, each received from URT, in recognition of substantial services provided to URT and PEC, 1,200,000 shares of the PEC common stock owned by URT. Such shares were transferred subject to the condition that if either such individual should voluntarily leave the employ of PEC, or his employment is terminated by PEC for cause, during the 24 month period ending July 21, 2000, then such individual would be required to sell his 1,200,000 shares back to URT for the amount which the parties agreed to be the value of such 1,200,000 shares upon execution of the agreement. Such arrangements were approved by the directors of URT (with the affected individual abstaining as to the vote with respect to the arrangements with him).
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
Page
1. Financial Statements
Table of Contents .......................................13
Independent Auditors' Report ............................14
Peaches Entertainment Corporation Financial Statements:
Balance sheets as of March 28, 1998 and March 29, 1997 ....................................................15
Statements of operations for each of the years in the three year period ended March 28, 1998 ..............16
Statements of shareholders' equity for each of the years in the three year period ended March 28, 1998 ....................................................17
Statements of cash flows for each of the years in the three year period ended March 28, 1998 ..............19
Notes to financial statements. ..........................21
2. Financial Statement Schedules
Schedules have been omitted which are not applicable or where the required information is shown in the financial statements or the notes thereto.
3. Exhibits
Exhibit No. - -----------
3.1 Articles of Incorporation of Peaches Entertainment Corporation ("PEC") dated March 3, 1982, incorporated by reference to Exhibit No. 3.3 to URT Industries, Inc. ("URT") and PEC's Registration Statement No. 2-81065.
3.1-1 Amendment to PEC's Articles of Incorporation dated January 17, 1983, incorporated by reference to Exhibit No. 3.3-1 to URT's and PEC's Registration Statement No. 2-81065.
3.2 By-Laws of PEC incorporated by reference to Exhibit No. 3.4 to URT's and PEC's Registration Statement No. 2-81065.
3.3 Form of Amendment to PEC's Articles of Incorporation, incorporated by reference to Exhibit No. 3.5 to PEC's Registration Statement No. 2-81065.
10.36 Lease dated December 13, 1984 between Allan Wolk and Sheffield Wolk and PEC applicable to Orlando, Florida premises, incorporated by reference to Exhibit No. 13.47 to URT's Registration Statement No. 2-63747.
10.40 Amendment to Lease dated February 25, 1986 between Allan Wolk and Sheffield Wolk and PEC applicable to Orlando, Florida premises, incorporated by reference to Exhibit No. 10(ss) to URT's Form 10-K Annual Report for the year ended March 29, 1986.
10.47 Indemnification Agreement dated May 22, 1989 between Allan Wolk and PEC, incorporated by reference to Exhibit 10.47 to PEC's Form 10-K Annual Report dated June 27, 1989.
10.60 Letter Agreement dated January 1, 1996 between URT and PEC pertaining to termination of Management and Intercorporate Agreement dated March 29, 1993, incorporated by reference to Exhibit 10(jjjj) to URT's Form 10-K Annual Report dated April. 25, 1997.
10.61 Letter Agreement dated January 1, 1996 between URT and PEC pertaining to services of Allan Wolk, incorporated by reference to Exhibit 10(kkkk) to URT's Form 10-K Annual Report dated April 25, 1997.
10.62 Indemnification Agreement dated July 14, 1995 between Brian Wolk and PEC, incorporated by reference to Exhibit 10.67 to PEC's 10-K Annual Report dated April 25, 1997.
10.63 Indemnification Agreement dated July 14, 1995 between Jason Wolk and PEC, incorporated by reference to Exhibit 10.63 to PEC's 10-K Annual Report dated April 25, 1997.
10.64 PEC's Amended Plan of Reorganization, dated October 23, 1996, incorporated by reference to Exhibit 1 to PEC's Form 8-K dated April 7, 1997.
10.65 Order Confirming PEC's Amended Plan of Reorganization, as Modified, dated January 17, 1997, incorporated by reference to Exhibit 2 to PEC's Form 8-K dated April 7, 1997.
10.66 URT Promissory Note dated January 27, 1997 made by PEC to URT, incorporated by reference to Exhibit 10.66 to PEC's 10-K Annual Report dated April 25, 1997.
10.67 Security Agreement dated January 27, 1997 between PEC and URT, incorporated by reference to Exhibit 10.67 to PEC's 10-K Annual Report dated April 25, 1997.
10.68 Mortgage Agreement with Assignment of Rents, Security Agreement and Fixture Filing dated January 27, 1997 by PEC in favor of URT, incorporated by reference to Exhibit 10.68 to PEC's 10-K Annual Report dated April 25, 1997.
10.69 Reimbursement Agreement dated January 27, 1997 between PEC and URT, incorporated by reference to Exhibit 10.69 to PEC's 10-K Annual Report dated April 25, 1997.
10.70 Subordination Agreement dated January 27, 1997 between PEC, URT and selected creditors, incorporated by reference to Exhibit 10.70 to PEC's 10-K Annual Report dated April 25, 1997.
10.71 Subordination Agreement dated January 27, 1997 between PEC, URT and creditor, incorporated by reference to Exhibit 10.71 to PEC's 10-K Annual Report dated April 25, 1997.
10.72 Surrender and Waiver Agreement dated January 27, 1997 between PEC and URT, incorporated by reference to Exhibit 10.72 to PEC's 10-K Annual Report dated April 25, 1997.
10.73 Waiver Agreement dated March 1, 1997 between PEC and URT, incorporated by reference to Exhibit 10.73 to PEC's 10-K Annual Report dated April 25, 1997.
10.74 Stock Purchase Agreement dated March 24, 1997 between PEC and URT, incorporated by reference to Exhibit 10.74 to PEC's 10-K Annual Report dated April 25, 1997.
10.75 Letter agreement dated March 17, 1997 between URT and PEC pertaining to salary of Allan Wolk, incorporated by reference to Exhibit 10(zzzz) to URT's 10- K Annual Report dated June 26, 1998.
10.76 Loan Forgiveness Agreement dated November 29, 1997 between URT and PEC, incorporated by reference to Exhibit 10.2 to URT's 10-K Annual Report dated June 26, 1998.
10.77 Letter agreement dated May 26, 1998 between URT and PEC pertaining to salary of Allan Wolk, incorporated by reference to Exhibit 10.3 to URT's 10-K Annual Report dated June 26, 1998.
10.78 Promissory Note dated September 15, 1998 made by PEC to URT, as payee, incorporated by reference to Exhibit 10.9 of URT's 10-K Annual Report dated July 19, 1999.
10.79 First Addendum to Lease dated September 30, 1998 between Allan Wolk and Sheffield Wolk, as Landlord, and PEC, as tenant, pertaining to Ft. Lauderdale Store, incorporated by reference to Exhibit 10.10 of URT's 10-K Annual Report dated July 19, 1999.
10.80 Loan Forgiveness Agreement dated November 29, 1998 between URT and PEC, incorporated by reference to Exhibit 10.11 of URT's 10-K Annual Report dated July 19, 1999.
10.81 Letter Agreement dated December 23, 1998 between URT and PEC pertaining to services of Allan Wolk, incorporated by reference to Exhibit 10.12 of URT's 10- K Annual Report dated July 19, 1999.
10.82 Promissory Note dated April 19, 1999 made by PEC to URT, as payee, incorporated by reference to Exhibit 10.15 of URT's 10-K Annual Report dated July 19, 1999.
10.84 Letter Agreement dated July 9, 1999 between URT and PEC pertaining to salary of Allan Wolk, incorporated by reference to Exhibit 10.16 of URT's 10-K Annual Report dated July 19, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on or about February 16, 1999 for the purpose of reporting a filing delay with respect to a Report on Form 10-Q which has since been filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: s/Allan Wolk --------------------------- Allan Wolk, Chairman of the Board
Dated: July 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Title Date ----- ----
By: s/Allan Wolk July 26, 1999 -------------------------------- Allan Wolk, Chairman of the Board, President (Principal Executive Officer) and Director
By: s/Brian Wolk July 26, 1999 -------------------------------- Brian Wolk, Executive Vice President, Chief Legal Officer, General Manager-Store Operations & Merchanising, and Director
By: s/Jason Wolk July 26, 1999 -------------------------------- Jason Wolk, Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer Secretary and Director