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 28, 1996                  Commission File No. 0-12375


                        PEACHES ENTERTAINMENT CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)


                   Florida                                    59-2166041
       (State or Other Jurisdiction of                (I.R.S. Employer I.D. No.)
        Incorporation or Organization)


1180 E. Hallandale Beach Blvd., Hallandale, FL                   33009
   (Address of Principal Executive Offices)                    (Zip Code)


Registrant's telephone number, including area code:               (954) 454-5554


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter  period that the  registrants  were
required  to file  such  reports),  and  (2)  has  been  subject  to the  filing
requirements for at least the past 90 days.

                               YES _X_ NO ___


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of the latest practicable date.


At December 28, 1996, there were outstanding:


19,781,270 shares of common stock

<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                                      Index


PART I. FINANCIAL INFORMATION

  Item 1.  Financial Statements

           Condensed Balance Sheets-December 28, 1996 (Unaudited)
             and March 30, 1996                                               3

           Condensed Statements of Operations and Retained (Deficit)
             Earnings-Three Months Ended December 28, 1996 and
             December 30, 1995 (Unaudited)                                    4

           Condensed Statements of Operations and Retained (Deficit)
             Earnings-Six Months Ended December 28, 1996 and
             December 30, 1995 (Unaudited)                                    5

           Condensed Statements of Cash Flows-Six Months Ended
             December 28, 1996 and December 30, 1995 (Unaudited)              6

           Notes to Condensed Financial Statements                            8

  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                         12

PART II. OTHER INFORMATION

  Item 1.  Legal Proceedings                                                 14

  Item 3.  Default Upon Mortgage Payable                                     16

  Item 6.  Exhibits and Reports on Form 8-K                                  16

SIGNATURES                                                                   17


                                     - 2 -
<PAGE>

                         PART I - FINANCIAL INFORMATION
                          Item 1. Financial Statements

                        PEACHES ENTERTAINMENT CORPORATION

                            Condensed Balance Sheets

                      December 28, 1996 and March 30, 1996

<TABLE>
<CAPTION>
                     Assets                                     December 28,      March 30,
                     ------                                         1996            1996
                                                                -----------      -----------
                                                                (Unaudited)
<S>                                                             <C>                <C>      
Current assets:
  Cash and cash equivalents                                     $ 2,255,923        1,917,566
  Inventories                                                     3,228,724        4,954,260
  Prepaid inventory                                                 131,549          254,249
  Prepaid expenses and other current assets                         307,541          279,346
  Refundable income taxes                                             9,838            9,136
                                                                -----------      -----------
                Total current assets                              5,933,575        7,414,557

Property and equipment, net                                       1,656,147        1,843,708
Other assets                                                        153,202          184,351
                                                                -----------      -----------
                                                                $ 7,742,924        9,442,616
                                                                ===========      ===========

           Liabilities and Shareholders' Equity
           ------------------------------------

Liabilities not subject to compromise

Current liabilities:
  Current portion of long-term obligations                          114,658          124,774
  Accounts payable                                                  909,473          103,038
  Accrued liabilities                                             1,526,990        1,103,054
                                                                -----------      -----------
                Total current liabilities                         2,551,121        1,330,866

Long-term obligations                                               724,292          810,367
Deferred rent                                                       185,165          200,723
                                                                -----------      -----------
                Total liabilities not subject to compromise       3,460,578        2,341,956

Liabilities subject to compromise                                 3,991,976        5,671,434
                                                                -----------      -----------
                Total liabilities                                 7,452,554        8,013,390
                                                                -----------      -----------

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; 20,107,850 shares issued                            201,079          201,079
  Additional paid-in capital                                      1,284,471        1,284,471
  Retained deficit                                               (1,635,285)        (496,429)
                                                                -----------      -----------
                                                                    350,265        1,489,121

  Treasury stock, 326,580 common shares, at cost                    (59,895)         (59,895)
                                                                -----------      -----------
                Total shareholders' equity                          290,370        1,429,226

Commitments and contingencies
                                                                -----------      -----------
                                                                $ 7,742,924        9,442,616
                                                                ===========      ===========
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 3 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

       Condensed Statements of Operations and Retained (Deficit) Earnings

           Three months ended December 28, 1996 and December 30, 1995
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       December 28,     December 30,
                                                           1996             1995
                                                       -----------      -----------
                                                               (Unaudited)

<S>                                                    <C>                <C>      
Net sales                                              $ 5,360,117        7,316,776
                                                       -----------      -----------
Costs and expenses:
  Cost of sales                                          3,368,983        4,812,032
  Selling, general and administrative expenses           1,916,279        2,241,997
  Management fees                                                -          187,500
  Store closing costs                                            -          191,693
                                                       -----------      -----------
                                                         5,285,262        7,433,222
                                                       -----------      -----------
            Income (loss) from operations                   74,855         (116,446)
                                                       -----------      -----------
                                                 
Other (expense) income:
  Interest expense                                         (17,908)         (27,458)
  Interest income                                            5,420            1,847
                                                       -----------      -----------
                                                           (12,488)         (25,611)
                                                       -----------      -----------
            Income (loss) before reorganization             62,367         (142,057)
                                            
Reorganization costs:
  Professional fees                                       (107,722)               -
                                                       -----------      -----------
            Net loss                                       (45,355)        (142,057)

Retained (deficit) earnings, beginning of period        (1,589,930)         736,237

Preferred stock dividend                                         -          (15,000)
                                                       -----------      -----------
Retained (deficit) earnings, end of period             $(1,635,285)         579,180
                                                       ===========      ===========

Net loss per common share                              $      (.01)            (.01)
                                                       ===========      ===========
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 4 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

       Condensed Statements of Operations and Retained (Deficit) Earnings

            Nine months ended December 28, 1996 and December 30, 1995
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     December 28,      December 30,
                                                         1996              1995
                                                     ------------      ------------
                                                               (Unaudited)

<S>                                                  <C>                 <C>       
Net sales                                            $ 13,553,987        18,911,992
                                                     ------------      ------------
Costs and expenses:
  Cost of sales                                         8,672,179        12,194,083
  Selling, general and administrative expenses          5,687,733         7,230,527
  Management fees                                            --             562,500
  Store closing costs                                        --             191,693
                                                     ------------      ------------
                                                       14,359,912        20,178,803
                                                     ------------      ------------
            Loss from operations                         (805,925)       (1,266,811)
                                                     ------------      ------------

Other (expense) income:
  Interest expense                                        (54,839)          (84,875)
  Interest income                                          24,706            11,244
                                                     ------------      ------------
                                                          (30,133)          (73,631)
                                                     ------------      ------------
            Loss before reorganization costs             (836,058)       (1,340,442)

Reorganization costs:
  Professional fees                                      (302,798)             --
                                                     ------------      ------------
            Net loss                                   (1,138,856)       (1,340,442)

Retained (deficit) earnings, beginning of period         (496,429)        1,964,622

Preferred stock dividend                                     --             (45,000)
                                                     ------------      ------------
Retained (deficit) earnings, end of period           $ (1,635,285)          579,180
                                                     ============      ============
Net loss per common share                            $       (.06)             (.07)
                                                     ============      ============
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 5 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                       Condensed Statements of Cash Flows

            Nine months ended December 28, 1996 and December 30, 1995
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       December 28,     December 30,
                                                                           1996             1995
                                                                       -----------      -----------
                                                                               (Unaudited)

<S>                                                                    <C>               <C>        
Cash flows from operating activities:
  Net loss                                                             $(1,138,856)      (1,340,442)
                                                                       -----------      -----------
  Adjustments  to  reconcile  net  loss to net  cash  provided  by
    operating activities:
      Depreciation and amortization                                        213,843          354,266
      Loss on write-off of leasehold improvements                             --            190,601
      Deferred rent                                                        (15,558)         (10,620)
      Changes in assets and liabilities affecting cash flows
        from operating activities:
          (Increase) decrease in:
            Inventories                                                     46,078          234,212
            Prepaid inventory                                              122,700             --
            Prepaid expenses and other current assets                      (28,195)         (15,727)
            Refundable income taxes                                           (702)           9,035
            Other assets                                                    31,149           40,602
          Increase (decrease) in:
            Accounts payable                                               806,435          729,595
            Accrued liabilities                                            423,936           32,082
            Long-term obligations                                          (51,291)          51,252
                                                                       -----------      -----------
               Net cash provided by operating activities                   409,539          274,856
                                                                       -----------      -----------
Cash flows from investing activities:
  Purchases of property and equipment                                      (26,282)        (143,589)
  Proceeds from sale of property and equipment                                --            615,243
                                                                       -----------      -----------
               Net cash (used in) provided by investing activities         (26,282)         471,654
                                                                       -----------      -----------
Cash flows from financing activities:
  Repayment of long-term obligations                                       (44,900)        (110,028)
  Dividends paid                                                              --            (45,000)
                                                                       -----------      -----------
               Net cash used in financing activities                       (44,900)        (155,028)
                                                                       -----------      -----------
</TABLE>

                                                                     (Continued)


                                     - 6 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                  Condensed Statements of Cash Flows, Continued

<TABLE>
<CAPTION>
                                                                       December 28,     December 30,
                                                                           1996             1995
                                                                       -----------      -----------
                                                                               (Unaudited)

<S>                                                                    <C>               <C>        
               Net increase in cash and cash equivalents               $   338,357          591,482

Cash and cash equivalents, beginning of period                           1,917,566        1,537,293
                                                                       -----------      -----------

Cash and cash equivalents, end of period                               $ 2,255,923        2,128,775
                                                                       ===========      ===========

Supplemental disclosures of cash flow information:
  Cash paid during the period for interest                             $    54,839           84,875
                                                                       ===========      ===========
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 7 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                     Notes to Condensed Financial Statements

                     December 28, 1996 and December 30, 1995
                                   (Unaudited)


(1)  Basis of Financial Statement Presentation

     The  accompanying   unaudited  condensed  financial  statements  have  been
     prepared in accordance with the  instructions to Form 10-Q and,  therefore,
     do  not  include  all  footnotes  and  information  necessary  for  a  fair
     presentation of financial position,  results of operations,  and cash flows
     in conformity with generally accepted  accounting  principles.  However, in
     the  opinion of  management,  all  adjustments  (consisting  only of normal
     recurring accruals) necessary for a fair presentation have been made.

     It  is  suggested  that  the  accompanying  unaudited  condensed  financial
     statements be read in conjunction  with the financial  statements and notes
     included in Peaches Entertainment Corporation (the "Company") annual report
     on Form 10-K for the year ended March 30, 1996.

     As of December 28, 1996, the Company is an 87  percent-owned  subsidiary of
     URT Industries, Inc. (the "Parent").

     The results of operations  for the nine months ended December 28, 1996, are
     not necessarily  indicative of the operating results to be expected for the
     year  ending  March  29,  1997.   The   Company's   business  is  seasonal.
     Historically, approximately 30 percent of the Company's sales have occurred
     in the third fiscal quarter.

     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 30,
     1995 quarterly financial information to conform to the presentation used in
     the (unaudited) December 28, 1996 financial information.


(2)  Reorganization and Emergence From Chapter 11

     On  January  16,  1996  (the  "Petition   Date"),   the  Company  commenced
     reorganization proceedings under Chapter 11 of the United States Bankruptcy
     Code.  On January  17,  1997,  the  Company's  plan of  reorganization  was
     confirmed  by the  Bankruptcy  Court for the  Southern  District of Florida
     ("Bankruptcy  Court").  In Chapter 11, the Company  continued to manage its
     affairs and operate its business as debtor-in-possession while it developed
     a plan of  reorganization  to  restructure  and  allow its  emergence  from
     Chapter 11. As  debtor-in-possession  in Chapter 11, the Company  could not
     engage in transactions  outside of the ordinary course of business  without
     approval, after notice and hearing, of the Bankruptcy Court.

     Under  Chapter 11  proceedings,  litigation  and  actions by  creditors  to
     collect  certain  claims in existence at the petition date  ("prepetition")
     are stayed,  absent specific  Bankruptcy  Court  authorization  to pay such
     claims. The Company believes that appropriate  provisions have been made in
     the accompanying financial statements for the prepetition claims that could
     be estimated at the date of these financial  statements.  Such claims which
     are reflected as  "liabilities  subject to compromise."  Additional  claims
     (liabilities subject to compromise) may

                                                                     (Continued)


                                     - 8 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                     Notes to Condensed Financial Statements


     arise  subsequent  to the  filing  date  resulting  from the  rejection  of
     executory  contracts,  including  leases and from the  determination of the
     court  (or  agreed  to  by   parties-in-interest)  of  allowed  claims  for
     contingencies and disputed amounts.

     As  debtor-in-possession,  the Company has the right, subject to Bankruptcy
     Court approval and certain other  limitations,  to assume or reject certain
     executory  contracts,  including  unexpired  leases.  Any claim for damages
     resulting from the rejection of an executory contract or an unexpired lease
     is treated as a general unsecured claim in the Chapter 11 proceedings.  The
     Company  affirmed  13  leases  (5 of which  were  modified  on  terms  more
     favorable to the Company) and rejected 8 leases.

     On August 5, 1996,  the Company filed its plan of  reorganization  with the
     Bankruptcy  Court. An amended plan of  reorganization  was filed on October
     23,  1996.  The  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  all
     conditions precedent being satisfied in which all conditions precedent were
     satisfied on February 19, 1997.  Among the principle terms of the confirmed
     plan,  subject to certain changes  contained in the order of approval,  are
     the following:

     o    All  unsecured  creditors,   including  all  the  Company's  inventory
          suppliers,  but  excluding  landlords  under  leases  rejected  by the
          Company,  are  entitled  to 100 percent of their  allowed  claims (the
          total of which  is  approximately  $4,922,000).  The  Company's  seven
          principal   suppliers   (whose  allowed  claims  total   approximately
          $4,372,000  out of  such  $4,922,000)  are  entitled  to  payment  and
          inventory  returns equal to  approximately 70 percent of their allowed
          claims  (80  percent  in  the  case  of  one  such  supplier)   within
          approximately  60 days  after  the  effective  date,  and the  balance
          (approximately  $1,284,000)  is payable with  interest at prime over a
          period of 24 months  commencing  March 1997.  The remaining  unsecured
          creditors  (whose  allowed claims total  approximately  $550,000) were
          entitled to and  received the full amount of their  allowed  claims on
          the  effective  date.  The  principal  suppliers  will be secured by a
          perfected first lien and security interest in the inventory originally
          distributed  by the secured  party which was sold to the Company or is
          otherwise in the possession and owned by the Company.

     o    Landlords  under the leases rejected by the Company in connection with
          the  bankruptcy  filing  will be entitled to 30 percent of the allowed
          claims with  respect to such  leases,  all of which will be payable on
          the effective date.

     o    The  mortgage  holder will  receive 100 percent of the allowed  claim,
          with interest, in accordance with the amortization schedule previously
          in effect,  except that the  balloon  payment on such  mortgage  which
          would  otherwise  have  been due in  September  1997 was  extended  to
          September 2002. All mortgage payments under the amortization  schedule
          were paid timely during the Chapter 11 proceedings.

     o    The priority tax claim in the approximate amount of $118,000, which is
          owed to the  Florida  Department  of  Revenue,  will be  payable  with
          interest at 8 percent over two years from the effective date.

     o    The priority administrative claims, including professional fees in the
          approximate  amount of $200,000 which have been incurred in connection
          with the reorganization, are payable on the effective date.


                                     - 9 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                     Notes to Condensed Financial Statements


     In order for the Company to be able to effect the Plan of Reorganization on
     the terms described above,  the Parent,  in exchange for the issuance to it
     of 20 million shares of the Company's  authorized  common stock 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 in  accordance  with the  foregoing,  and loaned  $700,000 to the
     Company.  The loan will be repaid to the Parent with interest at prime over
     a period of four years beginning on the third  anniversary of the effective
     date,  subordinate  to the amounts  owed to the  principal  suppliers,  and
     secured by inventory and all the assets of the Company.

     In March 1997, the Parent and the Company  agreed that the  above-described
     $700,000 loan would be reduced by an amount equal to the lesser of $200,000
     or the difference between $1,000,000 and the total shareholders'  equity of
     the Company as of the end of its 1997 fiscal year, without taking such debt
     reduction  into  account,  and cause  the  amount  of such  aggregate  debt
     reduction  to be  transferred  to the  capital  account  of the  Company in
     exchange for shares of a new class of cumulative preferred stock,  entitled
     Series C preferred  stock,  in an amount as shall be determined by dividing
     the amount of such aggregate debt reduction by $100. The Series C preferred
     stock to be so  issued  shall  have a par  value  of $100 and a  cumulative
     preferred  dividend  of 10% per annum.  The  approval  of the  holders of a
     majority  of the shares of Series C preferred  stock,  voting as a separate
     class,  shall  be  required  with  respect  to all  matters  on  which  the
     shareholders  have a right to vote.  On June 9, 1997,  this  agreement  was
     rescinded.


(3)  Loss Per Common Share

     Net loss per common share was computed by dividing net loss, less preferred
     stock  dividends,  by the weighted  average  number of total common  shares
     outstanding during the periods.


(4)  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 28,
     1996, there was no (benefit)  provision for income taxes as the Company has
     net operating loss carryforwards for federal income tax purposes.


                                     - 10 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION

                     Notes to Condensed Financial Statements


(5)  Liabilities Subject to Compromise

     Liabilities subject to compromise include the following:

                                                      December 28,     March 30,
                                                          1996           1996
                                                       ----------      ---------
                                                              (Unaudited)

           Lease rejection claims                      $  600,000        600,000
           Trade and other miscellaneous claims         3,391,976      5,071,434
                                                       ----------      ---------
                                                       $3,991,976      5,671,434
                                                       ==========      =========

     Subsequent to the petition date, the Company negotiated agreements with all
     of its major suppliers,  with the approval of the Bankruptcy  Court,  which
     permitted  the  Company to make  returns of unneeded  inventory  for credit
     against prepetition  indebtedness.  On January 17, 1997, the Company's plan
     of  reorganization  was  confirmed  by the  Bankruptcy  Court.  The Company
     recorded an extraordinary  gain of approximately  $486,000,  primarily as a
     result of the  settlement  of lease  rejection  claims  (note 2) during the
     fourth quarter of fiscal 1997.


                                     - 11 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION


Item 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of  Operations  for the Nine Months  Ended  December 28, 1996,
          Compared to the Nine Months ended December 30, 1995.

From  time to  time,  the  Company  may make  certain  statements  that  contain
"forward-looking"  information (as defined in the Private Securities  Litigation
Reform  Act  of  1995).  Words  such  as  "believe,"  "anticipate,"  "estimate,"
"project" and similar expressions are intended to identify such  forward-looking
statements.  Forward-looking  statements may be made by management  orally or in
writing,  including,  but not  limited  to, in press  releases,  as part of this
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  and as a part of  other  sections  of this  Annual  Report  or other
filings.   Readers  are  cautioned   not  to  place  undue   reliance  on  these
forward-looking  statements,  which speak only as of their respective dates, and
are subject to certain risks, uncertainties and assumptions.  Should one or more
of these risks or  uncertainties  materialize,  or should any of the  underlying
assumptions prove incorrect, actual results of current and future operations may
vary materially from those anticipated, estimated or projected.


Results of Operations

Net sales for the nine months ended December 28, 1996 (such nine month period is
hereafter  referred  to as  "1996")  decreased  by  approximately  28.3  percent
compared to the nine months  ended  December 30, 1995 (such nine month period is
hereafter  referred to as "1995").  Such decrease is attributed to a decrease in
comparable  store sales (12.4 percent),  and a decrease in sales in those stores
that closed during 1996 versus 1995 (15.9 percent).

During the last few years,  nontraditional music retailers such as appliance and
computer retailers and super bookstores have begun to sell prerecorded music and
video products.  They have adopted  policies of selling music product at near or
below wholesale cost as a means of attracting  customers to sell other products.
The Company continued to suffer the effect of such competition  during 1996 and,
as a result,  filed its  voluntary  petition for relief under  Chapter 11 of the
Bankruptcy Code on January 16, 1996.

Recently,  the Company's  primary suppliers have taken steps to help protect the
retail marketplace from certain low cost retailers of music. These steps include
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,  should help the Company to
restore  itself to a  competitive  position in subsequent  fiscal  years.  Other
factors  which,  in  management's  opinion,  should  help the Company to restore
itself to a  competitive  position  in the  future  are the  closing  of the six
unprofitable  stores which were closed  during  1996,  the closing of the former
headquarters  and  warehouse,  the  termination of other  unprofitable  business
arrangements as described  herein and  concentration on advantages which Peaches
Entertainment Corporation has over certain of its competitors,  including larger
inventory, convenient store locations and a high level of customer service.

The cost of sales for 1996 was lower  than  that for 1995 due  principally  to a
decrease in net sales.  Cost of sales as a percentage of net sales has decreased
from 64.7  percent  in 1995 to 64.0  percent in 1996 due to  increased  purchase
discounts in 1996.

                                                                     (Continued)


                                     - 12 -
<PAGE>

                        PEACHES ENTERTAINMENT CORPORATION


Selling,  general and  administrative  (SG&A) expenses in 1996 decreased by 21.3
percent  compared  to 1995.  Such  decrease  is  attributable  to a decrease  in
comparable store expenses (.1 percent),  a decrease in store operating  expenses
of stores that opened or closed  during  1996 versus 1995 (18.8  percent)  and a
decrease in corporate  overhead (2.4 percent).  SG&A expenses as a percentage of
net sales increased from 38.2 percent in 1995 to 42.0 percent in 1996 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 approximately $1,139,000 in 1996 versus a net
loss of  approximately  $1,340,000 in 1995 due to the reduction in net sales and
gross  profit  as  described  above,  in  addition  to  reorganization  costs of
approximately $303,000.

The decrease in inventory is mainly due the decrease in the number of stores, as
well as,  inventory  returns as a result of the  Chapter  11 filing,  which also
caused the  decrease  in  liabilities  subject to  compromise.  The  increase in
accounts payable and accrued  liabilities is due to the reduction of prepayments
due to the Chapter 11 filing.


Liquidity and Capital Resources

The Company had working  capital of $3,382,454  at December 28, 1996  (excluding
liabilities  subject to  compromise  in 1996)  compared  to  working  capital of
$6,083,691  at March 30,  1996 and a current  ratio (the ratio of total  current
assets to total current liabilities) of 2.3 to 1 at December 28, 1996 (excluding
liabilities subject to compromise in 1996) compared to a current ratio of 5.6 to
1 at March 30, 1996.  The amount of the  liabilities  subject to  compromise  at
December 28, 1996 is $3,991,976.

At  December  28,  1996,  the  Company  had  long-term  obligations  of $724,292
(excluding   liabilities  subject  to  compromise  of  $3,991,976).   Management
anticipates  that  its  ability  to  repay  its  long-term  obligations  will be
satisfied primarily through funds generated from its operations.

Management  anticipates that cash generated from operations and cash equivalents
on hand will provide  sufficient  liquidity to maintain adequate working capital
for operations.  Management would attempt to obtain financing for the opening of
any new stores during the next few years.

Inflation trends have not had an impact upon revenue because  increases in costs
have been passed along to customers.

The  Company's  business  is  seasonal  in nature,  with the  highest  sales and
earnings  occurring in the third fiscal  quarter,  which  includes the Christmas
selling season.

For  a  discussion  of  recent  developments  and  uncertainties  affecting  the
Company's  liquidity  and  capital  resources,  see  note  2  to  the  financial
statements (Reorganization and Emergence from Chapter 11).

                                                                     (Continued)


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                        PEACHES ENTERTAINMENT CORPORATION


                                OTHER INFORMATION


PART II

Item 1.   Legal Proceedings

          (i)  Bankruptcy filings

               On January 16, 1996 (the "Petition Date"),  the Company commenced
               reorganization  proceedings under Chapter 11 of the United States
               Bankruptcy  Code.  On January 17,  1997,  the  Company's  plan of
               reorganization  was  confirmed  by the  Bankruptcy  Court for the
               Southern District of Florida ("Bankruptcy Court"). In Chapter 11,
               the  Company  continued  to manage its  affairs  and  operate its
               business  as  debtor-in-possession  while it  developed a plan of
               reorganization  to  restructure  and  allow  its  emergence  from
               Chapter  11. As  debtor-in-possession  in Chapter 11, the Company
               could not engage in  transactions  outside of the ordinary course
               of business without  approval,  after notice and hearing,  of the
               Bankruptcy Court.

               Under Chapter 11 proceedings, litigation and actions by creditors
               to collect  certain  claims in  existence  at the  petition  date
               ("prepetition")  are stayed,  absent  specific  Bankruptcy  Court
               authorization  to pay such  claims.  The  Company  believes  that
               appropriate   provisions  have  been  made  in  the  accompanying
               financial  statements  for the  prepetition  claims that could be
               estimated at the date of these financial statements.  Such claims
               which are  reflected  as  "liabilities  subject  to  compromise."
               Additional claims  (liabilities  subject to compromise) may arise
               subsequent  to the filing date  resulting  from the  rejection of
               executory contracts,  including leases and from the determination
               of the court (or  agreed to by  parties-in-interest)  of  allowed
               claims for contingencies and disputed amounts.

               As  debtor-in-possession,  the Company has the right,  subject to
               Bankruptcy  Court  approval  and certain  other  limitations,  to
               assume or reject certain executory contracts, including unexpired
               leases.  Any claim for damages resulting from the rejection of an
               executory  contract or an unexpired lease is treated as a general
               unsecured  claim  in the  Chapter  11  proceedings.  The  Company
               affirmed  13  leases  (5 of which  were  modified  on terms  more
               favorable to the Company) and rejected 8 leases.

               On August 5, 1996,  the Company filed its plan of  reorganization
               with the Bankruptcy Court. An amended plan of reorganization  was
               filed on October 23, 1996. The 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 all  conditions  precedent  being
               satisfied in which all  conditions  precedent  were  satisfied on
               February 19, 1997.  Among the  principle  terms of the  confirmed
               plan,  subject  to  certain  changes  contained  in the  order of
               approval, are the following:

               o    All  unsecured   creditors,  including   all  the  Company's
                    inventory suppliers,  but excluding  landlords  under leases
                    rejected by  the  Company,  are  entitled  to 100 percent of
                    their  allowed claims (the total of  which is  approximately
                    $4,922,000).   The  Company's  seven   principal   suppliers
                    (whose allowed claims total  approximately   $4,372,000  out
                    of such  $4,922,000) are entitled  to payment and  inventory
                    returns equal to approximately 70 percent  of their  allowed
                    claims (80
                    

                                                                     (Continued)


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                        PEACHES ENTERTAINMENT CORPORATION


                    percent   in  the   case  of  one  such   supplier)   within
                    approximately  60 days  after the  effective  date,  and the
                    balance (approximately  $1,284,000) is payable with interest
                    at prime over a period of 24 months  commencing  March 1997.
                    The remaining  unsecured  creditors  (whose  allowed  claims
                    total approximately  $550,000) were entitled to and received
                    the full  amount of their  allowed  claims on the  effective
                    date. The principal suppliers will be secured by a perfected
                    first lien and security interest in the inventory originally
                    distributed  by the  secured  party  which  was  sold to the
                    Company or is otherwise in the  possession  and owned by the
                    Company.

               o    Landlords  under  the  leases  rejected  by the  Company  in
                    connection with the bankruptcy filing will be entitled to 30
                    percent of the allowed  claims with  respect to such leases,
                    all of which will be payable on the effective date.

               o    The mortgage  holder will receive 100 percent of the allowed
                    claim,  with interest,  in accordance with the  amortization
                    schedule  previously  in  effect,  except  that the  balloon
                    payment on such mortgage which would otherwise have been due
                    in  September  1997 was  extended  to  September  2002.  All
                    mortgage payments under the amortization  schedule were paid
                    timely during the Chapter 11 proceedings.

               o    The  priority  tax  claim  in  the  approximate   amount  of
                    $118,000,  which  is  owed  to  the  Florida  Department  of
                    Revenue, will be payable with interest at 8 percent over two
                    years from the effective date.

               o    The priority  administrative claims,  including professional
                    fees in the  approximate  amount of $200,000 which have been
                    incurred in connection with the reorganization,  are payable
                    on the effective date.

In order for the Company to be able to effect the Plan of  Reorganization on the
terms  described  above,  the Parent,  in exchange  for the issuance to it of 20
million shares of the Company's  authorized common stock 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 in accordance with
the foregoing,  and loaned  $700,000 to the Company.  The loan will be repaid to
the Parent with  interest at prime over a period of four years  beginning on the
third anniversary of the effective date,  subordinate to the amounts owed to the
principal  suppliers,  and is  secured  by  inventory  and all the assets of the
Company.

In March  1997,  the  Parent and the  Company  agreed  that the  above-described
$700,000  loan would be reduced by an amount  equal to the lesser of $200,000 or
the  difference  between  $1,000,000 and the total  shareholders'  equity of the
Company  as of the  end of its  1997  fiscal  year,  without  taking  such  debt
reduction into account, and cause the amount of such aggregate debt reduction to
be transferred to the capital account of the Company in exchange for shares of a
new class of cumulative  preferred stock,  entitled Series C preferred stock, in
an amount as shall be determined by dividing the amount of such  aggregate  debt
reduction by $100. The Series C preferred stock to be so issued shall have a par
value of $100 and a cumulative preferred dividend of 10% per annum. The approval
of the holders of a majority of the shares of Series C preferred  stock,  voting
as a separate class,  shall be required with respect to all matters on which the
shareholders  have a right  to  vote.  On  June  9,  1997,  this  agreement  was
rescinded.

                                                                     (Continued)


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                        PEACHES ENTERTAINMENT CORPORATION


Item 3.   Defaults Upon Mortgage Payable

          As a result of the bankruptcy filing, the Company was in default under
          the indentures  governing the mortgage payable. As discussed in note 2
          of the notes to the  condensed  financial  statements on Form 10-Q for
          the  nine-month  period  ended  December 28,  1996,  under  Chapter 11
          proceedings,  litigation  and actions by creditors to collect  certain
          claims in existence at the petition date are stayed,  absent  specific
          Bankruptcy  Court  authorizations  to pay such claims.  On January 17,
          1997, the plan of reorganization was confirmed by the Bankruptcy Court
          and became  effective  February  3, 1997  subject to  satisfaction  of
          certain  conditions  which were  satisfied on February  19, 1997.  The
          confirmed  plan or  reorganization  provided for the  repayment of the
          mortgage payable under the original note  provisions,  except that the
          balloon payment was extended to September 2002.

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

                    27.0 Financial Data Schedule

          (b)  Reports on Form 8-K

                    None


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                        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: June 27, 1997                 /s/ Allan Wolk
                                    --------------------------------------------
                                    Allan Wolk, Chairman of the Board, President
                                    (Principal Executive Officer)


Date: June 27, 1997                 /s/ Jason Wolk                              
                                    --------------------------------------------
                                    Jason Wolk, Executive Vice President,
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                     - 17 -