UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended April 2, 1995
Commission file Number 1-6680
Kenwin Shops, Inc.
(Exact name of registrant as specified in its charter.)
New York 13-5607936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4747 Granite Drive, Tucker, Georgia 30084
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(404) 938-0451
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 registrant was required to
file such reports), and (2) has been subject to such filing
requirements for 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 practical
date:
As of April 2, 1995, there were 407,090 shares outstanding of the
registrant's common stock.
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Quarters Ended
------------------------------
April 2, 1995 April 3, 1994
-------------- --------------
<S> <C> <C>
REVENUES
Retail sales (Note 6) $ 3,641,326 $ 5,141,711
Other income, principally 196,030 275,114
finance charges -------------- --------------
TOTAL REVENUES 3,837,356 5,416,825
-------------- --------------
COSTS AND EXPENSES
Cost of goods sold, including
occupancy and distribution expenses 2,329,309 3,524,659
Selling, general and administrative
expenses 1,755,553 1,956,942
Depreciation and amortization 85,973 105,396
Interest expense, net 38,694 15,219
-------------- --------------
TOTAL COSTS AND EXPENSES 4,209,529 5,602,216
-------------- --------------
LOSS BEFORE REORGANIZATION
ITEMS AND CREDIT
FOR INCOME TAXES (372,173) (185,391)
-------------- --------------
REORGANIZATION ITEMS (Note 7)
Professional fees 136,783 -
Other costs and fees 39,641 -
-------------- --------------
TOTAL REORGANIZATION ITEMS 176,424 -
-------------- --------------
LOSS BEFORE CREDIT FOR
INCOME TAXES (548,597) (185,391)
INCOME TAX CREDIT - 90,000
-------------- --------------
NET LOSS $ (548,597) $ (95,391)
============== ==============
NET LOSS PER SHARE $ (1.35) $ (0.23)
============== ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
April 2, 1995 January 1, 1995
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 569,537 $ 507,164
Accounts receivable, less allowance
for doubtful accounts of $609,000
and $732,000 respectively (Note 4) 2,663,417 3,213,565
Miscellaneous other accounts
receivable 13,078 13,175
Merchandise inventories 2,960,298 2,239,352
Prepaid expenses and refundable taxes 249,940 196,084
Deferred income taxes (Note 5) 965,060 965,060
-------------- --------------
TOTAL CURRENT ASSETS 7,421,330 7,134,400
PROPERTY AND EQUIPMENT, at cost 4,381,760 4,357,212
Less accumulated depreciation and
amortization 2,892,693 2,806,719
-------------- --------------
PROPERTY AND EQUIPMENT,net 1,489,067 1,550,493
OTHER ASSETS 57,821 62,673
-------------- --------------
TOTAL ASSETS $ 8,968,218 $ 8,747,566
============== ==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Line of credit (Note 4) $ 1,455,831 $ 1,254,422
Accounts payable, trade 881,066 185,233
Accrued expenses and other
liabilities 418,892 505,091
Taxes withheld and accrued 114,739 156,534
Customers' deposits on layaways 97,818 97,818
-------------- --------------
TOTAL CURRENT LIABILITIES 2,968,346 2,199,098
LIABILITIES SUBJECT TO COMPROMISE (a) 3,628,045 3,628,045
-------------- --------------
TOTAL LIABILITIES 6,596,391 5,827,143
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value;
authorized, 1,000,000 shares;
issued 464,212 shares 464,212 464,212
Additional paid-in capital 676,449 676,449
Retained earnings 2,134,283 2,682,879
-------------- --------------
3,274,944 3,823,540
Less treasury stock, at cost,
57,122 shares 903,117 903,117
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 2,371,827 2,920,423
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,968,218 $ 8,747,566
============== ==============
(a)LIABILITIES SUBJECT TO COMPROMISE
CONSIST OF THE FOLLOWING:
Accounts payable, trade $ 3,598,251 $ 3,598,251
Accrued expenses 29,794 29,794
-------------- --------------
TOTAL $ 3,628,045 $ 3,628,045
============== ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Quarters Ended
------------------------------
April 2, 1995 April 3, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (548,597) $ (95,391)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and amortization 116,897 105,396
Provision for doubtful accounts 30,443 (58,000)
Deferred income taxes, net - (90,000)
Changes in assets (increase) decrease
Customers' accounts receivable, net 519,705 601,800
Miscellaneous other accounts
receivable 97 -
Merchandise inventories (720,946) (620,973)
Prepaid expenses and refundable taxes (84,780) (170)
Other assets 4,852 5,753
Changes in liabilities increase (decrease)
Pre-petition accounts payable, trade - 822,263
Pre-petition accrued expenses and
other liabilities - (116,076)
Post-petition accounts payable, trade 695,833 -
Post-petition accrued expenses and
liabilities (86,199) -
Taxes withheld and accrued (41,795) -
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (114,490) 554,602
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (24,548) (51,321)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 682,380 -
Repayments of bank borrowings (480,969) (50,000)
-------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 201,411 (50,000)
-------------- --------------
NET INCREASE IN CASH 62,373 453,281
CASH, BEGINNING OF PERIOD 507,164 886,796
-------------- --------------
CASH, END OF PERIOD $ 569,537 $ 1,340,077
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $ 23,818 $ 14,681
============== ==============
Income taxes paid during the period $ - $ -
============== ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 In the opinion of Kenwin Shops, Inc. (the "Company"), the accompanying
unaudited consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of April 2, 1995 and the
results of operations for the quarters ended April 2, 1995 and
April 3, 1994. The results of operations for the quarters ended
April 2, 1995 and April 3, 1994 are not necessarily indicative of
the results to be expected for the full year.
Note 2 On September 19, 1994, Kenwin Shops, Inc. (the "Debtor") filed a
petition for relief under Chapter 11 of the federal bankruptcy
laws in the United States Bankruptcy Court for the Southern
District of New York. Under Chapter 11, certain claims against
the Debtor in existence prior to the filing of the petition
for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-Possession.
These claims are reflected in the April 2, 1995 balance sheet as
"liabilities subject to compromise." Additional claims
(liabilities subject to compromise) may arise subsequent to the
filing date resulting from rejection of executory contracts,
including leases, and from the determination by the court
(or agreed to by parties in interest) of allowed claims for
contingencies and other disputed amounts. Claims secured against
the Debtor's assets ("secured claims") also are stayed, although
the holders of such claims have the right to move the court for
relief from the stay. Secured claims are secured primarily by
liens on the Debtor's warehouse facility and accounts receivable.
On January 31, 1995, Kenwin's managment, bankruptcy counsel, a
representative of the Company's independent auditing firm,
and representatives of the creditors' committee and their
counsel met to discuss the terms of a preliminary settlement
of the pre-petition unsecured claims. During this meeting,
Kenwin's management obtained verbal approval of the creditors'
committee for a settlement proposal that would pay unsecured
creditors 30 cents on the dollar. Creditors would receive 17 1/2%
of their claims upon confirmation, 5% on both the first and second
anniversary of confirmation and 2.5% on the third anniversary.
The agreement has yet to be formalized and must receive ratification
by the bankruptcy trustee. Management anticipates that, pending
approval of the settlement, the Company will emerge from Chapter 11
proceedings during the third quarter of 1995.
Note 3 There were 102 stores in operation on April 2, 1995 as compared to
146 stores in operation on April 3, 1994.
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 4 On November 7, 1994, the Company obtained approval from the Bankruptcy
Court for its proposal to obtain a $2,750,000 line of credit with
Sterling National Bank & Trust Company of New York ("Sterling"). The
note is secured by the general assets of the Company, including, but
not limited to: cash, accounts receivable, property and equipment,
and intangibles. The loan was executed on November 14, 1994 at which
point the $750,000 balance on an existing line of credit was paid in
full and the Company's banking relationship with that lender was
terminated. The credit facility is to terminate upon the entry of an
order confirming a Plan of Reorganization in the Chapter 11 case,
however, management has received tentative approval from Sterling to
continue its banking relationship past the date of approval of a
Plan of Reorganization. The line of credit bears interest at the prime
rate plus 2.5%, which is payable monthly. The prime rate was 9% as of
April 2, 1995. At January 1, 1995, the Company's earnings before
interest, taxes, and depreciation and amortization (EBITDA), cumulative
EBITDA, and minimum net worth, as defined in the loan agreement with
Sterling, were less than the amounts required. Therefore, the Company
was in default of its loan agreement. Management requested and
received a waiver from Sterling of these covenants through and
including December, 1994. Additionally, Sterling amended the
minimum net worth requirement to $2,550,000. As of
April 2, 1995, the Company's EBITDA, cumulative EBITDA, and minimum
net worth were less than the amounts required. Management has
requested a waiver of these requirements for the period ended
April 2, 1995.
Note 5 The following is a summary of the net deferred tax asset and liability
accounts recognized in the accompanying consolidated condensed balance
sheet as of April 2,1995:
Deferred tax assets $ 1,733,614
Valuation allowance (768,554)
-------------
Net deferred taxes $ 965,060
=============
Note 6 Leased department sales included in net sales:
Quarter Ended
-------------------------------------
April 2, 1995 April 3, 1994
-------------- --------------
$ 175,500 $ 314,000
============== ==============
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 7 The accompanying consolidated condensed financial statements include
a reorganization charge of $176,423 for the quarter ended
April 2, 1995. The reorganization charge related primarily to
ongoing legal and professional fees in connection with the
Chapter 11 filing, and amortization of due diligence and other
fees for the post-petition line of credit.
Reorganization items representing outflows of cash for the
quarter ending April 2, 1995 are as follows:
Professional fees paid $ 153,429
Other costs and fees paid 11,170
--------------
Total $ 164,599
==============
Note 8 Shares issuable upon the exercise of stock options have not been
included in the earnings per share computations for the quarters
ended April 2, 1995 and April 3, 1994, because the effect of
such would be immaterial.
The weighted average number of common shares entering into the
calculation of earnings per share was 407,090 for the quarters
ended April 2, 1995 and April 3, 1994.
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RETAIL STORES in operation were 102 on April 2, 1995 and 146 on
April 3, 1994. Subsequent to the September 19, 1994 Chapter 11 filing, 34
stores were closed during the remainder of the month. An additional 10
stores were closed in October 1994. The 102 remaining locations are
considered the Company's most profitable. Management plans to open
10 new stores in the following twelve months, and will continue to
monitor its existing stores closely.
NET SALES decreased $1,500,384 for the quarter ended April 2, 1995 as
compared to the corresponding 1994 period. Comparative store sales decreased
$302,192 for the quarter ended April 2, 1995. Easter fell on April 3, 1994
and on April 16, 1995. Easter is traditionally one of Kenwin's busiest seasons
in terms of sales, and management attributes part of the decrease in same store
sales to this two week shift.
COST OF GOODS SOLD, INCLUDING CERTAIN OCCUPANCY AND DISTRIBUTION
EXPENSES as a percentage of sales decreased from 68.5% for the three month
1994 period to 64.0% primarily due to increased markdowns taken during
the fourth quarter 1994 in an effort to sell slow moving merchandise and
restock the retail locations in time for the Christmas season.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased $201,389 for the
quarter ended April 2, 1995, respectively, as compared to the comparable 1994
period. The decrease in the quarter ending April 2, 1995 consist primarily of
reductions in store payroll and related expenses, along with a decrease in other
store operating expenses . These reductions are primarily the result
of the closing of 44 stores.
INTEREST EXPENSE is primarily the result of short-term bank borrowings.
PROVISIONS FOR INCOME TAXES as a percentage of income before taxes
decreased as compared to 1994 due to an increase in the valuation allowance
for deferred taxes for the current year.
As a result of the factors mentioned above, the Company's consolidated
net loss for the quarter ended April 2, 1995 amounted to $548,597
($1.35 per share), as compared to a loss of $95,391 ($.23 per share) for the
corresponding 1994 period.
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities as well as an available line
of credit with a bank for short-term borrowings are the Company's primary
sources of liquidity and capital. The increase in cash for the quarter
ended April 2, 1995, is attributable to decreases in receivables from
customers offset by the Company's increased net investment in inventory
(inventory increase less accounts payable increase).
As indicated in Note (4), Management expects that funds from the
$2,750,000 line of credit for short-term borrowings and anticipated funds
from operations are current financial resources available to the
Company which are expected to be adequate to finance the foreseeable
capital and operating requirements. Additionally, the Company has reached
an agreement to sell its warehouse and distribution facility for $800,000.
The sale is expected to close in July, 1995. As part of the agreement,
the Company will enter into a 5 year lease of the facility for an
annual rent of $67,000.
The following items measure the Company's ability to meet its short-
term obligations:
April 2, 1995 January 1, 1995
-------------- --------------
Working capital $ 4,452,984 $ 4,935,302
Working capital ratio 2.5 3.2
<PAGE>
PART II - OTHER INFORMATION
Item 3, Defaults by the Company on its senior securities.
Part (a). At January 1, 1995, the Company's earnings before interest,
taxes, and depreciation and amortization (EBITDA), cumulative EBITDA,
and minimum net worth, as defined in the loan agreement with Sterling,
were less than the amounts required. Therefore, the Company was in
default of its loan agreement. Management requested and received
a waiver from Sterling of these covenants through and including
December,1994. Additionally, Sterling amended the minimum net worth
requirement to $2,550,000. As of April 2, 1995, the Company's EBITDA,
cumulative EBITDA, and minimum net worth were less than the amounts
required. Management has requested a waiver of these requirements
for the period ended April 2, 1995.
Item 6(b), Reports on Form 8-K
No Form 8-K, Current Report, forms were filed during the quarter ended
April 2, 1995.
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
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.
KENWIN SHOPS, INC.
(Registrant)
May 3, 1995 Robert Schwartz
Date Robert Schwartz
President
May 3, 1995 Kenneth Silberstein
Date Kenneth Silberstein
Principal Accounting Officer
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-02-1995
<PERIOD-END> Apr-02-1995
<CASH> 569,537
<SECURITIES> 0
<RECEIVABLES> 3,272,417
<ALLOWANCES> 609,000
<INVENTORY> 2,960,298
<CURRENT-ASSETS> 7,421,330
<PP&E> 4,381,760
<DEPRECIATION> 2,892,693
<TOTAL-ASSETS> 8,968,218
<CURRENT-LIABILITIES> 2,968,346
<BONDS> 0
<COMMON> 464,212
0
0
<OTHER-SE> 1,907,615
<TOTAL-LIABILITY-AND-EQUITY> 8,968,218
<SALES> 3,641,326
<TOTAL-REVENUES> 3,837,356
<CGS> 2,329,309
<TOTAL-COSTS> 4,209,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (548,597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (548,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (548,597)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
