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 July 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:
(770) 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 July 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 Six Months Ended For the Quaters Ended
------------------------------ ------------------------------
July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Retail sales (Note 6) $ 8,156,154 $ 9,915,805 $ 4,514,828 $ 4,774,094
Other income, principally 430,928 544,043 234,898 268,929
finance charges -------------- -------------- -------------- --------------
TOTAL REVENUES 8,587,082 10,459,848 4,749,726 5,043,023
-------------- -------------- -------------- --------------
COSTS AND EXPENSES
Cost of goods sold, including
occupancy and distribution expenses 5,616,687 6,828,466 3,287,378 3,306,689
Selling, general and administrative
expenses 3,203,391 3,999,601 1,447,838 2,041,797
Depreciation and amortization 171,609 212,812 85,636 105,396
Interest expense, net 82,342 24,577 43,648 9,358
-------------- -------------- -------------- --------------
TOTAL COSTS AND EXPENSES 9,074,029 11,065,456 4,864,500 5,463,240
-------------- -------------- -------------- --------------
LOSS BEFORE REORGANIZATION
ITEMS AND INCOME TAX
(EXPENSE) BENEFIT (486,947) (605,608) (114,774) (420,217)
-------------- -------------- -------------- --------------
REORGANIZATION ITEMS (Note 7)
Professional fees 304,400 - 167,617 -
Other costs and fees 73,847 - 34,206 -
-------------- -------------- -------------- --------------
TOTAL REORGANIZATION ITEMS 378,247 - 201,823 -
-------------- -------------- -------------- --------------
LOSS BEFORE INCOME TAX
(EXPENSE) BENEFIT (865,194) (605,608) (316,597) (420,217)
INCOME TAX (EXPENSE) BENEFIT (87,817) 155,000 (87,817) 65,000
-------------- -------------- -------------- --------------
NET LOSS $ (953,011) $ (450,608) $ (404,414) $ (355,217)
============== ============== ============== ==============
NET LOSS PER SHARE (Note 8) $ (2.34) $ (1.11) $ (0.99) $ (0.87)
============== ============== ============== ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
July 2, 1995 January 1, 1995
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 635,826 $ 507,164
Accounts receivable, less allowance
for doubtful accounts of $601,000
and $732,000 respectively (Note 4) 2,630,390 3,213,565
Miscellaneous other accounts
receivable 12,878 13,175
Merchandise inventories 2,371,724 2,239,352
Prepaid expenses and refundable taxes 193,458 196,084
Deferred income taxes (Note 5) 877,243 965,060
-------------- --------------
TOTAL CURRENT ASSETS 6,721,519 7,134,400
PROPERTY AND EQUIPMENT, at cost 4,384,010 4,357,212
Less accumulated depreciation and
amortization 2,974,603 2,806,719
-------------- --------------
PROPERTY AND EQUIPMENT,net 1,409,407 1,550,493
OTHER ASSETS 57,749 62,673
-------------- --------------
TOTAL ASSETS $ 8,188,675 $ 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) $ 1,430,568 $ 1,254,422
Accounts payable, trade 372,698 185,233
Accrued expenses and other
liabilities 596,393 505,091
Taxes withheld and accrued 95,740 156,534
Customers' deposits on layaways 97,818 97,818
-------------- --------------
TOTAL CURRENT LIABILITIES 2,593,217 2,199,098
LIABILITIES SUBJECT TO COMPROMISE (a) 3,628,045 3,628,045
-------------- --------------
TOTAL LIABILITIES 6,221,262 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 1,729,869 2,682,879
-------------- --------------
2,870,530 3,823,540
Less treasury stock, at cost,
57,122 shares 903,117 903,117
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,967,413 2,920,423
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,188,675 $ 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
------------------------------
July 2, 1995 July 3, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (953,011) $ (450,608)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and amortization 202,018 219,076
Loss on disposal of property and equipment 574 -
Provision for doubtful accounts 92,151 136,600
Deferred income taxes, net 87,817 (155,000)
Changes in assets (increase) decrease
Customers' accounts receivable, net 491,024 591,151
Miscellaneous other accounts
receivable 297 -
Merchandise inventories (132,372) (81,218)
Prepaid expenses and refundable taxes (27,783) 15,999
Other assets 4,924 352
Changes in liabilities increase (decrease)
Pre-petition accounts payable, trade - 117,344
Pre-petition accrued expenses and
other liabilities - (178,874)
Post-petition accounts payable, trade 187,465 -
Post-petition accrued expenses and
liabilities 91,302 -
Taxes withheld and accrued (60,794) -
-------------- --------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (16,388) 214,822
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (37,314) (107,929)
Proceeds from sale of equiment 6,218
-------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (31,096) (107,929)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 967,379 800,000
Repayments of bank borrowings (791,233) (900,000)
-------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 176,146 (100,000)
-------------- --------------
NET INCREASE IN CASH 128,662 6,893
CASH, BEGINNING OF PERIOD 507,164 886,796
-------------- --------------
CASH, END OF PERIOD $ 635,826 $ 893,689
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $ 83,087 $ 24,936
============== ==============
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 July 2, 1995 and the
results of operations for the six months and quarters ended July 2,
1995 and July 3, 1994 and cash flows for the six months ended
July 2, 1995 and July 3, 1994. The results of operations for the
six months ended July 2, 1995 and July 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 January 1, 1995 and the July 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 exisitng
on September 19, 1994 have since been paid in full. On July 13,
1995, Kenwin submitted a disclosure statement to the U.S. Bankurptcy
Court and the creditors' committee which provides for settlement of
the unsecured creditors' claims for 25 cents on the dollar. Payment
is to be made upon confirmation of the plan of reorganization. In
addition, Kenwin proposes to issue the unsecured creditors 150,000
shares of its authorized but previously unissued common stock on a
pro-rata basis. 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 July 2, 1995 as compared to
146 stores in operation on July 3, 1994.
<PAGE>
<TABLE>
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
July 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 July 2, 1995,
the Company's EBITDA, cumulative EBITDA, and minimum net worth were
less than the amounts required and, therefore, the Company was in
default. Management has requested a waiver of these requirements
for the period ended July 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
sheets as of July 2,1995 and January 1, 1995:
<CAPTION>
------------------------------
July 2, 1995 January 1, 1995
-------------- --------------
<S> <C> <C>
Deferred tax asset $ 2,067,894 $ 1,733,614
Valuation allowance (1,190,651) (768,554)
-------------- --------------
Net deferred tax asset $ 877,243 $ 965,060
============== ==============
</TABLE>
<TABLE>
Note 6 Leased department sales included in net sales:
<CAPTION>
Six months Ended Quarters Ended
------------------------------ ------------------------------
July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 446,400 $ 566,000 $ 271,000 $ 252,000
============== ============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
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 $378,247 for the six months
ended July 2, 1995 and $201,824 for the quarter ended July 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
six months and quarters ended July 2, 1995 and July 3, 1994
are as follows:
<CAPTION>
Six months Ended Quarters Ended
-------------------------- ----------------------------
July 2, 1995 July 3, 1994 July 2, 1995 July 3, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Professional
fees paid $ 153,429 $ - $ - $ -
Other costs
and fees paid 17,670 - 6,500 -
------------ ------------ ------------ ------------
Total $ 171,009 $ - $ 6,500 $ -
============ ============ ============ ============
</TABLE>
Note 8 Shares issuable upon the exercise of stock options have not been
included in the earnings per share computations for the six months
and quarters ended July 2, 1995 and July 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 six months
and quarters ended July 2, 1995 and July 3, 1994.
Note 9 Certain items in 1994 have been reclassified in the accompanying
financial statements in order to conform with the 1995 presentation.
Note 10 On August 7, 1995, the Company sold its office and warehouse facility
located in Tucker, Georgia to RJV Corporation for $800,000.
Simultaneously, the Company entered into a lease agreeement with RJV
Corporation to lease a portion of the building for three years at
an annual rental of $67,340 with a renewal option for an additional
three years at an annual rental of $74,074.
In July, 1995 the Company entered into an agreement whereby the Bank of
Louisiana agreed to purchase the Company's outstanding customer
accounts receivable. The funds due the Company will be determined
based on the outstanding customer accounts receivable balance at or
around September 15, 1995.
<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 July 2, 1995 and 146 on
July 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
2 new stores by the end of the fiscal year, and will continue to monitor
its existing stores closely.
NET SALES decreased $1,759,651 for the six months ended July 2, 1995
and decreased $259,266 for the quarter ended July 2, 1995 as compared to the
corresponding 1994 period. This was primarily the result of the closing of
44 stores. Comparative store sales increased $554,657 and $856,849 for the
six months and quarter ended July 2, 1995, respectively. 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
second quarter increase in same store sales to this two week shift.
COST OF GOODS SOLD, INCLUDING CERTAIN OCCUPANCY AND DISTRIBUTION
EXPENSES as a percentage of sales remained constant at 68.9% for the six
months ended July 2, 1995 and July 3, 1994. Cost of goods sold, including
certain occupancy and distribution expenses as a percentage of sales
increased from 69.3% for the second quarter 1994 period to 72.8% for the
second quarter 1995 period primarily due to the decrease in the Company's
maintained markups on sales. This increase is attributable primarily to
increased markdowns as a percentage of sales. The Company has increased
markdowns in an attempt to promote merchandise, attract customers, and
increase sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased $796,210 and
$593,959 for the six months and quarter ended July 2, 1995, respectively, as
compared to the comparable 1994 periods. The decrease in the six-month and
quarters ended July 2, 1995 consists 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 borrowing.
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 six months ended July 2, 1995 amounted to $953,011
($2.34 per share), compared to a loss of $450,608 ($1.11 per share) for the
corresponding 1994 period, and consolidated net loss for the quarter ended July
2, 1995 amounted to $404,414 ($.99 per share), compared to a loss of $355,217
($.87 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 six months
ended July 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, 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.
The following items measure the Company's ability to meet its short-
term obligations:
July 2, 1995 January 1, 1995
-------------- --------------
Working capital $ 4,128,302 $ 4,935,302
Working capital ratio 2.6 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 July 2, 1995, the Company's EBITDA,
cumulative EBITDA, and minimum net worth were less than the amounts
required and, therefore, the Company was in default. Management has
requested a waiver of these requirements for the period ended
July 2, 1995.
Item 5, Other Information.
On August 7, 1995, the Company sold its office and warehouse
facility located in Tucker, Georgia to RJV Corporation for
$800,000. Simultaneously, the Company entered into a lease
agreement with RJV Corporation to lease a portion of the building
for three years at an annual rental of $67,340 with a renewal
option for an additional three years at an annual rental of
$74,074.
In July, 1995 the Company entered into an agreement whereby the
Bank of Louisiana agreed to purchase the Company's outstanding
customer accounts receivable. The funds due the Company will be
determined based on the outstanding customer accounts receivable
balance at or around September 15, 1995.
Item 6(b), Reports on Form 8-K
No Form 8-K, Current Report, forms were filed during the quarter ended
July 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)
August 16, 1995 Richard Moskowitz
Date Richard Moskowitz
Vice-President and Secretary
August 16, 1995 Ira Abramson
Date Ira Abramson
Vice-President and Assistant Secretary
(Chairman of the Board and
Chief Executive Officer)
(Acting Principal Accounting Officer)
<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> Jul-02-1995
<CASH> 635,826
<SECURITIES> 0
<RECEIVABLES> 3,231,390
<ALLOWANCES> 601,000
<INVENTORY> 2,371,724
<CURRENT-ASSETS> 6,721,519
<PP&E> 4,384,010
<DEPRECIATION> 2,974,603
<TOTAL-ASSETS> 8,188,675
<CURRENT-LIABILITIES> 2,593,217
<BONDS> 0
<COMMON> 464,212
0
0
<OTHER-SE> 1,503,201
<TOTAL-LIABILITY-AND-EQUITY> 8,188,675
<SALES> 8,156,154
<TOTAL-REVENUES> 8,587,082
<CGS> 5,616,687
<TOTAL-COSTS> 9,074,029
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (865,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> (953,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (953,011)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
