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 the Quarter Ended October 1, 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 practicable
date.
As of October 1, 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 Nine Months Ended Quaters Ended
------------------------------ ------------------------------
October 1, 1995 October 2, 1994 October 1, 1995 October 2, 1994
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Retail sales (Note 8) $ 11,316,701 $ 13,988,102 $ 3,160,547 $ 4,072,297
Other income, principally 520,005 769,093 89,077 225,050
finance charges -------------- -------------- -------------- --------------
TOTAL REVENUES 11,836,706 14,757,195 3,249,624 4,297,347
-------------- -------------- -------------- --------------
COSTS AND EXPENSES
Cost of goods sold, including
occupancy and distribution expenses 7,943,402 9,859,867 2,326,715 3,031,401
Selling, general and administrative
expenses 4,955,159 6,078,224 1,752,342 2,079,771
Depreciation and amortization 260,522 317,102 88,913 104,290
Loss (gain) on disposal of property
and equipment (585,514) 1,148 (586,088) -
Interest expense, net 114,614 38,778 32,272 14,201
-------------- -------------- -------------- --------------
TOTAL COSTS AND EXPENSES 12,688,183 16,295,119 3,614,154 5,229,663
-------------- -------------- -------------- --------------
LOSS BEFORE REORGANIZATION
ITEMS AND EXPENSE FOR
INCOME TAXES (851,477) (1,537,924) (364,530) (932,316)
-------------- -------------- -------------- --------------
REORGANIZATION ITEMS (Note 9)
Professional fees 406,081 50,122 101,681 50,122
Other costs and fees 117,544 - 43,697 -
-------------- -------------- -------------- --------------
TOTAL REORGANIZATION ITEMS 523,625 50,122 145,378 50,122
-------------- -------------- -------------- --------------
LOSS BEFORE EXPENSE
FOR INCOME TAXES (1,375,102) (1,588,046) (509,908) (982,438)
INCOME TAX EXPENSE (87,817) - - (155,000)
-------------- -------------- -------------- --------------
NET LOSS $ (1,462,919) $ (1,588,046) $ (509,908) $ (1,137,438)
============== ============== ============== ==============
NET LOSS PER SHARE (Note 10) $ (3.59) $ (3.90) $ (1.25) $ (2.79)
============== ============== ============== ==============
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
October 1, 1995 January 1, 1995
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,482,258 $ 507,164
Accounts receivable, less allowance
for doubtful accounts of $932,000
and $732,000 respectively
(Notes 4 and 7) 432,218 3,213,565
Miscellaneous other accounts
receivable 12,878 13,175
Merchandise inventories 1,934,968 2,239,352
Prepaid expenses and refundable taxes 82,406 196,084
Deferred income taxes (Note 5) 877,243 965,060
-------------- --------------
TOTAL CURRENT ASSETS 5,821,971 7,134,400
-------------- --------------
PROPERTY AND EQUIPMENT, at cost 4,072,399 4,357,212
Less accumulated depreciation and
amortization 2,867,102 2,806,719
-------------- --------------
PROPERTY AND EQUIPMENT, net
(Notes 6 & 7) 1,205,297 1,550,493
-------------- --------------
OTHER ASSETS 86,923 62,673
-------------- --------------
TOTAL ASSETS $ 7,114,191 $ 8,747,566
============== ==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Line of credit (Note 7) $ 1,025,266 $ 1,254,422
Accounts payable, trade 193,855 185,233
Accrued expenses and other
liabilities 631,373 505,091
Taxes withheld and accrued 80,330 156,534
Customers' deposits on layaway 97,818 97,818
-------------- --------------
TOTAL CURRENT LIABILITIES 2,028,642 2,199,098
-------------- --------------
LIABILITIES SUBJECT TO COMPROMISE (a) 3,628,045 3,628,045
-------------- --------------
TOTAL LIABILITIES 5,656,687 5,827,143
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, par value $1;
authorized 1,000,000 shares,
issued 464,212 shares 464,212 464,212
Additional paid-in capital 676,449 676,449
Retained earnings 1,219,960 2,682,879
-------------- --------------
2,360,621 3,823,540
Less treasury stock, at cost,
57,122 shares 903,117 903,117
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,457,504 2,920,423
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,114,191 $ 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>
PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
------------------------------
October 1, 1995 October 2, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,462,919) $ (1,588,046)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 290,931 324,662
(Gain) loss on disposal of property
and equipment (585,514) 1,148
Provision for doubtful accounts 152,067 234,363
Deferred income taxes, net 87,817 -
Changes in assets (increase) decrease
Customers' accounts receivable, net 2,629,280 777,067
Miscellaneous other accounts
receivable 297 -
Merchandise inventories 304,384 757,564
Prepaid expenses and refundable taxes 61,786 141,245
Other assets (2,767) (5,391)
Changes in liabilities increase (decrease)
Pre-petition accounts payable, trade - (11,831)
Pre-petition accrued expenses and
other liabilities - (620,266)
Post-petition accounts payable, trade 8,622 153,368
Post-petition accrued expenses and
liabilities 126,282 545,444
Post-petition taxes withheld and accrued (76,204) -
-------------- --------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,534,062 709,327
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (101,897) (139,658)
Proceeds from sale of property and equipment 772,085 5,650
-------------- --------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 670,188 (134,008)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 1,528,613 900,000
Repayments of bank borrowings (1,757,769) (900,000)
-------------- --------------
NET CASH USED BY FINANCING
ACTIVITIES (229,156) -
-------------- --------------
NET INCREASE IN CASH 1,975,094 575,319
CASH, BEGINNING OF PERIOD 507,164 886,796
-------------- --------------
CASH, END OF PERIOD $ 2,482,258 $ 1,462,115
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $ 115,359 $ 41,386
============== ==============
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 October 1, 1995 and the
results of operations for the nine months and quarters ended October 1,
1995 and October 2, 1994 and cash flows for the nine months ended
October 1, 1995 and October 2, 1994. The results of operations for the
nine months ended October 1, 1995 and October 2, 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 October 1, 1995 and
January 1, 1995 balance sheets as "liabilities subject to
compromise." On July 13, 1995, Kenwin submitted a disclosure
statement to the U.S. Bankurptcy Court and the creditors'
committee which provided for settlement of the unsecured
creditors' claims for 25 cents on the dollar. In addition,
Kenwin proposed to issue 150,000 shares of its authorized but
previously unissued common stock on a pro-rata basis (See Note 12).
Note 3 There were 102 stores in operation on October 1, 1995 as compared to
112 stores in operation on October 2, 1994.
Note 4 On September 29, 1995, Kenwin executed a private charge card
agreement for a period of two years with the Bank of Louisiana
("BOL") whereby BOL agreed to purchase substantially all of
Kenwin's outstanding customer accounts receivable, less $750,000
which was withheld as a delinquency reserve. BOL will issue
Kenwin store credit cards to existing charge account customers,
and all future customer credit sales will be processed by BOL.
The proceeds from the charge transactions are credited to
Kenwin's bank account at BOL, less a 2% processing charge and
a 2% delinquency reserve. The responsibility to process
customer charges, mail statements, and follow up on collections
rests with BOL.
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5 The following is a summary of the net deferred tax asset
accounts recognized in the accompanying consolidated condensed balance
sheets as of October 1, 1995 and January 1, 1995:
<CAPTION>
October 1, 1995 January 1, 1995
-------------- --------------
<S> <C> <C>
Deferred tax asset $ 2,146,398 $ 1,733,614
Valuation allowance (1,269,155) (768,554)
-------------- --------------
Net deferred tax asset $ 877,243 $ 965,060
============== ==============
</TABLE>
Note 6 On August 7, 1995, the Company sold its office and warehouse facility
located in Tucker, Georgia for $800,000. Simultaneously, the Company
entered into a lease agreeement with the buyer 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.
Note 7 On November 14, 1994, the Company executed 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 line of credit bears
interest at the prime rate plus 2.5%, which is payable monthly.
The prime rate was 8.75% as of October 1, 1995. At January 1,
1995 and October 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 (See Note 12).
<TABLE>
Note 8 Leased department sales included in net sales:
<CAPTION>
Nine Months Ended Quarters Ended
------------------------------ ------------------------------
October 1, 1995 October 2, 1994 October 1, 1995 October 2, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 602,000 $ 728,000 $ 156,000 $ 162,000
============== ============== ============== ==============
</TABLE>
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 9 The accompanying consolidated condensed financial statements
include a reorganization charge of $523,625 for the nine months
ended October 1, 1995 and $145,378 for the quarter ended October
1, 1995. The reorganization charge relates 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
nine months and quarters ended October 1, 1995 and October 2, 1994
are as follows:
<CAPTION>
Nine Months Ended Quarters Ended
-------------------------- --------------------------
October 1, 1995 October 2, 1994 October 1, 1995 October 2, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Professional
fees paid $ 261,012 $ 50,122 $ 107,583 $ 50,122
Other costs
and fees paid 21,643 - 3,973 -
------------ ------------ ------------ ------------
Total $ 282,655 $ 50,122 $ 111,556 $ 50,122
============ ============ ============ ============
</TABLE>
Note 10 Shares issuable upon the exercise of stock options have not been
included in the earnings per share computations for the nine months
and quarters ended October 1, 1995 and October 2, 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 nine months
and quarters ended October 1, 1995 and October 2, 1994.
Note 11 Certain items in the 1994 presentation have been reclassified in the
accompanying financial statements in order to conform with the
1995 presentation.
Note 12 On October 12, 1995, an order confirming the Debtor's plan of
reorganization was entered by the court. On October 23, 1995, the
unsecured creditors were paid a 25% cash settlement and were issued
150,070 shares of common stock (rounded to account for fractional
shares).
On October 23, 1995, the Company executed a new $1,500,000 post-
bankruptcy line of credit with Sterling, at which point the existing
loan balance was paid in full and the related security and loan
agreement was terminated.
<PAGE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
MANAGEMENTS' DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RETAIL STORES in operation were 102 on October 1, 1995 and 112 on
October 2, 1994. 10 stores were closed during October 1994. Management
continues to monitor the operations of its existing locations and evaluate
strategies to increase sales and increase productivity. Management expects
that the private charge card arrangement with the Bank of Louisiana will
spur store sales not only by providing customers with higher credit limits
but by allowing store personnel to concentrate on in-store promotion and
customer service. Plans to open additional stores during 1995 have been
postponed, however, management continues to seek opporturnities in
new markets.
NET SALES decreased $2,671,401 for the nine months ended October 1,
1995 and decreased $911,750 for the quarter ended October 1, 1995 as
compared to the corresponding 1994 periods. Comparative store sales
increased $575,742 and $20,825 for the nine months and quarter ended
October 1, 1995, respectively. Management attributes the decrease in
overall sales to the closing of 34 stores during the third quarter of 1994.
The same store sales increase is due primarily to a better merchandise
mix and access to higher quality vendors in 1995. Kenwin's credit
problems, which ultimately led to the Chapter 11 filing, had a detrimental
effect on the quantity and quality of stock at the retail level, resulting
in higher markdowns and loss of customers in 1994.
COST OF GOODS SOLD, INCLUDING CERTAIN OCCUPANCY AND DISTRIBUTION
EXPENSES as a percentage of sales decreased from 70.49% for the nine month
1994 period to 70.19% for the nine month 1995 period primarily due to
an increase in the Company's maintained markup on sales. Cost of
goods sold, including occupancy and distribution expenses as a percentage
of sales decreased from 74.44% for the third quarter 1994 to 73.62% for the
third quarter 1995. This decrease is attributable to an increase in the
Company's maintained markup for the period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased $1,123,065 and
$327,429 for the nine months and quarter ended October 1, 1995, respectively,
as compared to the comparable 1994 periods. The decreases in the nine-month
and quarter ending October 1, 1995 consist primarily of reductions in store
payroll and related expenses, along with a decrease in other store operating
expenses. The reduction in payroll and store operating expenses are primarily
the result of the closing of 34 stores.
INTEREST EXPENSE is primarily the result of short-term bank borrowing.
As a result of the factors mentioned above, the Company's consolidated
net loss for the nine months ended October 1, 1995 amounted to $1,462,919
($3.59 per share), as compared to a loss of $1,588,046 ($3.90 per share) for the
corresponding 1994 period, and consolidated net loss for the quarter ended
October 1, 1995 amounted to $509,908 ($1.25 per share), compared to a loss of
$1,137,438 ($2.79 per share) for the corresponding 1994 period.
<PAGE>
<TABLE>
KENWIN SHOPS, INC. (DEBTOR-IN-POSSESSION)
MANAGEMENTS' 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 borrowing are the Company's primary
sources of liquidity and capital. The increase in cash for the nine months
ended October 1, 1995, is attributable to the proceeds received from the
sale of its office and warehouse facility and the proceeds received from
the Bank of Louisiana for the purchase of substantially all of Kenwin's
outstanding customer accounts receivable.
The line of credit for short-term borrowing and 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:
<CAPTION>
October 1, 1995 January 1, 1995
-------------- --------------
<S> <C> <C>
Working capital $ 3,793,329 $ 4,935,302
Working capital ratio 2.9 3.2
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Kenwin Shops, Inc.
(DEBTOR-IN-POSSESSION)
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 October 1, 1995, the Company's EBITDA,
cumulative EBITDA, and minimum net worth were less than the amounts
required and, therefore, the Company was in default.
Item 5, Other Information.
On October 12, 1995, an order confirming the Debtor's plan of
reorganization was entered by the court. On October 23, 1995, the
unsecured creditors were paid a 25% cash settlement and were issued
150,070 shares of common stock (rounded to account for fractional
shares).
On October 23, 1995, the Company executed a new $1,500,000 post-
bankruptcy line of credit with Sterling, at which point the existing
loan balance was paid in full and the related security and loan
agreement was terminated.
Item 6(b), Reports on Form 8-K
No Form 8-K, Current Report, forms were filed during quarter ended
October, 1, 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)
November 15, 1995 Robert Schwartz
Date Robert Schwartz
President
November 15, 1995 Kenneth G. Sauer
Date Kenneth G. Sauer
Treasurer
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> Oct-01-1995
<CASH> 2,482,258
<SECURITIES> 0
<RECEIVABLES> 1,364,218
<ALLOWANCES> 932,000
<INVENTORY> 1,934,968
<CURRENT-ASSETS> 5,821,971
<PP&E> 4,072,399
<DEPRECIATION> 2,867,102
<TOTAL-ASSETS> 7,114,191
<CURRENT-LIABILITIES> 2,028,642
<BONDS> 0
<COMMON> 464,212
0
0
<OTHER-SE> 993,292
<TOTAL-LIABILITY-AND-EQUITY> 7,114,191
<SALES> 11,316,701
<TOTAL-REVENUES> 11,836,706
<CGS> 7,943,402
<TOTAL-COSTS> 12,688,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,375,102)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,462,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,462,919)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
