UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 29, 1997 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.)
4900 Highlands Parkway, Smyrna, GA 30082
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 431-7971
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 June 29, 1997, there were 964,282 shares outstanding of the
registrant's common stock. The Company held 57,122 of these shares as
treasury stock.
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PART I - FINANCIAL INFORMATION
KENWIN SHOPS. INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 29, December 29,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $100,411 $382,993
Restricted cash 419,044 419,044
Miscellaneous other accounts receivabl 25,935 25,935
Prepaid expenses and refundable taxes 23,093 34,022
TOTAL CURRENT ASSETS 568,482 861,994
PROPERTY AND EQUIPMENT, at cost
Building and building improvements 3,632 3,632
Furniture and Fixtures 2,220,051 2,215,669
Automobiles 86,983 91,483
Leasehold improvements 768,672 759,837
3,079,338 3,070,621
PROPERTY AND EQUIPMENT, net 670,811 687,702
OTHER ASSETS
Cash surrender value of life insurance, net of
loans of $42,073 at June 29, 1997 and $42,073
at December 29, 1996 25,570 25,570
Deposits 44,537 46,286
TOTAL OTHER ASSETS 70,107 71,856
$1,309,400 $1,621,552
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $148,981 $674,056
Line of credit (Note 3) 324,382 406,080
Liability for Debt Collections (Note 8) 517,366 0
Accounts payable, trade (Note 9) 1,239,508 741,092
Accrued expenses and other liabilities 300,124 478,759
Taxes withheld and accrued 73,519 85,608
Estimated liability for uncollectible 234,842 234,842
Notes Payable, related party 425,117 196,834
TOTAL CURRENT LIABILITIES 3,263,839 2,817,271
STOCKHOLDERS' EQUITY
Common stock - par value $.01 per share,
authorized 1,000,000 shares; issued 964,282 Shares:
9,643 9,643
Additional paid-in capital 1,601,578 1,601,578
Retained earnings (deficit) (2,662,543) (1,903,823)
(1,051,323) (292,602)
Less treasury stock, at cost, 57,122 903,117 903,117
TOTAL STOCKHOLDERS' EQUITY (1,954,439) (1,195,719)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,309,400 $1,621,552
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PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
For Six Months Ending
June 29, June 30,
1997 1996
REVENUES
Retail Sales (Note 5) $3,481,043 $6,637,021
Other Income 35,995 13,580
TOTAL REVENUES 3,517,038 6,650,601
COSTS AND EXPENSES
Cost of goods sold, including
occupancy and
distribution expenses 2,398,442 4,198,137
Selling, general and administration 1,789,633 3,442,228
Depreciation 25,608 145,862
Interest expense 62,075 30,369
TOTAL COSTS AND EXPENSES 4,275,758 7,816,596
LOSS BEFORE INCOME TAXES (758,721) (1,165,995)
INCOME TAXES -- (183,453)
NET LOSS ($758,721) ($1,349,448)
NET LOSS PER SHARE (Note 6) ($0.84) ($2.43)
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PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
For the Quarter Ended
June 29, June 30,
1997 1996
REVENUES
Retail Sales (Note 5) $1,566,261 $3,667,914
Other Income 16,945 3,399
TOTAL REVENUES 1,583,206 3,671,313
COSTS AND EXPENSES
Cost of goods sold, including occupancy and
distribution expenses 1,174,566 2,164,135
Selling, general and administration 819,728 1,744,275
Depreciation 12,804 73,086
Interest expense 40,406 13,517
TOTAL COSTS AND EXPENSES 2,047,503 3,995,013
LOSS BEFORE INCOME TAXES (464,297) (323,700)
INCOME TAXES -- (183,453)
NET LOSS ($464,297) ($507,153)
NET LOSS PER SHARE (Note 6) ($0.51) ($0.91)
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PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 29, June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($758,721) ($1,349,448)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Depreciation and amortization 25,608 181,814
Provision for doubtful accounts -- 183,240
Changes in assets (increase) decrease
Deferred income Taxes, net 183,453
Customers' accounts receivable,net -- 92,870
Miscellaneous other accounts receivable-- 0
Merchandise inventories -- 365,176
Prepaid expenses and refundable 10,929 (35,445)
Other assets 1,749 (150)
Changes in liabilities increase (decrease)
Accounts payable, trade 498,416 (127,635)
Bank overdraft (525,075) 43,155
Liability to Bank of Louisiana 517,366 -
Accrued expenses and liabilitities(178,635) (101,955)
Taxes withheld and accrued (12,089) (47,363)
NET CASH USED BY OPERATING
ACTIVITIES (420,451) (612,288)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (8,717) (27,842)
Proceeds from sale of property and eq 0 2,572
NET CASH USED BY INVESTING
ACTIVITIES (8,717) (25,270)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowing 3,906,141 4,807,000
Repayments of bank borrowings (3,987,839) (4,073,456)
Proceeds from related party borrowing 400,000 -
Repayments of related party borrowing (171,717) -
NET CASH PROVIDED BY FINANCING
ACTIVITIES 146,586 733,544
NET INCREASE IN CASH (282,583) 95,986
CASH, BEGINNING OF PERIOD 382,993 $274,177
CASH, END OF PERIOD $100,410 $370,163
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $34,967 $30,369
Income taxes paid during the period -- -
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KENWIN SHOPS, INC.
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 necessary
to present fairly the financial position as of June 29,
1997 and the results of operations for the quarters
ended June 29, 1997 and June 30, 1996. These statements
are condensed and, therefore, do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements.
The statements should be read in conjunction with the
consolidated financial statements and footnotes included
in the Company's Annual Report on Form 10-QSB for the
year ended December 29, 1996. The results of operations
for the quarters ended June 29, 1997 and June 30, 1996,
are not necessarily indicative of the results to be
expected for the full year.
Note 2 There were 57 stores in operation on June 29, 1997 and
102 stores on June 30, 1996.
Note 3 The Company ammended the loan agreement with Sterling
National Bank and Trust ("Sterling") on February 4, 1997,
for a period through and including June 30, 1997. The
original terms of the agreement remain in effect as the
Company and Sterling have agreed to retire the
outstanding balance of $324,382 and not to make future
draws on the loan. The Company currently does not have
a lending agreement other than what is being provided
through D&A Funding.
Note 4 The following is a summary of the net deferred tax asset
and liability accounts recognized in the accompanying
consolidated condensed balance sheet as of June 29, 1997.
Six Months Ended Year Ended
June 29,1997 December 29,1996
Deferred tax assets $ 2,979,522 $ 2,893,110
Valuation allowance (2,979,522) (2,893,110)
Net deferred taxes $ - $ -
Note 5 Leased department sales included in net sales:
Six Months Ended
June 29, June 30,
1997 1996
$ 309,216 $ 532,800
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KENWIN SHOPS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 6 Shares issuable upon the exercise of stock options have
not been included in the earnings per share computations
for the quarters ended June 29, 1997 and June 30, 1996,
because the effect of such would be antidilutive.
The weighted average number of common shares entering
into the calculation of earnings per share was 907,160
and 556,350 for the quarters ended June 29, 1997 and
June 30, 1996, respectively.
Note 7 As presented in the accompanying financial statements,
the Company incurred losses before income taxes of
$758,721 for the six months ended June 29, 1997.
The ability of the Company to continue as a going
concern is dependent on obtaining adequate funding for
the purchase of inventory and the ability of management
to return the Company's operations to profitability.
The financial statements do not include any adjustments
that might be necessary if the Company is unable to
continue as a going concern.
Note 8 On February 10, 1997, the Company brought action against
the Bank of Louisiana seeking unspecified damages for
breach of contract and defamation of trade name. The
Bank of Louisiana is countersuing claiming damages in an
unspecified amount for the Company's alleged breaches of
the agreement. Due to the early stages of this
litigation, it is not possible to predict the outcome or
estimate a potential contingency or gain from the suit.
Liability for debt collection represents monies
collected on credit card debt subject to the resolution
of the suit.
Note 9 Included in trade accounts payable is an amount due to
D&A Funding Corporation, a related party, for
merchandise sold on consignment. The balance due to D&A
Funding Corporation at June 29, 1997, is $1,254,185.
Note 10 Certain items in 1996 have been reclassified in the
accompanying financial statements in order to conform
with the 1997 presentation
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KENWIN SHOPS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales decreased $2,101,653 (57.3%) for the quarter ended
June 29, 1997, as compared to the corresponding 1996 period. For
the six months, net sales declined $3,155,978 (47.6%) compared to
the same period last year. Management estimates that the decrease
is primarily due to 45 fewer stores in operation. Additionally,
same store sales declined as compared to the prior year.
Management attributes the bulk of this decrease to the actions by
the Bank of Louisiana resulting in litigation being filed by the
Company (See Note 8 to the Financial Statements).
Cost of goods sold, including occupancy and distribution
expenses as a percentage of sales increased to 75.0% for the
quarter ended June 29, 1997, from 59.0% for the quarter ended June
30, 1996. For the six months, these expenses increased to 68.9%
from 63.3% last year. The increase is primarily due to store
closing liquidation sales held during the quarter.
Selling, general and administrative expenses ("SGA") decreased
$925,149 (53.0%) for the quarter ended June 29, 1997 as compared to
the corresponding 1996 period. For the six months, SG&A declined
$1,799,695 (42.9%) compared to last year. This decrease was
principally due to fewer stores in operation for the quarter and
management's determination to bring operating costs under control.
Interest expense is primarily the result of short-term bank
borrowings and notes payable to D&A Funding Corporation.
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KENWIN SHOPS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities as well as short-term
borrowing from D&A Funding are the Company's primary sources of
liquidity and capital. The decrease in cash for the six months
ended June 29, 1997 is attributable to the repayments to the bank
and D&A Funding Corporation, less the collections on the credit
card debt receivable.
The short-term borrowings available from D&A Funding and the
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:
June 29,1997 December 29,1997
Working capital $(2,695,357) $(1,955,277)
Working capital ratio (0.2) (0.3)
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PART II - OTHER INFORMATION
KENWIN SHOPS, INC.
Item 1, Legal Proceedings
On February 10, 1997, the Company brought action against the Bank
of Louisiana seeking damages for breach of contract and defamation
of trade name. The Bank of Louisiana is countersuing claiming
damages in an unspecified amount for the Company's alleged breaches
of the agreement. Due to the early states of this litigation, it
is not possible to predict the outcome or estimate a potential
contingency or gain from the suit.
Item 2, Changes in Securities
Not applicable.
Item 3, Defaults by the Company on its Senior Securities
Part (a). At December 29, 1996 and June 29, 1997, the Company was
in violation of various covenants of its loan agreement with
Sterling. Therefore, the Company was in default of its loan
agreement as of June 29, 1997.
The Company and Sterling agreed not to renew the Loan Agreement
which expired June 30, 1997, and to a repayment schedule to retire
the outstanding balance.
Item 4, Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5, Other Information
Not applicable
Item 6(b), Reports on Form 8-K
No Form 8-K, Current Report, forms were filed during the quarter
ended June 29, 1997.
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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)
Date: August 28, 1997 /S/Donald Weiner
Donald Weiner, President
Date: August 28, 1997 /S/Richard Pedone
Richard Pedone, Treasurer
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