KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Quarter Ended March 30, 1997
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 March 30, 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 March 30, 1997, there were 964,282 shares outstanding of the
registrant's common stock.
KENWIN SHOPS, INC.
CONTENTS
Pages
PART I - FINANCIAL INFORMATION
Item 1
Consolidated Condensed Balance Sheets -
March 30, 1997 and December 29, 1996 2
Consolidated Condensed Statements of Income
for the Quarters Ended March 30, 1997 and
March 31, 1996 3
Consolidated Condensed Statements of Cash Flows
for the Quarters Ended March 30, 1997 and
and March 31, 1996 4
Notes to Consolidated Condensed Financial Statements 5-6
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II - OTHER INFORMATION 9
PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 30, December 29,
1997 1996
ASSETS
CURRENT ASSETS
Cash $ 451,137 $ 382,993
Restricted cash 419,044 419,044
Miscellaneous other accounts receivable 25,935 25,935
Prepaid expenses and refundable taxes 31,547 34,022
--------- ----------
TOTAL CURRENT ASSETS 927,663 861,994
--------- ----------
PROPERTY AND EQUIPMENT, at cost
Building and building improvements 3,632 3,632
Furniture and fixtures 2,215,669 2,215,669
Automobiles 91,483 91,483
Leasehold improvements 760,382 759,837
---------- ----------
3,071,166 3,070,621
Less accumulated depreciation 2,395,723 2,382,919
---------- ----------
PROPERTY AND EQUIPMENT, net 675,443 687,702
---------- ----------
OTHER ASSETS
Cash surrender value of life insurance,
net of loans of $42,073 at March 30,
1997, and $42,073 at December 29, 1996 25,570 25,570
Deposits 47,646 46,286
---------- ----------
TOTAL OTHER ASSETS 73,216 71,856
---------- ----------
TOTAL ASSETS $1,676,322 $1,621,552
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 294,905 $ 674,056
Line of credit (Note 3) 244,295 406,080
Liability to Bank of Louisiana (Note 8) 462,016 -
Accounts payable, trade (Note 9) 1,023,868 741,092
Accrued expenses and other liabilities 283,771 478,759
Taxes withheld and accrued 98,985 85,608
Estimated liability for uncollectible
accounts 234,842 234,842
Notes payable, related party 523,783 196,834
---------- ----------
TOTAL CURRENT LIABILITIES 3,166,465 2,817,271
STOCKHOLDERS' EQUITY
Common stock, par value $.01, authorized
1,000,000 shares; issued 964,282 shares 9,643 9,643
Additional paid-in capital 1,601,578 1,601,578
Retained deficit (2,198,247) (1,903,823)
---------- ----------
(587,026) (292,602)
Less treasury stock, at cost, 57,122 shares 903,117 903,117
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (1,490,143) (1,195,719)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,676,322 $1,621,552
========== ==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the Quarters Ended
March 30, March 31,
1997 1996
----------- ------------
REVENUES
Retail sales (Note 5) $1,914,782 $2,969,107
Other income 15,286 10,181
---------- ----------
TOTAL REVENUES 1,930,068 2,979,288
---------- ----------
COSTS AND EXPENSES
Cost of goods sold, including occupancy
and distribution expenses 1,223,877 2,034,002
Selling, general and administrative
expenses 966,142 1,697,953
Depreciation 12,804 72,776
Interest expense 21,669 16,852
---------- ----------
TOTAL COSTS AND EXPENSES 2,224,492 3,821,583
---------- ----------
LOSS BEFORE INCOME TAXES (294,424) (842,295)
INCOME TAXES - -
---------- ----------
NET LOSS $ (294,424) $ (842,295)
========== ==========
NET LOSS PER SHARE (Note 6) $ (0.32) $ (1.51)
========== ==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
KENWIN SHOPS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Quarters Ended
March 30, March 31,
1997 1996
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (294,424) $ (842,295)
Adjustments to reconcile net loss to
net cash provided (used) by operating
activities
Depreciation and amortization 12,804 91,184
Provision for doubtful accounts - 50,082
Changes in assets (increase) decrease
Customers' accounts receivable, net - (67,498)
Miscellaneous other accounts receivable - 4,332
Merchandise inventories - 92,148
Prepaid expenses and refundable taxes 2,475 (8,612)
Other assets (1,360) (150)
Changes in liabilities increase (decrease)
Accounts payable, trade 282,776 226,182
Bank overdraft (379,151) (12,861)
Liability to Bank of Louisiana 462,016 -
Accrued expenses and liabilities (194,988) (50,163)
Taxes withheld and accrued 13,377 (18,370)
---------- -----------
NET CASH USED BY OPERATING
ACTIVITIES (96,475) (536,021)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (545) (16,210)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings 2,293,300 2,389,000
Repayments of bank borrowings (2,455,085) (1,656,599)
Proceeds from related party borrowings 400,000 -
Repayments of related party borrowings (73,051) -
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 165,164 732,401
---------- ----------
NET INCREASE IN CASH 68,144 180,170
CASH, BEGINNING OF PERIOD 382,993 274,177
---------- ----------
CASH, END OF PERIOD $ 451,137 $ 454,347
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $ 27,108 $ 16,852
========== ==========
Income taxes paid during the period $ - $ -
========== ==========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
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 March 30, 1997 and the results of operations for the
quarters ended March 30, 1997 and March 31, 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-KSB for the year
ended December 29, 1996. The results of operations for the quarters
ended March 30, 1997 and March 31, 1996, are not necessarily indicative
of the results to be expected for the full year.
Note 2 There were 79 stores in operation on March 30, 1997 and 102
stores on March 31, 1996.
Note 3 The Company renewed the loan agreement with Sterling National
Bank and Trust ("Sterling") on August 21, 1996, for a period through
and including June 30, 1997. The original terms of the agreement
remain in effect. At March 30, 1997, the Company was in violation of
various covenants of its agreement with Sterling. Therefore, the
Company was in default of its loan agreement.
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 March 30, 1997:
Quarter Ended Year Ended
March 30, 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:
Quarters Ended
March 30, March 31,
1997 1996
--------- ---------
$ 158,015 $ 208,700
========= =========
Note 6 Shares issuable upon the exercise of stock options have not been
included in the earnings per share computations for the quarters ended
March 30, 1997 and March 31, 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 March 30, 1997 and March 31, 1996, respectively.
Note 7 As presented in the accompanying financial statements, the
Company incurred losses before income taxes of $294,424 for the quarter
ended March 30, 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 damages in the amount of $750,000 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.
The Company has been making collections on the accounts receivable
which were sold to the Bank of Louisiana. Until the suit is settled,
the collections are shown as a liability on the balance sheet. At
March 30, 1997, the amount collected and due to the Bank of Louisiana
was $462,016.
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 March 30, 1997, is $987,723.
Note 10 Certain items in 1996 have been reclassified in the accompanying
financial statements in order to conform with the 1997 presentation.
<PAGE>
KENWIN SHOPS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales decreased $1,054,325 (35.5%) for the quarter ended March 30,
1997, as compared to the corresponding 1996 period. Management estimates
that the decrease is primarily due to 23 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, declined to 63.9% for the quarter ended March 30, 1997,
from 68.5% for the quarter ended March 31, 1996. The decrease is primarily due
to improvements in merchandising strategies.
Selling, general and administrative expenses ("SG&A") decreased
$731,811 (43.1%) for the quarter ended March 30, 1997 as compared to the
corresponding 1996 period. 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 note payable to D&A Funding Corporation.
Increasing operating losses, despite the Company's continued
effort to reduce operating costs, resulted in the closing of 12
additional stores as of May 29, 1997.
<PAGE>
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 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 March 30,
1997 is attributable to the additional borrowings from the bank and D&A Funding
Corporation, plus the collections on the Bank of Louisiana's accounts
receivable and additional bank borrowings.
The line of credit for short-term borrowings 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:
March 30, 1997 December 29, 1996
Working capital $(2,238,802) $(1,955,277)
Working capital ratio (0.3) (0.3)
<PAGE>
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 in the amount of $750,000 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.
Item 2, Changes in Securities
Not applicable.
Item 3, Defaults by the Company on its Senior Securities.
Part (a). At December 29, 1996 and March 30, 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 March
30, 1997.
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
March 30, 1997.
<PAGE>
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: May 29, 1997 /s/ Donald Weiner
----------------------------
Donald Weiner, President
Date: May 29, 1997 /s/ Richard Pedton
-----------------------------
Richard Pedone, Treasurer
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Mar-30-1997
<CASH> 451,137
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 927,663
<PP&E> 3,071,166
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0
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<OTHER-SE> (1,499,786)
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<SALES> 1,914,782
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<CGS> 1,223,877
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,669
<INCOME-PRETAX> (294,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (294,424)
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