SHOE PAVILION INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2002

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___________to___________

Commission File Number 0-23669

SHOE PAVILION, INC.
(Exact name of Registrant as Specified in its Charter)

Delaware		94-3289691
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)

3200-F Regatta Boulevard, Richmond, California		94804
(Address of principal executive offices)		(Zip Code)

(510) 970-9775
(Registrant’s telephone number, including area code)

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

	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 31, 2002 the Registrant had 6,800,000 shares of Common Stock outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a “safe harbor” for these types of statements. These forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from management’s current expectations. These factors include, without limitation, the financial impact of discontinuing the operation of the licensed shoe departments at Gordmans department stores, competitive pressures in the footwear industry, changes in the level of consumer spending on or preferences in footwear merchandise, economic and other factors affecting the retail market conditions, including the events of September 11, 2001 and uncertainties related to the ongoing conflict, the Company’s ability to purchase attractive name brand merchandise at reasonable discounts, the availability of desirable store locations as well as management’s ability to negotiate acceptable lease terms and maintain supplier and business relationships and open new stores in a timely manner and the uncertainties related to the Company’s decision to contract with an outside third party for its warehouse and distribution functions. Other risk factors are detailed in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking statements.

SHOE PAVILION, INC.
INDEX TO FORM 10-Q

		Page

	PART I FINANCIAL INFORMATION

Item 1 –	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7-8
Item 3 –	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4 –	Controls and Procedures	9

	PART II OTHER INFORMATION

Item 1 –	Legal Proceedings	10
Item 4 –	Submission of Matters to a Vote of Security Holders	10
Item 6 –	Exhibits and Reports on Form 8-K	10

Signatures		11
Certification by Dmitry Beinus		12
Certification by John D. Hellmann		13

PART I
FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

The following financial statements and related financial information are filed as part of this report:

Shoe Pavilion, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands, except share data)			September 28, 2002		December 29, 2001

ASSETS
Current assets
	Cash		$	611	$	803
	Accounts receivable			758		609
	Inventories			35,962		31,398
	Deferred income taxes and prepaid expenses			1,087		1,064

		Total current assets		38,418		33,874
Property and equipment, net				3,482		4,360
Deferred income taxes and other				939		928

		Total assets	$	42,839	$	39,162

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable		$	9,768	$	8,515
	Accrued expenses			2,339		2,521

		Total current liabilities		12,107		11,036
Long-term debt				6,909		4,600
Deferred rent				1,644		1,848

		Total liabilities		20,660		17,484

Stockholders’ equity
	Preferred stock- $.001 par value; 1,000,000 shares authorized; no shares issued or outstanding			—		—
	Common stock- $.001 par value; 15,000,000 shares authorized; 6,800,000 issued and outstanding			7		7
	Additional paid-in capital			13,967		13,967
	Retained earnings			8,205		7,704

		Total stockholders’ equity		22,179		21,678

		Total liabilities and stockholders’ equity	$	42,839	$	39,162

See notes to condensed consolidated financial statements.

Shoe Pavilion, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)

				Thirteen weeks ended						Thirty-nine weeks ended

(In thousands, except per share amounts and number of stores)				September 28, 2002			September 29, 2001			September 28, 2002			September 29, 2001

Net sales				$	18,952		$	21,304		$	63,107		$	64,271
Cost of sales and related occupancy expenses					12,901			14,886			42,542			44,354

			Gross profit		6,051			6,418			20,565			19,917
Selling, general and administrative expenses					6,184			5,953			19,724			17,446

			Income (loss) from operations		(133	)		465			841			2,471
Interest expense					(33	)		(123	)		(95	)		(625	)
Other income (expense)					(3	)		40			67			64

Income (loss) before taxes					(169	)		382			813			1,910
Income tax provision (benefit)					(65	)		153			312			764

Net income (loss)				$	(104	)	$	229		$	501		$	1,146

Earnings (loss) per share:
Basic				$	(0.02	)	$	0.03		$	0.07		$	0.17
Diluted				$	(0.02	)	$	0.03		$	0.07		$	0.17
Weighted average shares outstanding:
Basic					6,800			6,800			6,800			6,800
Diluted					6,800			6,800			6,808			6,801
Stores operated at end of period:
		Retail stores									83			80
	Licensed shoe departments										0			38

Total											83			118

See notes to condensed consolidated financial statements.

Shoe Pavilion, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

				Thirty-nine weeks ended

(In thousands)				September 28, 2002			September 29, 2001

Operating activities:
Net income				$	501		$	1,146
Adjustments to reconcile net income to net cash provided (used) by operating activities
	Depreciation and amortization				1,109			1,151
	Loss (gain) on disposal of fixed assets				(51	)		1
	Effect of changes in:
		Inventories			(4,564	)		4,965
		Accounts receivables			(149	)		427
		Prepaid expenses and other			(34	)		(152	)
		Accounts payable			1,253			(294	)
		Accrued expenses and deferred rent			(339	)		(304	)

			Net cash provided (used) by operating activities		(2,274	)		6,940

Investing activity-
	Purchase of property and equipment				(529	)		(523	)
	Proceeds from sale of fixed assets				305			0

Net cash used in investing activities					(224	)		(523	)
Financing activities:
Proceeds from (payments on) line of credit, net					2,309			(6,625	)
Principal payments on capital leases					(3	)		(12	)

			Net cash provided (used) by financing activities		2,306			(6,637	)

Net decrease in cash					(192	)		(220	)
Cash, beginning of period					803			814

Cash, end of period				$	611		$	594

Non cash investing activity:
Disposal of asset under capital lease financing				$	44		$	0

See notes to condensed consolidated financial statements.

Shoe Pavilion, Inc.

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

General - The accompanyin

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