United States
Securities and Exchange Commission
Washington, D.C. 20549
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Form 10 QSB
( X ) Quarterly Report pursuant to Section 13 or 15 ( d )
of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 31st, 1998
( ) Transition Report pursuant to Section 13 or 15 ( d )
of the Securities Exchange Act of 1934
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Commission File Number 0-9848
Initio, Inc.
( Exact name of small business registrant as specified in its charter )
Nevada 22-1906744
( State or other jurisdiction of ( IRS Employer
incorporation or organization ) Identification No. )
2500 Arrowhead, Drive, Carson City, Nevada 89706
( Address of principal executive office ) ( Zip Code )
Registrant's telephone number, including area code: ( 702 ) 883 - 2711
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 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
The number of shares outstanding of the registrant's common stock as of
September 10th, 1998 was 4,662,878
Transitional Small Business Disclosure Format Yes No X
Initio, Inc.
Form 10-QSB
For the Quarter Ended July 31, 1998
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Statements of Operations and for the Three
Months Ended July 31st, 1997 and 1998 1.
b) Consolidated Balance Sheets as at April 30th, 1998 and
July 31st, 1998 2.
c) Consolidated Statement of Stockholders' Equity for the
Three Months Ended July 31st, 1998 4.
d) Consolidated Statements of Cash Flows for the Three
Months Ended July 31st, 1997 and 1998 5.
e) Notes to Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
Part II. Other Information 12.
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 13.
Signatures 14.
Part I. Financial Information
Item 1. Financial Statements
Initio, Inc.
Consolidated Statement of Operations
For the Three Months Ended
July 31st, 1998 July 31st, 1997
( Unaudited ) ( Unaudited )
Net Sales $883,559 1,110,354
Costs and Expenses
Merchandise 268,805 286,074
Advertising 365,740 410,620
634,545 696,694
249,014 413,660
Fulfillment, General and
Administrative 511,381 529,810
Operating Loss (262,367) (116,150)
Other Income ( Expense )
Interest Income 30,211 15,813
Interest Expense (79,949) (73,365)
Gain on the Sale of Marketable Se 110,079 55,056
60,341 (2,496)
Net Loss (202,026) (118,646)
Other Comprehensive Income
Unrealized Gains ( Losses) on Marketable
Securities
Arising During the Period (18,526) 48,754
Reclassification of Gains Reali (81,354) (38,172)
(99,880) 10,582
Comprehensive Income (301,906) (108,064)
======= =======
Loss per Common Share
Basic ($0.04) (0.03)
Diluted ($0.04) (0.03)
Weighted Average Shares
Basic 4,752,134 4,699,363
Diluted 4,752,134 4,699,363
See accompanying Notes
1
Initio, Inc.
Consolidated Balance Sheets
As at
July 31, 1998 April 30, 1998
( Unaudited ) ( Audited )
Assets
Current Assets
Cash $985,370 $2,249,992
Marketable Securities 1,088,177 1,073,308
Inventory 2,554,744 1,790,259
Prepaid Advertising 307,189 228,192
Property Held for Sale 324,953 324,953
Other Current Assets 461,869 460,364
Total Current Assets 5,722,302 6,127,068
Property and Equipment 3,121,850 3,018,171
Less; Accumulated Depreciation 1,300,762 1,266,561
Net Property and Equipment 1,821,088 1,751,610
Customer List 1,462,872 1,462,872
Less; Accumulated Amortization 201,145 192,003
Net Customer List 1,261,727 1,270,869
Other Assets 114,810 95,454
Total Assets $8,919,927 $9,245,001
========= =========
See accompanying notes.
2
Initio, Inc.
Consolidated Balance Sheets
As at
July 31, 1998 April 30, 1998
( Unaudited ) ( Audited )
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable 397,599 $171,498
Customers' Unshipped Orders 35,713 34,121
Accrued Expenses and Other
Current Liabilities 221,975 224,966
Total Current Liabilities 655,287 430,585
Mortgage Payable 860,660 874,105
Subordinated Convertible Debenture 3,000,000 3,000,000
Commitments ( see accompanying notes )
Stockholders' Equity
Common Stock, $ .01 par value, Authorized
10,000,000 shares, issued 5,092,206
and 5,271,935 shares, respective 50,922 52,719
Additional Paid In Capital 8,644,050 8,876,678
Accumulated Deficit (4,127,563) (3,925,537)
Accumulated Other Comprehensive I 414,526 514,406
4,981,935 5,518,266
Less; Treasury Stock, 429,398 sh 577,955 577,955
Total Stockholders' Equity 4,403,980 4,940,311
Total Liabilities and Stockhol $8,919,927 $9,245,001
======= =======
See accompanying notes.
3
Initio, Inc.
Consolidated Statement of Stockholders' Equity
For the Three Months Ended July 31st, 1998
( unaudited )
Accumulated
Additional Other
Common Paid In AccumulatedTreasury Comprehensive
Stock Capital Deficit Stock Income Total
Balance April 30, $52,719 $8,876,678($3,925,537)($577,955)$514,406 $4,940,311
1998
Purchase of 179,729(1,797) (232,628) (234,425)
Treasury Shares
Other Comprehensive Loss (99,880) ( 99,880)
Net Loss (202,026) (202,026)
------- ------- ------- ------- ------- -------
Balance July 31, 50,922 8,644,050(4,127,563)(577,955) 414,526 4,403,980
1998
======= ======= ======= ======= ======= =======
See accompanying notes.
4
Initio, Inc.
Consolidated Statement of Cash Flows
For the Three Months Ended
July 31st, 1998 July 31st, 1997
( unaudited ) ( unaudited )
Cash Flows from Operating Activities;
Comprehensive Loss (301,906) (108,064)
Depreciation and Amortization 43,343 55,369
Gains on Marketable Securities (10,199) (65,637)
Decrease ( Increase ) in Assets
Inventory (764,485) (805,732)
Prepaid Advertising (78,997) 56,174
Other Assets (20,861) 36,217
Increase ( Decrease ) in Current 224,702 29,118
Net Cash Provided By ( Used In )
Operating Activities (908,403) (802,555)
Cash Flows from Investing Activities
Purchase of Property and Equipmen (103,679) (7,471)
Net Investment in Marketable Secu (4,670) (47,771)
Net Cash Provided By
Investing Activities (108,349) (55,242)
Cash Flows from Financing Activities
Net Short Term Borrowings 0 700,000
Other (13,445) (3,821)
Treasury Stock Repurchased & Reti (234,425) 0
Net Cash Provided By ( Used In )
Financing Activities (247,870) 696,179
Net Increase ( Decrease ) in Cash (1,264,622) (161,618)
Cash at Start of Period 2,249,992 300,360
Cash at End of Period 985,370 138,742
======= =======
Cash Paid for Interest $17,677 73,365
======= =======
See accompanying notes.
5
Initio, Inc.
Notes to Financial Statements
Basis of Presentation
In the opinion of management, the accompanying consolidated financial
statements include all adjustments ( consisting only of normal recurring items
) necessary for their fair presentation in conformity with generally accepted
accounting principles.
Preparing financial statements requires management's to make estimates and
assumptions that effect the reported amounts of assets, liabilities, revenue
and expenses and consequently stockholders' equity. Examples include estimates
of future revenues and returns. Actual results may differ from these estimates.
Initio, Inc.'s ( the " Company's " ) business cycle is seasonal in nature.
Interim results are likely not indicative of results to be expected for a full
year.
The information included in this Form 10QSB should be read in conjunction with
Management's Discussion and Analysis and the financial statements and notes
thereto included in the Initio, Inc. April 30th, 1998 Form 10KSB
Loss per Share
Basic Loss per Common Share, as well as Diluted Loss per Common Share has been
computed based upon the weighted average number of actually outstanding shares
of the Company's common stock. Inclusion of outstanding employee stock options
and the Company's convertible debenture would have had an antidilutive effect
in both periods presented and therefore have been excluded from the
calculations.
Comprehensive Income
Effective with the Three Months Ended July 31st, 1998, the Company has begun to
apply FASB 130 and report Comprehensive Income. Prior Period Statements have
been adjusted accordingly.
6.
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
This discussion should be read in conjunction with the Company's Financial
Statements and accompanying Notes. Management's discussion and analysis
contains " forward looking statements " about the Company's future prospects.
These statements are subject to risks and uncertainties which could cause
actual results to differ materially from those expected by Management. Reader's
are therefore cautioned not to rely upon on any such forward looking beliefs or
judgments in making investment decisions.
Results of Operation
Gross Shipments, declined in each of the areas of the Company's business.
Three Months Three Months
Ending Ending %
Gross Shipments July 31, 1998 July 31, 1997 Change Change
Deerskin Catalog $327,863 $429,548 ($101,685 (23.7)
Joan Cook Catalog 617,842 732,951 (115,109) (15.7)
Media Advertising 17,713 52,301 (34,588) (66.1)
Retail Closeout 21,928 32,126 (10,198) (31.7)
Total $985,346 $1,246,926 ($261,580 (21.0)
Deerskin catalog shipments during the first quarter of the Company's fiscal
year reflect the tail end of consumer response from the prior season's catalog
.circulation, During the 1997/1998 season, Deerskin catalog circulation was
reduced approximately 15 %, and moved forward in the post holiday period.
Management believes consumer response was limited by an unusually warm winter
in many parts of the country.
Joan Cook catalog circulation was decreased approximately 11.5 % in the current
period and the summer catalog mailed 3 weeks later. Response rates for the
summer catalogs have increased compared to the prior period.
Media circulation was materially curtailed when results in October and November
1997 were little better than breakeven. This trend worsened in January, 1998.
The decline in retail closeout gross sales reflects the continuation of a long
term decline in the Danvers store's results.
7.
Management's Discussion and Analysis of Financial Condition and the Results of
Operations
Construction of an Internet site has been completed and the Company anticipates
additional revenues will be generated by this site during this season's primary
selling period.
Customer refunds decreased $ 34,785, or 25.5%, in the current period and
decreased as a percentage of relevant shipments to 10.3%.
Three Months Three Months
Ending Ending %
Refunds July 31, 1998 July 31, 1997 Change Change
Deerskin Catalog $52,110 $81,354 ($29,244) (35.9)
Joan Cook Catalog 48,260 50,780 (2,520) (5.0)
Media Advertising 875 2,262 (1,387) (61.3)
Retail Closeout 542 2,176 (1,634) (75.1)
Total $101,787 $136,572 ($34,785) (25.5)
Three Months Three Months
Ending Ending
Refunds as a % of Shipements July 31, 1998 July 31, 1997
Deerskin Catalog 15.9 18.9
Joan Cook Catalog 7.8 6.9
Media Advertising 4.9 4.3
Retail Closeout 2.5 6.8
Total 10.3 10.9
At this stage in the Company's business cycle refund rates are largely
estimates, and can vary significantly as the Company's fiscal year progresses.
8.
Management's Discussion and Analysis of Financial Condition and the Results of
Operations
As a consequence of the foregoing, the Company's Net Sales declined $ 226,795,
or 20.4 %.
Three Months Three Months
Ending Ending %
Net Sales July 31, 1998 July 31, 1997 Change Change
Deerskin Catalog $275,753 $348,194 ($72,441) (20.8)
Joan Cook Catalog 569,582 682,171 (112,589) (16.5)
Media Advertising 16,838 50,039 (33,201) (66.4)
Retail Closeout 21,386 29,950 (8,564) (28.6)
Total $883,559 $1,110,354($226,795) (20.4)
Merchandise cost declined $ 17,269 or 6.0 %, but increased as a percentage of
Net Sales to 30.4 % from 25.8% in the earlier period, reflecting decreased
activity offset by an unusually large favorable inventory variance in the
earlier period.
Advertising Costs declined $ 44,880 or 10.9 %, but increased to 37.1 % of
Gross Shipments.
Three Months Three Months
Ending Ending %
July 31, 1998 July 31, 1997 Change Change
Deerskin Catalog $92,650 $84,346 $8,304 9.8
Joan Cook Catalog 260,864 312,469 (51,605) (16.5)
Media Advertising 2,463 9,218 (6,755) (73.3)
Retail Closeout 9,763 4,587 5,176 112.8
Total $365,740 $410,620 ($44,880) (10.9)
9.
Management's Discussion and Analysis of Financial Condition and the Results of
Operation
Three Months Three Months
Ending Ending
Advertising costs, as a July 31, 1998 July 31, 1997
% of Gross Sales
Deerskin Catalog 28.2 19.6
Joan Cook Catalog 42.2 42.6
Media Advertising 13.9 17.6
Retail Closeout 44.5 14.2
Total 37.1 32.9
Fulfillment, General and Administrative decreased $ 18,429 or 3.5 % in the
current period. In May, 1998, the Company closed its Peabody operation,
transferring all fulfillment processing to Carson City. Consequently, the
decrease in fulfillment costs associated with the lower level of operations has
been offset by the startup costs in Carson City, charged to this year's
operations.
Net Interest expense decreased in the later period, reflecting lower
merchandise inventory levels, lower borrowings and the more favorable terms of
the Company's debenture as compare to bank rates in the prior period.
Realized gains from the sale of marketable securities increased, mostly
reflecting previous periods then unrealized portfolio results.
Liquidity and Financial Resources
In February, 1998, the Company issued $ 3,000,000 principal amount of a five
year, 8 % debenture which is convertible into the Company's common stock at $
3.00 per share. The Company also obtained a commitment for an additional $
2,000,000 to be used for specified purposes including Internet activities.
10.
Management's Discussion and Analysis of Financial Condition and the Results of
Operation
In February, 1998, the Company completed repayment of its short term
borrowings with a portion of the proceeds from the issuance of the subordinated
debenture. The Company has obtained a new bank facility to permit the issuance
of letters of credit for import purposes.
During the three months ended July 31st, 1998, the Company increased its
inventories $ 764,000, in preparation for its prime marketing season,
repurchased 179,000 shares of its own stock, at a aggregate cost of $ 234,000
and invested $ 103,000 in furniture and equipment, primarily associated with
the expansion of the Carson City facility.
At July 31st, 1998, the Company's cash balances were $ 985,000 and marketable
securities, valued at current market value were $ 1,088,0000. It is
Management's belief that the Company now has available adequate resources, to
conduct its operations, in the coming fiscal year.
Year 2000 Compliance
The Company has completed its internal evaluation of information technology for
the Year 2000 Compliance. The Company does not expect it will incur any
significant costs of modification or disruption in its operations because of
failure of Year 2000 Compliance. The Company has yet to make inquiry of its
significant suppliers or financial institutions.
11.
Part II. Other Information
Item 4. Submission of Matter to a Vote of Security Holders
On June 5th, 1998, at the annual meeting of shareholders, Mr. Bandler and Mr.
Langsdorf were elected as Directors of the Company, and the terms of Mr. Fox,
Mr. Destefano and Mr. Lerman continued. Also, Arthur Anderson, LLP was elected
as auditors of the Company for the year ended April 30th, 1998.
Votes Votes Votes
Topic For Against Abstained Nonvoting
Mr. Bandler 4,306,082 2,818 0 522,547
Mr. Langsdorf 4,306,900 2,000 0 522,547
Arthur
Anderson 4,068,589 0 240,311 522,547
Item 6. Exhibits and Reports on Form 8-K
( A ) Exhibits
27. Financial Data Schedule
( B ) Reports on Form 8-K
Initio, Inc. filed no reports on Form 8-K during the quarter ended July 31st,
1998.
Items 1,2,3 and 5 are not applicable and have been omitted.
12.
Exhibit 27
This schedule contains summary information extracted from the Company's
accompanying audited financial statements and is qualified in its entirety by
reference to such financial statements.
Period Three Months Year End Three Months
Period End July 31, 1998 April 30, 1998 July 31, 1997
Cash 985,370 2,249,992
Securities 1,088,177 1,073,308
Receivables 0 0
Allowances 0 0
Inventory 2,554,744 1,790,259
Current Assets 5,722,302 6,127,068
Property, Plant and Equipm 3,121,850 3,018,171
Accumulated Depreciation 1,300,762 1,266,561
Total Assets 8,919,927 9,245,001
Current Liabilities 665,287 430,585
Bonds 3,000,000 3,000,000
Preferred 0 0
Common 50,922 52,719
Other Stockholders Equity 4,353,058 4,887,592
Total Liabilities & Stockh 8,919,927 9,245,001
Net Sales 883,559 1,110,354
Cost of Goods Sold 268,805 286,074
Other Expenses 877,121 940,430
Interest Expense 79,949 73,365
Net Loss 202,026 118,646
Basis Loss Per Share 0.04 0.03
Diluted Loss Per Share 0.04 0.03
13.
Signature
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.
Initio, Inc.
Date; September 14th, 1998 By: /s/ Martin Fox
Martin Fox
President and Office of the Chief Executive
By; /s/ Daniel DeStefano
Daniel Destefano
Chairman of the Board and Office of the Chief Executive
By; /s/ Michael Bandler
Michael Bandler
. Secretary, Treasurer; Chief Financial Officer
14.