SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 31, 1996 OR
( ) 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 0-9848
INITIO, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 22-1906744
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Arrowhead Drive, Carson City, Nevada 89706
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (702) 883-2711
None
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months
(or for such shorter period that the issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the close of the latest practicable date:
Class Outstanding September 6, 1996
Common stock, $.01 par value 4,679,664
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One): YES NO X
INDEX
PART I - FINANCIAL INFORMATION
PAGE
Consolidated Statements of Operations -
Three Months ended July 31, 1996 and 1995 3
Consolidated Balance Sheets-
As of July 31, and April 30, 1996 4
Consolidated Statement of Stockholders' Equity-
Three Months ended July 31, 1996 5
Consolidated Statements of Cash Flows-
Three Months ended July 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7 - 10
Management's Discussion and Analysis 11 - 13
Signatures 14
INITIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
July 31, 1996 July 31, 1995
NET SALES $1,158,915 $1,877,011
COSTS AND EXPENSES
Cost of Merchandise Sold 398,467 591,576
Advertising 361,703 901,842
_________ _________
GROSS MARGIN 398,745 383,593
General & Administrative
(including Fulfillment) 552,547 960,805
_________ _________
OPERATING LOSS (153,802) (577,212)
OTHER INCOME (EXPENSE)
Interest (Expense) net of Interest Income
of $15,349 and $19,242 for the three
months ended July 31, 1996
and 1995, respectively (71,236) (73,052)
Gain on Marketable Securities 15,213 108,120
________ ________
Total Other Income (Expense) (56,023) 35,068
________ ________
NET LOSS ($209,825) ($542,144)
Earnings (Loss) per Share (Note 1(j)):
Net Loss Per Common Share ($0.04) ($0.12)
Weighted Average Shares 4,679,664 4,671,445
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 3
INITIO, INC.
CONSOLIDATED BALANCE SHEETS
July 31, 1996 April 30, 1996
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 99,023 $ 461,917
Marketable Securities 1,197,594 721,238
Inventory 4,555,159 3,740,869
Prepaid Advertising 355,494 237,837
Assets Held for Sale (Note 3) 324,953 324,953
Prepaid and Other Current Assets 724,489 637,237
_________ _________
Total Current Assets 7,256,712 6,124,051
FIXED ASSETS, at Cost (Note 3) 2,943,478 2,932,253
Less: Accumulated Depreciation and Amorti 988,935 941,582
1,954,543 1,990,671
TRADE NAMES, CUSTOMER LISTS, AND RELATED
INTANGIBLE ASSETS 1,462,872 1,462,872
Less: Accumulated Amortization 128,001 118,858
1,334,871 1,344,014
OTHER ASSETS 11,174 11,174
__________ _________
TOTAL ASSETS $10,557,300 $ 9,469,910
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under Line of Credit
(Note 7) $3,675,000 $2,600,000
Accounts Payable 696,328 417,038
Accrued Expenses & Other Current Liabili 182,491 184,209
Customers' Unshipped Orders 13,120 64,814
Total Current Liabilities 4,566,939 3,266,061
Mortgage Payable (Note 8) 941,978 950,679
_________ _________
TOTAL LIABILITIES 5,508,917 4,216,740
Commitments (Note 6)
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value,
Authorized, 10,000,000 shares; Issued
5,071,535 shares at July 31, 1996
and April 30, 1996 50,715 50,715
Additional Paid-In Capital 8,670,283 8,670,283
Accumulated Deficit (3,206,586) (2,996,761)
Treasury Stock, at Cost, 391,871
shares at July 31, and April 30, 1996 (476,781) (476,781)
Unrealized Gain on Marketable Securities 10,752 5,714
_________ _________
TOTAL STOCKHOLDERS' EQUITY 5,048,383 5,253,170
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $10,557,300 $9,469,910
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 4
<TABLE>
INITIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL TREASURY (LOSS) ON
Shares Par PAID-IN ACCUMULATED SHARES MARKETABLE
Issued Value CAPITAL (DEFICIT) (at Cost) SECURITIES TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 30, 1995 (Audited) 5,063,316 $50,633 $8,656,907 ($1,276,878) ($476,781) ($53,880) $6,900,001
Net (Loss) for the Three Months Ended
July 31, 1995 (542,144) (542,144)
Unrealized (Loss) on Marketable Securities (30,792) (30,792)
_________ _______ __________ ___________ ________ _______ __________
BALANCE, July 31, 1995 (Unaudited) 5,063,316 $50,633 $8,656,907 ($1,819,022) ($476,781) ($84,672) $6,327,065
Options Exercised 600 6 594 600
Stock Issued 7,619 76 12,782 12,858
Net (Loss) for the Nine Months Ended
April 30, 1996 (1,177,739) (1,177,739)
Unrealized Gain on Marketable Securities 90,386 90,386
_________ ________ __________ __________ ________ _______ _________
BALANCE, April 30, 1996 (Audited) 5,071,535 $50,715 $8,670,283 ($2,996,761) ($476,781) $5,714 $5,253,170
Net (Loss) for the Three Months Ended
July 31, 1996 (209,825) (209,825)
Unrealized Gain on Marketable Securities 5,038 5,038
_________ ________ __________ ___________ _________ _______ __________
BALANCE, July 31, 1996 (Unaudited) 5,071,535 $50,715 $8,670,283 ($3,206,586) ($476,781) $10,752 $5,048,383
<FN>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
</TABLE>
Page 5
INITIO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
July 31, 199 July 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($209,825) ($542,144)
Adjustments to Reconcile Net Loss to Net Cash
Used In Operating Activities:
Depreciation and Amortization 56,496 61,665
Gain on Marketable Securities ( 15,213) ( 108,120)
Decrease (Increase) in:
Inventory ( 814,290) ( 812,601)
Prepaid Advertising ( 117,657) ( 127,372)
Prepaid and Other Assets ( 87,252) 50,927
(Decrease) Increase in:
Accts Payable, Accrued Expenses and O 277,572 ( 350,197)
Customers' Unshipped Orders ( 51,694) ( 63,117)
_________ __________
Net Cash (Used In) Operating Activities ( 961,863) (1,890,959)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ( 11,225) ( 696,900)
Purchase of Marketable Securities ( 481,105) ( 199,104)
Sale of Marketable Securities 25,000 370,938
_________ _________
Net Cash (Used In) Investing Activities ( 467,330) ( 525,066)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings under Line of Credit 1,075,000 1,450,000
Mortgage ( 8,701) 0
_________ _________
Construction Financing 0 1,000,000
_________ _________
Net Cash Provided By Financing Activities 1,066,299 2,450,000
NET INCREASE (DECREASE) IN CASH ( 362,894) 33,975
CASH, AT BEGINNING OF PERIOD 461,917 617,768
_________ _________
CASH, AT END OF PERIOD $ 99,023 $ 651,743
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $86,585 $92,294
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 6
INITIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF BUSINESS - Initio, Inc., a Nevada Corporation, (the "Company")
through its wholly-owned subsidiary, Deerskin Trading Post, Inc. is a direct
mail specialty catalog company. It markets men's and women's leather outer-
wear, apparel, footwear, accessories and small leather goods through its
Deerskin Catalogs and gifts and housewares through its Joan Cook Catalogs.
The Company also operates one retail closeout outlet in Danvers, Mass.
The Deerskin Catalog business is highly seasonal with principal sales occurring
between early November and early December. The Joan Cook line is significantly
less seasonal although the Company experiences some increase in demand in the
holiday season.
(b) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Initio, Inc.,
and its wholly-owned subsidiary, Deerskin Trading Post, Inc. All inter-
company transactions have been eliminated.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(d) REVENUE RECOGNITION
Revenue is recognized as merchandise is shipped to customers. Payments
received for merchandise not yet shipped are reflected as "Customers'
Unshipped Orders," a current liability.
The Deerskin and Joan Cook catalogs have significantly different refund rates
which relate to the size, color, fit and items damaged in transit of the
merchandise sold. In each period, the Company accrues a reserve for returns
and exchanges which it anticipates will occur related to the sales of the
period. Such accrual is based upon the Company's historical experience.
Revenue on retail sales is recognized at the point of sale.
(e) PREPAID ADVERTISING
Costs of producing and mailing catalogs are deferred and amortized over the
estimated productive life of each mailing based on projected sales. As
prescribed under SOP 93-7, the Company only capitalizes as assets those costs
which are incremental direct costs with independent third parties and payroll
and payroll-related costs of employees who are directly associated with, and
devote time to, the advertising. In addition, individual advertising efforts
are established as stand alone cost pools which are amortized on a cost pool
basis over the estimated period of benefit determined based upon estimated
future revenues. The Company, on a quarterly basis, assesses the
realizability of the assets created based on the likelihood of achieving the
estimated revenues . As of July 31, 1996 no writedowns were required to
report the capitalized advertising expenses at net realizable value. Prepaid
advertising includes costs incurred for catalogs to be mailed in the future.
Catalog and space advertising costs associated with test programs are expensed
as incurred.
Advertising costs related to non-test space promotions are initially deferred,
then expensed to the extent of gross profits realized until fully recovered;
therefore, only after advertising costs have been fully recovered, does a
particular promotion make any contribution to operating income. Deferred
costs are reviewed quarterly for recoverability and adjusted, if necessary.
(f) INVENTORY
Merchandise inventory is valued at the lower of cost or market, using the
first-in, first-out (FIFO) cost method.
Included in inventory costs are certain costs involved in the receiving,
preparation, maintaining and storing of the mailorder inventory for sale.
These costs are calculated as a percentage of inventory and are reviewed and
monitored periodically.
Page 7
(g) FIXED ASSETS
Fixed assets are stated at cost and are depreciated by the straight line
method, using estimated useful lives which approximate 40 years for buildings
and 3 to 10 years for equipment.
Improvements to leased premises are amortized over the lesser of their
estimated useful lives or the remaining term of the lease.
Repair and maintenance costs are charged directly to expense. Renewals and
betterments of fixed assets are charged to fixed assets. Upon retirement or
other disposition of property, or when the asset is fully depreciated,
whichever is sooner, the cost and related depreciation or amortization are
removed from the accounts.
Fixed assets held for sale are stated at net book value, which is less than
current fair market value.
(h) INTANGIBLE ASSETS
The Company's policy for measuring impairment of the value of its intangible
assets arising from the acquisition of the Joan Cook catalog is to compare
the sum of expected future cash flows from the catalog's operations over the
remaining amortizable life of such intangible assets with the unamortized
value on its books. If the sum of the expected future cash flows is greater
than the amount of the intangible assets unamortized book value, no
adjustment is required.
Management believes the asset Trade Names, Customer Lists, and Related
Intangible Assets is so interconnected that it cannot reasonably be separated.
This is in accordance with APB Opinion No. 16, "Business Combinations."
Trade names, customer lists, and related intangible assets are being amortized
on a straight line basis over 40 years based upon the fact that the Joan Cook
name has high consumer recognition and, in the opinion of management,
constitutes a non-wasting asset.
(i) RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value. The Company adopted Statement No. 121 in the first quarter of
1997 and, based on current circumstances, does not believe the effect of
adoption is material.
(j) EARNINGS (LOSS) PER SHARE
Earnings (Loss) per share for the periods presented are based on the weighted
average number of common shares outstanding during the period together with
outstanding options and warrants to the extent such are dilutive, assuming
that the exercisable options and warrants discussed in Note 5 had been
exercised at July 31, 1996.
NOTE 2-MARKETABLE SECURITIES
On May 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting For Certain Investments in Debt and Equity
Securities." This Statement requires the classification of debt and equity
securities based on whether the securities will be held to maturity, are
considered trading securities or are available for sale. Classification
within these categories may require the securities to be reported at their
fair market value with unrealized gains and losses included either in current
earnings or reported as a separate component of stockholders' equity,
depending on the ultimate classification.
At July 31, 1996, unrealized gains on marketable securities amounted to
$10,752 and at April 30, 1996, unrealized gains were $5,714.
NOTE 3-FIXED ASSETS
July 31, 1996 April 30, 1996
Building & Other Leasehold Improvements $2,232,150 $2,225,810
Equipment $711,328 $706,443
__________ __________
$2,943,478 $2,932,253
Less: Accumulated Depreciation
and Amortization $988,935 $941,582
__________ __________
$1,954,543 $1,990,671
When an asset is fully depreciated, its cost and related depreciation or
amortization is removed from the fixed assets accounts.
As of July 1, 1996 the Company entered into an agreement for the sale of the
Peabody facility at a price which represents a gain of approximately $275,000.
Since this agreement is conditioned upon the purchaser obtaining building
permits, among other things, there can be no assurance that such conditions
will be met.
Page 8
NOTE 4-INCOME TAXES
Under the liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of changes in tax rates is recognized as income in
the period.
At July 31, 1996, the Company has available for federal income tax purposes,
net operating loss carryforwards (NOL) and other net future tax deductions
totaling approximately $3,500,000; approximately $63,000 of the NOL expires
in 2004, the balance thereafter.
The future tax benefit of such NOL should be recorded as an asset to the
extent that management assesses the realization of such future tax benefits
to be "more likely than not." During the fiscal year ended April 30, 1996,
the Company reassesed the future realization of the NOL and concluded that it
is uncertain whether the benefit previously recorded will be realized. This
resulted in a write down of $523,000.
NOTE 5 - COMMON STOCK
The Company issued in September 1992, a subordinated debenture for $1,000,000
together with warrants to purchase, on or before September 23, 1997, 75,000
shares of the Company's common stock at $2.25 per share.
In December 1991, the Company adopted a stock option plan which provides for
the issuance of either incentive or non-qualified options to officers,
directors and other key employees for up to 350,000 shares of the Company's
common stock.
During the fiscal year ended April 30, 1995, the Company committed to grant
a key employee incentive stock options to purchase 200,000 shares of its
common stock at the then current market price of $2.375 per share under
this plan. In September 1995, the employee's relationship with the Company
was discontinued and as part of the settlement of the Company's obligation to
such employee, the options were cancelled and the Company issued 7,619 shares
of common stock which the Company valued at $12,858 and expensed during that
period.
In April 1996 the Company granted two officers/directors options, exercisable
immediately and expiring in five years, to each purchase 125,000 shares of the
Company's common stock at $2.00 per share .
Incentive options must be at not less than current fair market value at the
date of grant, are exercisable to the extent of 20% of the optioned shares on
date of grant with an additional 20% becoming exercisable on each subsequent
anniversary of such date and expire after six years. Activity under the
Company's stock option plan during the fiscal year ending April 30, 1996
through July 31,1996 was:
Price Range
Shares Of Options
Fiscal year 1996:
At April 30, 1996:
Outstanding 158,900 $1.00 - $1.875
Exercisable 132,300 $1.00 - $1.875
Exercised 600 $1.00
At July 31, 1996:
Outstanding 158,900 $1.00 - $1.875
Exercisable 136,300 $1.00 - $1.875
Exercised
In 1988, the Company granted two key employees non-qualified options to
purchase 32,000 shares of its common stock at $1.00 per share. All of these
options became exercisable at April 30, 1992 and they expire March 1, 1998.
A total of 671,400 of the Company's common shares (either authorized and
unissued or treasury stock) are reserved for possible issuance upon exercise
of the warrants issued in connection with the sale of the subordinated
debenture (75,000 shares), for the Stock Option Plans (346,400 shares), and
for the options granted to the officers/directors (250,000 shares).
As described in Note 7, Deerskin Trading Post, Inc., signed an agreement with
its bank for a line of credit (the "Agreement"). The Agreement limits the
ability of Deerskin to declare and pay any dividends without the bank's
prior consent.
Page 9
NOTE 6-COMMITMENTS
(a) LEASES
The Company rents premises for warehousing and administrative purposes.
Future minimum rental payments under noncancelable operating leases,
including ground leases, expiring at various dates through 2037, as of July
31,1996 are as follows:
Year Ending April 30, 1997 $ 96,329
1998 $ 124,832
1999 $ 70,270
2000 $ 13,650
2001 $ 1,050
Thereafter $ 44,800
_________
$ 350,931
Rent expense for the three months ended July 31, 1996 and the fiscal year
ended April 30, 1996 was $29,282 and $117,764 respectively.
(b) LETTERS OF CREDIT
Outstanding letters of credit, issued primarily for imported merchandise,
approximated $150,000 and $586,000 at July 31 and April 30,1996, respectively.
NOTE 7 - SHORT TERM BORROWINGS
On September 7, 1994, Deerskin Trading Post, Inc., signed an agreement with
United Jersey Bank, now Summit Bank, ("the Bank") for a line of credit of
$6,000,000 less amounts subject to letters of credit issued by the Bank on
its behalf, secured by its assets, guaranteed by the Company, maturing August
31, 1995, and bearing interest at the Bank's base rate plus 1/2% with interest
payable monthly. This loan required a 30 consecutive day "clean up"
requirement which the Company met in the quarter ended January 31, 1995.
This loan was extended until August 31, 1996 with no change in the terms and
conditions. The Company failed in the period ended January 31, 1996 to
meet the clean up requirement; the Bank waived the default in consideration
of a reduction in the line from $6,000,000 to $4,000,000 and an increase in
the interest rate by 1/4%. This agreement matured August 31, 1996.
The Bank has further extended this loan until November 30, 1996 with no change
in terms and conditions. The Company anticipates this will be sufficient to
meet its capital requirements through the maturity date of the loan.
In the event that the Company should fail to reach an agreement with the Bank
to extend the Company's existing line of credit beyond November 30, 1996, the
Company would be required to seek alternative sources of financing. There
can be no assurance that the Company would be able to find such alternative
sources of financing or that if it should do so it would not be on terms less
favorable to the Company than those presently existing. The Company's ability
to pursue its normal business activities are dependent upon obtaining such
extension of its existing line of credit or alternative financing. Such
alternative sources of financing might include debt and/or equity or quasi-
equity financing.
Direct borrowings under this line of credit amounted to $3,675,000 and
$2,600,000 at July 31, 1996 and April 30, 1996, respectively. The Company's
interest rate at both July 31, and April 30,1996 was 8.75%.
NOTE 8 - MORTGAGE
On March 20, 1995 Deerskin Trading Post, Inc. signed an agreement with
Sierra Bank of Nevada for a $1,000,000 construction loan to finance the
approximately 34,800 sq. ft. expansion of its Carson City warehouse which was
put into service in October 1995. This loan is secured by the Carson City
real property and bears interest at 9 1/4% per annum with interest paid
monthly through October 1995 at which time it converted to a five year
adjustable rate (with the first rate adjustment possible in October 2000)
fifteen year mortgage with monthly principal and interest payments due to fully
amortize the loan by August 31, 2010. Borrowings amounted to $1,000,000;
the current portion, $34,351 of the mortgage is included in "Accrued Expenses
and Other Liabilities."
NOTE 9 - RELATED PARTY TRANSACTIONS
As of July 31, 1996, the Company held a 6% $80,000 demand note from an
officer/director. This amount is included in "Prepaid and Other Current
Assets."
Page 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The most significant changes in the Company's balance sheet from April 30,
1996, the end of the preceding fiscal year, to July 31, 1996 are as follows:
- Cash decreased $362,894 to $99,023 at July 31,1996 from $461,917 at
April 30, 1996, primariy attributable to the increase in inventory.
- Marketable Securities are considered available for sale and are
carried at fair market value. An unrealized gain of $10,752 at July 31,
1996 is excluded from earnings and reported as a separate component of
stockholders' equity until realized in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities".
As of July 31, 1996 Marketable Securities increased to $1,197,594 from
$721,238 at April 30, 1996, an increase of $476,356. Changes in
Marketable Securities occur as part of the Company's ongoing investment
strategy.
- Inventory increased $814,290 to $4,555,159 from $3,740,869. The
increase in inventory is a seasonal requirement to support the Company's
planned mailorder sales for the current fiscal year. The Company
continues to closely monitor its inventories and believes its inventory
position is substantially on plan relative to the anticipated sales and
marketing projections.
- Prepaid Advertising increased $117,657 to $355,494 at July 31, 1996
from $237,837 at April 30, 1996. This increase is primarily attributable
to the normal mailing schedule and amortization of costs associated with
the production and mailing of catalogs through the fiscal year.
- Prepaid and Other Current Assets increased $87,252 to $724,489 at
July 31, 1996 from $637,237 at April 30, 1996 primarily from the increase
in capitalized costs involved in the purchasing of the inventory for sale.
These costs, calculated as a percentage of inventory, which increased
during this period, are reviewed periodically and adjusted when necessary.
- As of July 31, 1996 the Company has available for federal income tax
purposes net operating loss (hereinafter "NOL") carryforwards and other net
future tax deductions totalling approximately $3,500,000; approximately
$63,000 of the NOL expires in 2004, the balance thereafter. The future tax
benefit of such NOL should be recorded as an asset to the extent that
management assesses the realization of such future tax benefits to be "more
likely than not ".
- Borrowings under the Line of Credit increased $1,075,000 to $3,675,000
at July 31, 1996 from $2,600,000 at April 30, 1996 to provide cash pri-
marily for the increases in inventory and prepaid advertising.
The Company's line of credit with Summit Bank due August 31, 1996 was
extended by the Bank until November 30, 1996 with no change in terms and
conditions. In the event that the Company should fail to reach an
agreement with the Bank to extend the Company's line of credit beyond
November 30, 1996, the Company would be required to seek alternative
sources of financing. There can be no assurance that the Company would
be able to find such alternative sources of financing or that if it
should do so it would not be on terms less favorable to the Company than
those presently existing. The Company's ability to pursue its normal
business activities are dependent upon obtaining such extension of its
existing line of credit or alternative financing. Such alternative
sources of financing might include debt and/or equity or quasi-equity
financing.
Page 11
- Accounts Payable and Accrued Expenses & Other Current Liabilities
increased a total of $277,572 from $601,247 at April 30, 1996 to $878,819
at July 31,1996. This increase is primarily attributable to the increase
in inventory and prepaid advertising.
- Customer's Unshipped Orders decreased $51,694 to $13,120 at July
31, 1996 from $64,812 at April 30, 1996. The decrease is a result of
the normal seasonal decrease in customer orders during this period.
Results of Operations
Three months Ended July 31, 1996 vs. Three months Ended July 31, 1995.
Because of the seasonal nature of the Company's business, the results of the
interim period are not necessarily indicative of results for the entire year.
- Net Sales for the three months ended July 31,1996 decreased to
$1,158,915 from $1,877,011 for the three months ended July 31, 1995,
a decrease of $718,096 or 38.3%. This decrease is entirely
attributable to a reduction in the number of Joan Cook catalogs
mailed due to the substantial increases in postage and paper costs
which caused the Company to cut back circulation. Joan Cook net
sales decreased $768,369 or 58.3% from $1,317,298 for the three
months ended July 31, 1995 to $548,929 for the comparable period
ended July 31, 1996.
- Cost of merchandise increased as a percentage of Net Sales to 34.4%
for the three months ended July 31, 1996, from 31.5% for the three
months ended July 31, 1995. The actual cost of merchandise for the
three months ended July 31, 1996 was $398,467 compared to $591,576
for the comparable period ended July 31, 1995. This change reflects
a change in sales mix between Joan Cook, Deerskin Catalog and space
merchandise; the Joan Cook catalog and space merchandise generally
has a lower cost of merchandise.
- Advertising cost was $361,703 for the three months ended July 31,
1996, compared to $901,842 for the three months ended July 31, 1995.
For the three months ended July 31, 1996, advertising cost decreased
to 31.2% of Net Sales from 48.0% for the three months ended July 31,
1995. The decrease in Advertising Cost as a percentage of Net Sales
resulted from the more efficient circulation plans and, to a lesser
extent, improved customer response rates in the three months ended
July 31, 1996.
- For the three months ended July 31, 1996, General & Administrative
expenses including fulfillment expenses, which include the costs of
telephone, order entry, credit card fees, data processing, packaging
materials, labeling, refurbishing of merchandise, packing supplies,
and postage decreased to $552,547 or 47.7% of Net Sales, compared to
$960,805 or 51.2% for the three months ended July 31, 1995.
Page 12
This reduction of approximately $400,000 in General Administrative
Expenses is primarily attributable to the benefits of the
restructuring which took place in the prior fiscal year and $64,000
is attributable to a pay reduction (in the current period) taken by
the Co-Chief Executive Officers, Messrs. Fox and DeStefano.
- As a result of all the foregoing, the Operating Loss for the three
months ended July 31, 1996 decreased to $153,802 from $577,212 for
the comparable period in the prior year, a decrease of $423,410.
- Gain on Marketable Securities was $15,213 for the three months ended
July 31, 1996 compared to $108,120 for the three months ended July 31,
1995. This gain resulted from the realization of profits on closed
security positions.
- As a result of the foregoing, as well as an decrease of $1,816 in Net
Interest Expense, the Net Loss decreased to $209,825 for the three
months ended July 31, 1996, from $542,144 for the three months ended
July 31, 1995.
Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INITIO, INC.
s/s Martin Fox
Date: September 11, 1996 ___________________________
Martin Fox
President and Office of the
Chief Executive
Date: September 11, 1996 s/s Daniel DeStefano
___________________________
Daniel DeStefano
Chairman of the Board and Office
of the Chief Executive
Date: September 11, 1996 s/s Audrey C. Remes
___________________________
Audrey C. Remes
Treasurer and Chief Financial Officer
Page 14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 99,023
<SECURITIES> 1,197,594
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,555,159
<CURRENT-ASSETS> 7,256,712
<PP&E> 2,943,478
<DEPRECIATION> 988,935
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<CURRENT-LIABILITIES> 4,566,939
<BONDS> 0
0
0
<COMMON> 50,715
<OTHER-SE> 4,997,668
<TOTAL-LIABILITY-AND-EQUITY> 10,557,300
<SALES> 1,158,915
<TOTAL-REVENUES> 1,158,915
<CGS> 398,467
<TOTAL-COSTS> 1,312,717
<OTHER-EXPENSES> (15,213)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,236
<INCOME-PRETAX> (209,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (209,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209,825)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
