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 Nine Months Ended JANUARY 31, 1997 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.
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(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.)
500 Arrowhead Drive, Carson City, Nevada 89706
------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number, including area code: (702) 883-2711
None
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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 March 10, 1997
- ---------------------------- ---------------------------
Common stock, $.01 par value 4,679,664
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One): YES ____ NO X
INDEX
PAGE
Consolidated Statements of Operations -
Nine Months and Three Months ended January 31,1997
and 1996 3
Consolidated Balance Sheets-
As of January 31, 1997 and April 30, 1996 4
Consolidated Statement of Stockholders' Equity-
Nine Months ended January 31, 1997 and Year Ended
April 30, 1996 5
Consolidated Statements of Cash Flows-
Nine Months ended January 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis 11-14
Signatures 15
<TABLE>
INITIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Nine Months Ended Three Months Ended
Jan. 31, 1997 Jan. 31, 1996 Jan. 31, 1997 Jan. 31, 1996
<S> <C> <C> <C> <C>
NET SALES $10,390,902 $10,738,505 $6,121,383 $6,045,135
COSTS AND EXPENSES
Cost of Merchandise Sold $4,058,495 $3,860,693 $2,429,952 $2,308,118
Advertising $3,489,671 $4,009,804 $1,978,748 $2,017,371
GROSS MARGIN $2,842,736 $2,868,008 $1,712,683 $1,719,646
General & Administrative
(including Fulfillment) $2,886,097 $3,561,458 $1,434,784 $1,610,346
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) ($43,361) ($693,450) $277,899 $109,300
OTHER INCOME (EXPENSE)
Interest (Expense) net of interest income of
$49,531 and $57,649 for the nine months ended
January 31, 1997 and 1996 and $17,036 and
$14,222 for the three months ended
January 31, 1997 and 1996,
respectively ($217,499) ($242,243) ($45,439) ($74,789)
Gain (Loss) on Marketable
Securities $324,529 $106,256 $140,823 ($636)
Total Other (Expense) $107,030 ($135,987) $95,384 ($75,425)
--------- ---------- -------- ---------
NET INCOME (LOSS) $63,669 ($829,437) $373,283 $33,875
========= ========== ======== ========
Earnings (Loss) per Share (Note 1(j)):
Earnings (Loss) per Common Share $0.01 ($0.18) $0.08 $0.01
========= ========== ======== =====
Weighted Average Shares 4,679,664 4,675,395 4,679,664 4,679,664
========= ========== ========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 2 of 15
INITIO, INC.
CONSOLIDATED BALANCE SHEETS
January 31, 1997 April 30, 1996
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
Cash $1,086,079 $461,917
Marketable Securities $830,090 $721,238
Inventory $3,112,941 $3,740,869
Prepaid Advertising $232,389 $237,837
Assets Held for Sale (Note 3) $324,953 $324,953
Prepaid and Other Current Assets $670,494 $637,237
__________ __________
Total Current Assets $6,256,946 $6,124,051
FIXED ASSETS, at Cost (Note 3) $2,946,313 $2,932,253
Less: Accumulated Depreciation and
Amortization $1,072,843 $941,582
__________ __________
$1,873,470 $1,990,671
TRADE NAMES, CUSTOMER LISTS, AND RELATED
INTANGIBLE ASSETS $1,462,872 $1,462,872
Less: Accumulated Amortization $146,287 $118,858
__________ __________
$1,316,585 $1,344,014
OTHER ASSETS $12,173 $11,174
__________ __________
TOTAL ASSETS $9,459,174 $9,469,910
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under Line of Credit (Note 7) $1,350,000 $2,600,000
Accounts Payable $1,207,630 $417,038
Accrued Expenses & Other Current
Liabilities $326,580 $184,209
Customers' Unshipped Orders $74,877 $64,814
__________ __________
Total Current Liabilities $2,959,087 $3,266,061
Mortgage Payable (Note 8) $926,649 $950,679
__________ __________
TOTAL LIABILITIES $3,885,736 $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 January 31, 1997 and
April 30,1996 $50,715 $50,715
Additional Paid-In Capital $8,670,283 $8,670,283
Accumulated Deficit ($2,933,092) ($2,996,761)
Treasury Stock, at Cost, 391,871
shares at January 31, 1997 and
April 30, 1996 ($476,781) ($476,781)
Unrealized Gain on Marketable Securities $262,313 $5,714
__________ __________
TOTAL STOCKHOLDERS' EQUITY $5,573,438 $5,253,170
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,459,174 $9,469,910
========== ==========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 3 of 15
<TABLE>
INITIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
REALIZED
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
Option Exercised 600 $6 $594 $600
Stock Issued 7,619 $76 $12,782 $12,858
Net (Loss) for the Year Ended
April 30, 1996 ($1,719,883) ($1,719,883)
Unrealized Gain on Marketable Securities $59,594 $59,594
--------- ------- --------- ------------ ---------- ------- -----------
BALANCE, April 30, 1996 (Audited) 5,071,535 $50,715 $8,670,283 ($2,996,761) ($476,781) $5,714 $5,253,170
Net Income for the Nine Months Ended
January 31, 1997 $63,669 $63,669
Unrealized Gain on Marketable Securities $256,599 $256,599
--------- ------- ---------- ------------ ---------- -------- ----------
BALANCE, January 31, 1997 (Unaudited) 5,071,535 $50,715 $8,670,283 ($2,933,092) ($476,781) $262,313 $5,573,438
========= ======= ========== ============ ========== ======== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 4 of 15
INITIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
Jan. 31, 1997 Jan. 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $63,669 ($829,437)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Used In Operating Activities:
Depreciation and Amortization $158,690 $181,647
Gain on Marketable Securities ($324,529) ($106,256)
Decrease (Increase) in:
Inventory $627,928 $1,007,277
Prepaid Advertising $5,448 ($34,719)
Prepaid and Other Assets ($34,255) $122,180
Increase (Decrease) in:
Accounts Payable, Accrued
Expenses $932,952 $988,395
Customers' Unshipped Orders $10,063 $12,953
---------- ----------
Net Cash Provided by Operating Activities $1,439,966 $1,342,040
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ($14,060) ($965,651)
Purchase of Marketable Securities ($645,651) ($440,688)
Proceeds Received from Sale of
Marketable Securities $1,117,937 $658,700
---------- ---------
Net Cash Provided by (Used In) Investing
Activities $458,226 ($747,639)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings under Line of Credit ($1,250,000) ($1,525,000)
Mortgage ($24,030) $959,916
Issuance of Common Stock $0 $13,458
----------- ----------
Net Cash (Used In) Financing Activities ($1,274,030) ($551,626)
NET INCREASE IN CASH $624,162 $42,775
CASH, AT BEGINNING OF PERIOD $461,917 $617,768
CASH, AT END OF PERIOD $1,086,079 $660,543
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $267,030 $299,892
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
Page 6 of 15
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
outerwear, 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,
Massachusetts. 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
intercompany 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 January 31, 1997 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.
(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.
Page 7 of 15
(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 January 31, 1997.
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 withunrealized gains and losses included either in current
earnings or reported as a separate component of stockholders' equity,
depending on the ultimate classification.
At January 31, 1997, unrealized gains on marketable securities amounted to
$262,313 and at April 30, 1996, unrealized gains were $5,714.
NOTE 3-FIXED ASSETS
January 31, 1997 April 30, 1996
Building & Other Leasehold
Improvements $2,234,176 $2,225,810
Equipment $712,137 $706,443
---------- ----------
$2,946,313 $2,932,253
Less: Accumulated Depreciation
and Amortization $1,072,843 $941,582
---------- ----------
$1,873,470 $1,990,671
When an asset is fully depreciated, its cost and related depreciation or
amortization is removed from the fixed assets accounts.
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 January 31, 1997, the Company has available for federal income tax
purposes, net operating loss carryforwards (NOL) and other net future tax
deductions totaling approximately $3,000,000; 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.
Page 8 of 15
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 January 31, 1997 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 January 31, 1997:
Outstanding 158,900 $1.00 - $1.875
Exercisable 147,600 $1.00 - $1.875
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.
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
January 31, 1997 are as follows:
Year Ending April 30, 1997 $ 31,876
1998 $ 124,832
1999 $ 70,270
2000 $ 13,650
2001 $ 1,050
Thereafter $ 44,800
---------
$ 286,478
Rent expense for the nine months ended January 31, 1997 and the fiscal year
ended April 30, 1996 was $88,482 and $117,764 respectively.
(b) LETTERS OF CREDIT
Outstanding letters of credit, issued primarily for imported merchandise,
approximated $170,000 and $586,000 at January 31, 1997 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
secured by the Company's assets and guaranteed by the Company. Periodic
amendments and modifications detail other terms and conditions.
An amendment was signed on January 31, 1997 for a line of $3,300,000 including
amounts subject to letters of credit issued by the Bank on the Company's
behalf, and bears interest at the Bank's base rate plus 3/4% with interest
payable monthly. Maturity is January 31, 1998. Such agreement contains
various formula provisions which the Company is presently in compliance with.
Page 9 of 15
The Company anticipates this will be sufficient to meet its capital
requirements through the maturity date of the loan.
Direct borrowings under this line of credit amounted to $1,350,000 and
$2,600,000 at January 31, 1997 and April 30, 1996, respectively. The
Company's interest rates at January 31, 1997 and April 30,1996 were 9% and
8.75% respectively.
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, $33,279 of the mortgage is included in
"Accrued Expenses and Other Liabilities."
NOTE 9 - RELATED PARTY TRANSACTIONS
As of January 31, 1997, 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 of 15
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 January 31, 1997 are as
follows:
- Cash increased $624,200 to $1,086,100 at January 31, 1997 from
$461,900 at April 30, 1996, mainly attributable to an increase in
accounts payable.
- Marketable securities are considered available for sale and
are carried at fair market value. The unrealized holding gains of
$262,300 and $5,700 at January 31, 1997 and April 30, 1996,
respectively, are excluded from earnings and reported as separate
components of stockholders' equity until realized in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS No.
115"), "Accounting for Certain Investments in Debt and Equity
Securities".
- Inventory decreased $627,900 to $3,113,000 from $3,740,900.
The principal portion of such decrease is attributable to agressive
efforts to reduce the inventory in the Company's Catalog outlet. 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 decreased $5,500 to $232,400 at January
31, 1997 from $237,900 at April 30, 1996. This decrease is primarily
attributable to the normal amortization of costs associated with the
production and mailing of catalogs through the fiscal year.
- Borrowings under the Line of Credit decreased $1,250,000 to
$1,350,000 at January 31, 1997 from $2,600,000 at April 30, 1996
resulting primarily from the seasonal nature of the business.
An amendment was signed on January 31, 1997 for a line of
$3,300,000 including amounts subject to letters of credit issued by
the Bank on the Company's behalf, and bears interest at the Bank's
base rate plus 3/4% with interest payable monthly. Maturity is
January 31, 1998. Such agreement contains various formula provisions
which the Company is presently in compliance with.
The Company anticipates this will be sufficient to meet its
capital requirements through the maturity date of the loan.
- Accounts Payable increased $790,600 from $417,000 at April 30,
1996 to $1,207,600 at January 31, 1997. The increase in Accounts
Payable is attributable to the increase in trade payables for the
purchase of inventory to support sales which increased during this
period.
- Accrued Expenses and Other Current Liabilities increased
$142,400 to $326,600 from $184,200 at April 30, 1996. This increase
is mainly attributable to an increase in the required accruals for
refunds, which are reflected in the net sales.
Page 11 of 15
- Customer's Unshipped Orders, for which checks have been
received, increased $10,100 to $74,900 at January 31, 1997 from
$64,800 at April 30, 1996. The increase is a result of the normal
seasonal increase in customer orders during the period.
Page 12 of 15
RESULTS OF OPERATIONS
Three months and nine months Ended January 31, 1997 vs. January 31, 1996.
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 January 31, 1997,
increased 1.3% or $76,200 to $6,121,400 from $6,045,200 for the three
months ended January 31, 1997. Net Sales for the nine months ended
January 31, 1997 decreased to $10,390,900 from $10,738,500 for the
nine months ended January 31, 1996, a decrease of $347,600 or 3.2%.
Deerskin catalog Net Sales for the nine months ended January
31, 1997 increased to $6,290,700 from $6,001,000 for the nine months
ended January 31, 1996, an increase of $289,700 or 4.8%; for the
three months ended January 31, 1997 net sales increased 3.3% or
$139,700 to $4,367,800 from $4,228,100 for the nine months ended
January 31, 1996.
Joan Cook catalog Net Sales for the nine months ended January
31, 1997 decreased to $2,470,700 from $3,144,400 for the nine months
ended January 31, 1996, a decrease of $673,700 or 21.4%. For the
three month period ended January 31, 1997 sales were $968,000 compared
to $896,100 for the comparable period ended January 31, 1996, an
increase of $71,900 or 8.0%. The decline in the nine month net sales
and the increase in the three months is attributable to an overall
reduction in the number of Joan Cook Catalogs mailed this year but
with a larger Holiday Catalog circulation this year versus last.
Space advertising Net Sales for the nine months ended January
31, 1997 decreased to $1,242,900 from $1,275,300 for the nine months
ended January 31, 1996, a decrease of $32,400 or 2.5%; for the three
month periods the decrease was $160,500 or 22.2%, to $561,600 from
$722,100 due to decreased circulation.
- Cost of merchandise increased as a percentage of Net Sales to
39.1% and 39.7% for the nine months and three months ended January 31,
1997, respectively, from 36.0% and 38.2% for the comparable periods
ended January 31, 1996. The actual cost of merchandise for the nine
months ended January 31, 1997 was $4,058,500 and $3,860,700 for the
comparable period ended January 31, 1996. Cost of merchan-dise for
the three months ended January 31, 1997 was $2,430,000 and $2,308,100
for the three months ended January 31, 1996. These results reflect
the overall sales mix during the periods; the Joan Cook catalog and
space advertising generally have lower costs of merchandise.
The Company has adopted a more aggressive discount policy in
regard to merchandise in its closeout catalog outlet store which
resulted in an increase in the cost of goods sold in that operation
from 55% to 65%. More significantly in the three months ended October
31, 1996, the Company has chosen to significantly reduce its offering
in both the catalog and in the store of its men's and women's shoes and
closed out virtually all its remaining shoe inventory at a loss of
approximately $85,000.
Page 13 of 15
- Advertising cost was $3,489,700, or 33.6% of Net Sales, for
the nine months ended January 31, 1997, compared to
$4,009,900, or 37.3% of Net Sales, for the nine months ended
January 31,1996. For the three months ended January 31, 1997,
advertising cost was 32.3% of Net Sales or $1,978,700 compared
to 33.4% of Net Sales or $2,017,400 for the three months ended
January 31, 1996. The decreased Advertising cost as a
percentage of Net Sales resulted from more efficient
circulation and a decline in paper costs which had increased
significantly in fiscal 1996.
- General and 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
outgoing freight charges, decreased as a percentage of Net
Sales to 27.8% from 33.2% for the nine months ended January
31, 1997. Costs for the nine months ended January 31, 1997
were $2,886,100 compared to $3,561,500 for the nine months
ended January 31, 1996. For the three months ended January 31,
1997 General and Administrative costs were $1,434,800 or 23.4%
of Net Sales, compared to $1,610,300 or 26.6%.
The reductions are primarily attributable to the benefits of
the restructuring which took place in the prior fiscal year
and , for the nine months ended January 31, 1997, $160,000 is
attributable to a pay reduction taken by the Co-Chief
Executive Officers, Messrs. Fox and DeStefano.
- As a result of all the foregoing, Operating Income for the
three months ended January 31, 1997 was $277,899 compared to
$109,300 for the three months ended January 31, 1996.
Operating Loss for the nine months ended January 31, 1997
decreased to $43,361 from $693,450 for the comparable period
in the prior year.
- Realized Gains on Marketable Securities was $324,529 for the
nine months ended January 31, 1997 up from $106,256 for the
nine months ended January 31, 1996. For the three months
ended January 31, 1997, the Realized Gains on Marketable
Securities was $140,823 compared to a loss of $636 for the
three months ended January 31, 1996. These gains and losses
resulted from the liquidation of several security positions
which were in the Company's investment portfolio and the
realization of profits on those which appreciated in value
and the losses on those which declined.
- As a result of the foregoing, as well as a decrease of $24,700
in Net Interest Expense for the nine months ended January 31,
1997 compared to January 31, 1996, Net Income is $63,669 for
the nine months ended January 31, 1997, compared to a Net Loss
of $829,437 for the nine months ended January 31, 1996, a
decrease of $893,106. Net Income for the three months ended
January 31, 1997 was $373,283 compared to $33,875 for the three
months ended January 31, 1996. This represents a increase of
$339,408.
Page 14 of 15
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/ Martin Fox
Date: March 14, 1997 ------------------------------------------
President and Office of the Chief Executive
/s/ Daniel DeStefano
Date: March 14, 1997 ------------------------------------------
Chairman of the Board and Office of
the Chief Executive
/s/ Audrey C. Remes
Date: March 14, 1997 -------------------------------------------
Treasurer and Chief Financial Officer
Page 15 of 15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 1,086,079
<SECURITIES> 830,090
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,112,941
<CURRENT-ASSETS> 6,256,946
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0
0
<COMMON> 50,715
<OTHER-SE> 5,573,438
<TOTAL-LIABILITY-AND-EQUITY> 9,459,174
<SALES> 10,390,902
<TOTAL-REVENUES> 11,390,902
<CGS> 4,058,495
<TOTAL-COSTS> 10,434,263
<OTHER-EXPENSES> (324,529)
<LOSS-PROVISION> 0
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