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 October 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: ( 775 ) 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
December 16, 1998 was 4,636,078
Transitional Small Business Disclosure Format Yes No X
Initio, Inc.
Form 10-QSB
For the 6 Months ended October 31st, 1998
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Statements of Operations and for the Three
and Six Months Ended October 31st, 1997 and 1998 1.
b) Consolidated Balance Sheets as at April 30th, 1998 and
October 31st, 1998 2.
c) Consolidated Statement of Stockholders' Equity for the
Six Months Ended October 31st, 1998 4.
d) Consolidated Statements of Cash Flows for the Six
Months Ended October 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 8.
Part II. Other Information 13.
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 14.
Signatures 15.
i.
Initio, Inc.
Consolidated Statement of Operations
For the
( Unaudited )
6 Months Ended 3 Months Ended
Oct. 31, 19Oct. 31, 199Oct. 31, 19Oct. 31, 1997
Net Sales $3,534,561 $4,167,864 $2,651,002 $3,057,510
Costs and Expenses
Merchandise 1,188,656 1,447,047 919,851 1,160,973
Advertising 1,314,259 1,486,105 948,519 1,075,485
2,502,915 2,933,152 1,868,370 2,236,458
1,031,646 1,234,712 782,632 821,052
Fulfillment, General and
Administrative 1,392,970 1,425,095 881,589 895,285
Operating Loss (361,324) (190,383) (98,957) (74,233)
Other Income ( Expense )
Interest Income 43,030 31,968 12,819 16,155
Interest Expense (167,520) (159,163) (87,571) (85,798)
Gain on the Sale of
Marketable Securities 199,799 180,378 89,720 125,322
75,309 53,183 14,968 55,679
Net Loss (286,015) (137,200) (83,989) (18,554)
Other Comprehensive Income
Unrealized Gains ( Losses) on
Marketable Securities
Arising During the Per (235,333) 72,462 (216,807) 23,708
Reclassification of Gains
Realized in Net Loss (202,150) 78,743 (120,796) 116,915
(437,483) 151,205 (337,603) 140,623
Comprehensive Income ($723,498) $14,005 ($421,592) $122,069
======= ======= ======= =======
Loss per Common Share
Basic (0.06) (0.03) (0.02) 0.00
Diluted (0.06) (0.03) (0.02) 0.00
Weighted Average Shares
Basic 4,708,055 4,727,735 4,662,808 4,778,849
Diluted 4,708,055 4,727,735 4,662,808 4,778,849
See accompanying Notes
1
Initio, Inc.
Consolidated Balance Sheets
As at
Oct. 31, 1998 April 30, 1998
( Unaudited ) ( Audited )
Assets
Current Assets
Cash $699,775 $2,249,992
Marketable Securities 780,338 1,073,308
Inventory 2,571,666 1,790,259
Prepaid Advertising 927,756 228,192
Property Held for Sale 324,953 324,953
Other Current Assets 466,583 460,364
Total Current Assets 5,771,071 6,127,068
Property and Equipment 3,130,009 3,018,171
Less; Accumulated Depreciation 1,331,462 1,266,561
Net Property and Equipment 1,798,547 1,751,610
Customer List 1,462,872 1,462,872
Less; Accumulated Amortization 210,288 192,003
Net Customer List 1,252,584 1,270,869
Other Assets 31,545 95,454
Total Assets $8,853,747 $9,245,001
========= =========
See accompanying notes.
2
Initio, Inc.
Consolidated Balance Sheets
As at
Oct 31, 1998 April 30, 1998
( Unaudited ) ( Audited )
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $671,466 $171,498
Customers' Unshipped Orders 104,290 34,121
Accrued Expenses and Other
Current Liabilities 240,756 224,966
Total Current Liabilities 1,016,512 430,585
Mortgage Payable 854,847 874,105
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, respectively 50,922 52,719
Additional Paid In Capital 8,644,050 8,876,678
Accumulated Deficit (4,211,552) (3,925,537)
Accumulated Other Comprehensive Inco 76,923 514,406
4,560,343 5,518,266
Less; Treasury Stock, 429,398 shares 577,955 577,955
Total Stockholders' Equity 3,982,388 4,940,311
Total Liabilities and Stockholder $8,853,747 $9,245,001
======= =======
See accompanying notes.
3
Initio, Inc.
Consolidated Statement of Stockholders' Equity
For the Six Months Ended October 31st, 1998
( unaudited )
Accumulated
Additional
Other
Common Paid In Accumulated Treasury
Comprehensive
Stock Capital Deficit Stock
Income Total
Balance April 30, 1998 $52,719 $8,876,678 ($3,925,537 ($577,955)
$514,406 $4,940,311
Purchase and Retirement
of 179,729 Shares (1,797) (232,628)
(234,425)
Other Comprehensive Loss
(437,483) (437,483)
Net Loss (286,015)
(286,015)
------- ------- ------- -------
- ------- -------
Balance October 31, 1998 $50,922 $8,644,050 ($4,211,552 ($577,955)
$76,923 $3,982,388
======= ======= ======= =======
======= =======
See accompanying notes.
4
Initio, Inc.
Consolidated Statement of Cash Flows
For the Six Months Ended
Oct. 31st, 1998 Oct. 31st, 1997
( unaudited ) ( unaudited )
Cash Flows from Operating Activities;
Comprehensive Profit (Loss) ($723,498) $14,005
Depreciation and Amortization 83,186 100,833
Gains on Marketable Securities 237,684 (331,583)
Decrease ( Increase ) in Assets
Inventory (781,407) (521,064)
Prepaid Advertising (699,564) (643,341)
Other Assets 57,690 (100,821)
Increase ( Decrease ) in Current Lia 585,927 883,853
Net Cash Provided By ( Used In )
Operating Activities (1,239,982) (598,118)
Cash Flows from Investing Activities
Purchase of Property and Equipment (111,838) (9,126)
Net Investment in Marketable Securit 55,286 40,772
Net Cash Provided By
Investing Activities (56,552) 31,646
Cash Flows from Financing Activities
Net Short Term Borrowings 0 500,000
Repayment of Mortgage (19,258) (19,642)
Treasury Stock Repurchased (234,425) (41,213)
Common Stock Issued 0 74,000
Net Cash Provided By ( Used In )
Financing Activities (253,683) 513,145
Net Increase ( Decrease ) in Cash (1,550,217) (53,327)
Cash at Start of Period 2,249,992 300,360
Cash at End of Period 699,775 247,033
======= =======
Cash Paid for Interest $167,520 $159,163
======= =======
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,
therefore, interim results are 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
The Company has begun to apply FASB 130 and report Comprehensive Income. Prior
Period Statements have been adjusted accordingly.
Recent Accounting Standards
The Company will began the disclosure required by SFAS No. 131, Disclosure
about segments of an Enterprise and Related Information ", with its April 30th,
1999 financial statements.
6.
Other Developments
The Company anticipates minimal impact from the January 1, 1999 euro currency
conversion.
7.
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.
Six Months Six Months
Ending Ending %
Gross Shipments October 31, 199October 31, 199 Change Change
Deerskin Catalog $1,970,298 $2,175,783 ($205,485) (9.4)
Joan Cook Catalog 1,661,479 1,673,767 (12,288) (0.7)
Media Advertising 144,192 580,374 (436,182) (75.2)
Retail Closeout 103,182 116,900 (13,718) (11.7)
Total $3,879,151 $4,546,824 ($667,673) (14.7)
Three Months Three Months
Ending Ending %
Gross Shipments October 31, 199October 31, 199 Change Change
Deerskin Catalog $1,642,435 $1,746,235 ($103,800) (5.9)
Joan Cook Catalog 1,043,637 940,816 102,821 10.9
Media Advertising 126,479 528,073 (401,594) (76.0)
Retail Closeout 81,254 84,774 (3,520) (4.2)
Total $2,893,805 $3,299,898 ($406,093) (12.3)
8.
Management's Discussion and Analysis of Financial Condition and the Results of
Operations
The Company's management believes that the decline in current year Deerskin
catalog shipments reflects unusually warm weather in many parts of the country
as well as decrease in catalog circulation in the current year's second
quarter.
Joan Cook catalog circulation was decreased in the current period and mailed
later, while internal response rates have improved. Media circulation has been
drastically reduced as results are no better than breakeven. The decline in
retail closeout gross sales reflects the continuation of a long term decline in
the Danvers store's results.
The current periods' provisions for customer returns decreased as shipments to
customers declined. At this stage in the Company's business cycle return rates
are largely estimates, and can vary significantly as the Company's fiscal year
progresses.
Six Months Six Months
Ending Ending %
Returns October 31, 199October 31, 199 Change Change
Deerskin Catalog $273,424 $295,652 ($22,228) (7.5)
Joan Cook Catalog 66,258 65,289 969 1.5
Other 4,908 18,019 (13,111) (72.8)
Total $344,590 $378,960 ($34,370) (9.1)
Three Months Three Months
Ending Ending %
Returns October 31, 199October 31, 199 Change Change
Deerskin Catalog $221,314 $214,298 $7,016 3.3
Joan Cook Catalog 17,998 14,509 3,489 24.0
Other 3,491 13,581 (10,090) (74.3)
Total $242,803 $242,388 $415 0.2
9.
Management's Discussion and Analysis of Financial Condition and the Results of
Operations
Returns as a % of Shipments
6 Months 6 Months
October 31st, 1998 October 31st, 1997
Deerskin Catalog 13.9 13.6
Joan Cook Catalog 4.0 3.9
As a consequence of the foregoing, the Company's Net Sales declined $ 633,303
or 15.2 % for the six month period and $ 406,508 or 13.3 % for the three month
period.
Merchandise cost declined $ 258,391 and $ 241,122 for the six and three months,
and decreased as a percentage of Net Sales to 33.6 % and 34.7 % respectively
reflecting declining wholesale prices for the Company's products, sale of
previously written down inventory at the closeout center and a change in sales
mix toward the higher margined Joan Cook catalog.
Advertising Costs declined $ 171, 846 and $ 126,966 for the six and three
months but increased as a percentage of Net Sales to 37.2 % and 35.8
respectively reflecting additional costs of a promotional program and startup
costs incurred in connection with the Company's Internet site.
Fulfillment, General and Administrative decreased in both current periods
reflecting lower activity levels and the out placing of accounting functions,
but increased as a percentage of net sales because of the costs incurred
establishing the Company's Internet site ( which.did not have any significant
sales in the current period ) and the costs incurred relocating fulfillment
operations to Carson City, Nevada.
Increased Other Income was caused by the increased realization of prior period
appreciation of marketable securities. However, the Company's remaining
portfolio decreased in value, and that decline is reflected as an item of Other
Comprehensive Loss.
10.
Management's Discussion and Analysis of Financial Condition and the Results of
Operation
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.
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 period ended October 31st, 1998, the Company increased its
inventories $ 781,000, in preparation for its prime marketing season,
repurchased and retired 179,000 shares of its own stock, at a aggregate cost
of $ 234,000 and invested $ 112,000 in furniture and equipment, primarily
associated with the expansion of the Carson City facility. Prepaid Advertising
increased $ 700,000 reflecting the increased activity at this stage of the
Company's business cycle.
At October 31st, 1998, the Company's cash balances were $ 649,000 and
marketable securities, valued at current market value were $ 780,000. It is
Management's belief that the Company now has available adequate resources, to
conduct its operations, in the current 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 require any
significant modification of its computer systems, incur a disruption in its
operations nor expend a material sum relating to Year 2000 Compliance.
11.
The Company has yet to make inquiry of its significant suppliers or financial
institutions relating to Year 2000 Compliance. Should one or more of these
parties experience a material disruption of their operations,
the Company could in turn experience a material disruption of its normal
business operations, and a material adverse impact on its results of
operations, liquidity and / or financial position.
12.
Part II. Other Information
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 October
31st, 1998.
Items 1,2,3, 4 and 5 are not applicable and have been omitted.
13.
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 October 31,98 April 30,98 October 31,97
Cash 699,775 2,249,992
Securities 780,338 1,073,308
Receivables 0 0
Allowances 0 0
Inventory 2,571,666 1,790,259
Current Assets 5,771,071 6,127,068
Property, Plant and Equipm 3,130,009 3,018,171
Accumulated Depreciation 1,331,462 1,266,561
Total Assets 8,853,747 9,245,001
Current Liabilities 1,016,512 430,585
Bonds 3,000,000 3,000,000
Preferred 0 0
Common 50,922 52,719
Other Stockholders Equity 3,931,466 4,887,592
Total Liabilities & Stockh 8,853,747 9,245,001
Net Sales 3,534,561 4,167,864
Cost of Merchandise 1,188,656 1,447,047
Other Expenses 2,707,229 2,911,200
Interest Expense 167,520 159,163
Net Loss 286,015 137,200
Basis Loss Per Share 0.06 0.03
Diluted Loss Per Share 0.06 0.03
14.
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; December 21st , 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
15.
