U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Second Amendment
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______________ to _______________
Commission File No. 0-9848
Initio, Inc.
(Name of small business issuer 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.01 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to the filing requirements for the past 90 days.
Yes X No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's Net Revenues for its most recent fiscal year: $9,682,000.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $4,734,654 (based upon the average bid and asked price of the
registrant's Common Shares, $.01 par value, as of July 27, 1999).
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Shares, $.01 Par Value 4,640,541
(Title of Class) (No. of Shares Outstanding
at July 27, 1999)
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Form (check one):
Yes___ No X
<PAGE>
INITIO, INC.
10-KSB/A EXPLANATORY NOTE
During the course of preparation of the 10-KSB, lines which did not
materially affect the presentation as a whole were inadvertently dropped. The
most significant changes are in the Consolidated Statements of Cash Flows where
the line "Gain on sale of marketable securities" has been inserted and in
Exhibit 27 where the Basic Earnings and Diluted Earnings (Loss) Per Share were
changed to (.17) from (.18).
<PAGE>
Initio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the Year Ended
April 30, 1999 April 30, 1998
-------------- --------------
Income
Interest $ 94,708 $ 62,042
Gain on the sale of
marketable securities 279,093 498,752
----------- -----------
373,801 560,794
----------- -----------
Expenses
General and Administrative 236,608 261,916
Interest 92,400 68,320
----------- -----------
329,008 330,236
----------- -----------
Income from continuing operations 44,793 230,558
Income (loss) from discontinued
operations, net of income tax benefit 54,436 (1,035,147)
----------- -----------
Net income (loss) 99,229 (804,589)
----------- -----------
Other comprehensive loss
Unrealized gains (losses) on
Marketable securities
Arising during the period (43,178) 445,149
Reclassification of gains realized (355,943) (81,022)
----------- -----------
(399,121) 364,127
----------- -----------
Comprehensive Loss $ (299,892) $ (440,462)
----------- -----------
Income (Loss) per common share
Basic
Continuing operations $0.01 $0.05
Income (loss) from discontinued
operations $0.01 ($0.22)
----------- -----------
Net income (loss) $0.02 ($0.17)
----------- -----------
Diluted
Continuing operations $0.01 $0.05
Income (loss) from discontinued
operations $0.01 ($0.22)
----------- -----------
Net income (loss) $0.02 ($0.17)
----------- -----------
Weighted average shares used in calculation
Basic 4,462,682 4,842,737
----------- -----------
Diluted 4,462,882 4,842,737
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
Initio, Inc.
Consolidated Balance Sheets
As at
April 30, April 30,
1999 1998
Assets
Cash $1,182,993 $2,249,992
Marketable Securities 1,208,061 1,073,308
Net assets of discontinued operations 3,809,844 3,770,152
Deferred tax asset 884,000 --
Property and equipment, net 1,506,452 1,476,610
Other assets 200,919 305,818
---------- ----------
Total assets $8,792,269 $8,875,880
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 9,277 $ 11,498
Accrued expenses 31,500 9,966
Mortgage payable 873,774 914,105
Subordinated convertible debenture 3,500,000 3,000,000
---------- ----------
4,414,551 3,935,569
Commitments
Stockholders' Equity
Common stock, $.01 par value, Authorized
10,000,000 shares, 5,065,406 issued and
4,636,008 outstanding shares, 5,271,935
issued and 4,842,537 outstanding shares
respectively 50,654 52,719
Additional paid in capital 8,616,042 8,876,678
Accumulated deficit (3,826,308) (3,925,537)
Accumulated other comprehensive income 115,285 514,406
---------- ----------
4,955,673 5,518,266
Less: Treasury stock, 429,398 common
shares (577,955) (577,955)
---------- ----------
Total stockholders' equity 4,377,718 4,940,311
---------- ----------
Total liabilities and
stockholders' equity $8,792,269 $8,875,880
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
Initio, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated other
Common Paid In Accumulated Treasury Comprehensive
Stock Capital Deficit Stock Income Total
----- ------- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance May 1, 1997 $50,815 $8,682,183 $(3,120,948) $(476,781) $150,279 $5,285,548
Issuance of 60,000
common shares to 600 65,400 66,000
employees
Exercise of employee
stock options for
130,400 common
shares 1,304 129,095 130,399
Repurchase of 37,527
common shares from
employees (101,174) (101,174)
Net other comprehensive
income 364,127 364,127
Net Loss (804,589) (804,589)
----------- ----------
Balance April 30,
1998 $52,719 $8,876,678 $(3,925,537) ($577,955) $514,406 $4,940,311
Repurchase and retirement
of 206,529 shares (2,065) (260,636) (262,701)
Net other comprehensive
loss (399,121) (399,121)
Net income 99,229 99,229
------- ---------- ----------- --------- -------- ----------
Balance April 30,
1999 $50,654 $8,616,042 $(3,826,308) $(577,955) $115,285 $4,377,718
======= ========== ============ ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
Initio, Inc.
Consolidated Statements of Cash Flows
For the Year Ended
April 30, 1999 April 30, 1998
Cash flows from Operating Activities;
Income from continuing operations $ 44,793 $ 230,558
Amoritization (279,093) (498,752)
Gain on sale of marketable securities 129,912 164,521
Other comprehensive income (399,121) 364,127
----------- -----------
Cash (used in) provided by
continuing operations (503,509) 260,454
----------- -----------
Cash flow (used in) provided by
discontinued operations (774,886) 557,093
----------- -----------
Net cash (used in) provided by
operating activities (1,278,395) 817,547
----------- -----------
Cash flows from Investing Activities
Purchases of property and equipment 159,754 (70,844)
Net proceeds from sales/(purchase) on
marketable securities (145,326) 100,973
----------- -----------
Net cash provided by investing
activities 14,428 30,129
----------- -----------
Cash flows from Financing Activities
Net repayment of short term debt -- (1,850,000)
Debenture proceeds 500,000 3,000,000
Debenture issuance costs -- (43,280)
Mortgage repayment (40,331) (39,987)
Sale of common stock, net of
treasury stock repurchase -- 35,222
Common stock repurchase (262,701) --
----------- -----------
Net cash provided by
financing activities 196,968 1,101,955
----------- -----------
Net ( decrease ) increase in cash (1,066,999) 1,949,631
Cash at beginning of year 2,249,992 300,361
----------- -----------
Cash at end of year $ 1,182,993 $ 2,249,992
=========== ===========
Supplemental disclosure of continuing
operations cash flow information:
Cash paid during the year for interest $92,400 $68,320
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
Initio, Inc.
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Business
In past years Initio, Inc., ( the " Company " or "Initio" ), through its wholly
owned subsidiary, Deerskin Trading Post, Inc. ( " Deerskin " ), primarily
marketed leather goods by way of the Deerskin catalog and gifts and housewares
through its' Joan Cook catalog.
In April, 1999, the Company entered into an agreement to sell materially all of
the assets of its Deerskin operation. Since May, 1999, when the asset sale was
culminated, the Company has begun the process of identifying new business
opportunities.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
Deerskin. All material intercompany items have been eliminated. Certain items
shown have been reclassified to conform to the fiscal 1999 presentation.
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 balances in the financial statements. Actual results could
differ from management's best estimates.
Marketable Securities
The Company has classified all its marketable securities as available for sale,
which presented at their estimated fair market value, which has been determined
based upon security market quotes. Realized gains and losses, calculated based
upon specific identification of shares sold, are included in the determination
of Net Income (Loss). Unrealized gains and losses are included as components of
Other Comprehensive Loss.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts payable and accrued expenses approximate their fair
value due to their short term maturities. The amounts presented for the mortgage
payable and the subordinated convertible debenture also approximate fair value.
Property and Equipment
Fixed assets are recorded at cost and depreciated, using the straight-line
method over their estimated useful lives, which generally approximates 40 years
for buildings. Leasehold improvements are amortized over the lesser of their
useful lives or the remaining lease terms.
1999 1998
---- ----
Leasehold improvements $ 2,052,925 $ 1,893,171
----------- -----------
$ 2,052,925 $ 1,893,171
Less Accumulated Amortization 546,473 416,561
----------- -----------
Property and Equipment, net $ 1,506,452 $ 1,476,610
=========== ===========
-6-
<PAGE>
Long-Lived Assets
The Company's policy is to record long-lived assets at cost, amortizing these
costs over the expected useful lives of the related assets. Long-lived assets
are reviewed on a quarterly and annual basis for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be reasonable. Assets are evaluated for continuing value and proper useful
lives by comparison to expected future cash flows. Impairments, if any, are
recognized in the consolidated statements of operations and comprehensive loss
in the period identified.
Stock Based Compensation
The Company continues to account for its' stock based compensation of employees,
using the intrinsic value approach, described in APB No. 25.The impact on net
loss and loss per share if the fair value method of accounting for stock based
compensation had been adopted would have been negligible. Additional pro forma
disclosures as required under Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, are presented within these
Notes to Consolidated Financial Statements.
Earnings (Loss) Per Common Share
Basic Loss per Common Share, as well as Diluted Loss Per Common Shares has been
computed based upon the weighted average number of actually outstanding shares
of the Company's common stock. A reconciliation between the numerators and
denominators of the basic and dilutive EPS computations for net income (loss) is
as follows:
<TABLE>
<CAPTION>
Year Ended April 30, 1999 Year ended April 30, 1998
------------------------- -------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations $44,793 $230,558
Income (loss) form discontinued
operations net of income tax 54,436 (1,035,147)
benefit ------ ----------
BASIC EPS
Net income form continuing
operations attributable to 44,793 4,462,682 $0.01 230,558 4,842,737 $0.05
common stock
Net income (loss) from
discontinuing operations, net
of income tax attributable to
common stock 54,436 4,462,682 $0.01 (1,035,147) 4,842,737 $(0.22)
EFFECT OF DILUTIVE SECURITIES
200 --
Stock Options
DILUTIVE EPS
Net income from continuing
operations attributable to
common stock and assumed $44,793 4,462,882 $0.01 $230,558 4,482,737 $0.05
option exercises ======= ========= ===== ======== ========= =====
Net income (loss) from
discontinuing operations, net
of income tax attributable to
common stock and assumed $54,436 4,462,882 $0.01 $(1,035,147) 4,482,737 $(0.22)
option exercises ======= ========= ===== ============ ========= =======
</TABLE>
Options to purchase 591,442 shares of common stock out of the total number of
options outstanding as of April 30, 1999, were not included in the computation
of diluted EPS because of their anti-dilutive effect.
-7-
<PAGE>
Income Taxes
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured by applying
estimated tax rates and laws to taxable years in which such differences are
expected to reverse.
Recently Effective Accounting Standard Adopted
The Company began conforming to SFAS 130, " Reporting Comprehensive Income " for
its' fiscal year ending April 30th, 1999. Prior year balances have been
reclassified to conform with the current year's presentation.
Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts. As of April 30, 1999, this pronouncement would have
no effect on the accompanying financial statements.
2. Discontinued Operations
In April, 1999, the Company entered into an agreement with Advance Medical
Sciences, Inc. ("AMDS") for the sale of materially all of the assets of its
Deerskin operations, which at April 30, 1999 were categorized as a discontinued
operation. In May 1999, when the transaction closed, the Company received
approximately $500,000 in cash, a $3,400,000 convertible debenture of the
purchaser and was released from $2,000,000 payment of its subordinated
convertible debenture, resulting in a gain before income taxes of approximately
$2,400,000. The $3,400,000 convertible debenture the Company will receive, bears
interest at a rate of 8% per annum, on the last day of each July, October,
January and April until June 1, 2004, when the convertible debenture is to be
redeemed by AMDS. This debenture has a convertible feature which allows for the
conversion into shares of AMDS common stock. The terms of the conversion are
such that the conversion price shall be $5.50 per share (after giving effect to
the 1 for 30 exchange), provided, however, if on or before December 31, 1999
AMDS shall repay Initio $400,000 plus interest accrued to the date of such
payment, thereby reducing the present indebtedness from $3,400,000 to
$3,000,000, then, in that event the initial conversion price shall be increased
from $5.50 to $6.00. The operating results of the discontinued operation were:
-8-
<PAGE>
Year Ended Year Ended
April 30, 1999 April 30, 1998
-------------- --------------
Revenues $ 9,682,000 $ 11,134,000
Net income ( loss ) 54,436 ( 1,035,147 )
Current assets 2,787,278 2,718,404
Total assets 4,327,950 4,314,273
Current liabilities 351,106 369,121
Net assets 3,946,844 3,945,152
3. Income Taxes
At April 30th, 1999, the Company had available, for federal income tax purposes,
approximately $4,900,000 of net operating losses (NOL's) and other future tax
benefits, which expire in 2004 and thereafter. These benefits were not reflected
in the Company's consolidated financial statements as a result of the
uncertainty of future utilization. For the year ended April 30, 1999, the
valuation allowance previously recorded against the deferred tax asset generated
from the Company's NOL's was reduced by $782,000. Based upon the capital gain
recognized in connection with the transaction described in Note 2, it is more
likely than not that approximately $884,000 in deferred asset is realizable.
4. Mortgage
In 1995, the Company borrowed $1,000,000, of which approximately $873,000 was
outstanding at April 30th, 1999. The loan is secured by the Company's Carson
City property, payable in monthly installments, bears interest at the rate of 9
1/4%, subject to adjustment in the future, and is due in 2010. Principal
payments approximate $40,000 per annum with a balloon payment in the final year.
5. Subordinated Convertible Debenture
In February 1998, the Company issued $3,000,0000 principal amount of a five
year, 8 %, debenture which is convertible, at $ 3.00 per share, into the
Company's common stock. In December 1998, the Company issued a $500,000
principal amount debenture, convertible at $ 1.54 into the Company's common
stock. The conversion feature of these debentures was greater than the market
value at issuance. The $3,000,000 and $500,000 debentures mature on May 1, 2003
and December 23, 2003 respectively, with all unpaid principal and interest due.
The Company has a commitment from the same debt holder for an additional $
1,500,000 to be used for acquisitions. The conversion price of future borrowings
is contingent upon the future market price of the Company's common stock. Two
representatives of the debenture holder have been elected to the Company's Board
of Directors. The costs of this debt issuance have been deferred and are being
amortized over the term of the debenture, using the effective interest rate
method. In connection with the transaction described in Note 2, the Company
effectively repaid $2,000,000 of the $3,500,000 outstanding as of April 30,
1999.
6. Commitments
Letters of Credit
At April 30th, 1999, the Company had approximately $465,000 of letters of credit
outstanding in connection with the discontinued operations. Pursuant to the
transaction discussed in Note 2, these letters of credit were transferred to
AMDS at closing.
7. Stockholders' Equity
Stock Option Plans
The Company has two stock option plans, the 1991 Stock Option Plan ( " 1991 Plan
" ) and the 1996 Stock Option Plan ( " 1996 Plan " ). Under both Plans options
to buy the Company's common stock have been granted to key employees and / or
directors of the Company, for terms ranging from five to ten years and which
become exercisable at fixed times.
No further options will be granted pursuant to the 1991 plan.
-9-
<PAGE>
Options which may result in the issuance of up to 500,000 shares of the
Company's common stock may be issued pursuant to the 1996 Plan. Under the 1996
Plan the Company may award either Incentive Stock Options or Non Qualified Stock
Options. The terms for either may not exceed ten years, while vesting is either
20% annually or as the Company's Board of Directors provides. Exercise prices
approximate the market price for the Company's stock, except that in the case of
award to holders of more than 10 % of the Company's stock the exercise is to be
set by the Company's Board of Directors. Arising from the disposal of all of its
catalog operations, the Company decided that all employees of Deerskin Trading
Post, Inc., a wholly owned subsidiary of the Company who presently have stock
options on shares of Initio common stock, shall be fully vested effective upon
the closing of the transaction between Deerskin Trading Post, Inc. and AMDS. All
such persons shall have one year from April 30, 1999 to exercise such options.
Activity for the Plans is as follows for the years ended:
Year Ended Year Ended
April 30th, 1999 April 30th, 1998
---------------- ----------------
Shares Average Price Shares Average Price
Outstanding at
beginning of year 646,942 $ 1.92 505,332 $1.74
Granted 1,000 1.00 525,000 1.95
Exercised - ( 98,400 ) 1.00
Expired ( 56,500 ) 1.81 ( 34,990 ) 1.69
Cancelled - ( 250,000 ) 2.00
-- -----------
Outstanding at
end of year 591,442 1.93 646,942 1.92
=========== =======
Options Outstanding
At April 30th, 1999
-------------------
Exercise Price shares expires in exercisable
- -------------- ------ ---------- -----------
1.00 1,000 2003 200
1.75 65,442 2000 65,442
1.95 525,000 2003 210,000
------- -------
591,442 275,642
======= =======
As a result of the 1991 and 1996 Plans, had the Company adopted the full value
approach to accounting for employee stock options, the Company's results of
operations would have been for the years ended:
April 30, 1999 April 30, 1998
-------------- --------------
Net income (loss) As reported $99,229 ( $ 804,589 )
Pro forma ( 131,771 ) ( $ 828,564 )
Loss Per Share:
Basic: As reported $.02 ( $ .17)
Pro forma $(.03) ( $ .17)
Diluted As reported $.02 ( $ .17)
Pro forma $(.03) ( $ .17)
The foregoing disclosures has been computed using the Black Sholes option
pricing model with the following weighted average assumptions:
1999 and 1998
-------------
Risk free Interest Rate 5.63%
Expected Lives 4 years
Expected Volatility 50%
Expected Dividend Yield 0%
-10-
<PAGE>
8. Related Party Transactions
The Chairman and President of the Company have for both years presented waived
all but nominal current cash compensation, though they continue to receive
fringe benefits such as participation in the Company health plans. In March,
1998, these individuals were granted options, pursuant to the Company's 1996
Plan, to purchase 250,000 shares, each, of the Company's common stock at $ 1.95
per share, 110 % of the market price of the Company's common stock at the time
of grant. At the same time options to purchase 125,000 shares, each, of the
Company's common stock at $ 2.00 per share, previously granted to these officers
of the Company, were cancelled.
9. Lease Agreements
In accordance with the executed Asset Purchase Agreement, AMDS entered into a
lease agreement with the Company for the entire building and parking lot at 2500
Arrowhead Drive, Carson City, Nevada. This lease agreement will terminate on
April 30, 2,000, for which AMDS will pay the Company an annual rent amounting to
$336,000.
In addition, the Company also has future minimum rental payments under an
operating lease that expires in 2037 which at April 30, 1999 was approximately
$25,900 (approximately $700 per annum).
10. Subsequent Events
In May 1999, the Company culminated the sale of its Peabody plant, which is
included in the net assets of discontinued operations, for $ 525,000 in cash and
notes, resulting in a net before income taxes gain of $ 200,000.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1998
<PERIOD-END> APR-30-1999 APR-30-1998
<CASH> 1,182,993 2,249,992
<SECURITIES> 1,208,061 1,073,308
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 2,052,925 1,893,171
<DEPRECIATION> 546,473 416,561
<TOTAL-ASSETS> 8,792,269 8,875,880
<CURRENT-LIABILITIES> 0 0
<BONDS> 3,500,000 3,000,000
0 0
0 0
<COMMON> 50,654 52,719
<OTHER-SE> 4,327,064 4,887,592
<TOTAL-LIABILITY-AND-EQUITY> 8,792,269 8,875,880
<SALES> 0 0
<TOTAL-REVENUES> 378,801 560,794
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 182,172 1,297,063
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 99,229 (804,589)
<EPS-BASIC> .02 (.17)
<EPS-DILUTED> .02 (.17)
</TABLE>
