United States
Securities and Exchange Commission
Washington, D.C. 20549
- ------------------------------
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 January 31st, 1999
( ) Transition Report pursuant to Section 13 or 15 ( d )
of the Securities Exchange Act of 1934
- --------------------------------
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 )
Registrants 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 registrants common stock as of
March 5th, 1999 was 4,609,278
Transitional Small Business Disclosure Format Yes No X
Initio, Inc.
Form 10-QSB
For the 9 Months ended January 31st, 1999
Table of Contents
Part I. Financial InformationPage
Item 1. Financial Statements
a) Consolidated Statements of Operations and for the Three
and Nine Months Ended January 31st, 1998 and 1999 1
b) Consolidated Balance Sheets as at April 30th, 1998 and
January 31st, 19992.
c) Consolidated Statement of Stockholders Equity for the
Nine Months Ended January 31st, 19994.
d) Consolidated Statements of Cash Flows for the Nine
Months Ended January 31st, 1998 and 19995.
e) Notes to Financial Statements6.
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations8.
Part II. Other Information 14.
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 15.
Signatures 16.
i.
Initio, Inc.
Consolidated Statement of Operations
For the
( Unaudited )
9 Months Ended 3 Months Ended
Jan. 31, 19Jan. 31, 199Jan. 31, 19Jan. 31, 1998
Net Sales $8,683,869 $9,883,520 $5,149,308 $5,715,656
Costs and Expenses
Merchandise 3,242,619 3,586,214 2,053,963 2,139,167
Advertising 3,249,644 3,500,860 1,935,385 2,014,755
6,492,263 7,087,074 3,989,348 4,153,922
2,191,606 2,796,446 1,159,960 1,561,734
Fulfillment, General and
Administrative 2,658,467 2,845,960 1,265,497 1,420,865
Operating Loss (466,861) (49,514) (105,537) 140,869
Other Income ( Expense )
Interest Income 63,640 43,803 20,610 11,835
Interest Expense (248,195) (204,869) (80,675) (45,706)
Gain on the Sale of
Marketable Securities 246,061 233,948 46,262 53,570
61,506 72,882 (13,803) 19,699
Net (Loss) Income (405,355) 23,368 (119,340) 160,568
Other Comprehensive Income
Unrealized ( Losses) Gains on
Marketable Securities
Arising During the Per (134,538) 69,152 100,795 (3,310)
Reclassification Adjustment of Gains
Realized in Other In (349,945) (46,617) (147,795) (125,360)
(484,483) 22,535 (47,000) (128,670)
Comprehensive ( Loss (889,838) 45,903 (166,340) 31,898
======= ======= ======= =======
Loss per Common Share
Basic (0.09) 0.00 (0.03) 0.03
Diluted (0.09) 0.00 (0.03) 0.03
Weighted Average Shares
Basic 4,685,933 4,769,705 4,640,592 4,801,864
Diluted 4,685,933 4,805,107 4,640,592 4,847,863
See accompanying Notes
1
Initio, Inc.
Consolidated Balance Sheets
As at
Jan. 31, 1999 April 30, 1998
( Unaudited ) ( Audited )
Assets
Current Assets
Cash $2,203,929 $2,249,992
Marketable Securities 776,097 1,073,308
Inventory 1,757,841 1,790,259
Prepaid Advertising 203,845 228,192
Property Held for Sale 324,953 324,953
Other Current Assets 416,492 460,364
Total Current Assets 5,683,157 6,127,068
Property and Equipment 3,184,618 3,018,171
Less; Accumulated Depreciation 1,365,862 1,266,561
Net Property and Equipment 1,818,756 1,751,610
Customer List 1,462,872 1,462,872
Less; Accumulated Amortization 219,431 192,003
Net Customer List 1,243,441 1,270,869
Other Assets 84,198 95,454
Total Assets $8,829,552 $9,245,001
========= =========
See accompanying notes.
2
Initio, Inc.
Consolidated Balance Sheets
As at
Jan. 31, 1999 April 30, 1998
( Unaudited ) ( Audited )
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $302,867 $171,498
Customers' Unshipped Orders 75,327 34,121
Accrued Expenses and Other
Current Liabilities 315,523 224,966
Total Current Liabilities 693,717 430,585
Mortgage Payable 848,062 874,105
Subordinated Convertible Debentures 3,500,000 3,000,000
Commitments ( see accompanying notes )
Stockholders' Equity
Common Stock, $ .01 par value, Authorized
10,000,000 shares, issued 5,065,406
and 5,271,935 shares, respectively 50,654 52,719
Additional Paid In Capital 8,616,043 8,876,678
Accumulated Deficit (4,330,892) (3,925,537)
Accumulated Other Comprehensive Inco 29,923 514,406
4,365,728 5,518,266
Less; Treasury Stock, 429,398 shares 577,955 577,955
Total Stockholders' Equity 3,787,773 4,940,311
Total Liabilities and Stockholder $8,829,552 $9,245,001
======= =======
See accompanying notes.
3
Initio, Inc.
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended January 31st, 1999
( unaudited )
Accumulated
Additional
Other
Common Paid In Accumulated Treasury
Comprehensive
Stock Capital Deficit Stock Income
( Lo Total
Balance April 30, 1998 $52,719 $8,876,678 ($3,925,537 ($577,955)
$514,406 $4,940,311
Purchase and Retirement
of 206,529 Shares (2,065) (260,635)
(262,700)
Other Comprehensive Loss
(484,483) (484,483)
Net Loss (405,355)
(405,355)
------- ------- ------- -------
- ------- -------
Balance January 31st, 1999 $50,654 $8,616,043 ($4,330,892 ($577,955)
$29,923 $3,787,773
======= ======= ======= =======
======= =======
See accompanying notes.
4
Initio, Inc.
Consolidated Statement of Cash Flows
For the Nine Months Ended
Jan. 31st, 1999 Jan. 31st, 1998
( unaudited ) ( unaudited )
Cash Flows from Operating Activities;
Comprehensive (Loss) Income ($889,838) $45,903
Depreciation and Amortization 126,729 149,459
Losses (Gains) on Marketable Securit 238,422 (256,483)
Decrease in Assets
Inventory 32,418 700,378
Prepaid Advertising 24,347 128,801
Other Assets 55,128 94,901
Increase ( Decrease ) in Current Lia 263,132 182,714
Net Cash ( Used In ) Provided by
Operating Activities (149,662) 1,045,673
Cash Flows from Investing Activities
Purchase of Property and Equipment (166,447) (13,841)
Net Procceeds from Marketable Securi 58,789 36,500
Net Cash Provided By
Investing Activities (107,658) 22,659
Cash Flows from Financing Activities
Net Line of Credit Repayment 0 (850,000)
Issuance of Convertible Debt 500,000 0
Repayment of Mortgage (26,043) (29,693)
Treasury Stock Repurchased (262,700) (41,213)
Common Stock Issued 0 74,000
Net Cash Provided By ( Used In )
Financing Activities 211,257 (846,906)
Net ( Decrease ) Increase in Cash (46,063) 221,426
Cash at Start of Period 2,249,992 300,360
Cash at End of Period $2,203,929 $521,786
======= =======
Cash Paid for Interest $248,195 $204,869
======= =======
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 managements 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 Companys ) 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 Managements Discussion and Analysis and the financial
statements and notes thereto included in the Initio, Inc. April 30th,
1998 Form 10KSB.
( Loss ) Earnings per Share
Basic ( Loss ) Earnings per Common Share has been computed based upon
the weighted average number of actually outstanding shares of the
Companys common stock. Diluted Earnings per Common Share has been
computed based upon the weighted average number of actually outstanding
shares adjusted for the estimated dilutive effect of employee stock
options. Diluted ( Loss ) per Common Share has been computed based upon
the weighted average number of shares of the Companys common stock
actually outstanding since inclusion of employee stock options and the
Companys convertible debenture would have had an antidilutive effect.
Comprehensive Income
The Company has begun to apply FASB 130 and report Comprehensive Income.
Prior Period Statements have been adjusted accordingly. The changes in
the Companys unrealized gains and losses on marketable securities are
now reflected as Other Comprehensive Income in the Companys
Consolidated Statement of Income.
6.
Initio, Inc.
Notes to Financial Statements
Recent Accounting Standards
The Company will begin the disclosure required by SFAS No. 131,
Disclosure about segments of an Enterprise and Related Information ,
with its April 30th, 1999 financial statements.
7.
Item 2. Managements Discussion and Analysis of Financial Condition and
the Results of Operations
This discussion should be read in conjunction with the Companys
Financial Statements and accompanying Notes. Managements discussion and
analysis contains forward looking statements about the Companys future
prospects. These statements are subject to risks and uncertainties which
could cause actual results to differ materially from those expected by
Management. Investors are therefore cautioned not to rely upon on any
such forward looking beliefs or judgments in making investment
decisions.
Results of Operations
Gross Sales
Gross Sales declined in both of the current periods;
Nine Months Nine Months
Ending Ending %
Gross Sales January 31, 1999January 31, 1998 Change Change
Deerskin Catalog $6,643,257 $6,957,986 ($314,729) (4.5)
Joan Cook Catalog 2,696,113 2,797,401 (101,288) (3.6)
Media Advertising 261,108 1,031,848 (770,740) (74.7)
Retail Closeout 322,905 310,871 12,034 3.9
Total $9,923,383 $11,098,106 ($1,174,72 (10.6)
Three Months Three Months
Ending Ending %
Gross Sales January 31, 1999January 31, 1998 Change Change
Deerskin Catalog $4,681,832 $4,782,203 ($100,371) (2.1)
Joan Cook Catalog 1,034,634 1,123,634 (89,000) (7.9)
Media Advertising 108,043 451,474 (343,431) (76.1)
Retail Closeout 219,723 193,971 25,752 13.3
Total $6,044,232 $6,551,282 ($507,050) (7.7)
8.
Managements Discussion and Analysis of Financial Condition and the
Results of Operations
Deerskin catalog circulation was increased 8.5 % and 2.0 % in the
current three month and nine month periods, respectively. However, this
years response rates were lower, particularly in November, December,
and January resulting in the current years reduced shipments.
Management believes that the reduced response rate was attributable to
unseasonably warm weather in November and December.
Joan Cook catalog circulation decreased 8.8 % and 12.5 % in the current
three month and nine month periods, respectively. Conversely, this
years response rates consistently higher, with responses from internal
mailings increasing 14.9 % and responses from external mailings
increasing 8.7 %.
Media circulation has been drastically reduced as results were little
better than breakeven, as anticipated. Internet operations commenced in
September, 1998. Retail closeout sales increased in January, 1999 as the
Company began promotional activity in anticipation of the closing of its
Danvers store.
Returns
Customer return rates increased in each of the current periods.
Nine Months Nine Months
Ending Ending
Returns as a % of Sales January 31, 1999January 31, 1998
Deerskin Catalog 15.7 14.7
Joan Cook Catalog 6.0 4.1
Media and Other 6.2 5.4
Three Months Three Months
Ending Ending
Returns as a % of Sales January 31, 1999January 31, 1998
Deerskin Catalog 16.4 15.3
Joan Cook Catalog 9.4 4.5
Media and Other 9.5 8.5
9.
Managements Discussion and Analysis of Financial Condition and the
Results of Operations
During November, 1998 the Company relocated its administrative and
purchasing offices causing a disruption of operations. As a result
increased back orders during the peak holiday sales season, both in
quantity and duration adversely affected customer satisfaction, and
hence increased return rates.
As a consequence of the foregoing, the Companys Net Sales declined $
1,199,651 or 12.1 % for the nine month period and $ 566,348 or 9.9 % for
the three month period.
Costs and Expenses
Merchandise cost declined $ 343,595 and $ 85,204 in the more recent
nine and three month periods. However, merchandise costs increased
comparatively as a percentage of Net Sales to 37.3 % from 36.3 % during
the current nine months and to 39.9 % from 37.4 % during the current
three month period primarily reflecting the dramatic reduction in media
revenue, with the lowest merchandise costs, offset by the sale of
previously written down inventory at the retail clearance center.
Advertising Costs declined in the current nine and three month periods,
but in both periods increased as a percentage of gross sales for reasons
previously discussed;
Nine Months Nine Months
Ending Ending
January 31, 1999January 31, 1998 Change
Deerskin Catalog $1,946,107 $1,796,401 $149,706
Joan Cook Catalog 1,026,619 1,186,954 (160,335)
Media Advertising 184,097 486,900 (302,803)
Retail Closeout 92,821 30,611 62,210
Total $3,249,644 $3,500,866 ($251,222)
10.
Managements Discussion and Analysis of Financial Condition and the
Results of Operations
Three Months Three Months
Ending Ending
January 31, 1999January 31, 1998 Change
Deerskin Catalog $1,405,957 $1,288,863 $117,094
Joan Cook Catalog 371,446 514,512 (143,066)
Media Advertising 93,015 190,594 (97,579)
Retail Closeout 64,967 20,786 44,181
Total $1,935,385 $2,014,755 ($79,370)
Nine Months Nine Months
Ending Ending
Advertising as a % January 31, 1999January 31, 1998
of Shipments
Deerskin Catalog 29.2 25.8
Joan Cook Catalog 38.1 43.1
Media and Other 47.4 37.1
Overall 32.7 31.5
Three Months Three Months
Ending Ending
Advertising as a % January 31, 1999January 31, 1998
of Shipments
Deerskin Catalog 30.0 27.0
Joan Cook Catalog 35.9 45.8
Media and Other 48.2 32.7
Overall 32.0 30.7
Fulfillment costs decreased in both current periods reflecting lower
activity levels, as well savings effected by the consolidation of
fulfillment operations in May, 1998.
General and Administrative costs decreased in both current periods as a
result of the cost savings achieved by the outsourcing of accounting
functions and the closing of the Peabody, Massachusetts facility, but
11.
Managements Discussion and Analysis of Financial Condition and the
Results of Operations
increased as a percentage of net sales because of the costs incurred in
establishing the Companys Internet site and the costs incurred moving
the administrative and purchasing functions to a different location in
New Jersey and the call center and computer operations to Carson City,
Nevada.
Other Income, Expense
Interest income increased in the current periods as the Company had more
funds available for short term investment. Interest expense increase in
the current periods as a result of the Companys issuance of
$ 3,0000,000 of convertible debt in February, 1998, which replaced a
lower level of bank debt in the prior periods. The Companys realization
of gains on marketable securities, mostly realizing prior appreciation,
was approximately the same in each of the reported comparative periods.
Net Loss
As a result of all the foregoing, the Company incurred a net loss of $
405,355 ( $.09 per share ) and $ 119,340 ( $ .03 per
share ) in the current nine and three month periods respectively.
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 Companys common
stock at $ 3.00 per share. During December, 1998, the Company issued an
additional $ 500,000 principal amount of the 8 % debenture this time
convertible into the Companys common stock, based upon a calculation
reflecting the then price of the Companys common stock, at $ 1.54 per
share. The Company also has a commitment for an additional $ 1,500,000,
expiring in February, 2000, to be used for specified purposes.
The Company used a portion of the proceeds from the first issuance of
the subordinated debenture to retire its then existing bank borrowings.
The Company has obtained a new bank facility to permit the issuance of
letters of credit for import purposes.
At January 31st, 1999, the Company s current assets remained materially
unchanged from the prior year end while current liabilities increased $
263,000. During that time the Company repurchased and retired
12.
Managements Discussion and Analysis of Financial Condition and the
Results of Operations
206,000 shares of its common stock, at a aggregate cost of $ 263,000
and invested $ 166,000 in furniture and equipment, primarily associated
with the expansion of the Carson City facility.
At January 31st, 1999, the Companys cash balances were $ 2,204,000 and
marketable securities, valued at current market value were $ 776,000. It
is Managements belief that the Company has available adequate
resources, to conduct its operations, for the balance of its current
fiscal year.
Year 2000 Compliance
The Company has completed its internal evaluation of information
technology for the Year 2000 Compliance
and 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. Failure to make all
internal business systems Year 2000 compliant could result in a material
interruption in, or a failure of some or all of the Companys business
activities or operations.
The Company has not made 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.
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 Nine Months Year End Nine Months
Period End January 31, 199 April 30, 1998January 31, 1998
Cash 2,203,929 2249992
Securities 776,097 1,073,308
Receivables 0 0
Allowances 0 0
Inventory 1,757,841 1,790,259
Current Assets 5,683,157 6,127,068
Property, Plant and Equipment 3,184,618 3,018,171
Accumulated Depreciation 1,365,862 1,266,561
Total Assets 8,829,552 9,245,001
Current Liabilities 693,717 430,585
Bonds 3,500,000 3,000,000
Preferred 0 0
Common 50,654 52,719
Other Stockholders Equity 3,737,119 4,887,592
Total Liabilities & Stockholders' 8,829,552 9,245,001
Net Sales 8,683,869 9,883,520
Cost of Goods Sold 3,242,619 3,586,214
Other Expenses 5,908,111 6,346,820
Interest Expense 248,195 204,869
Net Loss (405,355) 23,368
Basis Loss Per Share (0.09) 0.00
Diluted Loss Per Share (0.09) 0.00
13.
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
January 31st, 1999.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
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; March 15th , 1999By: /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
16.
