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 July 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)
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
September 10th, 1999 was 4,640,541
Transitional Small Business Disclosure Format Yes No X
<PAGE>
Initio, Inc.
Form 10-QSB
For the Quarter Ended July 31, 1999
Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Three Months Ended July 31st, 1999 and 1998 1.
b) Consolidated Balance Sheets as at July 31th, 1999 and
April 30st, 1999 2.
c) Consolidated Statement of Stockholders' Equity for the
Three Months Ended July 31st, 1999 3.
d) Consolidated Statements of Cash Flows for the Three
Months Ended July 31st, 1999 and 1998 4.
e) Notes to Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
Signatures 9.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 10.
<PAGE>
Initio, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three months ended
(Unaudited)
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
<S> <C> <C>
Income:
Interest and dividends $ 100,243 $ 30,211
Gain on the sale of marketable securities 43,793 110,079
Rental income 84,000 --
Other 18,355 --
----------- ----------
246,391 140,290
----------- ----------
Expenses:
General and administrative 146,234 121,812
Interest 81,688 79,949
----------- ----------
227,922 201,761
----------- ----------
Income (loss) from continuing operations
before deferred tax benefit 18,469 (61,471)
Deferred tax benefit 920,000 --
----------- ----------
Income (loss) from continuing operations 938,469 (61,471)
Income (loss) from discontinued operations -- (140,555)
Gain on sale of discontinued operations, net of
income taxes of $ 884,000 1,503,986 --
----------- ----------
Net income (loss) 2,442,455 (202,026)
----------- ----------
Other Comprehensive Income:
Unrealized Gains ( Losses ) on
Marketable Securities:
Arising during the period (53,920) (18,526)
Reclassification of Gains Realized in
Other Income (48,516) (81,354)
----------- ----------
(102,436) (99,880)
----------- ----------
Comprehensive income ( Loss ) $ 2,340,019 $ (301,906)
=========== ==========
Income (Loss) per Common Share:
Basic:
Continuing operations $0.20 ($0.01)
Income (loss) from discontinued
operations 0.32 (0.03)
Net income (loss) $0.52 ($0.04)
Diluted:
Continuing operations $0.19 ($0.01)
Income (loss) from discontinued
operations 0.30 (0.03)
Net income (loss) $0.49 ($0.04)
Weighted Average Shares
Basic 4,666,616 4,752,134
Diluted 4,991,491 4,752,134
The accompanying notes are an integral part of these financial statements.
1.
</TABLE>
<PAGE>
Initio, Inc.
Consolidated Balance Sheets
As at
<TABLE>
<CAPTION>
July 31, 1999 April 30, 1999
(Unaudited) (Audited)
<S> <C> <C>
Assets
Cash $ 1,455,211 $1,182,993
Marketable securities 1,283,105 1,208,061
Net assets of discontinued operations -- 3,809,844
Deferred tax asset 920,000 884,000
Property and equipment, net 1,519,466 1,506,452
Convertible debenture 3,400,000 --
Other assets 624,620 200,919
----------- ----------
Total assets $ 9,202,402 $8,792,269
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable 425 9,277
Accrued expenses 94,280 31,500
Mortgage payable 859,510 873,774
Other liabilities 56,000 --
Subordinated convertible debenture 1,500,000 3,500,000
----------- ----------
2,510,215 4,414,551
----------- ----------
Commitments
Stockholders' Equity
Common Stock, $ .01 par value, Authorized
10,000,000 shares, 5,032,412 issued and
4,640,541 outstanding shares 50,542 50,654
Additional paid in capital 8,590,604 8,616,042
Accumulated deficit (1,383,853) (3,826,308)
Accumulated other comprehensive income 12,849 115,285
----------- ----------
7,270,142 4,955,673
Less: Treasury stock, 391,871 common
shares (577,955) (577,955)
----------- ----------
Total stockholders' equity 6,692,187 4,377,718
----------- ----------
Total liabilities and stockholders' equity $ 9,202,402 $8,792,269
=========== ==========
The accompanying notes are an integral part of these financial statements.
2.
</TABLE>
<PAGE>
Initio, Inc.
Consolidated Statements of Stockholders' Equity
For the three months ended July 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid In Accumulated Treasury Comprehensive
Stock Capital Deficit Stock Income Total
----- ------- ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance April 30, 1999 $50,654 $8,616,042 ($3,826,308) ($577,955) $115,285 $4,377,718
Cancellation of
shares by employee
to repay loan (112) (25,438) (25,550)
Other comprehensive
loss (102,436) (102,436)
Net income 2,442,455 2,442,455
--------------------------------------------------------------------------------------------------
Balance July 31, 1999 $50,542 $8,590,604 ($1,383,853) ($577,955) $12,849 $6,692,187
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3.
<PAGE>
<TABLE>
<CAPTION>
Initio, Inc.
Consolidated Statements of Cash Flows
For the three months ended
(Unaudited)
July 31, 1999 July 31, 1998
------------- -------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) $ 2,442,455 ($202,026)
Gain on sale of discontinued operations (1,503,986) -
Gain on sale of marketable securities (43,793) (110,079)
Depreciation 24,913 43,343
Deferred tax benefit (920,000) --
Net increase in net assets of discontinued operations (282,578) --
Net increase in other assets (175,777) (864,343)
Net increase in other liabilities 109,928 224,702
----------- ----------
Net cash (used in) provided by
operating activities (348,838) (908,403)
----------- ----------
Cash flows from Investing Activities
Proceeds from sale of discontinued operations 552,328 --
Proceeds from sale of Peabody facility 253,080 --
Purchases of property and equipment (37,927) (103,679)
Net proceeds from sales/(purchases) of
marketable securities (133,687) (4,670)
Proceeds from collection of mortgage receivable 1,526 --
----------- ----------
Net cash (used in) provided by investing activities 635,320 (108,349)
----------- ----------
Cash Flows from Financing Activities
Mortgage repayment (14,264) (13,445)
Treasury stock repurchased and retired -- (234,425)
----------- ----------
Net cash provided by
financing activities (14,264) (247,870)
----------- ----------
Net (decrease) increase in Cash 272,218 (1,264,622)
Cash at beginning of period 1,182,993 2,249,992
----------- ----------
Cash at end of period $ 1,455,211 $ 985,370
=========== ==========
Supplemental disclosures:
Cash paid during the period for interest $ 57,213 $ 17,677
=========== ==========
Non-Cash Investing and Financing Activities:
Non-cash proceeds received in exchange for
assets of discontinued operations:
Receipt of Convertible Debenture $ 3,400,000 --
=========== ==========
Repayment of Subordinated Convertible Debenture $ 2,000,000 --
=========== ==========
Receipt of mortgage receivable $ 275,000 --
=========== ==========
Exchange of employee stock for note receivable $ 25,550 --
=========== ==========
Decrease in fair value of available-for-sale securities $ 53,920 $ 18,526
=========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4.
<PAGE>
Initio, Inc.
Notes to Financial Statements
Basis of Consolidation:
The consolidated financial statements include the accounts of Initio, Inc. and
its wholly owned subsidiary Initio Acquisition Corp. (formerly named Deerskin
Trading Post, Inc.), hereinafter collectively referred to as the "Company". All
material intercompany transactions and balances have been eliminated. Certain
prior period amounts have been reclassified to conform with current period
presentation.
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 to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses and consequently stockholders' equity. Examples include estimates of
future revenues and expenses. Actual results may differ from these estimates.
The Company's business cycle is seasonal in nature. Interim results are likely
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, 1999 Form 10KSB.
Income (Loss) per Share:
Basic Income (Loss) per Common Share has been computed based upon the weighted
average number of actually outstanding shares of the Company's common stock.
Diluted Income (Loss) per Common Share includes common shares associated with
certain outstanding employee stock options and a portion of the Company's
subordinated convertible debenture.
5.
<PAGE>
Initio, Inc.
Notes to Financial Statements
(Continued)
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 July 31, 1999, this pronouncement would have
no effect on the accompanying financial statements.
6
<PAGE>
Initio, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the Company's Financial Statements and Notes thereto.
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. Readers are therefore cautioned not to rely upon any
such forward-looking beliefs or judgements in making investment decisions.
Results of Operations:
As of April 30, 1999 the Company sold substantially all of the operating assets
of its catalog business. In May, 1999 the Company sold its facility in Peabody,
Massachusetts to an unrelated party. These transactions resulted in a gain,
before income taxes of approximately $ 2,388,000. Since that time the Company
has begun the process of identifying new business opportunities.
The Company's revenues, excluding gains on the sale of marketable securities
which are transactional in nature and vary from period to period, increased by
approximately $ 172,000 during the quarter. The increase resulted primarily from
interest income relating to the $ 3,400,000 Convertible debenture, rental income
from the Company's Nevada facility and management fee income from the buyer of
the Company's catalog business. The Company's general and administrative
expenses increased by approximately $ 24,000. Overall general and administrative
expenses decreased approximately $ 51,000 due to a reduction in the Company's
overhead structure offset by an increase in management's salary expense of
approximately $ 75,000. The increase was due to the reinstatement of
management's salaries during the quarter after several years of agreeing to
suspend their salaries.
In light of the foregoing transaction, the Company recognized a deferred tax
benefit of approximately $ 920,000 resulting in net income for the three months
ended July 31, 1999 of $ 2,442,455 or $ .52 per share versus a loss for the
three months ended July 31, 1998 of ($ 202,026) or ($.04) per share.
7.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations (Continued).
Liquidity and Capital Resources:
In May, 1999, when the sale of its catalog operations was consummated, the
Company received approximately $ 552,000 in cash, a $ 3,400,000 convertible
debenture of the purchaser and was released from $ 2,000,000 of its subordinated
debentures. Additionally, in connection with the sale of its Peabody,
Massachusetts facility in May, 1999, the Company received approximately $
253,000 in cash and a $ 275,000 mortgage note from the purchaser.
As of July 31st , 1999 the Company had approximately $ 2,740,000 in cash and
marketable securities.
The sale in May, 1999 of the Company's catalog operations also reduced its
long-term liability on the subordinated debenture from $ 3,500,000 to $
1,500,000. As of July 31, 1999 the Company's liabilities, excluding the
subordinated debenture and the mortgage payable, was approximately $ 150,000.
Year 2000 Compliance:
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. These effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting an entity, including those related to the efforts
of customers, suppliers, or other third parties, will be fully resolved.
The Company is directly little affected internally by Year 2000 Compliance. The
Company does not anticipate any material disruption in its operations because of
failure of Year 2000 Compliance, but has yet to make inquiry of its financial
institutions.
8.
<PAGE>
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 a Form 8-K on June 3, 1999, to report the sale of its
catalog business.
Items 1,2,3,4 and 5 are not applicable and have been omitted.
9
<PAGE>
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: September 14th, 1999 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/ Martin Fox
Martin Fox
. President and Office of the Chief Executive,
Secretary, Treasurer and Chief Financial
Officer
10.
<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>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Apr-30-1999
<PERIOD-END> Jul-31-1999
<CASH> 1,455,211
<SECURITIES> 1,283,105
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,124,938
<DEPRECIATION> 605,472
<TOTAL-ASSETS> 9,202,402
<CURRENT-LIABILITIES> 0
<BONDS> 1,500,000
0
0
<COMMON> 50,542
<OTHER-SE> 6,641,645
<TOTAL-LIABILITY-AND-EQUITY> 9,202,402
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 146,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,688
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,442,455
<EPS-BASIC> .52
<EPS-DILUTED> .49
</TABLE>
