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 October 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
December 9, 1999 was 4,640,541
Transitional Small Business Disclosure Format Yes No X
-- --
<PAGE>
Initio, Inc.
Form 10-QSB
For the 6 Months ended October 31, 1999
Contents
<TABLE>
<CAPTION>
Part I. Financial Information Page
Item 1. Financial Statements
<S> <C>
a) Consolidated Statements of Operations and Comprehensive Income (Loss) for
the Three and Six Months Ended October 31st, 1999 and 1998 1.
b) Consolidated Balance Sheets as at October 31st, 1999 and
April 30th, 1999 2.
c) Consolidated Statement of Stockholders' Equity for the
Six Months Ended October 31st, 1999 3.
d) Consolidated Statements of Cash Flows for the Six
Months Ended October 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.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 10.
Signatures 11.
</TABLE>
<PAGE>
Initio, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the
(Unaudited)
<TABLE>
<CAPTION>
6 Months Ended 3 Months Ended
-------------- --------------
Oct. 31, 1999 Oct. 31, 1998 Oct. 31, 1999 Oct. 31, 1998
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Interest and dividends $ 201,683 $ 43,030 101,440 $ 12,819
Gain (loss) on the sale of marketable securities 55,732 199,799 11,939 89,720
Rental income 168,000 -- 84,000 --
Other 34,334 -- 15,979 --
-----------------------------------------------------------
459,749 242,829 213,358 102,539
-----------------------------------------------------------
Expenses:
General and administrative 280,968 258,829 134,734 137,017
Interest 133,063 167,520 51,375 87,571
-----------------------------------------------------------
414,031 426,349 186,109 224,588
-----------------------------------------------------------
Income (loss) from continuing operations
before income taxes 45,718 (183,520) 27,249 (122,049)
Income tax expense -- -- (15,500) --
Deferred tax benefit 904,500 -- -- --
-----------------------------------------------------------
Income (loss) from continuing operations 950,218 (183,520) 11,749 (122,049)
Income (loss) from discontinued operations -- (102,495) -- 38,060
Gain on sale of discontinued operations, net of
income taxes of $ 884,000 1,503,986 -- -- --
-----------------------------------------------------------
Net income (loss) 2,454,204 (286,015) 11,749 (83,989)
-----------------------------------------------------------
Other Comprehensive Income:
Unrealized Gains ( Losses ) on
Marketable Securities:
Arising during the period (255,467) (235,333) (201,547) (216,807)
Reclassification of (Gains) Losses Realized in
Other Income (63,714) (202,150) (15,198) (120,796)
-----------------------------------------------------------
(319,181) (437,483) (216,745) (337,603)
-----------------------------------------------------------
Comprehensive income ( Loss ) $ 2,135,023 $ (723,498) $ (204,996) $ (421,592)
===========================================================
Income (Loss) per Common Share:
Basic:
Continuing operations 0.20 ($ 0.04) $ 0.00 ($ 0.03)
Income (loss) from discontinued
operations 0.32 (0.02) -- 0.01
----------- ------------ ----------- ------------
Net income (loss) $ 0.52 ($ 0.06) $ 0.00 ($ 0.02)
----------- ------------ ----------- ------------
Diluted:
Continuing operations $ 0.20 ($ 0.04) $ 0.00 ($ 0.03)
Income (loss) from discontinued
operations 0.30 (0.02) -- 0.01
----------- ------------ ----------- ------------
Net income (loss) $ 0.50 ($ 0.06) $ 0.00 ($ 0.02)
----------- ------------ ----------- ------------
Weighted Average Shares
Basic 4,643,697 4,708,055 4,640,541 4,662,808
----------- ------------ ----------- ------------
Diluted 4,968,572 4,708,055 4,965,416 4,662,808
----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1.
<PAGE>
Initio, Inc.
Consolidated Balance Sheets
As at
<TABLE>
<CAPTION>
Oct. 31, 1999 April 30, 1999
------------- --------------
(Unaudited) (Audited)
Assets
<S> <C> <C>
Cash $ 1,454,344 $ 1,182,993
Marketable securities 1,173,174 1,208,061
Net assets of discontinued operations -- 3,809,844
Deferred tax asset 904,500 884,000
Property and equipment, net 1,504,675 1,506,452
Convertible debenture 3,400,000 --
Other assets 468,953 200,919
----------- -----------
Total assets $ 8,905,646 $ 8,792,269
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable 470 9,277
Accrued expenses 13,373 31,500
Mortgage payable 848,612 873,774
Other liabilities 56,000 --
Subordinated convertible debenture 1,500,000 3,500,000
----------- -----------
2,418,455 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 (1,372,104) (3,826,308)
Accumulated other comprehensive income (203,896) 115,285
----------- -----------
7,065,146 4,955,673
Less: Treasury stock, 391,871 common
shares (577,955) (577,955)
----------- -----------
Total stockholders' equity 6,487,191 4,377,718
----------- -----------
Total liabilities and stockholders' equity $ 8,905,646 $ 8,792,269
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2.
<PAGE>
Initio, Inc.
Consolidated Statements of Stockholders' Equity
For the six months ended October 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 (319,181) (319,181)
Net income 2,454,204 2,454,204
-------------------------------------------------------------------------------------------
Balance October 31, 1999 $ 50,542 $ 8,590,604 ($1,372,104) ($ 577,955) ($ 203,896) $ 6,487,191
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3.
<PAGE>
Initio, Inc.
Consolidated Statements of Cash Flows
For the six months ended
(Unaudited)
<TABLE>
<CAPTION>
Oct. 31, 1999 Oct 31, 1998
------------- ------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) $ 2,454,204 ($ 286,015)
Gain on sale of discontinued operations (1,503,986) --
Gain on sale of marketable securities (55,732) (199,799)
Depreciation 39,704 83,186
Deferred tax benefit (904,500) --
Net increase in net assets of discontinued operations (282,578) --
Net increase in other assets (21,679) (1,423,281)
Net increase in other liabilities 29,066 585,927
----------- -----------
Net cash (used in) provided by
operating activities (245,501) (1,239,982)
----------- -----------
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) (111,838)
Net proceeds from sales/(purchases) of
marketable securities (228,562) 55,286
Proceeds from collection of mortgage receivable 3,095 --
----------- -----------
Net cash (used in) provided by investing activities 542,014 (56,552)
----------- -----------
Cash Flows from Financing Activities
Mortgage repayment (25,162) (19,258)
Treasury stock repurchased and retired -- (234,425)
----------- -----------
Net cash (used in) provided by
financing activities (25,162) (253,683)
----------- -----------
Net (decrease) increase in Cash 271,351 (1,550,217)
Cash at beginning of period 1,182,993 2,249,992
----------- -----------
Cash at end of period $ 1,454,344 $ 699,775
=========== ===========
Supplemental disclosures:
Cash paid during the period for interest $ 107,450 $ 167,520
=========== ===========
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 $ 255,467 $ 201,547
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 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 October 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 substantial
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, recognized in the quarter
ending July 31, 1999. Since that time the Company has begun the process of
identifying new business opportunities. In view of the Company's sale of
substantially all of its operating assets during the quarter ending July 31,
1999, the results of operations for the six and three months ending October 31,
1999 are not comparable to those of the corresponding periods in 1998.
In light of the foregoing transaction, the Company recognized a deferred tax
benefit of approximately $920,000 resulting in net income for the six months
ended October 31, 1999 of $2,454,204 or $ .52 per share versus a loss for the
six months ended October 31, 1998 of ($286,015) or ($.06) per share.
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 $361,000 and $188,000 for the six and three month periods ending
October 31, 1999, respectively as compared to the comparable periods in 1998.
The increases result primarily from interest income on the $3,400,000
convertible debenture and rental
7.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations (Continued).
income from the Company's Nevada facility. The Company's general and
administrative expenses increased by approximately $22,000 and decreased by
approximately $2,000, respectively, for the six and three month periods ending
October 31, 1999 over the comparable periods in 1998. Overall general and
administrative expenses decreased by approximately $128,000 and $77,000 for the
six and three month periods ending October 31, 1999 over 1998, respectively due
to a reduction in the Company's overhead structure. However, these decreases
were offset by an increase in management salaries of approximately $150,000 and
$75,000, respectively for the six and three month periods ending October 31,
1999. The increase in salaries was due to the reinstatement of management
salaries beginning May 1, 1999 after several years of agreeing to suspend these
salaries.
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 October 31st, 1999 the Company had approximately $2,630,000 in cash and
marketable securities.
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.
8.
<PAGE>
Year 2000 Compliance (Continued):
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.
9.
<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 no reports on Form 8-K during the quarter ended October 31st,
1999.
Items 1,2,3,4 and 5 are not applicable and have been omitted.
10.
<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: December 9th, 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
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> <C>
<PERIOD-TYPE> 6-MOS 12-MOS 6-MOS
<FISCAL-YEAR-END> APR-30-2000 APR-30-1999 APR-30-1999
<PERIOD-END> OCT-31-1999 APR-30-1999 OCT-31-1998
<CASH> 1,454,344 1,182,993 0
<SECURITIES> 1,173,174 1,208,061 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 2,124,938 2,052,925 0
<DEPRECIATION> 620,263 546,473 0
<TOTAL-ASSETS> 8,905,646 8,792,269 0
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 1,500,000 3,500,000 0
0 0 0
0 0 0
<COMMON> 50,542 50,654 0
<OTHER-SE> 6,436,649 4,327,064 0
<TOTAL-LIABILITY-AND-EQUITY> 8,905,646 8,792,269 0
<SALES> 0 0 0
<TOTAL-REVENUES> 0 0 0
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 280,968 236,608 258,829
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 133,063 92,400 167,520
<INCOME-PRETAX> 459,749 373,801 242,829
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,454,204 99,229 (286,015)
<EPS-BASIC> .52 .02 (.06)
<EPS-DILUTED> .50 .02 (.06)
</TABLE>
