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 January 31st, 2000
( ) 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
February 25, 2000 was 4,635,541
Transitional Small Business Disclosure Format Yes No X
Initio, Inc.
Form 10-QSB
For the 9 Months ended January 31, 2000
Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended January 31st, 2000 and 1999 1.
b) Consolidated Balance Sheets as at January 31st, 2000 and
April 30th, 1999 3.
c) Consolidated Statement of Stockholders' Equity for the
Nine Months Ended January 31st, 2000 4.
d) Consolidated Statements of Cash Flows for the Nine
Months Ended January 31st, 2000 and 1999 5.
e) Notes to Financial Statements 7.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8K
a) Exhibit 27 13.
Signatures 14.
Initio, Inc.
Consolidated Statements of Operations adn Comprehensive Income (Loss)
For the
(Unaudited)
9 Months Ended 3 Months Ended
Jan. 31, 2000 Jan. 31, 1999 Jan. 31, 2000 Jan. 31, 1999
Revenues:
Interest and dividends $240,199 $63,640 38,516 $20,610
Gain on the sale of 161,632 246,061 105,900 46,262
marketable securities
Rental income 252,000 - 84,000 -
Other 48,914 - 14,580 -
702,745 309,701 242,996 66,872
Expenses:
General and administrative 422,449 397,861 141,481 139,032
Interest 184,177 248,195 51,114 80,675
606,626 646,056 192,595 219,707
Income (loss) from continuing
operations before income
taxes 96,119 (336,355) 50,401 (152,835)
Income tax (expense) (32,700) - (17,200) -
Deferred tax benefit 920,000 - - -
Income (loss) from continuing 983,419 (336,355) 33,201 (152,835)
operations
Income (loss) from discontinued - (69,000) - 33,495
operations
Gain (loss) on sale of
discontinued operations,
net of income taxes of
$ 884,000 1,488,727 - (15,259) -
Net income (loss) 2,472,146 (405,355) 17,942 (119,340)
Other Comprehensive Income before tax:
Unrealized Gains ( Losses) on
Marketable Securities:
Arising during the period 592,392 (134,538) 847,859 100,795
Reclassification of Gains
Realized in
Other Income (81,404) (349,945) (17,690) (147,795)
Other comprehensive income 510,988 (484,483) 830,169 (47,000)
(loss) before tax
Income tax expense related (173,800) (282,300)
to other comprehensive income
Other comprehensive income 337,188 (484,483) 547,869 (47,000)
(loss) after tax
Comprehensive income (loss) $2,809,334 $(889,838) $565,811 $(166,340)
The accompanying notes are an integral part of these financial statements.
1.
Initio, Inc.
Consolidated Statements
For the
(Unaudited)
9 Months Ended 3 Months Ended
Jan. 31, 2000 Jan. 31, 1999 Jan. 31, 2000 Jan. 31, 1999
Income (Loss) per Common Share
Basic:
Continuing operations 0.21 ($0.07) $0.01 ($0.03)
Income (loss) from discontinued
operations 0.32 (0.02) - -
Net income (loss) $0.53 ($0.09) $0.01 ($0.03)
Diluted:
Continuing operations $0.21 ($0.07) $0.01 ($0.03)
Income (loss) from discontinued
operations 0.32 (0.02) - -
Net income (loss) $0.53 ($0.09) $0.01 ($0.03)
Weighted Average Shares
Basic 4,642,047 4,685,933 4,638,748 4,640,592
Diluted 4,642,247 4,685,933 4,638,948 4,640,592
The accompanying notes are an integral part of these financial statements.
2.
Initio, Inc.
Consolidated Balance Sheets
As at
Jan. 31, 2000 Jan. 31, 1999
(Unaudited) (Audited)
Assets
Cash 1,351,652 1,182,993
Marketable securities 2,495,204 1,208,061
Net assets of discontinued operations - 3,809,844
Deferred tax asset 746,200 884,000
Property and equipment, net 1,490,006 1,506,452
Convertible debenture 3,000,000 -
Other assets 525,259 200,919
Total assets 9,608,321 8,792,269
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable 2,339 9,277
Accrued expenses 23,510 31,500
Income taxes payable 32,700 -
Mortgage payable 837,446 873,774
Other liabilities 56,000 -
Subordinated convertible debenture 1,500,000 3,500,000
2,451,995 4,414,551
Commitments
Stockholders' Equity
Common Stock, $ .01 par value, Authorized
10,000,000 shares, 5,027,412 issued and
4,635,541 outstanding shares 50,492 50,654
Additional paid in capital 8,585,478 8,616,042
Accumulated deficit (1,354,162) (3,826,308)
Accumulated other comprehensive incom 452,473 115,285
7,734,281 4,955,673
Less: Treasury stock, 391,871 common
shares (577,955) (577,955)
Total stockholders' equity 7,156,326 4,377,718
Total liabilities and stockholders 9,608,321 8,792,269
The accompanying notes are an integral part of these financial statements.
3
Initio, Inc.
Consolidated Statements of Stockholder's Equity
For the nine months ended January 31, 2000
(Unaudited)
Acumulated
Additional Other
Common Paid In Accumulated Treasury Comprehensive
Stock Capital Deficit Stock Income Total
Balance $50,654 $8,616,042 ($3,826,308) ($577,955) $115,285 $4,377,718
Cancellation of
by employee to (112) (25,438) (25,550)
repay loan
Purchase and retirement
of 5,000 shares (50) (5,126) (5,176)
Other comprehensive 337,188 337,188
income
Net income 2,472,146 2,472,146
Balance $50,492 $8,585,478 ($1,354,162)($577,955) $452,473 $7,156,326
4.
Initio, Inc.
Consolidated Statements of Cash Flows
For the nine months ended
(Unaudited)
Jan. 31, 2000 Jan. 31, 1999
Cash Flows from Operating Activities
Net income (loss) 2,472,146 (405,355)
Gain on sale of discontinued operations (1,488,727) -
Gain on sale of marketable securities (161,632) (246,061)
Depreciation 54,373 126,729
Deferred tax benefit (920,000) -
Net increase in net assets of discontinued (297,837) -
operations
Net increase in other assets (81,124) 111,893
Net increase in other liabilities 73,772 263,132
Net cash (used in) provided by
operating activities (349,029) (149,662)
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) (166,447)
Proceeds from collection of convertible 400,000 -
debenture
Net proceeds from sales/(purchases) of
marketable securities (614,523) 58,789
Proceeds from collection of mortgage receivable 6,234 -
Net cash (used in) provided by investing 559,192 (107,658)
activities
Cash Flows from Financing Activities
Mortgage repayment (36,328) (26,043)
Issuance of convertible debt - 500,000
Treasury stock repurchased and retired (5,176) (262,700)
Net cash (used in) provided by
financing activities (41,504) 211,257
Net (decrease) increase in Cash 168,659 (46,063)
Cash at beginning of period 1,182,993 2,249,992
Cash at end of period 1,351,652 2,203,929
The accompanying notes are an integral part of these financial statements.
5
Initio, Inc.
Consolidated Statements of Cash Flows (continued):
For the nine months ended
(Unaudited)
Jan. 31, 2000 Jan. 31, 1999
Supplemental disclosures:
Cash paid during the period for interest $157,426 $248,195
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 -
Increase (decrease) in fair value of available- $592,392 (134,538)
for-sale securities
The accompanying notes are an integral part of these financial statements.
6
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 actual 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.
7.
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 January 31, 2000, this pronouncement would
have no effect on the accompanying financial statements.
8.
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 nine and three months ending January
31, 2000 are not comparable to those of the corresponding periods in 1999,
although the nine and three months ending January 31, 1999 have been restated
to conform with current presentation.
In light of the foregoing transaction and the change in business focus, the
Company recognized a deferred tax benefit of approximately $ 920,000 resulting
in net income for the nine months ended January 31, 2000 of $ 2,472,146 or $
.53 per share versus a loss for the nine months ended January 31, 1999 of ($
405,355) or ($.09) 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 $ 477,000 and $ 116,000 for the nine and three month periods
ending January 31, 2000, respectively as compared to the comparable periods in
1999. The increases result primarily from interest income on the convertible
debentures received as part of the sales proceeds of the catalog business
assets and rental income from the Company's Nevada facility.
9.
Item 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations (Continued).
The Company's general and administrative expenses increased by approximately $
25,000 and $ 2,000, respectively, for the nine and three month periods ending
January 31, 2000 over the comparable periods in 1999. Overall general and
administrative expenses decreased by approximately $ 200,000 and $73,000 for
the nine and three month periods ending January 31, 2000 over 1999,
respectively due to a reduction in the Company's overhead structure. However,
these decreases were offset by an increase in management salaries of
approximately $ 225,000 and $ 75,000, respectively for the nine and three month
periods ending January 31, 2000. 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. The increase of approximately $ 324,000 in other assets for the nine
months ended January 31, 2000 is primarily a result of the $ 275,000 mortgage
receivable from the purchaser of the Peabody facility.
As of January 31st, 2000 the Company had approximately $ 3,847,000 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.
10.
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.
11.
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, 2000.
Items 1,2,3,4 and 5 are not applicable and have been omitted.
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 12 Months Nine Months
Period End 31-Jan-00 30-Apr-99 31-Jan-99
Cash $1,351,652 $1,182,993
Securities 2,495,204 1,208,061
Current assets N/a N/a
Property and Equipment 2,124,938 2,052,925
Accumulated Depreciation 634,932 546,473
Total Assets 9,608,321 8,792,269
Current Liabilities N/a N/a
Bonds 1,500,000 3,500,000
Preferred 0 0
Common 50,492 50,654
Other Stockholders Equity 7,105,834 4,327,064
Total Liabilities & Stockholders Equity 9,608,321 8,792,269
Income 702,745 373,801 $309,701
Other Expenses 422,449 236,608 397,861
Interest Expense 184,177 92,400 248,195
Net Income (loss) 2,472,146 99,229 (405,355)
Basic Income (loss) per share 0.53 0.02 (0.09)
Diluted Income (loss) per share 0.53 0.02 (0.09)
13.
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 3rd, 2000 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
14.
