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, 2000 ( ) 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 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.