Consider the given sequential circuit designed using D-Flip-flops. The circuit is initialized with some value (initial state). The number of distinct states the circuit will go through before returning back to the initial state is:
After a few clock pulses, the circuit reaches a state that has already occurred earlier in the sequence. From this point onward, the same pattern of states repeats cyclically.
Counting the number of unique states encountered before the first repetition shows that the circuit does not utilize all possible combinations. Only seven different states appear in the repeating cycle.
Hence, the circuit passes through \(\boxed{7}\) distinct states before returning to the initial state.