U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended August 31, 2001
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from __________ to __________
Commission File Number 0-32133
DONINI, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
New Jersey 22-3768426
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4555 boul, des Grandes Prairies, #30
St. Leonard, Montreal, Quebec, Canada H1R 1A5
(Address of Principal Executive Offices)
(514) 327-6006
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer 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 each of the issuer's classes of common
equity, as of August 31, 2001: 16,743,937 shares of common stock
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
Donini, Inc.
(A Development Stage Company)
TABLE OF CONTENTS
PART I Page
----
Item 1 - Financial Information (unaudited)
Donini, Inc.
Consolidated Balance Sheets as of
August 31, 2001 and May 31, 2001.................................. 3-4
Consolidated Statements of Operations
for the three month period
ended August 31, 2001 and 2000 ................................... 5
Consolidated Statements of Cash Flows
for the three month periods
ended August 31, 2001 and 2000.................................... 6
Consolidated Statements of Stockholders'
deficit and Comprehensive Income as
of June 1, 1998, May 31, 1999,
2000 and 2001, and August 31, 2001................................ 7
Notes to Financial Statements (unaudited)................................. 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
PART II
Item 1 - Legal Proceedings................................................ 10
Item 2 - Changes in Securities and Use of Proceeds........................ 11
Item 3 - Defaults Upon Senior Securities.................................. 11
Item 4 - Submission of Matters to a Vote of Security Holders.............. 11
Item 6 - Exhibits and Reports on Form 8-K................................. 11
2
PART I
Item 1 - Financial Information (unaudited)
DONINI INC.
Consolidated Balance Sheet
(Expressed in United States dollars)
===============================================================================================
August 31, May 31,
2001 2001
-----------------------------------------------------------------------------------------------
Assets
Current assets:
Accounts receivable, net of allowance for
doubtful accounts $ 50,269 $ 51,940
Income and sales taxes receivable 65,923 39,908
Current portion of balance of sales receivable 102,858 90,421
Due from Shareholder 58,763 0
Inventories 24,451 24,296
Prepaid expenses 8,114 8,175
Assets held for resale 81,940 169,065
----------------------------------------------------------------------------------------
392,318 383,805
Balance of sales receivable 278,821 207,546
Fixed assets 399,314 397,617
Trade Marks 12,329 12,375
-----------------------------------------------------------------------------------------------
$ 1,082,782 $ 1,001,343
===============================================================================================
3
DONINI INC
Consolidated Balance Sheet
(Expressed in United States dollars)
===============================================================================================
August 31, May 31,
2001 2001
-----------------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficit
Current liabilities:
Bank indebtedness $ 351,138 211,185
Accounts payable and accrued liabilities 1,066,242 1,054,188
Due to an employee, non-interest bearing and unsecured 27,520 28,370
Loans payable 44,758 54,351
Due to shareholder 0 22,445
Current portion of long-term debt 83,321 84,162
----------------------------------------------------------------------------------------
1,572,979 1,454,701
Long-term debt 208,390 171,459
Shareholder's deficit:
Common stock, $0.001 par value:
100,000,000 shares authorized,
16,743,937 and 15,158,937 shares issued
and outstanding at August 31, 2001 and
May 31, 2001 respectively 16,744 15,159
Additional paid in capital 2,895,205 2,572,629
Deficit (3,729,214) (3,333,094)
Accumulated other comprehensive income:
Cumulative currency translation adjustment 118,678 120,489
----------------------------------------------------------------------------------------
Total shareholders' deficit (698,587) (624,817)
----------------------------------------------------------------------------------------
$ 1,082,782 $ 1,001,343
===============================================================================================
See accompanying notes to consolidated financial statement
4
DONINI INC.
Consolidated Statement of Operations
Three months period ended August 31, 2001and 2000
(Expressed in United States dollars)
===============================================================================
2001 2000
-------------------------------------------------------------------------------
Revenues:
Sales $ 253,496 $ 189,525
Royalties and other related revenues 177,252 174,843
Order processing fees 66,984 64,430
Interest Income 6,342 5,580
------------------------------------------------------------------------
504,074 434,378
Cost of goods sold 170,655 122,524
Cost of supplies to franchises 2,255 24,791
------------------------------------------------------------------------
172,910 147,315
------------------------------------------------------------------------
331,164 287,063
Costs and expenses:
Advertising and promotion 76,127 94,692
Salaries 91,461 66,691
General and administrative expenses 191,273 84,428
Depreciation 15,368 9,259
Interest Expense 29,444 16,664
Compensation costs 323,611 0
------------------------------------------------------------------------
727,284 271,734
------------------------------------------------------------------------
Income (Loss) before income taxes $ (396,120) 15,329
Income Tax 0 0
Net income (loss) $ (396,120) 15,329
===============================================================================
Income (loss) per share Basic $ (.03) $ .00
===============================================================================
Weighted Average Shares Outstanding 15,193,393 10,000,000
===============================================================================
See accompanying notes to consolidated financial statements.
5
DONINI INC.
Consolidated Statements of Cash Flows
Three months ended August 31, 2001 and 2000
(expressed in United States dollars)
===============================================================================
2001 2000
-------------------------------------------------------------------------------
Cash flows from operating:
Net income (loss) (396,120) 15,329
Adjustments for:
Depreciation 15,368 9,259
Compensation expense 323,611 0
Foreign exchange (1,811) (20,109)
Net increase (decrease) in
allowance for doubtful accounts (248) 0
Net change in operating working capital items:
Accounts receivable 1,919 (20,119)
Income and sales tax
receivable (26,015) (1,659)
Due from
shareholder (58,763) 0
Inventories (155) 1,972
Prepaid expenses 61 (32,351)
Accounts payable and accrued liabilities 12,054 (158,036)
Due to shareholder (22,445) 0
------------------------------------------------------------------
(152,544) (205,714)
Cash flows from financing activities:
Bank indebtedness 139,953 (27,159)
Repayments of amounts due to employee (850) 0
Proceeds of loans payable (9,593) 8,155
Repayment of loans payable 0 (14,830)
Proceeds from long-term debt 40,000 411,126
Repayment of long-term debt (3,910) (99,758)
Repayment of obligations under capital lease 0 (1,252)
Exercise of stock options 550 0
------------------------------------------------------------------------
166,150 276,282
Cash flows from investing activities:
Increase in balance of sales receivable (100,979) (50,970)
Repayment of balance of sales receivable 17,267 7,494
Acquisition of fixed assets (17,065) (9,904)
Trademarks 46 0
Assets held for resale 87,125 (17,188)
------------------------------------------------------------------------
(13,606) (70,568)
===============================================================================
Net decrease in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of the period 0 0
===============================================================================
Cash and cash equivalents at end of the period $ 0 $ 0
===============================================================================
6
DONINI, INC.
Consolidated Statement of Stockholders' Deficit and Comprehensive Income
(expressed in United States dollars)
===============================================================================================================
Additional Accumulated
Common paid in comprehensive
Stock capital Deficit income Total
---------------------------------------------------------------------------------------------------------------
June 1, 1998 $ 10,000 $ 925,213 $(1,976,625) $ 41,293 $(1,000,119)
Net loss (77,286) (77,286)
Foreign currency adjustment 49,846 49,836
------------
Total comprehensive income (27,440)
---------------------------------------------------------------------------------------------------------------
May 31, 1999 10,000 925,213 (2,053,911) 91,139 (1,027,559)
Net loss (249,730) (249,730)
Foreign currency adjustment 26,612 26,612
------------
Total comprehensive income (223,118)
---------------------------------------------------------------------------------------------------------------
May 31, 2000 10,000 925,213 (2,303,641) 117,751 (1,250,677)
Net loss (1,029,453) (1,029,453)
Foreign currency adjustment 2,738 2,738
------------
Total comprehensive income (1,026,715)
Issuance of common shares 1,918 432,657 434,575
Conversion of debenture 2,207 497,793 500,000
Compensation expense -- 35,000 35,000
Conversion of long-term debt 1,034 681,966 683,000
---------------------------------------------------------------------------------------------------------------
May 31, 2001 $ 15,159 $ 2,572,629 $(3,333,094) $ 120,489 $ (624,817)
Net loss (396,120) (396,120)
Foreign currency adjustment (1,811) (1,811)
------------
Total comprehensive income (1,022,748)
Compensation expense 1,035 198,496 199,531
Stock options exercised 550 124,080 124,630
---------------------------------------------------------------------------------------------------------------
August 31, 2001 $ 16,744 $ 2,895,205 $(3,729,214) $ 118,678 $ (698,587)
===============================================================================================================
7
DONINI, INC. and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Preparation
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are, in
the opinion of management, necessary to present fairly the financial position as
of August 31, 2001, and the results of operations and cash flows for the period
then ended. All such adjustments are of a normal and recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes for the fiscal year ended
May 31, 2001.
2. Common Stock and Stock Options
(a) Summary of common stock outstanding:
A summary of the common shares outstanding and transactions since June 1, 2001
is detailed as follows:
Balance outstanding June 1, 2001 15,158,937
Issue of common shares for services rendered 1,035,000
Conversion of stock options issued to employees 550,000
Balance outstanding at August 31, 2001 16,743,937
Due to arrangements made with third parties to provide services to the Company
that were executed in May 2001 an additional 1,035,000 shares of common stock
was issued in August 2001. Also, certain options issued to certain key
executives to acquire a maximum of 550,000 shares of common stock of the Company
at $.001 were exercised in August 2001. The estimated fair value of the shares
issued and the resultant conversion of discounted options amounted to $323,611
that has been recorded as compensation expense.
(b) Stock options
During the three months ended August 31, 2001 the following changes occurred in
outstanding stock options.
Options outstanding at May 31, 2001 9,235,000
Options granted -0-
Options exercised 550,000
Options outstanding at August 31, 2001 8,685,000
8
3. Liquidity
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern and that assets and liabilities have
been recorded on the basis that the entity will be able to realize its assets
and discharge its liabilities in the normal course of business. However, the
accompanying financial statements report that the Company has incurred
significant operating losses which were aggravated in 2001 due to costs
associated with the recapitalization, product development and compensation, has
a deficit in shareholders' equity and a working capital deficit at May 31, 2001.
In addition, the Company may require additional financing to meet its current
obligations.
The above matters raise doubt as to the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern will depend on its
return to profitable operations and the ability to obtain additional financing.
Should the going concern assumption not be appropriate, significant adjustments
may be necessary to the recorded amounts of assets and liabilities.
In order to meet that challenge, the Company has adopted a plan to secure
additional capital funding by engaging the services of an investment banker to
raise an additional $2,000,000 of equity and/or debt financing through the
issuance of common stock, convertible debentures or a combination thereof. In
addition, the Company has secured further commitments from its existing and new
customers for additional installations at their food services facilities to
provide ready made frozen pizza and is seeking to finance this future growth
through equipment leasing arrangements. Finally, the Company has adopted various
streamlining and cost control measures to ensure that optimal profit margins are
realized and that existing resources are maximized.
9
PART I
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Pizza Donini Inc. supports twenty-nine (29) franchised pizza outlets. At
August 31, 2001 Pizza Donini Inc. also owned three (3) additional locations that
are being held with the intention to sell as Donini franchises. All locations
are in Greater Montreal.
In the first quarter of fiscal 2002 the Company began offering for sale its
fully topped ready-to-use self-rising crust, frozen pizza in twenty-seven (27)
in-store restaurants of Zellers, Inc. During the second quarter of fiscal 2002,
the Company extended the sale of its fully-topped, ready-to-use self-rising
crust frozen pizza to an additional seven (7) in-store restaurants of Zellers in
Winnipeg, Manitoba, the Molson Center in Montreal and four (4) other
business-to-business relationships.
Pizza Donini Inc. is further developing its B2B (business to business)
distribution network of fully-topped, ready-to-use, self-rising crust, frozen
pizza to foodservice customers and is in discussion with a number of potential
customers such as department store cafeterias, other restaurants, hospitality
and leisure venues, convenience stores, and contract caterers.
In addition to generating revenues from its franchisees in the form of
initial franchise fees and royalties, Pizza Donini Inc. revenues have also been
generated by two other operating subsidiaries, Pizado Foods (2001) Inc.
("Pizado") and Pizza Donini.Com Inc. Pizado sells raw food products and other
supplies to Donini franchisees and is offering selected products to other
distributors and manufacturers. Pizado also intends to expand its distribution
business. Pizza Donini.Com Inc. manages the call center that executes home
delivery orders, from a single telephone number, to the closest franchisee.
For the three months ended August 31, 2001 franchise operations accounted for
approximately 48% of the Company's total revenues, while the sale of wholesale
food products equaled approximately 50% and the remaining revenues accounted for
2%. This compares to 55%, 44% and 1% respectively for same fiscal 2000 period.
The continued change in sales mix again resulted primarily from increased
management focus on the wholesale food products markets and other
business-to-business opportunities.
During the first quarter of fiscal 2002 Company revenues were $504,074 as
compared to $434,378 for the same period in 2001, an increase of $69,696 or
16.0%. Cost of goods sold for the three months ended August 31, 2001 was
$170,655 or 67.3% as compared to $122,524 or 64.6% for the same period in fiscal
2001. The increase in sales is primarily a result of sales to Zellers, Inc. of
approximately $66,000 during the first quarter of fiscal 2002. Cost of goods for
the fully-topped, ready-to-use, self-rising crust, frozen pizza product that is
sold to Zellers is also higher than other products traditionally sold by the
Company which resulted in the increase in cost of goods for the first quarter of
fiscal 2002 as compared to the same period in the prior year.
10
Net income/(losses) decreased $411,449 from $15,329 during the first three
months fiscal 2001 to ($396,120) for the same period in 2002. The decrease in
net income/(losses) are primarily due to increases in non-cash stock based
compensation and general and administrative expenses of $323,611 and $84,345
respectively. The increase in general and administrative expenses were primarily
made up of costs related to expansion of the business-to-business operations,
officers and directors liability insurance and increases in travel costs related
to the business combination of approximately $42,000, $11,000 and $19,000
respectively.
Working capital deficit during this period increased from $1,070,896 at May
31, 2001 to $1,180,371 at August 31, 2001. Total assets increased from
$1,001,343 as of May 31, 2001 to $1,082,782 as of August 31, 2001.
Management believes that the results reflected above are due to increased
management focus on the wholesale food products markets and additional costs
associated with its combination with Donini, Inc. In addition, management
believes that its investment into its centralized call center and other
marketing efforts of Pizza Donini.Com Inc. and its development of a high quality
product line will result in future expansion and increased profitability.
Management also believes that operating profits have been lowered due to the
investment into new products.
The Company maintains that its liquidity will improve marginally with
improved earnings, but will not be sufficient to allow it to expand its
operations to any significant degree. The Company has adopted a plan to secure
additional capital funding by engaging the services of an investment banker to
raise an additional $2,000,000 of equity and/or debt financing through the
issuance of common stock, convertible debentures or a combination thereof. In
addition, the Company has secured further commitments from its existing and new
customers for additional installations at their food service facilities to
provide fully topped ready-to-use self-rising crust frozen pizza and is seeking
to finance this future growth through equipment leasing arrangements. The
Company has maintained its liquidity through the first quarter of fiscal 2002
through net borrowings in short and long-term debt of approximately $200,000.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
We are presently a party in the following legal proceedings:
161324 Canada Inc. vs. Do-Rest Inc. and Pizza Donini Inc.
This action was instituted in April 1998 in an attempt to void the sale and
transfer of trademarks from Do-Rest Inc. (formerly Donini Restaurant Inc.) to
Pizza Donini Inc. and to have Pizza Donini Inc. declared jointly and severally
liable for a claim in excess of $400,000 against Do-Rest Inc. a former
subsidiary of Pizza Donini Inc. 161324 Canada Inc. was a former franchisee of
Do-Rest Inc., which is no longer an operating company. The parties have agreed
that no action will be taken by 161324 Canada Inc. on this matter until a
decision has been rendered on the damages claim by 161324 Canada Inc.
11
161324 Canada Inc. vs. Do-Rest Inc.
This action was instituted by a franchisee, 161324 Canada Inc., against its
franchisor, Do-Rest Inc. (formerly Donini Restaurant Inc.). The franchisee
sought in excess of $400,000 in damages, however in May of 1998 the action was
dismissed by the Superior Court of Quebec. An appeal has been taken and a
hearing date is not expected before February 2003. Legal counsel for Do-Rest
Inc. has expressed confidence that the appeal will be dismissed thus causing the
matter referenced above against our subsidiary Pizza Donini Inc. for joint and
several liability to be dismissed as well.
National Bank of Greece (Canada) vs. Pizza Donini Inc.
This is an action by a former banker against our subsidiary Pizza Donini Inc.
for repayment of a loan originally due in March 2003. Pizza Donini Inc. is
disputing certain fees charged by the bank, has counter sued and ceased making
monthly payments on the loan. The amount of the loan, including interest is
approximately $55,000. We believe this matter will be settled for an amount less
than the sum sought. The amount of this claim has been reported as a liability
in the financial statements of the Company.
No director, officer, or affiliate of the Company, or any associate of any of
them, is a party to, or has a material interest in, any proceeding adverse to
us.
Item 2 - Changes in Securities and Use of Proceeds
The total number of shares of Common Stock issued and outstanding as of
August 31, 2001 was 16,743,937.
Item 3 - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
During the quarter ended August 31, 2001 we filed a Report on Form 8-K on
June 5, 2001.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
DONINI, INC.
Date: November 5, 2001 By: /s/ Peter Deros
--------------------------------
Peter Deros, President
13