U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended November 30, 2001
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
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Commission File Number 0-32133
DONINI, INC.
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(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
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(Address of Principal Executive Offices)
(514) 327-6006
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(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 January 14, 2002: 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
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Item 1 - Financial Information (unaudited)
Donini, Inc.
Consolidated Statements of Cash Flows
for the six months ended November 30, 2001
and 2000.............................................................. 1
Consolidated Statements of Operations
for the six month periods
ended November 30, 2001 and 2000 ..................................... 3
Consolidated Balance Sheets as of
November 30, 2001 and November 30, 2000............................... 4
Consolidated Statements of Operations
for the three month periods
ended November 30, 2001 and 2000...................................... 6
Consolidated Statements of Stockholders'
deficit and Comprehensive Income
as of May 31, 2001, and November 30, 2001............................. 7
Notes to Financial Statements (unaudited).................................. 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 10
PART II
Item 1 - Legal Proceedings................................................. 11
Item 2 - Changes in Securities and Use of Proceeds......................... 12
Item 3 - Defaults Upon Senior Securities................................... 12
Item 4 - Submission of Matters to a Vote of Security Holders............... 12
Item 6 - Exhibits and Reports on Form 8-K.................................. 12
i
PART I
Item 1- Financial Information (unaudited)
Donini Inc.
Consolidated Statements of Cash Flows
Six months ended November 30, 2001 and 2000
(expressed in United States dollars)
===============================================================================
2001 2000
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Cash flows from operating activities:
Net (loss) income ($535,560) $ 12,387
Adjustments for:
Depreciation 29,851 17,540
Compensation costs 323,611 --
Foreign exchange 4,509 35,760
Net (decrease) increase in
allowance for doubtful accounts (711) 11,064
Net change in operating working capital items:
Accounts receivable (28,841) (65,320)
Income and sales tax receivable (11,990) 1,320
Inventories 341 (94)
Prepaid expenses 1,032 (6,708)
Accounts payable and accrued liabilities 159,217 (64,008)
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(58,541) (58,059)
Cash flows from financing activities:
Bank indebtedness 47,155 (25,659)
Repayments of due to employee (1,242) (807)
Due from shareholder (126,565) --
Proceeds of loans payable 117,366 --
Repayment of loans payable (27,204) (10,030)
Proceeds from long-term debt 43,170 511,659
Repayment of long-term debt (14,575) (235,122)
Repayment of obligations under capital lease -- (3,856)
Issue of Class B common shares -- 13
Exercise of stock options 550 --
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38,655 236,198
Cash flows from investing activities:
Increase in balance of sales receivable (104,940) (113,470)
Repayment of balance of sales receivable 91,619 32,883
Acquisition of fixed assets (55,201) (2,242)
Trademarks 132 --
Assets held for resale 88,276 (95,310)
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19,886 (178,139)
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Net decrease in cash and cash equivalents -- --
Cash and cash equivalents at beginning of the period -- --
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Cash and cash equivalents at end of the period $ -- $ --
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1
DONINI INC.
Consolidated Statement of Operations
Six months period ended November 30, 2001 and 2000
(Expressed in United States dollars)
================================================================================
2001 2000
Revenues:
Sales $ 448,420 $ 393,619
Royalties and other related revenues 311,295 328,316
Order processing fees 122,869 126,485
Interest Income 11,316 11,764
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893,900 860,184
Cost of goods sold 342,294 250,494
Cost of supplies to franchises 3,223 27,128
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345,517 277,622
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548,383 582,562
Costs and expenses:
Advertising and promotion 435,021 180,670
General and administrative 552,277 332,793
Depreciation 29,851 17,497
Interest 66,794 39,247
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1,083,943 570,207
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Net (loss) income ($535,560) $ 12,355
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(Loss) income per share - Basic ($0.034) $ 0.001
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Weighted Average Shares Outstanding 15,964,429 10,000,000
See accompanying notes to consolidated financial statements.
2
DONINI INC.
Consolidated Balance Sheet
(Expressed in United States dollars)
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November 30, May 31,
2001 2001
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Assets
Current assets:
Accounts receivable, net of allowance for
doubtful accounts $ 81,492 $ 51,940
Income and sales taxes receivable 51,898 39,908
Current portion of balance of sales receivable 88,659 90,421
Due from shareholder 104,120 --
Inventories 23,955 24,296
Prepaid expenses 7,143 8,175
Assets held for resale 80,789 169,065
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438,056 383,805
Balance of sales receivable 222,629 207,546
Fixed assets 422,967 397,617
Trademarks 12,243 12,375
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$1,095,895 $1,001,343
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3
========================================================================================
November 30, May 31,
2001 2001
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Liabilities and Shareholders' Deficit
Current liabilities:
Bank indebtedness $ 258,340 211,185
Accounts payable and accrued liabilities 1,213,405 1,054,188
Due to an employee, non-interest bearing and unsecured 27,128 28,370
Loans payable 144,513 54,351
Due to shareholder -- 22,445
Current portion of long-term debt 81,807 84,162
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1,725,193 1,454,701
Long-term debt 202,409 171,459
Shareholder's deficit:
Common stock, $0.001 par value:
100,000,000 shares authorized,
16,743,937 and 15,158,937 shares issued
and outstanding at November 30 and
May 31, 2001 respectively 16,744 15,159
Additional paid in capital 2,895,205 2,572,629
Deficit (3,868,654) (3,333,094)
Accumulated other comprehensive income:
Cumulative currency translation adjustment 124,998 120,489
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Total shareholders' deficit (831,707) (624,817)
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$ 1,095,895 $ 1,001,343
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See accompanying notes to consolidated financial statements
4
DONINI INC.
Consolidated Statement of Operations
Three months period ended November 30, 2001 and 2000
(Expressed in United States dollars)
===============================================================================
2001 2000
Revenues:
Sales $ 194,924 $ 204,094
Royalties and other related revenues 134,043 153,473
Order processing fees 55,885 62,055
Interest Income 4,974 6,184
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389,826 425,806
Cost of goods sold 171,639 127,970
Cost of supplies to franchises 968 2,337
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172,607 130,307
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217,219 295,499
Costs and expenses:
Advertising and promotion 88,272 83,976
General and administrative 216,554 183,676
Depreciation 14,483 8,238
Interest 37,350 22,583
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356,659 298,473
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Net loss $ (139,440) (2,974)
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Loss per share - Basic ($0.01) --
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Weighted Average Shares Outstanding 16,743,937 10,000,000
See accompanying notes to consolidated financial statements.
5
DONINI INC.
Consolidated Statement of Stockholders' Deficit and Comprehensive Income
(expressed in United States dollars)
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Additional Accumulated
Common paid in comprehensive
Stock capital Deficit income Total
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May 31, 2001 $ 15,159 $ 2,572,629 $(3,333,094) $ 120,489 $ (624,817)
Net loss (535,560) (535,560)
Foreign currency adjustment 4,509 4,509
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Total comprehensive income (1,155,868)
Compensation expense 1,035 198,496 199,531
Stock options exercised 550 124,080 124,630
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November 30, 2001 $ 16,744 $ 2,895,205 $(3,868,654) $ 124,998 $ (831,707)
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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 November 30, 2001, and the results of operations and cash flows for the
period then ended. All such adjustments are of 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 conjuction 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 November 30, 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 estimate 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 six months ended November 30, 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 November 30, 2001 8,685,000
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3. Loans Payable:
On November 29, 2001 a subsidiary of the Company borrowed $ 85,560.00 (Cdn. $
134,500.00) from a third party. The loan bears interest at 18% per annum and is
repayable in fifty -two weekly payments of principal and interest of $ 1,801
(Cdn $ 2,831), commencing on December 7, 2001.The loan is secured by all the
assets of the subsidiary and a personal guarantee of a shareholder. The creditor
has a priority of rank on the subsidiary's existing mortgages on its balance of
sales receivable.
4. 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 November 30,
2001. In addition, the company requires additional financing to meet its current
obligations.
The above matters raise doubt as to its 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.
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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
November 30, 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 half 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. in Quebec, plus one (1) Bay cafeteria in
downtown Montreal and seven (7) in-store restaurants of Zellers Inc. in
Winnipeg, Manitoba. In addition, there are four (4) other business to business
relationships. During the second quarter of fiscal 2002, a contract was signed
to service seven (7) kiosks under the brand name of Pizza Donini at the Molson
Center, which is a 20,000 seat arena for N.H.L. hockey games and many other
events.
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 six months ended November 30, 2001 franchise operations accounted for
approximately 49% of the Company's total revenues, while the sale of wholesale
food products equaled approximately 50% and the remaining revenues accounted for
1%. This compares to 53%, 46% 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 half of fiscal 2002 Company revenues were $893,900 as compared
to $860,184 for the same period in 2001, an increase of $33,716 or 4.0%. Cost of
goods sold for the six months ended November 30, 2001 was $345,517 or 76.3% as
compared to $277,622 or 63.6% for the same period in fiscal 2001. The increase
in the cost of goods sold percentage was due to the change of the sales mix, in
further developing the business-to-business and the wholesale distribution
network Overall revenue of the second quarter of fiscal 2002 has decreased
compared to the same period in the prior year. This was due to the overall
decline in business after the September 11 tragedies.
Net income (losses) decreased $547,915 from $12,355 during the first six months
of fiscal 2001 to ($535,560) for the same period in 2002. The decrease in net
income (losses) is primarily due to increases in advertising and promotion and
general and administrative expenses of $ 254,000 and $ 219,500 respectively. The
increase in advertising and promotion expenses included $268,000 of non-cash
stock based compensation for services rendered in connection with the expansion
of the business-to-business operations. The increase in general and
administrative expenses included non-cash based compensation of $56,000,
business-to-business operation costs of $55,000, additional salary costs of
$50,000, travel costs of $32,000 and officers and directors liability insurance
of $22,000. The increased cost of borrowing amounted to $28,000.
9
Working capital deficit during this period increased from $1,070,896 at May 31,
2001 to $1,287,097 at November 30, 2001. Total assets increased from $1,001,343
as of May 31, 2001 to $1,095,895 as of November 30, 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 in 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 second quarter of fiscal 2002 through net borrowings
in short and long-term debt of approximately $166,000.
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 Restaurants 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.
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 Restaurants 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.
10
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
that 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 November
30, 2001 was 16,743,937.
Item 3 - Default 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 November 30, 2001 we filed a Report on Form 8-K on
October 23, 2001.
11
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 14, 2001 By: /s/ PETER DEROS
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Peter Deros, President
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