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 August 31, 2002
[ ] 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, 2002: 6,650,936 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, 2002 and May 31, 2002..................................... 3
Consolidated Statement of Operations
for the three month period
ended August 31, 2002 and 2001 ...................................... 4
Consolidated Statements of Cash Flows
for the three month periods
ended August 31, 2002 and 2001....................................... 5
Consolidated Statements of Stockholders'
Equity as of June 1, 2000, May 31, 2001,
and 2002, and August 31, 2002........................................ 6
Notes to Financial Statements (unaudited)................................. 7-9
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........................ 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
August 31, May 31,
ASSETS 2002 2002
- ------ ------------ ------------
(Unaudited) (Audited)
Current Assets:
Accounts receivable, net $ 44,746 $ 45,064
Income and sales tax receivable 39,324 34,795
Current portion of franchise sales receivables 89,262 79,247
Due from shareholder 131,925 160,840
Inventories 22,274 22,061
Prepaid expenses 18,086 19,980
Assets held for resale -- 35,998
------------ ------------
Total Current Assets 345,617 397,985
Franchise sales receivable 234,448 200,528
Fixed assets 384,313 400,023
Trademarks 11,673 11,754
------------ ------------
Total Assets $ 976,051 $ 1,010,290
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 299,289 $ 479,081
Loans payable 20,621 23,038
Accounts payable and accrued liabilities 1,140,948 1,130,052
Deposits payable 9,623 --
------------ ------------
Total Current Liabilities 1,470,481 1,632,171
Long-Term Liabilities:
Long-Term Debt 215,103 339,571
------------ ------------
Total Liabilities 1,685,584 1,971,742
------------ ------------
Stockholders' Equity(Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 6,650,936 and 6,607,456 issued and
outstanding August 31, 2002 and May 31,2002 respectively 6,650 6,607
Additional paid-in capital 4,114,579 3,821,142
Foreign currency translation adjustment 85,947 67,166
Accumulated deficit (4,916,709) (4,856,367)
------------ ------------
Total Stockholders' Equity(Deficit) (709,533) (961,452)
------------ ------------
Total Liabilities and Stockholders' Equity(Deficit) $ 976,051 $ 1,010,290
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
3
DONINI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
August 31,
2002 2001
------------ ------------
Revenues:
Sales $ 213,801 $ 253,496
Royalties and other related revenues 112,972 177,252
Order processing fees 47,069 66,984
Initial franchise fees 12,916 --
Interest income 4,679 6,342
------------ ------------
Total Revenues 391,437 504,074
------------ ------------
Cost of Goods Sold 143,254 170,655
Cost of Supplies to Franchises -- 2,255
------------ ------------
143,254 172,910
------------ ------------
248,183 331,164
------------ ------------
Costs and Expenses:
Advertising and promotion 61,883 76,127
Salaries 50,911 91,461
General and administrative expenses 142,321 514,884
Depreciation 15,792 15,368
Interest expense 22,600 29,444
Product development 15,018 --
------------ ------------
Total Costs and Expenses 308,525 727,284
------------ ------------
Net Income (Loss) before income tax provision (60,342) (396,120)
Provision for income tax -- --
------------ ------------
Net (Loss) $ (60,342) $ (396,120)
============ ============
Earnings (Loss) per share
Basic and diluted per share $ (0.02) $ (0.03)
============ ============
Basic and diluted weighed average
common shares outstanding 6,761,442 5,064,464
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
August 31,
2002 2001
------------ ------------
Cash Flows from Operating Activities:
Net income (loss) $ (60,342) $ (396,120)
Adjustments for:
Depreciation 15,792 15,368
Compensation expense 323,611
Foreign exchange 18,781 (1,811)
Net increase (decrease) in allowance
for doubtful accounts -- (248)
Net change in operating working capital items:
Accounts receivable 319 1,919
Income and sales taxes receivable (4,529) (26,015)
Inventories (213) (155)
Prepaid expenses 1,894 61
Accounts payable and accrued liabilities 34,375 152,007
------------ ------------
Net cash (used in) provided by
operating acivities 6,077 68,617
------------ ------------
Cash Flows from Financing Activities:
Due from shareholder 28,915 (81,208)
Proceeds from employee loan -- (850)
Repayment of loans payable (2,417) (9,593)
Proceeds from long-term debt 23,736 40,000
Repayment of long-term debt (57,996) (3,910)
Proceed from deposit payable 9,623 --
Proceeds from exercise of stock options -- 550
------------ ------------
Net cash (used in) provided by
investing acivities 1,861 (55,011)
------------ ------------
Cash Flows from Investing Activities:
Franchise sales receivable (67,358) (100,979)
Repayments on francshise sales receivable 23,422 17,267
Capitalized propertey and equipment -- (17,065)
Trademarks -- 46
Assets held for resale 35,998 87,125
------------ ------------
Net cash (used in) provided by
financing acivities (7,938) (13,606)
------------ ------------
Net Decrease in Cash and Cash Equivalents -- --
Cash and Cash Equivalents, beginning of period -- --
------------ ------------
Cash and Cash Equivalents, end of period $ -- $ --
============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ -- $ --
============ ============
Income taxes paid during the period $ -- $ --
============ ============
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued upon conversion of subordinated debentures $ 270,000 $ --
============ ============
Common stock issued in settlement of accounts payable $ 23,480 $ --
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2002 AND 2001
Common Stock
$0.001 Par Value
------------------------- Total
Common Additional Foreign Stockholders'
Number Stock Paid-In Currency Equity
of Shares Amount Capital Deficit Translation (Deficit)
----------- ----------- ----------- ----------- ----------- -----------
Balances, June 1, 2000 3,333,333 $ 3,333 $ 931,880 $(2,303,641) $ 117,751 $(1,250,677)
Issuance of common shares
for services rendered 639,269 639 433,936 434,575
Stock issued for debt 344,759 345 682,655 683,000
Compensation expense -- -- 35,000 35,000
Conversion of debentures 735,618 736 499,264 500,000
Foreign currency translation 2,738 2,738
Net loss for the year ended
May 31, 2001 (1,029,453) (1,029,453)
----------- ----------- ----------- ----------- -----------
Balances, May 31, 2001 5,052,979 5,053 2,582,735 (3,333,094) 120,489 (624,817)
Common stock issued for services 345,000 345 199,186 199,531
Exercise of common stock options 183,333 183 124,447 -- -- 124,630
Common stock issued in connection with
services rendered 343,333 343 232,647 232,990
Common stock issued in exchange of debt 682,810 683 682,127 682,810
Foreign currency translation (53,323) (53,323)
Net loss for the year ended
May 31, 2002 -- -- -- (1,523,273) -- (1,523,273)
----------- ----------- ----------- ----------- -----------
Balances, May 31, 2002 6,607,456 $ 6,607 $ 3,821,142 $(4,856,367) $ 67,166 $ (961,452)
Unaudited Information for the Three Months
Ended August 31, 2002:
Conversion of debentures 293,480 293 293,187 293,480
Cancelation of common stock issued in
Exchange of services (250,000) (250) (169,700) (169,950)
Foreign currency translation 18,781 18,781
Cancelation of stock against retained earnings 169,950 169,950
Net loss for the three months ended
August 31, 2002 (Unaudited) (60,342) (60,342)
----------- ----------- ----------- ----------- -----------
Balances, August 31, 2002 6,650,936 6,650 3,944,629 (4,746,759) 85,947 (709,533)
=========== =========== =========== =========== ===========
- --------------------
See accompanying notes to consolidated financial statements.
6
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 2002
1. DESCRIPTION OF BUSINESS
Donini, Inc. (formerly PRS Sub VI, Inc.) (the "Company") is incorporated in the
State of New Jersey and through its wholly-owned subsidiary Pizza Donini Inc.
(the "Subsidiary") and its subsidiaries, Pizado Foods (2001) Inc. an Pizza
Donini.Com Inc., is the franchisor, manufacturer and distributor of frozen
ready-made pizza, frozen and refrigerated sauces and pizza dough to franchise,
retail and wholesale customers, and the operator of a call center for home
delivery of pizza and other food products.
The Company's franchise outlets in Quebec, Canada operate under the trade name
"Pizza Donini", which name is also primarily used for the distribution of the
Company's frozen pizza to the food service industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The accompanying financial statements consolidate the accounts of Donini, Inc.
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts from prior
years have been reclassified to conform to the current year presentation.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to rules and regulations of the Securities and Exchange Commission and,
therefore, do not include all information and footnote disclosures normally
included in audited financial statements. However, in the opinion of management,
all adjustments that are of a normal and recurring nature necessary to present
fairly the results of operations, financial position and cash flows have been
made. It is suggested that these statements be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended May 31, 2002.
The statements of operations for the three months ended August 31, 2002 and 2001
are not necessarily indicative of results for the full year
Reverse Stock Splits
- --------------------
On February 6, 2001, the Company amended its Certificate of
Incorporation increasing its authorized shares of common stock from
10,000,000 to 100,000,000. On March 5, 2002 the Board of Directors
approved a reverse stock split of 1 for 3 shares of all issued shares
effective March 7, 2002. All share and per-share amounts in the
accompanying consolidated financial statements have been restated to
give effect to the 1 for 3 reverse stock split. The Company's restated
issued and outstanding common stock was 6,650,936 and 6,607,456 as of
August 31, 2002 and May 31, 2002, respectively.
7
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 2002
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) per Share
- -------------------------
The Company computes earnings or loss per share in accordance with the Financial
Accounting Standards Board Statement No. 128 "Earnings Per Share" (SFAS 128)
which replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes the dilutive effects of options, warrants and
convertible securities and thus is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is similar to the previous fully diluted earnings per
share.Diluted earnings per share reflects the potential dilution that could
occur if securities or other agreements to issue common stock were exercised or
converted into common stock. Diluted earnings per share is computed based upon
the weighted average number of common shares and dilutive common equivalent
shares outstanding.
Recent Accounting Pronouncements
- --------------------------------
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, (SFAS 141), "Business Combinations" and Statement of Financial Accounting
Standards No. 142, (SFAS 142), "Goodwill and Other Intangible Assets". SFAS 141
requires all business combinations to be accounted for using the purchase method
of accounting and is effective for all business combinations initiated after
June 30, 2001. SFAS 142 requires goodwill to be tested for impairment under
certain circumstances, and written off when impaired, rather than being
amortized as previous standards required. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001 provided that the first interim
period financial statements have not been previously issued. The adoption of
SFAS 141 had no effect on the Company's operating results or financial
condition. The Company is currently assessing the impact of SFAS 142 on its
operating results and financial condition.
3. STOCKHOLDERS' EQUITY
Capital
-------
A summary of the common shares outstanding and transactions since June 1, 2002
is detailed as follows:
Balance outstanding June 1, 2002 6,607,456
Cancellation of common shares for services
to be rendered (250,000)
Conversion of debentures 293,480
------------
Balance outstanding at August 31, 2002 6,650,936
============
8
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 2002
(Continued)
3. STOCKHOLDERS' EQUITY (Continued)
Capital (continued)
-------------------
In July 2002, $270,000 (plus interest of $23,480) of the convertible
subordinated debentures were converted into capital stock at $1.00 per share and
the Company will issue 29,348 three year warrants at $1.66 per share.
In August 2002, a consulting agreement signed May 2001 between a third party and
the Company for services to be rendered by the third party was cancelled by
mutual consent of the two parties. Therefore, the 250,000 common shares that
were issued under this agreement and the options that were granted to purchase
an additional 250,000 of common stock under the same agreement on the following
terms were also cancelled by mutual consent.
9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Pizza Donini Inc. supports twenty-eight (28) franchised pizza outlets in the
Greater Montreal area and is also selling its fully topped ready-to-use
self-rising crust, frozen pizza in twenty-seven (27) in-store restaurants of
Zellers, Inc., a cafeteria at The Bay in Downtown Montreal, one other
business-to-business relationship and seven (7) kiosks under the Brand name of
Pizza Donini at the Bell Center in Montreal, formerly called the Molson Center.
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, 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, 2002, franchise operations accounted for
approximately 44% of the Company's total revenues, while the sale of wholesale
food products equaled approximately 55% and the remaining miscellaneous revenues
accounted for 1%. This compares to 48%, 50% and 2% respectively for same fiscal
2001 period. The change in sales mix resulted primarily from increased
management focus on the wholesale food products markets and other
business-to-business opportunities.
During the first quarter of fiscal 2003 Company revenues were $391,437 as
compared to $504,074 for the same period in 2002, a decrease of $112,637 or
22.3%. Cost of goods sold for the three months ended August 31, 2002 was
$143,254 or 67% as compared to $170,655 or 67.3% for the same period in fiscal
2002. The decrease in sales is primarily a result of the closure of three (3)
franchise outlets and seven in-store restaurants of Zellers in Winnipeg and a
general decline of 15% in the restaurant business in the Greater Montreal area.
Net income increased $505,728 from $(396,120) during the first three months of
fiscal 2002 to $109,608 for the same period in 2003. The increase in net income
is primarily due to the cancellation of a non-compensation expense of $169,950
for services not performed and compensation expenses rendered of $323,611 in
2002 recorded in general and administrative expense. General and administrative
expenses also decreased by approximately $51,000 due to a decrease in travel
cost and costs related to expansion of the business-to-business operations of
approximately $19,000 and $33,000 respectively, undertaken in fiscal 2002.
Working capital deficit during this period decreased from $1,234,186 at May 31,
2002 to $1,124,864 at August 31, 2002. Total assets decreased from $1,010,290 as
of May 31, 2002 to $976,051 as of August 31, 2002.
Management believes that the results reflected above are due to increase
management focus on the wholesale food products markets. 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.
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 raise additional capital
through an offering of debentures and shares of the Company's common stock. The
Company has maintained its liquidity through the first quarter of fiscal 2003 by
reducing expenditures.
10
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
The company is subject from time to time to litigation arising from the normal
course of business. In management's opinion, any such contingencies are
appropriately provided for or would not materially affect the Company's
financial position or results of operations.
Pizza Donini was sued by a former franchisee of a former subsidiary who is
seeking to obtain from the Court to declare the transfer and sale to Pizza
Donini of trademarks by the former subsidiary null and void and to have Pizza
Donini declared jointly and severally liable for a claim of the former
franchisee against the former subsidiary.
This action stems from a separate suit filed by the former franchisee against
the former subsidiary, in the amount of $416,917, which suit was dismissed by
the Superior Court of Quebec on May 19, 1998. The former franchisee has appealed
the original judgment of the lower Court and legal counsel for the former
subsidiary does not expect a hearing date before February 2003. In the meantime,
in the file against Pizza Donini, there is an agreement between the attorneys of
the parties to await the outcome of the decision of the Court of Appeal in the
original proceedings prior to pursuing this action. Counsel to Pizza Donini and
to its former subsidiary is confident that the appeal will be dismissed in the
original suit and therefore, the action against Pizza Donini will also be
dismissed.
Pizza Donini has been sued by a former banker for repayment of a loan originally
due in March 2003. Pizza Donini is disputing certain fees charged by the bank,
has counter sued and ceased making monthly payments on the loan.
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, 2002 was 6,650,936.
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
Not applicable
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: February 20, 2003 By: /s/ PETER DEROS
-------------------------------------
Peter Deros, President