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, 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 November 30, 2002: 6,920,688 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 Sheet as of
November 30, 2002 and May 31,2002.................................... 3
Consolidated Statements of Operations
for the six month periods
ended November 30, 2002 and 2001 .................................... 4
Consolidated Statements of Cash Flows
for the six month period ended
November 30, 2002 and 2001 .......................................... 5
Consolidated Statements of Stockholders'
equity as of June 1, 2000, May 31, 2001
and 2002, August 31, 2002, and
November 30, 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
November 30, May 31,
ASSETS 2002 2002
- ------ ------------ ------------
(Unaudited) (Audited)
Current Assets:
Accounts receivable, net $ 49,995 $ 45,064
Income and sales tax receivable 44,326 34,795
Current portion of franchise sales receivables 84,820 79,247
Due from shareholder 93,889 160,840
Inventories 22,121 22,061
Prepaid expenses 16,691 19,980
Assets held for resale 15,002 35,998
------------ ------------
Total Current Assets 326,844 397,985
Franchise sales receivable 218,107 200,528
Fixed assets 369,502 400,023
Trademarks 11,447 11,754
------------ ------------
Total Assets $ 925,900 $ 1,010,290
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 275,059 $ 479,081
Loans payable 40,688 23,038
Accounts payable and accrued liabilities 850,252 1,130,052
Deposits payable 28,755 --
------------ ------------
Total Current Liabilities 1,194,754 1,632,171
Long-Term Liabilities:
Long-Term Debt 205,462 339,571
------------ ------------
Total Liabilities 1,400,216 1,971,742
------------ ------------
Stockholders' Equity (Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 6,920,688 and 6,607,456 issued and
outstanding November 30, 2002 and May 31,2002 respectively 6,920 6,607
Additional paid-in capital 4,384,061 3,821,142
Foreign currency translation adjustment 103,755 67,166
Accumulated deficit (4,969,052) (4,856,367)
------------ ------------
Total Stockholders' Equity(Deficit) (474,316) (961,452)
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 925,900 $ 1,010,290
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
3
DONINI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
November 30, November 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Sales $ 194,070 $ 194,924 $ 407,871 $ 448,420
Royalties and other related revenues 98,162 134,043 224,050 311,295
Order processing fees 44,746 55,885 91,815 122,869
Interest income 4,979 4,974 9,658 11,316
------------ ------------ ------------ ------------
Total Revenues 341,957 389,826 733,394 893,900
------------ ------------ ------------ ------------
Cost of Goods Sold 132,479 171,639 275,733 342,294
Cost of Supplies to Franchises -- 968 -- 3,223
------------ ------------ ------------ ------------
132,479 172,607 275,733 345,517
------------ ------------ ------------ ------------
209,478 217,219 457,661 548,383
------------ ------------ ------------ ------------
Costs and Expenses:
Advertising and promotion 50,836 88,272 112,719 435,021
General and administrative expenses 168,815 216,554 362,047 552,277
Depreciation 15,882 14,483 31,674 29,851
Interest expense 20,857 37,350 43,457 66,794
Product development 5,431 -- 20,449 --
------------ ------------ ------------ ------------
Total Costs and Expenses 261,821 356,659 570,346 1,083,943
------------ ------------ ------------ ------------
Net Income (Loss) before income tax provision (52,343) (139,440) (112,685) (535,560)
Provision for income tax -- -- -- --
------------ ------------ ------------ ------------
Net (Loss) $ (52,343) $ (139,440) $ (112,685) $ (535,560)
============ ============ ============ ============
Earnings (Loss) per share
Basic and diluted per share $ (0.02) $ (0.01) $ (0.02) $ (0.03)
============ ============ ============ ============
Basic and diluted weighed average
common shares outstanding 6,830,771 5,581,312 6,976,107 5,321,476
============ ============ ============ ============
- --------------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
November 30,
2002 2001
------------ ------------
Cash Flows from Operating Activities:
Net (loss) $ (112,685) $ (535,560)
Adjustments for:
Depreciation 31,674 29,851
Compensation expense -- 323,611
Foreign exchange 36,589 4,509
Net increase (decrease) in allowance
for doubtful accounts -- (711)
Net change in operating working capital items:
Accounts receivable (4,931) (28,841)
Income and sales taxes receivable (9,531) (11,990)
Inventories (60) 341
Prepaid expenses 3,289 1,032
Accounts payable and accrued liabilities 13,432 206,372
------------ ------------
Net cash (used in) provided by
operating acivities (42,223) (11,386)
------------ ------------
Cash Flows from Financing Activities:
Due from shareholder 66,951 (126,565)
Proceeds from employee loan -- (1,242)
Proceeds from loan payable 34,497 117,366
Repayment of loans payable (16,847) (27,204)
Proceeds from long-term debt 38,980 43,170
Repayment of long-term debt (107,111) (14,575)
Proceed from deposit payable 28,755 --
Proceeds from exercise of stock options -- 550
------------ ------------
Net cash (used in) provided by
investing acivities 45,225 (8,500)
------------ ------------
Cash Flows from Investing Activities:
Franchise sales receivable (67,573) (104,940)
Repayments on francshise sales receivable 44,421 91,619
Capitalized propertey and equipment (846) (55,201)
Trademarks -- 132
Assets held for resale 20,996 88,276
------------ ------------
Net cash (used in) provided by
financing acivities (3,002) 19,886
------------ ------------
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 $ 293,232 $ --
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
5
DONINI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2002 AND 2001(AUDITED)
UNAUDITED AS TO NOVEMBER 30, 2002
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 Six Months
Ended November 30, 2002:
Conversion of debentures 293,480 293 293,187 293,480
Cancelation of common stock issued in
Exchange of services (250,000) (250) 250 --
Common stock issued in connection
with services rendered 269,752 270 269,482 269,752
Foreign currency translation 36,589 36,589
Net loss for the six months ended
August 30, 2002 (Unaudited) (112,685) (112,685)
------------ ------------ ------------ ------------ ------------
Balances November 30, 2002 6,920,688 6,920 4,384,061 (4,969,052) 103,755 (474,316)
============ ============ ============ ============ ============
6
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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 six months ended November 30, 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
6,920,688 and 6,607,456 as of November 30, 2002 and May 31, 2002,
respectively.
7
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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
Common stock issued for services 269,752
------------
Balance outstanding at November 30, 2002 6,920,688
============
8
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 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.
In November 2002, the company issued an additional 269,752 of its common stock
in exchange of professional services rendered to the company.
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 six months ended November 30, 2002, franchise operations accounted for
approximately 43% of the Company's total revenues, while the sale of wholesale
food products equaled approximately 56% and the remaining miscellaneous revenues
accounted for 1%. This compares to 49%, 50% and 1% respectively for same fiscal
2002 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 half of fiscal 2003 Company revenues were $733,394 as compared
to $893,900 for the same period in 2002, a decrease of $160,506 or 17.9%. Cost
of goods sold for the six months ended November 30, 2002 was $275,733 or 67.6%
as compared to $345,517 or 76.3% 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 $422,875 from $(535,560) during the first six months of
fiscal 2002 to ($112,685) for the same period in 2003. The increase in net
income is primarily due to a decrease in advertising and promotion expense of $
322,302 and a decrease in general and administration expenses related to
compensation expenses rendered in fiscal 2002 of $ 323,611
Working capital deficit during this period decreased from $1,234,186 at May 31,
2002 to $867,910 at November 30, 2002. Total assets decreased from $1,010,290 as
of May 31, 2002 to $925,900 as of November 30, 2002.
Management believes that the results reflected above are due to greater
operational efficiency. 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 half 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 November
30, 2002 was 6,920,688.
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
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
12