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 February 28, 2003
[ ] 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 February 28, 2003: 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
February 28, 2003 and May 31,2002.................................... 3
Consolidated Statements of Operations
for the nine month periods
ended February 28, 2003 and 2002 .................................... 4
Consolidated Statements of Cash Flows
for the nine month period ended February 28, 2003 and 2002........... 5
Consolidated Statements of Stockholders' equity as of June 1, 2000,
May 31, 2001 and 2002, August 31, 2002, November 30,2002
and February 28, 2003 ............................................... 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
28-Feb May 31,
2003 2002
------------ ------------
(Unaudited) (Audited)
ASSETS
- ------
Current Assets:
Accounts receivable, net $ 45,485 $ 45,064
Income and sales tax receivable 24,089 34,795
Current portion of franchise sales receivables 67,331 79,247
Due from shareholder 173,816 160,840
Inventories 17,858 22,061
Prepaid expenses 18,506 19,980
Assets held for resale 65,985 35,998
------------ ------------
Total Current Assets 413,070 397,985
Franchise sales receivable 195,265 200,528
Fixed assets 479,448 400,023
Trademarks 11,369 11,754
------------ ------------
Total Assets $ 1,099,152 $ 1,010,290
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 408,380 $ 479,081
Loans payable 81,569 23,038
Accounts payable and accrued liabilities 806,469 1,130,052
Deposits payable -- --
------------ ------------
Total Current Liabilities 1,296,418 1,632,171
Long-Term Liabilities:
Long-Term Debt 397,158 339,571
------------ ------------
Total Liabilities 1,693,576 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 Februrary 28, 2003 and May 31,2002 respectively 6,920 6,607
Additional paid-in capital 4,384,061 3,821,142
Foreign currency translation adjustment 56,460 67,166
Accumulated deficit (5,041,865) (4,856,367)
------------ ------------
Total Stockholders' Equity(Deficit) (594,424) (961,452)
------------ ------------
Total Liabilities and Stockholders' Equity(Deficit) $ 1,099,152 $ 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 Nine Months Ended
February 28, February 28,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Sales $ 285,822 $ 201,761 $ 693,693 $ 650,181
Royalties and other related revenues 110,991 155,555 335,041 466,850
Order processing fees 48,392 57,326 140,207 180,195
Interest income 4,637 4,448 14,295 15,764
------------ ------------ ------------ ------------
Total Revenues 449,842 419,090 1,183,236 1,312,990
------------ ------------ ------------ ------------
Cost of Goods Sold 234,608 152,536 510,341 494,830
Cost of Supplies to Franchises -- 394 -- 3,617
------------ ------------ ------------ ------------
234,608 152,930 510,341 498,447
------------ ------------ ------------ ------------
215,234 266,160 672,895 814,543
------------ ------------ ------------ ------------
Costs and Expenses:
Advertising and promotion 44,494 123,379 157,213 558,400
General and administrative expenses 203,050 443,911 565,097 996,188
Depreciation 16,005 15,241 47,679 45,092
Interest expense 23,127 34,088 66,584 100,882
Product development 1,371 -- 21,820 --
------------ ------------ ------------ ------------
Total Costs and Expenses 288,047 616,619 858,393 1,700,562
------------ ------------ ------------ ------------
Net Income (Loss) before income tax provision (72,813) (350,459) (185,498) (886,019)
Provision for income tax -- -- -- --
------------ ------------ ------------ ------------
Net (Loss) $ (72,813) $ (350,459) $ (185,498) $ (886,019)
============ ============ ============ ============
Earnings (Loss) per share
Basic and diluted per share $ (0.01) $ (0.02) $ (0.03) $ (0.05)
============ ============ ============ ============
Basic and diluted weighed average
common shares outstanding 6,830,771 5,924,646 6,976,107 5,936,159
============ ============ ============ ============
- --------------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
February 28,
---------------------------
2003 2002
------------ ------------
Cash Flows from Operating Activities:
Net (loss) $ (185,498) $ (886,019)
Adjustments for:
Depreciation 47,679 45,092
Compensation expense -- 546,546
Foreign exchange (10,706) --
Net increase (decrease) in allowance
for doubtful accounts -- --
Net change in operating working capital items:
Accounts receivable (421) (44,296)
Income and sales taxes receivable 10,706 16,539
Inventories 4,203 (222)
Prepaid expenses 1,474 (52)
Accounts payable and accrued liabilities 11,879 226,990
------------ ------------
Net cash (used in) provided by
operating acivities (120,684) (95,422)
------------ ------------
Cash Flows from Financing Activities:
Bank Indebtedness -- 125,771
Due from shareholder (12,976) (216,830)
Proceeds from employee loan -- (638)
Proceeds from loan payable 101,983 186,296
Repayment of loans payable (43,452) (59,613)
Proceeds from long-term debt 348,734 43,188
Repayment of long-term debt (134,077) (15,711)
Proceed from deposit payable 28,755 --
Repayment of deposit payable (28,755)
Proceeds from exercise of stock options -- 605
------------ ------------
Net cash (used in) provided by
investing acivities 260,212 63,068
------------ ------------
Cash Flows from Investing Activities:
Franchise sales receivable (71,264) (105,270)
Repayments on francshise sales receivable 88,441 101,219
Capitalized propertey and equipment (126,719) (48,506)
Trademarks -- --
Assets held for resale (29,987) 84,911
------------ ------------
Net cash (used in) provided by
financing acivities (139,529) 32,354
------------ ------------
Net Decrease in Cash and Cash Equivalents -- --
Cash and Cash Equivalents, beginning of period -- --
------------ ------------
Cash and Cash Equivalents, end of period $ -- $ --
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
5
DONINI INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
February 28,
---------------------------
2003 2002
------------ ------------
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.
6
DONINI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2002 AND 2001(AUDITED)
UNAUDITED AS TO FEBRUARY 28, 2003
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 Nine Months
Ended Februrary 28, 2003:
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 (10,706) (10,706)
Net loss for the nine months ended
February 28, 2003 (Unaudited) (185,498) (185,498)
----------- ----------- ----------- ----------- ----------- -----------
Balances February 28, 2003 6,920,688 6,920 4,384,061 (5,041,865) 56,460 (594,424)
=========== =========== =========== =========== =========== ===========
7
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 2003
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., Pizza
Donini.Com Inc. and Doninico 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 and operate company
owned restaurants.
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 nine months ended February 28, 2003 and
2002 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 February 28, 2003 and May 31, 2002,
respectively.
8
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 2003
(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 February 28, 2003 6,920,688
============
9
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 2003
(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.
10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Pizza Donini Inc. supports twenty-eight (28) franchised pizza outlets and one
(1) company owned pizza outlet in the Greater Montreal area and is also selling
its fully topped ready-to-use self-rising crust, frozen pizza at sales outlets
of Mont-Tremblant ski resort through Intrawest Corp.
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, contract caterers and video
stores.
In addition to generating revenues from its franchisees in the form of initial
franchise fees and royalties, Pizza Donini Inc.'s revenues have also been
generated by three other operating subsidiaries, Pizado Foods (2001) Inc.
(Pizado), Pizza Donini.Com Inc., and Doninico Inc. Pizado sells raw food
products and other supplies to Donini franchisees and offers 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, directing orders
to the closest franchisee. Doninico Inc. repurchases existing Donini franchised
restaurants and operates them, pending their resale to new franchisees.
For the nine months ended February 28, 2003, franchise and corporate operations
accounted for approximately 59% of the Company's total revenues. The sale of
wholesale food products equaled approximately 40% and the remaining
miscellaneous revenues accounted for 1%. This compares to 49%, 50% and 1%
respectively for the same period in fiscal 2002. The change in sales mix
resulted primarily from increased management focus on improving the
profitability of its franchise and corporate operations.
During the nine months of fiscal 2003 Company revenues were $1,183,236 compared
to $1,312,990 for the same period in 2002, a decrease of $129,754 or 9.9%. Cost
of goods sold for the nine months ended February 28, 2003 was $510,341 or 73.5%
as compared to $498,447 or 76.7% for the same period in fiscal 2002. The
decrease in sales is primarily a result of the temporary discontinuance of
serving 27 store restaurants of Zellers and the cafeteria of The Bay as well as
stopping to serve a major food distributor.
Net income increased $700,521 from $(886,019) during the first nine months of
fiscal 2002 to ($185,498) 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 a
decrease in compensation expenses for services rendered during fiscal 2002 of $
323,611
Working capital deficit during this period decreased from $1,234,186 at May 31,
2002 to $883,348 at February 28, 2003. Total assets increased from $1,010,290 as
of May 31, 2002 to $1,099,152 as of February 28, 2003.
Management believes that the results reflected above are due to greater
operational efficiency. In addition, management believes that by redirecting its
energy and focus on its core business, the profitability of its franchise units
will improve.
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 nine months of fiscal
2003 by reducing expenditures.
11
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 October 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 February
28, 2003 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
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: April 8, 2003 By: /s/ PETER DEROS
-------------------------------------
Peter Deros, President
13