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, 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.
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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
(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 August 31, 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
August 31, 2003 and May 31,2003..................................... 3
Consolidated Statements of Operations
for the three month periods
ended August 31, 2003 and 2002 ..................................... 4
Consolidated Statements of Cash Flows
for the three month period ended
August 31, 2003 and 2002 ......................................... 5
Consolidated Statements of Stockholders'
equity as of June 1, 2001, May 31, 2002
and 2003 and August 31, 2003 ..................................... 6
Notes to Financial Statements (unaudited)............................. 7-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 9
PART II
Item 1 - Legal Proceedings .............................................. 10
Item 2 - Changes in Securities and Use of Proceeds....................... 10
Item 3 - Defaults Upon Senior Securities................................. 10
Item 4 - Submission of Matters to a Vote of Security Holders............. 10
Item 6 - Exhibits and Reports on Form 8-K................................ 10
2
PART I
ITEM 1- FINANCIAL INFORMATION (UNAUDITED)
DONINI, INC.
CONSOLIDATED BALANCE SHEET
August 31, May 31,
ASSETS 2003 2003
- ------ (Unaudited) (Audited)
Current Assets:
Accounts receivable, net $ 62,505 $ 54,593
Inventories 23,833 22,907
Taxes receivables 2,792 6,681
Due from shareholder 104,565 111,787
Current portion of franchise sales receivables 36,038 47,193
Prepaid expenses 21,207 18,731
Assets held for resale 183,899 173,343
----------- -----------
Total Current Assets 434,839 435,235
Property and Equipment (Net) 431,648 452,551
Franchise sales receivables 134,012 139,328
Trademarks 11,046 11,132
----------- -----------
Total Assets $ 1,011,545 $ 1,038,246
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 274,782 $ 367,594
Loans payable 172,179 129,183
Accounts payable and accrued liabilities 828,038 756,532
Deposits payable 82,996 84,031
----------- -----------
Total Current Liabilities 1,357,995 1,337,340
=========== ===========
Long-Term Liabilities:
Long-Term Debt 590,211 569,188
----------- -----------
Total Liabilities 1,948,206 1,906,528
----------- -----------
Stockholders' Equity (Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 6,920,688 and 6,607,456 issued and
outstanding May 31, 2003 and 2002 respectively 6,920 6,920
Additional paid-in capital 4,384,061 4,384,061
Foreign currency translation adjustment (24,158) (39,747)
Accumulated deficit (5,303,484) (5,219,516)
----------- -----------
Total Stockholders' Equity (Deficit) (936,661) (868,282)
----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) $ 1,011,545 $ 1,038,246
=========== ===========
- ------------
See accompanying notes to consolidated financial statements.
3
DONINI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
August 31,
2003 2002
---- ----
Revenues:
Sales $ 206,432 $ 213,801
Royalties and other related revenues 82,769 112,972
Order processing fees 43,403 47,069
Initial franchise fees 21,810 12,916
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Total Revenues 354,414 386,758
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Cost of Goods Sold 130,669 143,254
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223,745 243,504
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Costs and Expenses:
General and administrative expenses 144,606 142,321
Advertising and promotion 61,933 61,883
Salaries 54,217 50,911
Interest expense 28,217 22,600
Depreciation and amortization 20,989 15,792
Product development -- 15,018
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Total Costs and Expenses 309,962 308,525
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Income (Loss) from operations (86,217) (65,021)
Other income (Expenses) $ 2,249 $ 4,679
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Net income (Loss) before income taxes (83,968) (60,342)
=========== ===========
Net (Loss) (83,968) (60,342)
----------- -----------
Earnings (Loss) per share
Basic and diluted per share $ (0.012) $ (0.02)
=========== ===========
Basic and diluted weighed average
common shares outstanding 6,920,688 6,761,442
=========== ===========
- ------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
August 31,
2003 2002
---- ----
Cash Flows from Operating Activities:
Net (loss) $ (83,968) $ (60,342)
Adjustments to reconcile net (loss) to cash (used in) operating activities:
Depreciation and amortization 20,989 15,792
Foreign translation adjustments 15,589 18,781
Change in taxes receivables 3,889 (4,529)
Change in operating assets and liabilities:
Accounts receivable (7,912) 319
Inventories (926) (213)
Prepaid expenses and other current assets (2,476) 1,894
Accounts payable and accrued liabilities 71,506 34,375
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Net cash (used in) provided by
operating activities 16,691 6,077
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Cash Flows from Investing Activities:
Increase in franchise sales receivable (98) (67,358)
Proceeds from franchise sales receivable 16,571 23,422
Decrease (Increase) in assets held for resale (10,556) 35,998
--------- ---------
Net cash (used in) provided by
investing activities 5,917 (7,938)
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Cash Flows from Financing Activities:
Due from shareholder 7,219 28,915
Proceeds from loans payable 109,530 --
Principal payment of loans payable (62,842) (2,417)
Proceeds from long-term debt 12,830 23,736
Principal payment of long-term debt (88,309) (57,996)
Proceed from deposit -- 9,623
Repayment of deposit payable (1,035) --
--------- ---------
Net cash (used in) provided by
financing activities $ (22,608) $ 1,861
--------- ---------
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
DONINI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2003 AND 2002 (AUDITED)
Common Stock
$0.001 Par Value
------------------------ Total
Common Additional Foreign Stockholders'
Number Stock Paid-In Currency Equity
of Shares Amount Capital Deficit Translation (Deficit)
--------- ------ ---------- ------- ----------- -------------
Balance, June 1, 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)
--------- ----------- ----------- ----------- ----------- ------------
Balance, May 31, 2002 6,607,456 6,607 3,821,142 (4,856,367) 67,166 (961,452)
Common stock issued in exchange for debt 293,480 293 293,187 -- -- 293,480
Cancellation of common stock issued
upon termination of service agreements (250,000) (250) 250 -- -- --
Common stock issued in connection with
services rendered 269,752 270 269,482 -- -- 269,752
Foreign currency translation -- -- -- -- (106,913) (106,913)
Net loss for the year ended May 31, 2003 -- -- -- (363,149) -- (363,149)
--------- ----------- ----------- ----------- ----------- ------------
Balance, May 31, 2003 6,920,688 6,920 4,384,061 (5,219,516) (39,747) (868,282)
Foreign currency translation -- -- -- -- 15,589 15,589
Net loss for the three months ended
August 31, 2003 (Unaudited) -- -- -- (83,968) -- (83,968)
--------- ----------- ----------- ----------- ----------- ------------
Balance, August 31, 2003 6,920,688 $ 6,920 $ 4,384,061 $(5,303,484) $ (24,158) $ (936,661)
========= =========== =========== =========== =========== ============
6
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 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, 2003.
The statements of operations for the three months ended August 31, 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 as of August 31, 2003
and May 31, 2003, respectively.
7
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 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
- -------
The common shares outstanding as at August 31, 2003 are 6,920,688. No changes
have occurred to common shares since June 1, 2003.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Pizza Donini support twenty-five (25) franchised pizza outlets. At August 31,
2003 Pizza Donini also owned four (4) additional locations that are being held
with the intention of selling them as Donini franchises. All locations are in
the Greater Montreal.
Pizza Donini is further developing its B2B (business to business) distribution
network of fully-topped, ready-to-use self-rising crust frozen pizza to food
service 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 three other operation subsidiaries, Pizado Foods (2001) Inc.
("Pizado"), Pizza Donini.Com Inc. and DoniniCo Inc. Pizado sells raw food
products and other supplies to our 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 made from a single telephone number to the closest
franchisee. DoniniCo Inc. repurchases existing Donini franchised restaurants and
operates them, pending their resale to new franchisees.
For the three months ended August 31, 2003, franchise and corporate operations
accounted for approximately 42% of the Company's total revenues. The sale of
wholesale food products equaled approximately 57% and the remaining
miscellaneous revenues accounted for 1%. This compares to 44%, 55% and 1%
respectively for the same period in fiscal 2002.
During the first quarter of fiscal 2004 Company revenues were $354,414 compared
to $386,758 for the same period in 2003, a decrease of $32,344 or 8.4%. Cost of
goods sold for the three months ended August 31, 2003 was $130669 or 63% as
compared to $143,254 or 67% for the same period in fiscal 2003. The decrease in
sales is primarily a result of a general decline of 15% in the restaurant
business in the Greater Montreal area over the summer months.
Net income decreased from $(60,342) during the first three months of fiscal 2003
to ($83,968) for the same period in 2004. The decrease in net income is
primarily due to decrease in sales.
Working capital deficit during this period decreased from $1,124,864 at May 31,
2003 to $923,156 at August 31, 2003. Total assets increased from $976,051 as of
May 31, 2003 to $1,011,545 as of August 31, 2003.
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.
9
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 $465,455, 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 August
31, 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
10
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: October 15, 2003 By: /s/ Peter Deros
--------------------------------
Peter Deros, President
11