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 29, 2004
[ ] 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
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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 February 29, 2004: 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 29, 2004 and May 31,2003 .................................... 3
Consolidated Statements of Operations
for the nine month periods ended
February 29, 2004 and February 28, 2003 .............................. 4
Consolidated Statements of Cash Flows
for the nine month period ended
February 29, 2004 and February 28, 2003 .............................. 5
Consolidated Statements of Stockholders'
equity as of June 1, 2001, May 31, 2002
and 2003 and February 29, 2004 ....................................... 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
DONINI, INC.
CONSOLIDATED BALANCE SHEET
February 29, May 31,
ASSETS 2004 2003
- ------ ------------ -----------
(Unaudited) (Audited)
Current Assets:
Accounts receivable, net $ 125,985 $ 54,593
Inventories 12,758 22,907
Taxes receivables 6,507 6,681
Due from shareholder 110,840 111,787
Current portion of franchise sales receivables 33,061 47,193
Prepaid expenses 12,187 18,731
Assets held for resale 237,893 173,343
----------- -----------
Total Current Assets 539,231 435,235
Property and Equipment (Net) 286,845 452,551
Franchise sales receivables 131,282 139,328
Trademarks 10,865 11,132
----------- -----------
Total Assets $ 968,223 $ 1,038,246
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 273,787 $ 367,594
Loans payable 239,714 129,183
Accounts payable and accrued liabilities 865,972 756,532
Deposits payable 83,102 84,031
----------- -----------
Total Current Liabilities 1,462,575 1,337,340
Long-Term Liabilities:
Long-Term Debt 536,552 569,188
----------- -----------
Total Liabilities 1,999,127 1,906,528
----------- -----------
Stockholders' Equity(Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 6,920,688 issued and
outstanding February 29, 2004 and May 31, 2003 respectively 6,920 6,920
Additional paid-in capital 4,384,061 4,384,061
Foreign currency translation adjustment (69,843) (39,747)
Accumulated deficit (5,352,042) (5,219,516)
----------- -----------
Total Stockholders' Equity(Deficit) (1,030,904) (868,282)
----------- -----------
Total Liabilities and Stockholders' Equity(Deficit) $ 968,223 $ 1,038,246
=========== ===========
- --------------------
See accompanying notes to consolidated financial statements.
3
PART I
ITEM 1 - FINANCIAL INFORMATION (UNAUDITED)
DONINI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Nine Months Ended
--------------------------- ----------------------------
February 29, February 28, February 29, February 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Sales $ 187,574 $ 285,822 $ 571,199 $ 693,693
Royalties and other related revenues 160,595 97,604 392,119 302,853
Order processing fees 51,187 48,392 136,897 140,207
Initial franchise fees 19,064 13,387 59,675 32,188
------------ ------------ ------------ ------------
Total Revenues 418,420 445,205 1,159,890 1,168,941
------------ ------------ ------------ ------------
Cost of Goods Sold 126,231 234,608 380,650 510,341
------------ ------------ ------------ ------------
292,189 210,597 779,240 658,600
------------ ------------ ------------ ------------
Costs and Expenses:
General and administrative expenses 182,952 163,701 460,781 432,772
Advertising and promotion 55,820 44,494 161,948 157,213
Salaries 57,990 39,349 168,946 132,325
Interest expense 21,202 23,127 65,514 66,584
Depreciation and amortization 7,584 16,005 58,728 47,679
Product development -- 1,371 -- 21,820
------------ ------------ ------------ ------------
Total Costs and Expenses 325,548 288,047 915,917 858,393
------------ ------------ ------------ ------------
Income (Loss) from operations (33,359) (77,450) (136,677) (199,793)
Other income (Expenses) 1,007 4,637 4,151 14,295
------------ ------------ ------------ ------------
Net income (Loss) before income taxes (32,352) (72,813) (132,526) (185,498)
Provision for income taxes -- -- -- --
Net (Loss) (32,352) (72,813) (132,526) (185,498)
------------ ------------ ------------ ------------
Earnings (Loss) per share
Basic and diluted per share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
============ ============ ============= ============
Basic and diluted weighted average
common shares outstanding 6,920,688 6,830,771 6,920,688 6,976,107
============ ============ ============= ============
- --------------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
---------------------------
February 29, February 28,
2004 2003
------------ ------------
Cash Flows from Operating Activities:
Net (loss) $ (132,526) $ (185,498)
Adjustments to reconcile net (loss) to cash
(used in) operating activities:
Depreciation and amortization 58,728 47,679
Foreign translation adjustments (30,096) (10,706)
Change in taxes receivables 174 10,706
Gain on disposition of capitalized property
and equipment (8,727) --
Change in operating assets and liabilities:
Accounts receivable (71,392) (421)
Inventories 10,149 4,203
Prepaid expenses and other current assets 6,544 1,474
Accounts payable and accrued liabilities 109,440 11,879
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Net cash (used in) provided by
operating activities (57,706) (120,684)
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Cash Flows from Investing Activities:
Increase in franchise sales receivable
Proceeds from franchise sales receivable (118) (71,263)
Repayment from franchise sales receivable 22,296 88,441
Decrease (Increase) in assets held for resale (64,550) (29,987)
Capitalized property and equipment (7,742) (126,719)
Proceeds of disposition capitalized property
and equipment 123,715 --
---------- -----------
Net cash (used in) provided by investing activities 73,601 (139,528)
---------- -----------
Cash Flows from Financing Activities:
Due from shareholder 947 (12,976)
Proceeds from loans payable 253,342 101,983
Principal payment of loans payable (142,811) (43,452)
Proceeds from long-term debt 13,309 348,734
Principal payment from long-term debt (139,753) (134,077)
Proceed from deposit -- 28,755
Repayment of deposit payable (929) --
Proceeds from exercise of stock options -- (28,755)
---------- -----------
Net cash (used in) provided by
financing activities (15,895) 260,212
---------- -----------
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
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- -------------------
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)
UNAUDITED AS AT FEBRUARY 29, 2004
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 (30,096) (30,096)
Net loss for the nine months ended
February 29, 2004 (Unaudited) (132,526) (132,526)
--------- ----------- ----------- ----------- ----------- -----------
Balance, February 29, 2004 6,920,688 $ 6,920 $ 4,384,061 $(5,352,042) $ (69,843) $(1,030,904)
========= =========== =========== =========== =========== ===========
6
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 29, 2004
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 nine months ended February 29, 2004 and
February 28, 2003 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 February 29, 2004 and May 31,
2003, respectively.
7
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 29, 2004
(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 February 29, 2004 are 6,920,688. As of March
2004, the Company issued 2,300,000 shares of common stock to three consultants
and its President pursuant to Registration Statement on Form S-8 and pursuant to
the Company's Stock Plan.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Pizza Donini supports twenty-six (26) franchised pizza outlets. At February 29,
2004 Pizza Donini also owns three (3) 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 business to business (B2B) 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 operating 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 nine months ended February 29, 2004, franchise and corporate operations
accounted for approximately 50% of the Company's total revenues. The sale of
wholesale food products equaled approximately 49% and the remaining
miscellaneous revenues accounted for 1%. This compares to 40%, 59% and 1%
respectively for the same period in fiscal 2003.
During the third quarter of fiscal 2004 Company revenues were $1,159,890
compared to $1,168,941 for the same period in 2003, a decrease of $9,051 or
0.77%. Cost of goods sold for the nine months ended February 29, 2004 was
$380,650 or 66% as compared to $510,341 or 74% for the same period in fiscal
2003.
Net loss decreased from $(185,498) during the first nine months of fiscal 2003
to ($132,256) for the same period in 2004.
The working capital deficit during this period increased from $902,105 at May
31, 2003 to $923,344 at February 29, 2004. Total assets decreased from
$1,038,246 as of May 31, 2003 to $968,223 as of February 29, 2004, primarily due
to the sale of some equipment.
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 but
has not implemented that plan to any significant extent.
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 the end of 2004. 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. The Company has
negotiated a settlement with the Bank, which will provide for a down payment of
$15,000.00 and further payments of $950.00 per month over a period of fifty
months.
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
29, 2004 was 6,920,688. As of March 2004, the Company issued 2,300,000 shares of
common stock to three consultants and its President pursuant to Registration
Statement on Form S-8 and pursuant to the Company's Stock Plan.
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
(a) Exhibits
31.1 Certification Pursuant to Rule 13A-14 or 15D-14 of the
Securities Exchange Act of 1934, as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
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: April 13, 2004 By: /s/ PETER DEROS
--------------------------
Peter Deros, President and
Chief Executive Officer
11