U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB / A
(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, 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.
(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, 2004: 18,420,871 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, 2004 and May 31,2004..................................... 3
Consolidated Statements of Operations
for the three month periods
ended August 31, 2004 and 2003 ..................................... 4
Consolidated Statements of Cash Flows
for the three month period ended
August 31, 2004 and 2003 .................................... 5
Notes to Financial Statements (unaudited)............................. 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 8
PART II
Item 1 - Legal Proceedings .............................................. 9
Item 2 - Changes in Securities and Use of Proceeds....................... 9
Item 3 - Defaults Upon Senior Securities................................. 9
Item 4 - Submission of Matters to a Vote of Security Holders............. 9
Item 6 - Exhibits and Reports on Form 8-K................................ 9
2
PART I
ITEM 1- FINANCIAL INFORMATION (UNAUDITED)
DONINI, INC.
CONSOLIDATED BALANCE SHEET
August 31, May 31,
ASSETS 2004 2004
- ------ ------------ ------------
(Unaudited) (Audited)
Current Assets:
Cash $ 457,626 --
Accounts receivable, net 66,306 71,169
Inventories 13,790 14,412
Taxes receivables 13,104 8,134
Due from shareholder 158,232 --
Loan Receivable -- 16,570
Current portion of franchise sales receivables 18,975 26,118
Prepaid expenses 7,039 12,038
Assets held for resale 312,290 286,070
------------ ------------
Total Current Assets 1,047,362 434,511
Property and Equipment (Net) 297,848 291,018
Franchise sales receivables 50,066 77,672
Trademarks 10,699 10,776
Unamortized loan finance cost 449,800 --
------------ ------------
Total Assets $ 1,855,775 $ 813,977
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 183,137 $ 245,932
Loans payable 287,718 357,592
Accounts payable and accrued liabilities 739,610 809,308
Due to shareholders -- 14,411
------------ ------------
Total Current Liabilities 1,210,465 1,427,243
Long-Term Liabilities:
Loans Payable 493,046 493,757
Note Payable secured 1,500,000 --
------------ ------------
Total Liabilities 3,203,511 1,921,000
------------ ------------
Stockholders' Equity(Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 18,420,871 and 9,220,871 issued and
outstanding August 31, 2004 and May 31, 2004 respectively 18,420 9,220
Additional paid-in capital 5,223,561 4,404,761
Foreign currency translation adjustment (59,074) (55,551)
Accumulated deficit (6,530,643) (5,465,453)
------------ ------------
Total Stockholders' Equity(Deficit) (1,347,736) (1,107,023)
------------ ------------
Total Liabilities and Stockholders' Equity(Deficit) $ 1,855,775 $ 813,977
============ ============
- ----------------------
See accompanying notes to consolidated financial statements.
3
DONINI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
August 31,
------------------------------
2004 2003
------------ ------------
Revenues:
Sales $ 123,916 $ 206,432
Sale of stores 319,303 --
Royalties and other related revenues 80,494 82,769
Order processing fees 39,094 43,403
Initial franchise fees 33,809 21,810
------------ ------------
Total Revenues 596,616 354,414
------------ ------------
Cost of Goods Sold - Sales 78,124 130,669
Cost of Stores Sold 276,285 --
------------ ------------
354,409 130,669
------------ ------------
242,207 223,745
------------ ------------
Costs and Expenses:
General and administrative expenses 264,389 144,606
Advertising and promotion 64,468 61,933
Salaries 56,479 54,217
Interest expense 23,602 28,217
Depreciation and amortization 13,799 20,989
Compensation cost 828,000 --
Amortization of finance cost 60,000 --
------------ ------------
Total Costs and Expenses 1,310,737 309,962
------------ ------------
Income (Loss) from operations (1,068,530) (86,217)
Other income (Expenses) 3,340 2,249
------------ ------------
Net income (Loss) before income taxes (1,065,190) (83,968)
============ ============
Net (Loss) (1,065,190) (83,968)
------------ ------------
Earnings (Loss) per share
Basic and diluted per share $ (0.07) $ (0.01)
============ ============
Basic and diluted weighed average
common shares outstanding 13,820,871 6,920,688
============ ============
- ----------------------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
August 31,
----------------------------
2004 2003
------------ ------------
Cash Flows from Operating Activities:
Net (loss) $ (1,065,190) $ (83,968)
Adjustments to reconcile net (loss) to cash (used in) operating activities:
Compensation expense 828,000
Depreciation and amortization 13,799 20,989
Unamortized loan finance cost (449,800) --
Foreign translation adjustments (3,523) 15,589
Change in taxes receivables (4,970) 3,889
Change in operating assets and liabilities:
Accounts receivable 4,863 (7,912)
Inventories 622 (926)
Loan receivable 16,570
Prepaid expenses 4,999 (2,476)
Accounts payable and accrued liabilities (69,698) 71,506
------------ ------------
Net cash provided by (used in)
operating activities (724,328) 16,691
------------ ------------
Cash Flows from Investing Activities:
Increase in franchise sales receivable (38,080) (98)
Proceeds from franchise sales receivable 72,829 16,571
Acquisition of fixed assets (20,552)
Increase in assets held for resale (26,220) (10,556)
------------ ------------
Net cash provided by (used in)
investing activities (12,023) 5,917
------------ ------------
Cash Flows from Financing Activities:
Due from shareholder (172,643) 7,219
Proceeds from loans payable 15,141 109,530
Principal payment of loans payable (85,015) (62,842)
Proceeds from long-term debt 8,360 12,830
Principal (payment) of long-term debt (71,866) (88,309)
Proceed from note payable secured 1,500,000 --
(Repayment) of deposit payable -- (1,035)
------------ ------------
Net cash provided by (used in) financing activities $ 1,193,977 $ (22,608)
------------ ------------
Net increase in Cash and Cash Equivalents 457,626 --
Cash and Cash Equivalents, beginning of period -- --
------------ ------------
Cash and Cash Equivalents, end of period $ 457,626 $ --
============ ============
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 23,602 $ --
============ ============
Income taxes paid during the period $ -- $ --
============ ============
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Common stock issued as compensation $ 828,000 $ --
============ ============
- --------------------
See accompanying notes to consolidated financial statements.
5
DONINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 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 has recently begun to expand its offerings to
casual Italian dining services through its Resto-Bar concept.
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, 2004.
The statements of operations for the three months ended August 31, 2004 and 2003
are not necessarily indicative of results for the full year.
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.
6
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
August 31, 2004
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
- --------------------------------
In January, 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51", which provides
guidance on the identification of and reporting for variable interest entities.
Interpretation No. 46 expands the criteria for consideration in determining
whether a variable interest entity should be consolidated. Interpretation No. 46
is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Company does not expect the adoption of
Interpretation No. 46 to have a significant impact on its future results of
operations or financial position.
In May, 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with characteristics of both Liabilities and Equity", (SFAS 150).
SFAS 150 requires that certain financial instruments, which under previous
guidance could be accounted for as equity, be classified as liabilities in
statements of financial position (balance sheets). SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and is
otherwise effective for the Company in the second quarter of the year ended May
31, 2004. The adoption of SFAS 150 had no impact on the Company's financial
position or results of operations for the year ended May 31, 2004, and the
Company does not expect the adoption of this pronouncement to have any impact on
its future financial position or results of operations.
3. STOCKHOLDERS' EQUITY
Capital
- -------
During the three months ended August 31, 2004 the Company issued 9,200,000
shares of its common stock, the Company recognized as compensatory costs the
difference between the par value paid of $0.001 and the estimated fair market
value of the stock issued totaling $828,000.
The Company also granted options totaling 7,000,000, 500,000 of which were
exercisable upon their grant until March 15, 2005 and 6,500,000 with future
exercise dates commencing from October, 2004 till October, 2008 at exercise
price of $0.001 for 600,000 and a price ranging from $0.02 to $0.05 for the
remaining options.
Due to the volatility and almost no market price of the Company's common stock
the company recorded no expense as these options are not exercisable till future
dates.
4. SUBSEQUENT EVENTS
On October 1, 2004 the Company entered into an Exchange Agreement with an
Investor whereby a convertible note dated June 7, 2004 of $1,500,000 was
exchanged for a Secured Note of $1,540,000 due June 7, 2006 which note has a
conversion right provided the market price of the Company's Common Stock is
equal to or above $.60 per share. The note is secured by a first lien on certain
of the Company's non real estate assets and by the pledge of 8,000,000 shares of
common stock. The Company also granted the Investor warrants to purchase 500,000
shares of the Company's common stock until June 7, 2009 at 110% of the closing
price on September 30, 2004.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Pizza Donini support twenty-two (22) franchised pizza outlets. At August 31
2004, Pizza Donini also owned five (5) 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, 2004, franchise and corporate operations
accounted for approximately 78% of the Company's total revenues. The sale of
wholesale food products equaled approximately 21% and the remaining
miscellaneous revenues accounted for 1%. This compares to 42%, 57% and 1%
respectively for the same period in fiscal 2003, which included sales of a store
operated by the Company. This store has since been sold as a franchise.
During the first quarter of fiscal 2005 Company revenues were $596,616 compared
to $354,414 for the same period in 2004, a increase of $242,202 or 68.3%. Cost
of goods sold for the three months ended August 31, 2004 was $78,124 or 63% as
compared to $130,669 or 63% for the same period in fiscal 2004. The increase in
revenues is primarily a result of sales of stores during this period of
$319,303.
Net income decreased from $(83,968) during the first three months of fiscal 2004
to ($1,065,190) for the same period in 2005. The decrease in net income is due
to decrease in sales and increased administrative expenses as well as amortized
finance costs, and primarily compensation costs of $828,000.
Working capital deficit during this period decreased from $992,732 at May 31,
2004 to $163,103 at August 31, 2004. Total assets increased from $813,977 as of
May 31, 2004 to $1,855,775 as of August 31, 2004.
The Company maintains that its liquidity will continue to improve marginally
with improved earnings, but will not be sufficient to allow it to expand its
operations to any significant degree.
8
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 July 2005. 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.
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, 2004 was 18,420,871.
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
9
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: November 4, 2004 By: /s/ PETER DEROS
--------------------------------
Peter Deros, President
10