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, 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 November 30, 2004: 27,711,205 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, 2004 and May 31,2004 .................................. 3
Consolidated Statements of Operations
for the six month periods
ended November 30, 2004 and 2003 ................................... 4
Consolidated Statements of Cash Flows
for the six month period ended
November 30, 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 .............................................. 8
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
November 30, May 31,
ASSETS 2004 2004
- ------ ------------ ------------
(Unaudited) (Audited)
Current Assets:
Cash $ 388,663 $ -
Accounts receivable, net 38,920 71,169
Inventories 16,514 14,412
Taxes receivables 14,433 8,134
Due from shareholder 135,684 -
Loan Receivable - 16,570
Current portion of franchise sales receivables 21,007 26,118
Prepaid expenses 8,805 12,038
Assets held for resale 305,174 286,070
------------ ------------
Total Current Assets 929,200 434,511
Property and Equipment (Net) 284,082 291,018
Franchise sales receivables 53,305 77,672
Trademarks 10,606 10,776
Unamortized loan finance cost 429,800 -
------------ ------------
Total Assets $ 1,706,993 $ 813,977
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
- ---------------------------------------
Current Liabilities:
Current portion of long-term debt $ 207,578 $ 245,932
Loans payable 343,783 357,592
Accounts payable and accrued liabilities 862,302 809,308
Due to shareholders - 14,411
------------ ------------
Total Current Liabilities 1,413,663 1,427,243
Long-Term Liabilities:
Long-Term Debt 524,041 493,757
Note Payable secured 1,540,000 -
------------ ------------
Total Liabilities 3,477,704 1,921,000
------------ ------------
Stockholders' Equity(Deficit):
Common stock ($.001 par value 100,000,000 shares
authorized, 27,711,205 and 9,220,871 issued and
outstanding November 30, 2004 and May 31, 2004 respectively 18,420 9,220
Additional paid-in capital 5,223,561 4,404,761
Foreign currency translation adjustment (164,616) (55,551)
Accumulated deficit (6,848,076) (5,465,453)
------------ ------------
Total Stockholders' Equity(Deficit) (1,770,711) (1,107,023)
------------ ------------
Total Liabilities and Stockholders' Equity(Deficit) $ 1,706,993 $ 813,977
============ ============
- ----------
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,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Sales $ 135,719 $ 197,193 $ 259,635 $ 403,625
Sales of stores 555,036 - 874,339
Royalties and other related revenues 91,004 128,755 171,498 211,524
Order processing fees 42,612 42,307 81,706 85,710
Initial franchise fees 20,546 18,801 54,355 40,611
------------ ------------ ------------ ------------
Total Revenues 844,917 387,056 1,441,533 741,470
------------ ------------ ------------ ------------
Cost of Goods Sold 83,490 123,750 161,614 254,419
Cost of Stores Sold 550,715 - 827,000 -
------------ ------------ ------------ ------------
634,205 123,750 988,614 254,419
------------ ------------ ------------ ------------
210,712 263,306 452,919 487,051
------------ ------------ ------------ ------------
Costs and Expenses:
General and administrative expenses 344,939 133,223 609,328 277,829
Advertising and promotion 37,237 44,195 101,705 106,128
Salaries 44,746 56,739 101,225 110,956
Interest expense 24,579 23,323 48,181 44,312
Depreciation and amortization 16,756 22,927 30,555 51,144
Compensation cost - - 828,000 -
Amortization of finance cost 60,000 - 120,000 -
------------ ------------ ------------ ------------
Total Costs and Expenses 528,257 280,407 1,838,994 590,369
------------ ------------ ------------ ------------
Income (Loss) from operations (317,545) (17,101) (1,386,075) (103,318)
Other income (Expenses) 112 895 3,452 3,144
------------ ------------ ------------ ------------
Net income (Loss) before income taxes (317,433) (16,206) (1,382,623) (100,174)
Provision for income taxes - - - -
Net (Loss) $ (317,433) $ (16,206) $ (1,382,623) $ (100,174)
------------ ------------ ------------ ------------
Earnings (Loss) per share
Basic and diluted per share (0.05) (0.02) (0.05) (0.02)
============ ============ ============ ============
Basic and diluted weighed average
common shares outstanding 27,281,094 6,920,688 24,958,510 6,920,688
============ ============ ============ ============
- ----------
See accompanying notes to consolidated financial statements.
4
DONINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
November 30,
2004 2003
----------- -----------
Cash Flows from Operating Activities:
Net (loss) $(1,382,623) $ (100,074)
Adjustments to reconcile net (loss) to cash (used in)
operating activities:
Compensation expense 828,000
Depreciation and amortization 30,555 44,312
Unamortized loan finance costs (429,800)
Foreign translation adjustments (109,066) (54,990)
Change in taxes receivables (6,299) 4,052
Change in operating assets and liabilities:
Accounts receivable 32,249 (63,148)
Inventories (2,102) (12,034)
Loan receivable 16,570
Prepaid expenses and other current assets 3,233 (8,331)
Accounts payable and accrued liabilities 52,994 185,523
----------- -----------
Net cash (used in) provided by
operating acivities (966,289) (4,690)
----------- -----------
Cash Flows from Investing Activities:
Increase in franchise sales receivable (42,163) (104)
Proceeds from franchise sales receivable 71,641 12,874
Decrease (Increase) in assets held for resale (19,104) 25,979
Capitalized property and equipment (23,449) -
----------- -----------
Net cash (used in) provided by
investing acivities (13,075) 38,749
----------- -----------
Cash Flows from Financing Activities:
Due from shareholder (150,095) 30,004
Proceeds from loans payable 126,497 117,967
Principal payment of loans payable (140,305) (83,961)
Proceeds from long-term debt 18,512 13,543
Principal payment from long-term debt (26,582) (115,193)
Proceed from note payable secured 1,540,000 -
Repayment of deposit payable - 3,581
----------- -----------
Net cash (used in) provided by
financing activities 1,368,027 (34,059)
----------- -----------
Net Increase in Cash and Cash Equivalents 388,663 -
Cash and Cash Equivalents, beginning of period - -
----------- -----------
Cash and Cash Equivalents, end of period $ 388,663 $ -
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Interest paid during the period $ 48,181 $ -
=========== ===========
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)
November 30, 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 six months ended November 30, 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)
November 30, 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
- -------
The total number of shares of Common Stock issued and outstanding as of November
30, 2004 was 27,711,205.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Pizza Donini supports twenty (20) franchised pizza outlets. At November 30,
2004, Pizza Donini also owned five (5) additional locations that are being held
for resale as Donini franchises. All locations are in the Greater Montreal. The
Company also has one franchise unit operating as a Resto-Bar in Montreal. The
Resto-Bar is a bar/restaurant featuring a moderately priced Italian menu with
its traditional and gourmet pizzas, submarine sandwiches, an expanded menu of
veal and chicken dishes, appetizers, a new selection of pasta dishes, foccaccia
and ciabatta sandwiches as well as a breakfast menu. The Company has commenced
plans to locate at least two (2) Resto-Bars in the U.S. during calendar 2005 as
either franchise or Company owned units.
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. The Company has also
completed the development of its frozen microwaveable pizza. The first truly
Pizzeria tasting pizza coming out of a microwave. This new product is an
extension of the Company's frozen pizza line.
7
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 2004
(Continued)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. (Continued)
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 six months ended November 30, 2004, franchise and corporate operations
accounted for approximately 81% of the Company's total revenues. The sale of
food products equaled approximately 18% and the remaining miscellaneous revenues
accounted for 1%. This compares to 45%, 54% and 1% respectively for the same
period in fiscal 2003. Sales of food products were higher in fiscal 2003 because
it included operating sales of a Company owned store which store has since been
sold as a franchise.
During the second quarter of fiscal 2005 Company revenues were $1,441,533
compared to $741,470 for the same period in 2004, an increase of $700,063 or
94.4%. The increase in revenues is primarily a result of sales of stores during
this period of $874,339. Cost of goods sold for the six months ended November
30, 2004 was $161,614 or 62% as compared to $254,419 or 63% for the same period
in fiscal 2004. The increase in revenues is primarily a result of sales of
assets of four (4) stores during this period of $874,339.
Net income decreased from $(100,174) during the first six months of fiscal 2004
to ($1,382,623) for the same period in 2005. The decrease in net income is due
to a decrease in sales and an increase in administrative expenses, amortized
finance costs, and compensation costs of $828,000.
Working capital deficit during this period decreased from $992,732 at May 31,
2004 to $484,463 at November 30, 2004. Total assets increased from $813,977 as
of May 31, 2004 to $1,706,993 as of November 30, 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.
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.
8
DONINI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 2004
(Continued)
ITEM 1 - LEGAL PROCEEDINGS (Continued)
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
During the six months ended November 30, 2004 the Company issued 9,200,000
shares of its common stock, the Company recognized as compensation expense 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 3,500,000, 500,000 of which are
exercisable upon their grant until June 7, 2009 and 3,000,000 with future
exercise dates commencing from October, 2005 until October, 2007 at exercise
prices ranging from $0.08 to $0.16 for the remaining options.
Due to the volatility and limited trading of the Company's common stock the
company recorded no expense as these options are not exercisable till future
dates.
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.
On December 1, 2004, the Company paid a 5% stock dividend to all shareholders on
record as of November 15, 2004 and pursuant thereto issued 1,290,334 shares of
common stock.
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: January 19, 2005 By: /s/ Peter Deros
--------------------------------
Peter Deros, President
10