10QSB 1 donini_2q02.txt FORM 10-QSB 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, 2002 [ ] 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, 2002: 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 November 30, 2002 and May 31,2002.................................... 3 Consolidated Statements of Operations for the six month periods ended November 30, 2002 and 2001 .................................... 4 Consolidated Statements of Cash Flows for the six month period ended November 30, 2002 and 2001 .......................................... 5 Consolidated Statements of Stockholders' equity as of June 1, 2000, May 31, 2001 and 2002, August 31, 2002, and November 30, 2002 ................................................... 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
November 30, May 31, ASSETS 2002 2002 ------ ------------ ------------ (Unaudited) (Audited) Current Assets: Accounts receivable, net $ 49,995 $ 45,064 Income and sales tax receivable 44,326 34,795 Current portion of franchise sales receivables 84,820 79,247 Due from shareholder 93,889 160,840 Inventories 22,121 22,061 Prepaid expenses 16,691 19,980 Assets held for resale 15,002 35,998 ------------ ------------ Total Current Assets 326,844 397,985 Franchise sales receivable 218,107 200,528 Fixed assets 369,502 400,023 Trademarks 11,447 11,754 ------------ ------------ Total Assets $ 925,900 $ 1,010,290 ============ ============ LIABILITIES AND STOCKHOLDERS' (DEFICIT) --------------------------------------- Current Liabilities: Current portion of long-term debt $ 275,059 $ 479,081 Loans payable 40,688 23,038 Accounts payable and accrued liabilities 850,252 1,130,052 Deposits payable 28,755 -- ------------ ------------ Total Current Liabilities 1,194,754 1,632,171 Long-Term Liabilities: Long-Term Debt 205,462 339,571 ------------ ------------ Total Liabilities 1,400,216 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 November 30, 2002 and May 31,2002 respectively 6,920 6,607 Additional paid-in capital 4,384,061 3,821,142 Foreign currency translation adjustment 103,755 67,166 Accumulated deficit (4,969,052) (4,856,367) ------------ ------------ Total Stockholders' Equity(Deficit) (474,316) (961,452) ------------ ------------ Total Liabilities and Stockholders' Equity (Deficit) $ 925,900 $ 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 Six Months Ended November 30, November 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Revenues: Sales $ 194,070 $ 194,924 $ 407,871 $ 448,420 Royalties and other related revenues 98,162 134,043 224,050 311,295 Order processing fees 44,746 55,885 91,815 122,869 Interest income 4,979 4,974 9,658 11,316 ------------ ------------ ------------ ------------ Total Revenues 341,957 389,826 733,394 893,900 ------------ ------------ ------------ ------------ Cost of Goods Sold 132,479 171,639 275,733 342,294 Cost of Supplies to Franchises -- 968 -- 3,223 ------------ ------------ ------------ ------------ 132,479 172,607 275,733 345,517 ------------ ------------ ------------ ------------ 209,478 217,219 457,661 548,383 ------------ ------------ ------------ ------------ Costs and Expenses: Advertising and promotion 50,836 88,272 112,719 435,021 General and administrative expenses 168,815 216,554 362,047 552,277 Depreciation 15,882 14,483 31,674 29,851 Interest expense 20,857 37,350 43,457 66,794 Product development 5,431 -- 20,449 -- ------------ ------------ ------------ ------------ Total Costs and Expenses 261,821 356,659 570,346 1,083,943 ------------ ------------ ------------ ------------ Net Income (Loss) before income tax provision (52,343) (139,440) (112,685) (535,560) Provision for income tax -- -- -- -- ------------ ------------ ------------ ------------ Net (Loss) $ (52,343) $ (139,440) $ (112,685) $ (535,560) ============ ============ ============ ============ Earnings (Loss) per share Basic and diluted per share $ (0.02) $ (0.01) $ (0.02) $ (0.03) ============ ============ ============ ============ Basic and diluted weighed average common shares outstanding 6,830,771 5,581,312 6,976,107 5,321,476 ============ ============ ============ ============
-------------------- See accompanying notes to consolidated financial statements. 4 DONINI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended November 30, 2002 2001 ------------ ------------ Cash Flows from Operating Activities: Net (loss) $ (112,685) $ (535,560) Adjustments for: Depreciation 31,674 29,851 Compensation expense -- 323,611 Foreign exchange 36,589 4,509 Net increase (decrease) in allowance for doubtful accounts -- (711) Net change in operating working capital items: Accounts receivable (4,931) (28,841) Income and sales taxes receivable (9,531) (11,990) Inventories (60) 341 Prepaid expenses 3,289 1,032 Accounts payable and accrued liabilities 13,432 206,372 ------------ ------------ Net cash (used in) provided by operating acivities (42,223) (11,386) ------------ ------------ Cash Flows from Financing Activities: Due from shareholder 66,951 (126,565) Proceeds from employee loan -- (1,242) Proceeds from loan payable 34,497 117,366 Repayment of loans payable (16,847) (27,204) Proceeds from long-term debt 38,980 43,170 Repayment of long-term debt (107,111) (14,575) Proceed from deposit payable 28,755 -- Proceeds from exercise of stock options -- 550 ------------ ------------ Net cash (used in) provided by investing acivities 45,225 (8,500) ------------ ------------ Cash Flows from Investing Activities: Franchise sales receivable (67,573) (104,940) Repayments on francshise sales receivable 44,421 91,619 Capitalized propertey and equipment (846) (55,201) Trademarks -- 132 Assets held for resale 20,996 88,276 ------------ ------------ Net cash (used in) provided by financing acivities (3,002) 19,886 ------------ ------------ 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 $ -- ============ ============
-------------------- See accompanying notes to consolidated financial statements. 5 DONINI, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MAY 31, 2002 AND 2001(AUDITED) UNAUDITED AS TO NOVEMBER 30, 2002
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 Six Months Ended November 30, 2002: 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 36,589 36,589 Net loss for the six months ended August 30, 2002 (Unaudited) (112,685) (112,685) ------------ ------------ ------------ ------------ ------------ Balances November 30, 2002 6,920,688 6,920 4,384,061 (4,969,052) 103,755 (474,316) ============ ============ ============ ============ ============
6 DONINI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) November 30, 2002 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. an Pizza Donini.Com 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. 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 six months ended November 30, 2002 and 2001 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 November 30, 2002 and May 31, 2002, respectively. 7 DONINI INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) November 30, 2002 (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 November 30, 2002 6,920,688 ============ 8 DONINI INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) November 30, 2002 (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. 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Pizza Donini Inc. supports twenty-eight (28) franchised pizza outlets in the Greater Montreal area and is also selling its fully topped ready-to-use self-rising crust, frozen pizza in twenty-seven (27) in-store restaurants of Zellers, Inc., a cafeteria at The Bay in Downtown Montreal, one other business-to-business relationship and seven (7) kiosks under the Brand name of Pizza Donini at the Bell Center in Montreal, formerly called the Molson Center. 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, 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 two other operating subsidiaries, Pizado Foods (2001) Inc. (Pizado) and Pizza Donini.Com Inc. Pizado sells raw food products and other supplies to Donini 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, from a single telephone number, to the closest franchisee. For the six months ended November 30, 2002, franchise operations accounted for approximately 43% of the Company's total revenues, while the sale of wholesale food products equaled approximately 56% and the remaining miscellaneous revenues accounted for 1%. This compares to 49%, 50% and 1% respectively for same fiscal 2002 period. The change in sales mix resulted primarily from increased management focus on the wholesale food products markets and other business-to-business opportunities. During the first half of fiscal 2003 Company revenues were $733,394 as compared to $893,900 for the same period in 2002, a decrease of $160,506 or 17.9%. Cost of goods sold for the six months ended November 30, 2002 was $275,733 or 67.6% as compared to $345,517 or 76.3% for the same period in fiscal 2002. The decrease in sales is primarily a result of the closure of three (3) franchise outlets and seven in-store restaurants of Zellers in Winnipeg and a general decline of 15% in the restaurant business in the Greater Montreal area. Net income increased $422,875 from $(535,560) during the first six months of fiscal 2002 to ($112,685) 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 compensation expenses rendered in fiscal 2002 of $ 323,611 Working capital deficit during this period decreased from $1,234,186 at May 31, 2002 to $867,910 at November 30, 2002. Total assets decreased from $1,010,290 as of May 31, 2002 to $925,900 as of November 30, 2002. Management believes that the results reflected above are due to greater operational efficiency. In addition, management believes that its investment into its centralized call center and other marketing efforts of Pizza Donini.Com Inc. and its development of a high quality product line will result in future expansion and increased profitability. 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 half of fiscal 2003 by reducing expenditures. 10 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 February 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 November 30, 2002 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 11 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: February 20, 2003 By: /s/ PETER DEROS ------------------------------------- Peter Deros, President 12