10QSB 1 donini_1q03.txt FORM 10QSB 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. ------------------------------------------------------------------- (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, 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 ----------- ----------- Total Revenues 354,414 386,758 ----------- ----------- Cost of Goods Sold 130,669 143,254 ----------- ----------- 223,745 243,504 ----------- ----------- 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 ----------- ----------- Total Costs and Expenses 309,962 308,525 ----------- ----------- Income (Loss) from operations (86,217) (65,021) Other income (Expenses) $ 2,249 $ 4,679 ----------- ----------- 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 --------- --------- Net cash (used in) provided by operating activities 16,691 6,077 --------- --------- 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) --------- --------- 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