UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-18349
THE MNI GROUP INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2383025
------------------------------- -----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER)
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 WEST FOREST AVENUE, ENGLEWOOD, NEW JERSEY 07631
--------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 569-1188
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days [ ] Yes [X] No.
Applicable Only to Issuers Involved in Bankruptcy
Proceeding During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
Applicable Only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,685,709 shares of Common Stock at October 31, 1998
<PAGE>
THE MNI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
October 31, January 31,
1998 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 30,400 $ 36,900
Accounts receivable (net of allowance) 148,200 131,400
Inventories 123,300 126,100
Other current assets 7,300 7,800
----------- -----------
Total current assets 309,200 302,200
----------- -----------
Furniture, fixtures and leasehold improvements (net) 600 1,500
Goodwill, net of amortization 341,000 347,600
Other assets 15,700 15,700
----------- -----------
357,300 364,800
----------- -----------
$ 666,500 $ 667,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 325,300 $ 266,200
Accrued expenses and other liabilities 372,100 292,300
Notes payable 88,000 160,200
Due to officers 270,500 147,600
----------- -----------
Total current liabilities 1,055,900 866,300
----------- -----------
Notes payable (net of current portion) 75,000 75,000
Excess of purchase price over basis of assets acquired
net of amortization 151,900 155,200
----------- -----------
226,900 230,200
----------- -----------
Stockholders' (deficiency):
Common stock, no par value; 10,000,000 shares authorized;
shares issued and outstanding -October 31, 1998 and
January 31, 1998 - 4,685,709 7,576,400 7,576,400
Accumulated deficit (8,192,700) (8,005,900)
----------- -----------
(616,300) (429,500)
----------- -----------
$ 666,500 $ 667,000
=========== ===========
</TABLE>
The accompanying notes are an integral part hereof.
2
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
October 31, October 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 625,500 $ 871,700 $ 271,000 $ 233,100
----------- ----------- ----------- -----------
Cost of sales and operating expenses:
Cost of merchandise sales 375,900 541,400 186,500 150,600
Selling, general and
administrative expenses 369,300 393,400 136,200 120,400
Interest expense 28,500 16,500 11,000 6,300
----------- ----------- ----------- -----------
773,700 951,300 333,700 277,300
----------- ----------- ----------- -----------
(Loss) from continuing
operations (148,200) (79,600) (62,700) (44,200)
Discounted operations:
Income (loss) from
discontinued operations (38,600) (32,500) 11,600 (32,500)
----------- ----------- ----------- -----------
Net (loss) $ (186,800) $ (112,100) $ (51,100) $ (76,700)
=========== =========== =========== ===========
Shares used in computing earnings
per common and common equivalent
share:
Income (loss) per share:
Basic income (loss) per share:
From continuing operations $ (.03) $ (.02) $ (.01) $ (.01)
From discontinued operations (.01) (.01) -- (.01)
----------- ----------- ----------- -----------
$ (.04) $ (.03) $ (.01) $ (.02)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 4,685,709 4,130,841 4,685,709 4,528,643
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part hereof.
3
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
October 31,
----------------------
1998 1997
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($186,800) ($112,100)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 4,200 700
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (16,800) 1,200
(Increase) decrease in inventories 2,800 (80,000)
(Increase) decrease in prepaid expenses and other assets 500 7,800
Increase (decrease) in accounts payable 59,100 202,800
Increase in accrued expenses and other
liabilities 79,800 (5,600)
--------- ---------
Net cash provided (used) by operating activities (57,200) 14,800
--------- ---------
Cash flows from investing activities:
Goodwill acquired in acquisition -- (47,700)
--------- ---------
Net cash (used) by investing activities -- (47,700)
--------- ---------
Cash flows from financing activities:
Increase in loans payable -- 18,700
Increase in loans from officers 122,900 68,900
Reduction in short-term debt (72,200) (29,800)
--------- ---------
Net cash provided by financing activities 50,700 57,800
--------- ---------
Increase (decrease) in cash (6,500) 24,900
Cash at beginning of period 36,900 13,000
--------- ---------
Cash at end of period $ 30,400 $ 37,900
========= =========
Supplemental information:
Interest expense paid $ 28,500 $ 11,000
Federal income tax -- --
Shares used for subsidiary acquisition -- 300,000
</TABLE>
The accompanying notes are an integral part hereof.
4
<PAGE>
THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the company as of October 31, 1998, and the results of its operations and
cash flows for the nine months ended October 31, 1998 and 1997. Such financial
statements have been condensed in accordance with the applicable regulations of
the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's audited financial statements for the
year ended January 31, 1998, which is included in its Form 10K filed in May
1998. The results of operations for the period ended October 31, 1998 are not
necessarily indicative of the operating results for the full year.
1. Income per Share:
----------------
Income per share is computed on the weighted average number of shares
outstanding. The inclusion of common stock equivalents (warrants and options) in
this computation would be antidilutive.
2. Year 2000 Data Processing Issues:
--------------------------------
The Company has made an assessment of its year 2000 computer needs.
Inasmuch as most of the Company's accounting records are manually processed, the
Company should not incur any additional costs in addressing this concern.
3. Discontinued Operations:
-----------------------
The Company acquired KOS Industries, Inc. (KOS) on August 1, 1997. The
Company's management has entered into negotiations with KOS's management for the
purpose of spinning off KOS to its original shareholders in exchange for the MNI
Group, Inc. stock it acquired.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OCTOBER 31, 1998
Results of Operations
- ---------------------
The results of operations for the quarter ended October 31, 1998 do not
include the operations of K.O.S. Industries, Inc. (K.O.S.) K.O.S. was acquired
as a wholly owned subsidiary on August 1, 1997. The Company's management has
entered into negotiations with K.O.S. management for the purposes of spinning
off K.O.S. to its original shareholders in exchange for its MNI Group, Inc.
stock. Pursuant to generally accepted accounting principles, the results of
operations for K.O.S. have not been consolidated and are reflected as
discontinued operations.
Sales for the three months ended October 31, 1998 were $271,000 as
compared with sales of $233,100 for the comparable period in 1997, an increase
of 16.3%. Cost of sales increased from $150,600 for the three months ended
October 31, 1997 or 64.6% of sales to $186,500, or 68.8% of sales, for the
comparable period in 1998. Selling, general and administrative expenses
increased 13.1% to $136,200 from $120,400. For the three months ended October
31, 1998, the Company incurred an operating loss from continuing operations of
$62,700 and a net loss of $51,100 or ($.01) per share, as compared to an
operating loss from continuing operations of $44,200 and a net loss of $76,700
or ($.02) per share, for the comparable period of 1997.
For the three months ended October 31, 1998, the Company incurred
income from discontinued operations of $11,600 and a loss of $32,500 for the
comparable period in 1997.
Interest expense was $11,000 for three months ended October 31, 1998,
as compared to $6,300 during the comparable period of 1997.
Sales for the nine months ended October 31, 1998 were $625,500 as
compared with sales of $871,700 for the comparable period in 1997, a decrease of
28.2%. The Company has experienced continued decreases in sales to one of its
major customers. Cost of sales decreased from $541,400 for the nine months ended
October 31, 1997 or 62.1% of sales to $375,900, or 60% of sales, for the
comparable period in 1998. Selling, general and administrative expenses
decreased 6.1% to $369,300 from $393,400. For the nine months ended October 31,
1998, the Company incurred an operating loss from continuing operations of
$148,200 and a net loss of $186,800 or ($.04) per share, as compared to an
operating loss from continuing operations of $79,600 and a net loss of $112,100
or ($.03) per share, for the comparable period of 1997.
For the nine months ended October 31, 1998, the Company incurred a loss
from discontinued operations of $38,600 and a loss of $32,500 for the comparable
period in 1997.
Interest expense was $28,500 for nine months ended October 31, 1998, as
compared to $16,500 during the comparable period of 1997.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-2
Liquidity and Capital Resources
- -------------------------------
At October 31, 1998, the Company had cash of $30,400 as contrasted with
cash of $36,900 on January 31, 1998. There is no assurance that the Company will
be able to obtain sufficient cash to fund its operations. Management believes
that the Company requires additional financing to conduct its operations on a
profitable basis and to develop and market additional products and programs. The
Company is continually engaged in an effort to obtain such funding.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MNI GROUP INC.
(registrant)
December 21, 1998 By: /s/ Arnold M. Gans
---------------------------
Arnold M. Gans
President
(Principal Operating Officer
and Principal Accounting and
Financial Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722617
<NAME> The MNI Group Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1
<CASH> 30,400
<SECURITIES> 0
<RECEIVABLES> 148,200
<ALLOWANCES> 0
<INVENTORY> 123,300
<CURRENT-ASSETS> 309,200
<PP&E> 600
<DEPRECIATION> 0
<TOTAL-ASSETS> 666,500
<CURRENT-LIABILITIES> 1,055,900
<BONDS> 0
0
0
<COMMON> 7,576,400
<OTHER-SE> (8,192,700)
<TOTAL-LIABILITY-AND-EQUITY> (662,500)
<SALES> 625,500
<TOTAL-REVENUES> 625,500
<CGS> 375,900
<TOTAL-COSTS> 745,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,500
<INCOME-PRETAX> (186,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (148,200)
<DISCONTINUED> 38,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,800)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
