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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: JULY 31, 2000
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-18349
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THE MNI GROUP INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2380325
------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10 WEST FOREST AVENUE, ENGLEWOOD, NEW JERSEY 07631
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 569-1188
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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 [ ] NO [X].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST 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.
4,577,376 SHARES OF COMMON STOCK AT JULY 31, 2000.
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<PAGE>
THE MNI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
JULY 31, JANUARY 31,
2000 2000
----------- -----------
Current assets:
Cash $ 364,000 $ 649,700
Accounts receivable (net of allowance) 24,300 14,000
Inventories 108,800 83,400
Other current assets 78,800 23,000
----------- -----------
Total current assets 575,900 770,100
----------- -----------
Fixed assets, net of accumulated depreciation
of $93,100 and $91,100, respectively 33,200 9,800
----------- -----------
Other assets:
Security deposits 15,200 15,200
----------- -----------
$ 624,300 $ 795,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 300,500 $ 226,100
Notes payable-short term 57,000 61,000
10% Convertible subordinated debentures 1,846,300 1,521,300
----------- -----------
Total current liabilities 2,203,800 1,808,400
----------- -----------
Stockholders' (Deficit):
Common stock, no par value; 10,000,000
shares authorized; 4,577,376 shares
issued and outstanding at July 31, 2000;
4,110,709 issued and outstanding at
January 31, 2000 7,348,900 7,313,900
Accumulated deficit (8,918,000) (8,316,800)
----------- -----------
(1,569,100) (1,002,900)
Less treasury stock (10,400) (10,400)
----------- -----------
(1,579,500) (1,013,300)
----------- -----------
$ 624,300 $ 795,100
=========== ===========
The accompanying notes are an integral part hereof.
1
<PAGE>
THE MNI GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 353,600 $ 217,700 $ 125,500 $ 127,200
----------- ----------- ----------- -----------
Cost of sales and operating expenses:
Cost of merchandise sales 175,300 130,500 63,000 57,900
Selling, general and administrative expenses 460,600 259,700 229,300 151,400
Website development costs 233,700 -- 61,400 --
Advertising expense 11,300 900 -- --
----------- ----------- ----------- -----------
Total cost of sales and operating expenses 880,900 391,100 353,700 209,300
----------- ----------- ----------- -----------
Operating (loss) (527,300) (173,400) (228,200) (82,100)
----------- ----------- ----------- -----------
Other (expense)income:
Interest expense (81,900) (24,800) (42,500) (13,100)
Interest income 8,000 -- 2,100 --
----------- ----------- ----------- -----------
Total other (expense) (73,900) (24,800) (40,400) (13,100)
----------- ----------- ----------- -----------
(Loss) from operations before provision for
income taxes (601,200) (198,200) (268,600) (95,200)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net (loss) $ (601,200) $ (198,200) $ (268,600) $ (95,200)
=========== =========== =========== ===========
Per share data:
Basic (loss) per common share ($ .13) ($ .05) ($ .06) ($ .02)
=========== =========== =========== ===========
Weighted average number of shares outstanding 4,542,944 4,085,709 4,577,376 4,085,709
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part hereof.
2
<PAGE>
THE MNI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
----------------------
2000 1999
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) $(601,200) $(198,200)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 2,000 (2,200)
Shares issued for services 33,400 --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivables (10,300) 47,000
(Increase) in inventories (25,400) (1,800)
(Increase) in prepaid expenses and other assets (55,800) --
Increase (decrease) in accounts payable 74,400 (2,200)
--------- ---------
Net cash (used) by operating activities (582,900) (157,400)
--------- ---------
Cash flows from investing activities:
Increase in fixed assets (25,400) (60,500)
--------- ---------
Net cash (used) by investing activities (25,400) (60,500)
--------- ---------
Cash flows from financing activities:
Sale of common stock 1,600 --
Sale of convertible subordinated debentures 325,000 390,000
(Decrease) in notes payable (4,000) (1,800)
(Decrease) in loans from officers -- (164,700)
--------- ---------
Net cash provided by financing activities 322,600 223,500
--------- ---------
(Decrease) increase in cash (285,700) 5,600
Cash at beginning of period 649,700 5,000
--------- ---------
Cash at end of period $ 364,000 $ 10,600
========= =========
Supplemental information:
Interest expense paid $ 1,500 $ 20,800
Federal income tax paid -- --
</TABLE>
The accompanying notes are an integral part hereof.
3
<PAGE>
THE MNI GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FIANANCIAL STATEMENTS
-----------------------------------------------------
JULY 31, 2000
-------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of July 31, 2000, and the results of its operations and cash
flows for the six months ended July 31, 2000 and 1999. 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, 2000, which is included in its Annual Report on Form 10-K
filed in April 2000. The results of operations for the period ended July 31,
2000 are not necessarily indicative of the operating results for the full year.
1. LOSS PER COMMON 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. STOCK ISSUANCES:
---------------
On February 1, 2000, the Company issued 400,000 shares of its common stock
in exchange for an obligation of $30,000. In addition, on April 29, 2000,
the Company completed the sale of 66,667 shares of its common stock to an
employee who was formerly a consultant for $5,000.
Through May 11, 2000, the Company has issued additional options to purchase
206,000 shares of its common stock at exercise prices varying between $.10
to $.875. Of these options, 96,000 expire on November 1, 2004, the
remaining 110,000 options expire on November 1, 2009.
3. SALE OF ADDITIONAL 10% CONVERTIBLE SUBORDINATED DEBENTURES:
----------------------------------------------------------
The Company has offered for sale an additional $750,000 of its 10%
Convertible Subordinated Debentures with terms similar to those sold in the
prior fiscal year. These debentures are convertible into the Company's
common stock at a conversion rate of $.375 per share. The debentures are
due on July 31, 2001 or at such time as the Company amends its certificate
of incorporation to permit the issuance of these shares. As of July 31,
2000, the Company sold $325,000 of these debentures and an additional
$100,000 was sold as of August 21, 2000.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Condensed Consolidated
Financial Statements and the related Notes included elsewhere in the report.
This discussion contains certain forward-looking statements that involve risks
and uncertainties. Actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors.
Comparison of Three Months Ended July 31, 1999 and 2000.
Sales for the three months ended July 31, 2000 were $125,500 as compared with
sales of $127,200 for the comparable period in 1999, a decrease of 1.3%. Cost of
sales increased from $57,900 for the three months ended July 31, 1999, or 45.5%
of sales, to $63,000, or 50.2% of sales, for the comparable period in 2000. The
increase in cost of sales as a percentage of sales for the quarter ended July
31, 2000 was due to the effect of the sale of products with different gross
profit margins than those of the prior period. Selling, general and
administrative expenses increased 51.5% to $229,300 from $151,400. These
expenses consisted primarily of salaries and related costs of $90,500;
professional fees of $21,200 and consulting fees of $63,400. This increase was
primarily attributable to the expenditure of $63,400, representing the cost for
the development of the content on the Internet site devoted to Gender-Specific
Health. In addition, the Company paid $61,400 during the quarter to an outside
contractor for the construction of the website. For the three months ended July
31, 2000, the Company incurred an operating loss of $228,200 as compared to an
operating loss of $82,100 for the comparable period in 1999. As a result of
these increased operating costs the Company had a loss from continuing
operations of $268,600 or ($.06) per share, as compared to a loss of $95,200 or
($.02) per share for the comparable period in 1999.
Interest expense was $42,500 and interest income was $2,100 for the three months
ended July 31, 2000, as compared to interest expense of $13,100 during the
comparable period of 1999. The increase in interest expense is primarily due to
interest on the $1,846,300 principal amount of 10% Convertible Subordinated
Debentures outstanding which were issued after July 31, 1999. Interest income is
due to the cash balances maintained by the Company since the sale of the
Debentures.
Comparison of Six Months Ended July 31, 1999 and 2000.
Sales for the six months ended July 31, 2000, were $353,600 as compared with
sales of $217,700 for the comparable period in 1999, an increase of 62.4%. The
increase in sales was primarily due to network marketing collagen sales and to
the introduction of a new line of products developed for the Company's
e-commerce division now known as His and Her Medicine.com, (formerly Womens
Health Network.com) a division of the MNI Group Inc. Cost of sales increased
from $130,500 for the six months ended July 31, 1999, or 59.9% of sales, to
$175,300, or 49.6% of sales, for the comparable period in 2000. Selling, general
and administrative expenses increased 77.4% to $460,600 from $259,700. These
expenses consisted primarily of salaries and related costs of approximately
5
<PAGE>
$189,000, professional fees of $78,000 and consulting fees of $81,000. This
expense of $81,000 represents the cost for the development of the content on the
Internet site devoted to Gender-Specific Health. In addition, the Company paid
$234,000 during the six months ended July 31, 2000 to an outside contractor for
the construction of the website. For the six months ended July 31, 2000, the
Company incurred an operating loss of $527,300 as compared to an operating loss
of $173,400 for the comparable period in 1999. This loss was primarily due to
the increase in selling, general and administrative expenses and approximately
$234,000 for the construction of its website. The Company incurred a loss from
continuing operations of $601,200 or ($.13) per share, as compared to a loss of
$198,200 or ($.05) per share for the comparable period in 1999.
Interest expense was $81,900 for six months ended July 31, 2000, as compared to
$24,800 during the comparable period of 1999 due to interest on the $1,846,300,
principle amount of 10% Convertible Subordinated Debentures outstanding which
were issued after July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company had cash of $364,000 as compared to cash of
$649,700 on January 31, 2000. During the first quarter of 2000, the Company
determined that in order to sustain its existing business operations and to
successfully implement its plan of developing a line of women's supplements and
an Internet website devoted to Gender-Specific Medicine, additional capital
would be required. During the year ended January 31, 2000, the Company completed
the private placement of $1,521,250 principal amount of 10% Convertible
Subordinated Debentures. The Convertible Subordinated Debentures are convertible
into shares of common stock at $.075 per share. As of August 21, 2000, the
Company sold an additional $425,000 of its 10% Convertible Subordinated
Debentures which are convertible at $.375 per share and will become due and
payable at July 31, 2001(See Note 3 to the financial statements) The holders of
the Convertible Subordinated Debentures must automatically convert their
debentures at such time as the Company amends its certificate of incorporation
to increase its authorized common stock (currently 10,000,000 shares) to an
amount sufficient to permit the conversion of the debentures. In the event the
Company does not amend its Certificate of Incorporation, the original series of
debentures totaling $1,521,500 will become due and payable at October 1, 2000.
At present, the Company does not have the resources to meet this obligation.
The Company still requires additional funds to complete the launch of its
Gender-Specific Health site and commence marketing of its line of women's
supplements and intends to raise additional funds during the Company's fiscal
year. There can be no assurance the Company will be successful in raising such
funds and that if additional funds are raised, that the Company's existing
business operations will improve, or that the development of the line of women's
supplements and the website for Gender-Specific Health will be successful. The
inability to raise additional funds will materially effect the future business
operations of the Company.
6
<PAGE>
Certain statements in this document constitute "forward-looking statements,"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance,
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. The important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements include, but are not limited to (i) the information being of a
preliminary nature and therefore subject to further adjustment; (ii) the ability
of the Company to implement its new business plan; (iii) the Company's ability
to obtain new proprietary rights or to protect and retain its existing rights;
(iv) the Company's dependence on single sources of supply for many of the
products it offers; (v) changing conditions in the healthcare information
industry; (vi) government regulatory changes; (vii) competitive actions by other
companies, including the development by competitors of new or superior services
or products or the entry into the market of new competitors; (viii) the ability
of the Company to obtain financing for its future capital needs; (ix) the
uncertainties of litigation; (x) all the risks inherent in the development,
introduction, and implementation of new products and services; and other factors
both referenced and not referenced in this document. When used in this document,
the words "estimate," "project," "anticipate," "expect," "intend," "believe,"
and similar expressions are intended to identify forward-looking statements, and
the above described risks inherent therein.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) None
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report, as amended, to be signed on its
behalf by the undersigned thereunto duly authorized.
THE MNI GROUP INC.
(registrant)
Dated: September 6, 2000
By: /s/ ARNOLD GANS
-----------------------
Arnold Gans
(President)
9
