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, 1999
------------------------------------------------
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.
---------------------------------------------------------
(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
-----------------------------------------------------------------
(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 [ ] 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.
3,745,043 SHARES OF COMMON STOCK AT OCTOBER 31, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE MNI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
OCTOBER 31, JANUARY 31,
1999 1999
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalent $ 504,800 $ 5,000
Accounts receivable (net of allowance) 51,500 86,800
Inventories 62,100 40,300
Other current assets 6,700 1,100
----------- -----------
Total current assets 625,100 133,200
----------- -----------
Fixed assets (net) 120,300 --
Other assets 15,000 15,000
----------- -----------
$ 760,400 $ 148,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 57,300 $ 160,500
Accrued expenses and other liabilities 89,300 276,800
Notes payable 63,700 84,900
Due to officers -- 196,300
----------- -----------
Total current liabilities 210,300 718,500
----------- -----------
Convertible subordinated debenture payable 1,148,700 --
Long-term debt (net of current portion) -- 75,000
Excess of purchase price over basis of assets
acquired net of amortization 147,600 150,900
----------- -----------
1,296,300 225,900
----------- -----------
Stockholders' (Deficiency):
Common stock, no par 10,000,000 shares
authorized; 3,745,043 shares issued
and outstanding at October 31, 1999, and
4,085,709 at January 31, 1999 7,276,400 7,276,400
Additional paid in capital 11,800 --
Accumulated deficit (8,012,200) (8,072,600)
----------- -----------
(724,000) (796,200)
Less: Treasury stock at cost (22,200) --
----------- -----------
(746,200) (796,200)
----------- -----------
$ 760,400 $ 148,200
=========== ===========
</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,
1999 1998 1999 1998
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Sales $ 376,500 $ 625,500 $ 158,800 $ 271,000
----------- ----------- ----------- -----------
Cost of sales and operating expenses:
Cost of merchandise sales 214,300 375,900 83,800 186,500
Selling, general and administrative
expenses 375,800 369,300 116,100 136,200
Advertising expense 6,400 -- 5,500 --
----------- ----------- ----------- -----------
Total cost of sales and operating
expenses 596,500 745,200 205,400 322,700
----------- ----------- ----------- -----------
Operating (loss) (220,000) (119,700) (46,600) (51,700)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (58,900) (28,500) (34,100) (11,000)
Interest income 1,800 -- 1,800 --
Forgiveness of debt 337,500 -- 337,500 --
----------- ----------- ----------- -----------
Total income (expense) 280,400 (28,500) 305,200 (11,000)
----------- ----------- ----------- -----------
Income (loss) from continuing operations 60,400 (148,200) 258,600 (62,700)
Discontinued operations:
(Loss) from discontinued operations -- (38,600) -- (11,600)
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes 60,400 (186,800) 258,600 (74,300)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ 60,400 ($ 186,800 $ 258,600 ($ 74,300)
=========== =========== =========== ===========
Basic (loss) per share from
discontinued operations $ -- ($ .01) $ -- $ --
Basic income (loss) per share from
continuing operations $ .02 ($ .03) $ .07 ($ .01)
----------- ----------- ----------- -----------
Basic income (loss) per share $ .02 ($ .04) $ .07 ($ .01)
=========== =========== =========== ===========
Weighted average number of shares
outstanding 3,960,906 4,685,709 3,712,672 4,685,709
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part hereof.
3
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------- -------------------------
1999 1998 1999 1998
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Diluted earnings per share:
Income per share from discontinued
operation $ -- $ -- $ -- $ --
Income per share from continuing
operations .01 -- .05 --
------------- --------- ------------- ---------
Income per share $ .01 $ -- $ .05 $ --
============= ========= ============= =========
Weighted average number of shares
outstanding assume
full dilution 5,479,639 -- 5,670,502 --
============= ========= ============= =========
</TABLE>
The accompanying notes are an integral part hereof.
4
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
OCTOBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 60,400 ($ 186,800)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization (3,300) 4,200
Change in operating assets and liabilities:
(Increase) decrease in accounts receivables 35,300 (16,800)
(Increase) decrease in inventories (21,800) 2,800
(Increase) decrease in prepaid expenses
and other assets (5,600) 500
Increase (decrease) in accounts payable (103,200) 59,100
Increase in accrued expenses
and other liabilities (187,500) 79,800
----------- -----------
Net cash (used) by operating activities (225,700) (57,200)
----------- -----------
Cash flows from financing activities:
(Decrease) in long-term debt (75,000) --
(Decrease) in notes payable (21,200) (72,200)
Increase (decrease) in loans from officers (196,300) 122,900
Convertible subordinated debenture 1,148,700 --
Purchase of treasury shares (100,000) --
Sale of treasury shares 89,600 --
----------- -----------
Net cash provided by financing activities 845,800 50,700
----------- -----------
Cash flows from investing activities:
Increase in fixed assets (120,300) --
----------- -----------
Net cash provided by investing activities (120,300) --
----------- -----------
Increase (decrease) in cash 499,800 (6,500)
Cash at beginning of period 5,000 36,900
----------- -----------
Cash at end of period $ 504,800 $ 30,400
=========== ===========
Supplemental information:
Interest expense paid $ 38,650 $ 28,500
Federal income tax -- --
</TABLE>
The accompanying notes are an integral part hereof.
5
<PAGE>
THE MNI GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
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 October 31, 1999, and the results of its operations and
cash flows for the nine months ended October 31, 1999 and 1998. 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, 1999, which is included in its Annual Report on Form 10-K
filed in December 31, 1999. The results of operations for the period ended
October 31, 1999 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. Where inclusion of common stock equivalents (warrants and options)
would be antidilutive, they have not been included.
2. CONVERTIBLE SUBORDINATED DEBENTURE PAYABLE AND RELATED PARTY
TRANSACTIONS
During the quarter ended October 31, 1999 the Company raised a total of
$1,148,700 in connection with a private placement of 10% Convertible
Subordinated Debentures convertible at $.075 per share (including $390,000 of
unsecured advances received during the second quarter which were converted into
10% Convertible Subordinated Debentures). Mr. Burstein, a Director and Chairman
of the Company, and an entity of which Mr. Burstein is a shareholder, officer
and director have acquired $137,500 principle amount of the 10% Convertible
Subordinated Debentures. The 10% Convertible Subordinated Debentures are due on
the earlier of October 15, 2000 or upon the completion of a secondary financing.
The Convertible Subordinated Debentures will automatically convert into common
stock at such time as the Company amends its Certificate of Incorporation to
increase the authorized number of shares (now 10,000,000) to an amount
sufficient to permit the conversion of the Debentures.
6
<PAGE>
THE MNI GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999
3. FORGIVENESS OF DEBT
In August 1999, the former chairman of the Company and LePercq Capital
Management Inc. and its affiliated companies agreed to the return of 1,536,030
shares of the Company's common stock; the forgiveness of $165,000 in common
consulting fees payable to LePercq; and the forgiveness of a $75,000 note with
accrued interest in the amount of approximately $22,100 in exchange for
$100,000. Of the shares reacquired from the former chairman and LePercq Capital
Management, 1,261,030 of these shares were resold for consideration of $89,600,
the same price at which the Company, acquired the shares. Arnold Gans and Myra
Gans, officers and directors of the Company agreed to forgive accrued salaries
due them in the amount of approximately $75,000.
4. OPTION ISSUANCE
The Company issued options to purchase 1,450,000 shares of stock to
various consultants of the Company; options to purchase 300,000 shares of stock
to Mr. Burstein, Chairman and a director of the Company and 100,000 options to
an employee. All of these options are exercisable at $.10 per share and expire
in November 2004.
7
<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. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors.
The results from continuing operations exclude the results of operations of
K.O.S. Industries, Inc. (KOS) a former subsidiary. The Company terminated its
agreement with KOS on December 31, 1998. Reference is made to the Company's
Annual Report on Form 10-K for the year ended January 31, 1999.
Comparison of Three Months Ended October 31, 1998 and 1999.
Sales for the three months ended October 31, 1999 were $158,800 as compared with
sales of $271,000 for the comparable period in 1998, a decrease of 41.4%. Cost
of sales decreased from $186,500 for the three months ended October 31, 1998, or
68.8% of sales, to $83,800, or 52.8% of sales, for the comparable period in
1999. Selling, general and administrative expenses decreased 14.8% to $116,100
from $136,200. The decline in sales was due principally to the Company's
decision to de-emphasize sales of its existing products and focus its efforts on
the development of its women's line of products as well as the creation of an
internet site devoted to women's health. For the three months ended October 31,
1999, the Company incurred an operating loss of $46,600 as compared to an
operating loss of $51,700 for the comparable period in 1998. The Company had
income from continuing operations of $258,600 or $.07 per share, as compared to
a loss of $62,700 or ($.01) per share for the comparable period in 1998. The
Company's loss from discontinued operations in 1998 was $11,600 resulting in a
net loss of $74,300 for 1998 as compared to net income of $258,600 in 1999. The
net income from continuing operations for the three months ended October 31,
1999 reflects the forgiveness of debt in the aggregate amount of $337,500. (See
Note 3 - to notes to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
Interest expense was $34,100 and interest income was $1,800 for the three months
ended October 31, 1999, as compared to interest expense of $11,000 during the
comparable period of 1998 primarily due to interest on the $1,148,700 principal
amount of 10% Convertible Subordinated Debentures outstanding.
Comparison of Nine Months Ended October 31, 1998 and 1999.
Sales for the nine months ended October 31, 1999 were $376,500 as compared with
sales of $625,500 for the comparable period in 1998, a decrease of 39.8 %. The
8
<PAGE>
decrease was primarily due to a decision by the Company to de-emphasize sales of
its existing products and to concentrate its efforts on the development of a
line of products specially designed for women and the creation of an internet
site devoted to women's health. Cost of sales decreased from $375,900 for the
nine months ended October 31, 1998, or 60.1% of sales, to $214,300, or 56.9% of
sales, for the comparable period in 1999 due to the comparable decrease in
sales. Selling, general and administrative expenses increased 1.8% to $375,800
from $369,300. For the nine months ended October 31, 1999, the Company incurred
an operating loss of $220,000 as compared to an operating loss of $119,700 for
the comparable period in 1998. The Company incurred income from continuing
operations of $60,400 or $.02 per share, as compared to a loss of $148,200 or
($.03) per share for the comparable period in 1998. The Company's loss from
discontinued operations in 1998 was $38,600 resulting in a net loss of $186,800
for 1998 as compared to net income of $60,400 in 1999. The net income from
continuing operations for the nine months ended October 31, 1999 reflects the
forgiveness of debt in the aggregate amount of $337,500. (See Note 3 - to notes
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
Interest expense was $58,900 and interest income was $1,800 for the nine months
ended October 31, 1999, as compared to interest expense of $28,500 during the
comparable period of 1998 due to interest on $1,148,700 principal amount of 10%
Convertible Subordinated Debentures outstanding during this period.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1999, the Company had cash of $504,800 as compared to cash of
$5,000 on January 31, 1999.
During the first quarter of 1999, 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 products and an Internet web site devoted to
women's health that additional capital would be required. During the quarter
ended October 31, 1999, the Company completed the private placement of
$1,148,700 principal amount of 10% Convertible Subordinated Debentures,
(including $390,000 of unsecured advances received during the second quarter
which were converted into 10% Convertible Subordinated Debentures). The
Convertible Subordinated Debentures are convertible into shares of common stock
at $.075 per share and the holders of the Convertible Subordinated Debentures
must automatically convert their debentures at such time as the Company shall
amend its certificate of incorporation to increase the authorized number of
shares (now 10,000,000) to an amount sufficient to permit the conversion of the
debentures. See Note 2 - to notes to CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS. There can be no assurance that the funds raised by the Company to
date will be sufficient to fund the Company's operations, that if additional
funds are required that 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 products
and the website for women's health will be successful.
9
<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 which 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.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) none
11
<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)
Dated: February 3, 2000
By: /s/ ARNOLD GANS
-----------------------------------
Arnold Gans
(President)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000722617
<NAME> MNI GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 504,800
<SECURITIES> 0
<RECEIVABLES> 51,500
<ALLOWANCES> 0
<INVENTORY> 62,100
<CURRENT-ASSETS> 625,100
<PP&E> 120,300
<DEPRECIATION> 0
<TOTAL-ASSETS> 760,400
<CURRENT-LIABILITIES> 210,300
<BONDS> 0
0
0
<COMMON> 7,276,400
<OTHER-SE> 11,800
<TOTAL-LIABILITY-AND-EQUITY> 760,400
<SALES> 376,500
<TOTAL-REVENUES> 376,500
<CGS> 214,300
<TOTAL-COSTS> 596,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,900
<INCOME-PRETAX> 60,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,400
<EPS-BASIC> .02
<EPS-DILUTED> .01
</TABLE>
