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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: JANUARY 31, 2000
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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 22-2383025
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(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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 569-1188
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
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(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K/A. [ ]
The number of shares outstanding of the Registrant's common stock is 4,110,709
(as of 4/24/00) The aggregate market value of the voting stock held by
nonaffiliates of the Registrant is $2,818,597 (as of 4/24/00).
APPLICABLE ONLY TO REGISTRANTS 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 [ ]
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Table of Contents
10-K
PART I ................................................................. 3
Item 1 ................................................................. 3
Item 2 ................................................................. 15
Item 3 ................................................................. 15
Item 4 ................................................................. 15
PART II ................................................................ 16
Item 5 ................................................................. 16
Item 6 ................................................................. 16
Item 7 ................................................................. 17
Item 8 ................................................................. 24
Item 9 ................................................................. 37
PART III ............................................................... 37
Item 10 ................................................................ 37
Item 11 ................................................................ 38
Item 12 ................................................................ 40
Item 13 ................................................................ 41
PART IV ................................................................ 42
Item 14 ................................................................ 42
Exhibit List ........................................................... 42
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PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS-INTRODUCTION
The MNI Group Inc. ("The Company") has primarily been engaged in the development
and distribution of nutritional and health products for humans and pets. During
the past fiscal year, while conducting its existing business, the Company
elected to focus its efforts on the development of a proprietary brand of
specially formulated phyto-estrogen and micronutrient nutritional supplements
targeting the various life cycles experienced by women and based on current
nutritional knowledge. The Company also began development of a woman's internet
site "womenshealthnetwork.com" which is intended to provide comprehensive health
care information for women on a broad range of conditions.
The Company's strategy is to provide comprehensive healthcare information on a
variety of conditions important to women to help them evaluate their health
choices. As part of this overall strategy, the Company intends to sell its
proprietary line of nutritional supplements as well as other complementary
products and services on its web site. The Company believes its strategy is
consistent with certain trends that are emerging with respect to women's health.
INDUSTRY TRENDS AND STRATEGY
The Company believes that the markets for nutritional products for women are
expanding. By responding to these trends, the Company believes that it can
become a premier marketer of health and nutritional products for women and can
establish its Internet site as a widely recognized source of health information
and products.
o The expanding roles of OB/GYNs and the Nurse Practitioners and
Physician Assistants focused on women's health create a market
opportunity for the Company, which the Company intends to leverage
through a marketing program targeting these professionals;
o The Company believes that there is a significant and growing population
of women who are dissatisfied with their health care. The establishment
of the Company's web site with detailed health information developed in
conjunction with its Medical Advisory Board, is intended to provide
women and their clinicians with enhanced awareness about the conditions
affecting women and the treatment options available;
o The Company believes that women are seeking an on-line forum where they
can find credible information and purchase products that address their
individual needs. The Company is designing its Internet site to
include, among other components, hosted chat rooms (monitored by
members of its Medical Advisory Board).
The Company has had a very limited operating history in the women's health care
arena on which to base an evaluation of its business and prospects.
INDUSTRY OVERVIEW/NUTRITIONAL SUPPLEMENTS
The nutritional supplements industry is highly fragmented and intensely
competitive. It includes companies that manufacture and distribute products that
are generally intended to enhance the body's performance and well-being.
Nutritional supplements include vitamins, minerals, dietary supplements, herbs,
botanicals and compounds derived therefrom. Opportunities in the nutritional
supplements industry were enhanced by the enactment of the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). Under DSHEA, vendors of dietary
supplements are now able to educate consumers regarding the effects of certain
component ingredients. With certain limited exceptions, the sale of nutritional
supplements are not subject to FDA approval prior to sale. See "Government
Regulation" below.
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Sales in the vitamin/supplement market in which the Company's products compete
totaled approximately $14.68 billion in 1999(Nutrition Business Journal), and is
experiencing a double digit annual growth rate, (N/Sight, The Hartman Group;
Winter 1998-9.). The Company believes the growth in the nutritional supplement
market is driven by several factors, including (i) the general public's
heightened awareness and understanding of the connection between diet and
health, (ii) the aging population, particularly the baby-boomer generation,
which is more likely to consume nutritional supplements, (iii) product
introduction in response to new scientific research and (iv) the nationwide
trend toward preventive medicine.
WOMEN'S MARKET
The Company, in developing its new products, elected to focus on the women's
market because women are the primary household shoppers and are predominately
the primary health care decision-makers for their family.
Management believes that women are highly interested and informed about health
care issues, but are not as satisfied as men with the information or the level
of communication they receive from their health care provider. Additionally,
several studies have found that, in comparison to men, women generally receive
less thorough evaluations for complaints, less explanation in response to
questions and fewer interventions from their health care provider. In the face
of these conditions, many women have sought out alternative remedies.
It is estimated that 40 percent of women increasingly believe they need
supplements to ensure proper health. Part of this belief stems from
dissatisfaction with the cost and quality of treatment experienced within the
mainstream medical community as described above. In addition, increased
knowledge and exposure to the benefits of natural remedies has also helped drive
women's interest in the dietary supplement industry.
While many of the women's products currently on the market are skewed toward an
older generation, manufacturers now recognize that as younger women become more
interested in maintaining their current good health status, the market may shift
toward total health nutrition products as well as intervention. The Company
believes that its branded line of products is broad enough to appeal to all
groups of women. Management is aware that this is a highly competitive market
and, as described below, believes it must target specific market niches in order
to successfully market its products.
MARKETING AND DISTRIBUTION STRATEGY
In order to take advantage of the burgeoning interest in women's health issues
and alternative treatment, the Company has developed a two-pronged marketing
strategy as well as its Internet strategy. The Company recognizes that the
success of its strategy will be dependent upon the quality of its products; its
ability to establish brand name recognition for its products; its ability to
continue to develop new products; and the ability of its management and the
people associated with the Company to implement and execute its strategy. There
is no certainty that the Company will be successful in implementing its
strategy. In addition, the market for nutritional supplements is extremely
competitive. There are a significant number of companies with substantially
greater resources and with established brands presently being marketed.
PROFESSIONAL MARKET - NURSE-PRACTITIONERS AND PHYSICIANS
As the amount of money spent on alternative health care continues to increase
health care professionals have recognized the importance of non-traditional
approaches to health care. Although ten years ago it would have been extremely
unusual to find physicians dispensing products, with the advent of managed care,
physicians have become acutely aware of opportunities to enhance their revenues
from their practices.
The principal professional groups to be initially targeted are Nurse
Practitioners and OB/GYN's.
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NURSE PRACTITIONERS
NP's are registered nurses with advanced clinical and academic training at the
master levels. There are approximately 50,000 nurse practitioners, in the
country, 12,500 of whom own and operate their practice or clinic or run the
primary care segment of the physician's practice (THE NURSE PRACTITIONER. Market
Dynamics stats) Others work in managed care, hospitals and group practices. The
Nurse Practitioner has become a valuable resource for primary health care.
Through state certification, NPs may work autonomously from physicians and
provide comprehensive primary health care physical exams, diagnosis, and
appropriate pharmaceutical treatment. They account for more than 175 million
patient visits yearly, write over 200 million prescriptions for all drug
classes, and maintain their own liability coverage. The NPs incorporate
education, early detection and prevention of disease, reduction of risk
behaviors, and a philosophic approach to health in the treatment of their
patients. A recent survey finds that approximately 93% of Nurse Practitioners
use a form of alternative medicine in their practice. Their patient base
includes many of the health care consumers who are disenfranchised with
traditional medical care and seek a holistic approach. Government and
independent studies have shown that Nurse Practitioners provide a greater range
and quality of care than all other healthcare providers, appealing to those
consumers who tend to seek more personalized treatment with a focus on
prevention.
The Company believes that with the number of patient visits and the NP's
recognition of alternative health care as integral to a comprehensive program of
medical treatment, the NPs offer a very large potential market for the Company's
line of products.
The Company intends to target this market through trade shows, and by creating
alliances with institutions/hospitals that are either engaged in using NPs as
primary care providers or have on-site facilities specifically engaged in
dealing with woman's health issues. In this market, the Company intends to sell
its products under the brand name FemChoice(TM). The Company's strategy is to
build brand name recognition and become recognized for delivering the broadest
line of quality products for women. There are two organizations that serve as
trade associations for NP's (American Nurse Practitioners and Nurse
Practitioners for Woman's Health). Each of these associations has a trade
monthly magazine with an aggregate of approximately 60,000 monthly subscribers.
The Company intends to promote its products through these publications with
particular emphasis on creating brand name recognition as well as promoting its
Internet site. The Company also has hired an NP whose primary job will be to
market the Company's line of products to the NPs. Initially the NP will focus on
NPs with practices in the NY/NJ metropolitan area. In addition, the Company will
participate in industry trade shows.
PHYSICIANS (OB/GYNS)
The Company believes that many women now use OB/GYNs as their primary care
physician and that as the OB/GYNs role expands its focus on women's overall
health, they will begin to recommend nutritional supplements to their patients,
In view of the fact that approximately 54% of approximately 57 million U.S.
(women between the ages of 35 and 69) are regularly visiting an OB/GYN the
Company believes targeting the OB/GYN offers significant potential. As of April
4, 2000, in the United States and its protectorates, there were approximately
40,000
OB/GYNs of which 23,500 are Board certified (WWW.ACOG.ORG, source: American
Physician Characteristics and Distribution in the US 2000-2001). Initially the
Company will market to the OB/GYNs through trade shows and trade journals.
NETWORK MARKETING
Network Marketing covers any type of selling that uses independent
representatives working on commission and further permits the independent
representative to recruit other independent distributors and to draw a
commission from the sales of those recruits. In 1998, Network Marketing sales
attributable to personal care and wellness products were $4.38 billion
(Nutrition Business Journal (Volume IV, No. 6, Industry Overview 1999).
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The Company has distribution relationships with several network marketing
groups, including Natural Health Options (NHO"). This group is focused on
growing its network marketing force in the African American market. NHO was
formed in late 1998 and to date has been selling the Company's preexisting line
of nutritional products described below. The Company anticipates that NHO will
begin to offer the FEM CHOICE products within the first quarter of 2000. There
is no assurance that NHO will be successful in developing its network marketing
program.
The Company is also working with other network marketing companies that are
similarly focused on developing certain market niches. There is no assurance
that this distribution strategy will be successful.
INTERNET STRATEGY
Management believes that the increasing focus on the alternative health market
for women provides a significant opportunity for the development of an Internet
strategy.
MARKET OPPORTUNITY
The Company's proposed Internet site, womenshealthnetwork.com is intended to
enable consumers (principally women) to better manage their personal health with
comprehensive, relevant and timely content. The Company intends to establish its
network as a recognized and comprehensive source of healthcare information for
women and services on the Internet. The business model is to generate revenues
from a variety of sources. (i) e-commerce transactions, such as sales of
nutritional supplements (principally the Company's FemChoice branded line of
products) (ii) sharing of revenues with other companies that have formed
alliances with the Company to offer their products and services on the
womenshealthnetwork.com site.
Other sources of revenue may come from the sale of the Company's products (under
private label) to other Internet health sites. The Company will label all of its
products in both English and Spanish, and all information about the products
will be available in both languages. In addition, the Company believes that if
it achieves sufficient traffic, other opportunities include the offering of CME
(Continuing Medical Education) courses for professionals and using its database
(assuming visitors when registering at site elect to "opt in") for targeted
marketing programs.
OVERALL INTERNET BUSINESS STRATEGY
The Company's internet business strategy incorporates the following key
elements:
o Establish the womenshealthnetwork.com brand so that consumers
associate trustworthiness and credibility with our company (The Company
also has obtained the domain name for womenshealth.com in SPANISH
"SaludDeMujer");
o Provide consumers with high quality peer reviewed healthcare
information to attract users to womenshealthnetwork.com and promote
their loyalty to the website;
o Syndicate content through affiliates to promote traffic growth;
o Develop an on-line healthcare community to allow users with similar
health-related experiences to exchange information and gather news and
knowledge in a secure, anonymous environment;
o Provide consumers with unique features such as one that educates
consumers on the interaction among various drugs and other substances;
o Provide an attractive website designed to attract women;
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o Facilitate e-commerce transactions offered by merchants, manufacturers
and service providers to a highly targeted community of
health-conscious consumers, including dual labeling in Spanish to
appeal to the Hispanic market which is a rapidly growing market in the
U.S. for nutritional supplements;
o User-friendly site, Internet sites are frequently designed with
sophisticated users and state of the art equipment in mind.
womenshealthnetwork.com will be designed for the lowest common
denominator both in machines and in expertise;
o The site will virtually navigate itself - utilizing point and click
algorithms. The site will guide even the novice Web surfer to his or
her destination, user will be able to navigate site without being
constantly required to navigate through advertising and product
offerings;
o The site will provide personal tracking - If desired, a visitor to the
site can enter his name and e-mail address. From that point forward,
the site will recognize that visitor by name when they return; this
feature goes a long way towards creating a user-friendly site.
Eventually the registered visitor will be updated automatically with
information pertinent to his or her concern;
o Personal tracking will build a targeted e-mail database;
o The key aspect of the Company's projected site will be to provide the
latest information on various alternative treatments for woman's health
issues as opposed to the more common approach of providing more limited
information with a focus on selling products; and
o The site will provide access to members of the Company's Medical
Advisory Board (as described below) during monitored chat room
sessions. The site will also list information on upcoming educational
events and lectures across the country.
MARKETING STRATEGY
The Company's site is intended to become a directory for women seeking health
information (a "hub" site). Hub sites have a characteristic that allows them to
be promoted inexpensively on the Internet. They are viewed as conduits for
information and not advertiser driven. The Company initially will not carry any
advertising on its site.
The Company's strategy will utilize a variety of on-line and off-line marketing
initiatives focused on building brand name awareness, drawing traffic to the
site maximizing the amount of traffic to the site and minimizing the cost of
acquiring visitors.
To increase brand visibility, the Company will initially concentrate on
promoting its website through an offline strategy of promoting its products and
website through targeted magazines for professionals such as OB/GYNs, and Nurse
Practitioners and through newsletter programs to targeted groups.
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PRODUCTS
The Company has developed a total of 31 products (described below) to be offered
under its branded FEM CHOICE((TM)) label.
1. MENOPAUSE (Capsule) A support and replenishing formula designed to help
alleviate symptoms of hot flashes, irritability and mood swings.
2. PMS (Capsule) A synergistically balanced formula providing a natural
approach to provide support for the relief of PMS and menstrual
discomforts such as mood and water.
3. OSTEO CARE (Capsule) This extensively researched nutrient has shown in
clinical studies its ability to support bone health and increase bone
mineral density.
4. JOINT MAINTENANCE (Caplet) A unique blend of ingredients that work
together to provide the building blocks needed to maintain healthy
joint cartilage and decrease the pain associated with joint disease.
5. CHOLESTEROL CONTROL FORMULA (CAPSULE) Contains all the ingredients that
work together in the body to help maintain a healthy cholesterol level
and keep the heart strong and healthy.
6. WILD MEXICAN YAM EXTRACT (CAPSULE) Contains progesterone like
components making it useful for helping with PMS and menopause.
7. CANDIDA CARE (CAPSULE) This revolutionary formula contains the most
researched, cutting-edge ingredients to provide nutritional support for
yeast control
8. GENINSTEIN 1000 MG (TABLET) Standardized soy Isoflavonoid extract. A
nutrient dense "Phytohormone" (Plant Estrogens) that may be helpful in
menopausal symptoms.
9. CRANBERRY CONCENTRATE (SOFTGEL) The natural and concentrated benefits
of cranberries without the unnecessary sugars and colors found in
juices. A definite need in acidifying urine and preventing bacteria
from adhering to the bladder walls, a common female problem.
10. NUTRITION PLUS (TABLET) A phytonutrient powerhouse! An advanced formula
designed to help meet the nutritional dietary supplement needs of
women.
11. SUPER FOLIC ACID (CAPSULE) 800 mcg of Folacin, a heart healthy
supplement for women and a positive aid during menopause when women are
less efficient in absorbing nutrients.
12. INNER BEAUTY FOR HAIR, NAILS AND SKIN (TABLET) Nourishes, strengthens,
and supplies the nutrients needed for healthy lustrous hair, glowing
skin, and shiny nails.
13. SUPER PRIMROSE OIL (CAPSULE) Three (3) times the G.L.A. content of
regular Evening Primrose Oil: 1300 mg/135 mg G.L.A.
14. PRO-GREENS (POWDER) An advanced Probiotic whole food, multi-nutrient,
concentrated powder.
15-17. THE HEALTHY NUT (SNACK) SALTED, UNSALTED AND HONEY ROASTED FLAVORS
(three flavors). A natural snack high in protein and phytonutrients.
18. KAVA KAVA (CAPSULE) Eases tension, relaxes muscles and helps contribute
to a good night's sleep.
19. Huperzine A Complex contains an ingredient being tested in clinical
trials in the United States for the treatment of memory loss associated
with aging.
20. PHYTO-TONIC (LIQUID) A true health formula dietary supplement.
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21. NATURAL PLANT ESTROGENS (TABLETS) The natural way to help women who
have an estrogen imbalance.
22. SUPER EPA (SOFTGEL)Omega 3 fatty acids consisting of Eicosapentaenoic
Acid (EPA) and Docosahexaenoic Acid (DHA) provide benefits for the
heart and circulatory system.
23. OLIVE LEAF EXTRACT (CAPSULE) is similar in molecular configuration to
well-established antioxidants such as the bioflavonoids, grape seed
compounds, pycnogenol, soy isoflavones and green tea catechins.
24. COLON ENHANCER (CAPSULE) contains natural, gentle fibers that help keep
the entire gastrointestinal system functioning smoothly, while
promoting the growth of helpful bacteria in the intestines.
25. BLACK CURRANT SEED OIL (SOFTGEL) A comprehensive source of Omega 3 and
Omega 6 (Essential Fatty acids). Important in the production of
prostaglandins.
26. CELLU-SHRINK (CAPSULE) is made from plant extracts and other dietary
supplements. Works below the surface, where cellulite occurs.
27. ESSENTIAL OILS (SOFTGEL) Provides Omega 3, 6 and 9 Essential Fatty
Acids.
28. FEVERFEW (CAPSULE) Feverfew is derived from the Latin term for "chase
away fevers." Provides anti-inflammatory properties.
29. COLLAGEN PLUS (LIQUID) nutritionally supports body structure and
provides energy. Enhances lean body mass.
30. DONG QUAI (CAPSULE) Often called the "female ginseng", Dong Quai is an
all-purpose herb used for a wide range of female complaints. This herb
has been popular for centuries for its ability to invigorate and
revitalize the body.
31. USRDA CALCIUM 1200 (WAFERS) A delicious chewable wafer flavored with
malted milk. Provides the calcium necessary to prevent bone loss in
women.
OTHER PRODUCTS
The Company is seeking to create alliances with other companies for the purpose
of broadening the number of products that can be purchased at its website. The
products/services to be offered will be consistent with the Company's strategy
of providing women with quality information. For example, the Company will
produce a module on its web site to represent a company which offers a medical
intervention weight reduction program. The Company will share (on an agreed
basis) a percentage of the revenues from sales of these products on its site.
The percentage will be determined shortly.
There is no assurance that the Company will be able to successfully negotiate
agreements with other providers of products/services or that if agreements are
entered into, revenues from such agreements will be generated.
MEDICAL ADVISORY BOARD
As part of the Company's strategy to create brand awareness of its site, and
develop a reputation for quality healthcare information, it has formed a Medical
Advisory Board consisting of:
Marianne J. Legato, M.D.,F.A.C.P., Chairperson is Professor of Clinical
Medicine at Columbia University's College of Physicians and Surgeons
and founder and Director of the Partnership for Women's health at
Columbia. She is one of the nation's leading advocates for women's
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health. She was a charter member of the Advisory Committee of the
Office of Research on Women's Health of the National Institutes of
Health (NIH) and is co-chair of that Office's Task Force on Research on
Women's Health for the 21st Century. She also chaired the Sixth Annual
Congress on Women's Health in Washington. D.C., in 1998.
She has served on NIH cardiovascular study sections and the basic
science council of the American Heart Association. She was a director
of the American Heart Association's New York Affiliate as well as a
trustee of the New York Academy of Medicine. She is the founder and
editor-in-chief of the new medical journal, Journal of Gender Specific
Medicine.
Among her recent publications are Gender-Specific Physiology: How Real
Is It? How Important Is It? International Journal of Fertility 42(1):
19-29, 1997; Gender-Specific Aspects of Obesity, International Journal
of Fertility 42 (3): 184-197, 1997; Women's Perceptions of Their
General Health, with Special Reference to Their Risk of Coronary Artery
Disease: Results of a National Telephone Survey, Journal of Women's
Health 6 (2): 189-198, 1997; Cardiovascular Disease in Women:
Gender-Specific Aspects of Hypertension and the Consequences of
Treatment, Journal of Women's Health 7(2):199-209, 1998; Women's
Health: Not for Women Only, International Journal of Fertility 43 (2):
65-72, 1998.
Her groundbreaking work on women's health has led to several awards.
Her book, The Female Heart: The Truth About Women and Heart Disease,
won the Blakeslee Award of the American Heart Association. The most
recent awards include being named as a "Health Hero" by American Health
for Women and as "The Woman That Makes a Difference" by the New Your
Women's Medical Association for 1997.
She is the author of Gender-Specific Aspects of Human Biology for
Practicing Physicians (Future); What Women Need to Know: From Headaches
to Heart Disease and Everything in Between (Simon & Schuster); and The
Female Heart: The Truth About Women and Heart Disease (Simon &
Schuster). She serves on the editorial boards of Cardiovascular Risk
Factors, The Journal of Women's Health, Medicine and Behavior, and
Prevention Magazine. She is the health advisor to The Ladies' Home
Journal, and More magazines.
WENDY KLEIN, MD, FACP
Program Director of the Dept. of Internal Medicine
Women's Health Residency Track.
Associate Professor of Internal Medicine & OB/GYN Virginia Commonwealth
University, Richmond VA.
MARY DEKKER NETTLEMAN, MD
Associate Dean for Primary Care
Virginia Commonwealth University, School of Medicine, Richmond
Professor and Division Chair of General Internal Medicine
Virginia Commonwealth University, School of Medicine, Richmond
ELLEN SHAW DE PAREDES, MD
Professor of Radiology, Chief of Breast Imaging Section
Medical College of Virginia, Richmond
President, Virginia chapter of the American College of
Radiology-current
Author of: ATLAS OF FILM - SCREEN MAMMOGRAPHY
Urban and Schwarzenberg Publishing Co., Baltimore, Maryland.
1988, 364 pages
ATLAS OF FILM - SCREEN MAMMOGRAPHY, 2nd Edition
Williams and Wilkins, Baltimore. 1992, 650 pages
PETER D. VASH, MD, M.P.H.
Assistant Clinical Professor of Medicine, UCLA Medical Center
Board Certified Internist
Specialist in eating Disorders and Endocrinology
ROBERT STENSON, MD
One of 750 Gynecological Oncologists worldwide
American College of Obstetricians and Gynecologists,
Diplomate (F.A.C.O.G.)
Director of Gynecological Oncology at Holy Name Hospital, Teaneck, NJ
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RALPH E. MARCUS, MD
Chief of Rheumatology and Medical Director, Osteoporosis Program
Hackensack University Medical Center, Hackensack, NJ
Chief of Rheumatology and Medical Director, Osteoporosis Program
Women's Outpatient Center, Holy Name Hospital, Teaneck, NJ
FRANK E. VOGEL, PH.D., MD
Chief, Interventional Radiology, Holy Name Hospital, Teaneck, NJ
Assistant Professor of Radiology
New York University Medical Center, New York, NY
ALEXIS FITZSIMMONS, R. N.-C., B.S.N., M.S.N., W.H.N.P.
Director, Women's Outpatient Center, Holy Name Hospital, Teaneck, NJ
ISAAC GREENBERG, PH.D.
Instructor, Dept. of Psychiatry (Psychologist)
Harvard Medical School
Department of Psychiatry
Beth Israel Deaconess Medical Center, Boston, MA
LINDA ARPINO, M.A., C.D.N., R.D.
Community Nutritionist and Professor
New York State Dietetic Board of Directors
GARY D. WASSERMAN, MD
Attending Urologist, Englewood Hospital and Medical Center,
Englewood, NJ
Attending Urologist, Holy Name Hospital, Teaneck, NJ
ANDREW M. SPECTOR, DMD, FAGD, FICOI
Clinical Associate Professor, Surgical and Prosthetic
Implantology Program
New York University, New York, NY
FAYE E. WILLIAMS, ESQ., PH.D.
President & CEO of Natural Health Options, Inc., Washington, DC
Former Counsel to the US Congress
CYNTHIA STAMPER GRAFF
President and CEO of Lindora, Inc., Costa Mesa, CA
Founder of the Lean for Life Foundation, a non profit organization that
promotes obesity research, educational programs, and funds weight
control services to selected low income, morbidly obese, men, women and
teenagers who meet the criteria.
The Company selected the members of the Advisory Board to take advantage of the
professional's extensive experience in dealing with various women's health
issues. Each of the members of the Medical Advisory Board have executed a letter
agreement with the Company pursuant to which they agree to serve on the Medical
Advisory board. As an inducement to each of the members of the Board other than
Dr. Legato, they have received option grants totaling between 10,000 and 150,000
options.
In connection with her agreement to become Chairperson of the Company's Medical
Advisory Board effective March 24, 2000, Dr. Legato will be paid $250,000 over
the three year term of the agreement. In addition, the Company granted Dr.
Legato and her assignee options to purchase a total of 3,985,000 shares of
common stock of the Company at an exercise price of $0.875 per share. The
options have a term of five years and vested 20% upon grant, with an additional
20% vesting on each six month anniversary of the date of grant (with accelerated
vesting in the event of a sale of the Company), subject to Dr. Legato's
continued performance under the consulting agreement during the vesting period
with respect to the unvested portion of the options, except as provided in the
consulting agreement. The Company has agreed to register the shares underlying
the options granted to Dr. Legato under the Securities Act of 1933, as amended,
on a Form S-8 Registration Statement. Pursuant to Dr. Legato's consulting
agreement with the Company, options to purchase an additional 515,000 shares of
common stock of the Company, on substantially the same terms as Dr. Legato's
options, were granted to the Department of Medicine at Columbia University
College of Physicians and Surgeons and to certain persons who will assist Dr.
Legato in the performance of her duties under the consulting agreement.
11
<PAGE>
PRINCIPAL CUSTOMERS
One customer, Life Plus International, was responsible for approximately $75,800
in sales for the year ended January 31, 2000, representing approximately 17% of
total sales. For the year ended January 31, 1999, two customers were responsible
for $523,000; Life Plus International for approximately $291,000 representing
approximately 31% of total sales and Family Health Network for approximately
$232,000 representing approximately 25% of total sales and in the year ended
January 31, 1998, two customers were responsible for approximately $540,300 in
sales, Life Plus International for approximately $400,000 representing
approximately 43% of total sales and Equinox International for approximately
$140,000, representing approximately 15% of total sales.
MANUFACTURING
The Company does not have a manufacturing facility, but relies on third parties
to manufacture its products. The third party manufacturers are responsible for
receipt and storage of raw material production and packaging and labeling of
finished goods. At present, the Company is dependent upon four manufacturers for
the production of all of its products. To the extent the manufacturers should
discontinue their relationship with the Company, the Company's sales could be
adversely impacted.
COMPETITION
The market for nutritional supplements and Internet Sites concentrating on
health issues is highly competitive with few barriers to entry.
The Company will be competing with many health sites and nutritional supplement
manufacturers as well as specialty health retailers, drug stores, supermarkets,
and mass merchandisers. Many of the Company's potential competitors have
significantly greater marketing and financial resources. The Company's Internet
site, womenshealthnetwork.com, will compete with other Internet sites focused on
women's health as well as sites focused on health care issues in general. While
the Company believes the health information market is large enough to support
many companies, the Company's ability to succeed will be dependent upon
providing compelling Internet content to attract users and develop brand name
recognition. The principal factors in attracting users will be dependent upon
the quality and depth of the information on the site and the ability to attract
users through various marketing approaches.
INTELLECTUAL PROPERTY
The Company regards the protection of copyrights, trademarks and other
proprietary rights that it may own or license as material to its future success
and competitive position. The Company intends to rely on a combination of laws
and contractual restrictions such as confidentiality agreements to establish and
protect its proprietary rights. Laws and contractual restrictions, however, may
not be sufficient to prevent misappropriation of proprietary rights or deter
others from independently developing products that are substantially equivalent
or superior.
PATENTS. The Company owns four issued patents for its collagen Hydrolysate
product. These are for (1) METHOD OF PROVIDING HIGH-PROTEIN NUTRITION BY THE
ORAL ADMINISTRATION OF A PREDIGESTED PROTEIN COMPOSITION, (2) METHOD OF
COMPOSITION FOR PREVENTING NUTRITIONAL DEFICIENCY, (3) METHOD OF TREATING
NUTRITIONAL DEFICIENCY DURING CARDIAC CACHEXIA, DIABETES, HYPOGLYCEMIA,
GASTROENTEROLOGY, LIPID, CELL GLYCOGEN AND KERATIN RELATED SKIN CONDITIONS AND
ALCOHOLISM, and (4) METHOD OF TREATING OBESITY BY THE ORAL ADMINISTRATION OF A
PREDIGESTED PROTEIN COMPOSITION. Some of the products that the Company offers
incorporate patented technology owned by others, but most of the Company's
products are not protected by patents.
COPYRIGHTS. The Company has applied for copyright registration for the Womens
Health Network.com logo and the FemChoice brand. Proof of use has been filed and
the Company awaits final approval.
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TRADEMARKS AND DOMAIN NAMES. The Company owns the FemChoice and
womenshealthnetwork.com, womanshealthnetwork.com, femchoice.com, whnnetwork.com,
menshealthnetwork.com, kidshealthnetwork.com, genderhealth.net, gendermed.com,
gendermed.net, genderspecificmed.com, genderspecificmed.net and
saluddemujer.com. domain names. The Company has registered the .cc for several
of these names. The .cc is a new domain name extension.
Under current domain registration practices, no one else can obtain an identical
domain name, but can obtain a similar name or the identical name with a
different suffix such as "net" or "org", The relationship between regulations
governing domain names and the laws protecting trademarks and similar
proprietary rights is evolving. Internet regulatory bodies regulate domain names
and the present regulations may be subject to change.
In addition, the regulation of domain names in the United States and in foreign
countries is subject to change. There are plans to establish additional
top-level domain names, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, the Company may not acquire
or be able to maintain its domain names in all of the countries in which it
intends to conduct business, and the Company could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of its domain names or trademarks.
While the Company intends to take the actions that it believes are necessary to
protect its proprietary rights, it may not be successful in doing so. In
addition, the Company may be dependent on the owners of the proprietary rights
it licenses to protect those rights. Moreover, the Company and its licensors may
face challenges to the validity and enforceability of proprietary rights and may
not prevail in any litigation regarding those rights.
The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. While the Company is
not currently involved in any such claims, there can be no assurance against
future infringement claims by third parties. The resolution of any such
infringement claims may result in protracted and costly litigation, regardless
of the merits of such claims. Moreover, any such resolution may require the
Company to obtain a license to use those proprietary rights or possibly to cease
using those rights altogether. Any of these events could have a material adverse
effect on the Company's business, financial condition and results of operations.
TECHNOLOGY
The Company will rely upon third parties for its hardware and software. It is
the Company's intention to employ existing software to manage its proposed
e-commerce business. Effective March 29, 2000, the Company entered into two
agreements with New Light Productions in Hawthorne, New York. Pursuant to the
agreements, New Light will develop the web site and thereafter manage the site
for the Company. The development agreement calls for development of the web site
at a cost of $215,625.00 payable in four installments as follows: 25% ($53,906)
due upon work commencement; 25% ($53,906) due upon acceptance of design
document; 25% ($53,906) due upon acceptance of a working version of the site;
and 25%($53,906) due upon final acceptance of the site and related deliverables.
Management anticipates that the site will be operational by June 30, 2000.
Pursuant to the hosting agreement, New Light will host the site for one year for
a fee of $4590 payable as follows: $450 per month less a 15% discount.
GOVERNMENT REGULATION
The formulation, manufacture and labeling of the Company's products are subject
to regulation by one or more federal agencies, including, principally, the Food
and Drug Administration ("FDA"). These activities are also regulated by various
agencies of the states and localities in which the Company's products are sold.
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Principally through the efforts of the dietary supplement industry, on October
25, 1994, the Dietary Supplement Health and Education Act of 1994 was signed
into law. The law amends the Federal Food, Drug, and Cosmetic Act and, in the
judgment of the Company, is favorable to the dietary supplement industry. First
and foremost, the legislation creates a new statutory class of "dietary
supplements". This new class includes vitamins, minerals, herbs, amino acids and
other dietary substances for human use to supplement the diet. A dietary
supplement which contains a new dietary ingredient, one not on the market as of
October 15, 1994, will require evidence of a history of use or other evidence of
safety establishing that it will reasonably be expected to be safe, such
evidence to be provided by the manufacturer or distributor to the FDA before it
may be marketed. The legislation also recognizes the need for the dissemination
of information about the link between nutrition and health and provides that
publications, which are not false and misleading and present a balanced view of
available scientific information on a dietary supplement, may be used in
connection with the sale of dietary supplements to consumers. Among other
changes, the new law prevents the further regulation of dietary ingredients as
"food additives" and allows the use of statements of nutritional support on
product labels and in other labeling.
On September 23, 1997, the FDA issued final new regulations to implement the
1994 legislation. Among other things, these new regulations establish a
procedure for dietary supplement companies to notify the FDA about the intended
marketing of a new dietary ingredient or about the use in labeling of statements
of nutritional support. The regulations also establish a new format for
nutrition labeling on dietary supplements. The new format became mandatory on
March 23, 1999, and the Company revised all of its dietary supplements labels to
be in compliance by that date.
The FDA and other federal authorities are reviewing alternative approaches to
assure the safety of vitamins, minerals, herbals and other products sold as
dietary supplements. Increased regulatory oversight could subject us and other
manufacturers and distributors of dietary supplements to increased production
and compliance costs and possibly require capital expenditures. Future
regulation affecting dietary supplements could result in a recall or
discontinuance of certain products.
EMPLOYEES
The Company presently has 5 employees. To support future anticipated growth, the
Company expects to hire additional employees, especially in the area of sales
and marketing.
RECENT DEVELOPMENT
In November 1999, the Company completed a private placement for the principal
amount of $1,521,250 of 10% Convertible Debentures ("Debentures") due October 1,
2000. Under the terms of the Debentures, the principal dollar amount is
convertible by the holders at $.075 per share. The Debentures must be converted
upon the Company amending its Certificate of Incorporation to increase its
authorized capitalization to not less than 35,000,000 shares of Common Stock.
The funds received by the Company will be adequate to conduct operations over
the next 12 months, however, in order to fully implement the Company's strategy,
the Company intends to seek additional capital in the second quarter of 2000.
There can be no assurance the Company will be successful.
PREVIOUS BUSINESS OPERATIONS
During the fiscal year ending January 31, 2000, the revenues generated by the
Company resulted from the sale of existing products, including pet products,
home remedy products and nutritional supplements.
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Commencing in the first quarter of 2000, the Company intends to focus on the
sale of its new line of branded products FemChoice(TM) although it will continue
to sell its other products if ordered. The Company does not intend to
aggressively market its preexisting products.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Inapplicable.
Item 2. PROPERTIES
The principal executive offices of the Company are located at 10 West Forest
Avenue, Englewood, New Jersey 07631, where it occupies approximately 7,500
square feet at an annual rental of $60,000 under a lease which expired in
December 1999. The Company has renewed the lease for a period of five years
commencing January 1, 2000. The annual rent for the initial three years is
$65,625 and for the fourth and fifth year of the lease is $67,500.
Approximately 2,500 square feet of this facility house the Company's
administrative offices with the balance utilized for shipping and warehousing.
The Company presently subleases a portion of its space to non-affiliated
persons. The Company also has arrangements with co-packers pursuant to which
such suppliers manufacture, package and ship the Company's products to major
customers. The Company believes its present facility is adequate for its present
and reasonably foreseeable future operational needs.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 2000.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock is currently traded over NASDAQ's
Electronic Bulletin Board. Information as to the range of high and
low bid quotations for the Company's Common Stock, for the periods
indicated, as furnished by national Quotation Bureau incorporated,
is set forth below:
BID
-----------------------------------------
THREE MONTHS ENDED HIGH LOW
January 31, 1998 .3125 .3125
April 30, 1998 .40 .20
July 31, 1998 .19 .125
October 31, 1998 .09 .062
January 31, 1999 .062 .062
April 30, 1999 .03 .03
July 31, 1999 .07 .07
October 31, 1999 .25 .25
January 31, 2000 1.062 1.062
The above bid quotations represent prices between dealers and do not include
actual retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
(b) As of March 31,2000, there were approximately 75 record holders
of the Company's Common Stock.
(c) The Company has not declared any cash dividends on its Common
Stock and it has no intention to pay cash dividends in the
foreseeable future.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial data for
the Company and its wholly owned subsidiaries. This data is qualified in its
entirety by the more detailed consolidated financial statements of the Company
included elsewhere herein. The following selected consolidated financial data
were derived from audited consolidated financial statements of the Company and
should be read in conjunction with the statements included elsewhere herein.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 443,200 $ 939,700 $ 932,900 1,032,900 1,320,500
Cost of sales and operating expenses 1,086,800 982,000 1,091,400 1,028,700 1,294,200
Operating (loss) income (643,600) (42,300) (158,500) 4,200 26,300
Other (expense) (85,700) (40,100) (22,600) (20,400) (21,000)
(Loss) income from continuing operations (729,300) (82,400) (181,100) (16,200) 5,300
Income (loss) from discontinued operations -- 15,700 (25,500) -- --
Extraordinary items 485,100 -- -- -- --
Net (loss) income (244,200) (66,700) (206,600) (16,200) 5,300
Basic Earnings Per share data:
(Loss) from continuing operations ($0.18) ($0.02) ($0.05) -- --
(Loss) from discontinued operations -- -- (0.01) -- --
Extraordinary items 0.12 -- -- -- --
Net (Loss) (0.06) (0.01) (0.05) -- --
</TABLE>
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BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Working capital(deficiency) $(1,038,300) $ (585,300) $ (564,100) (295,500) (254,000)
Total assets 795,100 148,200 667,000 230,600 258,000
Long-term debt -- 75,000 75,000 113,700 146,400
Stockholders' deficit (1,013,300) (796,200) (429,500) (550,400) (544,200)
</TABLE>
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
JANUARY 31, 2000
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.
2000 - 1999
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.
Sales for the year ended January 31, 2000 were $443,200 as compared with sales
of $939,700 for the year ended January 31, 1999, a decrease of 52.8%. Cost of
sales decreased from $527,700 for the year ended January 31, 1999, or 56.2% of
sales, to $267,600, or 60.4% of sales, for the year ended January 31, 2000.
Selling, general and administrative expenses increased 42.5% to $645,600 from
$453,200. This was due to an increase in legal fees of approximately $50,000;
cost associated with the issuance of the 10% Convertible Subordinated Debentures
of approximately $26,000; an increase in travel, promotion and trade show
expenses of approximately $27,000 and costs related to the introduction of new
products of approximately $39,000. In addition, the Company incurred a general
increase in salaries, rent and other operating costs of approximately $50,400.
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. The Company has expended $167,200
towards such development. For the year ended January 31, 2000, the Company
incurred an operating loss of $643,600 as compared to an operating loss of
$42,300 for the year ended January 31, 1999. The Company had a loss from
continuing operations of $729,300 or ($.18) per share, as compared to a loss of
$82,400 or ($.02) per share for the year ended January 31, 1999. The Company's
gain from discontinued operations in 1999 was $15,700 resulting in a net loss of
$66,700 for 1999 as compared to a net loss of $244,200 in 2000. The net loss for
the year ended January 31, 2000 reflects the forgiveness of debt in the
aggregate amount of $337,500 and the extinguishment of the minority interest of
$147,600. (See Note 10 - to notes to CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS) Interest expense was $94,700 and interest income was $9,000 for the
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year ended January 31, 2000, as compared to interest expense of $40,100 during
the comparable period of 1999 primarily due to interest on the $1,521,250
principal amount of 10% Convertible Subordinated Debentures outstanding.
1999 - 1998
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.
The Company had an operating loss from continuing operations of $82,400 and a
net loss of $66,700 for the year ended January 31, 1999, as compared to an
operating loss of $181,100 and a net loss of $206,600 for the prior year. The
decrease in loss was primarily due to a decrease in general and administrative
expenses of $82,300.
Sales for the year ended January 31, 1999 increased by $6,800 or less than 1%
from $932,900 to 939,700. Cost of sales decreased by $28,200 or by 5% from
$555,900 to $527,700. This resulted in an increased gross profit margin from 40%
to 44%. Selling, general and administrative expenses decreased 15% from $535,500
to $453,200. This decrease was primarily due to a reduction in professional fees
and other costs associated with the KOS acquisition and incurred in the year
ended January 31, 1998.
The Company's loss from continuing operations decreased from $181,100 to $82,400
or approximately 55%. The loss from discontinued operations was $25,500 for the
year ended January 31, 1998 as compared to a gain of $15,700 for the current
year. The Company's net loss decreased to $66,700, or $.01 per share the year
ended January 31, 1999 as compared to a loss of $206,600 or $.05 per share in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, the Company had cash of $649,700 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 year ended January 31, 2000, the Company completed the
private placement of $1,521,250 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 amends
its certificate of incorporation to increase its authorized common stock (now
10,000,000) to an amount sufficient to permit the conversion of the debentures.
See Note 4 to notes to CONSOLIDATED FINANCIAL STATEMENTS. The Company will
require additional funds to complete the launch of its internet site and
commence marketing of its line of women's products. 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 products and the website for
women's health will be successful. The inability to raise additional funds will
materially effect the future business operations of the Company.
THIS FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
COMPANY OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS
OF ITS MANAGEMENT, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE
BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY
KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
18
<PAGE>
THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), Congress encouraged public companies to make "forward-looking statements"
by creating a safe harbor to protect companies from securities law liability in
connection with forward-looking statements. The Company intends to qualify both
its written and oral forward-looking statements for protection under the Reform
Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, prospective investors are urged not to place undue
reliance on written or oral forward-looking statements of the Company. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, the Company undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
The Company provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward-looking statements for
the safe harbor protection of the Reform Act and any other similar safe harbor
provisions. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include the following:
THE COMPANY HAS RECENTLY INSTITUTED ITS NEW BUSINESS STRATEGY. ITS
BUSINESS MUST EXPAND FOR IT TO ATTAIN PROFITABILITY.
The Company has only recently commenced the implementation of its new business
strategy. The Company may not successfully complete the transition to successful
operations or profitability pursuant to its new strategy. The Company may
encounter problems, delays and expenses in implementing its new business
strategy. These may include, but not be limited to, unanticipated problems and
additional costs related to marketing, competition and product acquisitions and
development. These problems may be beyond the Company's control, and in any
event, could adversely affect the Company's results of operations. See "Selected
Consolidated Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE COMPANY HAS A BROAD BUSINESS MODEL THAT WILL REQUIRE THE
DEVELOPMENT OF MANY DIFFERENT AREAS. IF THE COMPANY FAILS TO IMPLEMENT ANY OF
THE KEY ELEMENTS OF ITS BUSINESS PLAN, ITS BUSINESS MAY NOT SUCCEED.
The Company has embarked on an ambitious plan to provide products, educational
programs and support systems to women to help them make better decisions
regarding their health care. There is a limited market awareness of the Company
and the products and services it offers. To be successful, the Company must
continue to develop, coordinate and balance various elements of its business.
Among other things, the Company must:
- generate market demand for the products it offers, prepare and
disseminate information about women's health care and
establish the FEM CHOICE brand,
- convince OB/GYNs and the nurse practitioners and physician
assistants focused on women's health to recommend the products
the Company offers,
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- maintain and obtain rights to market and distribute products
and integrate them into its business, and
- augment sales and marketing and manage different distribution
channels for the products it offers.
If the Company fails to implement any of these key elements of its business
plan, its business may not succeed.
IF WOMEN DO NOT USE AND THEIR CLINICIANS DO NOT RECOMMEND THE PRODUCTS
THE COMPANY OFFERS, THE COMPANY MAY EXPERIENCE SIGNIFICANT LOSSES.
The products the Company offers may not achieve market acceptance. The market
acceptance of these products will depend on, among other factors, their
advantages over existing competing products, and their perceived efficacy and
safety.
The Company's business model assumes that its marketing programs and the growth
in its target market will result in increased demand for the products it offers.
If its marketing programs do not succeed in generating a substantial increase in
demand for its products, the Company will be unable to realize its operating
objectives. In addition, the Company's business model seeks to build on the
expanding roles of OB/GYNs and the nurse practitioners and physician assistants
focused on women's health, and its marketing efforts are concentrated on this
group. If the clinicians the Company targets do not recommend the products the
Company offers or if women do not regularly use these products, the Company may
experience significant losses and its business will be adversely affected.
Moreover, if the Company fails to develop the market-wide brand identity for FEM
CHOICE that it is seeking, its business will be adversely affected.
THE COMPANY'S QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS, WHICH COULD CAUSE THE PRICE OF THE COMPANY'S STOCK TO
DECLINE SIGNIFICANTLY.
The Company's quarterly operating results may fluctuate significantly based on
factors such as:
- changes in the acceptance or availability of the products it
offers,
- the timing of new product offerings, acquisitions or other
significant events by the Company or its competitors,
- regulatory approvals and legislative changes affecting the
products it offers or those of its competitors,
- the timing of expenditures for the expansion of its
operations, and
- general economic and market conditions and conditions specific
to the health care industry.
Due to the Company's short operating history pursuant to its new business
strategy and the difficulty of predicting demand for the products it offers, the
Company is unable to accurately forecast its revenues. Accordingly, the
Company's operating results in one or more future quarters may fail to meet the
expectations of securities analysts or investors, which could have a material
adverse effect on the Company's stock price.
THE HEALTH CARE INDUSTRY AND THE MARKETS FOR THE PRODUCTS THE COMPANY
OFFERS ARE VERY COMPETITIVE. THE COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY,
ESPECIALLY AGAINST ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER
FINANCIAL RESOURCES.
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The health care industry is highly competitive. Many of the Company's
competitors are large well-known health care companies that have considerably
greater financial, sales, marketing and technical resources than the Company.
Additionally, these competitors have research and development capabilities that
may allow them to develop new or improved products that may compete with product
lines the Company markets and distributes. In addition, competitors may elect to
devote substantial resources to marketing their products to women and may choose
to develop educational and information programs like those developed by the
Company to support their marketing efforts. The Company's business, financial
condition and results of operations could be materially and adversely affected
by any one or more of such developments.
Competition for the self-care products the Company offers is significant. These
products compete against a number of well-known brands of similar products. The
Company's Internet site, competes with other Internet sites focused on women's
health as well as sites focused on health in general. The Company's failure to
adequately respond to the competitive challenges faced by the products it offers
could have a material adverse effect on its business, financial condition and
results of operations.
IF THE COMPANY DOES NOT SUCCESSFULLY MANAGE ANY GROWTH IT EXPERIENCES,
IT MAY EXPERIENCE INCREASED EXPENSES WITHOUT CORRESPONDING REVENUE INCREASES.
The Company's business plan will, if implemented, result in rapid expansion of
its operations. This expansion may place a significant strain on management,
financial and other resources. It also will require the Company to increase
expenditures before it generates corresponding revenues. The Company's ability
to manage future growth, should it occur, will depend upon its ability to
identify, attract, motivate, train and retain highly skilled managerial,
financial, business development, sales and marketing and other personnel.
Competition for these employees is intense. Moreover, the addition of products
or businesses will require the Company's management to integrate and manage new
operations and an increasing number of employees. The Company may not be able to
implement successfully and maintain its operational and financial systems or
otherwise adapt to growth. Any failure to manage growth, if attained, would have
a material adverse effect on the Company's business.
THE COMPANY IS DEPENDENT ON A LIMITED NUMBER OF SOURCES OF SUPPLY FOR
MANY OF THE PRODUCTS IT OFFERS. IF ONE OF IT SUPPLIERS FAILS TO SUPPLY ADEQUATE
AMOUNTS OF A PRODUCT THE COMPANY OFFERS, THE COMPANY'S SALES MAY SUFFER AND IT
COULD BE REQUIRED TO ABANDON A PRODUCT LINE.
The Company is dependent on a limited number of sources of supply for many of
the products it offers. With respect to these products, the Company cannot
guarantee that these third parties will be able to provide adequate supplies of
products in a timely fashion. The Company also face the risk that one of its
suppliers could become insolvent, declare bankruptcy, lose its production
facilities in a disaster, be unable to comply with applicable government
regulations or lose the governmental permits necessary to manufacture the
products it supplies to the Company. If the Company is unable to renew or extend
an agreement with a third-party supplier, if an existing agreement is terminated
or if a third-party supplier otherwise cannot meet the Company's need for a
product, the Company may not be able to obtain an alternative source of supply
in a timely manner or at all. In these circumstances, the Company may be unable
to continue to market products as planned and could be required to abandon or
divest itself of a product line on terms which would materially adversely affect
it.
THE COMPANY MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS NOT COVERED BY
INSURANCE THAT WOULD HARM ITS BUSINESS.
The Company may be exposed to product liability claims. Although the Company
believes that it currently carries and intends to maintain a comprehensive multi
peril liability package, the Company cannot guarantee that this insurance will
be sufficient to cover all possible liabilities. A successful suit against the
Company could have an adverse effect on its business and financial condition if
the amounts involved are material.
21
<PAGE>
THE COMPANY IS UNCERTAIN OF ITS ABILITY TO OBTAIN ADDITIONAL FINANCING
FOR ITS FUTURE CAPITAL NEEDS. IF THE COMPANY IS UNABLE TO OBTAIN ADDITIONAL
FINANCING, IT MAY NOT BE ABLE TO CONTINUE TO OPERATE ITS BUSINESS.
The Company may require significant amounts of additional capital to achieve its
goals. The Company believes that the net proceeds from the Company's recent
private offering of convertible debentures will be sufficient to meet its
working capital and capital expenditure requirements through the end of calendar
year 2000. The Company's future capital requirements will depend on many factors
including:
- the costs of its sales and marketing activities and its
education programs for clinicians and women,
- competing product and market developments,
- the costs of acquiring or developing new products,
- the costs of expanding its operations, and
- its ability to generate positive cash flow from its sales.
Additional funding may not be available on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to curtail
significantly or defer one or more of its marketing or educational programs or
to limit or postpone obtaining new products through license, acquisition or
other agreements. If the Company raises additional funds through the issuance of
equity securities, the percentage ownership of its then-current stockholders may
be reduced and such equity securities may have rights, preferences or privileges
senior to those of the holders of its common stock. If the Company raises
additional funds through the issuance of additional debt securities, these new
securities would have certain rights, preferences and privileges senior to those
of the holders of its common stock, and the terms of these debt securities could
impose restrictions on its operations. For a further discussion of expenditures
and other factors that could affect the Company's need for future capital, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
THE COMPANY'S INABILITY TO OBTAIN NEW PROPRIETARY RIGHTS OR TO PROTECT
AND RETAIN ITS EXISTING RIGHTS COULD IMPAIR ITS COMPETITIVE POSITION AND
ADVERSELY AFFECT ITS SALES.
The Company believes that the trademarks, copyrights and other proprietary
rights that it owns or licenses, or that it will own or license in the future,
will continue to be important to its success and competitive position. If the
Company fails to maintain its existing rights or cannot acquire additional
rights in the future, its competitive position may be harmed. While some
products we offer incorporate patented technology, most of the products we sell
are not protected by patents.
The Company has applied for registration of a number of key trademarks and
intends to introduce new trademarks, service marks and brand names. The Company
intends to take the actions that it believes are necessary to protect its
proprietary rights, but it may not be successful in doing so on commercially
reasonable terms, if at all. In addition, parties that license their proprietary
rights to the Company may face challenges to their patents and other proprietary
rights and may not prevail in any litigation regarding those rights. Moreover,
the Company's trademarks and the products it offers may conflict with or
infringe upon the proprietary rights of third parties. If any such conflicts or
infringements should arise, the Company would have to defend itself against such
challenges. The Company also may have to obtain a license to use those
proprietary rights or possibly cease using those rights altogether. Any of these
events could harm the Company's business.
THE PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK MAY BE VOLATILE, AND
THE PRICE OF THE COMMON STOCK MAY FLUCTUATE FOR REASONS UNRELATED TO THE
COMPANY'S OPERATING PERFORMANCE. A SIGNIFICANT DECLINE IN THE PRICE OF THE
COMMON STOCK COULD LEAD TO A CLASS ACTION LAWSUIT AGAINST THE COMPANY.
22
<PAGE>
There has been a very limited public market for the Company's common stock, and
the Company does not know whether investor interest in the Company will lead to
the development of a more active trading market. The market prices and trading
volumes for securities of emerging companies, such as the Company, historically
have been highly volatile and have experienced significant fluctuations both
related and unrelated to the operating performance of those companies. The price
of the Company's common stock may fluctuate widely, depending on many factors,
including factors that may cause the Company's quarterly operating results to
fluctuate as well as market expectations and other factors beyond the Company's
control. In the past, following periods of volatility in the market price of a
company's securities, class action litigation has often been instituted against
that company by some of its stockholders. This type of litigation, if instituted
against the Company, could result in substantial costs and a diversion of
management's attention and resources, which could materially and adversely
affect the Company's results of operations and financial condition.
INTERNET CAPACITY CONSTRAINTS MAY IMPAIR THE ABILITY OF CONSUMERS TO
ACCESS THE COMPANY'S INTERNET SITE.
The Company's success will depend, in large part, upon a robust communications
industry and infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial medium because of:
inadequate development of the necessary infrastructure such as a reliable
network backbone, failure to timely develop complementary products such as high
speed modems, delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity, or increased
government regulation.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it.
THE COMPANY'S BUSINESS IS DEPENDENT ON THE CONTINUOUS, RELIABLE AND
SECURE OPERATION OF ITS INTERNET WEBSITE AND THE RELATED TOOLS AND FUNCTIONS IT
PROVIDES.
The Company relies on the Internet and, accordingly, depends upon the
continuous, reliable and secure operation of Internet servers and related
hardware and software. Recently, several large Internet commerce companies have
suffered highly publicized system failures which resulted in adverse reactions
to their stock prices, significant negative publicity and, in certain instances,
litigation. To the extent that the Company's service is interrupted, its users
will be inconvenienced, its commercial customers will suffer from a loss in
advertising or transaction delivery and its reputation may be diminished. Some
of these outcomes could directly result in a reduction in the Company's stock
price, significant negative publicity and litigation. The computer and
communications hardware utilized by the Company are protected through physical
and software safeguards. However, they are still vulnerable to fire, storm,
flood, power loss, telecommunications failures, physical or software break-ins
and similar events. The Company's business interruption insurance may be
inadequate to protect it in the event of a catastrophe. The Company also depends
upon third parties to provide potential users with web browsers and Internet and
on-line services necessary for access to the Company's Internet site. The
Company's site users may occasionally experience difficulties with Internet and
other on-line services due to system failures, including failures unrelated to
the systems utilized by the Company. Any sustained disruption in Internet access
provided by third parties could adversely impact the Company's business.
23
<PAGE>
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
The MNI Group Inc.
We have audited the accompanying consolidated balance sheet of The MNI
Group Inc. as of January 31, 2000 and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of The MNI Group Inc. as of January 31, 1999
and 1998, were audited by other auditors whose report dated May 6, 1999, on
those statements included an explanatory paragraph that described the
uncertainty of the Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The MNI Group Inc.
as of January 31, 2000, and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
8 to the financial statements, the Company has suffered recurring losses from
operations, a decline in revenue and net capital deficiencies that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 8. The consolidated
financial statements do not include any adjustments relating to the
recoverability or reclassification of any asset or liability that might result
from the outcome of this uncertainty.
Goldstein & Ganz, CPA's, PC
Great Neck, NY
April 7, 2000
24
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 649,700 $ 5,000
Accounts receivable (net of allowance for doubtful
accounts of $0 in 2000 and 1999) 14,000 86,800
Inventories 83,400 40,300
Other current assets 23,000 1,100
----------- -----------
Total current assets 770,100 133,200
----------- -----------
Fixed assets, net of accumulated depreciation of $91,100 and
$120,000, respectively 9,800 --
Other assets:
Security deposits 15,200 15,000
----------- -----------
$ 795,100 $ 148,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 226,100 $ 437,300
Notes payable - short term portion 61,000 84,900
10% convertible subordinated debentures 1,521,300 --
Loans payable - officers -- 196,300
----------- -----------
Total current liabilities 1,808,400 718,500
----------- -----------
Notes payable (net of short-term portion) -- 75,000
Minority interest in subsidiary -- 150,900
----------- -----------
Total long-term liabilities -- 225,900
----------- -----------
Total liabilities 1,808,400 944,400
----------- -----------
Stockholders' deficit:
Common stock, no par value; 10,000,000 shares authorized; 4,110,709 shares
issued and outstanding at January 31, 2000; 4,085,709 shares issued and
outstanding at January 31, 1999 7,313,900 7,276,400
Accumulated deficit (8,316,800) (8,072,600)
----------- -----------
(1,002,900) (796,200)
Less: Treasury stock, at cost (10,400) --
----------- -----------
Total stockholders' deficit (1,013,300) (796,200)
----------- -----------
$ 795,100 $ 148,200
=========== ===========
The accompanying notes are an integral part hereof.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended January 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 443,200 $ 939,700 $ 932,900
----------- ----------- -----------
Cost of sales and operating expenses:
Cost of merchandise sales 267,600 527,700 555,900
Selling, general and administrative expenses 645,600 453,200 535,500
Web site development cost 167,200 -- --
Advertising expense 6,400 1,100 --
----------- ----------- -----------
Total cost of sales and operating expenses 1,086,800 982,000 1,091,400
----------- ----------- -----------
Operating (loss) (643,600) (42,300) (158,500)
----------- ----------- -----------
Other income (expense):
Interest income 9,000 -- --
Interest (expense) (94,700) (40,100) (22,600)
----------- ----------- -----------
Total other income (expense) (85,700) (40,100) (22,600)
----------- ----------- -----------
(Loss) from continuing operations (729,300) (82,400) (181,100)
Discontinued operations:
Income (loss) from discontinued operations -- 15,700 (25,500)
----------- ----------- -----------
Net (loss) before extraordinary items and provision for income taxes (729,300) (66,700) (206,600)
Extraordinary items:
Foregiveness of debt 337,500 -- --
Extinguishment of minority interest 147,600 -- --
----------- ----------- -----------
Net income from extraordinary items 485,100 -- --
----------- ----------- -----------
(Loss)before provision for income taxes (244,200) (66,700) (206,600)
Provision for income taxes -- -- --
----------- ----------- -----------
Net (loss) ($244,200) ($66,700) ($206,600)
=========== =========== ===========
Basic (loss) per common share:
(Loss) from continuing operations ($.18) ($.02) ($.05)
=========== =========== ===========
Income (loss) from discontinued operations -- -- ($.01)
=========== =========== ===========
Net income from extraordinary items $.12 -- --
=========== =========== ===========
Net (loss) ($.06) ($.01) ($.05)
=========== =========== ===========
Weighted average number of shares outstanding 3,979,015 4,635,709 3,913,175
=========== =========== ===========
The accompanying notes are an integral part hereof.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
Common Stock Accumulated Treasury Total
Shares Amount Deficit Stock Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1997 3,810,709 $ 7,248,900 ($7,799,300) -- ($550,400)
Issuance of shares for acquisition of
subsidiary 600,000 300,000 -- -- 300,000
Exercise of warrants 275,000 27,500 -- -- 27,500
Net (loss) -- -- (206,600) -- (206,600)
----------- ----------- ----------- ----------- -----------
Balance, January 31, 1998 4,685,709 7,576,400 (8,005,900) -- (429,500)
Redemption of shares from discontinued
operations (600,000) (300,000) -- -- (300,000)
Net (loss) -- -- (66,700) -- (66,700)
----------- ----------- ----------- ----------- -----------
Balance, January 31, 1999 4,085,709 7,276,400 (8,072,600) -- (796,200)
Shares repurchased in connection with
settlement with LN Investment Capital (1,536,030) -- -- (100,000) (100,000)
----------- ----------- ----------- ----------- -----------
Sale of treasury stock 1,261,030 -- -- 89,600 89,600
Shares issued as payment for services
performed 300,000 37,500 -- -- 37,500
Net (loss) -- -- (244,200) -- (244,200)
----------- ----------- ----------- ----------- -----------
Balance, January 31,2000 4,110,709 $ 7,313,900 ($8,316,800) ($10,400) ($1,013,300)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part hereof.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
THE MNI GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($ 244,200) ($ 66,700) ($ 206,600)
Adjustments to reconcile net (loss) to
net cash provided (used) by operating
activities:
Extraordinary items:
Foregiveness of debt (337,500) -- --
Extinguishment of minority interest (147,600) -- --
Payment by common stock for services 37,500 -- --
Depreciation and amortization (2,500) 1,200 1,400
Net gain on discontinued operations -- (15,700) --
Changes in working capital items:
(Increase) decrease in accounts receivable 72,800 44,600 (5,500)
(Increase) decrease in inventories (43,100) 85,800 (64,700)
(Increase) decrease in other assets (21,900) 6,700 4,100
(Increase) decrease in security deposits (200) 700 (200)
Increase (decrease) in accounts payable
and accrued expenses 51,300 (121,200) 157,600
----------- ----------- -----------
Net cash (used) by operating activities (635,400) (64,600) (113,900)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment (10,600) (4,000) --
Goodwill adjustment -- 63,300 (52,000)
----------- ----------- -----------
Net cash (used) provided by investing activities (10,600) 59,300 (52,000)
----------- ----------- -----------
Cash flows from financing activities:
Redemption of stock in settlement (100,000) -- --
Proceeds from sale of treasury stock 89,600 -- --
(Decrease) increase in loans from stockholders (172,500) 48,700 76,500
(Decrease) increase in short-term debt (47,700) (75,300) 124,500
Proceeds from exercise of warrants -- -- 27,500
Proceeds from sale of debentures 1,521,300 -- --
(Decrease) in long-term debt -- -- (38,700)
----------- ----------- -----------
Net cash provided (used) by financing activities 1,290,700 (26,600) 189,800
----------- ----------- -----------
Increase (decrease) in cash 644,700 (31,900) 23,900
Cash, beginning of year 5,000 36,900 13,000
----------- ----------- -----------
Cash, end of year $ 649,700 $ 5,000 $ 36,900
=========== =========== ===========
Supplemental information:
Cash expended for:
Interest expense $ 32,600 $ 32,400 $ 22,600
Federal income taxes -- -- --
Non-cash transactions:
Value of shares issued for acquisition of subsidiary
-- -- $ 300,000
Value of shares reacquired from reversal of
acquisition of subsidiary -- ($ 300,000) --
The accompanying notes are an integral part hereof.
</TABLE>
28
<PAGE>
THE MNI GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
Note 1. ORGANIZATION AND BUSINESS:
The MNI Group Inc. (MNI), a New Jersey corporation organized in 1981,
and its subsidiaries, are engaged in the development, marketing and
distribution of a variety of health-related products and programs. The
Company and its subsidiaries distribute nutritional support products and
programs for weight control, a line of nutritionally-oriented pet products,
and over-the-counter household remedies.
In May 1993, the Company organized NutraPet Labs, Inc. (NutraPet) for
the purpose of developing and marketing pet products. The Company
subsequently issued 313,000 shares of NutraPet for $313,000 in a private
placement.
In July 1997, the company consummated a merger with K.O.S. Industries,
Inc. (KOS) whereby all of KOS outstanding common stock was exchanged for
600,000 shares of the company's common stock. The transaction was treated
as a purchase. KOS distributes and markets a line of pet-related products.
In addition, one of KOS key employees was granted stock options to acquire
750,000 additional shares of the Company, and a KOS consultant was granted
options to acquire 150,000 shares of the Company's common stock. (See Note
6)
In December 1998, the Company reversed the KOS transaction above, as a
result of KOS's inability to meet marketing expectations.
Note 2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries after elimination of intercompany accounts and transactions
for ongoing activities and does not include any of the activities of KOS.
Certain amounts in the January 31, 1999 and 1998 financial statements were
reclassified to conform to the January 31, 2000 presentation.
The consolidated statements of operations for the years ended January
31, 1999 and 1998, include in "Discontinued Operations" the results of
operations for K.O.S. Industries, Inc. and the resulting gain on the
reversal of the KOS transaction. The amounts shown in discontinued
operations are not shown net of any income tax effect (either expense or
benefit) because the Company incurred a net loss in those years, and has
substantial net operating loss carryforwards.
INVENTORIES - Inventories, which consist primarily of purchased finished
products, are stated at the lower of cost or market using the "first-in,
first-out" (FIFO) cost method.
FIXED ASSETS - Furniture, fixtures and equipment, and leasehold
improvements are stated at cost and depreciated and amortized over their
estimated useful lives using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes.
Expenditures for repairs and maintenance which do not extend the useful
life of the property are expensed as incurred. The estimated useful lives
of the assets are as follows:
Furniture, fixtures and equipment 5-10 years
Leasehold improvement 3-7 years
29
<PAGE>
Note 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RESEARCH AND DEVELOPMENT - The Company and its subsidiaries utilize
independent third parties to design and test certain products. These
expenditures are accounted for as research and development costs and are
expensed as incurred.
WEB SITE DEVELOPMENT COSTS - Costs to develop the Company's web site,
including the cost of developing services offered to visitors of the web
site, are accounted for under Statement of Position No. 98-1 "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use".
Through January 31, 2000, such costs have been incurred during the
preliminary project stage and, accordingly, have been expensed.
REVENUE RECOGNITION - The Company recognizes revenue when its products
are shipped.
EARNINGS PER SHARE - The consolidated financial statements are presented
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share". Basic earnings per common share are computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per common share incorporate the incremental shares
issuable upon the assumed exercise of stock options and warrants. In
accordance with SFAS No. 128, diluted earnings per share is not presented
in years during which the Company incurred a loss from operations.
USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 - The Company
applies APB Opinion 25 "Accounting for Stock Issued to Employees", and
related Interpretations in accounting for its stock based compensation.
Accordingly, no expense has been recorded for stock options issued.
Note 3. FIXED ASSETS:
Fixed assets consisted of the following at January 31, 2000 and 1999,
respectively:
January 31,
-------------------------
2000 1999
--------- ---------
Furniture, fixtures and equipment $ 75,800 $ 73,300
Leasehold improvements 25,100 17,700
Promotional video -- 29,000
--------- ---------
100,900 120,000
Less: accumulated depreciation
and amortization 91,100 120,000
--------- ---------
$ 9,800 $ --
========= =========
Note 4. NOTES PAYABLE:
In November 1991, Family Weight Loss Centers, Inc. (FWLC), (a former
subsidiary of MNI), filed a petition for bankruptcy proceedings pursuant to
Chapter 7 of the federal bankruptcy statutes. This petition provided for
complete liquidation of all of the corporate assets and liabilities. FWLC
was an affiliate of a stockholder of the Company.
30
<PAGE>
Subsequent to the bankruptcy filing, MNI agreed to satisfy an
outstanding $4,000,000 obligation, which it had guaranteed as part of the
FWLC acquisition. The guarantee was in the form of a term note to Fleet
Bank, NA. The Company agreed to satisfy the obligation by the payment of
$125,000, issuance of a three year note in the amount of $125,000, with
interest at the bank's prime rate, and the issuance of warrants to purchase
750,000 shares of the Company's common stock at a price of $.01 per share,
expiring in February 2002. In February 1995, the Company agreed to
liquidate the three-year note in the amount of $125,000 by the payment of
42 monthly payments in the amount of $2,976 each plus interest at the prime
rate commencing in August 1995. At January 31, 2000, the balance
outstanding was $23,800. The note is currently in default and the Company
is discussing a payoff settlement with Fleet Bank. Interest on this debt
was $3,822, $2,788, and $4,939 for the years ended January 31, 2000, 1999
and 1998, respectively.
The Company borrowed $50,000 from PNC Bank on January 29, 1998. The
maturity date of the loan was January 29, 1999, with interest accruing at
the rate of 10.25% per annum. During the year ended January 31, 1999, the
terms of this loan were changed to a demand note. Principal and interest
payments are being made on a monthly basis. Interest paid during the year
ending January 31, 2000 was approximately $3,800. At January 31, 2000, the
outstanding balance was $37,200.
In December 1992, LN Investment Capital Limited Partnership (LNIC)
advanced $75,000 to the Company. Mr. Michael Connelly, who at the time of
the loan was the Chairman of the Company's Board of Directors, is President
of LNIC. This loan was originally due on July 31, 1993, and, in accordance
with the terms of the loan agreement, was extended and converted to a
demand note, with interest at 10% per annum. In addition, under the
original loan terms, LNIC received warrants to purchase 300,000 shares of
the Company's common stock at an exercise price of $.25 per share. Upon
LNIC's agreement to extend the note, the warrant exercise prices were
reduced and the number of warrants increased.
In the year ended January 31, 1998, 275,000 warrants were exercised at
$.10 per share (see Note 6). The exercise of these warrants is reflected in
the capitalization of the Company as of January 31, 1998.
During the year ended January 31, 2000, Mr. Connelly tendered his
resignation as Chairman of the Board. Concurrently, the Company entered
into a settlement agreement with LNIC, whereby the loan and accrued
interest were foregiven (see Note 10).
A summary of the Company's notes payable at January 31, 2000 and 1999 is
as follows:
<TABLE>
<CAPTION>
January 31, 2000 January 31, 1999
---------------------------- -------------------------
Short-term Long-term Short-term Long-term
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fleet Bank, NA $ 23,800 $ -- $ 24,000 $ --
PNC Bank 37,200 42,900
Advanta Bank Corp. -- -- 18,000 --
LN Investment Capital
Ltd. Partnership -- -- -- 75,000
----------- ---------- ---------- ---------
$ 61,000 $ -- $ 84,900 $ 75,000
=========== ========== ========== =========
</TABLE>
Subordinated Debentures
In November 1999, the Company completed a private placement for the
principal amount $1,521,250 of 10% Convertible Debentures due October 1,
2000 (including $390,000 of unsecured advances received during the second
quarter which were converted into 10% Convertible Subordinated Debentures).
31
<PAGE>
Under the terms of the Debentures, the principal dollar amount is
convertible by the holders at $.075 per share. The Debentures must be
converted upon the Company amending its Certificate of Incorporation to
increase its authorized capitalization to not less than 35,000,000 shares
of Common Stock. The Company expects the recapitalization to be approved by
the stockholders at its next annual meeting. At January 31, 2000, the
Company has accrued to the debenture holders interest payable amounting to
$58,200.
Loans Payable - Officer
From time to time the Company's chief operating officer made advances
to the Company for working capital purposes. Interest on these advances was
charged at rates varying from 11% to 18%. The balance due at February 1,
1999, was $196,300 and the highest balance due during the year was
$230,800. The total of all repayments during the year, including interest,
amounted to $278,200. At January 31, 2000, all advances were repaid and,
accordingly, no balance remained outstanding.
Note 5. LEASE COMMITMENTS:
MNI leases an office and warehouse facility in New Jersey under a lease
which expires in December 2004.
Total gross rental expense for the year ended January 31, 2000, 1999 and
1998 was approximately $65,600, $77,300 and $83,000, respectively. MNI
sub-leases (on a month to month basis) a portion of its facility to various
entities at an annual rental income of approximately $34,600, $41,000 and
$43,000 for the year ended January 31, 2000, 1999 and 1998, respectively.
The future minimum annual rents are as follows:
<TABLE>
<CAPTION>
Year ended January 31,:
<S> <C> <C>
2001 $ 65,600
2002 65,600
2003 65,800
2004 67,500
2005 61,900
--------
Total minimum annual rent payments $326,400
========
The Company leases equipment under various operating leases. During the
year ended January 31, 2000, the total payments under such leases were
$16,700. The future minimum annual lease payments are as follows:
Year ended January 31,:
2001 $ 16,600
2002 6,200
--------
Total minimum annual rent payments $ 22,800
========
</TABLE>
Note 6. STOCKHOLDERS' EQUITY:
In January 1990, MNI adopted its Incentive and Nonqualified Stock Option
Plan (the "Plan"), to which options for an aggregate of 175,000 shares of
common stock may be granted to key employees and certain other persons. The
Plan terminated on November 28, 1999. During 1993, MNI issued 50,000
options under this plan, exercisable at $.10 per share. These were
subsequently replaced with new options in 1994. The new options were not
exercised and expired in 1999.
32
<PAGE>
In February 1992, in connection with the bankruptcy of FWLC (see Note 4)
the Company issued warrants to purchase 750,000 shares of the Company's
common stock to Fleet Bank. The warrants are exercisable at $.01 per share
and expire in February 2002. At January 31, 2000, none of the options were
exercised.
In March 1992, three officers and directors of MNI were granted options
to immediately purchase 125,000 shares each and an additional 150,000
options each to be granted over the next 60 months at a rate of 2,500 per
month per officer and director. The options are exercisable at $.10 per
share. Upon the resignation of one of the officers, 150,000 of the
aforementioned additional options were cancelled. Additionally, the
original 125,000 options issued to this officer expired in 1999. The
options issued to the remaining two officers (275,000 each), were extended
in 1999 to November 2004. At January 31, 2000. none of the options were
exercised.
During 1993, MNI issued warrants to purchase 125,000 shares of its
common stock in exchange for the elimination of approximately $41,000 of
accounts payable. These warrants are exercisable at $.10 per share and
expired in February 1999. These warrants were not exercised. In addition,
156,500 warrants were issued to a financial advisor as compensation for
services rendered in conjunction with the private placement offering of
NutraPet. These warrants were exercisable at $.125 per share. In March
1999, the options were unexercised and expired.
During 1994, an officer of MNI was issued 35,000 fully-vested options at
an exercise price of $.10 per share. In addition, 15,000 previously issued
options exercisable at a price of $2.00 were cancelled, and 15,000 options
subject to a three-year vesting and exercisable at a price of $.10 per
share were issued. In addition, consultants to MNI were issued 40,000
options exercisable at $.10 per share. None of the options were exercised
and all expired in March and September 1999.
In February 1997, as consideration for his efforts on behalf of the
Company, an officer was issued options to purchase 100,000 shares of the
Company's common stock at $.10 per share. The options expire in November
2004. At January 31, 2000, none of the options were exercised.
In August 1997, in conjunction with the acquisition of KOS, two
shareholders were granted options to purchase 900,000 shares of MNI's stock
exercisable at $.50 per share. These options were to expire on December 31,
2001. These options were recalled upon the completion of the reversal of
the acquisition effective December 31, 1998.
During the fiscal year ended January 31, 1998, one option holder
exercised options for 275,000 shares at $.10 per share. This has been
reflected in the capital accounts and in the consolidated statement of
stockholders' equity.
During 1999, the Company issued options to a consultant to purchase
250,000 shares of the Company's common stock as additional consideration on
behalf of his efforts in building the Company's web site. The options are
exercisable at $.10 per share and expire November 2004. At January 31,
2000, none of the options were exercised.
In July 1999, as consideration for his efforts on behalf of the Company,
an officer was issued options to purchase 100,000 shares of the Company's
common stock at $.10 per share. The options expire in November 2004. At
January 31, 2000, none of the options were exercised.
33
<PAGE>
In August, 1999, options to purchase 750,000 shares of the Company's
common stock which were previously issued to Lepercq Capital Management,
were transferred to Arnold and Myra Gans, President and Vice President of
the Company, respectively. These options were transferred as consideration
for their efforts in developing Womens Health Network on behalf of the
Company. Such options expire on November 1, 2004. At January 31, 2000, none
of the options were exercised.
In October 1999, five individuals, including several proposed nominees
for directorships and the Chairman of the Company, were each contingently
awarded options to purchase a total of 300,000 shares of the Company's
common stock at a price of $0.10 per share. The grant of these options was
contingent upon the adoption of a stock option plan by the stockholders of
the Company at the upcoming annual meeting of stockholders. None of these
options will vest unless and until a stock option plan is adopted by the
stockholders. The options will expire on November 1, 2004.
In November 1999, options to purchase 335,000 shares of the Company's
common stock were issued to various medical consultants. Such options
expire on November 1, 2009. At January 31, 2000, none of the options were
exercised.
In December 1999, the Company issued options to purchase 5,250 shares and
500 shares of the Company's common stock as bonuses to employees and
consultants, respectively. The options are exercisable at $.10 per share
and expire November 2004. At January 31, 2000, none of the options were
exercised.
Note 7. INCOME TAXES:
The Company has adopted the liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". No recognition has been made of the possible
benefits of available net operating loss carryforwards due to the
uncertainties that such benefits will be available to be used to offset
future years' income. MNI and its subsidiaries have net operating loss
carryforwards in excess of $8,000,000 which could be available to reduce
income otherwise subject to income tax. The possible deferred income tax
benefits of such available net operating losses are estimated to be
approximately $2,911,000 as of January 31, 2000, with a valuation allowance
of an equal amount as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax asset $ 2,911,000 $ 1,720,000 $ 1,700,000
Allowance for deferred tax asset (2,911,000) (1,720,000) (1,700,000)
------------ ------------ ------------
Net deferred tax asset $ -- $ -- $ --
============ ============ ============
</TABLE>
34
<PAGE>
Net operating losses expire during various years as follows:
Years ending prior to January 31, 2006 $4,047,800
Year ending January 31, 2007 2,932,000
Year ending January 31, 2008 486,300
Year ending January 31, 2009 31,600
Year ending January 31, 2010 310,500
Year ending January 31, 2011 16,200
Year ending January 31, 2012 16,200
Year ending January 31, 2017 232,000
Year ending January 31, 2018 244,200
----------
$8,316,800
==========
Note 8. COMMITMENTS AND CONTINGENCIES:
The Company's food and pet products are produced by third parties in
various plants under applicable government regulations. The Company depends
upon its vendors to comply with such regulations. Failure by such vendors
to comply with the applicable regulations could result in fines and/or
seizure of the food products. Presently, the Company is not a party to any
lawsuits. In addition, it has no commitments to its vendors for the
purchase of either raw materials or finished product.
Going Concern
As shown in the accompanying financial statements, the Company's
revenues have decreased from $939,700 to $443,200, and losses from
operations have increased from ($66,700) to ($729,300). The fact that the
Company has continued to sustain losses and requires additional sources of
cash to fund its operations, continues to create uncertainty about the
Company's ability to continue as a going concern.
Management of the Company has developed a plan to improve cash flow
through expanding operations and raising additional funds either through
the issuance of debt or equity. Managements' plan includes the sale of an
additional $750,000 of subordinated convertible debentures, which is
expected to be completed by June 30, 2000 (during the year ended January
31, 2000 the Company sold approximately $1.5 million of its subordinated
convertible debentures).
Managements' efforts and the Company's resources have been directed
toward the development of its non-biased gender based womens' healthcare
Internet web site. This site is expected to be launched in June 2000 and
will provide a medium to reach 1) a women specific targeted market for the
Company's products, and 2) a healthcare professional market
(e.g.-physicians, dieticians, etc.) for video-streaming based continuing
medical education courses. Additionally, the Company has affiliated itself
with several of the most prestigious womens' healthcare professionals in
the country as both consultants and board of director members. Finally, the
Company has begun discussions with prominent healthcare professionals
interested in bringing the Company's products to the public in conjunction
with their own direct sales and marketing efforts.
The ability of the Company to continue as a going concern is dependent
upon its ability to raise additional funds and the success of managements
35
<PAGE>
plan to expand operations. The Company anticipates that the proceeds from
the forthcoming sale of debentures as discussed above will provide the
necessary funds it requires for the balance of the year ending January 31,
2001. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
Note 9. MAJOR CUSTOMERS:
One customer was responsible for approximately $75,800 in sales for the
year ended January 31, 2000, representing approximately 17% of total sales.
For the years ended January 31, 1999, and 1998, two customers were
responsible for approximately $523,000 and $540,300 in sales, respectively,
representing approximately 56% and 43% of total sales, respectively.
Note 10. EXTRAORDINARY ITEMS:
Forgiveness of Debt
In August 1999, the Company entered into a settlement agreement with the
former Chairman of the Company's board of directors and his affiliates,
LePercq Capital Management Inc. (LePercq) and LN Investment Capital Ltd.
Partnership (LNIC). The settlement provided that the Company repurchase
from the former Chairman 1,536,030 shares of its common stock for $100,000
(the current market value). Further, the Company's indebtedness of $165,000
for consulting fees to LePercq and notes of $75,000 with additional accrued
interest of $22,100 payable to LNIC were forgiven and options for 150,000
shares of the Company's common stock were returned. Additionally, as part
of the terms of the agreement, two of the Company's officers and directors
agreed to forgive accrued salaries due them aggregating $75,000.
Extinguishment of minority interest
In 1993, the Company sold a minority interest in one of its subsidiaries
to third parties through a private offering. As a result, the Company
recorded an obligation to minority shareholders representing their
proportionate share of the subsidiary's equity. This liability changed from
year to year as the equity of the subsidiary changed. Although the equity
of the subsidiary was negative in recent years, the Company continued to
reflect a liability to the minority shareholders. Due to the negative
equity of the subsidiary as of January 31, 2000, and the absence of the
Company's obligation to the minority shareholders, the liability was
written off. When the subsidiary reestablishes a positive equity the
Company will record a liability to reflect the minority interests'
proportionate share.
Note 11. SUBSEQUENT EVENTS:
In March 2000, the Company granted options to a member of its medical
review board to purchase 100,000 shares of its common stock. Additionally,
in March 2000, the Company granted options to a consultant to purchase
1,000 shares of its common stock. Both options are exercisable at $.875 per
share and expire on November 1, 2009 and November 1, 2004, respectively.
In March 2000, the Company entered into an agreement with a consultant
which provided, in addition to cash consideration, options to purchase
3,985,000 shares of common stock of the Company at an exercise price of
$.875 per share. The options have a five year term and vest 20% upon grant
and 20% on each six month anniversary of the date of grant. Further, the
agreement provided options to purchase 515,000 shares of the Company's
common stock on substantially the same terms to the Department of Medicine
at Columbia University College of Physicians and Surgeons.
36
<PAGE>
Note 12. SEGMENTAL REPORTING:
The Company organizes its business units into three reportable segments:
nutritional support products, holistic products, and animal products.
<TABLE>
<CAPTION>
Segment Report
Year Ended January 31, 2000
Nutritional Adjustment
Support Holistic Animal &
Products Products Products Elimination Consolidated
----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
From unaffiliated
customers $ 232,300 $ 104,100 $ 106,800 $ 443,200
========== ========= ========= =========
(Loss) from operations before
discontinued operations and
extraordinary item ($777,100) $ 50,400 ($2,600) ($ 729,300)
========== ========= ========= =========
Identifiable assets at
January 31, 2000 $1,087,000 $ 63,200 $ 237,000 ($ 592,100) $ 795,100
========== ========= ========= ========== =========
</TABLE>
The accounting policies for the Company's segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before
interest and income taxes, and excluding nonrecurring gains and losses.
The Company's reportable business segments are strategic business units
that offer different products and services. Each segment is managed as a
separate unit and markets its products to a distinct class of customers.
Note 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Below is a summary of the results of operations for each of the quarters
of the years ended January 31, 2000 and 1999:
January 31, 2000: First Second Third Fourth
---------- ---------- ------------ ---------
Revenue $ 90,500 $ 127,200 $ 158,800 $ 66,700
========== ========== ============ =========
Gross profit $ 17,900 $ 69,300 $ 75,000 $ 13,400
========== ========== ============ =========
Net Income (Loss) ($ 103,000) ($95,200) $ 258,600 ($304,600)
========== ========== ============ =========
Net Income(Loss) per
common share ($ .03) ($ .02) $ .07 ($.08)
========== ========== ============ =========
January 31, 1999:
Revenue $ 368,500 $ 299,200 $ 271,000 $ 1,000
========== ========== ============ =========
Gross profit $ 128,400 $ 106,700 $ 84,500 $ 92,400
========== ========== ============ =========
Net Income (Loss) ($55,200) ($80,500) ($51,100) $ 120,100
========== ========== ============ =========
Net Income(Loss) per
common share ($.01) ($.02) ($.01) $ .03
========== ========== ============ =========
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company has replaced its prior auditor. Reference is made to form
8-K filed March 24, 2000.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Set forth below are the names, ages, and the position and offices held by each
of the directors and executive officers of the Company.
Name Age Position and Office
- ----------------- ----- ---------------------------------
Lawrence Burstein 57 Chairman (1) and Director
Arnold Gans 65 President
Myra Gans 62 Executive Vice President/Director
- --------------
(1) Michael J. Connelly resigned as the Company's Chairman in November 1999.
37
<PAGE>
LAWRENCE BURSTEIN is and since March 1996 has been President, a director and the
principal shareholder of Unity Venture Capital Associates, a private investment
banking firm. He is also a director of CAS Medical Systems, Inc. engaged in the
manufacture and marketing of disposable medical devices, T.H.Q., Inc., a
developer of electronic game cartridges, Quintel Communications, Inc., a direct
marketing company and ID Systems, Inc., a manufacturer of wireless tracking
devices. Mr. Burstein became Chairman of MNIG in July 1999 upon the resignation
of the former Chairman.
ARNOLD GANS has been President and a director of the Company since its formation
in 1981. Prior thereto, Mr. Gans had been involved in the weight control market
for over 25 years during which time he, among other things, developed certain
appetite suppressants and anti-obesity programs. Prior to founding the Company
in 1981, Mr. Gans was President of Control Drug, Inc. a private company engaged
in the manufacture of nutritional protein supplements. Mr. Gans was granted
patents in 1977 for method-use manufacturing for certain nutritional formula
processes relating to the use of certain foods (EMF) to treat nutritional
deficiency, which he has assigned to the Company.
MYRA GANS, wife of Arnold Gans, the Company's president, has been Executive Vice
President of and a director of the Company since 1982. Prior to thereto, Mrs.
Gans served as Vice President/Sales for Control Drug, Inc.
Directors of the Company hold office until the next annual meeting of the
Company's shareholders and until their successors have been duly elected and
qualified. None of the Company's Directors receives compensation for his
services as such.
Officers of the Company serve at the pleasure of the Board of Directors and
until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules issued thereunder, the Company's executive
officers and directors are required to file with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. reports of
ownership and changes in ownership of Common Stock. Copies of such reports are
required to be furnished to the Company. Arnold Gans did not timely file a Form
4 with respect to the grant to him of 750,000 options in August, 1999 and the
purchase of 133,340 shares of Common Stock and Myra Gans did not timely file a
Form 4 with respect to the same 750,000 options granted to her in August 1999
and the same purchase of 133,340 shares of Common Stock. A Form 5 was filed by
both on February 16, 2000. Based solely on review of the copies of such reports
furnished to the Company, or written representations that no other reports were
required, the Company believes that during Fiscal Year 1999, all of its other
executive officers and directors complied with the requirements of Section
16(a).
Item 11. EXECUTIVE COMPENSATION
(a) CASH COMPENSATION
The following table summarizes the compensation paid in the fiscal
years ended January 31, 2000, 1999, & 1998 respectively, to the
Company's Chief Executive Officer and Executive Vice President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS(b)
------------------- --------------------------------
YEAR SALARY STOCK OPTIONS
---- -------- -------------
<S> <C> <C> <C>
Arnold Gans
President (CEO) 2000 $140,000 750,000 (a)
1999 $140,000
1998 $140,000
Myra Gans
Executive Vice President 2000 $ 85,000 750,000 (a)
& Secretary 1999 $ 85,000
$ 85,000
</TABLE>
38
<PAGE>
(a) These stock options are owned jointly by Mr. And Mrs. Gans.
(b) The Company does not offer any restricted stock awards, stock appreciation
rights, or other long term incentive programs.
In October 1999, Lawrence Burstein, Chairman of the Company was
contingently awarded options to purchase 300,000 shares of the Company's common
stock at a price of $0.10 per share. The grant of these options was contingent
upon the adoption of a stock option plan by the stockholders of the Company at
the upcoming annual meeting of stockholders. None of these options will vest
unless and until a stock option plan is adopted by the stockholders. The options
will expire on November 1, 2004.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END (#) AT FISCAL YEAR END ($)(a)
---------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Arnold Gans(a) 1,400,000 $1,346,800 $
Myra Gans (a) 1,400,000 $1,346,800 $
- ---------
(a) includes 750,000 options owned jointly by Mr.and Mrs. Gans
<TABLE>
<CAPTION>
OPTIONS GRANT IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------
Potential realizable value
at assumed annual rates of
stock price appreciation
for option term(1)
Individual Grants
- -----------------------------------------------------------------------------------------------------------------------
Percent
of total
Number options/SARs
of securities granted
underlying to Exercise
option/SARs employees or base
granted in fiscal price Expiration 5% 10%
Name (#) year ($/Sh) date ($)$ (2) ($)$(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arnold Gans 750,000 87.6% $0.10 11/04 $920,837 $1,161,982
- -----------------------------------------------------------------------------------------------------------------------
Myra Gans 750,000 87.6% $0.10 11/04 $920,837 $1,161,982
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. In accordance with Securities and Exchange Commission rules, these
columns show gains that might exist for the respective options,
assuming that the market price of MNI common stock appreciates from the
date of grant over a period of 10 years at the annualized rates of 5%
and 10%, respectively. If the stock price does not increase above the
exercise price at the time of exercise, realized value to the named
executives from these options will be zero.
2. Only reflects a five year period in accordance with the expiration date
of the options.
39
<PAGE>
EMPLOYMENT AGREEMENTS
None of the Company's executive officers is presently a party to an employment
agreement with the Company.
(b) COMPENSATION PURSUANT TO PLANS None.
(c) OTHER COMPENSATION None.
(d) COMPENSATION OF DIRECTORS
Directors receive no compensation for their services as such.
(e) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
None.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
outstanding common stock beneficially owned on January 31, 2000 by (i) each
person who is known by the Company to beneficially own or exercise voting or
dispositive control over at least 5% of the Company's common stock, (ii) each of
the Company's directors and (iii) all of the Company's executive officers and
directors as a group:
NAMES AND ADDRESSES NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE OF CLASS(1)
- ------------------- --------------------- ----------------------
Arnold Gans 2,399,830(2) 39.0%
10-West Forest Avenue,
Englewood, NJ 07631
Myra Gans 2,399,830(2) 39.0%
10 West Forest Avenue,
Englewood, New Jersey 07631
Lawrence Burstein 2,750 (3) 0.04%
245 Fifth Avenue,
New York, New York 10016
All directors and executive
officers as a group
(3 persons)(2) - (3) 2,402,580 (2) - (3) 39.0%
(1) Includes all shares issuable pursuant to presently exercisable options as
well as all such options which will become exercisable within 60 days of
the date hereof. Except as otherwise indicated, all shares are beneficially
owned, and their sole investment and voting power is held by the persons
named herein.
(2) Includes 349,830 shares which are owned by Arnold and Myra Gans; also
includes options to acquire an aggregate of 2,050,000 shares for Arnold and
Myra Gans exercisable at $.10 per share through November 1, 2004.
(3) Excludes 8,863 shares owned by Trinity Pension Trust, of which
Mr. Burstein is a trustee and beneficiary.
40
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time Arnold Gans, the Company's Chief Operating Officer, made
advances to the Company for working capital purposes. Interest on these advances
was charged at rates varying from 11% to 18%. The balance due at February 1,
1999, was $196,300 and the highest balance due during the year was $230,800. The
total of all repayments during the year, including interest, amounted to
$278,200. At January 31, 2000, all advances were repaid out of the proceeds
raised from the private placement of 10% Convertible Subordinated Debentures
and, accordingly, no balance remained outstanding.
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. Lawrence Burstein, a Director and
Chairman of the Company, and an entity of which Mr. Burstein is a shareholder,
officer and director, acquired $137,500 principle amount of the 10% Convertible
Subordinated Debentures.
41
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(i) FINANCIAL STATEMENTS (included in Part 11)
Report of Independent Public Accountants
Consolidated Balance Sheets - January 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended January
31, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements for the years ended
January 31, 2000, 1999 and 1998.
(ii) FINANCIAL STATEMENTS SCHEDULES
Not applicable
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-18, File No. 33-32438-NY (the "Registration
Statement"))
3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.2 to the
Registration Statement)
3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.3 to the
Registration Statement)
3.4 Bylaws of the Registrant (incorporated by reference to Exhibit 3.4
to the Registration Statement)
4 Form of Senior Subordinated Convertible Debenture, dated as of
October 1999 (filed herewith)
10.1(a) Lease for premises located at 10 West Forest Avenue, Englewood,
New Jersey 07631 dated October 4, 1984 between Registrant and Van
Brunt Associates (incorporated by reference to Exhibit 10.3 to the
Registration Statement)
10.1(b) Amendment to Lease (filed herewith)
10.2 Web Design and Consulting Agreement, dated as of March 29, 2000,
between the Registrant and Keepsmart.com (filed herewith)
10.3 Web Hosting Services Agreement, dated as of March 29, 2000,
between the Registrant and Keepsmart.com (filed herewith)
10.4 Consulting Services Agreement, dated March 24, 2000, by and
between the MNI Group Inc. and Marianne J. Legato, M.D.
(incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated as of March 24, 2000 (the "March
8-K"))
10.5 Non-Qualified Stock Option Agreement, dated March 24, 2000,
between The MNI Group Inc. and Marianne J. Legato (incorporated by
reference to Exhibit 10.2 to the March 8-K)
21 Subsidiaries of the Registrant (filed herewith)
23 Consent of Lipner Gordon & Co.(filed herewith)
27 Financial Data Schedule (filed herewith)
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: April 28, 2000 THE MNI GROUP INC.
By: /s/ ARNOLD GANS
--------------------------
Arnold Gans, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ LAWRENCE BURSTEIN Chairman and Director
- ------------------------------- (Principal Executive Officer) April 28, 2000
Lawrence Burstein
/s/ ARNOLD GANS President (Principal
- ------------------------------- Operating Officer and
Arnold Gans Principal Accounting
and Financial Officer) April 28, 2000
/s/ MYRA GANS Vice President,
- ------------------------------- Secretary, and Director April 28, 2000
Myra Gans
43
DEBENTURE
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER
THAT ACT OR, IN THE OPINION OF COUNSEL, AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
THE MNI GROUP INC.
10% Senior Subordinated Convertible Debenture
Due October 1, 2000
Registered Englewood, New Jersey
$_________ October 1, 1999
THE MNI GROUP INC., a New Jersey corporation (here- inafter called the
"Corporation"), for value received, hereby promises to pay to (the "Payee" or
"Holder"), or registered assigns, the principal sum of $_______________, in a
single installment on October 1, 2000 (the "Due Date"), and to pay interest from
the date hereof on the unpaid principal amount hereof at the rate of 10% per
annum, which interest shall accrue and be payable on the Due Date, and
thereafter at the rate of 14% per annum on any overdue principal amount and (to
the extent permitted by applicable law) on any overdue interest until paid;
provided, however, that all accrued interest shall be waived in the event this
Debenture shall be converted into shares of Common Stock as provided in Section
15(a).
The payment of principal and interest, if applicable, on this Debenture
shall be made at its office or agency maintained as provided in subsection (a)
of Section 7 in such currency of the United States of America as at the time of
payment shall be legal tender for payment of public and private debts, and
payment of interest on this Debenture at the option of the Board of Directors of
the Corporation shall be either in such currency or by means of the issuance and
delivery by the Corporation of a Debenture in principal amount equal to such
interest payment and otherwise having the same terms as this Debenture.
For purposes of this Debenture, the following terms shall have the
respective meanings set forth below:
"BANKRUPTCY LAW" shall mean Title 11 of the U.S. Code, as in effect
from time to time, or any similar Federal or state law for the relief of
debtors.
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"BUSINESS DAY" shall mean any day other than a Satur day, a Sunday or a
legal holiday under the laws of the State of New York.
"DEBT" shall mean any indebtedness, contingent or otherwise, of the
Corporation.
"DEFAULT" shall mean any event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default.
"EVENT OF DEFAULT" shall have the meaning assigned to it in Section 10.
"PERSON" shall mean an individual, a corporation, a partnership, a
joint venture, a firm, an enterprise, a trust, an unincorporated organization, a
government or any agency or polit ical subdivision thereof.
"SENIOR DEBT" shall mean means the principal of, premium, if any, and
accrued and unpaid interest on Debt, whether outstanding on the date of issuance
of this Debenture or thereafter created, incurred or assumed, unless, in the
agreement or instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such Debt is not superior in right of
payment to this Debenture. Notwithstanding the foregoing, "Senior Debt" with
respect to the Company shall not include (i) any Debt to any subsidiary or
affiliate (as such terms are defined in Rule 405 under the Act) or money
borrowed or advanced from such subsidiary or affiliate and (ii) any Debt
representing the redemption price of any preferred stock.
1. DEBENTURES. This Debenture was issued by the Corporation pursuant to
a Private Offering Letter and the attachments thereto dated July 22, 1999
relating to an offering of Debentures.
2. TRANSFER OR EXCHANGE OF DEBENTURES. The Corpora tion shall keep at
its office or agency maintained as provided in subsection (a) of Section 10 a
register in which the Corporation shall provide for the registration of
Debentures and for the registration of transfer and exchange of Debentures.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF DEBENTURE. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of this Debenture, and, in the case of any such loss, theft or
destruction, upon
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receipt of an affidavit of loss from the holder hereof reasonably satisfactory
to the Corporation, or, in the case of any such mutilation, upon surrender and
cancellation of this Debenture, the Corporation will make and deliver, in lieu
of this Debenture, a new Debenture of like tenor and unpaid principal amount.
4. PERSONS DEEMED OWNERS; HOLDERS. The Corporation may deem and treat
the person in whose name any Debenture is registered as the owner and holder of
such Debenture for the purpose of receiving payment of principal of and interest
on such Debenture and for all other purposes whatsoever, whether or not such
Debenture shall be overdue. With respect to any Debenture at any time
outstanding, the term "holder," as used herein, shall be deemed to mean the
person in whose name such Debenture is registered as aforesaid at such time.
5. NO PREPAYMENTS. The Corporation may not prepay this Debenture prior
to the Due Date.
6. NOTICES. All notices to be given to any holder of this Debenture
shall be given by registered or certified mail to the person in whose name this
Debenture is registered at its address designated on the register maintained by
the Corporation on the date of mailing such notice of prepayment or other
notice.
7. AFFIRMATIVE COVENANTS. The Corporation covenants and agrees that, so
long as any Debenture shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Corporation will maintain an office or
agency in Englewood, in the State of New Jersey (or such other place in the
United States of America as the corporation may designate in writing to the
registered holder hereof), where the Debentures may be presented for
registration of transfer and for exchange as herein provided, where notices
and demands to or upon the Corporation in respect of the Debentures may be
served and where, at the option of the holders thereof, the Debentures may
be presented for payment. Until the Corporation otherwise notifies the
holders of the Debentures, said office shall be the principal office of the
Corporation in the State of New Jersey as set forth in Subsection (a) of
Section 20.
(b) CORPORATE EXISTENCE. The Corporation will do or cause to be done
all things necessary and lawful to preserve and keep in full force and
effect its and its subsidiaries' corporate existence, rights and franchises
under the laws of
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the United States or any State thereof or the District of Columbia.
(c) AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation will use
its best efforts to effect an amendment to its Certificate of Incorporation
(the "Recapitalization") as soon as practicable following the issue date of
this Debenture, but in all events prior to the Due Date, increasing the
Corporation's authorized capitalization to not less than 35,000,000 shares
of Common Stock (as hereinafter defined).
8. NEGATIVE COVENANTS. The Corporation covenants and agrees that, so
long as any Debenture shall be outstanding:
(a) CONSOLIDATION, MERGER AND SALE. The Corporation will not
consolidate or merge with or into, or sell or otherwise dispose of all or
substantially all of its property to, any other person.
(b) RESTRICTED PAYMENTS. The Corporation shall not declare or pay any
dividend on, or authorize or make any distribution in respect of, shares of
any class of its stock, or authorize or make any purchase, redemption or
acquisition for value of, or permit any subsidiary to pur chase or
otherwise acquire for value, any shares of any class of its stock other
than a repurchase of stock from any employee of the Corporation or any
subsidiary of the Corpo ration in the event that such employee ceases to be
employed by the Corporation or such subsidiary.
(c) SECURITIES ISSUANCES. Except for issuance under stock option or
other similar plans in existence as of the issue date of this Debenture,
the Corporation shall not issue any (i) shares of Common Stock for a
consideration per share less than the Conversion Price (as hereinafter
defined) or (ii) securities exercisable for, or convertible into, Common
Stock at an exercise or conversion price less that the Conversion Price.
9. MODIFICATION BY HOLDERS; WAIVER. The Corporation may, with the
written consent of the holders of not less than 51% in principal amount of the
Debentures then outstanding, modify the terms and provisions of the Debentures
or the rights of the holders of the Debentures or the obligations of the
Corporation thereunder, and the observance by the Corporation of any term or
provision of the Debentures may be waived with the written consent of the
holders of not less than 51% in principal amount
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of the Debentures then outstanding; PROVIDED, HOWEVER, that no such modification
or waiver shall:
(a) change the maturity of any Debenture or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Debenture so affected; or
(b) give any Debenture any preference over any other Debenture; or
(c) change any provision of Section 10, 11, 12 or 13 without the
consent of the holders of all outstanding Deben tures; or
(d) reduce the applicable aforesaid percentages of Debentures, the
consent of the holders of which is required for any such modification.
Any such modification or waiver shall apply equally to all the holders
of the Debentures and shall be binding upon them, upon each future holder of any
Debenture and upon the Corpora tion, whether or not such Debenture shall have
been marked to indicate such modification or waiver, but any Debenture issued
thereafter shall bear a notation referring to any such modifica tion or waiver.
Promptly after obtaining the written consent of the holders as herein provided,
the Corporation shall transmit a copy of such modification or waiver to all the
holders of the Debentures at the time outstanding.
10. EVENTS OF DEFAULT. Unless waived in writing by the holders of not
less than 51% in principal amount of the Debentures then outstanding, if any one
or more of the following events, herein called Events of Default, shall occur,
for any reason whatsoever, and whether such occurrence shall, on the part of the
Corporation, be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgement, decree or
order of a court of competent jurisdiction or any order, rule or regulation of
any administrative or other governmental authority and such Event of Default
shall be continuing:
(a) default shall be made in the payment of the prin cipal of or
interest on any Debenture when and as the same shall become due and payable
and such default shall continue for a period of five (5) Business Days; or
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(b) default shall be made in the performance by the Corporation of any
other covenant or agreement contained in this Debenture; or
(c) any representation or warranty made or given in this Debenture or
in any other document or statement furnished at any time pursuant to or in
connection with this Debenture shall prove to have been untrue, false or
misleading in any material respect on the date as of which made; or
(d) the Corporation shall (i) default in any payment of principal of or
interest on any Senior Debt or (ii) default in the observance or
performance of any agreement or condition relating to any such Senior Debt
or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause (immediately or with the
giving of notice or lapse of time or both) any such Senior Debt to become
due prior to its stated maturity;
then, subject to the provisions of Section 14, the holder or holders of at least
a majority in aggregate principal amount of the Debentures at the time
outstanding may, at its or their option, by written notice to the Corporation,
declare all the Debentures to be, and all the Debentures shall thereupon be and
become, forthwith due and payable without presentment, demand, protest or
further notice of any kind, all of which are expressly waived to the extent
permitted by law; PROVIDED, HOWEVER, that, subject to the provisions of Section
14, upon the occurrence and during the continuance of any of the events
specified in subsections (a) or (b) of this Section 10, the holder of any
Debenture at the time outstanding may, at its option by notice in writing to the
Corporation, declare any Debenture or Debentures then held by it to be, and such
Debenture or Debentures shall thereupon be and become, forthwith due and payable
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration has been made as
provided in this Section 10, the holders of at least a majority in aggregate
principal amount of the Debentures then outstanding may, by notice to the
Corporation, rescind such declaration and its consequences, if all defaults and
Events of Default (other than nonpayments of principal and interest that have
become due solely by reason of acceleration) shall have been remedied or cured
or shall have been waived pursuant to this paragraph; PROVIDED, HOWEVER, that no
such rescission shall
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extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
Without limiting the foregoing, the Corporation hereby waives any right
to trial by jury in any legal proceeding related in any way to this Debenture or
the Debentures and agrees that any such proceeding may, if the holder so elects,
be brought and enforced in the Supreme Court of the State of New York or the
United States District Court for the Southern District of New York and the
Corporation hereby waives any objection to jurisdic tion or venue in any such
proceeding commenced in such court. The Corporation further agrees that any
process required to be served on it for purposes of any such proceeding may be
served on it, with the same effect as personal service on it within the State of
New Jersey, by registered mail addressed to it at its office or agency set forth
in Section 20 for purposes of notices hereunder.
11. SUITS FOR ENFORCEMENT. Subject to the provisions of Section 14, in
case any one or more of the Events of Default specified in Section 10 of this
Debenture shall happen, shall be continuing and shall not have previously been
waived as provided in said section 10, any holder of the Debentures then
outstanding may proceed to protect and enforce his or its rights by suit in
equity, action at law and/or by other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in the Debentures or
in aid of the exercise of any power granted in the Debentures, or to enforce any
legal or equitable right of the holders of the Debentures.
Subject to the provisions of Section 14, in case of any default under
any Debenture, the Corporation will pay to the holder thereof such amounts as
shall be sufficient to cover the costs and expenses of such holder due to said
default, including, without limitation, collection costs and reasonable
attorneys' fees and disbursements, to the extent actually incurred.
12. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder of
this Debenture is intended to be exclusive of any other remedy; and each and
every such remedy shall be cumula tive and shall be in addition to every other
remedy given hereun der or now or hereafter existing at law or in equity or by
stat ute or otherwise.
13. REMEDIES NOT WAIVED. No course of dealing between the Corporation
and the holders of this Debenture or any delay on the part of the holder hereof
in exercising any rights hereunder
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shall operate as a waiver of any right of any holder of this Debenture.
14. SUBORDINATION.
(a) SUBORDINATION. Anything in this Debenture to the contrary
notwithstanding, the obligations of the Corporation in respect of the
principal of, and interest on, and all other amounts owing in respect of,
this Debenture shall be subordinated and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the prior payment in
full, in cash, of all Senior Debt.
(b) SUBROGATION. To the extent that amounts otherwise payable under
this Debenture have been paid to the holders of the Senior Debt and subject
to the payment in full in cash of the Senior Debt, the holder of this
Debenture shall be subrogated to the rights of the holders of Senior Debt
to receive payments or distributions of assets of the Corpora tion made on
the Senior Debt until the principal of and interest on this Debenture shall
be paid in full.
15. CONVERSION.
(a) AUTOMATIC CONVERSION. Anything in this Debenture or in the
Certificate of Incorporation of the Corporation to the contrary
notwithstanding, all Debentures shall automatically be converted into
shares of Common Stock at such time (the "Conversion Date") as the
Corporation has effected the Recapitalization. The Corporation shall be
cause written notice to be given to each holder of Debentures as soon as
practicable following the Conversion Date. Upon receipt of such notice, the
holder hereof shall surrender this Debenture to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or holders of
this Debenture) at any time during its usual business hours following the
Conversion Date set forth in such notice, together with a statement of the
name or names (with address) in which the certificate or certifi cates for
shares of Common Stock shall be issued. This Debenture shall not be
convertible into shares of Common Stock except as provided in this Section
15(a).
(b) CONVERSION PRICE; NUMBER OF SHARES. On the Conversion Date, the
principal balance of this Debenture shall be converted into such number of
fully paid and nonassessable whole shares of Common Stock as is obtained by
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dividing the principal amount of this Debenture so to be converted by the
conversion price of $0.075 per share (the "Conversion Price").
(c) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly after
the surrender of this Debenture, the Corporation shall issue and deliver,
or cause to be issued and delivered, to the holder, registered in such name
or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
unpaid principal amount of this Debenture. To the extent permitted by law,
such conversion shall be deemed to have been effected as of the close of
business on the Conversion Date, irrespective of whether this Debenture
shall have been physically sur rendered on such date, and at such time the
rights (other that the right to have the Common Stock issuable upon
conversion of this Debenture registered under the Act, as set forth below)
of the holder of this Debenture shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares represented thereby.
(d) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No fractional
shares shall be issued upon conversion of the principal amount of this
Debenture. If any fractional interest in a share of Common Stock would,
except for the provisions of the first sentence of this paragraph (d), be
deliverable upon any such conversion, the Corporation, in lieu of
delivering the fractional share thereof, shall pay to the holder
surrendering this Debenture for conversion an amount in cash equal to such
fractional interest multiplied by the Conversion Price.
(e) STOCK TO BE ISSUED. The Corporation covenants that all shares of
Common Stock which shall be issued upon conversion of the Debentures shall
be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants
that it will from time to time take all such action as may be requisite to
assure that the par value per share of the Common Stock is at all times
equal to or less than the effective Conversion Price. The Corporation will
take all such action as may be necessary to assure that all such shares of
Common Stock may be so issued without
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violation of any applicable law or regulation, or of any requirements of
any national securities exchange upon which the Common Stock of the
Corporation may be listed.
(f) ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of the Debentures shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corpora tion shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Debenture the
principal amount of which is being converted.
(g) DEFINITION OF COMMON STOCK. As used in this Sec tion 18, the term
"Common Stock" shall mean and include the Corporation's authorized voting
Common Stock, no par value, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall not be limited
to a fixed sum or percentage of par value in respect of the rights of the
holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involun tary liquidation, dissolution or
winding up of the Corpo ration.
16. REGISTRATION RIGHTS. The Holder shall have the following
registration rights with respect to the shares of Common Stock issuable upon
conversion of this Debenture (the "Registrable Securities"):
(a) PIGGYBACK REGISTRATION RIGHTS. The Corporation shall advise the
Holder or its transferee, whether the Holder holds the Debenture or after
the Recapitalization holds the Common Stock issued upon the conversion of
the Debenture, by written notice at least four weeks prior to the filing of
any registration statement under the Act covering any securities of the
Corporation, for its own account or for the account of others, and will,
until two years after the issuance date hereof, upon the request of the
Holder, register under the Act all or any portion of the Registrable
Securities and cause such registration statement to become and remain
effective as provided in Section 16(b) hereof. In the event that any
registration pursuant to this Section 16(a) shall be, in whole or in part,
an underwritten public offering of Common Stock, the number of shares of
Registrable Securities to be included in such an underwriting may be
reduced (PRO RATA among the requesting Holders of Registrable Securities
based upon the number of
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shares of Registrable Securities so requested to be registered) if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Corporation therein; PROVIDED, HOWEVER, that such number of shares
of Registrable Securities shall not be reduced if any shares are to be
included in such underwriting for the account of any person other than the
Holders of the Convertible Securities, as hereinafter defined, and the
Corporation.
(b) TERMINATION OF REGISTRATION RIGHTS. Notwith- standing anything to
the contrary contained in this Section 16, the obligations of the
Corporation to register Registrable Securities shall terminate with respect
to a Holder if all of the Registrable Securities held by such Holder may be
publicly sold without restriction pursuant to Rule 144(k) under the Act.
17. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Deben ture contained by or on
behalf of the Corporation shall bind its successors and assigns, whether so
expressed or not.
18. GOVERNING LAW. This Debenture shall be governed and construed in
accordance with the laws of the State of New Jersey.
19. HEADINGS. The headings of the Sections and sub sections of this
Debenture are inserted for convenience only and do not constitute a part of this
Debenture.
20. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first-class registered
mail, postage prepaid,
(a) if to the Corporation, at:
The MNI Group Inc.
10 West Forest Avenue
Englewood, New Jersey 07631
Attention: President
(b) if to the holder of this Debenture, to its address as set forth in
the register maintained by the Corporation for the registration of transfer
and exchange of Debentures.
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IN WITNESS WHEREOF, THE MNI GROUP INC. has caused this Debenture to be
signed in its corporate name by one of its officers thereunto duly authorized
and to be dated as of the day and year first above written.
THE MNI GROUP INC.
By: _________________________
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FIRST
INDUSTRIAL FIRST INDUSTRIAL REALTY TRUST, INC.
354 Eisenhower Parkway
P.O. Box 1639 -
Livingston, New Jersey 07039
973/533-7111
Fax 973/597-9660
SENT VIA FACSIMI]LE (201) 569-3224 AND REGULAR MAIL
NOVEMBER 17,1999
Mr. Arnold M. Gans
MEDICAL NUTRITION, INC.
1O West Forest Avenue
Englewood, NJ 07631
RE: LEASE EXTENSION FOR: PROP#.1254
10 WEST FOREST AVENUE, ENGLEWOOD, NJ ID# MEDNU-1
Dear Mr. Gans:
It was my pleasure speaking with you regarding your future space requirements.
Per your request, enclosed please find a proposal to extend your lease as
follows:
RENTABLE AREA: 7,500 square feet
NEW LEASE TERM: 1/l/2000 - 12/31/2004
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<S> <C> <C> <C>
NEW BASE RENT: Years 1, 2, 3 $65,625.00 N/N/N Annually $5,468.75 N/N/N Monthly
Years 4, 5 $67,500.00 NININ Annually $5,625.00 N/N/N Monthly
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LANDLORD WORK: Landlord shall perform the following work:
1) Replace all exterior windows and frames
2) Repair plumbing in men's bathroom
3) Replace damaged ceiling tiles in office area
4) Replace existing HVAC unit and both warehouse
heaters.
5) Repair loading dock area.
The Landlord shall, at Tenant own cost and expense, enter into a periodic
maintenance agreement with a reputable heating, ventilating and air-conditioning
contractor, which contractor shall provide for a minimum of two (2) inspections
per year.
All other terms and conditions of your existing Lease dated, October 4, 1984, as
amended, will remain in full force and effect. Please sign below as to your
approval of the above and return to me via facsimile and both originals by
regular mail. This offer will be valid until November 19, 1999, thereafter
subject to change.
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1 First Industrial would like to thank you for your continued occupancy.
Sincerely,
FIRST 1NDUSTRIAL REALTY TRUST, INC-
/s/ Michael Sargis ACKNOWLEDGED & APPROVED
Leasing Specialist /s/ Mr. Arnold M. Gans 11/19/99
------------------------
Mr. Arnold M. Gans Date
MEDICAL NUTRITION, INC.
NEW MEDIA CONTRACT
Project Title: WOMEN'S HEALTH NETWORK WEB DESIGN AND CONSULTING
This is an agreement ("Agreement"), entered into this 29th day of March,
2000 ("Effective Date") between The MNI Group Inc./Women's Health Network
("CLIENT"), 10 West Forest Avenue, Englewood, NJ 07631 and KEEPSMART.COM
("KEEPSMART"), 12 Skyline Drive, Hawthorne, N.Y. 10532 (collectively, the
"Parties").
WHEREAS, CLIENT is a leading provider of diverse nutritional and
health-related proprietary programs and products, as well as a clearinghouse for
medical information and integrative medical content. The organization's primary
operation is the distribution of health-related information and sales of unique
wellness products.
WHEREAS, CLIENT seeks to redesign and/or incorporate new functionality
into the WWW.WOMENSHEALTHNETWORK.COM Web site.
WHEREAS, KEEPSMART, an Internet and E-Learning consulting firm, has
submitted development proposals to assist CLIENT in achieving its goals to
develop and implement new interface designs and functional tools within the Web
site listed above.
NOW, THEREFORE, the Parties hereto agree as follows:
1.0 STATEMENT OF WORK.
1.1 SERVICES AND DELIVERABLES. KEEPSMART shall perform the services
("Services") and produce the deliverables ("Deliverables") outlined in
sections I and II of Schedule A, which is attached and made a part hereto,
and as otherwise subsequently agreed to in writing between the Parties.
All Services shall be performed under the highest professional standards.
Deliverables will be subject to CLIENT's acceptance pursuant to section
2.0 of this Agreement.
1.2 SPECIFICATIONS. KEEPSMART shall perform the Services and produce the
Deliverables in accordance with the specifications ("Specifications") set
forth in section III of Schedule A.
1.3 PRODUCTION SCHEDULE. KEEPSMART shall perform the Services and produce the
Deliverables in accordance with the production schedule ("Production
Schedule") set forth in section V of Schedule A. At all times, KEEPSMART
will make its best effort to accommodate work schedule requests of CLIENT
to the extent possible.
1.4 METHOD OF PERFORMING SERVICE. KEEPSMART will determine the general method
and means of performing the work to be carried out for CLIENT. CLIENT may,
however, require KEEPSMART personnel, including any personnel working as
subcontractors for KEEPSMART, to observe at all times the security,
confidentiality and safety policies of CLIENT. In addition, CLIENT shall
be entitled to exercise a broad, general power of supervision and control
over the results of work performed by KEEPSMART to ensure satisfactory
performance. This power of supervision shall include the right to inspect,
stop work, make suggestions or recommendations as to the details of the
work, and request modifications to the scope or nature of the Services and
Deliverables, provided, however, that any material modifications to the
scope and nature of the Services and Deliverables would be made pursuant
to section 1.6.2.
1.5 STAFFING. The Services and Deliverables hereunder will be performed and
produced pursuant to the staffing schedule as set forth in section VII of
Schedule A.
1.6 MODIFICATIONS.
1.6.1 CONFORMING MODIFICATIONS. KEEPSMART agrees to make any and all
modifications, updates and changes necessary to conform the Services and
Deliverables to their descriptions in this Agreement at no cost to CLIENT.
1.6.2 ADDITIONAL MODIFICATIONS.
(a) KEEPSMART agrees to perform and deliver any additional services and
deliverables not included under this Agreement and agrees to make
modifications, updates and changes not required to conform the Services
and Deliverables to their description in this Agreement (collectively,
"Additions") at CLIENT's written request and at a price to be negotiated
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at the time of such request, and in any event, such price shall be in an
amount not to exceed the amount for maintenance provided in section 3.4.
1.7 MAINTENANCE. KEEPSMART agrees to perform at the request of CLIENT any and
all support and maintenance required to maintain "Accepted Final Version"
(as defined in Section 2.2) in a fully functional and operational level.
CLIENT agrees to pay KEEPSMART for any such maintenance services that are
performed thirty (30) days after Final Acceptance of the Deliverables
under section 2.0 in an amount as provided under section 3.4 of this
Agreement. If for any reason KEEPSMART cannot perform support and
maintenance, it will give CLIENT sixty (60) days written notice, and
during this time shall participate in knowledge transfer and training for
whoever or whichever entity assumes responsibility for support and
maintenance will be assumed. CLIENT shall reimburse KEEPSMART for such
knowledge transfer and training in an amount not to exceed the amount for
maintenance provided in section 3.4.
2.0 ACCEPTANCE AND TESTING.
2.1 TESTING OF DELIVERABLES. KEEPSMART shall produce to CLIENT an alpha
version of the Deliverables ("Alpha Version") in accordance with the
Production Schedule and, with the full input and cooperation of CLIENT,
shall alpha test ("Alpha Test") all Deliverables thoroughly. Within ten
(10) days after the production of the Alpha Version to CLIENT, CLIENT
shall provide written notice of either (a) initial acceptance of the
Deliverables ("Initial Acceptance") and an initial list of the
corrections, if any, to be made by KEEPSMART as a result of Alpha Testing
or (b) rejection of the Deliverables and termination of the contract for
cause. Failure by CLIENT to send such notice within thirty (30) days of
receipt of the Alpha Version, will be considered to be a Final Acceptance
of the Deliverables as defined below. Throughout Alpha Testing, CLIENT
shall provide KEEPSMART with a list (or lists) of corrections to be made
to the Deliverables. Upon the conclusion of Alpha Testing, KEEPSMART shall
produce to CLIENT a beta version of the Deliverables ("Beta Version") in
accordance with the Production Schedule. Upon receipt of the Beta Version,
CLIENT shall have the option of performing beta tests ("Beta Tests") on
the Deliverables at a time, in a place and in a manner chosen by CLIENT to
determine that the Deliverables are of the kind and quality, and function
in a manner, that is acceptable to CLIENT. Upon the conclusion of Beta
Testing, CLIENT shall provide written notice of either (a) secondary
acceptance of the Deliverables ("Secondary Acceptance") with a list of the
corrections, if any, that are to be made and a suggested date for
completion which will be no shorter than seven (7) days from receipt of
such notice (the "Correction Period") or (b) rejection of the Deliverables
and termination of the contract for cause. Failure by CLIENT to send such
notice within thirty (30) days of receipt of the Beta Version, will be
considered to be a Final Acceptance of the Deliverables as defined below.
2.2 FINAL TESTING. Upon the conclusion of Secondary Acceptance or after
completion of the work to be performed during the Correction Period,
whichever is later, KEEPSMART shall produce the "Final Version" of the
Deliverables. Upon receipt of the Final Version, CLIENT shall have the
option of performing final tests ("Final Tests") on the Deliverables at a
time, in a place and in a manner chosen by CLIENT to determine that the
Deliverables are of the kind and quality, and function in a manner, that
is acceptable to CLIENT. Upon the conclusion of Final Testing, CLIENT
shall provide KEEPSMART with written notice of either (a) final acceptance
of the Deliverables ("Final Acceptance") or (b) rejection of the
Deliverables with a list of the corrections that are to be made and a
suggested date for completion which will be no shorter than seven (7) days
from receipt of such notice (the "Final Correction Period"). Failure by
CLIENT to send such notice within thirty (30) days of receipt of the Final
Version, will be considered to be a Final Acceptance of the Deliverables
(the "Accepted Final Version"). Upon the conclusion of the work to be
performed during the Final Correction Period, should the Deliverables
still be unacceptable to CLIENT, KEEPSMART shall have additional Final
Correction Periods in which to make any corrections in accordance with
this provision, except upon the conclusion of the second Final Correction
Period, CLIENT shall have the option of terminating this Agreement for
cause.
2.3 REASONABLENESS. CLIENT agrees to perform all tests in a reasonable and
timely manner and shall not unreasonably withhold Acceptance.
3.0 COMPENSATION.
3.1 FIXED COST. CLIENT shall pay the total sum in the payment structure at
specific milestone events as set forth in section VI of Schedule A, in
consideration for all Services and Deliverables pursuant to this Agreement
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unless otherwise provided by the terms of this Agreement. Payments will be
due and owing only upon a written agreement that the milestone on which a
specific payment is conditioned has in fact been met ("Milestone
Agreement"). Each Milestone Agreement will contain a breakdown and list of
included charges.
3.2 TIME FOR PAYMENT. Each payment shall be made within thirty (30) days of
each executed Milestone Agreement. A 1% monthly service charge is payable
on all overdue balances.
3.3 EXPENSES. CLIENT agrees to reimburse KEEPSMART for KEEPSMART's reasonable,
customary, necessary and actual, documented out-of-pocket expenses paid to
third parties by KEEPSMART for travel beyond one hundred (100) miles of
KEEPSMART's home office, lodging, shipping and handling to CLIENT. Any
amounts subject to reimbursement shall be billed by KEEPSMART on a monthly
basis on a statement sent to the attention of the person listed in section
IV of Schedule A, which shall set forth in complete detail the amounts
subject to reimbursement for such month, the date each expense was paid,
the date of any applicable written approval from CLIENT, and a receipt
documenting each such expense. Such statement shall be paid by CLIENT
within thirty (30) days of CLIENT's actual receipt of the statement from
KEEPSMART.
3.4 MAINTENANCE. Costs for maintenance will be agreed upon by the Parties upon
CLIENT's request for such maintenance in accordance with section 1.7.
3.5 TAXES AND EMPLOYEE BENEFITS. Each Party hereto shall be responsible for
any tax liability imposed on them as a result of the existence or
operation of this Agreement, by any government or entity. CLIENT shall not
be responsible or liable for any insurance or other benefits given to
KEEPSMART personnel or the personnel of KEEPSMART subcontractors.
3.6 CONFIDENTIALITY. KEEPSMART agrees to keep confidential all compensation
terms of this Agreement and any future Agreement relating to, or connected
with, this Agreement.
4.0 REPORTS AND AUDITS.
4.1 DEVELOPMENT REPORTS. KEEPSMART shall contact or meet with CLIENT on a
mutually acceptable schedule to report all tasks completed, problems
encountered, and recommended changes relating to the development and
testing of the Services and Deliverables and will give CLIENT a written
report on all developments to date. KEEPSMART shall inform CLIENT by
telephone upon discovery of any event or problem that may significantly
delay the development of the project and the performance of the Services
and production of the Deliverables.
4.2 MAINTENANCE OF ACCURATE BOOKS AND RECORDS. CLIENT, its outside survey
advisors and auditors may, on occasions to be agreed upon, audit
KEEPSMART's work under this Agreement. KEEPSMART agrees to keep and
maintain accurate books and records of all matters directly relating to
the performances of its obligations under this Agreement. During the Term
of the Agreement, and until one (1) year after the last fee is required to
be paid hereunder, such books and records shall be available for
inspection and audit by CLIENT, its employees, agents or auditors at the
expense of CLIENT, at KEEPSMART's offices, upon reasonable notice to
KEEPSMART.
5.0 TERM AND TERMINATION.
5.1 TERM. The Term of this Agreement shall begin on the Effective Date and
shall continue until an event of termination as set forth below.
5.2 TERMINATION BY CLIENT. CLIENT may terminate this Agreement if (i)
KEEPSMART fails to fulfill one or more of its obligations under the
Agreement or upon the failure of any of the warranties under this
Agreement, by not less than thirty (30) days written notice to KeepSmart
specifying any such breach, unless within the period of such notice all
breaches specified therein shall have been remedied, except that
terminations under section 2.0 will be effective upon receipt of written
notice by KEEPSMART, or (ii) at any time for any reason upon thirty (30)
days written notice to KEEPSMART. Upon any termination by CLIENT,
KEEPSMART shall immediately discontinue use of, and return or destroy, all
copies of Confidential Information in its possession.
5.3 TERMINATION BY KEEPSMART. If CLIENT fails to fulfill one or more of its
obligations under this Agreement or upon the failure of any of the
warranties under this Agreement, KEEPSMART may, upon its election and in
addition to any other remedies that it may have, at any time terminate
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this Agreement by it hereunder by not less than thirty (30) days written
notice to CLIENT specifying any such breach, unless within the period of
such notice all breaches specified therein shall have been remedied.
5.4 REMEDIES UPON CLIENT TERMINATION.
5.4.1 TERMINATION FOR CAUSE. Upon the termination of this Agreement by CLIENT
pursuant to sections 2.0, 5.2(i) or 5.5, CLIENT, in addition to all other
remedies available under this Agreement and under law and in equity, shall
be entitled to a refund of all monies paid to KEEPSMART in connection with
the performance of the Services and production of the Deliverables to
date, minus direct expenses expended by KEEPSMART in connection with the
performance of the Services and production of the Deliverables to date
that are reimbursable in accordance with section 3.3, minus sales
commissions paid in connection with the performance of the Services and
production of the Deliverables to date, and, minus payments to
subcontractors for work performed by such subcontractor in the case of
CLIENT's termination pursuant to section 1.5 due to a force majeure, and
KEEPSMART shall deliver to CLIENT, and CLIENT shall own, all rights and
interests to, all work completed to that date and KEEPSMART shall deliver
all work completed to date.
5.4.2 TERMINATION NOT FOR CAUSE. Upon the termination of this Agreement by
CLIENT pursuant to section 5.2(ii) prior to the occurrence of the second
milestone set forth in section VI of Schedule A, CLIENT, in addition to
all other remedies available under this Agreement and under law and in
equity, shall be entitled to a refund of all monies paid to KEEPSMART in
connection with the performance of the Services and production of the
Deliverables to date minus direct expenses expended by KEEPSMART in
connection with the performance of the Services and production of the
Deliverables to date that are reimbursable in accordance with section 3.3
and minus compensation for all work performed calculated at an hourly rate
of $150.00 per hour, or the lowest hourly rate that KEEPSMART is charging
for comparable maintenance services to other clients, but in no event will
CLIENT be liable for more than the amount that would be due pursuant to
section 3.1, and KEEPSMART shall deliver to CLIENT, and CLIENT shall own
all rights and interests to, all work completed to that date. Upon the
termination of this Agreement by CLIENT pursuant to section 5.2(ii)
subsequent to the occurrence of the second milestone set forth in section
VI of Schedule A, CLIENT, in addition to all other remedies available
under this Agreement and under law and in equity, shall be entitled to no
refund of any monies paid and shall be required to pay the balance of the
monies due under section 3.1 as a cancellation fee.
5.5 NO ASSIGNMENT & CHANGE OF CONTROL PROVISION. KEEPSMART may not assign this
Agreement without the prior written consent of CLIENT. Notwithstanding the
above, in the event of the dissolution of KEEPSMART or in the event that a
third party acquires KEEPSMART, whether by merger, purchase or otherwise,
KEEPSMART shall so notify CLIENT immediately and CLIENT shall have the
option of either continuing this Agreement or terminating this Agreement.
5.6 SURVIVAL. The rights and obligations of the Parties regarding
confidentiality pursuant to sections 3.6 and 7.0 shall survive the
expiration or termination of this Agreement.
6.0 INTELLECTUAL PROPERTY RIGHTS.
6.1 WORK FOR HIRE. Notwithstanding section 1.4, the results and proceeds of
the Services and the Deliverables provided to CLIENT pursuant to this
Agreement (collectively, the "Product"), and all rights therein, of
whatever nature, without limitation, any patent, trade secret, trademark
or service mark rights (and any goodwill appurtenant thereto), any rights
of publicity, and any right, title and interest in any copyright and any
right that may affix under any copyright law now or hereinafter in force
and effect in the United States or in any other country or countries,
shall be owned by CLIENT immediately from inception and shall constitute
works specially ordered or commissioned as works made for hire under the
United States Copyright Act. Without limiting any of the foregoing,
KEEPSMART hereby assigns and transfers to CLIENT all rights that KEEPSMART
may have, of whatever nature, including without limitation, any patent,
trade secret, trademark or service mark rights (and any goodwill
appurtenant thereto), and any right, title and interest in any copyright
and any right that may affix under any copyright law now or hereinafter in
force and effect in the United States or in any other country or
countries, in and to the Product, without condition, limitation or
reservation. CLIENT may add to, subtract from, arrange, rearrange, revise,
modify, change and adapt the Product and any element or part thereof in
its sole and absolute discretion and KEEPSMART hereby irrevocable waives
all of its rights provided in 17 U.S.C. ss.106 for any and all purposes
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for which the Product may be used, and any rights of attribution and
integrity provided in 17 U.S.C. ss.106A or any other "moral rights of
authors" with respect to the Product and any uses thereof to the full
extent now or hereafter permitted by the laws of the United States or the
laws of any country or countries for any and all purposes for which the
Product may be used.
6.2 LICENSE FURNISHING. Unless otherwise provided in this Agreement, KEEPSMART
agrees to obtain and furnish to CLIENT all appropriate assignments,
licenses, waivers and releases from all persons who created or furnished
any software or applications used in connection with, or as part of, the
Services or Deliverables ("Licensed Materials"), now or in the future, or
who otherwise might claim any rights in the Licensed Materials, which
assignments, licenses, waivers and releases shall assign and transfer to
CLIENT all rights that such persons may have, of whatever nature (in no
even less than the rights granted to CLIENT in section 6.1 above), in and
to such Licensed Materials, or KEEPSMART otherwise shall have secured from
each person a paid-up royalty free nonexclusive right and license granting
to CLIENT irrevocably and unconditionally and in perpetuity the right
throughout the universe to copy, distribute, transmit, display, perform,
create derivative works, and otherwise use and exploit the Licensed
Materials in whole or in part, including without limitation, the right to
add, subtract from, or modify in any way the License materials and any
part or element thereof, and the right to permit others to do the
foregoing.
6.3 RIGHTS EFFECTUATION. KEEPSMART agrees that, upon CLIENT's request, it will
promptly execute, acknowledge, and deliver to CLIENT or its designee such
documents as CLIENT may deem necessary to evidence, record or effectuate
any of CLIENT's rights or registrations or any of KEEPSMARTs agreements,
assignments, licenses, releases and waivers hereunder.
7.0 INTENTIONALLY LEFT BLANK
8.0 REPRESENTATIONS AND WARRANTIES.
8.1 MUTUAL PROVISIONS. KEEPSMART and CLIENT each represents and warrants
that:
(a) each has all the requisite power and authority to execute, deliver
and perform its obligations under this Agreement;
(b) the execution, delivery and performance of this Agreement have
been duly authorized by each Party hereto; and
(c) no approval, authorization, or consent of any governmental or
regulatory authority is required to be obtained or made by either
Party in order for each Party to enter into and perform their
respective obligations under this Agreement.
8.2 KEEPSMART PROVISIONS. KEEPSMART represents and warrants that:
(a) the Product shall be of the kind and quality, and shall function
in the manner described in Schedule A, however such warranty is
limited to thirty (30) days after Final Acceptance of the Product
pursuant to the terms of this Agreement;
(b) the Product does not contain and will not contain any
authorization codes, computer viruses or other contaminants,
including any codes or instructions that can access, modify,
damage or disable the computers or computer systems of CLIENT or
any user of CLIENT's Product ("Viruses") and KEEPSMART shall
indemnify and hold CLIENT harmless from any cost, loss or
liability, including attorney's fees, arising from a breach of
this warranty or the presence of such Viruses in the Product;
(c) the Product does not and will not infringe upon the proprietary
rights, including, but not limited to, trademarks, copyrights and
trade secrets, of any third party or violate any law;
(d) KEEPSMART has or will have obtained the proper licenses from third
party vendors for software and any and all applications which is
used in connection with, or as part of, the Product and will
obtain the proper licenses for software and applications which may
be used in connection with, or as part of, the Product at any time
and in the future, except that CLIENT will gain all appropriate
legal approvals and licensing arrangements for all materials,
including text, artwork and logos, which CLIENT may deliver to
KEEPSMART;
(e) KEEPSMART will assume payment for all licenses, including license
renewals, from third party vendors for software and applications
used in connection with, or as part of, the development of the
Product, except CLIENT will directly pay license fees, and act as
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licensee for, licensed stock art or animation or any other media
applications. KEEPSMART will not be liable for licenses required
for the hosting of the Product on a Web server. KEEPSMART will
obtain written approval before said licenses are purchased.
9.0 INDEMNIFICATION.
9.1 KEEPSMART INDEMNIFICATION. Subject to the provisions of section 9.3,
KEEPSMART hereby agrees to indemnify, defend and hold harmless CLIENT and
its subsidiaries, parent corporations, affiliates, officers, directors,
independent contractors, partners, shareholders, employees, agents,
licensees and successors and permitted assigns (collectively, "Indemnitee
CLIENT") from, against and in respect of any kind and all assessments,
damages, deficiencies, judgments, losses, obligations and liabilities
(including costs of collection and reasonable attorneys' fees and
expenses) (collectively "Losses") imposed upon Indemnitee CLIENT arising
from or related to:
(a) any breach of such KEEPSMART's representations, warranties,
covenants and other material obligations under this Agreement;
(b) any negligence or intentional misconduct by KEEPSMART (or its
employees, subcontractors, agents or representatives) in
performing its obligations under this Agreement;
(c) any claim by a third party that the Product infringes upon the
proprietary rights of such third party; or
(d) any damage to computers or computers systems resulting from the
use or installation of the Product.
9.2 CLIENT INDEMNIFICATION. Subject to the provisions of section 9.3, CLIENT
agrees to indemnify KEEPSMART ("Indemnitee KEEPSMART") from, against and
in respect of any kind and all assessments, damages, deficiencies,
judgments, losses, obligations and liabilities (including costs of
collection and reasonable attorneys' fees and expenses) imposed upon
Indemnitee KEEPSMART arising from or related to the use of any software or
applications to produce CLIENT's Product and that are not provided by, or
used with the knowledge of, Indemnitee KEEPSMART.
9.3 PROCEDURES. The indemnification obligations of KEEPSMART under section 9.1
and CLIENT under section 9.2 are subject to Indemnitees' compliance with
the following procedures: (i) the Indemnitee shall provide the
indemnifying Party with prompt written notice of any claim or suit that
the Indemnitee believes may result in the incurrence by it of any Loss for
which it will be entitled to indemnification; (ii) the Indemnitee shall
permit the indemnifying party or the indemnifying party's insurer to
defend or settle such claim or suit and shall cooperate with permit the
indemnifying party or the indemnifying party's insurer (at the
Indemnifying Party's expense) in defending or settling such claim or suit;
(iii) the Indemnitee shall not attempt to settle or compromise any claim
or suit without the indemnifying party's prior written consent and any
such settlement or compromise shall not be relevant as to the indemnifying
party's liability unless consented to in writing by the indemnifying
party. An Indemnitee's failure to perform its obligations under this
section 9.3 shall relieve the Indemnifying Party of its obligations under
sections 9.1 or 9.2.
10.0 REMEDIES.
10.1 REMEDIES TO CLIENT. In the event KEEPSMART breaches this Agreement in any
way or form, CLIENT shall be entitled to any and all rights and remedies
it may have, in law or in equity and pursuant to the terms of this
Agreement, and shall be entitled to an injunction restraining, temporarily
or permanently, KEEPSMART from disclosing or using, in whole or in part,
any Confidential Information.
10.2 REMEDIES TO KEEPSMART. In the event CLIENT fails to pay any amount due to
KEEPSMART under this Agreement or otherwise breaches this Agreement,
KEEPSMART's sole remedy for such failure to pay or such breach shall be an
action at law for damages, if any.
11.0 DISCLAIMERS.
11.1 MUTUALITY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Party extend only to the other Party.
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12.0 GENERAL PROVISIONS.
12.1 DEFINITIONS. Any terms not otherwise defined in any part of this Agreement
shall have their usual and customary meanings.
12.2 NOTICES. Unless otherwise provided, all communications, notices, and
agreements under this Agreement shall be in writing, by confirmed fax, or
by confirmed E-mail, except for Acceptances pursuant to section 2.0,
Milestone Agreements pursuant to section 3.1 and terminations pursuant to
section 2.0 and 5.0 which shall be in writing or by confirmed fax only,
and shall be deemed to have been duly given (i) upon personal delivery,
(ii) upon deposit in the mail if mailed by certified mail, return receipt
requested, postage prepaid, (iii) upon deposit with a recognized courier
with next-day delivery instructions, or (iv) upon confirmation of
transmission, if sent by confirmed fax or confirmed E-mail, to the person
("Representative Person") at the address or fax number set forth in
section IV of Schedule A. Should either Party wish to change its
Representative Person, it must notify the other Party in accordance with
this provision. Notwithstanding the above, should the Representative
Person be unavailable, because of vacation or otherwise, the Parties agree
to name alternate Representative Persons and to notify the other Party in
accordance with the terms of this section as to the identity, telephone
number, mail address and E-mail address of that person.
12.3 SEVERABILITY. In the event that any provision of this Agreement shall, in
whole or in part, be determined to be invalid, unenforceable or void for
any reason, such determination shall affect only the portion of such
provision determined to be invalid, unenforceable or void, and shall not
affect in any way the remainder of such provision or any other provision
of this Agreement. The Parties agree that they will negotiate in good
faith or will permit a court or arbitrator to replace any provision of
this Agreement so held invalid, unenforceable or illegal with a valid
provision that is as similar as possible in substance to the invalid,
unenforceable or illegal provision.
12.4 WAIVER. No provision of, right, power or privilege under this Agreement
shall be deemed to have been waived by any act, delay, omission or
acquiescence on the part of either party, its agents, or employees, but
only by an instrument in writing signed by an authorized officer of each
party. No waiver by either Party of any breach or default of any provision
of this Agreement by the other Party shall be effective as to any other
breach or default, whether of the same or any other provision and whether
occurring prior to, concurrent with, or subsequent to the date of such
waiver.
12.5 COOLING OFF PERIOD AND GOOD FAITH NEGOTIATIONS. If any dispute arises
under this Agreement that is not settled promptly in the ordinary course
of business, the Parties shall seek to resolve any dispute between them,
first, by negotiating promptly with each other in face-to-face
negotiations. These face-to-face negotiations shall be conducted by
designated representatives of CLIENT and KEEPSMART. If the Parties are
unable to resolve the dispute between them within twenty (20) business
days (the "Cooling Off Period," or such shorter period as the Parties
shall otherwise specify and agree in writing) through these face-to-face
negotiations, or if either Party refuses to conduct such face-to-face
negotiations, then any such disputes shall be resolved as the parties
determine to be in their best interests within the bounds of the governing
law, jurisdiction and venue requirements set forth below.
12.6 GOVERNING LAW; JURISDICTION & VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the state of New York without
taking into account its principles on conflicts of law. The Parties agree
that the United Nations Convention on Contracts for the International Sale
of Goods will not apply to this Agreement. Any controversy or claim
arising out of or relating to this contract, or the breach thereof, shall
be settled by arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules, and judgment on the
award rendered by the arbitrator may be extended in any court having
jurisdiction thereof. The American Arbitration Association Optional Rules
for Emergency Measures of Protection shall apply to the proceedings. The
Parties agree that any controversy be submitted to one arbitrator. In any
such action or proceeding, the successful or prevailing Party shall be
entitled to recover its reasonable attorneys' fees and other costs
incurred in connection with that action or proceeding, in addition to any
other relief to which such Party may be entitled.
12.7 AUTHORIZATION. The individual executing this Agreement on behalf of a
corporation or other legal entity personally represents that he or she is
duly authorized to execute this Agreement on behalf of such entity and
that this Agreement is binding upon such entity.
12.8 EXPORT CONTROL. The Parties agree to comply with all export laws,
restrictions and regulations of the United States Department of Commerce
or other United States or other sovereign agency or authority, and not to
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export, or allow the export or re-export of any technical data or any
direct product thereof in violation of any such restrictions, laws or
regulations, or unless and until all required licenses and authorizations
are obtained to the countries specified in the applicable U.S. Export
Administration Regulations (or any successor supplement or regulations).
12.9 HEADINGS. Captions and headings contained in this Agreement have been
included for ease of reference and convenience and shall not be considered
in interpreting or construing this Agreement.
12.10 ENTIRE AGREEMENT. This Agreement and Schedules which are attached hereto
and incorporated herein (a) constitutes the entire agreement of the
Parties hereto with respect to the subject matter hereof and supersedes
all prior understandings and agreements, whether written or oral, as to
such subject matter; (b) may be amended only by a writing executed by the
authorized representatives of CLIENT and KEEPSMART as provided hereunder;
(c) may not be assigned by either Party without the written consent of the
other; and (d) shall be binding upon and shall inure to the benefit of the
respective heirs, administrators, personal representatives, successors and
permitted assigns of the Parties hereto.
12.11 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. In making proof of this Agreement,
it shall not be necessary to produce or account for more than one such
counterpart.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed, as an instrument under seal, as of the Effective Date by their duly
authorized representatives and agree to be bound thereby.
THE MNI GROUP INC./WOMEN'S HEALTH NETWORK
By: /s/ ARNOLD M. GANS
-----------------------------------
Arnold M. Gans
President
Date
--------------------
KEEPSMART.COM
By: /s/ JOSEPH FISH
-----------------------------------
Joseph Fish
Chief Technology Officer (CTO)
Date
--------------------
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SCHEDULE A KEEPSMART.COM
NEW MEDIA CONTRACT
Project Title: WOMEN'S HEALTH NETWORK WEB DESIGN AND CONSULTING
SCHEDULE A
1. SERVICES.
KEEPSMART.COM will redesign and create functional elements for the Women's
Health Network (WWW.WOMENSHEALTHNETWORK.COM) Web site.
The redesign effort will include the creation of new interfaces and
navigation, design of new functional elements such as: Opening Animation,
E-Commerce Catalog, Communication tools, News and Information Publishing,
Personalization features, and back-end maintenance forms.
The site's "front-end" will all be available for public viewing. The
site's "back-end" will be available to authorized site administrators
only.
2. DELIVERABLES (STRUCTURAL OUTLINE).
This section provides a structural overview of the Web site being
developed. This outline will be completed with detailed items during the
Requirements Analysis.
The following is the structural outline for the redesign of the Women's
Health Network Web site. These areas have been divided into the Front End
Templates (pages site visitors see) and Back-End Templates (password
protected pages available to individuals managing the site) for your
convenience:
FRONT END
o Opening Animation - (motivational sequence designed to
inspire and engage users)
o Home Page (also see "Registration" information)
o Conditions and Ailments
o Health Categories and Disease Information
o (To be defined)
o Health Oriented Search Engine
o Search by Ailment/Condition/Disease Name
o Search by Symptoms
o Search by Life stages
o Search by Diagnostic Evaluation and Test
Types
o Disease Treatment Options
o Conventional
o Alternative
o Experimental
o Self Directed
o Women's Wellness
o Disease Prevention
o Age Categories
o Neonatal / Pediatrics
o Adolescents
o Adults
o Geriatrics
o Neurological Diseases of
Advanced Age
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SCHEDULE A KEEPSMART.COM
o Alzheimer's & Dementia
o Parkinson's
o Multiple Sclerosis
o Pregnancy-Related Conditions
o Normal Gestational Changes
o Abnormal Gestational Changes
o Abortion
o Contraception Control
o Infertility Management
o Social and Environmental Factors & Issues
o Health Trends
o Seasonal Allergies
o Products and Services
o Product and Service Information
o E-commerce Environment
o Latest News and Information
o Physician Database and Advisor Board
(Professional References)
o Communications - Interaction with others
o Bulletin Boards
o Chat room
o E-mail Physicians
o Personalize it
o Personalize the site with the information
the user is interested in
BACK END
o Diseases Maintenance Forms
o Add New Disease
o Series of fields and information
related to the disease
o Update Disease with new information
o Women's Wellness
o Category Home Page Management Form
o Administer Information by Category
o Administer Subcategories
o Products and Services
o Maintain Products Home Page
o Add or Delete a Product
o E-commerce Maintenance
o Latest News and Information
o Maintain News and Information Home Page
o Add, Delete, and Manage Article Database
(for Physicians and MNI Staff)
o Physician Database and Advisory Board
(Professional Resources)
o Add/Delete Physician Information
o Communications - Interaction with Others
o Bulletin Board Maintenance Tools
o Chat Room Maintenance Tools
o Personalize it
o Forms for Managing Users
o Listserver - Send mail to all or subsets
of users
3. SPECIFICATIONS.
A. DATA SPECIFICATIONS
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SCHEDULE A KEEPSMART.COM
The following is a list of content items to be included in the
Women's Health Network Web site:
Cold Fusion or JSP Database Front End and Back End (for site
management)
o Home Page
o Content Pages
o Conditions and Ailments
o Women's Wellness
o Products and Services
o Latest News and Information
o Physician Database and Advisor Board
(Professional References)
o Communications - Facilitated chat back-end processes
o "Personalize it" features
Flash or Other (non 3-D) animations
o Introduction Sequence
List Server, Bulletin Board, Chat Room
o Communications
E-mail Communications
o Form Types:
o E-mail Form (General)
o Section Specific E-mail Forms
HTML
o Where Appropriate
E-Commerce
o Products and Services Catalog
Links
o As appropriate
B. SYSTEM APPLICATIONS - (target computer specifications)
USER COMPUTERS
Computer Type: PC, Macintosh
Operating System: Win95, Win98, WinNT or MacOS
CPU Speed: N/A
RAM: N/A
Screen Resolution: 640x480 (min)
Browser Version: Minimum Netscape 3.0 or IE 3.0
C. DEVELOPMENT LANGUAGE
KEEPSMART will draw from a variety of industry standard tools and
programming languages including: Adobe Photoshop, HTML, Java Server
Page technology (JSP), Macromedia Flash, Oracle, and/or other
Assignment-appropriate applications (unless otherwise defined in
Section II or III of SCHEDULE A) and be responsible for applicable
licenses. Additional License fees may be required for the hosting of
this application on a Web Server. KEEPSMART will not be responsible
for those fees.
3
<PAGE>
SCHEDULE A KEEPSMART.COM
Any KEEPSMART proprietary tools are either identified in an
attachment to this Agreement, or shall be identified in writing to
CLIENT and agreed to in advance. KEEPSMART proprietary tools as used
herein shall mean software development tools developed by KEEPSMART
or for KEEPSMART's exclusive use and which are used to prepare the
product.
D. TEXT AND GRAPHIC HANDLING
KEEPSMART and CLIENT will cooperate in developing the WOMEN'S HEALTH
NETWORK WEB DESIGN AND CONSULTING initiative.
o KEEPSMART will not be responsible for copy editing CLIENT text
pages.
o All grapics or artwork will come in the form of high quality
printed materials or EPS files (or other standardized graphic
format to be decided upon during the Requirements Finalization
phase) from the CLIENT. All graphic files will be accompanied by
a printed version of those graphics.
o KEEPSMART will make recommendations on the amount of content
present on a particular page. In the event CLIENT feels that
additional text is warranted, then CLIENT will sign off and take
responsibility for the adjustment.
o KEEPSMART will create custom art and/or use top quality stock art
when appropriate.
E. PROGRAMMING GUIDELINES
New still art, animations, text layout, and other user interface
treatments will be submitted and commented upon according to the
process outlined below.
o Based on planning discussions, KEEPSMART will provide CLIENT with
visual "treatments" which merge with material supplied by CLIENT.
A "treatment" as used herein is defined as Interface layouts,
including sketches.
o Based on comments made by CLIENT, KEEPSMART will fully develop
the mechanics or other interactive elements according to
specifications outlined during the previous discussions.
o After CLIENT reviews the progress and makes final revisions, if
needed, KEEPSMART will make up to two additional adjustments (at
client's request) to the User Interface treatment and CLIENT will
sign off on the design.
CLIENT will not be responsible for any fees or expenses for any
revisions beyond the original comments and specifications where those
revisions result from KEEPSMART's failure to develop the product in
strict adherence to the "treatments."
4. REPRESENTATIVES.
In order to facilitate continued momentum in the design, development,
production, and implementation processes, KEEPSMART requests the
assignment of a single point of contact with signing authority to be
available for inquiries. The single point of contact is critical to
maintaining forward momentum in project development.
The MNI Group Inc. / Women's Health Network KEEPSMART.COM
10 West Forest Avenue 12 Skyline Drive
Englewood, NJ 07631 Hawthorne, NY 10532
4
<PAGE>
SCHEDULE A KEEPSMART.COM
Myra Gans Beth Gaffney
201-569-1188 914-345-2620
___________________ (800) 621-0043 x627
201-569-3224 (914) 345-2603 (fax)
[email protected] [email protected]
Representative responsibilities include, but are not limited to:
o Respond to inquiries within a 24-hour period
o Compile and organize information to be provided to KEEPSMART and
to CLIENT
o Organize and schedule all meetings with internal personnel for
information gathering purposes
o Sign off on all events outlined in the Schedule and any other
notices or agreements in accordance with the terms of the Agreement
5. PRODUCTION SCHEDULE
Week of April 1, 2000 Meet with CLIENT to begin planning and
initial work on requirements analysis
(Project Lunch).
REMAINDER OF SCHEDULE TO BE DEFINED
DURING THE INITIAL DEVELOPMENT
MEETINGS.
A FINAL SCHEDULE WILL BECOME AN
ATTACHMENT TO THIS CONTRACT (TITLED
SCHEDULE B).
6. COST.
A. INVESTMENT ANALYSIS.
Exclusive of fees related to travel and lodging, overnight shipping and
handling, software licensing, unless otherwise specified.
PROJECT: WOMEN'S HEALTH NETWORK WEB SITE
PROJECT ITEM REQUIREMENTS STUDY $10,000
Develop complete site architecture document. Includes all
planning and discovery to ensure project success.
PROJECT ITEM GRAPHIC AND USER INTERFACE DESIGN $15,000
Develop interface for all main and sub pages.
PROJECT ITEM FORMS FOR DISPLAYING AND ENTERING DATABASE INFO $60,000
Includes creation of all front-end and back-end templates
for displaying information, managing, and maintaining the
site. Also includes development of templates to support
personalization features.
PROJECT ITEM RELATIONAL DATABASE DEVELOPMENT $65,000
Includes developing database structures and processes to
support the following Web components:
o Diseases (~16 fields)
o Wellness (TBD fields)
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<PAGE>
SCHEDULE A KEEPSMART.COM
o Products and Services (custom catalog and e-commerce
environment)
o News and Information
o Physician Database
o Registered Users
PROJECT ITEM SEARCH FUNCTIONALITY FOR DATABASE STRUCTURES $30,000
Includes creation of advanced search capabilities to manage
all information contained within the relational databases.
PROJECT ITEM COMMUNICATIONS $7,500
Includes bulletin board, integrated e-mail functionality,
and Chat environment
SUBTOTAL: $187,500
Quality Assurance and Testing (5%) $9,375
Project Management (10%) $18,750
TOTAL COST FOR DEVELOPMENT $215,625
B. SCHEDULE OF PAYMENTS.
The total inclusive cost for developing the Women's Health Network Web
Design and Consulting Project, as outlined above is $215,625 to be paid in
four installments as follows:
o Milestone One 25% ($53,906) due upon Work Commencement
o Milestone Two 25% ($53,906) due upon Acceptance of Design Document
o Milestone Three 25% ($53,906) due upon Acceptance of Alpha
o Milestone Four 25% ($53,907) due upon Final Acceptance of Deliverables
7. STAFFING.
The following is a list of project personnel selected to design, develop
and deliver the Women's Health Network Web Design and Consulting Project
Project Management
Beth Gaffney - PROJECT MANAGER. Serves as the principal project lead.
Manages the day-to-day coordination of the project.
CORE WEB SERVICES TEAM
Jovi Juan & Nam Bui - USER INTERFACE DESIGN/LAYOUT. Develops User
Interface design concepts and works with Project Manager to finalize
design. Develops layout and overall structure, look and feel of project.
Designs art elements for project.
Mark Dunston, Marty Bruvtan, Mike Flores - WEB PROGRAMMING. Develops Web
programming to enable project to operate. Maintains codebases for design
platform and ensures compatibility. Works with User Interface designer to
develop overall design.
6
<PAGE>
SCHEDULE A KEEPSMART.COM
Bruno Alves & Gene LaVigne - DATABASE PROGRAMMING. Creates all database
and additional structural elements that drive information throughout the
Web site. Maintains codebases for design platform and ensures
compatibility. Works with User Interface designer to develop overall
design.
Additional team members will be leveraged as necessary in order to
complete the project.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed, as an instrument under seal, as of the Effective Date by their duly
authorized representatives and agree to be bound thereby.
THE MNI GROUP INC./WOMEN'S HEALTH NETWORK
By: /s/ ARNOLD M. GANS
-----------------------------------
Arnold M. Gans
President
Date
--------------------
KEEPSMART.COM
By: /s/ JOSEPH FISH
------------------------------------
Joseph Fish
Chief Technology Officer (CTO)
Date
--------------------
7
KEEPSMART.COM
WEB HOSTING SERVICES AGREEMENT
This is an agreement ("Agreement"), entered into this 29th day of March,
2000 ("Effective Date") between The MNI Group Inc./Women's Health Network
("CLIENT"), 10 West Forest Avenue, Englewood, NJ 07631 and KEEPSMART.COM
("KEEPSMART"), 12 Skyline Drive, Hawthorne, N.Y. 10532 (collectively, the
"Parties").
1. DEFINITIONS
"Hosting Services" - The means to transfer information to and from the Internet
and support, operate, and monitor of such means.
"Internet" - The global information network addressable through the unique
address space provided by the Internet Protocol (IP) that allows communications
and information exchange via the Transmission Control Protocol/Internet Protocol
(TCP/IP).
"Professional Services" - Consulting, designing, programming, writing, creating
content, and other services excluding Hosting Services.
2. STATEMENT OF SERVICES. KEEPSMART hereby agrees to provide, operate and/or
maintain Hosting Services ("Services") for Client according to the Statement of
Work Exhibit ("Exhibit") attached to this Agreement, which Exhibit is
incorporated by reference as part of this Agreement. This Agreement applies only
to KEEPSMART's Services provided to Client and is supplementary to a general
Professional Services Agreement (PSA), if any exists, between KEEPSMART and
Client. If the provisions of this Agreement conflict with those of the PSA, the
provisions of the PSA shall govern. As needed, this Agreement may be modified,
and/or other Services may be added, at any time with the written consent of both
Parties by attaching an Exhibit signed by both Parties.
2.1 CATASTROPHIC FAILURE. KEEPSMART will make a good faith effort to
reestablish access to the CLIENT site in the event of a catastrophic failure.
Processes to inhibit the impact of such a failure include: daily backups that
are stored housed off-site and available off-site facilities for backup or
supplementary hosting.
3. ACCEPTABLE USE POLICY. Client agrees to abide by the "KEEPSMART Acceptable
Use Policy", which is made available to all KEEPSMART customers and which
KEEPSMART may modify and update from time to time. Client will be notified in
writing in the event the policy has been updated. Generally, this policy
includes provisions that KEEPSMART's Services shall not be used: 1) for any
unlawful purposes, and shall not be used to transmit, re-transmit or store
material in violation of any local, state, or federal laws and regulations, and
2) in a manner which is threatening, obscene, indecent or defamatory, and 3) in
any way that may seriously deteriorate the level of service KEEPSMART is able to
provide to its other Clients. Unacceptable actions also include, without
limitation, sending large volumes of unsolicited bulk e-mail, attempting to
circumvent security features in place on KEEPSMART's or other party's systems,
or violating the acceptable use policies of other networks to which Client's
Services provide access. KEEPSMART reserves the right to immediately suspend
Client's Services without notice if Client violates the acceptable use policy.
4. MAINTENANCE. KEEPSMART reserves the right to perform maintenance
periodically on its equipment which may require interrupting Services from the
Internet. KEEPSMART will make a good-faith effort to minimize the impact of such
maintenance and perform the work during off-peak hours. However, KEEPSMART may
perform emergency maintenance as needed to preserve and restore the overall
integrity of Services provided.
5. PAYMENT. Unless otherwise stated in an Exhibit attached to this
Agreement, the following payment terms shall be agreed to and used: KEEPSMART
shall submit monthly itemized invoices, and shall expect prompt payment due
within sixty (60) days from the date of the invoice. A late charge of 1.5% will
be assessed on any payment later than (60) days. Once charges are more than (90)
days past due, a payment default and suspension notice will be sent explaining
KeepSmart's intent to suspend services unless the required payment is received
within 2 weeks.
6. TERMINATION. This Agreement shall continue for an initial term as stated
on the Exhibit, or one (1) year otherwise, and shall automatically renew for
successive ninety (90) day terms until terminated as set forth herein, unless
otherwise specified in the Exhibit. KEEPSMART may immediately terminate this
Agreement upon default of Client's payment due or other breach of an obligation
under this Agreement. Either party may terminate renewal of this Agreement by
giving at least thirty (30) days written notice to the other party prior to the
end of the current term without obligation or liability. If Client terminates
this Agreement other than as set forth above, the following shall apply: a)
Client shall be charged the list price of any non-standard software included as
specified on an Exhibit, and either b) if terminated in the first sixty (60)
days of the initial term, Client shall pay setup fees plus a prorated daily fee
1
<PAGE>
for the number of days services were provided up to and including the day
KEEPSMART received notification, or c) if terminated anytime after the first
sixty (60) of the initial term, Client forfeits remainder of the then current
term of the Agreement. In the event KEEPSMART.COM terminates contract without
cause ("cause" is outlined in section 3 of this Agreement), KEEPSMART.COM will
refund to Client a prorated daily fee for the number of days service remaining
as per the attached "Statement of Work."
7. INTELLECTUAL PROPERTY RIGHTS. Nothing in this Agreement shall be
construed to give Client or KEEPSMART rights or license to the intellectual
property of the other party. Client warrants and represents that it has
reproduction rights, including copyrights or licenses, to all material that
Client makes available to the Internet through the use of the Hosting Services
provided by KEEPSMART. KeepSmart reserves the right to immediately suspend any
Hosting Services that KEEPSMART reasonably believes are being used to violate
any intellectual property rights.
8. INDEMNIFICATION. Client is responsible for insuring the accuracy of, and
right to use or license to, the information, claims, and statements contained in
any material made available on the Internet, and assumes all liability arising
therefrom. Client agrees that all information provided to KEEPSMART to be posted
on web site is considered Public Knowledge. Any sensitive (non-public)
information must be accompanied by a written document detailing the nature of
the information, the purpose for sharing the information with KEEPSMART and the
task objectives related to this information. Client represents to KEEPSMART that
in connection with its use of services provided under this Agreement, Client,
its employees and agents will comply with all applicable acceptable use
policies, and federal, state and local laws, codes, rules and regulations.
Client will indemnify, defend and hold harmless KEEPSMART, its directors,
officers, employees and agents from and against any loss, liability, claims,
damages, expenses and fees (including reasonable attorneys' fees) that may be
sustained by reason of any claims made by a third party against KEEPSMART
resulting from the material Client makes available to the Internet, except for
loss, liability, claims, damages, expenses and fees arising out of
KEEPSMART.COM's gross negligence or willful misconduct.
KEEPSMART represents to Client that in connection with the provision of services
under this Agreement, KEEPSMART, its employees and agents will comply with all
applicable federal, state and local laws, codes, rules and regulations.
KEEPSMART further represents that KEEPSMART and its employees have and shall
maintain applicable permits and licenses necessary to provide such services to
Client. KEEPSMART will indemnify, defend and hold harmless Client, its
directors, officers, employees and agents from and against any loss, liability,
claims, damages, expenses and fees (including reasonable attorneys' fees) that
may be sustained by reasons of KEEPSMART's or its employees' a) failure to
comply with such laws, codes, rules, regulations, or b) failure to obtain and
maintain such permits and licenses.
The above indemnification obligations shall survive the expiration or
termination of this Agreement.
9. NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
KEEPSMART provides these services as is without warranty of any kind other than
that set forth expressly within this agreement.
10. LIMITATION OF LIABILITY. KEEPSMART will not be liable for any indirect,
incidental, special, or consequential damages, or for any loss of profits
resulting from the use of KEEPSMART's services and products by client or any
third parties. This includes: 1) the use or inability to use Client's Hosting
Services; or 2) loss of data resulting from delays or errors in operation or
transmission, service interruptions, mistakes, omissions, deletions of files,
errors, defects, or any failure of performance whether or not caused by events
beyond KEEPSMART's reasonable control, including but not limited to acts of God,
communications line failure, theft, destruction, or unauthorized access to
KEEPSMART's records, programs, or services; or 3) that result from other matters
arising under this Agreement.
11. GENERAL PROVISIONS.
11.1 The parties acknowledge that this Agreement, including the attached
exhibits, expresses their entire understanding and agreement, and that there
have been no other warranties, representations, covenants or understandings made
by either party to the other, whether written or oral, except such as are
expressly set forth in this Agreement. The parties further acknowledge that if
the terms contained within the body of this Agreement conflict with the terms
contained in any signed attached Exhibit, the terms of the Exhibit shall
control.
11.2 All notices, demands or consents required or permitted under this
Agreement shall be in writing and shall be deemed to have been received on the
day it is postmarked to that party by U.S. Mail, or by any commercial courier,
2
<PAGE>
to the respective parties at the following addresses:
The MNI Group Inc./Women's Health Network
10 West Forest Avenue
Englewood, NJ 07631
Fax: 201-569-3224
KEEPSMART.COM
12 Skyline Drive
Hawthorne, N.Y. 10532
Fax: 914-345-2603
11.3 Both parties agree to comply with all applicable federal, state, and
local laws and regulations in performing their activities under this Agreement.
11.4 If any provision of this Agreement is found invalid or unenforceable
under judicial decree or decision, the remainder shall remain valid and
enforceable according to its terms.
11.5 No failure or delay by either party in exercising any right, power or
remedy under this Agreement, except as specifically provided in this Agreement,
shall operate as a waiver of any such right, power or remedy, or excuse any
similar subsequent failure to perform any term or condition by the other party.
11.6 This Agreement shall be governed by the laws of the State of New
York.
11.7 This Agreement may be executed in multiple counterparts, any one of which
will be deemed an original, but all of which shall constitute one and the same
instrument.
11.8 Captions and section headings used in this Agreement are for convenience
only and are not a part of this Agreement and shall not be used in construing
it.
11.9 KEEPSMART reserves the right to list Client's names on a general
promotional listing of all KEEPSMART clients.
11.10 Either party may transfer or assign this Agreement only in connection with
its merger with, or the sale of all or substantially all of its assets to,
another third party.
We have carefully reviewed this Agreement and agree to and accept its terms and
conditions. We are executing this Agreement as of the day and year first written
above.
KEEPSMART.COM The MNI Group Inc./Women's Health Network
- ----------------------------- ------------------------------
Signature Signature
- ----------------------------- ------------------------------
Name Name
- ----------------------------- ------------------------------
Title Title
3
<PAGE>
KEEPSMART.COM
STATEMENT OF WORK EXHIBIT
1 PROJECT NAME
This project is called the "2000 - 2001 Women's Health Network Web Hosting
Program." KEEPSMART.COM will host the following site for a period of 12 months
beginning May 1, 2000:
WWW.WOMENSHEALTHNETWORK.COM
2 PROJECT MANAGERS
2.1 KEEPSMART PROJECT MANAGER
The following individual will serve, at least initially, as
KEEPSMART's project manager for this project.
Name: Beth Gaffney
Title: Project Manager
E-mail: [email protected]
Phone: 914-345-2620 x627
Fax: 914-345-2603
Postal Address: 12 Skyline Drive, Hawthorne, NY 10532
2.2 CLIENT PROJECT MANAGER
The following individual will serve, at least initially, as
the Client's project manager for this project.
Name: Myra Gans
Title: Vice President
E-mail: ____________
Phone: 201-569-1188
Fax: 201-569-3224
Postal Address: 10 West Forest Avenue, Englewood, NJ 07631
3. SCHEDULE
The project will be completed according to the following schedule:
Web Site Hosting - KEEPSMART will host the Client's Web site for a period
of 12 months beginning May 1, 2000.
4. DESCRIPTION
Web Site Hosting
KEEPSMART will host the Client's Web Site for a period of 12 months
beginning May 1, 2000.
o 10 Gigabytes of monthly transfer (additional space available in 1
gigabyte blocks @ $100 per gigabyte block)
o 100 Megabytes of disk space
o Daily tape backup
o Traffic logs
o Domain name registration (if appropriate) and routing
5. BILLING AND PAYMENT TERMS
ITEM UNIT COST COST
Server Setup $3,500 GRATIS
Web site hosting (includes
e-commerce support) $450 per month $5,400
Less "One Year Contract Discount" 15% - $810
COST FOR INDIVIDUAL SITE HOSTING (12 MONTHS) $4,590
4
<PAGE>
PAYMENT SCHEDULE TOTAL DUE UPON INITIATION OF PROJECT
(In order to qualify for "One Year
Contract Discount")
BY SIGNING BELOW, BOTH PARTIES AGREE TO BE BOUND BY THE PROVISIONS OF THIS
EXHIBIT, WHICH IS HEREBY MADE A PART OF THE STATEMENT OF WORK BETWEEN THE
PARTIES.
KEEPSMART KEEPSMART.COM, Inc. Client The MNI Group Inc./
Womens Health Network
Signature: /s/ JOSEPH FISH Signature: /s/ ARNOLD GANS
-------------------------- ---------------------------
Name: Joseph Fish Name: Arnold Gans
Title: Chief Technology Officer, Title: President
KEEPSMART.COM
Date: Date:
-------------------------- ---------------------------
5
EXHIBIT 21
SUBSIDIARIES
STATE OF PERCENTAGE AND NATURE
NAME OF INCORPORATION OF OWNERSHIP
- ---- ---------------- ---------------------
Medical Nutrition, Inc. New Jersey 100%; Direct
Holistic Products Corp. Delaware 100%; Direct
NutraPet Labs, Inc. Delaware 62%; Direct
LIPPNER, GORDON & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS American Institute of
165 GREAT NECK ROAD, GREAT NECK, NEW YORK 11021 Certified Public Accountants
TEL (516) 487-4070 * FAX (516) 773-4389 New York State Society of
Certified Public Accountants
National Congregation of CPA
Practitioners
April 26, 2000
The MNI Group, Inc.
10 West Forest Ave.
Englewood, NJ 07631
Gentlemen:
In conjuction with the filing of your Form 10-K for the year ended January 31,
2000, we consent to the use of our audited reports for the years ended January
31, 1999 and 1998 which were previously included in the filings on Form 10-K
for the respective years.
Very truly yours,
LIPNER, GORDON & CO., LLP
-------------------------
Lipner, Gordon & Co., LLP
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<NAME> MNI GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 649,700
<SECURITIES> 0
<RECEIVABLES> 14,000
<ALLOWANCES> 0
<INVENTORY> 83,400
<CURRENT-ASSETS> 770,100
<PP&E> 100,900
<DEPRECIATION> 91,100
<TOTAL-ASSETS> 795,100
<CURRENT-LIABILITIES> 1,808,400
<BONDS> 0
0
0
<COMMON> 7,313,900
<OTHER-SE> (8,327,200)
<TOTAL-LIABILITY-AND-EQUITY> 795,100
<SALES> 443,200
<TOTAL-REVENUES> 443,200
<CGS> 267,600
<TOTAL-COSTS> 1,086,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,700
<INCOME-PRETAX> (244,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (729,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 485,000
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