U.S.SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10KSB40
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number: 0-19170
JUNIPER GROUP, INC.
(Name of small business issuer in Its Charter)
Nevada 11-2866771
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
111 Great Neck Road, Suite 604,
Great Neck, New York 11021
(address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (516) 829-4670
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Each Class:
Common Stock (par value $.001 per share)
12% Non-Voting Convertible Redeemable Preferred Stock $.10 par value
Redeemable Class B Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB [ X ]
State issuer's revenues for its most recent fiscal year. - $1,386,666.
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant was approximately $2,899,631 based upon the $0.078 average bid
price of these shares on the NASDAQ Stock Market for the period March 1, 1998
through March 16, 1998.
As of March 16, 1998, there were 48,964,879 outstanding shares of Common
Stock, $.001 par value per share.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. Business Development
Juniper Group, Inc.'s (the "Company") principal businesses are composed of
two (2) segments, healthcare and entertainment: (i) the healthcare operations
are conducted through two subsidiaries of Juniper Medical Systems, Inc.
("JMSI"), which is a wholly owned subsidiary of the Company: (a) PartnerCare,
Inc. ("PCI", formerly Diversified Health Affiliates, Inc.), a managed care
revenue enhancement company providing various types of services such as:
Physician Practice Management, Managed Care Revenue Enhancement, Comprehensive
Pricing Reviews, MSOs and Liability Assessment Programs to newly evolving
integrated hospital and physician markets and (b) Juniper Healthcare Containment
Systems, Inc. ("Containment"), which develops and provides full service
healthcare networks for insurance companies and managed care markets in the
Northeast U.S.; and (ii) the entertainment segment is conducted principally
through Juniper Pictures, Inc. ("Pictures"), a wholly owned subsidiary of
Juniper Entertainment, Inc. ("JEI"), a wholly owned subsidiary of the Company,
which engages in the acquisition, exploitation and distribution of rights to
films to the various media (i.e., home video, pay-per view, pay television,
cable television, networks and independent syndicated television stations) in
the domestic and foreign marketplace.
The Company was incorporated in July 1987 under the name Juniper Features,
Ltd. as a New York corporation, and commenced entertainment operations in
January 1988. In late 1991, the Company recognized an opportunity to expand into
healthcare, and in December 1991, JMSI, acquired all of the outstanding capital
stock of PCI. Containment commenced operations in September 1992. Containment
operates its business from the Company's Great Neck location. PCI operates its
business from its Boca Raton, Florida location and the Company's Great Neck
location.
During the second quarter of 1996, the Company took several actions that it
believes will improve the results of its hospital revenue enhancement management
business. It changed the name of its subsidiary that conducts that business from
Diversified Health Affiliates, Inc. to PCI. The Company believes that this name
better characterizes the nature of the relationship sought to be developed
between PCI and the hospitals that it serves. In addition, PCI determined that
it was necessary to aggressively and strategically redirect its efforts in
order to pursue new managed care markets and initiatives.
In February 1997, at the Company's annual meeting of shareholders (The
"Annual Meeting"), the shareholders approved a proposal to change the Company's
state of incorporation from New York to Nevada. Reincorporation in Nevada will
allow the Company to take advantage of certain provisions of the corporate law
of Nevada but will not result in any change in the business, management, assets,
liabilities or net worth of the Company.
In order to effect the Company's reincorporation in Nevada, in 1997, the
Company was merged into a newly formed, wholly-owned subsidiary of the Company
incorporated in Nevada. The Nevada subsidiary, named Juniper Group, Inc., was
formed on January 22, 1997.
B. Business of Issuer
(i) Healthcare Cost Containment Services and Revenue Enhancement
(a) Managed Care Revenue Enhancement Program ("MCREP")
During the last two years, the country experienced an explosive growth of
managed care markets. The Company's new direction into the managed care arena
parallels the evolving growth within these markets. The New York Times recently
reported that managed care plans enrolled 85% of employees in 1997, which is
substantially higher than the 48% enrollment just five years ago. PartnerCare is
riding a wave of new opportunities, especially those arising from the plethora
of contracts executed between hospitals, physicians and managed care companies.
<PAGE>
PCI also recruited new management, whose marketing skills and experience in
managed care would better serve the future needs and direction of the Company.
The Company then pursued a series of initiatives which has produced new product
lines and eliminated those which demonstrate poor sales opportunities or were
unprofitable. It redirected the Diagnostic Related Groups ("DRG") audit
business to the Managed Care Revenue Enhancement business.
PCI has developed a comprehensive program that addresses the entire
spectrum of business and revenue issues pertaining to the hospital's managed
care relationships. PCI ensures that hospitals obtain all the dollars that they
are entitled to under their managed care agreements.
PCI's program also includes the profiling of managed care contracts and the
performance benchmarking of these agreements. PCI validates whether or not the
projected financial value anticipated from these arrangements can be obtained.
PCI's assessments include line item audits of claims generated through these
relationships, as well as trending reviews to identify, and document "Silent
PPO" activity. PCI also identifies managed care claims that have not been
properly paid, or have been written-off . PCI then actively pursues payors to
expedite payments to the hospital for rebilled claims.
This transition has given the Company a new opportunity to service the
growing number of hospitals and integrated networks that are facing the
complexities associated with managed care contracts. These relationships result
in payment errors on claims and non-compliance issues that foster sizable
revenue losses to hospitals. PCI's new product lines target these problems and
provides services which recapture loss revenue.
The vision of the Company's new direction has been complemented by
management's commitment to developing a growing relevance in evolving managed
care markets and meeting the needs of its new clients. PCI emphasizes the
importance of maintaining an atmosphere of customer support and appreciates the
need to meet client needs in an unobtrusive manner. PCI's staff of professionals
come from the insurance and PPO industries and are also sensitive to the
importance of payor relationships.
PCI's MCREP business consists of the essential ingredients needed to assist
hospitals in maximizing the business value of their managed care contracts. The
components of this Program are as follows:
1) Managed Care Contract Compliance
PCI identifies all managed care contracts and benchmarks performance
requirements for each contract. Its clients are provided with comprehensive,
easy to read profiles of the managed care contracts in the hospital's portfolio.
PCI evaluates claims actively generated by each payor for contract compliance.
Per diems and percentage discounts taken by payors are validated in accordance
with hospital expectations. MCREP provides the hospital with an immediate source
of additional revenue from closed accounts. MCREP becomes a second filter of
claims adjudication. The quality process results in a correct bill and assures
the hospital that all revenue due is properly billed.
2) Line Item Reviews and Administration
PCI's team identifies and recovers all charges overlooked subsequent to the
presentation of the final hospital bill, as well as reviews previously submitted
claims. PCI's unique Line Item Reviews simultaneously match units of service to
the medical record documentation at the time of discharge. Line Item Reviews
identify the claims under and over charged by the payor. While reviewing the
bills, PCI is simultaneously auditing the medical records. This critical
component of the Managed Care Revenue Enhancement Program also serves as a
quality assurance review of the hospital's medical records. By ensuring an
accurate final bill for submission to the insurance company, the hospital avoids
additional billing and collection expenses.
(b) Comprehensive Pricing Review
CPR encompasses CPT-4/HCPCS Charge Master updates, CPT-4/HCPCS Optimization
Reviews and Comprehensive Pricing Strategies as well as UB 92 Revenue Code
Validation. The purpose of CPR is to evaluate the quality of Outpatient coding
and determine the effect on hospital reimbursement. As part of the outpatient
coding validation, PCI reviews a cross section of records comprised of a
sampling from ambulatory surgery, outpatient services and the emergency room.
Hospitals are then provided with a detailed report which identifies trends in
lost revenues. This provides the hospital with the opportunity to obtain
anticipated revenue from the initial claim while simultaneously saving
additional re-billing expenses.
<PAGE>
PCI's team of reimbursement specialists apply specific codes to applicable
claims, eliminating unlisted code denials on the hospital's Explanation of
Benefits. PCI also works closely with the hospital's departments utilizing
surgical intervention codes ensuring that services are listed and identifying
allowable unbundling to maximize reimbursement.
(c) Liability Assessment Program
LAP is designed to minimize financial losses from insurance companies
audits of patient bills. PCI's analysts identify and analyze trends in
overcharges by contract, by payor, by claim and by department. Hospitals are
able to evaluate the efficiency of their billing system utilizing the data
provided by PCI.
Competition
Based upon data generated by the healthcare industry and U.S. Government
sources, healthcare expenditures have increased from $249 billion in 1980 (9.1%
of gross national product) to an estimated $700 billion in 1990 (12% of gross
national product). It is anticipated that healthcare expenditures will exceed $1
trillion in the year 2000. Many have modified their traditional insurance
coverage or made available to their employees the opportunity to participate in
HMOs and PPOs. In a national survey by Foster Higgins, reported by the New York
Times on January 20, 1998, "managed care plans enrolled 85% of employees in
1997, up from 77% in 1996, and only 48% five years ago." The same article
reported that 1997 was "the biggest one year shift out of traditional indemnity
coverage since 1994." This has enabled them to take a more active role in
managing healthcare benefits and costs. In response to the trend towards
self-insurance and increasing competition from HMOs and PPOs, group insurance
carriers have sought to control premium increases through the adoption of cost
containment programs.
Although its MCREP services are significantly different from those offered
by other hospital consulting services, the Company competes for consulting
business primarily with revenue-optimization services companies. The Company
competes for its MCREP clients by distinguishing its services from those
provided by revenue optimization service companies, which generally do not use
benchmark performance levels of managed care agreements or target "Silent PPO"
practices as does the Company. Numerous companies of varying size offer
revenue-optimization services that may be considered competitive with the
Company. The Company does not believe that any single company commands
significant market share. Larger, more established consulting firms have an
enhanced competitive position, due in part to established name recognition and
direct access to hospital clients through the provision of other services. Small
firms, although not necessarily offering those particular services comparable to
those of the Company, compete on the basis of price.
The managed care industry is highly competitive. The Company's MCREP
programs will compete with other providers of healthcare services, including
regional groups as well as national firms. Based upon these competitive factors,
the Company believes that it will be able to compete successfully in the markets
by adhering to its business strategy, although there can be no assurance that
the Company will be able to compete successfully.
Sales and Marketing
The Company's 1997 growth initiative has also driven new sales and
marketing strategies, resulting in a growing interest in PCI's new product lines
which capture unrecovered dollars that hospitals are entitled to under their
managed care agreements. The initiatives have also been received well by
national hospital chains, regional hospital networks, and larger hospitals that
have numerous managed care contracts. The result has been a growing portfolio of
hospital contracts in Florida and in the New York/New Jersey Region. Efforts
have been underway to address these requirements which, when completed, will
foster greater sales opportunities.
In addition to the above sales and marketing efforts, new initiatives are
also underway targeting geographic markets which are characterized by an
accelerated growth of the managed care industry. Specifically, resources and
sales efforts were invested into developing both the New York and New Jersey
markets. This included seminars as well as numerous meetings with corporate
officers and representatives of hospital chains that have a large presence in
Florida. These markets represent a great deal of opportunity since managed care
revenue represents a growing revenue source to hospitals within these areas.
As of December 31, 1997, PCI had fourteen contracts for its MCREP business,
an increase from one at December 31, 1996. For ten of these contracts, work will
begin sometime in 1998. Revenue to PCI is contingent upon generating revenue for
each hospital under contract. For each contract in place, based upon PCI's
experience, each contract may be expected to average revenue on an annualized
basis of approximately $240,000. The annual revenue for each contract fluctuates
significantly depending upon many factors including, but not limited to, the
number of managed care agreements the hospital had entered, the capacity of the
hospital's information system, the nature of the work under contract and the
length of the period under contract.
<PAGE>
(d) Healthcare Cost Containment Services
Containment is a provider of healthcare cost containment services for third
party healthcare payors. Containment provides its clients with savings on
hospital expenditures through a geographically tailored network of high-quality,
cost-effective healthcare providers. In addition, Containment provides its
clients with timely, informative data claims analysis and reporting. Containment
assists third party healthcare payors, including group health insurance
companies, in reducing their costs associated with the delivery of health
services. Containment arranges with networks of healthcare providers and
facilities (preferred provider organizations, "PPO's") to discount their charges
in return for prompt payment and access to a higher volume of patients. Group
health insurance companies agree to channel their enrollees to a preferred
provider organization network, resulting in lower insurance premiums to their
clients. Containment provides supervision through sub-contractors to ensure that
the appropriate and necessary medical services are provided to the patient in a
cost effective manner. Containment also provides health network coverage to its
insurance clients and their enrollees.
Independent PPO cost management firms, such as Containment, offer numerous
programs designed to meet these collective objectives. PPO services have only
recently been offered on a commercially significant scale by independent firms
which are engaged primarily in providing these types of services. The industry
is currently highly fragmented with numerous independent firms providing medical
utilization review and PPO services, the vast majority of which provide such
services on a regional or local level.
From 1992 through December 17, 1997, Containment has had an on-going
agreement with The Guardian Life Insurance Company ("Guardian"), whereby
Containment was paid a percentage of the savings it generated for the insurance
company. Containment provided this service for Guardian in New Jersey and
Connecticut.
The Company has, over the past several years, worked closely with a
healthcare professional to bring the Company both health insurance company group
plan customers as well as professional healthcare providers and networks. The
healthcare professional has assisted in arranging the relationships among the
Company, the Guardian, and the network of providers previously under contract
with Containment. The agreement with the healthcare professional for his
services continued until December 17, 1997 and provided that the Company pay the
healthcare professional commissions at varying rates and grant options to
purchase common stock if certain contract renewals were realized or certain
revenue levels were achieved.
In 1996, the Company agreed with the healthcare professional to reorganize
the manner in which its business with health insurance company group plans is
structured. The purpose of this reorganization was to provide new services to
healthcare insurance companies. This change, which occurred in early 1996,
resulted in conducting such business in the form of a joint venture with a
Company affiliated with the healthcare professional. On December 1, 1997, the
healthcare professional and the Company agreed upon a settlement, effective
December 17, 1997, for all amounts due between the two parties. Pursuant to the
agreement, the healthcare professional received a payout of a balance due of
approximately $29,000, and 593,370 shares of the Company's common stock. The
Company will receive a continued payment of a percentage of selected Guardian
related revenue recognized by the healthcare professional during 1998.
Major Customers
In 1997, Guardian accounted for 62% of the total revenue of the Company. In
1996, Guardian accounted for 75% of the total revenue of the Company. Effective
December 17, 1997, the Company no longer has any contractual arrangement with
the Guardian. The loss of this business has been replaced with a settlement
agreement between the Company and a healthcare professional with whom the
Guardian is doing similar business. The loss of the contract with Guardian will
have a material adverse effect on the operations of the Company after 1998.
However, the Company is pursuing contracts with other insurance companies, which
if successful, may reduce the Company's dependence upon Guardian's business.
<PAGE>
(ii) Entertainment
Pictures is engaged in the distribution of films through licensing to home
video, pay-per-view, pay-cable, and commercial television broadcast media
domestically as well as in foreign markets. Pictures has exclusive distribution
rights to eighty-one (81) films in various media within various international
markets.
During 1998 and 1997, the Company significantly curtailed its efforts in
the distribution of film licenses to commit and focus its resources on the
growth of the healthcare segment, which during that time was, and currently is,
the most efficient and cost effective strategy for the Company to maximize
revenue. In 1998, the Company began directing efforts toward reestablishing a
foothold in the film industry. The Company expects to begin recognizing growth
in revenues from the sale of film licenses in 1998.
Pictures acquires worldwide rights to films which are saleable to various
markets. In acquiring the rights to a film, Pictures analyzes the viability of
the product for distribution in an effort to target the film's audience appeal.
Armed with its analysis, Pictures markets the film, using sales representatives
and the efforts of its officers, to the various media in a selective manner. In
addition, Pictures aids the media to which it markets its films by producing a
strategy for the presentation of the film, with a view to
programming/counterprogramming against competitive media in the same market and
directing a film to the proper demographic population (i.e., female, male,
child, teenager and middle age) in order to produce the most favorable outcome
regarding ratings and advertising revenue.
Pictures acquires its film rights from independent film production
companies. Pictures monitors the industry for available films, concentrating on
content, quality, theme, actors and actresses, plot, format and certain other
criteria to determine the film's suitability for the home video, pay-per-view,
pay/cable and commercial media to which Pictures markets its product, both
domestically and internationally.
Pictures markets its product through its sales representatives, who also
assist Pictures at domestic and international trade shows to market Pictures'
film library.
Pictures acquires domestic and/or foreign distribution rights to films for
a license period that typically spans between 10 and 20 years, during which time
Pictures has the right to distribute such films in various media (video, pay
cable, syndication and free T.V.). Pictures earns a distribution fee, which is
based upon a percentage of gross receipts received for the license. In addition,
the Company recoups its expenses incurred in making the sale (i.e. market costs,
travel and entertainment, advertising, fax, phone, mail, etc.), along with
recouping any advances made to producers upon signing or within a fixed period
of time thereafter (minimum guarantee) from the gross receipts. The balance of
gross receipts after such recoupment is paid to the producer. Any minimum
guarantees paid to the producer are payable over a period of 3-8 years.
Competition
Competition is intense in the motion picture distribution industry. The
Company is in competition with other motion pictures distribution companies
including many which have greater resources than the Company, both in the
acquisition of distribution rights to movie properties and the sales of these
properties to the various markets (i.e. pay, cable and television).
Employees
As of March 17, 1998, the Company had 7 full-time employees and 4 part-time
employees. Of the full-time employees, all 7 work at the Company's offices, some
of whom spend portions of their time at clients.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive, healthcare and film distribution offices are
located at 111 Great Neck Road, Suite 604, Great Neck, New York 11021. This
property consists of 2,026 square feet of offices and is subleased from
Entertainment Financing Inc.("EFI"), an entity affiliated with the Chief
Executive Officer of the Company, currently at $4,263 per month. EFI's lease,
and the Company's sublease on this space expires on May 31, 2002. EFI has agreed
that for the term of the sub-lease the rent paid to it will be substantially the
same rent that it pays under its master lease to the landlord. In addition, in
January 1995, the Company opened an office in Boca Raton, Florida. This property
consists of 1900 square feet of offices and is sub-leased from EFI Funding, Ltd.
("Funding"), an entity affiliated with the Chief Executive Officer of the
Company, currently at $1,150 per month. Funding's lease and the Company's
sublease on this space expired on November 30, 1997, and is currently being
leased on a month to month basis. Funding has agreed that for the term of the
sub-lease the rent paid to it will be substantially the same rent that it pays
under its master lease to the landlord. Minor additional charges are made by EFI
and Funding to the Company to cover administrative costs.
ITEM 3. LEGAL PROCEEDINGS
On May 22, 1996, Ordinary Guy, Inc. and Crow Productions, Inc. commenced an
action against the Company, its CEO and an affiliate of the CEO in the United
States District Court for the Eastern District of New York seeking damages in
the amount of $464,470.50, plus interest alleging that the Company has successor
liability for a judgment entered in March of 1993 by the Plaintiffs against
Juniper Releasing, Inc. ("Releasing"), a company affiliated with the Company's
CEO. It is alleged that the Company was formed in 1989 as a successor to
Releasing and that the Company and others transferred assets out of Releasing to
avoid the payment of Releasing's creditors. The Company is vigorously defending
the allegations and has asserted that the claims are without merit and are time
barred.
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 ending December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock and Class B Warrants are traded on the National
Association of Securities Dealer Automated Quotation System ("NASDAQ") Small Cap
Market, under the symbols "JUNI" and "JUNIZ" respectively. The Company's 12%
Convertible Redeemable Preferred Stock ("Preferred Stock") is traded in the
Over-the-Counter Market on the NASD OTC Bulletin Board. The Company's Class A
Warrants expired on May 1, 1997 The following constitutes the high and low sales
prices for the common stock, the Class A Warrants and the Class B Warrants as
reported by NASDAQ for each of the quarters of 1997 and 1996. The quotations
shown below reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
1997 HIGH LOW
FIRST QUARTER
Common Stock ............................. 0.219 0.063
Class A Warrants ......................... (1) (1)
Class B Warrants ......................... (1) (1)
SECOND QUARTER
Common Stock ............................. 0.156 0.063
Class A Warrants ......................... (1) (1)
Class B Warrants ......................... 0.031 0.031
THIRD QUARTER
Common Stock ............................. 0.281 0.063
Class B Warrants ......................... 0.063 0.031
FOURTH QUARTER
Common Stock ............................. 0.172 0.063
Class B Warrants ......................... 0.219 0.094
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1996 HIGH LOW
FIRST QUARTER
Common Stock ............................. 0.875 0.188
Class A Warrants ......................... 0.125 0.125
Class B Warrants ......................... 0.125 0.125
SECOND QUARTER
Common Stock ............................. 0.344 0.188
Class A Warrants ......................... 0.125 0.125
Class B Warrants ......................... 0.125 0.125
THIRD QUARTER
Common Stock ............................. 0.375 0.125
Class A Warrants ......................... (1) (1)
Class B Warrants ......................... (1) (1)
FOURTH QUARTER
Common Stock ............................. 0.219 0.031
Class A Warrants ......................... 0.125 0.125
Class B Warrants ......................... 0.125 0.125
(1) Issue did not trade
Preferred Stockholders are entitled to receive out of assets legally
available for payment a dividend at a rate of 12% per annum of the Preferred
Stock liquidation preference of $2.00 (or $.24 per annum) per share, payable
quarterly on March 1, June 1, September 1 and December 1, in cash or in shares
of Common Stock having an equivalent fair market value. Unpaid dividends on the
Company's Preferred Stock cumulate. The quarterly payments due on September 1
and December 1, 1992, and all payments due in 1993, in 1994, in 1995, in 1996,
and in 1997 and the payment due on March 1, 1998 have not yet been paid and are
accumulating. These dividends have not been declared because earned surplus is
not available to pay a cash dividend. Accordingly, dividends will accumulate
until such time as earned surplus is available to pay a cash dividend or until a
post effective amendment to the Company's registration statement covering a
certain number of common shares reserved for the payment of Preferred Stock
dividends is filed and declared effective, or if such number of common shares
are insufficient to pay cumulative dividends, then until additional common
shares are registered with the Securities and Exchange Commission (SEC). No
dividends shall be declared or paid on the Common Stock (other than a dividend
payable solely in shares of Common Stock) and no Common Stock shall be
purchased, redeemed or acquired by the Company unless full cumulative dividends
on the Preferred Stock have been paid or declared, or cash or shares of Common
Stock have been set apart which is sufficient to pay all dividends accrued on
the Preferred Stock for all past and then current dividend periods.
As stated above, pursuant to the terms of the Preferred Stock, the Company
has the option of making quarterly dividend payments in cash or shares of Common
Stock. The Company does not intend to pay any Preferred Stock dividends in cash
in the foreseeable future. Prospectively, subject to the Company's Prospectus
being current, and a sufficient number of common shares being registered with
the SEC, the Company anticipates making quarterly dividend payments in shares of
Common Stock for the foreseeable future including the quarterly dividend
payments which were due on September 1 and December 1, 1992; and all payment due
in 1993; in 1994; in 1995, in 1996, in 1997 and March 1, 1998, which have not
yet been paid. The total cash value of the arrearage of unpaid dividends is
$326,000.
The Company has not declared cash dividends on its Common Stock and does
not intend to do so in the foreseeable future. If the Company generates
earnings, management's policy is to retain such earnings for further business
development. It plans to maintain this policy as long as necessary to provide
funds for the Company's operations. Any future dividend payments will depend
upon the full payment of Preferred Stock dividends, the Company's earnings,
financial requirements and other relevant factors, including approval of such
dividends by the Board of Directors.
<PAGE>
As of March 16, 1998, there were 209 shareholders of record of the
Company's common stock, excluding shares held in street name.
As of December 31, 1997, the Company has approximately 198,000 Class B
Warrants outstanding. Each Class B Warrant entitles the holder to purchase, at
any time through May 31, 1998 (at which time they expire), one common share at a
price equal to $5.00, subject to adjustment.
Recent Sales of Unregistered Securities
From June through December of 1997, the Company sold 3,416,667 shares of
the Company's common stock issued to non-U.S. persons in offerings under
Regulation S under the Securities Act of 1933, as amended, for $150,500, at
prices from $.03 per share to $.06 per share. In September and October of 1997,
the Company sold 3,100,005 shares of the Company's common stock upon the
exercise of options issued to consultants under Section 4(2) of the Securities
Act of 1993, as amended, for $203,500. The exercise price of the options varied
from $.06 per share to $.095.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year 1997 vs Fiscal Year 1996
The Company's revenues decreased to $1,387,000 in 1997 from $2,503,000 in
1996, representing a 45% decrease.
Revenue related to the Healthcare segment decreased to $1,367,000 in 1997,
from $2,389,000 in 1996, representing a 43% decrease. The decrease in revenue
during 1996 was predominately attributed to Containment, which had revenue of
$854,000 in 1997, compared to revenue of $1,872,000 in 1996. This decrease is
largely attributed to a decline in claims processed. This is a result of the
following two factors: (1) a reduction in indemnity claims due to the national
trend in the markets toward managed care; and (2) a joint venture arrangement
(which ceased effective December 17, 1997), which replaced Containment's
previous arrangement and resulted in lower gross revenue, but substantially
greater gross profit margins. PCI's revenue decreased to $513,000 in 1997, from
$516,000 in 1996. This was the result of PCI's change in direction from a DRG
audit company to a Managed Care Revenue Enhancement company.
Revenue related to entertainment decreased to $20,000 in 1997 from $115,000
in 1996.
Operating costs decreased to $606,000 in 1997 from $1,319,000 in 1996, a
54% decrease. The Healthcare operating costs decreased to $599,000 in 1997
from $1,259,000 in 1996, a 52% decrease. As a percentage of revenue, operating
costs for the Healthcare segment decreased to 44% in 1997 from 53% in 1996.
Operating costs for Entertainment include film amortization and producers
royalties. Where the Company acquires licensing rights through guaranteed
payments, it records such guarantees on its balance sheet. The amortization of
such licensing rights is calculated under the film forecast method. Film
amortization represents amortization of the original acquisition price
capitalized on the balance sheet. Producers royalties reflect current amounts
due producer's for their share of current revenue for films with no minimum
guarantee obligation.
Selling, general and administrative expenses increased to $1,902,000 in
1997 from $1,875,000 in 1996, a 1% increase. The increases in selling, general
and administrative expenses were primarily attributable to the following: Public
Relations expenses of $160,000 and Bad Debt expenses of $85,000; offset by
decreases in Salaries of $71,000; Legal Expenses of $60,000; Commissions of
$35,000; Rent Expense of $21,000; and Employee Benefits of $18,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency at December 31, 1997 of
$765,000. The ratio of current assets to current liabilities was .42:1 at
December 31, 1997. Cash flow used by operating activities during 1997 was
$699,000.
<PAGE>
The Company has no material commitments for capital expenditures or the
acquisition of films. If cash flow permits, however, the Company plans to
enhance its information system capabilities to more efficiently and effectively
provide its health healthcare services and to acquire additional films during
1997.
During 1997, the Company raised an aggregate of $150,500 through the
private sales of the Company's stock, pursuant to Section 4(2) and Regulation S
under the Securities Act of 1933, as amended (the "Act").
The Company believes that it will need additional financing to meet its
operating cash requirements for the current level of operations during the next
twelve months, and will require additional capital in order to complete its
planned expansion. The Company has developed a plan to reduce its liabilities
and improve cash flow through expanding operations and raising additional funds
either through issuance of debt or equity. From January 1, 1998 through March
16, 1998, the Company raised $157,000 from the sale of common stock through
offerings under Regulation S of the Securities Act of 1933, as amended, and
other private placements. Additionally, on March 27, 1998, the Company sold
$250,000 of convertible debentures. The Company anticipates that it will be able
to raise the necessary funds it may require for the remainder of 1998 through
public or private sales of securities. If the Company is unable to fund its cash
flow needs the Company may have to reduce or stop planned expansion, or possibly
scale back operations. The Company currently does not have any lines of credit.
The Company has issued shares of its Common Stock on a number of occasions
without offering preemptive rights to existing Shareholders or procuring waivers
of their preemptive rights. No Shareholder has alleged any damage resulting to
him as a result of the sale of shares of Common Stock by the Company without
offering preemptive rights. The amount of damages incurred by Shareholders by
reason of the failure to offer preemptive right, if any, is not ascertainable
with any degree of accuracy. The Company believes that if any such claims were
asserted, the Company may have valid defenses.
During 1997 and 1996, the Company focused its resources on the growth of
the healthcare segment, which, during that time, was and currently is the most
efficient and cost-effective strategy for the Company to maximize revenue.
Although resources and capital remain limited, the Company has begun directing
efforts toward reestablishing a foothold in the film industry. The Company
expects to continue recognizing growth in revenues from the sale of film
licenses in 1998.
Healthcare
The transition of PCI from a DRG audit company offering limited services
and markets, to a full service Managed Care Revenue Enhancement company has
required a major investment of time, manpower and Company resources. This
engendered a period of the phasing out old services, while at the same time
committing increased resources to non-revenue producing, but nevertheless
critical development activities.
The transition to a Managed Care Revenue Enhancement company has also
required a retooling of the Company's infrastructure as well as the development
of new marketing strategies and materials. The Company incurred approximately
$9,000 and $130,000 for this retooling and development in 1997 and 1996,
respectively. New contracts which clearly define PCI's new services have been
developed. In addition, these contracts create payment terms which expedite the
collection process of PCI revenue from its new books of business.
This also required new staffing including the recruitment of experienced
personnel from the insurance and managed care industry. Infrastructure
initiatives, especially those associated with information systems capabilities,
are continuing to be addressed through investments in new hardware, software,
staffing and technical support, and the Company incurred approximately $31,000
and $45,000 on these initiatives in 1997 and 1996, respectively.
PCI will also need to invest in the upgrading of its communication
resources, since telemarketing and sales initiatives associated with national
companies require improvement in the number and quality of communications
equipment. These additional costs have also been factored into PCI's expansion
into the national managed care arena. Fax capabilities, electronic mailing and
other considerations to improve connectivity between PCI's clients, its Florida
office and its New York office have been actively reviewed and addressed.
With increasing sales efforts to seek out national market opportunities,
the Company intends to continue to invest resources in underwriting costs
associated with travel and lodging and sales contacts. PCI has also developed
revenue incentive arrangements with established individuals in the managed care
industry. Their contacts and recognition of our services' value, will serve as
another source of sales opportunities.
<PAGE>
Entertainment
During the latter part of 1996, the Company was involved in negotiations
and discussions with a number of television buyers in the TV broadcast markets,
for thematic picture packages.
Although the Company's resources and capital remain limited, the Company
has begun directing efforts toward reestablishing a foothold in the film
industry. The Company expects to continue recognizing growth in revenues from
the sale of film licenses in 1998.
In 1998, the Company will consider searching for full time sales personnel
and utilizing outside sales representatives. Initially, the Company will begin
promoting its film library in the domestic television markets. Secondarily, it
will utilize representatives to attend film festivals and penetrate film
markets.
ITEM 7. FINANCIAL STATEMENTS
The response to this item follows Item 13, and is hereby incorporated
herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Company's Certificate of Incorporation provides for no less than three
(3) Directors. Each Director shall hold office until the next annual meeting of
shareholders and until his successor has been elected and qualified. At the
present time there are a total of three (3) Directors. The Board of Directors is
empowered to fill vacancies on the Board. The Company's Directors and Executive
Officers are listed below:
POSITIONS
NAME AGE W/COMPANY DIRECTOR SINCE
Vlado Paul Hreljanovic 50 Chairman of the Board, 1987
President, CEO and
acting CFO
Harold A. Horowitz 47 Director 1991
Peter W. Feldman 53 Director 1995
Yvonne T. Paultre 57 Secretary -
Richard O. Vazquez 45 President-PCI -
DIRECTORS
Vlado Paul Hreljanovic has been the President, Chief Executive Officer and
Chairman of the Board since 1987. Upon graduation from Fordham University, he
joined KPMG (formerly Peat Marwick Mitchell & Co.) as an accountant. Mr.
Hreljanovic is and has been the sole shareholder, officer and director of
Entertainment Financing, Inc. and EFI Funding, Ltd., which only business is as
lessee of the Company's offices in Great Neck, New York and Boca Raton, Florida,
and the sub-lessors of such premises to the Company.
Harold A. Horowitz has been a Director of the Company since January 1991.
Since October 1, 1995, he has been a principal and Chairman of the Board of
In-Stock Business Forms and Paper Products, Ltd., and an independent consultant
to various public and private companies. Until October 1, 1995, Mr. Horowitz was
a Partner of the law firm of Finkelstein, Bruckman, Wohl, Most and Rothman,
which firm was securities counsel to the Company. Mr. Horowitz received his JD
degree in 1976 from Columbia University School of Law and masters degree in
economics from Columbia University in 1973. He received his BA degree from
Yeshiva University in 1971.
<PAGE>
Peter W. Feldman was elected to the Board of Directors of the Company on
February 1, 1995. Mr. Feldman is actively involved in physician practice
management and consulting services for physician based business in the state of
Florida. Mr. Feldman has been the Managing Director of a Kentucky Fried Chicken
franchise since 1972. He was a Director and officer of Labels For Less, a
discount women's clothing chain, from 1975 through 1990. Additionally, Mr.
Feldman was Chief Financial Officer and Administrator of Morris Industrial
Builders, a real estate developer, from 1985 through 1991. Mr. Feldman has been
the principal of International Food and Development, Inc., a company that
develops and operates restaurants throughout the Caribbean.
OTHER OFFICER
Yvonne T. Paultre has been Secretary since 1991. Ms. Paultre has
supervisory responsibilities for the Company's employees, customer relations and
office policies. She is also responsible for operations of the Company's
television syndication area.
KEY EMPLOYEE
Richard O. Vazquez was formerly Vice President for Integrated Networks at
MultiPlan, Inc. During his tenure he was responsible for developing and
marketing all integrated strategies for MultiPlan. This included network
contracting throughout the USA, Latin America and the Caribbean. Prior to that
he was the Associate Executive Director of Elmhurst Hospital and Medical Center,
responsible for all capital programs, including a $230 million major
modernization project. He has been a speaker and guest lecturer at numerous
managed care conferences and forums, as well as being published on healthcare
issues. He is a National Urban Fellow, having attained an MPA from Baruch
College and a BA from New York University.
Section 16(a) Beneficial Ownership Reporting Complaince
To the Company's knowledge, based solely on a review of copies of Forms 3,
4 and 5 furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1997, the
Company's officers, directors, and 10% shareholders complied with all applicable
Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Chief Executive Officer of the Company for services provided to the
Company and its subsidiaries in 1997, 1996 and 1995. No other executive officer
received salary and bonus in excess of $100,000 in any such year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
--------------
Annual Compensation Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation Options (#)
------------------------------------ -------------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Vlado Paul Hreljanovic, Chairman of 1997 $172,757 $19,500 (1) $52,900 (2) -
the Board and Chief Executive Officer
1996 $167,774 $45,931 (3) $56,800 (4) -
1995 $163,363 - $45,200 (5)
</TABLE>
(1) Paid in 650,000 shares of the Company's unregistered common stock,
valued at $19,500 issued on June 18, 1997, in recognition of efforts exerted by
Mr. Hreljanovic on behalf of the Company and its subsidiaries.
(2) Other compensation for Mr. Hreljanovic in 1997 was primarily comprised of,
among other things, automobile payments, including lease, maintenance and
insurance of $30,600, and health and life insurance of $22,300.
(3) Other compensation for Mr. Hreljanovic is 1996 was primarily comprised of,
among other things, automobile payments, including lease, maintenance, and
insurance of $29,300, and health and life insurance of $27,500.
(4) Paid in 670,000 shares of the Company's unregistered common stock valued at
$45,931, which were issued to Mr. Hreljanovic on July 1, 1996 (560,000 shares),
and December 24, 1996 (110,000 shares), in recognition of efforts exerted by Mr.
Hreljanovic on behalf of the Company and its subsidiaries.
(5) Other compensation for Mr. Hreljanovic in 1995 was primarily comprised of,
among other things, automobile payments including lease, maintenance, and
insurance of $25,000 and health and life insurance of $18,600.
<PAGE>
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year and Year-End Options
--------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Name Acquired Year-End (#) Year-End ($)
and on Value Exercisable/ Exercisable/
Principal Position Exercise Realized Unexercisable Unexercisable
------------------------------------ -------------------- ------------- --------------------------------
<S> <C> <C> <C>
Vlado Paul Hreljanovic, Chairman of - - 250,000/0 $0/$0
the Board and Chief Executive Officer
</TABLE>
Compensation of Directors: In 1997, Mr. Horowitz and Mr. Feldman were
issued 200,000 Shares each respectively, of the Company's unregistered common
stock, valued at $6,000 each, in recognition of efforts exerted on behalf of the
Company as Board Members during 1997. Mr. Horowitz received $2,820 as additional
compensation as a member of the Board of Directors.
Non-employee directors are entitled to five hundred ($500.00) dollars for
each meeting attended and to reimbursement for their out-of-pocket expenses in
attending such meetings.
Employment Agreements: Mr. Hreljanovic has an Employment Agreement with the
Company which expires on April 30, 2000, and that provides for his employment as
President and Chief Executive Officer at an annual salary adjusted annually for
the CPI Index and for the reimbursement of certain expenses and insurance. Based
on the foregoing formula, Mr. Hreljanovic's salary in 1997 was $172,757.
Additionally, the employment agreement provides that Mr. Hreljanovic may receive
shares of the Company's common stock as consideration for raising funds for the
Company. Due to a working capital deficit, the Company was not able to pay
salary in cash to Mr. Hreljanovic pursuant to his employment agreement. Further,
additional amounts have accrued to Mr. Hreljanovic for achieving certain
performance benchmarks for obtaining new hospital contracts. In the best
interests of the Company, in lieu of cash, Mr. Hreljanovic has agreed to accept
and the Board of Directors has approved the issuance of shares of the Company's
common stock as payment for unpaid salary. The Company issued 6,091,006 shares
of common stock to Mr. Hreljanovic in 1998 to liquidate the amount owed to him
for his salary and the additional compensation.
Under the terms of this employment agreement, the Chief Executive Officer
of the Company is entitled to receive a cash bonus of a percentage of the
Company's pre-tax profits if the Company's pre-tax profit exceeds $100,000.
Additionally, if during the term, the employment agreement is terminated by
the Company after a changein control (as defined by the agreement), the officer
is entitled to a lump sum cash payment equal to approximately three times his
base salary.
Mr. Vazquez has an employment agreement, as amended, with PCI which expires
on June 30, 1998 and provides for his employment as President of PCI with annual
compensation of $135,000. In accordance with an amendment to Mr. Vazquez's
employment agreement, in February 1998 he received options to purchase 800,000
shares of the Company's common stock at $.075 per share in consideration to
forego receipt of 368,320 shares of common stock. Additionally, Mr. Vazquez is
entitled to an annual bonus to be determined by the Board of Directors of the
Company and options to purchase 1,180,000 shares of the Company's Common Stock
under the Company's 1996 Incentive Stock Option Plan. Such options will vest as
Mr. Vazquez achieves certain annual gross revenue thresholds, ranging from
$1,000,000 to $5,000,000 during the term of his employment agreement. The
exercise price of these options will be equal to the fair market value of the
shares on each date such options vest.
STOCK OPTION PLANS
1989 Restricted Stock, Non-Qualified and Incentive Stock Option Plan
On December 7, 1989, a restricted stock, non-qualified and incentive stock
option plan was adopted. The Company has authorized 375,000 shares of common
stock to be reserved for issuance thereunder. Under the terms of this plan,
restricted stock awards are authorized for employees. Additionally,
non-qualified options may be granted to employees, directors, consultants and
others who render services to the Company. 269,600 shares of restricted stock
have been issued to employees, pursuant to the plans. In addition, 250,000
options have been issued to the Chief Executive Officer under the Plan. The
Company intends to increase the number of shares authorized under this Plan.
Under the terms of the restricted stock awards, restricted stock may be issued
to employees in consideration of (i) cash in an amount not less than the par
value thereof or such greater amount as may be determined by the Compensation
Committee of the Board of Directors and (ii) the continued employment of the
employees during the restricted period, which will in no event be less than one
year.
<PAGE>
Under the Non-Qualified Option aspect of the Incentive Compensation Plan,
options may be granted to employee, directors, consultants and other individuals
who render services to the Company. The option price for each option granted
will be determined by the Compensation Committee. Each option will have a term
of not more than 10 years from the date of grant and may be exercisable in
installments as prescribed by the Compensation Committee.
The Company's Incentive Stock Option aspect of the Incentive Compensation
Plan provides for granting incentive options to employees to purchase shares of
common stock of the Company at option prices which are not less than the fair
market value of the Company's common stock at the date of grant, except that any
Incentive Option granted to an employee holding 10% or more of the outstanding
voting securities of the Company must be for an option price not less than 110%
of fair market value.
Incentive Options granted under the Incentive Compensation Plan will expire
not more than 10 years from the date of the grant (five years from the date of
the grant in the case of a 10% Stockholder), and the Incentive Option agreements
entered into with the holders will specify the extent to which Incentive Options
may be exercised during their respective terms. The aggregate fair market value
of the shares of common stock subject to Incentive Options that become first
exercisable by an optionee in a particular calendar year may not exceed
$100,000.
1996 Stock Option Plan
On February 12, 1997, the shareholders of the Company adopted the 1996
Stock Option Plan. The Plan supplements the Company's 1989 Restricted Stock,
Non-Qualified and Incentive Stock Option Plan. This Plan allows the Company to
grant incentive stock options, non-qualified stock options and stock
appreciation rights (collectively "options") to purchase up to an aggregate of
5,000,000 shares of common stock to employees, including officers, and to
non-employees involved in the continuing development and success of the Company.
The terms of the options are to be determined by the Board of Directors. Options
will not have expiration dates later than ten years from the date of grant (five
years from the date of the grant in the case of a 10% stockholder). The option
prices may not be less than the fair market value of the common shares on the
date of grant, except that any option granted to an employee holding 10% or more
of the outstanding voting securities of the Company must be for an option price
not less than 110% of fair market value. An option to purchase 590,000 shares of
common stock was granted to Mr. Vazquez under the plan. No other options have
been granted as of the date of this report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 16, 1998: (i) the name and
address of each person who owns of record or who is known by the Board of
Directors to be beneficial owner of more than five percent (5%) of the Company's
outstanding common stock, (ii) each of the Company's Directors, and (iii) all of
the Company's Executive Officers and Directors as a group.
NAME AND BENEFICIAL PERCENT OF COMMON
ADDRESS OWNERSHIP STOCK OUTSTANDING
Vlado Paul Hreljanovic
111 Great Neck Road
Suite 604
Great Neck, NY 11021 10,028,119 (1) 20.5%
Harold A. Horowitz
111 Great Neck Road
Suite 604
Great Neck, NY 11201 645,000 1.3%
Peter W. Feldman
777 Yamato Road
Suite 135
Boca Raton, FL 33134 982,500 2.0%
Officers and Directors as a
group (4 Persons) 11,790,119 (1) 24.1%
(1) Includes options to purchase 250,000 shares.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid rent under two sub-leases during 1997 and 1996, to
companies affiliated with the Chief Executive Officer of the Company. The rents
paid and terms under the subleases are substantially the same as those under the
affiliate's lease agreements with the landlords. Rent expense for the years
ended December 31, 1997 and 1996 was $75,000 and $95,000, respectively. In prior
years, the Company made advances to or received advances from these companies
for working capital requirements. As a result, at December 31, 1997, the
balances due from(to) the affiliates were approximately $4,800 and ($2,800.)
As of December 31, 1997 and 1996, the balance due from a company affiliated
with the Chief Executive Officer of the Company was $13,805 and $55,205,
respectively. This balance is a result of advances made, from time to time, to
the affiliated company through December 31, 1992. Based upon the affiliates
inability to repay these amounts, $41,400 of the outstanding balance has been
written-off during 1997.
The Company acquired distribution rights to two films from a company
affiliated with the Chief Executive Officer of the Company for a ten year
license period, which expires on June 5, 1998. The Company is obligated to pay
such company producers fees at the contract rate. Such payments will be charged
against earnings. In 1997 and 1996, no payments were made to such company, and
no revenue was recognized from such films.
During 1997 and 1996, the Company's principal shareholder and officer made
loans directly to the Company, made payments to unaffiliated parties on behalf
of the Company, incurred travel expenses while conducting business for the
Company, and received repayment of loans and reimbursement of certain expenses
during the year. With regard to loans, interest accrues at 12% per annum. At
December 31, 1997 and 1996, the balance due (to)from the Officer for all
activities above, was ($69,000) and $23,000, respectively.
One of the Company's directors was a partner in a law firm engaged by the
Company as general counsel. As consideration for his efforts on behalf of the
Company in 1997, the Board member received 200,000 shares, valued at $6,000
and $2,820 as additional compensation. As consideration for his efforts on
behalf of the Company in 1996, the Board member received 50,000 shares, valued
at $4,500. During 1997 and 1996, the law firm billed nothing in fees. The
outstanding balance due the firm was approximately $100,000 in both 1997 and
1996.
In January of 1998, the Company's President and Chief Executive Officer
received approximately $44,000 of the balance owed to him (approximately
$69,000), which was used specifically for the acquisition of an automobile. As
inducement to the Company for the repayment to him, the officer has agreed to
forego an auto allowance for the next twelve months to which he is entitled
under his employment agreement.
Due to a working capital deficit, the Company was not able to pay salary in
cash to Mr. Hreljanovic pursuant to his employment agreement. Further,
additional amounts have accrued to Mr. Hreljanovic for achieving certain
performance benchmarks for obtaining new hospital contracts. In the best
interests of the Company, in lieu of cash, Mr. Hreljanovic has agreed to accept
and the Board of Directors has approved the issuance of shares of the Company's
common stock as payment for unpaid salary. The Company issued 6,091,006 shares
of common stock to Mr. Hreljanovic in 1998 to liquidate the amount owed to him
for his salary and the additional compensation.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
2.1 Agreement and Plan of Merger dated as of January 20, 1997 between the
Registrant and Juniper Group, Inc., a Nevada corporation (2)
3.1 Certificate of Incorporation of the Registrant, as amended (1)
3.2 Amendment to the Certificate of Incorporation of the Registrant, filed
March 7, 1997 (3)
3.3 Certificate of Incorporation of Juniper Group, Inc., a Nevada
corporation.(2)
3.4 By-Laws of the Registrant (1)
3.5 Amendment to the By-Laws of the Registrant approved by the shareholders
of the Registrant on February 12, 1997 (2)
3.6 By-Laws of Juniper Group, Inc., a Nevada corporation (2)
4.1 1996 Stock Option Plan (2)
<PAGE>
10.1 Employment Agreement between the Registrant and V. Paul Hreljanovic,
as amended (1)
10.3 Agreement Between Juniper Healthcare Containment Systems, Inc. and the
Guardian Life Insurance Company, effective January 1, 1996 (1)
10.4 Consulting Agreement between Registrant and Anthony V. Milone, dated June
7, 1994, as amended August 31, 1994 and May 18, 1995 (1)
10.5 Employment Agreement between PCI, Inc. and Richard O. Vazquez, dated June
7, 1996 (3)
10.6 Joint Venture Agreement between Juniper Healthcare Containment Systems,
Inc. and Health Containment Corporation dated March 1, 1996 (3)
21.1 Subsidiaries
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
______________________________
(1) Incorporated by reference to the Company's annual report on Form 10-KSB
for the fiscal year ended December 31, 1995
(2) Incorporated by reference to the Company's Proxy Statement for its
Annual Meeting held in February 1997
(3) Incorporated by reference to the Company's annual report on Form 10-KSB
for the fiscal year ended December 31, 1996
(b) Reports on Form 8-K.
The Company filed a Form 8-K on November 6, 1997, relating to the sales of
1,783,332 shares of the Company's common stock at an offering prices of $.06 per
share in accordance with Regulation S under the Securities Act of 1933, as
amended.
The Company filed a Form 8-K on November 14, 1997, relating to the sales of
2,017,682 shares of the Company's common stock at an offering prices of $.06 per
share in accordance with Regulation S under the Securities Act of 1933, as
amended.
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........ F-3
Consolidated Statements of Income
for the two years ended December 31, 1997........................... F-4
Consolidated Statements of Cash Flows
for the two years ended December 31, 1997........................... F-5
Consolidated Statements of Shareholders'
Equity for the two years ended December 31, 1997................. F-6
Notes to Consolidated Financial Statements............................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
JUNIPER GROUP, INC.
We have audited the accompanying consolidated balance sheets of Juniper
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, cash flows and shareholders' equity for each
of the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Juniper
Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 8 to
the consolidated financial statements, the Company has suffered recurring losses
from operations which raises substantial doubt about its ability to continue as
a going concern. Management's plans regarding those matters are also described
in Note 8. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/GOLDSTEIN & GANZ, CPA's, P.C.
Great Neck, New York
March 30, 1998
F-2
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
December December
ASSETS 31, 1997 31, 1996
--------- -----------
Current Assets
Cash ........................................... $ 30,187 $ 14,593
Accounts receivable - trade .................... 363,480 795,091
Due from affiliates ............................ 15,570 59,359
Prepaid expenses and other current assets ...... 141,098 105,995
Due from officer ............................... -- 23,318
---------- ----------
Total current assets ....................... 550,335 998,356
Film licenses .................................. 2,954,562 2,963,729
Property and equipment net of accumulated
depreciation of $127,382 and $98,564
respectively ................................. 98,911 114,738
Other assets ................................... 2,049 3,519
----------- -----------
$ 3,605,857 $ 4,080,342
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .......... $ 835,427 $ 1,177,736
Notes payable - current ........................ 342,571 105,587
Due to producers - current ..................... 62,086 67,556
Due to officer ................................. 68,662 --
Due to shareholders ............................ 7,000 7,000
----------- -----------
Total current liabilities ................... 1,315,746 1,357,879
Notes payable - long term ........................ -- 1,069
Due to producers - long term ..................... 93,814 196,741
----------- -----------
Total liabilities ......................... 1,409,560 1,555,689
----------- -----------
Shareholders' Equity
12% Non-voting convertible redeemable
preferred stock: $.10 par value, 875,000
shares authorized, 235,900 shares issued
and outstanding at December 31, 1997, and
December 31, 1996: aggregate liquidation
preference, $471,800 at December 31, 1997
and December 31, 1996 ......................... 23,590 23,590
Common Stock - $.001 par value,300,000,000
shares authorized, 37,995,083 and 19,027,516
issued and outstanding at December 31, 1997
and December 31, 1996, respectively ........... 37,995 19,027
Capital contributions in excess of par:
Attributed to preferred stock ................. 210,303 210,303
Attributed to common stock .................... 7,934,744 7,160,265
Retained earnings (deficit) .................... (6,010,335) (4,888,532)
----------- -----------
Total shareholders' equity .................... 2,196,297 2,524,653
----------- -----------
$ 3,605,857 $ 4,080,342
=========== ===========
See Notes to Consolidated Financial Statements
F-3
<PAGE>
JUNIPER GROUP, INC
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1997 1996
------------ ------------
Revenues:
Healthcare .......................... $ 1,366,666 $ 2,388,538
Entertainment ....................... 20,000 114,650
------------ ------------
1,386,666 2,503,188
------------ ------------
Operating Costs:
Healthcare .......................... 598,702 1,258,746
Entertainment ....................... 7,338 59,797
Selling, general and administrative expenses 1,902,429 1,874,805
------------ ------------
2,508,469 3,193,348
------------ ------------
Net income (loss) ......................... $ (1,121,803) $ (690,160)
============ ===========
Weighted average number of shares outstanding 25,043,863 17,149,602
============ ============
Net income (loss) per common share .......... $ (0.05) $ (0.04)
============ ============
See Notes to Consolidated Financial Statements
F-4
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996
--------- ---------
Operating Activities
Net income (loss) ................................ $(1,121,803) $(690,160)
Adjustments to reconcile net cash provided
by operating activities:
Amortization of film licenses ................... 9,167 76,949
Depreciation expense ............................ 37,668 42,766
Payment of various expenses with equity ......... 134,589 19,676
Payment of directors' compensation with equity .. 18,000 9,400
Payment of employees' compensation with equity .. 32,208 64,063
Changes in assets and liabilities:
Accounts receivable ............................. 431,611 9,590
Prepaid expenses and other current assets ....... (35,103) 44,153
Other assets .................................... 1,470 (1,123)
Due to/from officers and shareholders ........... 91,980 (27,884)
Due from affiliates ............................. 43,789 26,728
Accounts payable and accrued expenses ........... (342,309) 299,124
--------- ---------
Net cash provided from (used for)
operating activities .......................... (698,733) (126,718)
--------- ---------
Investing activities:
Purchase of equipment ............................ (21,841) (34,801)
Purchase of film licenses ........................ -- (11,000)
--------- ---------
(21,841) (45,801)
Financing activities:
Reduction in borrowings ........................... (75,815) (127,259)
Proceeds from borrowings .......................... 466,730 --
Payments to and on behalf of producers ............ (10,197) (83,031)
Proceeds from exercise of options ................. 203,500 257,844
Proceeds from private placements .................. 151,950 10,000
--------- ---------
Net cash provided from (used for)
financing activities ............................ 736,168 57,554
--------- ---------
Net increase (decrease ) in cash .................. 15,594 (114,965)
Cash at beginning of period ....................... 14,593 129,558
--------- ---------
Cash at end of period ............................. $ 30,187 $ 14,593
========= =========
See Notes to Consolidated Financial Statements
F-5
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Capital Capital
Contributions Contributions Retained
Par Value in excess Par Value in excess Earnings
at $.10 of par at $.001 of par (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 23,590 $210,303 $15,505 $6,741,804 $(4,198,372) $2,792,830
Proceeds from private
placements - - 40 9,960 - 10,000
Shares issued to producers for
acquisition of film licenses - - 350 48,650 - 49,000
Shares issued as payment for
various expenses - - 240 19,436 - 19,676
Shares issued as compensation
to employees - - 755 63,308 - 64,063
Shares issued to members of
the Board of Directors - - 150 9,250 - 9,400
Shares issued from exercise of
stock options 1,587 256,257 - 257,844
Shares issued to convert debt
to equity 400 11,600 - 12,000
Net loss for the year ended
December 31, 1996 - - - - (690,160) (690,160)
_______ ________ _______ __________ ___________ __________
Balance, December 31, 1996 23,590 210,303 19,027 7,160,265 (4,888,532) 2,524,653
Proceeds from private
placements - - 3,439 148,511 - 151,950
Shares issued as payment for
various expenses - - 2,984 131,605 - 134,589
Shares issued as compensation
to employees - - 2,467 29,741 - 32,208
Shares issued to members of
the Board of Directors - - 600 17,400 - 18,000
Shares issued from exercise of
stock options 3,100 200,400 - 203,500
Shares issued to convert debt
to equity 6,378 246,822 - 253,200
Net loss for the year ended
December 31, 1997 - - - - (1,121,803) (1,121,803)
_______ ________ _______ __________ ___________ __________
Balance, December 31, 1997 $23,590 $210,303 $37,995 $7,934,744 $ (6,010,335) $2,196,297
=== ==== ======= ======== ======= ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany profits, transactions and balances have been
eliminated in consolidation.
Joint Venture
In 1996, one of the Company's subsidiaries entered into a joint venture in
which it owns a 50% interest. Accordingly, 50% of the assets, liabilities and
items of income and expense have been consolidated in the financial statements
of the subsidiary, which are included in the consolidated financial statements
of the Company. During 1997 and 1996, the joint venture accounted for 43% and
23% of the Company's revenues, respectively. Effective December 17, 1997, the
Joint Venture Agreement was terminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The estimated fair values of accounts receivable, accounts payable and
accrued expenses approximate their carrying values because of the short maturity
of these instruments. The Company's debt (i.e. Due to Producers, Creditor Notes
and other obligations) does not have a ready market. These debt instruments are
shown on a discounted basis (see Notes 4 & 5) using market rates applicable at
the effective date. If such debt were discounted based on current rates, the
fair value of this debt would not be materially different than their carrying
value.
Supplemental Cash Flow Information
Cash paid for interest totaled $12,237 and $15,796 in 1997 and 1996,
respectively.
During 1997, the following transactions occurred which did not require the
use of cash, but instead were paid by the issuance of the Company's common
stock: payments to producers amounting to $98,200; directors compensation of
$18,000; payment of corporate debt amounting to $155,000; certain corporate
expenses amounting to $134,589; and employee compensation amounting to $32,208.
During 1996, the following transactions occurred which did not require the
use of cash but instead were paid by the issuance of the Company's common stock:
payments to producers amounting to $49,000; director's compensation of $9,400;
employee compensation of $64,063; payment of corporate debt amounting to
$12,000; certain corporate expenses amounting to $19,675.
Accounts Receivable
The Company estimates an allowance for doubtful accounts, which allowance
amounted to approximately $108,000 and $163,000 at December 31, 1997 and 1996,
respectively.
Film Licenses
Film costs are stated at the lower of estimated net realizable value
determined on an individual film basis, or cost, net of amortization. Film costs
represent the acquisition of film rights for cash and guaranteed minimum
payments. Producers retain a participation in the profits from the sale of film
rights, however, producer's share of profits is earned only after payment to the
producer exceeds the guaranteed minimum, where minimum guarantees exist. In
these instances, the Company records as participation expense an amount equal to
the producer's share of the profits. The Company incurs expenses in connection
with its film licenses, and in accordance with license agreements, charges these
expenses against the liability to producers. Accordingly, these expenses are
treated as payments under the film license agreements.
When the Company is obligated to make guaranteed minimum payments over
periods greater than one year, all long term payments are reflected at their
present value. Accordingly, in such case, original acquisition costs represent
the sum of the current amounts due and the present value of the long term
payments.
F-7
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 - Summary of Significant Accounting Policies (Continued)
The Company acquired distribution rights to eight films for which it has no
financial obligations unless and until the rights are sold to third parties. The
value of such distribution rights has not been reflected in the balance sheet.
The Company was able to acquire these film rights without guaranteed minimum
financial commitments as a result of its ability to place such films in various
markets.
Amortization of Film Licenses
Amortization of film licenses is calculated under the film forecast method.
Accordingly, licenses are amortized in the proportion that revenue recognized
for the period bears to the estimated future revenue to be received. Estimated
future revenue is reviewed annually and amortization rates are adjusted
accordingly.
Property and Equipment
Property and equipment including assets under capital leases are stated at
cost. Depreciation is computed generally on the straight-line method for
financial reporting purposes over their estimated useful lives.
Recognition of Revenue from License Agreements
Revenue from television licensing agreements is recognized when the license
period begins and the licensee and the Company become contractually obligated
under a noncancellable agreement. All revenue recognition for license agreements
is in compliance with the Statement of Financial Accounting Standards No.53.
Operating Costs
Operating costs include costs directly associated with earning revenue.
PCI's operating costs include salary or fees and travel expenses of the
individuals performing the services, and sales commissions. Containment's
operating costs include the cost of sub-contractors and sales commissions.
Pictures operating costs include film amortization and producer's royalties.
Major Customers
During 1997 and 1996, the Company had revenues from The Guardian Life
Insurance Company ("Guardian"), that represented 62% and 75% of total revenue,
respectively. Effective December 17, 1997, the Company no longer has any
contractual arrangement with the Guardian. The loss of this business has been
replaced with a settlement agreement between the Company and a healthcare
professional with whom the Guardian is conducting similiar business. The Company
provided services to Guardian in New Jersey and Connecticut. The loss of the
contract with Guardian will have a material adverse effect on the operations of
the Company after 1998. However, the Company is pursuing contracts with other
insurance companies, which if successful, may reduce the Company's dependence
upon Guardian's business.
Net Income Per Common Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share," which requires the presentation of both net
income per common share and net income per common share-assuming dilution. The
Company adopted the provisions of SFAS No. 128 effective December 31, 1997. The
adoption did not impact the Company's net income per common share. The
provisions of SFAS No. 128 preclude the inclusion of any potential common shares
in the computation of any diluted per-share amounts when a loss from continuing
operations exists. Accordingly, net income per common share-assuming dilution is
not presented.
Reclassifications
Certain amounts in the 1996 financial statements were reclassified to
conform to the 1997 presentation.
F-8
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2 - Accounts Payable and Accrued Expenses
At December 31, 1997 and 1996, accounts payable and accrued expenses
consisted primarily of legal fees of $325,181 and $303,226, respectively,
commissions of $50,749 and $110,187, respectively, payroll taxes of $167,425 and
$90,542, respectively, and the cost of Sub-contractors of $39,985 and $339,366,
respectively. Other accruals relate to selling, general and administrative
expenses incurred in the normal course of business.
NOTE 3 - Film Licenses
At December 31, 1997 and 1996 film licenses amounted to $2,954,562 and
$2,963,729, respectively. These reflect the Company's original acquisition price
less accumulated amortization for the distribution rights to 77 film licenses.
Such amortization amounted to $304,536 and $295,369 at December 31, 1997 and
1996, respectively.
The Company has directed predominantly all its time and efforts toward
building the healthcare segment of the business. Since early 1995, due to the
limited availability of capital, personnel and resources, the volume of film
sales activity was significantly diminished. Although the Company's resources
and capital remain limited, the Company has begun directing efforts toward
reestablishing a foothold in the film industry. Growth in revenues from the sale
of film licenses is expected in 1998.
Initially, the Company began promoting its film library in the domestic
television markets. Secondarily, it will utilize representatives to attend film
festivals and penetrate foreign markets, subject to the Company capital
resources.
Based upon the Company's estimates of future revenue as of December 31,
1997, approximately 36% of the amortized film licenses will be amortized during
the three years ended December 31, 2000. Management expects that greater than
76% of the film licenses applicable to related television and films will be
amortized by 2002.
The Company's policy is to amortize film licenses under the film forecast
method. Depending upon the Company's success in marketing and achieving its
sales forecast, it is reasonably possible that the Company's estimate that it
will recover the carrying amount of its film library from future operations,
will change in the near term. As a result of this potential change, the carrying
amount of the film library may be reduced materially in the near term.
NOTE 4 - Notes Payable
The composition of Notes Payable at December 31, 1997 and 1996, were as
follows:
1997 1996
---- ----
Demand Notes bearing interest at varying rate
of up to 2% per month $125,000 $ -
12% Convertible Secured Promisory Notes
maturing at varying dates through July 31, 1998
(see Note 6) 100,000 -
Settlement agreements and arbitration awards
maturing at varying dates through
September 1998 76,800 47,873
Capital equipment loans maturing July 1998
bearing interest at varying rates to 9.0%
requiring monthly payments of $2,031 40,771 58,783
-------- --------
342,571 106,656
Less current portion ......................... 342,571 105,587
-------- --------
Long term portion ............................ $ - $ 1,069
======== ========
F-9
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5 - Producer's Minimum Guarantees and Participations
Obligations incurred in connection with the acquisition of film licenses,
including minimum guarantees, producer's participations and settlements with
producers were $155,900 at December 31, 1997. During 1997, the Company reduced
its obligations to producers by $108,397.
The following schedule summarizes the maturities of the balances at
December 31, 1997:
1998 $ 62,086
1999 43,020
2000 11,929
2001 34,370
2002 4,495
--------
$155,900
========
NOTE 6 - Shareholders' Equity
Throughout 1997, the Company issued common stock through various private
placements and the exercise of options. The prices at which the shares were
negotiated and sold varied, depending upon the bid and ask prices of the
Company's common stock quoted on the NASDAQ stock exchange. In the aggregate,
the Company received $355,450 for 6,539,172 shares, and $267,800 for 1,627,000
shares of common stock in 1997 and 1996, respectively.
In connection with payments to creditors for notes payable and indebtedness
to producers (including for the acquisition of films), the Company issued
6,377,510 and 750,000 shares, valued at $253,200 and $61,000, respectively. In
connection with payables for operating activities, the Company issued 2,984,136
shares, valued at $134,589, and 240,000 shares valued at $19,676 in 1997 and
1996, respectively. During the year, as compensation to its Board of Directors,
the Company issued 600,000 shares of common stock, valued at $18,000, and
150,000 shares valued at $9,400 in 1997 and 1996, respectively.
Also, in 1997 and 1996, the Company issued 2,466,749 shares and 755,829
shares to employees as compensation, valued at $32,208 and $64,063,
respectively.
All shares issued in 1997 and 1996, were not registered and, as such, were
restricted shares under the Securities Act of 1933, as amended.
Net income (loss) per common share for 1997 and 1996 has been computed by
dividing net income (loss), after preferred stock dividend requirements of
$56,616 in 1997 and 1996, by the weighted average number of common shares
outstanding throughout the year of 25,043,863 and 17,149,602, respectively.
Options Granted
In January 1994, in connection with an amendment to the Employment
Agreement for the President and Chief Executive Officer, the Company issued
options to purchase 250,000 shares of common stock at $.407 per share, 110% of
the market value at the effective date (see Note 9). The options are for a term
of five years. At December 31, 1997, none of the options had been exercised.
On October 4, 1994, the Company engaged a consultant to assist the Company
in public relations and marketing of certain products and services. In
consideration for these services, the consultant received options to purchase
100,005 shares of the Company's common stock at $.31 per share. During 1997, the
option price was amended to $.06 per share and all options were exercised.
On February 26, 1996, the Company granted options to purchase 687,000
shares of common stock to a consultant in consideration for assistance in
developing new markets in Latin America in healthcare services targeted to
ethnic markets. During 1996, 400,000 options were exercised. At December 31,
1997, 287,000 options remained outstanding. On February 28, 1998, all
outstanding options expired.
F-10
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 - Shareholders' Equity (Continued)
On August 1, 1997, the Company entered into a consulting agreement for
promoting and marketing of PCI's products and services in the state of
Connecticut. As consideration, the Company granted an option to purchase 500,000
shares of common stock at $.095 per share. The term of the option was one year.
On September 30, 1997, all 500,000 options were exercised.
On July 21, 1997, the Company entered into an agreement to receive public
relations and communication services to develop, implement and maintain a
program to increase the investing community's awareness of the Company's
activities. In addition to receiving a monthly fee, the Company granted an
option to purchase 2,500,000 shares of common stock at an exercise price of $.06
per share. The options were issued for a term through July 21, 2002. On October
1, 1997, all options were exercised.
In accordance wth an amendment to the employment agreement of the President
of PCI, the Company issued options to purchase 800,000 shares of the Company's
common stock at $.075 per share in consideration to forego receipt of 368,320
shares of common stock issuable pursuant to the terms of his original agreement.
Additionally, this key employee is entitled to an annual bonus to be determined
by the Board of Directors of the Company and options to purchase 1,180,000
shares of the Company's Common Stock under the Company's 1996 Incentive Stock
Option Plan. Such options will vest as certain annual gross revenue thresholds
are achieved during the term of his employment agreement. The exercise price of
these options will be equal to the fair market value of the shares on each date
such options vest.
Warrants and Convertible Preferred Stock
On May 1, 1997, the Company's Class A Warrants expired.
Each of the Company's Class B Warrants entitle the holder to purchase, at
any time through May 1, 1998, one share of Common Stock at a price of $5.00 per
share. The Company's Preferred Stock entitles the holder to dividends equivalent
to a rate of 12% of the Preferred Stock liquidation preference of $2.00 per
annum (or $.24 per annum) per share payable quarterly on March 1, June 1,
September 1, December 1 in cash or common stock of the Company having an
equivalent fair market value, thereafter. Further, each share of the Preferred
Stock is convertible at the holder's option into two shares of Common Stock.
Holders of warrants are protected against dilution upon the occurrence of
certain events. Holders of warrants do not have voting power and are not
entitled to any dividends. The Company, upon not less than 30 days prior written
notice and providing the average closing price for the common stock for 10
consecutive trading days exceeds $2.50 or higher, may redeem all of the warrants
for $.05 per warrant. At December 31, 1997, 198,000 Class B Warrants were
outstanding.
At December 31, 1997, 235,900 shares of Convertible Preferred Stock were
outstanding. Pending effectiveness of a post-effective amendment to the
Company's registration statement, the outstanding Preferred Stock, Class B
Warrants cannot be converted or exercised.
On May 31, 1995, the Company entered into an investment banking agreement
for a five year period. In consideration, the Company issued warrants to
purchase 567,503 shares of the Company's common stock at an exercise price of
$.135 per share. The warrants are exercisable for five years, commencing at
various dates from May 31, 1996 to May 31, 2001. At December 31, 1996, all
warrants were outstanding. In connection with the investment banking agreement
and the services provided to complete that agreement, the Company issued to a
consultant, warrants to purchase 56,750 shares of the Company's common stock at
an exercise price of $.135 per share. These warrants are exercisable for five
years, commencing at various dates from May 31, 1996 to May 31, 2001. At
December 31, 1996, all warrants were outstanding.
Convertible Debt
During July and August of 1997, the Company issued a series of 12% Secured
Convertible Promissory Notes which, in the aggregate, amounted to $100,000 (see
Note 4). The notes are secured by the Company's Film Licenses, as well as the
personal guarantee, as to payment, of the President and Chief Executive Officer.
The notes are convertible after 90 days from the date issued into 2,000,000
shares of the Company's common stock (conversion price of $.05 per share).
F-11
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 - Related Parties
The Company paid rent under two sub-leases during 1997 and 1996, to
companies affiliated with the Chief Executive Officer. The rents paid and terms
under the subleases are substantially the same as those under the affiliate's
lease agreements with the landlords. Rent expense for the years ended December
31, 1997, and 1996 was approximately $75,000 and $95,000, respectively (see Note
8). In prior years, the Company made advances to or received advances from the
affiliates for working capital requirements. As a result, at December 31, 1997,
the balances due to one affiliate was approximately $2,800 and the balance due
from the second affiliate was approximately $4,800.
The Company acquired distribution rights to two films from a company
affiliated with the Chief Executive Officer for a ten year license period, which
expires on June 5, 1998. The Company is obligated to pay the affiliated
producers fees at the contract rate. Such payments will be charged against
earnings. In 1997 and 1996, no payments were made to the affiliate, and no
revenue was recognized.
The Company owns distribution rights to two films which were acquired
through a company affiliated with the Chief Executive Officer, that is the
exclusive agent for the producers. This exclusive agent is 100% owned by the
principal shareholder of the Company, but receives no compensation for the sale
of the licensing rights. Additionally, after recoupment of original acquisition
costs, the principal shareholder has a 5% interest as a producer in the revenue
received by the unaffiliated entities. The Company has received no revenue
relating to these films during 1997 and 1996.
As of December 31, 1997 and 1996, the balance due from a company affiliated
with the Chief Executive Officer of the Company was $13,805 and $55,205,
respectively. This balance is a result of advances made, from time to time, to
the affiliated company through December 31, 1992. Based upon the affiliates
inability to repay these amounts, $41,400 of the outstanding balance has been
written-off during 1997.
Throughout 1997, the Company's principal shareholder and officer made loans
to, and payments on behalf of the Company and received payments from the Company
from time to time. The largest net balance due from the officer was $34,250. The
net outstanding balance due to the officer at December 31, 1997, was $68,662.
One of the Company's directors was a partner in a law firm engaged by the
Company as general counsel. As consideration for his efforts on behalf of the
Company, the Board Member received 200,000 Shares, valued at $6,000. During
1997, the law firm billed nothing in fees, and at December 31, 1997, the
outstanding balance due the firm was approximately $100,000.
The Company's President and Chief Executive Officer (see Note 6), was
issued 2,522,569 shares of common stock, valued at $57,713, (of which, 200,000
shares valued at $6,000, was for services as a member of the Board of
Directors). Further, the Company issued 400,000 shares valued at $12,000 to
other outside directors.
NOTE 8 - Commitments and Contingencies
Leases
The Company leased its New York office facilities under a sublease. The
Florida office lease expired on November 30, 1997. The rent is currently being
paid on a month to month basis. The New York lease expires in May 2002 (see Note
7). Future minimum annual base rental commitments as of December 31, 1997 are as
follows:
1998 59,936
1999 61,962
2000 63,988
2001 66,014
2002 27,013
--------
$278,913
========
F-12
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - Commitments and Contingencies (Continued)
License Agreements
In some instances, film licensors have retained an interest in the future
sale of distribution rights owned by the Company above the guaranteed minimum
payments. Accordingly, the Company may become obligated for additional license
fees as sales occur in the future.
Employment Agreements
In April 1996, the Company entered into an amendment to the employment
agreement with the President and Chief Executive Officer of the Company. Under
the terms of the agreement, as amended, the officer will remain employed through
April 2000, at an annual salary of $150,000 adjusted annually for the CPI index
beginning in 1995. The officer will also receive reimbursement of certain
expenses and insurance (see Note 7) and certain options to and shares of the
Company's common stock (see Note 6). Additionally, the officer may, in the
future, receive shares of the Company's common stock as consideration for
raising funds for the Company. Further, should the officer become disabled, the
Company is obligated to provide disability income for four years.
Under the terms of this employment agreement, the Chief Executive Officer
of the Company is entitled to receive a cash bonus when the Company's pre-tax
profit exceeds $100,000.
Additionally, if the employment agreement is terminated by the Company
after a change in control (as defined by the agreement), the officer is entitled
to a lump sum cash payment equal to approximately three times his base salary.
Due to a working capital deficit, the Company was not able to pay salary in
cash to Mr. Hreljanovic pursuant to his employment agreement. Further,
additional amounts have accrued to Mr. Hreljanovic for achieving certain
performance benchmarks for obtaining new hospital contracts. In the best
interests of the Company, in lieu of cash, Mr. Hreljanovic has agreed to accept
and the Board of Directors has approved the issuance of shares of the Company's
common stock as payment for unpaid salary. The Company issued 6,091,006 shares
of common stock to Mr. Hreljanovic in 1998 to liquidate the amount owed to him
for his salary and the additional compensation.
Mr. Vazquez has an employment agreement, as amended, with PCI which expires
on June 30, 1998 and provides for his employment as President of PCI with annual
compensation of $135,000. In accordance with an amendment to Mr. Vazquez's
employment agreement, in 1998 he received options to purchase 800,000 shares of
the Company's common stock at $.075 per share in consideration to forego receipt
of 368,320 shares of common stock. Additionally, Mr. Vazquez is entitled to an
annual bonus to be determined by the Board of Directors of the Company and
options to purchase 1,180,000 shares of the Company's Common Stock under the
Company's 1996 Incentive Stock Option Plan. Such options will vest as Mr.
Vazquez achieves certain annual gross revenue thresholds, ranging from
$1,000,000 to $5,000,000 during the term of his employment agreement.
Preemptive Rights
Shareholders of a New York corporation have preemptive rights unless
otherwise provided in the certificate of incorporation or bylaws. Until February
12, 1997, the Company's Certificate of Incorporation did not limit or eliminate
the Shareholders' preemptive rights. Accordingly, if the Company were to offer
to sell for cash additional shares of common stock or shares convertible into or
exchangeable for common stock, each Shareholder would have the right to purchase
that number of shares as would enable him to maintain his proportionate interest
in the Company's common stock.
The Company has recently determined that, notwithstanding the Shareholders'
preemptive rights, the Company has issued shares on a number of occasions
without offering preemptive rights to existing Shareholders or procuring waivers
of their preemptive rights. No Shareholder has alleged any damage resulting to
him as a result of the sale of shares of common stock by the Company without
offering preemptive rights. The amount of damages incurred by Shareholders by
reason of failure to offer preemptive rights, if any, is not ascertainable with
any degree of accuracy. Management believes that if any such claims were
asserted, the Company may have valid defenses.
F-13
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - Commitments and Contingencies (Continued)
Litigation
On May 22, 1996, two parties commenced an action against the Company, its
CEO and an affiliate of the CEO seeking damages in the amount of $464,470, plus
interest alleging that the Company has successor liability for a judgment
entered in March of 1993 by the Plaintiffs against Juniper Releasing, Inc.
("Releasing"), a company affiliated with the Company's CEO. It is alleged that
the Company was formed as a successor to Releasing and that the Company and
others transferred assets out of Releasing to avoid the payment of Releasing's
creditors. The Company is vigorously defending the allegations and has asserted
that the claims are without merit and are time barred. Management believes the
outcome of this matter will not have a material effect upon the financial
condition of the Company.
Going Concern
As shown in the accompanying financial statements, the Company's:
* Revenue decreased to $1,387,000 in 1997, from $2,503,000 in 1996;
* Net loss increased to ($1,122,000) in 1997, from ($690,000) in 1996;
* Working capital decreased from a negative $360,000 at December 31, 1996,
to a negative $765,000 at December 31, 1997.
Additionally, the Company has, over the past several years, worked closely
with a healthcare professional to bring the Company both health insurance
company group plan customers, as well as, professional healthcare providers and
networks. The healthcare professional has assisted in arranging the
relationships between the Company, the Guardian, and the network of providers
previously under contract with the Company. Effective December 17, 1997, the
Company no longer has any contractual arrangement with the healthcare provider
or the Guardian. The loss of this business has been temporarily replaced with a
settlement agreement between the Company and a healthcare professional with whom
the Guardian is conducting similar business. The loss of the contract with the
Guardian will have a material adverse effect on the operations of the Company
after 1998.
The fact that the Company continued to sustain losses in 1997; has negative
working capital at December 31, 1997; still requires additional sources of
outside cash to sustain operations, and has lost a material contract, continues
to create uncertainty about the Company's ability to continue as a going
concern.
Management of the Company has developed a plan to reduce its liabilities
and improve cash flow through expanding operations and raising additional funds
either through the issuance of debt or equity. The ability of the Company to
continue as a going concern is dependent upon the Company's ability to raise
additional funds either through the issuance of debt or the sale of additional
common stock and the success of Management's plan to expand operations. The
Company anticipates that it will be able to raise the necessary funds it may
require for the remainder of 1998 through public or private sales of securities.
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 - Incentive Compensation Plans
1989 Restricted Stock, Non-Qualified and Incentive Stock Option Plan
On December 7, 1989, a restricted stock, non-qualified and incentive stock
option plan was adopted. The Company has authorized 375,000 shares of common
stock to be reserved for issuance thereunder. Under the terms of this plan,
restricted stock awards are authorized for employees. Additionally,
non-qualified options may be granted to employees, directors, consultants and
others who render services to the Company. Under the terms of the restricted
stock awards, restricted stock may be issued to employees in consideration of
(i) cash in an amount not less than the par value thereof or such greater amount
as may be determined by the Compensation Committee of the Board of Directors and
(ii) the continued employment of the employees during the restricted period. The
Compensation Committee sets the terms of the restricted period, which will in no
event be less than one year. Pursuant to the plan, during 1995, 250,000 options
were issued to the President (see Note 6).
F-14
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9 - Incentive Compensation Plans (Continued)
During 1997, the Board of Directors authorized the issuance of 252,500
shares of restricted common stock, under the incentive compensation plans to
employees. These shares were valued at $7,575 (see Note 6).
Under the Non-Qualified Option aspect of the Incentive Compensation Plan,
options may be granted to employees, directors, consultants and other
individuals who render services to the Company. The option price for each option
granted will be determined by the Compensation Committee. Each option will have
a term of not more than 10 years from the date of grant and may be exercisable
in installments as prescribed by the Compensation Committee.
The Company's Incentive Stock Option aspect of the Incentive Compensation
Plan provides for the grant to employees of incentive options to purchase shares
of common stock of the Company at option prices which are not less than the fair
market value of the Company's common stock at the date of grant, except that any
Incentive Option granted to an employee holding 10% or more of the outstanding
voting securities of the Company must be for an option price not less than 110%
of fair market value.
Incentive Options granted under the Incentive Compensation Plan will expire
not more than 10 years from the date of the grant (five years from the date of
the grant in the case of a 10% Stockholder), and the Incentive Option agreements
entered into with the holders will specify the extent to which the Incentive
Options may be exercised during their respective terms. The aggregate fair
market value of the shares of common stock subject to Incentive Options that
become first exercisable by an optionee in a particular calendar year may not
exceed $100,000.
1996 Stock Option Plan
On February 12 , 1997, the shareholders of the Company adopted the 1996
Stock Option Plan. The Plan supplements the Company's 1989 Restricted Stock,
Non-Qualified and Incentive Stock Option Plan. This Plan, which allows the
Company to grant incentive stock options, non-qualified stock options and stock
appreciation rights (collectively "options"), to employees, including officers,
and to non-employees involved in the continuing development and success of the
Company, authorizes the grant of 5,000,000 shares of common stock. The terms of
the options are to be determined by the Board of Directors. Options will not
have expiration dates later than ten years from the date of grant (five years
from the date of the grant in the case of a 10% Stockholder). The Option Prices
may not be less than the fair market value of the common shares on the date of
grant, except that any option granted to an employee holding 10% or more of the
outstanding voting securities of the Company must be for an option price not
less than 110% of fair market value.
Statement of Financial Accounting Standards No. 123
At December 31, 1997, the Company had one stock-based compensation plan,
which is described above. The Company applies APB Opinion 25, Accounting for
Stock Issued to Employees, and related Interpretations in accounting for its
plan. Accordingly, no compensation cost has been recognized for its fixed stock
option plan or for options issued to non-employees for services performed. Had
compensation costs for these options been determined, based on the fair market
value at the grant dates consistent with the method of FASB Statement 123,
Accounting for Stock-Based Compensation, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
1997 1996
---- ----
Net income (loss) ................ As reported $(1,121,803) $(690,160)
Pro forma $(1,456,507) $(988,824)
Earnings (loss) per share As reported $ (0.05) $ (0.04)
Pro forma $ (0.06) $ (0.06)
F-15
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 10 - Income Taxes
For the years ended December 31, 1997 and 1996, no provision was made for
Federal and state income taxes due to the losses incured during these periods.
As a result of losses incurred through December 31, 1997, the Company has net
operating loss carryforwards of approximately $4,741,000. These carryforwards
expire as follows:
2006 $ 510,000
2007 1,451,000
2008 165,000
2009 716,000
2010 231,000
2011 568,000
2012 1,100,000
---------
$4,741,000
==========
In accordance with Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes", the Company recognized deferred tax assets of
$1,944,000, at December 31, 1997. The Company is dependent on future taxable
income to realize deferred tax assets. Due to the uncertainty regarding their
utilization in the future, the Company has recorded a related valuation
allowance of $1,944,000. Deferred tax assets at December 31, 1997 primarily
reflect the tax effect of net operating loss carryforwards.
NOTE 11 - Business Segment Information
The operations of the Company are divided into two business segments:
healthcare - consisting of managed care revenue enhancement and healthcare cost
containment services; and entertainment - consisting of the acquisition and
distribution of rights to films. The Company markets its managed care revenue
enhancement services throughout the United States; its healthcare cost
containment services are predominantly located in the Northeast; and films are
available to be marketed throughout the world.
Financial information by business segment is as follows:
1997 1996
---- ----
Revenue:
Healthcare ........ $ 1,366,666 $ 2,388,538
Entertainment ..... 20,000 114,650
----------- -----------
$ 1,386,666 $ 2,503,188
=========== ===========
Operating Income (Loss):
Healthcare ........ $ (246,006) $ 321,401
Entertainment...... (90,790) (186,974)
Corporate ......... (785,007) (824,587)
----------- -----------
$(1,121,803) $ (690,160)
=========== ===========
F-16
<PAGE>
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 - Business Segment Information (Continued)
1997 1996
---- ----
Identifiable Assets:
Healthcare ......... $ 315,038 $ 690,361
Entertainment ...... 3,157,157 3,262,841
Corporate .......... 133,660 127,140
---------- ----------
$3,605,855 $4,080,342
========== ==========
Depreciation:
Healthcare ......... $ 7,383 $ 11,850
Corporate . 30,284 30,916
---------- ----------
$ 37,667 $ 42,766
========== ==========
Capital Expenditures:
Healthcare ......... $ 4,145 $ 3,182
Corporate .......... 17,696 31,619
---------- ----------
$ 21,841 $ 34,801
========== ==========
NOTE 12 - Quarterly Results of Operations (Unaudited)
Below is a summary of the quarterly results of operations for each quarter
of 1997 and 1996:
<TABLE>
<CAPTION>
1997 First Second Third Fourth
<S> <C> <C> <C> <C>
Revenue .......................... $ 496,089 $ 302,493 $ 311,654 $ 276,430
Gross profit ..................... 319,124 178,379 138,464 144,659
------- ------- ------- -------
Net income (loss) ................ $ (99,180) $ (265,497) $ (372,726) $ (384,401)
======= ======== ======== ========
Net income (loss) per common share $ (.01) $ (.01) $ (.02) $ (.01)
==== ==== ==== ====
1996
Revenue .......................... $ 667,522 $ 486,202 $ 597,452 $ 752,011
Gross profit ..................... 255,754 190,197 285,266 453,428
------- ------- ------- -------
Net income (loss) ................ $ (69,705) $ (140,519) $ (162,415) $ (317,521)
======= ====== ======= ========
Net income (loss)
per common share .............. $ (0.01) $ (0.01) $ (0.02) $ (0.04)
===== ===== ===== =====
</TABLE>
NOTE 13 - Subsequent Events
From January 1, 1998 to March 16, 1998, 4,878,790 shares of the Company's
common stock were sold for $157,000 through offerings under Regulation S of the
Securities Act of 1933, as amended, and other private placements. Additionally,
on March 27, 1998, the Company sold $250,000 of convertible debentures.
In January 1998, the Company's President and Chief Executive Officer
received approximately $44,000 of the balance owed to him (approximately
$69,000) at December 31, 1997, which was used specifically for the acquisition
of an automobile. As inducement to the Company for the repayment to him, the
officer has agreed to forego an auto allowance for the next twelve months to
which he is entitled under his employment agreement.
F-17
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed by the undersigned,
thereunto duly authorized.
Date: March 30, 1998 JUNIPER GROUP, INC.
By: /s/ Vlado Paul Hreljanovic
--------------------------
Vlado Paul Hreljanovic
President and
Chief Executive Officer
In accordance with 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.
Signatures Titles Date
By:/s/ Vlado Paul Hreljanovic Chairman of the Board,
-------------------------- President, Chief Executive
Vlado Paul Hreljanovic Officer (Principal Executive
and Financial Officer) March 30, 1998
By: /s/ Harold A. Horowitz Director March 30, 1998
-----------------------
Harold A. Horowitz
By:/s/Peter W. Feldman Director March 30, 1998
-------------------
Peter W. Feldman
<PAGE>
EXHIBIT INDEX
Exhibit Description
21.1 Susidiaries
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
EXHIBIT 21.1
JUNIPER GROUP, INC.
SUBSIDIARIES
All of the Company's subsidiaries are wholly-owned.
Juniper Group, Inc. Subsidiaries Incorporated In
Juniper Entertainment, Inc. .................................. New York
Juniper Medical Systems, Inc. ................................ New York
Juniper Entertainment, Inc. Subsidiary Incorporated In
Juniper Pictures, Inc. ....................................... New York
Juniper Medical Systems, Inc. Subsidiaries Incorporated In
PartnerCare, Inc. ............................................ New York
Juniper Healthcare Containment Systems, Inc. ................. New York
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-89952) of Juniper Group, Inc. of our report dated
March 27, 1998, appearing on page F-2 of this Form 10-KSB.
Goldstein & Ganz, CPA's, P.C.
Great Neck, New York
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 30,187
<SECURITIES> 0
<RECEIVABLES> 471,055
<ALLOWANCES> 107,575
<INVENTORY> 0
<CURRENT-ASSETS> 550,335
<PP&E> 226,293
<DEPRECIATION> 127,382
<TOTAL-ASSETS> 3,605,857
<CURRENT-LIABILITIES> 1,315,746
<BONDS> 0
0
23,590
<COMMON> 37,995
<OTHER-SE> 2,134,712
<TOTAL-LIABILITY-AND-EQUITY> 3,605,857
<SALES> 0
<TOTAL-REVENUES> 1,386,666
<CGS> 0
<TOTAL-COSTS> 2,135,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 347,101
<INTEREST-EXPENSE> 25,657
<INCOME-PRETAX> (1,121,803)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,121,803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,121,803)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
