UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
Commission file number 0-19170
JUNIPER GROUP, INC.
(Exact name of small business issuer as specified in its charter)
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Nevada 11-2866771 --------------------------------------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) |
20283 State Road 7, Suite 300
Boca Raton, Florida 33498
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(Address of principal executive offices)
(561) 807-8990
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller Reporting Company x |
Number of shares outstanding of the issuer’s common stock as of the latest practicable date: 4,991,194,518 shares of common stock, $.001 par value per share, as of August 12, 2009.
Transitional Small Business Disclosure Format (Check one): Yes No x
JUNIPER GROUP, INC.
FORM 10-Q - INDEX
PART I. FINANCIAL INFORMATION: | ||
Item 1. | Financial Statements | |
Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008 (Audited) | 3 | |
Consolidated Statements of Operations for the three and six months ending June 30, 2009 and June 30, 2008 (Unaudited) | 4 | |
Consolidated Statements of Cash Flows for the six months ending June 30, 2009 and June 30, 2008 (Unaudited) | 5 | |
Consolidated Statement of Changes of Shareholders' Deficiency for the six months ending June 30, 2009 (Unaudited) | 6 | |
Notes to Unaudited Interim Consolidated Financial Statements | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 24 |
Item 4T. | Controls and Procedures | 34 |
PART II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 35 |
Item 1A. | Risk Factors | 37 |
Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 37 |
Item 3. | Defaults Upon Senior Securities | 37 |
Item 4. | Submission of Matters to a Vote of Security Holders | 38 |
Item 5. | Other Information | 38 |
Item 6. | Exhibits | 38 |
Signatures | 38 |
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PART 1—FINANCIAL INFORMATION
ITEM 1: Financial Statements
JUNIPER GROUP, INC. | ||||||||
AND SUBSIDIARY COMPANIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(Unaudited) | (Audited) | |||||||
June 30, | December 31 | |||||||
2009 | 2008 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | - | $ | 7 | ||||
Accounts receivable-trade (net of allowance) | 109,073 | - | ||||||
Costs in excess of billings on uncompleted projects | - | - | ||||||
Prepaid expenses | $ | 57,516 | $ | 24,575 | ||||
166,589 | 24,582 | |||||||
Film licenses | 116,648 | 123,538 | ||||||
Property and equipment net Other Assets | 40,733 680,956 | 37,531 - | ||||||
TOTAL ASSETS | $ | 1,004,926 | $ | 185,651 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | ||||||||
Current Liabilities: | ||||||||
Bank Overdraft | $ | 21,845 | $ | - | ||||
Accounts payable and accrued expenses | 1,898,562 | 1,698,600 | ||||||
Notes payable and capitalized leases - current portion | 1,133,779 | 1,395,796 | ||||||
Preferred stock dividend payable | 44,111 | 41,068 | ||||||
Due to officer | 821,970 | 686,127 | ||||||
Due To shareholders & related parties | 6,089 | 56,038 | ||||||
Total current liabilities | 3,926,356 | 3,877,629 | ||||||
Notes payable and capitalized leases, less current portion | 3,253,175 | 1,488,671 | ||||||
Derivative liability related to convertible debentures | 23,953,196 | 62,033,078 | ||||||
Warrant liability related to convertible debentures | 62,530 | 360,2043 | ||||||
Total liabilities | $ | 31,195,257 | $ | 67,759,582 | ||||
Shareholders’ Deficiency | ||||||||
12% Non-voting convertible redeemable preferred stock: $0.10 par value, 875,000 shares authorized: 25,357 shares issued and outstanding at June 30, 2009 and December 31, 2008: aggregate liquidation preference, $50,714 at June 30, 2008 and December 31, 2008, respectively. | 2,536 | 2,536 | ||||||
Voting Convertible Redeemable Series B Preferred Stock $0.10 par value 135,000 shares authorized: 122,840 shares issued and outstanding at June 30, 2009 and 134,480 shares issued and outstanding at December 31, 2008 | 12,284 | 13,448 | ||||||
Voting Convertible Redeemable Series C Preferred Stock $0.10 par value 300,000 shares authorized: 300,000 shares issued and outstanding at June 30, 2009 and December 31,2008 | 30,000 | 30,000 | ||||||
Voting Series D Preferred Stock $0.001 par value 6,500,000 authorized, issued and outstanding at June 30, 2009 and December 31, 2008 | 6,500 | 6,500 | ||||||
Common Stock - $0.001 par value, 5,000,000,000 shares authorized; 4,646,933,130 and 245,066,337 issued and outstanding at June 30, 2009 and December 31, 2008, respectively | 4,646,933 | 245,061 | ||||||
Capital contributions in excess of par: | ||||||||
Attributed to 12% preferred stock non-voting | 22,606 | 22,606 | ||||||
Attributed to Series B Preferred Stock voting | 2,867,994 | 3,160,013 | ||||||
Attributed to Series C Preferred stock voting | 22,000 | 22,000 | ||||||
Attributed to Series D Preferred stock voting | - | - | ||||||
Attributed to common stock | 18,444,345 | 22,337,581 | ||||||
Deficit | (56,245,529 | ) | (93,413,676 | ) | ||||
Total Shareholders’ deficiency | (30,190,331 | ) | (67,573,931 | ) | ||||
Total liabilities & shareholders’ deficiency | $ | 1,004,926 | $ | 185,651 |
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements
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JUNIPER GROUP, INC. | ||||||||
AND SUBSIDIARY COMPANIES | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
(UNAUDITED) | ||||||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||
2009 2008 | 2009 | 2008__ | ||||||
Revenues: | ||||||||
Broadband Installation and Wireless Infrastructure Services | $109,073 $213,673 | $ | 109,073 | $ | 494,493 | |||
Film Distribution Services | - 7,500 | - | 7,500 | |||||
Total Revenues: | 109,073 221,163 | 109,073 | 501,993 | |||||
Cost of Revenues: | ||||||||
Broadband Installation and Wireless Infrastructure Services | 53,255 325,502 | 57,229 | 571,861 | |||||
Film Distribution Services | - 2,500 | - | 7,500 | |||||
Total Cost of Revenues: | 53,255 328,002 | 57,229 | 579,361 | |||||
55,818 (106,829) | 51,844 | (77,368) | ||||||
Operating Expenses: | ||||||||
Selling, general and administrative expenses | 325,501 495,723 | 560,083 | 862,738 | |||||
Impairment of film licenses | 6,891 6,890 | 6,891 | 13,780 | |||||
Interest Expense | 108,198 57,684 | 220,076 | 114,715 | |||||
Loss on Asset Disposition | - - | - | - | |||||
Settlement Expense | 3,000 - | 16,000 | - | |||||
Unrealized (Gain) Loss on adjustment of Derivative and Warrant Liabilities to Fair Value | 6,311,243 8,561,923 | (38,427,556 | ) | 1,485,125 | ||||
Amortization of Debt Discount. | 335,605 234,702 | 505,160 | 331,699 | |||||
Total Operating Expenses | 7,090,438 (9,463,922) | (37,119,346) | (2,808,057 | ) | ||||
Net Income ( loss) | (7,034,620) (9,463,751) | 37,171,190 | (2,885,425) | |||||
Preferred stock dividend | (1,522) (1,521) | (3,043) | (3,043) | |||||
Net Gain (Loss) available to common stockholders | $(7,036,142) $(9,465,272) | 37,168,147 | $ | (2,888,468) | ||||
Weighted average number of shares outstanding | 2,626,203,801 5,655,489 | 1,617,691,490 | 8,751,933 | |||||
Basic and diluted net income per common share | (0.003) (1.67) | 0.023 | $ | (0.33) | ||||
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements |
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, | ||||||||
2009 | 2008 | |||||||
Cash Flow from Operating Activities: | ||||||||
Net income | $ | 37,168,147 | $ | (2,888,468) | ||||
Adjustments to reconcile net cash provided by operating activities: | ||||||||
Bad debt | ||||||||
Amortization of film licenses | 6,891 | 13,781 | ||||||
Amortization of debt discount | 505,160 | 331,699 | ||||||
Unrealized (gain) loss of derivative liabilities | (38,427,556 | ) | 1,485,125 | |||||
Depreciation and amortization expense | 7,298 | 57,494 | ||||||
Debt Equity Conversion | - | - | ||||||
Payment of compensation to employees and consultants with equity | - | - | ||||||
Impairment of film licenses | - | - | ||||||
Loss (gain) on disposition of assets | - | - | ||||||
Changes in other operating assets and liabilities: | ||||||||
Accounts receivable | (109,073 | ) | 77,513 | |||||
Costs in excess of billings on uncompleted projects | - | 6,712 | ||||||
Prepaid and other current assets | (32,941 | ) | 64,370 | |||||
Other assets | (957) | - | ||||||
Accounts payable and accrued expenses | 284,609 | 268,634 | ||||||
Notes payable | - | - | ||||||
Due to officers and shareholders | 85,894 | 108,581 | ||||||
Preferred stock dividend payable | �� 3,043 | 3,043 | ||||||
Net cash used for operating activities | $ | (509,485 | ) | $ | (471,516 | ) | ||
Cash Flow from Investing activities: | ||||||||
(Purchase) of equipment and licenses | (10,500 | ) | - | |||||
Payment for acquisitions net of cash acquired | - | |||||||
Net Cash (used in) investing activities: | (10,500 | ) | - | |||||
Cash Flow from Financing Activities: | ||||||||
Payment of borrowings | (14,445 | ) | (60,602 | ) | ||||
Proceeds from borrowings | 512,578 | 329,888 | ||||||
Proceeds from borrowings from Officers and Shareholders | - | - | ||||||
Repayment of Bank Overdraft | - | - | ||||||
Net cash provided by financing activities: | 498,133 | 269,286 | ||||||
Net increase (decrease) in Cash and Equivalents | (21,852 | ) | (202,230) | |||||
Cash at beginning of the period | 7 | 202,772 | ||||||
Cash (Overdraft) at end of the period | $ | (21,845 | ) | $ | 542 | |||
Supplemental Cash information: | ||||||||
Interest paid | $ | 429 | $ | 18,682 | ||||
Taxes paid | $ | - | $ | 1,085 |
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATE STATEMENT OF CHANGE IN SHAREHOLDERS’ DEFICIT
(UNAUDITED)
December 31, 2008 | Conversion of Convertible Notes | Conversion of Preferred Stock to Common Stock | Conversion of Current Liabilities to Common Stock | Net (loss) for the three months ended March 31, 2009 | June 30, 2009 | |
PREFERRED STOCK | ||||||
Convertible Non-Voting: | ||||||
Par Value @ $0.10 | $ 2,536 | - | - | - | - | $ 2,536 |
Capital Contributions in Excess of Par | 22,606 | - | - | - | - | 22,606 |
Convertible Voting Series B: | ||||||
Par Value @ $0.10 | 13,448 | - | (1,164) | - | - | 12,284 |
Capital Contributions in Excess of Par | 3,160,013 | - | (292,019) | - | - | 2,867,994 |
Convertible Voting Series C: | ||||||
Par Value @ $0.10 | 30,000 | - | - | - | 30,000 | |
Capital Contributions in Excess of Par | 22,000 | - | - | - | 22,000 | |
Non-Convertible Voting Series D: | ||||||
Par Value @ $0.001 | 6,500 | - | - | - | - | 6,500 |
Capital Contributions in Excess of Par | - | - | - | - | - | - |
COMMON STOCK | ||||||
Par Value @ $0.001 | 245,061 | 917,433 | 3,144,609 | 339,830 | - | 4,646,933 |
Capital Contributions in Excess of Par | 22,337,581 | (852,280) | (2,801,983) | (238,973) | - | 18,444,345 |
(DEFICIT) | (93,413,676) | - | - | - | 37,168,147 | (56,245,529) |
TOTAL DEFICIENCY | (67,573,931) | 65,153 | 49,443 | 100,857 | 37,168,147 | (30,190,331) |
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE1. Summary of Significant Accounting Policies
Basis of Presentation
The interim financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have either been condensed or omitted pursuant to SEC rules and regulations; nevertheless, management of Juniper Group, Inc. (which together with its subsidiaries shall be referred to herein as the "Company") believes that the disclosures herein are adequate to make the information presented not misleading. The financial statements and notes should be read in conjunction with the audited financial statements and notes thereto as of December 31, 2008, included in the Company's Form 10-K filed with the SEC.
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations, and cash flow for the periods presented of the Company with respect to the interim financial statements have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Stock Split
On July 18, 2008, the company’s shareholders approved a reverse stock split of the Company’s common stock, up to a one-for-two hundred ratio. Accordingly, on June 20, 2008 the Board of Directors authorized a one-for-two hundred reverse split that took effect on July 18, 2008. Unless stated otherwise, all amounts from prior periods have been restated after giving effect to the reverse stock split.
Description of Business
Juniper Group, Inc. is a corporation incorporated in the State of Nevada in 1997. The Company’s business is composed of two segments: (1) broadband installation and wireless infrastructure constructions and (2) film distribution services. Both of these services are operated through two indirect wholly owned subsidiaries of the Company, which are subsidiaries of Juniper Entertainment, Inc. our wholly owned subsidiary. All of our operations are run out of the Company’s wholly-owned subsidiary. Unless the context otherwise requires, references to “we”, “us”, “our” and “the Company” refer to the Company and its consolidated subsidiary.
Broadband Installation and Wireless Infrastructure Services:
The Company’s broadband installation and wireless infrastructure operations are conducted through one wholly owned subsidiary of Juniper Entertainment, Inc. The Company’s broadband installation and wireless infrastructure operations consist of wireless and cable broadband installation services on a regional basis by providing broadband connectivity services for wireless and cable service providers and over 98% of our revenues are derived from these operations.
On March 16, 2006, Juniper Services, Inc. (“Services”) completed the acquisition of all outstanding shares of New Wave Communication, Inc. (New Wave), making it a wholly owned subsidiary of Services. New Wave was a wireless communications contractor in the Mid-West, specializing in tower erection, extension, modifications and maintenance, as well as cellular, wireless broadband and microwave systems installation. On November 7, 2008, New Wave, filed for bankruptcy and ceased operations. The petition was voluntary dismissed at the request of New Wave Communications, Inc. on March 6, 2009.
In January, 2009, we formed Tower West Communications, Inc. (“Tower West”), a wholly owned subsidiary of Services. Tower West currently operates on the East Coast by subcontracting its contracts to local contractors. As a result, it is capable of sustained work anywhere within the United States. . Our current client roster includes Communication Construction Group supporting Verizon on the FTTP Path Creation (FIOS) project, American Tower, Maxton Technology, BCI Communications, Inc. and SAI . Tower West has added a new dimension to the fundamentals of Services and will allow Services to leverage its customer base in creating a wider market space for its base business.
Services’ direction is to support the increased demand in the deployment and maintenance of wireless/tower system services with leading telecommunication companies in providing them with site surveys, tower construction and antenna installation to tower system integration, hardware and software installations.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Film Distribution:
The Company’s film distribution operations are conducted through one wholly owned subsidiary of Juniper Entertainment, Inc. The Company’s film distribution operations consist of acquiring motion picture rights from independent producers and distributing these rights to domestic and international territories on behalf of the producers to various medias (i.e. DVD, satellite, pay television and broadcast television) and less than 1% of our revenues are derived from these operations.
Principles of Consolidation
The consolidated financial statements include the accounts of all subsidiaries. Intercompany profits, transactions and balances have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
The Company establishes reserves against receivables by customers whenever it is determined that there may be corporate or market issues that could eventually affect the stability or financial status of these customers or their payments to the Company
Revenue and Cost Recognition
In the Wireless Infrastructure construction services, the Company enters into contracts principally on the basis of competitive bids, the final terms and prices of which are frequently negotiated with customer. Although the terms of its contracts vary considerably, most services are made on a cost- plus or time and materials basis. The Company completes most projects within six months. The Company recognizes revenue using the completed contract method.
The Company follows the guidance in the Securities and Exchange Commission’s Staff Accounting Bulletin no.101, "revenue recognition”(“SAB 101”). Revenue is recognized when all of the following conditions exist: persuasive evidence of an arrangement exists; services have been rendered or delivery occurred; the price is fixed or determinable; and collectability is reasonably assured. The actual costs required to complete a project and, therefore, the profit eventually realized, could differ materially in the near term. Costs in excess of billings on uncompleted contracts are shown as a current asset. Anticipated losses on contracts, if any, are recognized when they become evident.
Accounts Receivable
Accounts receivable is stated at the amount billable to customers. The Company provides allowances for doubtful accounts, which are based upon a review of outstanding receivables, historical performance and existing economic conditions. Accounts receivable are ordinarily due 30 to 60 days after issuance of the invoice. The Company establishes reserves against receivables by customers whenever it is determined that there may be corporate or market issues that could eventually affect the stability or financial status of these customers or their payments to the Company. At June 30, 2009, because of the start-up of Tower West, there were limited accounts receivable balances. Tower West’s billing commenced in the second quarter of 2009. The Company’s policy is not to accrue interest on past due trade receivable.
Unbilled receivables represent revenue on uncompleted infrastructure construction and installation contracts that are not yet billed or billable, pursuant to contract terms.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to significant concentrations of credit risk are principally trade accounts receivable. Concentration of credit risk with respect to the technology and entertainment services segment is primarily subject to the financial condition of the segment's largest customers.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Expenditures for normal repairs and maintenance are charged to operations as incurred. The cost of property or equipment retired are otherwise disposed of and the related accumulated depreciation are removed from the accounts in the period of disposal with the resulting gain or loss reflected in earnings or in the cost of the replacement. Depreciable life range from 3 to 5 years. 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.
Financial Instruments
The estimated fair values of accounts payable and accrued expenses approximate their carrying values because of the short maturity of these instruments. The Company's debt (i.e., Notes Payable, Convertible Debentures and other obligations) does not have a ready market. These debt instruments are shown on a discounted basis 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 from their carrying value.
Statement of Financial Standards No. 133, “Accounting for Operative Instruments and Hedge Activities”, (SFAS No. 133) requires that due to indeterminable number of shares which might be issued the imbedded convertible host debt feature of the Callable Secured Convertible Notes, the Company is required to record a liability relating to both the detachable warrants and embedded convertible feature of the notes payable (included in the liabilities as a “derivative liability”) and to all other warrants issued and outstanding as of December 28, 2005, except those issued to employees. The result of adjusting these derivative liabilities to market generated an unrealized gain of approximately $38.4 million.
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 (See Note 5).
Producers retain a participation in the profits from the sale of film rights; however, producers' 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.
The Company maintains distribution rights to these 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.
The Company is currently directing all its resources and efforts toward building the Company's Infrastructure construction services. Due to the limited availability of capital, personnel and resources, the volume of film sales activity has been significantly diminished.
Amortization of Intangibles
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.
Intangible assets at June 30, 2009 predominantly consist of film licenses. Intangible assets with indefinite lives are not amortized but are reviewed annually for impairment or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives. The fair value of the subsidiaries for which the
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company has recorded goodwill is tested for impairment after each third quarter. Pursuant to the valuation, and in management's judgment, the carrying amount of goodwill reflects the amount the Company would reasonably expect to pay an unrelated party.
The Company evaluates the recoverability of its long lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” which generally requires the Company to assess these assets for recoverability whenever events or changes in circumstance indicate that the carrying amount of such assets may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated non-discounted future cash flows expected to result from the use of the asset. If such assets are considered to be impaired, the impairment recognized is measured by comparing projected individual segment discounted cash flow to the asset segment carrying values. The estimation of fair value is in accordance with AICPA Statement of Position 00-2, Accounting by Producers and Distributors of Film. Actual results may differ from estimates and as a result the estimation of fair values may be adjusted in the future.
Recognition of Revenue
Revenue from licensing agreements is recognized when the license period begins and the licensee and the Company become contractually obligated under a non-cancelable agreement. All revenue recognition for license agreements is in compliance with the AICPA's Statement of Position 00-2, Accounting by Producers or Distributors of Films.
For the broadband installation and wireless infrastructure services segment, revenue is reduced for estimated future chargebacks. These estimates are based upon historical return experience and projections of customer acceptance of services.
The cost of operations for the broadband installation services segment is reflected in the statement of operations as incurred. Accordingly, if these costs are greater than the revenue received from fixed price contracts the Company will reflect a loss under these contracts.
Operating Costs
Operating costs include costs directly associated with earning revenue and include, among other expenses, salary or fees and travel expenses of the individuals performing the services, and sales commissions. Additionally, for film licensing agreements, operating costs include producers' royalties and film amortization using the film forecast method is included in operating costs.
Stock-Based Compensation
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Options for Financial Assets and Financial Liabilities” (“SFAS”). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal year beginning after November 15, 2007. We have adopted this process. However, there was no compensation expense for stock options calculated in 2009 and 2008.
Derivative Instruments
Effective December 28, 2005, the Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133," collectively referred to as SFAS No. 133. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income.
Income Taxes
The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities.
- 10 - -
JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income per Common Share
The provisions of 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 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, for both 2009 and 2008, net income per common share and net income per common share-assuming dilution are equal.
Warrants Issued With Convertible Debt
The Company has issued and anticipates issuing warrants along with debt and equity instruments to third parties. These issuances are recorded based on the fair value of these instruments. Warrants and equity instruments require valuation using the Black-Scholes model and other techniques, as applicable, and consideration of assumptions including but not limited to the volatility of the Company’s stock, and expected lives of these equity instruments.
Reclassifications
Certain amounts in the 2008 financial statements were reclassified to conform to the 2009 presentation.
New Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133: and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements.
On May 8, 2008, FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. The Company is currently assessing the impact of SFAS No. 162 on its financial position and results of operations.
In May 2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts.” SFAS No. 163 clarifies how SFAS No. 60, “Accounting and Reporting by Insurance Enterprises,” applies to financial guarantee insurance contracts issued by insurance enterprises, and addresses the recognition and measurement of premium revenue and claim liabilities. It requires expanded disclosures about contracts, and recognition of claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations, and (b) the insurance enterprise's surveillance or watch list. The Company is currently evaluating the impact of SFAS No. 163.
In May 2008, the FASB issued FASB Staff Position APB No. 14-1, Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), which applies to convertible debt that includes a cash conversion feature. Under FSP APB 14-1, the liability and equity components of convertible debt instruments within the scope of this pronouncement shall be separately accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of the adoption of FSP APB 14-1 on the Company’s financial position or results of operations.
In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an
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AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact, if any, on its consolidated financial position and results of operations.
In November 2008, the FASB ratified EITF Issue No. 08-6 “Equity Method Investment Accounting Considerations” (“EITF 08-6”). EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years ended after December 15, 2008. The Company is currently assessing the impact of the adoption of EITF 08-6 on the Company’s financial position or results of operations.
NOTE 2- Prepaid Expenses
At June 30, 2009 and December 31, 2008, prepaid expenses and other current assets consisted primarily of prepaid insurance and legal expenses of approximately $58,000 and $25,000.
NOTE 3 - Property and Equipment
Depreciation expense for the three months ended June 30, 2009 and the year ending December 31, 2008 was approximately $7,300 and $114, 500, respectively. At June 30, 2009 and December 31, 2008, property and equipment consisted of the following:
2009 | 2008 | |||||||
Vehicles | $ | 62,266 | $ | 51,766 | ||||
Equipment | 23,669 | 383,531 | ||||||
Website Costs | 10,310 | 217,593 | ||||||
Leasehold improvements | 21,587 | 53,296 | ||||||
Furniture and fixtures | 26939 | 26,939 | ||||||
Total property and equipment | 144,771 | 733,125 | ||||||
Accumulated depreciation | (104,038 | ) | (695,594 | ) | ||||
Property and equipment, net | $ | 40,733 | $ | 37,531 |
NOTE 4 - Film Licenses
The Company evaluates the recoverability of its long lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” which generally requires the Company to assess these assets for recoverability whenever events or changes in circumstance indicate that the carrying amount of such assets may not be recoverable. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the estimated non-discounted future cash flows expected to result from the use of the asset. If such assets are considered to be impaired, the impairment recognized is measured by comparing projected individual segment discounted cash flow to the asset segment carrying values. The estimation of fair value is in accordance with AICPA Statement of Position 00-2, Accounting by Producers and Distributors of Film. Actual results may differ from estimates and as a result the estimation of fair values may be adjusted in the future.
The Company has historically been engaged in acquiring film rights from independent producers and distributing these rights to domestic and international territories on behalf of the producers to various media (i.e. DVD, satellite, home video, pay-per view, pay television, television, and independent syndicated television stations). For the past several years, we have reduced our efforts in the distribution of film licenses primarily because of the resources required to continue in today's global markets and deal with issues such as electronic media and piracy. At the end of each year, 2007 and 2006, we evaluated our film library, taking into account the revenue generated over the past several years, the resources available to us to continue to pursue opportunities in this area and the resources necessary to maintain our rights against international piracy and copyright infringement. The Company took a charge of approximately $28,000 in 2008. While we have not discontinued this line of business and will engage in the
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AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
sale or exploitation of film licenses if and when opportunities are available, we will at this time not aggressively devote the resources of the Company in this area.
Based upon the Company's estimated net present value of future revenue as of December 31, 2008, the following shows the anticipated film forecast revenue.
# of Films | Expiration of Film License & Book Value | Film Forecast Revenue | % | |||
11 | 2009 | 650 | 0.7 | |||
2 | 2010 | 375 | 0.4 | |||
16 | 2011 | 12,525 | 13.6 | |||
13 | 2013 | 20,125 | 21.8 | |||
21 | 2014 | 44,375 | 48.2 | |||
13 | 2017 | 11,125 | 12.1 | |||
5 | 2019 | 2,925 | 3.2 | |||
81 | $ | 92,100 | 100.00 |
NOTE 5- Notes Payable and Capitalized Leases
The following is a summary of the notes payable and capitalized leases on the balance sheet at June 30, 2009 and December 31, 2008.
Description | June 30, 2009 | December 31, 2008 | ||||||
Various notes due currently with various interest rates | $ | 57,483 | $ | 105,000 | ||||
Convertible notes due currently to related parties with interest at various interest rates | 1,278,265 | 882,224 | ||||||
Note Payable, Bank | 321,907 | 321,907 | ||||||
Note Due 2010 | 79,445 | 115,556 | ||||||
8% Callable Secured Convertible Notes maturing 2011 (net of discount of $(777,266) | 2,649,854 | 1,459,780 | ||||||
4,386,954 | 2,884,467 | |||||||
Less current portion | 1,133,779 | 1,395,796 | ||||||
Long term portion | $ | 3,253,175 | $ | 1,488,671 |
The Company had a bank line of credit of approximately $300,250 which does not include an outstanding interest balance of approximately $21,700, of which all was used at November 11, 2008, the date of New Wave’s bankruptcy filing, at an interest rate of 7.75% with a maturity on June 6, 2008. The obligation to the bank was not repaid and remains payable following the dismissal of the New Wave bankruptcy.
On May 1, 2007, the Company settled a lawsuit against a former consultant for $310,000 including a Note Payable due 2010 with payments of approximately $7,200 due monthly.
On May 11, 2009 the Company entered into a financing agreement for Convertible Promissory Note in the amount of $825,000 in exchange for the delivery to the Company of a Secured & Collateralized Promissory Note in the amount of $750,000. The Company has received $70,000 toward satisfaction of this note as of June 30, 2009.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Convertible Promissory Note matures three years from the effective date and bears a one time interest equal to 12% and the obligation is convertible into the voting common stock of the Company at a conversion rate based on 70% of the lowest trade price in the 20 trading days previous to the conversion. Any conversions by the Holder of this note is limited to the Holder remaining under 4.99% ownership of the outstanding voting common stock of the Company. By the terms of this note prepayment is not permitted unless approved by the lender.
The Secured & Collateralized Promissory Note mature three years from the effective date and bears a one time interest charge of 13.2% and is secured by securities in the amount of $750,000.
As of June 30, 2009 the Company entered into finance agreements for the sale of approximately $220,000 principal amount of Convertible Debentures. Additionally loans and advances of approximately $174,000 from other related parties were converted into Convertible Debentures. The Convertible Debentures mature three years from effective date a bear and an interest rate of 14%.
On December 28, 2005, we entered into a financing arrangement involving the sale of an aggregate of $1,000,000 principal amount of callable secured convertible notes and stock purchase warrants buying 1,000,000 shares of our common stock. On December 28, 2005 we closed on $500,000 of principal and 500,000 of stock purchase warrants. The balance of the financing was closed on May 18, 2007. On March 14, 2006, we entered into a financing arrangement involving the sale of an additional $300,000 principal amount of callable secured convertible notes and stock purchase warrants to buy 7,000,000 shares of our
common stock, and on September 13, 2007, we entered into a financing arrangement involving the sale of an additional $600,000 principal amount of callable secured convertible notes and stock purchase warrants to buy 20,000,000 shares of our common stock. As part of the September 2007 financing, our Chief Executive Officer was required to personally guarantee the notes and the discount rate on the market value of our stock used for conversion calculations was reduced from 50% to 32%. The callable secured convertible notes are due and payable, with 8% interest, unless sooner converted into shares of our common stock. On December 26, 2007, we entered into a financing arrangement involving the sale of an additional $100,000 principal amount of callable secured convertible notes and stock purchase warrants buying 1,000,000 shares of our common stock. In addition, any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the Securities Purchase Agreement. The registration statement was declared effective on May 11, 2007. The conversion price of the notes is dependent on the publicly traded market price of the Company’s common stock. As such, the conversion price may change as the market value of the Company’s commons stock rises and falls. While we anticipate that the full amount of the callable secured convertible notes will be converted into shares of our common stock, in accordance with the terms of the callable secured convertible notes, the full conversion of these notes is dependent on the amount of the Company’s authorized commons stock. If the Company does not have sufficient authorized commons shares available to meet the conversion request, it may need to increase its authorized shares. As of June 30, 2009, the Company’s authorized common shares would be insufficient to meet a request to convert all of the notes at current market prices. If we are required to repay the callable secured convertible notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.
On January 31, 2008, the Company entered into a Securities Purchase Agreement with the holders of its Callable Secured Convertible Notes, whereby $147,542 of accrued interest payable as of November 30, 2007 was converted into the same amount of Callable Secured Convertible Notes on terms similar to those above.
On March 14, 2008, we entered into a financing agreement involving the sale of an additional $50,000 principal amount of callable Secured Notes and stock purchase warrants buying 500,000 shares of our common stock.
On June 20, 2008, we entered into a financing agreement involving the sale of an additional $50,000 principal amount of callable Secured Notes and stock purchase warrants buying 500,000 shares of our common stock.
On July 29, 2008, we entered into a financing agreement involving the sale of an additional $75,000 principal amount of callable Secured Notes and stock purchase warrants to buy 35,000,000 shares of our common stock, and the interest rate on all of the Callable Secured Notes increased to 12%.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 24, 2008, we entered into a financing agreement involving the sale of an additional $70,000 principal amount of callable Secured Notes and stock purchase warrants buying 50,000,000 shares of our common stock.
On November 5, 2008, we entered into a financing agreement involving the sale of an additional $61,000 principal amount of callable Secured Notes and stock purchase warrants to buy 25.000,000 shares of our common stock, and the interest rate on all the Callable Secured Notes increased to 15% and the discount rate on the market value of our stock used for conversion calculations was reduced from 35% to 28%.
On November 10, 2008, the Company entered into a Securities Purchase Agreement with the holders of its Callable Secured Convertible Notes, whereby approximately $191,100 of accrued interest payable as of that date was converted into the same amount of Callable Secured Convertible Notes on terms similar to those above.
On December 3, 2008, we entered into a financing agreement involving the sale of stock purchase warrants to buy 90,000,000 shares of our common stock.
On December 5, 2008, we entered into a financing agreement involving the sale of an additional $75,000 principal amount of callable Secured Notes and stock purchase warrants buying 50.000,000 shares of our common stock.
On March 11, 2009, we entered into a financing agreement involving the sale of an additional $50,000 principal amount of callable Secured Notes.
On June 30, 2009 the Holders of the above described callable secured convertible notes sent a notice of default to the Company, claiming that they had a right to declare a default. The Company disputes it is in default and no default has been declared by the holders since the June 30, 2009 letter. The Company has not reclassified any of the liabilities in question. Discussions have been ongoing with the Holders, and action has been taken to increase the number of common shares available to the Company to meet the requirements of the holders for additional common stock of the Company.
The conversion price of the notes is dependent on the publicly traded market price of the Company’s common stock. As such, the conversion price may change as the market value of the Company’s common stock rises and falls. While we anticipate that the full amount of the callable secured convertible notes will be converted into shares of our common stock, in accordance with the terms of the callable secured convertible notes, the full conversion of these notes is dependent on the amount of the Company’s authorized commons stock. The Company has filed an Information Statement on July 13, 2009, pursuant to section 14 (c) of the Securities Exchange Act of 1934, as amended, to increase the authorized common shares from 5 billion to 10 billion, a reverse stock split (the “Stock Split”) of the issued and outstanding shares of common stock on a basis of up to 1 for 500, and a decrease in the par value of the common stock from $.001 to $.0001 (the “Par Value Change”).
If we are required to repay the callable secured convertible notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.
Due to the indeterminate number of shares which might be issued under the embedded convertible host debt conversion feature of these callable secured convertible notes, the Company is required to record a liability relating to both the detachable warrants and embedded convertible feature of the callable secured convertible notes payable (included in the liabilities as a “derivative liability”).
The accompanying financial statements comply with current requirements relating to warrants and embedded derivatives as described in FAS 133 as follows:
a. | The Company treats the full fair market value of the derivative and warrant liability on the convertible secured debentures as a discount on the debentures (limited to their face value). The excess, if any, is recorded as an increase in the derivative liability and warrant liability with a corresponding increase in loss on adjustment of the derivative and warrant liability to fair value. |
b. | Subsequent to the initial recording, the change in the fair value of the detachable warrants, determined under the Black-Scholes option pricing formula and the change in the fair value of the embedded derivative (utilizing the Black-Scholes option pricing formula)in the conversion feature of the convertible debentures are recorded as adjustments to the liabilities as of each balance sheet date with a corresponding change in Loss on adjustment of the derivative and warrant liability to fair value. |
c. | The expense relating to the change in the fair value of the Company’s stock reflected in the change in the fair value of the warrants and derivatives (noted above) is included in other income in the accompanying consolidated statements of operations. |
NOTE 6 - Shareholders' Deficiency
Net income per common share for the quarters ended June 30, 2009 and 2008 has been computed by dividing net income (loss), after preferred stock dividend requirements of $1,521 in both quarters, by the weighted average number of common shares outstanding throughout the quarter of 2,626,203,801 and 5,655,489, respectively, after giving effect to a one for two hundred reverse stock split on July 18, 2008.
Net income per common share for the six months ended June 30, 2009 and 2008 has been computed by dividing net income (loss), after preferred stock dividend requirements of $3,043 in both periods, by the weighted average number of common shares outstanding throughout the quarter of 1,617,691,490 and 8,51,933, respectively, after giving effect to a one for two hundred reverse stock split on July 18, 2008.
Stock-Based Compensation
Financial Accounting Statement No. 123 "Accounting for Stock Based Compensation" (FAS 123), which the Company adopted on December 15, 2005, prescribes the recognition of compensation expense based on the fair value of options on the grant date, allows companies to continue applying APB 25 if certain pro forma disclosures are made assuming hypothetical fair value method application.
Options Granted
A summary of option transactions for the period from December 31, 2008 to June 30, 2009, after giving effect to a one for two hundred reverse stock split on July 18, 2008, follows:
Options | Weighted average option price | ||||
Outstanding at December 31, 2008 | 4,375 | $ | 46.00 | ||
Granted | - | - | |||
Exercised | - | - | |||
Returned/Expired | - | ||||
Outstanding at December 31, 2008 | 4,375 | $ | 46.00 | ||
Granted | - | - | |||
Exercised | - | - | |||
Returned/Expired | (4,375) (1) | - | |||
Outstanding at June 30, 2009 | - | $ |
(1) | These options expired in the first quarter of 2009 Convertible Preferred Stock The Articles of Incorporation of the Company authorized the issuance of 375,000 shares of 12% non voting convertible redeemable preferred stock at $0.10 par value per share and up to 500,000 shares of “blank check” preferred stock, from time to time in one or more series. Such shares upon issuance will be subject to the limitations contained in the Articles of Incorporation and any limitations prescribed by law to establish and designate any such series and to fix the number of shares and the relative rights, voting rights and terms of redemption and liquidation preferences. In 2006, the total Preferred Shares authorized were increased to 10 million shares. On April 24, 2008, the Company increased its total Preferred Shares authorized from 10 million to 500 million shares. All preferred stock authorized by the Company come out of this “blank check” pool. |
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12% Convertible Non-Voting Preferred Stock
The Company's 12% non-voting convertible 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. At December 31, 2008, 25,357 shares of the Non-Voting Preferred Stock were outstanding.
On February 2, 2009, the Board of Directors authorized the issuance of shares of the Company's common stock or cash, which shall be at the discretion of the Chief Executive Officer in order to pay the accrued preferred stock dividends. Accrued and unpaid dividends at June 30, 2009, were $44,111. 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). The Company's Preferred Stock is convertible into shares of Common Stock at a rate of two shares of Common Stock (subject to adjustments) for each share of Preferred Stock, at the option of the Company, at any time on not less than 30 days' written or published notice to the Preferred Stockholders of record, at a price $2.00 per share (plus all accrued and unpaid dividends). The holders of the Preferred Stock have the opportunity to convert shares of Preferred Stock into Common Stock during the notice period. The Company does not have nor does it intend to establish a sinking fund for the redemption of the Preferred Stock. As adjusted, the outstanding shares of Preferred Stock would currently be converted into fifteen shares of Common Stock.
No dividends have been paid during the three months ended June 30, 2009.
Series B Voting Preferred Stock
The Company filed a Certificate of Designation of Series B Convertible Preferred Stock on January 4, 2006, pursuant to which the Company authorized for issuance 135,000 shares of Series B Preferred Stock, par value $0.10 per share, which shares are convertible after the earlier of (i) forty-five days after the conversion of the 8% callable secured convertible notes issued in our recent financing, or (ii) 12 months after this registration statement is declared effective, at a conversion price equal to the volume weighted average price of our common stock, as reported by Bloomberg, during the ten consecutive trading days preceding the conversion date. We issued an aggregate of 117,493 shares of Series B Preferred Stock to a group of our current shareholders in exchange for an aggregate of 23,498,109 shares of our common stock. The holders of Series B Preferred Stock shall have the right to vote together with holders of the Corporation’s Common Stock, on a 30 votes per share basis (and not as a separate class), all matters presented to the holders of the Common Stock. The foregoing shareholders were existing investors before they did the exchange. As of June 30, 2009, 135,000 authorized shares were issued and 122,840 outstanding
Shares of Series B Preferred Stock are convertible into shares of common stock of the Company at a conversion price which is equal to 50% of the closing bid price of the Company’s common stock.
Series C Voting Preferred Stock
The Company filed a Certificate of Designation of Series C Convertible Preferred Stock on March 23, 2006, pursuant to which the Company authorized for issuance 300,000 shares of Series C Preferred Stock, par value $0.10 per share, which shares are convertible after (i) the market price of the Common Stock is above $1.00 per share; (ii) the Company’s Common Stock is trading on the OTCBB market or the AMEX; (iii) the Company is in good standing; (iv) the Company must have more than 500 stockholders; (v) the Company must have annual revenue of at least four million dollars; (vi) the Company does not have at least $100,000 EBITA for the fiscal year preceding the conversion request. The holders of the Series C Preferred Stock shall have the right to vote together with the holders of the Corporation’s Common Stock, on a 30 votes per share basis (and not as a separate class), on matters presented to the holders of the Common Stock. 220,000 shares of Series C Preferred Stock have been issued on February 14, 2008 to the Company’s President.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Convertible Series D Voting Preferred Stock
The Company filed a Certificate of Designation of Series D Preferred Stock on February 5, 2007 and a Certificate of Change of Number of Authorized Shares and Par Value of Series D Preferred Stock on March 26, 2007, pursuant to which the Company authorized for issuance 6,500,000 of shares of Series D Preferred Stock, par value $0.001 per share. Holders of the Series D Preferred Stock have the right to vote together with holders of the Company’s Common Stock, on a 60-votes-per-share basis (and not as a separate class), on all matters presented to the holders of the Common Stock. The shares of Series D Preferred Stock are not convertible into Common Stock of the Company. 6,500,000 shares Series D Preferred Stock has been issued to the Company’s President.
Non-Convertible Series E Voting Preferred Stock
The Company filed a Certificate of Designation of Series E Preferred Stock on July 10, 2009, pursuant to which the Company authorized for issuance 100,000,000 of shares of Series E Preferred Stock, par value $0.001 per share. Holders of Series E Preferred Stock have the right to vote together with holders of the Company’s Common Stock, on a 95-vote-per-share basis (and not a separate class), on all matters presented to the Holders of the Common Stock. The shares of the Series E Preferred Stock are not convertible into Common Stock of the Company. 31,000,000 shares of Series E have been issued to the Company’s President.
Warrants
A summary of warrants outstanding at June 30, 2009, after giving effect to a one for two hundred reverse stock split on July 18, 2008.
Warrants | Date Issued | Expiration Date | Price |
5,000(a) | 7/2004 | 7/2010 | 10.000 |
668 | 8/2004 | 8/2009 | 140.000 |
525 | 2/2005 | 2/2010 | 130.000 |
105 | 4/2005 | 4/2010 | 140.000 |
3,813 | 10/2005 | 10/2010 | 130.000 |
2,500 | 12/2005 | 12/2010 | 26.000 |
35,000 | 3/2006 | 3/2010 | 20.000 |
2,500 | 5/2007 | 5/2012 | 26.000 |
100,000 | 9/2007 | 9/2014 | 1.000 |
5,000 | 12/26/07 | 12/2014 | 1.000 |
2,500 | 3/14/08 | 3/14/15 | 1.000 |
2,500 | 6/20/08 | 6/29/15 | 1.000 |
35,000,000 | 7/29/08 | 7/29/15 | 0.005 |
50,000,000 | 9/24/08 | 9/24/15 | 0.005 |
25,000,000 | 11/5/08 | 12/3/15 | 0.001 |
90,000,000 | 12/3/09 | 12/3/15 | 0.001 |
50,000,000 | 12/5/08 | 12/5/15 | 0.001 |
250,160,111 |
(a) | Represents Options for 2,000, 1,500 and 1,500 shares originally priced at $200.00, $150.00 and $130.00, respectively which were re-priced to $10.00 in October, 2005 (taking effect stock split of the Company’s common stock, up to a one-for-two- hundred- ratio that became effective on July18, 2008. |
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AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Related Parties
The Company’s subsidiary, Services, entered into a sublease for its New York office from a company 100% owned by the Company’s President, currently approximately $5,100 per month. The lease and Services sublease on this space expire on November 30, 2016. The rent paid and terms under the sublease are the same as those under the affiliate’s lease agreement with the landlord Rent expense for the second quarter ended June 30, 2009 and 2008 was approximately $16,000 and approximately $16,000, respectively.
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 unaffiliated entities. The Company received no revenue relating to these films during the first six months June30, 2009.
Throughout 2009 and 2008, 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 net outstanding balance due to the officer at June 30, 2009 and December 31, 2008, was approximately $822,000, and $686,000, respectively. Mr. Hreljanovic has a security interest in Tower West and it extinguishes upon payment in full of the outstanding debt due him.
No legal services were rendered by Mr. Huston or his firm in 2009 and 2008; and no fees were paid to Mr. Huston or his firm during that time.
NOTE 8 - Commitments and Contingencies
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
Mr. Hreljanovic has an Employment Agreement with the Company, which expired on August 31, 2008, and that provides for his employment as President and Chief Executive Officer at an annual salary and the Board of Directors, have authorized a an extension of his employment agreement (Extension Agreement) under the same terms and conditions expiring on August 31, 2009 adjusted annually for the CPI Index and for the reimbursement of certain expenses and insurance. Based on the foregoing formula, Mr. Hreljanovic's base salary in 2009 was scheduled to be approximately $235,700. Additionally, the employment agreement provides that Mr. Hreljanovic may receive shares of the Company’s common stock as consideration for services rendered to the Company. Due to a working capital deficit, Mr. Hreljanovic was paid $7,800 and the balance of his salary was accrued and not paid.
Under the terms of this Extension Agreement, our Chief Executive Officer is entitled to receive a cash bonus of a percentage of our pre-tax profits if our pre-tax profit exceeds $100,000.
Mr. Hreljanovic has accrued salary of approximately $822,000 at June 30, 2009. Mr. Hreljanovic incorporated Tower West Communications, Inc. a Florida corporation, organized on January 2009 (Tower) and paid all fees associated with its creation. Juniper Services, Inc. owns a 100% interest in Tower West subject to a first position security interest held by Mr. Hreljanovic. Mr. Hreljanovic’s security interest in Tower West extinguishes upon payment in full of all accrued and not paid compensation owed him.
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JUNIPER GROUP, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, if the Extension Agreement is terminated early by us after a change in control (as defined by the agreement), the officer is entitled to all his accrued and not paid salary, in addition to a lump sum cash payment equal to approximately three times his current base salary.
Litigation
On June 15, 2007, the Company, through its subsidiaries, commenced a lawsuit against Michael Calderhead and James Calderhead (the “Calderheads”) former employees, in the United States District Court for the Eastern District of New York (Case No. 07-CV-2413). The complaint asserts claims against the Calderheads for breaches of a stock exchange agreement, breaches of an employment agreement, and breaches of fiduciary duties owed to Juniper and its wholly-owned affiliate New Wave Communications, Inc. (“New Wave”). Juniper alleges the Calderheads committed serious, material breaches of their agreements with Juniper. Indeed, almost immediately after Juniper’s acquisition of New Wave, and while still employed by Juniper and/or New Wave and bound by their agreements with Juniper, the Calderheads made preparations to form and operate a rival business to compete with Juniper and New Wave.
In February 2006, a mere two months after Juniper’s acquisition of New Wave, the Calderheads met with possible financiers to discuss incorporating a new company that would compete with New Wave and Juniper. Juniper alleges that the meeting involved at least James Calderhead, a Juniper executive and the President of New Wave; Michael Calderhead, a New Wave Chief Operating Officers; another New Wave executive who had worked with Michael Calderhead prior to the Juniper acquisition; and a local businessman in Franklin, Indiana, and the owner of several businesses.
At the time of the February 2006 meeting, and at all relevant times thereafter, James Calderhead was subject to the Employment Agreement and Michael Calderhead was subject to the Stock Exchange Agreement. Following the alleged February 2006 meeting, the Calderheads, along with others, continued their efforts to form and operate a new company which came to be called Communications Infrastructure, Inc. (“CII”). According to the online records of the Indiana Secretary of State, CII was organized as a for-profit domestic corporation on January 19, 2007.
According to CII’s advertisements and representations in the marketplace, it is a competitor of Juniper and New Wave. Specifically, CII’s website states that “CII brings the combined experience of its owners in all areas of Cellular Site Construction,” including project management, civil construction, tower erection, and maintenance and troubleshooting.
At no time did the Calderheads inform New Wave or Juniper of the formation of CII, their intentions or activities regarding CII, or their intent or design to form a new company that would compete with New Wave or Juniper. At no time did New Wave or Juniper consent to any activities by the Calderheads with respect to CII or setting up a rival company.
On or about January 17, 2007, Michael Calderhead announced that he would resign from New Wave. Michael Calderhead, however, did not formally end his employment relationship with New Wave until on or about March 27, 2007. Juniper subsequently learned that Michael Calderhead had been working, and was continuing to work, for CII.
In late 2006 and early 2007, New Wave’s business suddenly, and substantially, declined. Contracts were lost, customer and vendor relationships were ended, and new business opportunities were not pursued. New Wave alleged and believes that some former customers of Juniper and New Wave were transferred to CII during this period, and believes that discovery will establish that the Calderheads were involved in soliciting business for CII and soliciting New Wave’s customers and employees to switch.
The substantial declines in New Wave’s business continued throughout early 2007. These declines were not reported to Juniper’s management in a timely manner and, when they were reported, the declines were not explained in a reasonable or clear manner. It was not until May, 2007 that Juniper became aware of CII’s growing presence in the marketplace; the involvement of Michael Calderhead in CII’s business; and that CII was directly competing with New Wave for customers.
On Friday, May 18, 2007, ten New Wave employees abruptly announced that they were resigning their positions at New Wave. Most of these former New Wave employees indicated that they would begin work for CII, joining Michael Calderhead.
Indeed, in the course of little more than a year from the date that Juniper purchased New Wave from Michael Calderhead and installed the Calderheads as New Wave executives, New Wave had gone from being a growing, profitable business to a business on the verge of financial collapse.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On Tuesday, May 22, 2007, Juniper terminated James Calderhead for cause. Some, although not all, of the grounds for James Calderhead’s termination are set forth above and in a termination letter dated.
Juniper seeks injunctions restraining the Calderheads from, among other things, competing with Juniper and New Wave, as well as compensatory damages in the amount believed to be $10,000,000, punitive damages in the amount of $5,000,000 and attorneys fees, costs and expenses. On September 29, 2007, the Court issued a preliminary injunction against Michael Calderhead enjoining him from disclosing Juniper/New Wave’s customer list and from soliciting, directly or indirectly, any of Juniper/New Wave’s existing customers; denied the Calderheads’ motion to dismiss the complaint; and granted Juniper’s motion for expedited discovery.
On October 16, 2007, Michael Calderhead answered the complaint and asserted counterclaims against Juniper for alleged breaches of, and fraud in connection with, the stock exchange agreement and for alleged abuse of process in connection with Juniper’s application for injunctive relief. Michael Calderhead seeks compensatory and punitive damages. On October 16, 2007, James Calderhead answered the complaint and asserted counterclaims against Juniper for alleged breaches of the employment agreement and for alleged abuse of process in connection with Juniper’s application for injunctive relief. James Calderhead seeks compensatory and punitive damages. The Company believes that none of the counterclaims asserted by the Calderheads have any merit.
The Company is vigorously prosecuting the claims asserted against the Calderheads and is vigorously defending the counterclaims asserted by the Calderheads. The outcome of this litigation will materially affect the Company.
In Re New Wave Communications, Inc A chapter 11 Bankruptcy petition was filed on November 7, 2008 in the U.S. Bankruptcy Court for the Southern District of Indiana (Indianapolis) and assigned case #08-13975-JKC-11. The petition was voluntarily dismissed at the request of New Wave Communications, Inc. on March 6, 2009.
Regions Bank vs. New Wave Communications Inc State of Indiana, County of Johnson, Johnson County Circuit/ Superior Court Case No. 41D010809. Suit has been filed seeking enforcement of a promissory note date June 6, 2008 in the amount of $300,250 and bearing interest at the rate of 7.75%.
On May 8, 2008, U.S. District Court Eastern District of NY Index No. 08 Civ. 1900. Alan Andrus filed an action entitled Andrus vs. Juniper Group Inc in the United States District Court for the Eastern District of New York. The complaint, against us, a subsidiary and Mr. Hreljanovic, asserts claims for fees of $195,000 plus interest for services rendered. Discovery is ongoing and the Company anticipates it will file a Motion for Summary Judgment in the coming months while no estimate of the outcome can be made, the Company believes it has meritorious defenses and will prevail in this matter.
Unasserted Claims
The Company learned in 2006 that certain sales of its common stock may have violated certain sections of the Securities Act of 1933 and related regulations. The Company is currently unable to determine the amount of damages, costs and expenses, if any, that it may incur as a result of that uncertainty. As June 30, 2009 no shareholders have asserted any claims against the Company.
Going Concern
The Company did not have sufficient cash to pay for the cost of its operations or to pay its current debt obligations. The Company raised approximately $70,000 and $381,000 in 2009 and 2008, respectively, through the sale of 8% Callable Secured Convertible Debentures and approximately $443,000 and $315,000 at June 30, 2009 and December 31, 2008, through Convertible Notes from related parties for working capital, capital purchases and for the payment of debt to date. Among the obligations that the Company has not had sufficient cash to pay are its payroll, payroll taxes and the funding of its subsidiary operations. Certain employees and consultants have agreed, from time to time, to receive the Company’s common stock in lieu of cash. In these instances, the Company has determined the number of shares to be issued to employees and consultants based upon the unpaid compensation and the current market price of the stock. Additionally, the Company registers these shares so that the shares can immediately be sold in the open market.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is continuing to incur net losses and maintains a negative working capital. While there was net loss for the six months ending June 30, 2009, excluding the gain on the fair market valuation adjustment of derivative liabilities, the Company incurred a loss of approximately $1,000,000 in the six months ending June 30, 2009, and approximately $1,400,000 in the three months ending June 30, 2008. Working capital deficit approximately $3.8 million at June 30, 2009.
The fact that the Company continued to sustain losses in 2009 and 2008, had negative working capital at June 30, 2009 and still requires additional sources of outside cash to sustain operations, continued to create uncertainty about the Company’s ability to continue as a going concern. We believe that we will not have sufficient liquidity to meet our operating cash requirements for the current level of operations during the remainder of 2009. In addition, any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, or breach of any covenant, representation or warranty in the Securities Purchase Agreement would have an impact on our ability to meet our operating requirements. We anticipate that the full amount of the callable secured convertible notes will be converted into shares of our common stock, in accordance with the terms of the callable secured convertible notes. If we are required to repay the callable secured convertible notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations. Our ability to continue as a going concern is dependent upon receiving 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. Although we may obtain external financing through the sale of our securities, there can be no assurance that such financing will be available, or if available, that any such financing would be on terms acceptable to us. If we are unable to fund our cash flow needs, we may have to reduce or stop planned expansion or scale back operations and reduce our staff.
On June 30, 2009 the Holders of the above described callable secured convertible notes sent notice of default to the Company, claiming that they had a right to declare a default. The Company disputes it is in default and no default has been declared by the holders since the June 30, 2009 letter. Discussions have been ongoing with the Holders, and action has been taken to increase the number of common shares available to the Company to meet the requirements of the holders for additional common stock of the Company
The Chapter 11 case was filed by New Wave Communications, Inc. on November 7, 2008. The reason for the filing was that New Wave Communications sustained irreparable damages which the Company asserted claims against the Calderheads committing serious, material breaches of their agreements with Juniper (see Legal Proceedings).
The Company has developed a plan to reduce its liabilities and improve cash flow through expanding operations by acquisition and raising additional funds either through 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 2009 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 financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Leases
The Company subleases the New York office from Entertainment Financing Inc. (“EFI), an entity 100% owned by our Chief Executive Officer. The master lease and the Company’s sublease on this space expire on November 30. 2016. EFI has agreed that for the term of the sublease the rent paid to it will be substantially the same rent that it pays under its master lease to the landlord. Rent due under the lease with EFI is as follows:
Year | Amount | |||
2009 | 58,200 | |||
2010 | 60,100 | |||
2011 | 62,000 | |||
2012 | 64,000 | |||
2013 | 66,100 | |||
Thereafter | 205,300 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - Income Taxes
As a result of losses incurred through December 31, 2008, the Company has net operating loss carry forwards of approximately $28.6 million. These carry forwards expire through 2028.
In accordance with SFAS No. 109 "Accounting for Income Taxes", the Company recognized deferred tax assets of $11,639,000 at December 31, 2008. 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 $11,639,000. Deferred tax assets at December 31, 2008 primarily reflect the tax effect of net operating loss carry forwards.
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes thereto included herein, and the consolidated financial statements included in its 2008 Annual Report on Form 10-K included in the Registration Statement on Form SB-2 (file #333-131730) which include forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the actual results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements not to occur or be realized. Statements contained in this document, as well as some statements by the Company in periodic press releases and oral statements of Company officials during presentations about the Company constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act). The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward looking statements. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, it directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations. The readers of this report are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such factors as:
Continued historical lack of profitable operations; |
·working capital deficit; ·the ongoing need to raise additional capital to fund operations and growth on a timely basis; ·the success of the expansion into the broadband installation and wireless infrastructure services and the ability to |
provide adequate working capital required for this expansion, and dependence thereon; |
· most of the Company’s revenue is derived from a selected number of customers; |
· the ability to develop long-lasting relationships with our customers and attract new customers; |
· the competitive environment within the industries in which the Company operates; |
· the ability to attract and retain qualified personnel, particularly the Company’s CEO; |
· effect on our financial condition of delays in payments received from third parties; |
· the ability to manage a new business with limited management; |
· rapid technological changes; and |
· other factors set forth in our other filings with the Securities and Exchange Commission. |
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Key Factors Affecting or Potentially Affecting Results of Operations and Financial Conditions
Statement of Financial Accounting Standards No. 133, ”Accounting for Derivative Instruments and Hedging Activities” (SFAS) No. 13 requires that due to the indeterminate number of shares which might be issued under the embedded convertible host debt conversion feature of these Callable Secured Convertible Notes, the Company is required to record a liability relating to both the detachable warrants and embedded convertible feature of the notes payable (included in the liabilities as a “derivative liability”) and to all other warrants and options issued and outstanding as of December 28, 2007, except those issued to employees. The result of adjusting these derivative liabilities to market generated an unrealized gain for the three months ended March 31, 2009 of approximately $44,700,000 and an unrealized gain for the three months ended March 31, 2008 of approximately $7,100,000.
On December 30, 2005, Juniper Services entered into a binding Letter of Intent with New Wave providing for the purchase by Juniper Services of all outstanding shares of New Wave. New Wave’s business is the deployment, construction and maintenance of wireless communications towers and related equipment. The Company, through Juniper Services, agreed to pay New Wave $817,000 as follows: $225,000 in cash and $592,000 paid by the issuance of 19,734 shares of Series B Voting Preferred Stock.
On March 16, 2006, Juniper Services consummated the acquisition of New Wave by entering into a Stock Exchange Agreement and Plan of Reorganization with New Wave.
On September 15, 2007, the Company, through its subsidiaries, commenced a lawsuit against Michael Calderhead and James Calderhead, disloyal former employees, in the United States District Court for the Eastern District of New York (Case No. 07-CV-2413). The complaint asserts claims against the Calderheads for breaches of a stock exchange agreement, breaches of an employment agreement, and breaches of fiduciary duties owed to Juniper and its wholly-owned affiliate New Wave Communications, Inc. (“New Wave”). Juniper seeks preliminary and permanent injunctions restraining the Calderheads from, among other things, competing with Juniper and New Wave, as well as compensatory damages in the amount believed to be $10,000,000 and punitive damages and exceptional damages, in the amount of $5,000,000 and attorneys fees, costs and expenses.
On September 22, 2007, the Court granted a temporary restraining order against the Calderheads. On July 9, 2007, Juniper’s motion for preliminary injunctive relief was heard before the Hon. A. Kathleen Tomlinson, U.S.M.J. and the court continued the temporary restraining order but has not yet ruled on the preliminary injunctive motion.
On November 7, 2008 New Wave Communications, Inc. a wholly owned subsidiary of Juniper Services, Inc. filed a Certificate of Emergency in requesting relief under Chapter 11 of the United States Bankruptcy Code, case number 08-13975-JKC-11 with the Honorable Judge James K. Coachys. The reason for the filing was that New Wave Communications sustained irreparable damages which the Company asserted claims against former employees, the Calderheads, alleging that they committed serious, material breaches of their agreements with Juniper ( see Legal Proceedings). The petition was voluntary dismissed at the request of New Wave Communications, Inc. on March 6, 2009.
We reserve against receivables from customers whenever it is determined that there may be operational, corporate or market issues that could eventually offset the stability or financial status of these customers or payments to us. There is no assurance that we will be successful in obtaining additional financing for these efforts, nor can it be assured that our services will continue to be provided successfully, or that customer demand for our services will continue despite anticipated customer workloads through 2009.
Although our strategy is to increase the percentage of our business derived from large, financially stable customers in the communication industries, these customers may not continue to fund capital expenditures for infrastructure projects. Even if they do continue to fund projects, we may not be able to increase our share of business due to the alleged interference initiated by James and Michael Calderhead.
On May 9, 2008, Alan Andrus filed a lawsuit against the Company, its Subsidiary Juniper Internet Communications, Inc. (“Juniper Internet”), and Mr. Vlado P. Hreljanovic himself, in United States District Court for the Eastern District of New
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York. The plaintiff alleges that he is entitled to unpaid consulting fees due to him, $195,077.85 plus interest, from the Juniper Internet. All defendants are vigorously contesting the plaintiff’s claims.
Executive Overview of Financial Results
Juniper Group, Inc. is a holding company and its business has been composed of two segments (1) broadband installation and wireless infrastructure services and (2) film distribution services. Currently, film distribution services consist of a financially insignificant portion of our operations. The Company’s headquarters are in Boca Raton, FL office and conducts its business indirectly through its wholly-owned subsidiaries.
The Company’s current operating focus is through the broadband installation and wireless infrastructure services in supporting the growth of its operations by increasing revenue and managing costs. These services are conducted through Juniper Services, Inc. (“Services”), which is a wholly owned subsidiary, of Juniper Entertainment, Inc. (“JEI”), which is a wholly owned subsidiary of the Company.
Management’s strategic focus is to support the growth of its operations by increasing revenue and revenue streams, managing costs and creating earnings growth. The Company has, and will continue, to seek strategic acquisitions to guarantee its growth in the broadband and wireless infrastructure business. The Company has redirected its services and its marketing effort to a national customer base utilizing subcontractors in order to control cost which was largely attributed to the Company’s inability to compete in the Indiana regional market and provide services to its New Wave customers due to the alleged interference of James and Michael Calderhead.
Film Distribution Services: The film distribution services is conducted through Juniper Pictures, Inc (“Pictures “), a wholly owned subsidiary of Juniper Entertainment, Inc. (“JEI“), a wholly owned subsidiary of the Company.
Broadband Installation and Wireless Infrastructure Services
The Company’s broadband installation and wireless infrastructure services are conducted through Juniper Services, Inc. and its subsidiary (“Services”). Services operate the Company’s wireless broadband and wireless installation services on a national basis. Its direction is to support the demand in the deployment and maintenance of wireless/tower system services with leading telecommunication companies in providing them with site surveys, tower construction and microwave system and software installations.
On March 16, 2006, Juniper Services, Inc. (“Services”) completed the acquisition of all outstanding shares of New Wave Communication, Inc. (New Wave), making it a wholly owned subsidiary of Services. New Wave was a wireless communications contractor in the Mid-West, specializing in tower erection, extension, modifications and maintenance, as well as cellular, wireless broadband and microwave systems installation. On November 7, 2008, New Wave, filed for bankruptcy and ceased operations. The petition was voluntary dismissed at the request of New Wave Communications, Inc. on March 6, 2009.
In January, 2009, we formed Tower West Communications, Inc. (“Tower West”); a wholly owned subsidiary of Juniper Services currently operates on the East Coast by subcontracting its contracts to local contractors. As a result, it is capable of sustained work anywhere within the United States. . Our current client roster includes Communication Construction Group supporting Verizon on the FTTP Path Creation (FIOS) project, American Tower, Maxton Technology, and BCI Communications, Inc.
Tower West has changed the Company’s business protocol and has added a new dimension to the fundamentals of Services and will allow Services to leverage its customer base in creating a wider market space for its base business.
The Company has experienced a dramatic reduction in revenue during the second half of 2008 which has continued during the beginning of 2009, largely attributed to the actions of Michael and James Calderhead, former disloyal employees, for their outrageous breaches of various contractual and fiduciary duties owed to the Company, including alleged business interference and employee theft.
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Management has taken the following corrective actions to improve the operating performance of the wireless infrastructure services:
1. 1.Commenced a lawsuit in Federal Court against Michael and James Calderhead, seeking preliminary and permanent injunctions restraining the Calderheads from, among other things, competing with the Company and its subsidiaries, as well as compensatory and punitive damages; |
2. 2. Hired new management team and reorganized management’s responsibilities. |
3. 3. Aligned labor costs with market conditions; |
4. 4. Utilizing subcontractors; Eval5. Evaluating geographic footprint outside Indianapolis and customer need with customer contracts; and 5 6. Utilizing accounts receivable financing 6 |
The Company believes the demand for broadband installation and wireless infrastructure services will increase in the wireless broadband segment during 2009 through the continued support of the cellular market and through a robust wireless industry. Services have deployed its efforts to be able to handle new opportunities with existing staff in order to meet its client’s needs.
Through its marketing program, the Company is exploring new opportunities in its wireless infrastructure and broadband service business. The Company will seek to achieve a greater more diversified balance in its business base among the various competing segments of rapidly expanding wireless Providers. The Company will continue to evaluate potential opportunities in terms of the capital investments required, cash flow requirements of the opportunity, and the margins achievable in each market segment.
The Company will choose to concentrate its efforts during the balance of 2009 in implementation its new services to key national providers on a national platform with a support of subcontractors. The Company believes that this strategy will allow the Company to grow while maintaining a control on its costs. As the economic environment continues its improvement this year, the Company believes that its prospects for the expansion of its new services in the wireless Infrastructure segment are good for 2009. The Company believes that infrastructure build-out, technology introduction, new applications and broadband deployment, integration and support will continue to be outsourced to qualified service providers such as Services.
Services’ opportunity to exploit the broadband installation and wireless infrastructure services and to take advantage of future wireless opportunities are limited by a number of factors:
(i) These include its ability to financially support the national agreements entered into and to finance continuing growth and fund management recruitment, certifications, training and payroll, as well as the financing of operating cash flow requirements to support subcontractor costs. This will require additional financing on a timely basis.
(ii) To maximize capital availability for potential new services being developed by providers in the broadband and wireless market, the Company evaluates opportunities for services to its customer based on capital investment requirements, the potential profit margin, and the customer’s payment practices.
(iii) The Company will focus on accounts receivable financing, and thereby increasing cash flow. The issues that rank high on evaluating new business opportunities are the customer’s qualification to meet the accounts receivable financing requirements.
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RESULTS OF OPERATIONS
Three Months Ending June 30, 2009 vs. Three Months Ending June 30, 2008.
Executive Overview of Financial Results
The Company is currently utilizing its resources to build the broadband installation and wireless infrastructure services, and has not devoted resources toward the promotion and solicitation of its film licenses. The main operations of the Company are the broadband installation and wireless infrastructure services segment. The film operations are insignificant and are included in the discussion of general corporate activity which includes the effect of the Company’s debt service, litigation and other corporate matters. In January, 2009, we formed Tower West Communications, Inc. (“Tower West”); a wholly owned subsidiary of Juniper Services currently operates on the East Coast by subcontracting its contracts to local contractors. As a result, it is capable of sustained work anywhere within the United States
During the three month period ending June 30, 2009 Juniper Pictures generated no revenue. Certain of our films that generate revenue when contracts were signed and are still under license and are currently being aired by licenses.
NET INCOME (LOSS)
There was net loss available to common stockholders of approximately $7,036,000, or $(0.003) per share on revenue of approximately $109,000, which includes a loss on the fair market evaluation adjustment of derivative liabilities of approximately 6.3 million, the Company incurred a loss of approximately $7,036,000. Compared to a net loss of approximately $9.5 million or $1.67 per share on revenue of approximately $221,000, which includes a loss on the fair market evaluation adjustment of derivative liabilities of approximately $8.6,
The Company had approximately $109,100 revenue for the second quarter 2009, compared to revenue of approximately $213,700 for three months ended June 30, 2008.
Broadband Installation and Wireless Infrastructure Services
Revenues
The broadband installation and wireless infrastructure services generated approximately $109,000 revenues for the three month period ending June 30, 2009 compared to approximately $214,000 for the three month ending June 30, 2008. The decrease in revenue was primarily due to completion of existing customer contract and a decrease in new contracts awards during the bankruptcy proceedings and reorganization of our then principal operating subsidiary. The decrease in revenue was attributable to several factors including the alleged actions by Michael Calderhead and James Calderhead, former disloyal employees for their outrageous breach of various contractual and fiduciary duties owed to the Company.
General and administrative expenses decreased to approximately $326,000 for the three months ending June 30, 2009 compared to $496,000 for the three months ending June 30, 2008 as result of a decrease in payroll expense.
We incurred an amortization of debt discount of approximately $336,000 in the three months ending June 30, 2009 compared to approximately $235,000 in the three months ending June 30 2008. This increase was primarily due to the increase in debt. Accordingly, net loss amounted to approximately $7,036,000 in the three months June 30, 2009 and approximately $9,465,000 in the three months ending June 30, 2008;
Interest expense increased to approximately $108,000 in the three months ending June 30, 2009 compared to approximately $58,000 in the three months ending June 30, 2009. This increase was primarily due to the issuance of additional convertible notes and an increase in the interest rate on outstanding debt.
We recognized a loss on derivatives of approximately $6,311,000 in the three months ending June 30, 2009 compared to a loss of approximately $8,562,000 in the three months ending June 30, 2009. The variance was due to an increase in the estimated market value of the derivative instrument resulting mainly from the decrease in the price of our stock on which the estimated market value is based.
Net loss decreased to approximately $7,035,000 in the three months ending June 30, 2009 from approximately $9,465,000 as a result of these items.
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Six Months Ending June 30, 2009 vs. Six Months Ending June 30, 2008.
NET INCOME (LOSS)
There was net gain available to common stockholders of approximately $37,168,000, or $(0.023) per share on revenue of approximately $109,000, which includes a gain on the fair market evaluation adjustment of derivative liabilities of approximately 38.4 million, the Company incurred a gain of approximately $37,168,000. Compared to a net loss of approximately $2.9 million or $0.626 per share on revenue of approximately $502,000, which includes a loss on the fair market evaluation adjustment of derivative liabilities of approximately $1.5 million.
Revenues
The broadband installation and wireless infrastructure services generated approximately $109,000 revenues for the six month period ending June 30, 2009 compared to approximately $502,000 for the six month ending June 30, 2008.
Operating Costs
The broadband installation and wireless infrastructure services incurred operating costs of approximately $57,000 (52% of revenue) for the six months ended June 30, 2009, compared to approximately $579,000(115% of revenue) for the six months June 30, 2009
Holding Company (Juniper Group)
Operating Expense
The Holding Company does not have any significant income producing operating assets. As such, the operating loss was equal to operating expense. Operating expense consists primarily of employee compensation, legal, accounting, SEC costs, consulting fees and ordinary and customary office expenses.
Derivative Expenses and Amortization of Discounts
Derivative expenses and amortization of discounts represent significant components of net income and can swing dramatically from period to period based on factors beyond the Company’s control, such as the price of its stock. The gain on derivative securities for the six months ended June 30, 2009 was approximately $38,400,000 compared with a loss of approximately $1,500,000 for the six months ended June 30, 2008. The amortization of the Company’s primary debt instrument amounted to approximately $505,000 for the six months ended June 30, 2009 compared with approximately $330,000 for the six months ended June 30, 2007.
Liquidity and Capital Resources
At June 30, 2009, we had a working capital deficit of approximately $(3,800,000), compared to a working capital deficit of approximately $(3,853,000) at December 31, 2008. The ratio of current assets to current liabilities was 0.03:1 at June 30, 2009 and 0.06:1 at December 31, 2008. Cash flow used for operations during the six months ended June 30, 2009 was approximately $510,000.
Total Debt at June 30, 2009, was approximately $7.2 million.
We have incurred losses in the last several years and have funded our operations primarily from the sale of securities in private transactions. We plan to grow the wireless broadband service business and to invest the predominant portion of available resources in the effort. Subject to our ability to continue to fund our operations through the sale of securities in private transactions, we will begin to increase our wireless broadband services.
We are seeking to arrange addition capital financing to support these new wireless broadband service opportunities. There can be no assurances that we will successfully arrange this additional financing or that the anticipated additional business opportunities will be successfully implemented or supported.
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We are seeking to increase our business base in providing services that have higher margins. With anticipated higher gross profits to be realized for our expanded services and projects, and the initiation of new wireless, construction and maintenance services, we plan to improve the earnings from our services and will apply this additional cash to reducing liabilities.
Our operations during the six months ended June 30, 2008 were funded by the sale of 15% Callable Secured Convertible Secured Notes and 14% Convertible Debentures, as well as the nascent operations of our Tower West subsidiary. Among the obligations that the Company has not had sufficient cash are to pay its payroll, payroll taxes, attorneys and the funding of its subsidiary operations. Certain employees and consultants have agreed, from time to time, to receive the Company’s common stock in lieu of cash. In these instances, the Company has determined the number of shares to be issued to employees and consultants based upon the unpaid compensation and the current market price of the stock. Additionally, the Company registers these shares so that the shares can immediately be sold in the open market.
With regard to the balance of the past due payroll taxes, the Company has hired a firm of Tax Attorneys to negotiate with the taxing authorities.
The fact that the Company continued to sustain losses in 2009, had negative working capital at June 30, 2009 and still requires additional sources of outside case to sustain operations, continued to increase uncertainty about the Company’s ability to continue as a going concern.
We believe that we will not have sufficient liquidity to meet our operating cash requirements for the current level of operations during the remainder of 2009. We have received all planned rounds of financing. In addition, any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, or breach of any covenant, representation or warranty in the Securities Purchase Agreement would have an impact on our ability to meet our operating requirements. We anticipate that the full amount of the callable secured convertible notes will be converted into shares of our common stock, in accordance with the terms of the callable secured convertible notes. If we are required to repay the callable secured convertible notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations. Our ability to continue as a going concern is dependent upon receiving 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. Although we may obtain external financing through the sale of our securities, there can be no assurance that such financing will be available, or if available, that any such financing would be on terms acceptable to us. If we are unable to fund our cash flow needs, we may have to reduce or stop planned expansion or scale back operations and reduce our staff.
The Company has had a bank line of credit promissory note due June 6, 2008 of $300,250 of which the Company has used $300,250 at an interest rate of 7.75%. The Company is in default on the loan and the Bank has instituted a lawsuit in the State of Indiana, County of Johnson.
SEASONALITY
The provision of services for broadband installation and wireless infrastructure deployment is affected by adverse weather conditions and the spending patterns of our customers, exposing us to variable quarterly results. Inclement weather may lower the demand for our services in the winter months, as well as other times of the year. Furthermore, the weather can delay the Natural catastrophes such as the recent hurricanes in the United States could also have a negative impact on the economy overall and on our ability to perform outdoor services in affected regions or utilize equipment and crew stationed in those regions, which
in turn could significantly impact the results of any one or more reporting periods. However, these natural catastrophes historically have generated additional revenue subsequent to the event.
INFLATION
We believe that inflation has generally not had a material impact on our operations.
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BACKLOG
None
FINANCING
The Company entered into the following Securities Purchase Agreement with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC: (A) on December 28, 2005 for the sale of (i) $1,000,000 in Callable Secured Convertible Notes and (ii) warrants to buy 1,000,000 shares of our common stock; (B) on March 14, 2006 for the sale of (i) $300,000 in callable secured convertible notes and (ii) stock purchase warrants to buy 7,000,000 shares of our common stock; (C) the Company entered into a Security Purchase Agreement with New Millenium Capital Partners II, LLC, AJW Partners, LLC and AJW Master Fund Ltd. on September 13, 2007 for the sale of (i) $600,000 in Callable Secured Convertible Notes and (ii) Warrants to buy 20,000,000 shares of our common stock; and (D) a Security Purchase Agreement with New Millenium Capital Partners II, LLC, AJW Partners, LLC and AJW Master Fund Ltd. on December 26, 2007 for the sale of (i) $100,000 in Callable Secured Convertible Notes and (ii) Warrants to buy 1,000,000 shares of our common stock . The Company has sold all callable convertible notes.
The Callable Secured Convertible Notes bear interest at 8%, mature on January 15, 2009 with respect to the initial $500,000, on March 14, 2009 with respect to $300,000, on May 11, 2011 with the respect of second $500,000, on September 13, 2010 with respect to $600,000, and on December 26, 2010 with respect to $100,000. The first $1,300,000 are convertible into our common stock, at the investors' option, at the lower of (i) $0.05 or (ii) 32% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date; the $600,000 is convertible into our common stock at the investors’ option, at the lower of (i) $0.0375 or (ii) 32% of the average of the three lowest intraday trading prices for the common stock on a principle market for the 20 trading days before, but not including the conversion date; the $100,000 is convertible into our common stock at the investors’ option, at the lower of (i) $0.0375 or (ii) 32% of the average of the three lowest intraday trading prices for the common stock on a principle market for the 20 trading days before, but not including the conversion date. The full principal amount of the Callable Secured Convertible Notes are due upon default under their terms. The initial 1,000,000 warrants are exercisable until five years from the date of issuance at a purchase price of $0.13 per share; the second Convertible Notes of 7,000,000 warrants are exercisable until five years from the date of issuance purchase price of $0.10 per share; the third Convertible Notes of 20,000,000 warrants are exercisable until seven years from the date of issuance at a purchase price of $0.005 per share; and the final Convertible Notes of 1,000,000 warrants until seven years from the date of issuance at a purchase price of $0.005 per share . In addition, the conversion price of the Callable Secured Convertible Notes and the exercise price of the warrants will be adjusted in the event that we issue common stock at a price below the fixed conversion price, below market price, with the exception of any securities issued in connection with the Securities Purchase Agreement. The conversion price of the Callable Secured Convertible Notes and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder's position. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. In addition, we have granted the investors a security interest in substantially all of our assets and registration rights.
On January 31, 2008, the Company entered into a Securities Purchase Agreement with New Millenium Capital Partners II, LLC, AJW Qualified Partners, LLC, and AJW Master Fund Ltd., whereby $147,542 of accrued interest payable was converted into the same amount of callable Secured Notes at 2% on terms similar to those above.
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On March 14, 2008, the Company entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, for sale of $50,000 in callable Secured Notes at 8% and stock purchase warrants buying 500,000 shares of our common stock.
On June 20, 2008, the Company entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, for sale of $50,000 in callable Secured Notes at 12% and stock purchase warrants buying 500,000 shares of our common stock. In the same transaction, all of the outstanding 8% Callable Notes were converted to 12% interest, however, these notes will only accrue interest at 12% going forward.
On July 29, 2008, the Company entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, for sale of $75,000 in callable Secured Notes at 12% and stock purchase warrants buying 35,000,000 shares of our common stock.
On September 24, 2008, the Company entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, for sale of $70,000 in callable Secured Notes at 12% and stock purchase warrants buying 50,000,000 shares of our common stock.
On November 5, 2008, the Company entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, for sale of $70,000 in callable Secured Notes at 12% and stock purchase warrants buying 50,000,000 shares of our common stock. In addition, it set forth an agreement to amend the Applicable Percentage and Interest Rate for all the aforementioned Notes, which are convertible into shares of the Company’s common stock.
On November 10, 2008, the Company entered into a Securities Purchase Agreement with New Millenium Capital Partners II, LLC, AJW Qualified Partners, LLC, and AJW Master Fund Ltd., where by approximately $191,100 of accrued interest payable was converted into the same amount of callable Secured Notes at 2% on terms similar to those above.
On December 3, 2008, we entered into a financing agreement involving the sale of stock purchase warrants to buy 90.000,000 shares of our common stock.
On December 5, 2008, we entered into a financing agreement involving the sale of an additional $75,000 principal amount of callable Secured Notes and stock purchase warrants buying 50.000,000 shares of our common stock.
On March 11, 2009, we entered into a financing agreement involving the sale of an additional $50,000 principal amount of callable Secured Notes.
On May 11, 2009 the Company entered into a financing agreement for Convertible Promissory Notes in the amount of $825,000 in exchange for the delivery to the Company of a Secured & Collateralized Promissory Notes in the amount of $750,000. The Company has received $70,000 toward satisfaction of this note as of June 30, 2009.
The Convertible Promissory Note matures three years from the effective date and bears a one time interest equal to 12% and the obligation is convertible into the voting common stock of the Company at a conversion rate based on 70% of the lowest trade price in the 20 trading days previous to the conversion. Any conversions by the Holder of these note is limited to the Holder remaining under 4.99% ownership of the outstanding voting common stock of the Company. By the terms of this note prepayment is not permitted unless approved by the lender.
The Secured & Collateralized Promissory Notes mature three years from the effective date and bear a one time interest charge of 13.2% and are secured by securities in the amount of 750,000.
As of June 30, 2009 the Company entered into finance agreements for the sale of approximately $220,000 principal amount of Convertible Debentures. Additionally loans and advances of approximately $174,000 from other related parties were converted
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into Convertible Debentures. The Convertible Debentures mature three years from effective date a bear and an interest rate of 14%.
The proceeds received from the sale of the callable secured convertible notes have been, and will continue to be, used to pay for the Company’s business development purposes, working capital needs, payment of certain past due taxes, payment of consulting, legal fees and repayment of certain debts.
We will still need additional investments in order to continue operations and have our cash flow break even. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to reduce staff and curtail our operations.
A significant portion of our debt is personally guaranteed by the Company’s Chairman of the Board and Chief Executive Officer. Further changes to these guarantees may affect the financing capacity of the Company.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The following policies, we believe, are our most critical accounting policies, are important to our financial position and results of operations, and require significant judgment and estimates on the part of management. Those policies, that in the belief of management are critical and require the use of judgment in their application, are disclosed on Form 10KSB for the year ended December 31, 2008. Since December 31, 2008, there have been no material changes to our critical accounting policies.
We have identified the following policies as critical to our business and the understanding of its results of operations. The impact of these policies is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where these policies affect reported and anticipated financial results. Preparation of this report requires our use of estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenue and expense amounts for the periods being reported. On an ongoing basis, we evaluate these estimates, including those related to the valuation of accounts receivable, and the potential impairment of long lived assets. We base the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles require the application of methodologies and judgments by 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.
Management believes the following critical accounting policies affect the use of complex judgments and estimates used in the preparation of its consolidated financial statements.
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ACCOUNTS RECEIVABLE
Valuation of Accounts Receivable Collect ability of accounts receivable is evaluated for each subsidiary based on the subsidiary’s industry and current economic conditions. Other factors include analysis of historical bad debts, projected losses, and current past due accounts.
GOODWILL AND OTHER INTANGIBLE ASSETS:
We have adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. In making this assessment, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and transactions and market place data. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. Since management’s judgment is involved in performing goodwill and other intangible assets valuation analyses, there is a risk that the carrying value of the goodwill and other intangible assets may be overstated or understated.
We have elected to perform the annual impairment test of recorded goodwill and intangible assets as required by SFAS 142. We recognized impairment based upon the piracy of the film library in 2005 and the future revenue anticipated from the sale of its films.
IMPAIRMENT OF LONG-LIVED ASSETS:
We evaluate the recoverability of our long lived assets in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” which generally requires us to assess these assets for recoverability whenever events or changes in circumstance indicate that the carrying amounts of such assets may not be recoverable. We consider historical performance and future estimated results in our evaluation of potential impairment and then compares the carrying amount of the asset to the estimated non-discounted future cash flows expected to result from the use of the asset. If such assets are considered to be impaired, the impairment recognized is measured by comparing projected individual segment discounted cash flows to the asset segment carrying values. The estimation of fair value is measured by discounting expected future cash flows at the discount rate we utilize to evaluate potential investments. Actual results may differ from these estimates and as a result the estimation of fair value may be adjusted in the future.
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.
If the net resalable value of our film licenses is significantly less than management’s estimate, it could have a material affect on our financial condition.
We expense the cost of film rights over the film life cycle based upon the ratio of the current period’s gross revenues to the estimated remaining total gross revenues. These estimates are calculated on an individual production basis for film. Estimates of total gross revenues can change significantly due to a variety of factors, including the level of market acceptance of the production and trends in consumer behavior, and potential pirating.
For acquired film libraries, remaining revenues include amounts to be earned for up to twenty years from the date of acquisition. Accordingly, revenue estimates are reviewed periodically and are revised if necessary. A change in revenue projections could have an impact on our results of operations. Costs of film are subject to valuation adjustments pursuant to applicable accounting rules. We have recently revised the value for 2008 of our film library by approximately 4% of its carry value and may revise the
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value in the future. The net realizable value of the licenses and rights are reviewed by management annually. Estimated values are based upon assumptions about future demand and market conditions. If actual demand or market conditions or impairment indicators arise that are less favorable than our projections, film write-downs may be required.
RECOGNITION OF REVENUE FROM LICENSE AGREEMENTS
We follow the guidance in the Securities and Exchange Commission’s Staff Accounting Bulletin no. 101, “revenue recognition” (“SAB 101”). We have revenue recognition policies for its various operating segments, which are appropriate to the circumstances of each business. Revenue is recognized when all of the following conditions exist: persuasive evidence of an arrangement exists; services have been rendered or delivery occurred; the price is fixed or determinable; and collect ability is reasonably assured. The cost of operations for the broadband installation and wireless infrastructure segment is reflected in the statement of operations using the completed contract method. Accordingly, any contracts that have estimated costs that are greater than the contacted revenue will accrue a loss for us under these contracts.
Revenue from licensing agreements is recognized when the license period begins and the licensee and the Company become contractually obligated under a non-cancelable agreement. All revenue recognition for license agreements is in compliance with the AICPA’s Statement of Position 00-2, Accounting by Producers or Distributors of Films.
For our broadband installation and wireless infrastructure segment, we record reductions to revenues for estimated future chargebacks. These estimates are based upon historical return experience and projections of customer acceptance of our services. If we underestimate the level of chargebacks in a particular period, we may record less revenue in later periods when returns exceed the predicted amount. Conversely, if we overestimate the level of returns for a period, we may have additional revenue in later periods when returns are less than predicted.
ITEM 4T. CONTROLS AND PROCEDURES
As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer and our principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Changes in internal control over financial reporting.
We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we may be involved in legal proceedings from time to time. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of such matters will not have a material adverse effect on its financial position, results of operations or liquidity.
On June 15, 2007, the Company, through its subsidiaries, commenced a lawsuit against Michael Calderhead and James Calderhead (the “Calderheads”) former employees, in the United States District Court for the Eastern District of New York (Case No. 07-CV-2413). The complaint asserts claims against the Calderheads for breaches of a stock exchange agreement, breaches of an employment agreement, and breaches of fiduciary duties owed to Juniper and its wholly-owned affiliate New Wave Communications, Inc. (“New Wave”). Juniper alleges the Calderheads committed serious, material breaches of their agreements with Juniper. Indeed, almost immediately after Juniper’s acquisition of New Wave, and while still employed by Juniper and/or New Wave and bound by their agreements with Juniper, the Calderheads made preparations to form and operate a rival business to compete with Juniper and New Wave.
In February 2006, a mere two months after Juniper’s acquisition of New Wave, the Calderheads met with possible financiers to discuss incorporating a new company that would compete with New Wave and Juniper. Juniper alleges that the meeting involved at least James Calderhead, a Juniper executive and the President of New Wave; Michael Calderhead, a New Wave Chief Operating Officers; another New Wave executive who had worked with Michael Calderhead prior to the Juniper acquisition; and a local businessman in Franklin, Indiana, and the owner of several businesses.
At the time of the February 2006 meeting, and at all relevant times thereafter, James Calderhead was subject to the Employment Agreement and Michael Calderhead was subject to the Stock Exchange Agreement. Following the alleged February 2006 meeting, the Calderheads, along with others, continued their efforts to form and operate a new company which came to be called Communications Infrastructure, Inc. (“CII”). According to the online records of the Indiana Secretary of State, CII was organized as a for-profit domestic corporation on January 19, 2007.
According to CII’s advertisements and representations in the marketplace, it is a competitor of Juniper and New Wave. Specifically, CII’s website states that “CII brings the combined experience of its owners in all areas of Cellular Site Construction,” including project management, civil construction, tower erection, and maintenance and troubleshooting.
At no time did the Calderheads inform New Wave or Juniper of the formation of CII, their intentions or activities regarding CII, or their intent or design to form a new company that would compete with New Wave or Juniper. At no time did New Wave or Juniper consent to any activities by the Calderheads with respect to CII or setting up a rival company.
On or about January 17, 2007, Michael Calderhead announced that he would resign from New Wave. Michael Calderhead, however, did not formally end his employment relationship with New Wave until on or about March 27, 2007. Juniper subsequently learned that Michael Calderhead had been working, and was continuing to work, for CII.
In late 2006 and early 2007, New Wave’s business suddenly, and substantially, declined. Contracts were lost, customer and vendor relationships were ended, and new business opportunities were not pursued. New Wave alleged and believes that some former customers of Juniper and New Wave were transferred to CII during this period, and believes that discovery will establish that the Calderheads were involved in soliciting business for CII and soliciting New Wave’s customers and employees to switch.
The substantial declines in New Wave’s business continued throughout early 2007. These declines were not reported to Juniper’s management in a timely manner and, when they were reported, the declines were not explained in a reasonable or clear
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manner. It was not until May, 2007 that Juniper became aware of CII’s growing presence in the marketplace; the involvement of Michael Calderhead in CII’s business; and that CII was directly competing with New Wave for customers.
On Friday, May 18, 2007, ten New Wave employees abruptly announced that they were resigning their positions at New Wave. Most of these former New Wave employees indicated that they would begin work for CII, joining Michael Calderhead. Indeed, in the course of little more than a year from the date that Juniper purchased New Wave from Michael Calderhead and installed the Calderheads as New Wave executives, New Wave had gone from being a growing, profitable business to a business on the verge of financial collapse.
The substantial declines in New Wave’s business continued throughout early 2007. These declines were not reported to Juniper’s management in a timely manner and, when they were reported, the declines were not explained in a reasonable or clear manner. It was not until May, 2007 that Juniper became aware of CII’s growing presence in the marketplace; the involvement of Michael Calderhead in CII’s business; and that CII was directly competing with New Wave for customers.
On Friday, May 18, 2007, ten New Wave employees abruptly announced that they were resigning their positions at New Wave. Most of these former New Wave employees indicated that they would begin work for CII, joining Michael Calderhead. Indeed, in the course of little more than a year from the date that Juniper purchased New Wave from Michael Calderhead and installed the Calderheads as New Wave executives, New Wave had gone from being a growing, profitable business to a business on the verge of financial collapse.
On Tuesday, May 22, 2007, Juniper terminated James Calderhead for cause. Some, although not all, of the grounds for James Calderhead’s termination are set forth above and in a termination letter dated.
Juniper seeks injunctions restraining the Calderheads from, among other things, competing with Juniper and New Wave, as well as compensatory damages in the amount believed to be $10,000,000, punitive damages in the amount of $5,000,000 and attorneys fees, costs and expenses. On September 29, 2007, the Court issued a preliminary injunction against Michael Calderhead enjoining him from disclosing Juniper/New Wave’s customer list and from soliciting, directly or indirectly, any of Juniper/New Wave’s existing customers; denied the Calderheads’ motion to dismiss the complaint; and granted Juniper’s motion for expedited discovery.
On October 16, 2007, Michael Calderhead answered the complaint and asserted counterclaims against Juniper for alleged breaches of, and fraud in connection with, the stock exchange agreement and for alleged abuse of process in connection with Juniper’s application for injunctive relief. Michael Calderhead seeks compensatory and punitive damages. On October 16, 2007, James Calderhead answered the complaint and asserted counterclaims against Juniper for alleged breaches of the employment agreement and for alleged abuse of process in connection with Juniper’s application for injunctive relief. James Calderhead seeks compensatory and punitive damages. The Company believes that none of the counterclaims asserted by the Calderheads have any merit.
The Company is vigorously prosecuting the claims asserted against the Calderheads and is vigorously defending the counterclaims asserted by the Calderheads. The outcome of this litigation will materially affect the Company.
In Re New Wave Communications, Inc A chapter 11 Bankruptcy petition was filed on November 7, 2008 in the U.S. Bankruptcy Court for the Southern District of Indiana (Indianapolis) and assigned case #08-13975-JKC-11. The petition was voluntarily dismissed at the request of New Wave Communications, Inc. on March 6, 2009.
Regions Bank vs. New Wave Communications Inc State of Indiana, County of Johnson, Johnson County Circuit/ Superior Court Case No. 41D010809. Suit has been filed seeking enforcement of a promissory note date June 6, 2008 in the amount of $300,250 and bearing interest at the rate of 7.75%.
On May 8, 2008, U.S. District Court Eastern District of NY Index No. 08 Civ. 1900. Alan Andrus filed an action entitled Andrus vs Juniper Group Inc in the United States District Court for the Eastern District of New York. The complaint, against us, a subsidiary and Mr. Hreljanovic, asserts claims for fees of $195,000 plus interest for services rendered. Discovery is ongoing and the Company anticipates it will file a Motion for Summary Judgment in the coming months while no estimate of the outcome can be made, the Company believes it has meritorious defenses and will prevail in this matter..
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The Company’s infrastructure subsidiary had a bank line of credit of $300,000 of which it has used $300,318 as of September 30, 2008 at an interest rate of 7.75% with a maturity on June 6, 2008. The subsidiary has defaulted on its loan and the bank has instituted a motion in the Johnson Circuit on September 25, 2008.
Item 1A. Risk Factors.
Our revenue has declined significantly, and if we are not able to grow our revenue as expected, we will need to cut costs dramatically to obtain profitability
We had revenue of approximately $109,000 for the six months ending June 30, 2009, compared to approximately $502,000 for six month period ending June 30, 2008. The decrease in was attributed to several factors including the alleged actions of Michael Calderhead and James Calderhead, former disloyal employees for their outrageous breach of various contractual and fiduciary duties owed to the Company. If we are not able to grow our revenues over time, we will need to cut costs dramatically to restore profitability, which could result in delays in implementing our business plans. If revenue declines further, or if our expected growth does not occur soon enough, we may not be able to restore profitability at all.
There have been no other material changes with regard to the risk factors previously disclosed in our recent Annual Report on Form 10-KSB.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
On May 11, 2009 the Company entered into a financing agreement documented by a Convertible Promissory Note in the amount of $825,000 in exchange for the delivery to the Company of a Secured & Collateralized Promissory Note in the amount of $750,000. The Company has received $50,000 toward satisfaction of this note as of this date.
The Convertible Promissory Note matures three years from the effective date and bears a one time interest charge equal to 12% and the obligation is convertible into the voting common stock of the Company at a conversion rate based on 70% of the lowest trade price in the 20 trading days previous to the conversion. Any conversions by the Holder of this note are limited to the Holder remaining under 4.99% ownership of the outstanding voting common stock of the Company. By the terms of this note prepayment is not permitted unless approved by the lender.
The Secured & Collateralized Promissory Notes mature three years from the effective date and bear a one time interest charge of 13.2% and is secured by securities in the amount of 750,000.
.
During the six quarter of 2009, we issued an additional 4,401,866,783 shares of common stock upon conversion of 11,640 Preferred Shares Series B in the amount of approximately $277,100 and approximately $227,500 of convertible notes to common stock.
We relied on the exemptions form registration afforded by Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D of the General Rules and Regulations thereunder for the sale of the convertible notes and warrants to investors and the issue of shares upon conversion of convertible notes, debentures and preferred stock. We complied with the manner of sale, access to information and investor accreditation requirements of such exemptions.
Item 3. Defaults upon Senior Securities
Not Applicable.
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Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
The following exhibits are included herein:
Exhibits
31.1 | Certification by President and Chief Financial Officer, Vlado P. Hreljanovic, pursuant to U.S.C. Section 13B as adopted pursuant To Section 302 of the Sarbanes-Oxley Act 2002. |
32.1 | Certification by President and Chief Financial Officer, Vlado P. Hreljanovic, pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed by the undersigned, thereunto duly authorized.
JUNIPER GROUP, INC.
Date: August 18, 2009
By: /s/ Vlado P. Hreljanovic
---------------------------------------
Vlado P. Hreljanovic
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer