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| JNIP.OB > SEC Filings for JNIP.OB > Form 10QSB on 14-Aug-2008 | All Recent SEC Filings |
14-Aug-2008
Quarterly Report
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 2007 Annual Report on Form 10-KSB 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;
· the 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.
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 loss for the three months ended June 30, 2008 of approximately $8,562,000 and an unrealized gain for the three months ended June 30, 2007 of approximately 2,255,000.
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. This is a direct complement to the Company's
existing broadband installation and wireless infrastructure business.
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.
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 to be strong despite anticipated customer workloads through 2008.
The communication industry experienced a downturn that resulted in reduced capital expenditures for infrastructure projects. 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, it Subsidiary Juniper Internet Communications, Inc. ("Juniper Internet"), and Mr. Vlado P. Hreljanovic himself, in United States District Court for the Eastern District of New 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 operates from
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 marketing effort to a national customer base which was largely attributed to the Company's inability to compete in the Indiana regional market due to the alleged interference of James and Michael Calderhead. The expansion to the national market in 2008 has added to its operations costs and has had an effect on its gross profit margin.
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 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, 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 is 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. The Company services wireless providers primarily in Illinois, Indiana, Florida, Jackson, Mississippi, Georgia, Oklahoma, Washington, D.C., Wisconsin, Colorado, Tennessee, Kentucky, Maryland, North Carolina, South Carolina, New York and Western Ohio, but is capable of sustained work anywhere within the United States. New Wave has provided services to Cingular Wireless/AT&T, Sprint/Nextel, Verizon, T-Mobile, Cricket, Revol, Crown Castle and to general contractors such as, WFI, Velocitel, Bechtel and AIS.
The list of services that the Company offers are: network rollout, project management, wireless communication facility " new build" construction, wireless communication facility " collocation " construction, wireless communication site maintenance, cellular and PCS system troubleshooting and repair, tower structural upgrades, tower inspections, mapping, and maintenance services, tower lighting troubleshooting and repair, microwave system engineering, microwave system installation, maintenance and trouble shooting/ repair, microwave radio leasing, wireless broadband system installation, temporary power delivery and maintenance, and warehousing services.
The Company has experienced a dramatic reduction in revenue during the second half of 2007 which has continued during the first half of 2008, 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. Management has taken the following corrective actions to improve the operating performance of the wireless infrastructure services:
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. Hired new management team and reorganized management's
responsibilities. We had added a new Controller, and have
promoted our Operational Manager from within the New Wave
family;
3. Aligned labor costs with market conditions;
4. Evaluated geographic footprint outside Indianapolis and
customer need with customer contracts. The Company has expanded
into new territories, its service footprint to include
Mississippi, Florida, Illinois, New York, Colorado and Georgia.
The Company believes the demand for broadband installation and wireless infrastructure services will increase in the wireless broadband segment during 2008 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 2008 on assuring the implementation of its services to its key national providers on a national platform. The Company believes that this trend for outsourcing in the deployment and support for wireless and broadband customer services will continue to strengthen as the industry matures. As the economic environment
continues its improvement this year, the Company believes that its prospects for the expansion of its wireless Infrastructure services are good for 2008. 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 technician recruitment, certifications, training and payroll, as well as the financing of operating cash flow requirements to meet the demand for its services. 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) Although the Company focuses on accelerating collections, and thereby reducing outstanding receivables and helping cash flow, the issues that rank high on evaluating new business opportunities are the customer's accounts receivable payments and the Company's derived gross profit margins. The Company continues to evaluate new business opportunities with respect to their receivables and payment practices
RESULTS OF OPERATIONS
Three Months Ending June 30, 2008 vs. Three Months Ending June 30, 2007.
Executive Overview of Financial Results
The Company is currently utilizing its limited 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.
During the three month period ending June 30, 2008, Juniper Pictures generated $7,500 of 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 $9.5 million, or $1.67 per share on revenue of approximately $221,100 for the three months ended June 30, 2008, which includes a loss on the fair market evaluation adjustment of derivative liabilities of approximately $8.6 million. Compared to a net income of approximately $1,226,000 or $0.08 per share on revenue of approximately $345,000 for the three months ended June 30, 2007, which included a gain on the fair market evaluation adjustment of derivative liabilities, the Company incurred a gain of approximately $2,255,000. This represents a 36% decrease in revenue.
Broadband Installation and Wireless Infrastructure Services
Revenues
The broadband installation and wireless infrastructure services generated revenues of approximately $214,000 for the three month period ending June 30, 2008 compared to approximately $324,000 for the three month ending June 30, 2007, a decrease of approximately 34%. 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 and a reduction in construction activity by major customers.
Operating Costs
The broadband installation and wireless infrastructure incurred operating costs of approximately $325,500 (152% of revenue) for the three month period ending June 30, 2008, compared to approximately $376,000 (116% of revenue) for the three month ending June 30, 2007, a decrease of approximately $50,500, and a reduction of 13% of revenue. This is primarily due to fixed operating costs required to sustain operations.
Gross Profit
The Company's gross profit deficit for the three month ending June 30, 2008 was approximately $107,000, compared to a deficit of approximately $39,000 for the three months ending June 30, 2007. The poor gross profit results arose from the inability of the Company to completely absorb its fixed cost of operations in each of these fiscal periods.
Selling and General Administrative Costs
Selling, general and administrative expenses decreased from approximately $934,000 for the three month ending June 30, 2007 to approximately $503,000 for the three month ending June 30, 2008 a 46% decrease. However, the selling, general and administrative as a percentage decreased from 271% of revenue for the three month ending June 30, 2007 to 228% of revenue for the three month ending June 30, 2008. The Company shall continue to monitor its' SG&A costs as a percentage of revenue. This decrease in selling, general and administrative expense is primarily due to changes in payroll related costs and legal costs as a result of actions of disloyal employees (see section on litigation), and an increase in legal expenses.
Six Months Ended June 30, 2008 vs. June 30, 2007
Net Income (Loss)
Net loss available to common stockholders was approximately $2,888,000 or $0.33 per diluted net loss per share on revenue of approximately $502,000 for the six months ended June 30, 2008 compared with net income of approximately $488,000 or $6.19 per diluted net loss per share on revenue of approximately $1,103,000 for the six months ended June 30,2007.
Revenues
The broadband installation and wireless infrastructure services generated revenue of approximately $494,000 for the six month period ended June 30, 2008 compared to approximately $1,082,000 for the six months ended June 30, 2007, a decrease of approximately 54%.
Operating Costs
The broadband installation and wireless infrastructure services incurred operating costs of approximately $579,000 (115% of revenue) for the six month period ended June 30, 2008, compared to approximately $941,000 (87% of revenue) for the six months ended June 30, 2007, a decrease of 38%.
Gross Profit
The Company had a deficit in gross profit for the six months ended June 30, 2008 was approximately $77,000, compared to approximately $154,600 gross profit margin for the six months ended June 30, 2007, representing 14% of revenue.
Selling, General and Administrative
Selling, general and administrative expenses decreased from $1,546,000 for the six moths ended June 30, 2007 to $877,000 for the six months ended June 30, 2008, representing a 43% decrease. However, the selling, general and administrative as a percentage increased from 140% of revenue for the six months ended June 30, 2007 to approximately 172% of revenue ended June 30, 2008. The Company shall continue to monitor its' SGA costs as a percentage of revenue. This increase in selling, general and administrative expense is primarily due to increase in salary expense, consultants and legal fees.
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 and 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 loss on derivative securities for the six months ended June 30, 2008 was approximately $1,485,125 compared with a gain of approximately $2,347,000 for the six months ended June 30, 2007. The amortization of the Company's primary debt instrument amounted to
approximately $1,485,000 for the six months ended June 30, 2008, compared with approximately $75,000 for the six months ended June 30, 2007.
Liquidity and Capital Resources
At June 30, 2008, we had a working capital deficit of approximately $3,714,000, compared to a working capital deficit of approximately $3,090,000 at December 31, 2007. The ratio of current assets to current liabilities was 0.13:1 at June 30, 2008, and 0.30:1 at December 31, 2007. Cash flow used for operations during the six months ended June 30, 2008 was approximately $472,000.
Total Debt at June 30, 2008, was approximately $2.1 million, which includes approximately $806,000 Callable Secured Convertible 8% Notes (net of discount of $1.3 million), approximately $862,000 of various notes, approximately $300,000 under the line of credit, and various equipment loans of approximately $94,000. Total Debt at December 31, 2007 was $2,077,000.
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.
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.
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 $175,000, through the sale of 8% Callable Secured Convertible and $209,200 through the sale of Convertible Debentures for the six month period ended June 30, 2007.
Our operations during the three months ended June 30, 2008 were funded by the sale of 8% Callable Secured Convertible and 12% Convertible Debentures. Among the obligations that the Company has not had sufficient cash are to pay 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.
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 2008, had negative working capital at December 31, 2007 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 2008. 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.
We currently have a bankline 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 currently in default on its bank line of credit and is in negotiations to extend the maturity date on the line of credit. We cannot give any assurances that the bank will extend the term date of the loan. If we were . . .
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