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EX-31.2 - Juma Technology Corp.v165839_ex31-2.htm
EX-32.1 - Juma Technology Corp.v165839_ex32-1.htm
EX-32.2 - Juma Technology Corp.v165839_ex32-2.htm
EX-31.1 - Juma Technology Corp.v165839_ex31-1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2009
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from______ to ______________
 
Commission file number 000-105778

JUMA TECHNOLOGY CORP.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
68-0605151
(State or other jurisdiction of incorporation
or organization)
 
(I.R.S. Employer Identification No.)

154 TOLEDO STREET, FARMINGDALE, NY
 
11735
(Address of Principal Executive Offices)
 
(Zip Code)

(631) 300-1000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 ¨ (Do not check if a smaller reporting company)
Smaller reporting company þ

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 the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. 46,468,945 Common Shares as of November 9, 2009
 
 
 

 

TABLE OF CONTENTS

   
Page
PART I – FINANCIAL INFORMATION
     
Item 1.
Financial Statements
 
     
 
Condensed Consolidated Balance Sheets as of  September 30, 2009 and December 31, 2008
3
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
4
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
5
 
Notes to Condensed Consolidated Financial Statements
6-14
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
     
 
Results of Operations for the three and nine months ended September 30, 2009 and 2008
15-16
 
Liquidity and Capital Resources
16-18
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
19
     
Item 4.
Controls and Procedures
19
     
PART II – OTHER INFORMATION
     
Item 1.
Legal Proceedings
19
     
Item 1A.
Risk Factors
19
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
19
     
Item 3.
Defaults Upon Senior Securities
19
     
Item 4.
Submission of Matters to Vote of Security Holders
19
     
Item 5.
Other Information
20
     
Item 6.
Exhibits
20
     
 
Signatures
20
     
 
Certifications
21-24
 
 
2

 

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Juma Technology Corp. and Subsidiaries
Condensed Consolidated Balance Sheets

   
September 30,
2009
   
December 31,
2008
 
   
(Unaudited)
   
(Audited)
 
             
ASSETS
           
Current assets:
           
Cash
  $ 1,774,299     $ 364,046  
Accounts receivable, (net of allowance of $249,986 and $391,501, respectively)
    2,547,029       2,792,483  
Inventory
    180,457       254,531  
Prepaid expenses
    40,984       17,561  
Other current assets
    133,889       196,922  
Total current assets
    4,676,658       3,625,543  
                 
Fixed assets, (net of accumulated depreciation of $727,950 and $439,457, respectively)
    1,310,763       1,512,535  
                 
Other assets
    272,183       302,856  
Total assets
  $ 6,259,604     $ 5,440,934  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
Current liabilities:
               
Notes payable
  $ -     $ 297,242  
Convertible notes payable, (net of discount of  $810,218 and plus premium of  $93,669, respectively)
    6,518,424       1,493,669  
Current portion of capital leases payable
    185,517       209,413  
Accounts payable
    1,803,731       2,809,419  
Accrued expenses and taxes payable
    608,174       615,939  
Deferred revenue
    283,534       1,021,914  
Total current liabilities
    9,399,380       6,447,596  
                 
Capital leases payable, net of current maturities
    58,497       199,582  
Notes payable
    -       43,818  
Convertible notes payable, (plus premium of  $48,053 and net of discount of $267,216,  respectively)
    5,951,947       5,732,784  
Other liabilities
    600,000       -  
Total liabilities
    16,009,824       12,423,780  
                 
Commitments and contingencies
               
                 
Stockholders' deficiency
               
Series A Preferred stock, $0.0001 par value, 8,333,333 shares authorized, 8,333,333 shares issued and outstanding, respectively
    833       833  
Series B Preferred stock, $0.0001 par value, 1,666,667 shares authorized, 1,666,500 and 1,666,500 shares issued and outstanding, respectively
    167       167  
Common stock, $0.0001 par value, 900,000,000 shares authorized,  and 46,468,945 shares issued and outstanding, respectively
    4,646       4,634  
Additional paid-in capital
    32,360,906       21,225,245  
Warrants
    2,969,281       327,139  
Retained deficit
    (45,086,053 )     (28,540,864 )
Total stockholders' deficiency
    (9,750,220 )     (6,982,846 )
Total liabilities and stockholders' deficiency
  $ 6,259,604     $ 5,440,934  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 
3

 

Juma Technology Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
For the three and nine  months ended September 30,

   
Three months
ended
September 30,
 2009
   
Three months
ended
September 30,
2008
   
Nine months
ended
September 30,
2009
   
Nine months
ended
September 30,
2008
 
Sales
  $ 1,896,250     $ 5,825,309     $ 9,936,932     $ 15,436,935  
Cost of goods sold
    1,004,817       3,965,952       6,637,904       11,539,452  
Gross margin
    891,433       1,859,357       3,299,028       3,897,483  
                                 
Operating expenses
                               
Selling
    387,970       348,972       1,160,958       1,406,077  
Research and development
    59,136       239,581       315,735       629,103  
Goodwill impairment
    -       -       -       204,600  
General and administrative
    1,871,910       3,564,999       6,115,533       8,186,773  
Total operating expenses
    2,319,016       4,153,552       7,592,226       10,426,553  
                                 
(Loss) from operations
    (1,427,583 )     (2,294,195 )     (4,293,198 )     (6,529,070 )
                                 
Amortization of discount on notes
    (984,286 )     (107,078 )     (4,025,866 )     (655,538 )
Interest (expense), net
    (339,249 )     (290,636 )     (952,376 )     (633,677 )
                                 
(Loss) before income taxes
    (2,751,118 )     (2,691,909 )     (9,271,440 )     (7,818,285 )
(Benefit)/Provision for income taxes
    193       20,312       7,642       22,011  
                                 
Net (loss)
  $ (2,751,311 )   $ (2,712,221 )   $ (9,279,082 )   $ (7,840,296 )
Deemed preferred stock dividend
    -       -       7,266,107       1,112,200  
Net (loss) attributable to common shareholders
  $ (2,751,311 )   $ (2,712,221 )   $ (16,545,189 )   $ (8,952,496 )
                                 
Basic and diluted net (loss) per share attributable to common shareholders
  $ (0.06 )   $ (0.06 )   $ (0.36 )   $ (0.20 )
Weighted average common shares outstanding
    46,452,641       44,718,084       46,380,575       44,206,378  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 
4

 

Juma Technology Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30,

   
2009
   
2008
 
Operating Activities
           
Net loss
  $ (9,279,082 )   $ (7,840,296 )
Adjustments to reconcile net (loss) to net cash (used) by operating activities:
               
Depreciation expense
    288,493       514,736  
Stock option compensation expense
    630,562       559,038  
Amortization of discount on notes payable
    4,025,866       655,538  
Bad debt expense
    (141,518 )     230,120  
Amortization of loan costs
    84,850       54,602  
Non-current interest expense
    450,000       -  
Early extinguishment of debt
    1,116,192       -  
Impairment of goodwill derived from notes
    -       204,600  
Loss on early extinguishment of debt
    -       795,091  
Common stock issued for interest
    -       209,500  
Common stock and warrants issued for services
    88,999       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    386,972       557,258  
Inventory
    74,074       21,814  
Prepaid expenses
    (23,423 )     62,303  
Other current assets
    63,033       114,476  
Security deposit
    -       15,573  
Accounts payable and accrued expenses
    (821,787 )     1,316,433  
Deferred revenue
    (738,380 )     (439,851 )
Net cash flows (used) by operating activities
    (3,795,149 )     (2,969,065 )
                 
Investing Activities
               
Acquisition of fixed assets
    (86,721 )     (216,713 )
Increase in other assets
    (54,177 )     -  
Net cash flows (used) provided by investing activities
    (140,898 )     (216,713 )
                 
Financing Activities
               
Proceeds from issuance of convertible notes payable
    5,511,281       2,900,000  
Proceeds from stock option exercise
    -       2,500  
Proceeds from warrant exercise
    -       1,250,000  
Repayment of convertible promissory notes
    -       (575,000 )
Repayment of loan
    -       (150,000 )
Repayment of capital leases payable
    (164,981 )     (133,934 )
Net cash flows provided by financing activities
    5,346,300       3,293,566  
                 
Net change in cash
    1,410,253       107,788  
Cash, beginning of period
    364,046       302,889  
Cash, end of period
  $ 1,774,299     $ 410,677  
                 
Supplemental Cash Flow Information:
               
Interest paid
  $ 189,492     $ 279,290  
Income taxes paid
    9,518       21,711  
                 
NONCASH INVESTING ACTIVITY
               
Impairment of goodwill derived from notes receivable/payable (net)
  $ -     $ 204,600  
Fixed assets acquired through the issuance of notes and warrants
    -       206,177  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 
5

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
 
Juma Technology, LLC, was formed in the State of New York on July 12, 2002. On November 14, 2006, Juma Technology, LLC consummated an agreement with X and O Cosmetics, Inc. to merge 100% of its member interests (“Reverse Merger”) in exchange for 33,250,731 shares of common stock in X and O Cosmetics, Inc. The transaction was treated for accounting purposes as a recapitalization by Juma Technology, LLC as the accounting acquirer.

As part of the Reverse Merger, the former officer and director of X and O Cosmetics, Inc., Glen Landry returned 251,475,731 of his shares of common stock back to treasury, so that following the transaction there were 41,535,000 shares of common stock issued and outstanding.

On January 28, 2007, X and O Cosmetics, Inc. changed its name to Juma Technology Corp.

Juma Technology Corp. (the “Company”) is a highly specialized convergence systems integrator with a complete suite of services for the implementation and management of an entity’s data, voice and video requirements. The Company is focused on providing converged communications solutions for various vertical markets with an emphasis in driving long-term professional services engagements, maintenance, monitoring and management contracts. The Company utilizes several different technologies in order to provide its expertise and solutions to clients across a broad spectrum of business-critical requirements, regardless of the objectives. The Company also offers telephone carrier services that enhance functionality and increase fault-tolerance while providing for robust business continuity via disaster recovery mechanisms. Its flagship offering allows Internet Protocol PBX’s to be interconnected within a client’s global network and to the Public Switched Telephone Network in 30 minutes or less, regardless of PBX manufacturer.

The Company also operates a wholly-owned subsidiary, AGN Networks, Inc. (“AGN”) which was acquired on March 6, 2007 utilizing another wholly-owned subsidiary of the Company, Juma Acquisition Corp. (“Juma Acquisition”). In February 2008, AGN Networks, Inc. changed its name to Nectar Services Corp. (“Nectar”).
 
While the Company operates through different subsidiaries, management believes that all such subsidiaries constitute a single operating segment since the subsidiaries have similar economic characteristics.

The financial statements include the accounts of the Company and its wholly-owned subsidiaries Nectar and Juma Acquisition. All material intercompany balances and transactions have been eliminated in the consolidated financial statements.

The accompanying interim condensed consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission. While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the fiscal year ended December 31, 2008.

The results and trends on these interim condensed consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 may not be representative of those for the full fiscal year or any future periods.

Revenue Recognition

The Company derives revenue primarily from the sale and service of communication systems and applications. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, collectability is reasonably assured, contractual obligations have been satisfied, and title and risk of loss have been transferred to the customer. Revenues from the sales of products that include installation services are recognized on the percentage of completion basis pursuant to the provisions of Statement of Position No. 81-1, "Accounting for Performance of Construction-type and Certain Production-type Contracts" and Accounting Research Bulletin ("ARB") No. 45, "Long-term Construction-type Contracts.”
 
 
6

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

For each contract, the Company compares the costs incurred in the course of performing such contract during a reporting period to the total estimated costs of full performance of the contract and recognizes a proportionate amount of revenue for such period. Revenue from the sales of products that include installation services is recognized at the time the products are installed, after satisfaction of all the terms and conditions of the underlying customer contract. The Company also derives revenue from maintenance services, including services provided under contracts and on a time and materials basis. Maintenance contracts typically have terms that range from one to five years. Revenue from services performed under maintenance contracts is deferred and recognized ratably over the term of the underlying customer contract or at the end of the contract, when obligations have been satisfied. For services performed on a time and materials basis, revenue is recognized upon performance of the services. The Company also earns commissions on maintenance contracts. Commissions are recognized as revenue over the term of the related maintenance contract.

Inventory

Inventory, which consists of finished goods, is valued at the lower of cost or market. The first-in, first-out method is used to value the inventory.

Earnings Per Share

Basic earnings per share are calculated by dividing net income (loss) by the weighted average of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted average of common shares outstanding adjusted to include the potentially dilutive effect of outstanding stock options, warrants, convertible loans and other convertible securities utilizing the treasury stock method. There were 159,567,555 and 157,787,363 potentially dilutive shares for the three months and nine months ended September 30, 2009, respectively. There were 33,764,961 and 35,156,908 potentially dilutive shares for the three and nine months ended September 30, 2008, respectively. The effect of the potentially dilutive shares has been ignored, as it would be antidilutive.

Recent Accounting Pronouncements

In June 2008 the FASB promulgated Emerging Issues Task Force Issue 08-4, “Transition Guidance for Conforming Changes to EITF Issue No. 98-5, 'Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios.” EITF Issue 08-4 specifies conforming changes made to EITF Issue 98-5 that resulted from EITF Issue 00-27 and Statement 150 and is effective for financial statements issued for fiscal years ending after December 15, 2008 with earlier application permitted. The Company has adopted the provisions of EITF Issue 08-4.

Reclassifications

Certain amounts included for the period ended September 30, 2008 in the financial statements have been reclassified to conform to the presentation for the period ended September 30, 2009.
 
Subsequent Events

The Company evaluated the effects of all subsequent events through November 12, 2009, the date on which the financial statements were issued.
 
NOTE 2 – ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

   
September 30, 2009
   
December 31, 2008
 
Billed
  $ 1,905,045     $ 2,801,264  
Unbilled
    891,970       382,720  
Allowance for doubtful accounts
    (249,986     (391,501 )
    $ 2,547,029     $ 2,792,483  

NOTE 3 – NOTE RECEIVABLE

On December 15, 2006, the Company loaned $250,000 to AGN Networks, Inc. a Florida corporation (“AGN”), pursuant to the terms of a Promissory Note (the “Note”). The Note is unsecured and bears interest at the rate of 8% per annum payable to the Company on or about December 15, 2007. On March 6, 2007, the Company entered into and closed on an agreement and plan of merger with AGN and as a result AGN has become a wholly-owned subsidiary of the Company. The Company forgave $125,000 of the Note, which was assumed by Avatel Technologies, Inc.
 
 
7

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

On September 18, 2007, an addendum to the merger agreement between the Company and AGN stated, among other items, that if the Company does not acquire the business of Avatel Technologies, Inc. then the forgiveness of the $125,000 is void and the $125,000 would be payable to the Company upon written notice. In March 2008, the Company exercised its right to receive payment of $125,000 under this note.
 
NOTE 4 – ACQUISITION OF AGN NETWORKS, INC.

On March 6, 2007, the Company completed the acquisition of AGN through the merger of AGN into a newly formed wholly-owned subsidiary of the Company, Juma Acquisition, pursuant to an Agreement and Plan of Merger, dated March 6, 2007 (the "Agreement").

In accordance with the terms and provisions of the Agreement, in exchange for all of the capital stock of AGN, the Company paid a total of $200,000 to Mr. Ernie Darias and Mr. Albert Rodriquez (the "AGN shareholders"). This amount was paid by issuing ninety-day promissory notes to each of Mr. Darias and Mr. Rodriquez. In addition, the Agreement provides that Juma will forgive $125,000 of the loan previously made to AGN. Also, the Company issued an aggregate of 320,000 shares of common stock to the shareholders of AGN in connection with the Agreement. The Company committed that the 320,000 shares will have a value of at least $640,000 one year from the date of the Agreement or the Company will issue to the AGN shareholders a two-year promissory note reflecting the difference between the value of the 320,000 shares and $640,000. The Company also paid off certain obligations of AGN to Avatel Technologies, Inc., an entity owned by certain shareholders of AGN, in the aggregate amount of $675,000 by paying $200,000 in cash and by issuing a promissory note for the balance. The Company has entered into an employment agreement with Mr. Rodriquez. The Employment Agreement with Mr. Rodriquez is for a term of two years and a base salary of $125,000 per annum.

On September 18, 2007, an Addendum (the “Addendum”) was added to the Agreement. The Addendum stated that AGN would pay an additional $188,216 towards obligations due to Avatel Technologies, Inc. in exchange for the forgiveness of any intercompany loans or claims that Avatel Technologies, Inc. and its shareholders may have against the Company or AGN. The Addendum also stated that $125,000 of the Note which was forgiven would be payable to the Company, at any time, if the Company does not acquire the business of Avatel Technologies, Inc. (See Note 3)

Associated with the acquisition of AGN the Company recorded goodwill of $1,870,259, which was deemed impaired in March 2007. In September 2007, a reduction to the impaired goodwill of $425,779 was recorded. This adjustment to the impaired goodwill is related to the Addendum and the forgiveness of any intercompany loans. As of September 30, 2007, the impaired goodwill was $1,444,480.

In March 2008, the Company recorded a loan for $329,600 to the shareholders of AGN, pursuant to the agreement. This loan bears interest at a rate of 7.5%, and principal and interest are payable in quarterly installments over two years. Concurrent with the execution of this loan, the Company exercised its right to receive the $125,000 due to the Company based on the Addendum signed on September 18, 2007. The net effect of these transactions resulted in an adjustment to the purchase price and the creation of goodwill of $204,600, which was deemed impaired.

NOTE 5 –CONVERTIBLE NOTES PAYABLE and WARRANTS TO PURCHASE COMMON STOCK

On February 7, 2007, the Company began offering up to $2,000,000 of convertible promissory notes. The notes are non-interest bearing, mature in eighteen months and are convertible, at the holders option, into common stock of the Company at $1.00 per share. Each investor will also receive one-half share of common stock for each dollar of the principal amount of the notes purchased. As of March 31, 2009, the Company has sold $2,225,000 in notes. Of this amount $100,000 has been converted into common stock; $725,000 has been repaid and the notes cancelled; and $1,000,000 bearing annual interest at 14% was exchanged for a new note of $1,000,000 bearing annual interest of 14% and 1,065,790 shares of the Company’s common stock as further described below. In connection with the reporting of these convertible notes, the Company has not recorded a beneficial conversion feature as the conversion price was in excess of the stock price on the date the notes were entered into. The Company has recorded a discount of $741,667 to record the cost of the shares issued in lieu of interest.
 
 
8

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

On July 28, 2008 the holder of $1,000,000 of convertible promissory notes comprised of a $500,000 note with a maturity date in October 2008 and another $500,000 note with a maturity date in December 2008 exchanged these notes for new convertible promissory notes with face value $1,000,000 maturing in December 2009 and 1,065,790 shares of the Company’s common stock. The new notes bear interest at an annual rate of 14% and are convertible into shares of common stock at a conversion price of $0.67 per share. The new notes were valued at $1,104,185 and the value of the notes and the common stock issued exceeded the carrying value of the old notes by $767,384, which was recorded as an early extinguishment of debt.

On August 16, 2007, The Company signed a $5,000,000, 6% convertible promissory note with Vision Opportunity Master Fund, Ltd. ( a managing director of Vision Opportunity Master Fund, Ltd. is a director of the Company). Interest on the note is due quarterly and matures within nine months. The note also carries a Mandatory Conversion Option which calls for conversion of the note into convertible preferred stock once the Company is approved to issue preferred stock. The conversion price for this mandatory conversion is $0.60 per share. The note also carries an optional conversion feature, at the right of the holder, into Common Stock at $0.60 per share. The note also calls for the issuance of Series A, Series B, and Series C warrants and a potential future investment at the option of the holder. During September 2007, Vision converted the promissory note into 8,333,333 shares of Series A Convertible Preferred Stock.

In connection with the issuance of the warrants and beneficial conversion feature, the Company has reflected a value at the date of issuance for the warrants of $1,622,452 and a beneficial conversion feature value of $1,351,187. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 6%; and expected lives of between one and five years. The value of the beneficial conversion feature has been expensed during the quarter ended September 30, 2007, as the warrants were exercisable immediately.

On November 29, 2007, the Company entered into a Note and Warrant Purchase Agreement with Vision Opportunity Master Fund, Ltd. (“Purchaser”) with respect to the sale of notes in an aggregate principal amount of up to $6,000,000. Also on November 29, 2007, the Company entered into Amendment No. 1 to the Note Purchase Agreement. Under the Note Purchase Agreement, as amended, the Company executed and delivered to Vision Opportunity Master Fund, Ltd. (a) the Company’s $2,500,000 principal amount, senior secured 10% convertible promissory note, (b) the Company’s $600,000 principal amount, senior secured 10% convertible promissory note and, (c) one warrant to purchase an aggregate of 7,300,000 shares of the Company’s common stock and (d) one warrant to purchase an aggregate of 1,000,000 shares of the Company’s common stock.The notes mature in 2010, and the warrants expire in November 2012.

In connection with the issuance of the warrants and beneficial conversion feature, the Company has reflected a value at the date of issuance for the warrants of $1,578,452 and a beneficial conversion feature value of $250,596. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 6%; and expected lives of between 1 to 5 years.

On March 7, 2008, the Company closed the second tranche under the Note Purchase Agreement. The Company issued an additional convertible promissory note to the Purchaser in the principal amount of $1,450,000. The notes accrue interest at 10% per annum from the date of issuance and mature in November 2010. In connection with this second tranche the Company has recorded a beneficial conversion feature of $46,774 which has been expensed since the notes are convertible into common stock at any time.

On June 20, 2008, the Company closed the third tranche under the Note Purchase Agreement. The Company issued an additional convertible promissory note to the Purchaser in the principal amount of $1,450,000. The notes accrue interest at 10% per annum from the date of issuance and mature in November 2010.

The notes issued under the November 29, 2007 agreement accrue interest at 10% per annum from the date of issuance, and are payable, at the Company’s option in cash on the maturity date, which is November 2010. The notes contain various events of default such as failing to make a payment of principal or interest when due, which if not cured, would require the Company to repay the holder immediately the outstanding principal sum of and any accrued interest on the notes. Each note requires the Company to prepay under the note if certain “Triggering Events” or “Major Transactions” occur while the note is outstanding. The holders of the notes are entitled to convert the notes into shares of the Company’s common stock at any time based on the fixed conversion price of $0.75 per share.

Also, on June 20, 2008, the Company made several amendments to the convertible notes outstanding with aggregate principal amount $6,000,000 issued under the agreement dated November 29, 2007, including a reduction in the conversion price per share from $0.75 to $0.60. In addition, the exercise price of the warrants outstanding to purchase an aggregate 8,300,000 shares of common stock issued under the same agreement was reduced from $0.90 to $0.72. At the same time the Company and the holder entered into an agreement whereby the holder tendered all the warrants to purchase an aggregate 8,300,000 shares of common stock and the Company issued 498,000 shares of Series B Convertible Preferred Stock to the holder. All the warrants tendered were cancelled.
 
 
9

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

Using the Black Scholes method it was determined that the reduction in the conversion price per share under the convertible notes from $0.75 to $0.60 resulted in an increase in the fair value of the associated conversion options of $341,000. The increase in the fair value of the conversion options was recorded as a reduction in the carrying value of the convertible notes and an increase in additional paid-in capital. The resulting discount on the convertible notes will be amortized to interest expense over the remaining life of the notes. An expected volatility of 55% and risk free interest rate of 2.88% were used when applying the Black Scholes method.

The issuance of 498,000 shares of Series B Convertible Preferred Stock resulted in a beneficial conversion feature in the amount of $1,112,200, which was recorded as a deemed dividend to preferred shareholders. The fair value of the exchanged warrants before the reduction in exercise price was used to value the preferred stock when calculating the beneficial conversion feature. The fair value of the warrants was calculated using the Black Scholes method with expected volatility of 55% and risk free interest rate of 3.57%.

In order to facilitate the issuance of the Series B Convertible Preferred Stock, the Company first filed with the Delaware Secretary of State a Certificate Reducing the Number of Authorized Shares of Series A Convertible Preferred Stock from 10,000,000 shares to 8,333,333 shares and then the Company filed with the Delaware Secretary of State a Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible Preferred Stock. Under the Certificate of Designation, 1,666,667 shares of the Company’s authorized preferred stock have been designated as Series B Convertible Preferred Stock.

On August 15, 2008 the expiration date of the series C warrants to purchase 2,777,778 shares of common stock at $0.90 per share issued in August 2007 was extended from August 16, 2008 to October 16, 2008. The extension of the expiration date resulted in a reduction of the amount of additional paid-in capital allocated to warrants.

On September 12, 2008 the exercise price of the series A warrants to purchase 8,333,333 shares of common stock was reduced from $0.90 per share to $0.72 per share. At the same time all these warrants were exchanged for 500,000 shares of series B convertible preferred stock.

On September 12, 2008, the exercise price of the series B warrants was reduced from $1.35 per share to $0.75 per share. At the same time the number of shares that can be purchased with these warrants was increased from 2,777,778 to 6,250,000. These modifications resulted in an increase in the amount of additional paid-in capital allocated to warrants.

On September 12, 2008, the exercise price under the series C warrants was increased from $0.90 to $4.00; the class of stock receivable upon exercise of the series C warrants was changed from common to series B convertible preferred stock; the number of series C warrants outstanding was deceased from 2,777,778 to 625,000. These modifications resulted in an increase in the amount of additional paid-in capital allocated to warrants. In addition, and the holders exercised 312,500 series C warrants, receiving 312,500 shares of series B convertible preferred stock in exchange for $1,250,000.

On October 15, 2008 the expiration date of the Series C Warrants issued to Vision Opportunity Master Fund on August 16, 2007 was changed from October 16, 2008 to November 16, 2008.  The extension of the expiration date resulted in a reduction of the amount of additional paid-in capital allocated to warrants. On November 13, 2008 the exercise price per share of the Series C Warrants was changed from $4.00 to $3.512 and the number of shares of Series B Preferred Stock to be issued upon complete exercise was changed from 312,500 to 356,000. And on November 14, 2008 the outstanding part of the Series C Warrant was entirely exercised. The Company received $1,250,272 in cash and issued 356,000 shares of Series B Convertible Preferred Stock.

On November 13, 2008 the exercise price per share of the Series B Warrants was changed from $0.75 to $0.46, which resulted in a reduction of the amount of additional paid-in capital allocated to warrants. Also on November 13, 2008 the per share conversion price of the Series A Convertible Preferred Stock was changed from $0.60 to $0.25. This transaction was accounted for as an extinguishment that resulted in recording a deemed dividend to preferred shareholders. And also on November 13, 2008, the per share conversion price of the Series B Convertible Preferred Stock was changed from $0.60 to $0.50. This transaction was accounted for as an extinguishment that resulted in a reduction in deemed dividends to preferred shareholders.

Also, on November 13, 2008, the Company acknowledged that the price protection provision of the convertible notes held by Vision Opportunity Master Fund and Vision Capital Advisors had been triggered resulting in a change in the conversion price from $0.60 to $0.25, which was accounted for as an extinguishment where the cost basis of the new debt was determined to equal the cost basis of the old debt.
 
 
10

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

On February 9, 2009 the Company issued to Vision Opportunity Master Fund a convertible promissory note with principal amount $1,500,000 and a warrant to purchase 3,000,000 shares of common stock in exchange for $1,500,000 in cash. The promissory note matures one year from the date of issuance, bears interest at an annual rate of 10% and is initially convertible into shares the Company’s common stock at a conversion price of $0.25. The warrants have an exercise price of $0.25 and a term of five years. The conversion price of the promissory notes and the exercise price of the warrants are subject to adjustment upon the occurrence of certain events. The Company recognized a beneficial conversion feature of $360,000 in connection with the issuance of the convertible promissory note, which was expensed since the notes can be converted at any time.

On May 21, 2009 the Company issued to Vision Opportunity Master Fund a convertible promissory note with principal amount $4,542,500 and a warrant to purchase 15,141,667 shares of common stock in exchange for cancellation of the promissory note with principal amount $1,500,000 issued on February 9, 2009 and $3,000,000 in cash. The promissory note issued matures one year from the date of issuance, bears interest at an annual rate of 10% and is initially convertible into shares of the Company’s common stock at a conversion  price of $0.15. The warrants have an exercise price of $0.15 per share and a term of five years. In addition, the following price protection provisions were invoked: the conversion price on all convertible notes held by Vision was reduced from $0.25 to $0.15; the conversion price of the Series A Preferred Stock was reduced from $0.25 to $0.15; and the exercise price of the Series B Warrants held by Vision was reduced from $0.46 to $0.25.

The Company recognized a beneficial conversion feature of  approximately $2,422,000 in connection with the convertible promissory notes issued on May 21, 2009. The beneficial conversion feature was expensed immediately since the notes can be converted into shares of common stock at any time. The Company recognized a loss of approximately $97,000 on early extinguishment of debt related to cancellation of the promissory note with principal amount of $1,500,000 issued on February 9, 2009. The reduction in the conversion price on all convertible notes held by Vision from $0.25 to $0.15 resulted in a loss on the early extinguishment of debt of  $1,018,810. The reduction in the conversion price of the Series A Preferred Stock from $0.25 to $0.15 resulted in a deemed dividend of  $1,666,667. The reduction in the exercise price of the Series B Warrants held by Vision from $0.46 to $0.25 resulted in increase of additional paid-in capital allocated to warrants of  $259,516.

On September 24, 2009 the Company issued to Vision Capital Advantage Fund, LP a convertible promissory note with principal amount $1,036,280.53 and a warrant to purchase 3,454,268  shares of common stock in exchange for $1,036,280.53 in cash. The promissory note matures in May 2010, bears interest at an annual rate of 10% and is initially convertible into shares the Company’s common stock at a conversion price of $0.15. The warrants have an exercise price of $0.15 and expire in May 2014. The conversion price of the promissory notes and the exercise price of the warrants are subject to adjustment upon the occurrence of certain events. The Company recognized a beneficial conversion feature of $691,000 in connection with the issuance of the convertible promissory note, which was expensed since the notes can be converted at any time.

NOTE 6 - CAPITAL LEASE OBLIGATIONS

CitiCorp Vendor Finance, Inc.
 
The Company leases software and computer equipment under capital lease arrangements with CitiCorp Vendor Finance, Inc. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.

The lease dated June 2, 2006 is for software and computer equipment for the Company. The term of the lease is sixty months with monthly payments of $3,461, which is equal to the cost to amortize $172,187 over a five-year period at an interest rate of 7.6% per annum.

Var Resources Inc.
 
The Company leases computer equipment under capital lease arrangements with Var Resources, Inc. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.

There are five leases dated November 19, 2007 for software and computer equipment used at the Company’s various data centers. The terms of the leases are thirty-six months with total monthly payments of $8,600, which is equal to the cost to amortize $253,174 over a 3-year period at an interest rate of 13.5% per annum.
 
 
11

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

Hitachi Data Systems
 
The Company leases software and computer equipment under capital lease arrangements with Hitachi Data Systems. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.

The lease dated December 31, 2007 is computer equipment used at the Company’s various data centers. The term of the lease is thirty-six months with monthly payments of $4,296.04, which is equal to the cost to amortize $130,658 over a 3-year period at an interest rate of 11.3% per annum.

Key Bank
 
The Company leases software and computer equipment under capital lease arrangements with Key Bank. Pursuant to the lease, the lessor retains actual title to the leased property until the termination of the lease, at which time the property can be purchased for one dollar.
 
The lease dated June 20, 2007 is for software and licenses for the Company. The term of the lease is twenty-four months with monthly payments of $6,055, which is equal to the cost to amortize $119,253 over a 2-year period at an interest rate of 19.7% per annum.
 
NOTE 7 – LEASE COMMITMENTS

The Company leases its Farmingdale, NY (from a related party) and New York, NY premises pursuant to individual sublease agreements accounted for as operating leases. The lease on the Farmingdale, NY premises expires on May 31, 2016, and the lease on the New York, NY premises lease expires on November 30, 2011. Both premises are under a non-cancelable operating lease.

The Deerfield Beach, FL location was vacated on June 30, 2008, and a lease termination agreement was executed with the landlord. The lease termination agreement calls for a fee of $60,000 with a $20,000 payment due on July 1, 2008, and the remaining amount to be paid ratably over a twelve month period. The Burlington, NJ, location was vacated in August 2008.

The Company also has operating leases for office equipment. The operating leases are for forty-eight months and expire April 30, 2011.

NOTE 8 – STOCK OPTIONS

On January 28, 2007 the Company adopted the 2006 Stock Option Plan of Juma Technology Corp., (the “2006 Plan”). The Plan provides for up to 6,228,750 shares of incentive and non-qualified options that may be granted to employees, directors and certain key affiliates. Under the Plan, incentive options may be granted at not less than the fair market value on the date of grant and non-statutory options may be granted at or below fair market value. The Company wishes to utilize the Plan to attract, maintain and develop management by encouraging ownership of the Company's Common Stock by key employees, directors, and others. Options under the Plan will be either “incentive options” under Section 422A of the Internal Revenue Code of 1986, as amended, or “non-qualified stock options” which are not intended to so qualify.

At September 30, 2009, the Company has 6,139,421 stock options to officers, employees and consultants outstanding at exercise prices ranging from $0.20 to $1.33 per share under the 2006 Plan. These options carry a ten year term and vest ratably over five years. The options vested during the first twelve months shall not be available to the optionee until the first anniversary of the stock option grant. Options for officers are issued at a 15% premium over fair market value, carry a five year life and vest ratably over one year. Using the Black-Scholes pricing model the Company has determined that the fair value of these options is approximately $1,177,326.

On August 31, 2007 the Company adopted the 2007 Stock Option Plan of Juma Technology Corp., (the “2007 Plan”). The Plan provides for up to 6,228,750 shares of incentive and non-qualified options that may be granted to employees, directors and certain key affiliates. Under the Plan, incentive options may be granted at not less than the fair market value on the date of grant and non-statutory options may be granted at or below fair market value. The Company wishes to utilize the Plan to attract, maintain and develop management by encouraging ownership of the Company's Common Stock by key employees, directors, and others. Options under the Plan will be either “incentive options” under Section 422A of the Internal Revenue Code of 1986, as amended, or “non-qualified stock options” which are not intended to so qualify.

At September 30, 2009, the Company has 6,099,526 stock options to officers, employees and consultants outstanding at exercise prices ranging from $0.20 to $0.60 per share under the 2007 Plan. These options carry a ten year term and vest ratably over various terms. The options vested during the first twelve months shall not be available to the optionee until the first anniversary of the stock option grant. Options for officers are issued at a 15% premium over fair market value, carry a five year life and vest ratably over various terms. Using the Black-Scholes pricing model the Company has determined that the fair value of these options is approximately $639,658 .
 
 
12

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

On December 17, 2008 the Company adopted the 2008 Stock Option Plan of Juma Technology Corp., (the “2008 Plan”). The Plan provides for up to 6,228,750 shares of incentive and non-qualified options that may be granted to employees, directors and certain key affiliates. Under the Plan, incentive options may be granted at not less than the fair market value on the date of grant and non-statutory options may be granted at or below fair market value. The Company wishes to utilize the Plan to attract, maintain and develop management by encouraging ownership of the Company's Common Stock by key employees, directors, and others. Options under the Plan will be either “incentive options” under Section 422A of the Internal Revenue Code of 1986, as amended, or “non-qualified stock options” which are not intended to so qualify.

At September 30, 2009, the Company has 5,791,127 stock options to officers, employees and consultants outstanding at exercise prices ranging from $0.14 to $0.16 per share under the 2008 Plan. These options carry a ten year term and vest ratably over various terms. Options for officers are issued at a 15% premium over fair market value, carry a five year life and vest ratably over a one year term. Using the Black-Scholes pricing model the Company has determined that the fair value of these options is approximately $411,626.

The fair value of options granted during the nine months ended September 30, 2009 was determined using expected volatility of  between 65.9% and 72.0%, term of three to ten years and risk free interest rate of between 1.44% and 3.38%.

 NOTE 9 – PREFERRED STOCK

In July 2007, the Board of Directors approved an amendment to the Company's certificate of incorporation to authorize 10,000,000 shares of $0.0001 par value preferred stock.

On August 16, 2007, the Company signed a $5,000,000, 6% convertible promissory note with Vision Opportunity Master Fund, Ltd (“Vision”). Interest on the note is due quarterly and matures within nine months. The note also carries a Mandatory Conversion Option which calls for conversion of the note into Convertible Preferred Stock once the Company is approved to issue preferred stock. The conversion price for this mandatory conversion is $0.60 per share. The Series A Convertible Preferred stock is convertible into Common Stock of the Company at a 4:1 ratio and carries a 6% dividend. The note also carries an optional conversion, at the right of the holder, into Common Stock at $0.60 per share. The note also calls for the issuance of Series A, Series B, and Series C warrants and a potential future investment at the option of the holder. During September 2007, Vision converted the promissory note into 8,333,333 shares of Series A Convertible Preferred Stock.

On June 20, 2008, the Company issued 498,000 shares of Series B Convertible Preferred Stock to Vision Opportunity Master Fund in exchange for warrants to purchase 8,300,000 shares of the Company’s common stock. All the warrants tendered were cancelled. The Series B Convertible Preferred stock is convertible into Common Stock of the Company at a 24:1 ratio.

In order to facilitate the issuance of the Series B Convertible Preferred Stock, the Company first filed with the Delaware Secretary of State a Certificate Reducing the Number of Authorized Shares of Series A Convertible Preferred Stock from 10,000,000 shares to 8,333,333 shares and then the Company filed with the Delaware Secretary of State a Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible Preferred Stock. Under the Certificate of Designation, 1,666,667 shares of the Company’s authorized preferred stock have been designated as Series B Convertible Preferred Stock.

On September 12, 2008, 8,333,333 series A warrants to purchase common stock were exchanged for 500,000 shares for series B convertible preferred stock.

On September 12, 2008, 312,500 series C warrants were exercised, resulting in the issuance of 312,500 shares of series B convertible preferred stock in exchange for cash payment of $1,250,000.

On November 14, 2008 the outstanding part of the Series C Warrant was entirely exercised. The Company received $1,250,272 in cash and issued 356,000 shares of Series B Convertible Preferred Stock.

On February 9, 2009, the per share conversion price of the series B preferred stock was reduced from $0.50 to $0.25 pursuant to its price protection provisions. The Company recognized a deemed dividend to preferred shareholders of $5,599,440 as a result.
 
 
13

 

Juma Technology Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2009

On May 21, 2009, the per share conversion price of the series A preferred stock was reduced from $0.25 to $0.15 pursuant to its price protection provisions. The Company recognized a deemed dividend to preferred shareholders of $1,666,667 as a result.

As of September 30, 2009, there were $620,548 in accrued unpaid dividends on the series A convertible preferred stock.

NOTE 10 – PURCHASE OF SOFTWARE FOR NOTE PAYABLE AND WARRANTS

On May 28, 2008, the Company purchased exclusive rights to software that is embedded in one of Nectar’s products for $100,000 in cash paid on closing, a note payable with principal amount of $200,000, and warrants to purchase an aggregate 150,000 shares of the Company’s common stock. The note does not bear interest and is payable in four consecutive monthly payments of $50,000 with the first payment due thirty days after the date of purchase.

One warrant was issued to purchase 100,000 shares of common stock at an exercise price of $1.00 per share. The warrants expire five years after the date of purchase and may be exercised at any time before the expiration date. Another warrant was issued to purchase 50,000 shares of common stock at an exercise price of $1.25 per share. The warrant expires five years after the date of purchase and may be exercised at any time before the expiration date. The warrants were assigned a value of $6,177 using the Black Scholes method.

 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Statements
 
Historical results and trends should not be taken as indicative of future operations. Management’s statements contained in this Report that are not historical facts are forward-looking statements. Actual results may differ materially from those included in the forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, significant restructuring and acquisition activities, and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company’s financial results, is included herein and in the Company’s other filings with the SEC.

Information regarding market and industry statistics contained in this Report is included based on information available to the Company that it believes is accurate. It is generally based on industry and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and cannot assure investors of the accuracy or completeness of the data included in this Report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. The Company does not undertake any obligation to publicly update any forward-looking statements. As a result, investors should not place undue reliance on these forward-looking statements.

Results of Operations for the three months ended September 30, 2009 and 2008

Revenues for the three months ended September 30, 2009 decreased $3,929,059 or 67% to $1,896,250, compared with revenues of $5,825,309 for the three months ended September 30, 2008. The decrease in revenues was predominantly due to decreased sales to existing customers.

Cost of goods sold for the three months ended September 30, 2009 decreased $2,961,135 or 75% to $1,004,817, compared to $3,965,952 for the three months ended September 30, 2008. The decrease is primarily attributable to lower project costs.
 
Gross margin for the three months ended September 30, 2009 decreased $967,924 or 52% to $891,433, compared to $1,859,357 for the three months ended September 30, 2008. The decrease is directly attributable to the decrease in revenue.

Selling expenses increased by $38,998 or 11% to $387,970 for the three months ended September 30, 2009, compared to $348,972 for the three months ended September 30, 2008. The decrease was predominantly due to an increase in marketing efforts.

Research and development expenses decreased by $180,455 or 75% to $59,136 for the three months ended September 30, 2009, compared to $239,581 for the three months ended September 30, 2008. All research and development expenses were incurred by Nectar. The decrease is primarily attributable to a decrease in the use of consultants.

General and administrative expenses decreased by $1,693,089 or 47% to $1,871,910 for the three months ended September 30, 2009, compared to $3,564,999 for the three months ended September 30, 2008. The Company recognized a loss from the early extinguishment of debt of approximately $795,000 in the three months ended June 30, 2008, in addition salary expense decreased $445,000 in the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

Amortization of discounts on notes increased $877,208 or 819% to $984,286 for the three months ended September 30, 2009 compared to $107,078 for the three months ended September 30, 2008.  In September 2009 the Company recognized a beneficial conversion feature of  approximately $691,000 in connection with the issuance of a convertible promissory note, which was expensed since the notes can be converted at any time.

Interest expense (net) totaled $339,249 for the three months ended September 30, 2009 compared to $290,636 for the comparable period in 2008. The increase is primarily attributable to interest expense associated with the issuance of additional convertible promissory notes.

The Company incurred a net loss of $2,751,311 for the three months ended September 30, 2009 compared to a net loss of $2,712,221 for the comparable period in 2008. Nectar incurs significant operational and development expenses that management believes will continue for the foreseeable future. Nectar generated a net loss of approximately $412,000 for the three months ended September 30, 2009. The Company expects Nectar’s loss to continue until new sales outpace the current level of costs.

 
15

 

Results of Operations for the nine months ended September 30, 2009 and 2008

Revenues for the nine months ended September 30, 2009 decreased $5,500,003 or 36% to $9,936,932, compared with revenues of $15,436,935 for the nine months ended September 30, 2008. The decrease in revenues was predominantly due to decreased sales to existing customers.

Cost of goods sold for the nine months ended September 30, 2009 decreased $4,901,548 or 42% to $6,637,904, compared to $11,539,452 for the nine months ended September 30, 2008. The decrease is primarily attributable to lower project costs.
 
Gross margin for the nine months ended September 30, 2009 decreased $598,455 or 15% to $3,299,028, compared to $3,897,483 for the nine months ended September 30, 2008. The decrease is directly attributable to the decrease in revenue.

Selling expenses decreased by $245,119 or 17% to $1,160,958 for the nine months ended September 30, 2009, compared to $1,406,077 for the nine months ended September 30, 2008. The decrease was predominantly due to a decrease in marketing efforts.

Research and development expenses decreased by $313,368 or 50% to $315,735 for the nine months ended September 30, 2009, compared to $629,103 for the nine months ended September 30, 2008. All research and development expenses were incurred by Nectar. The decrease is primarily attributable to a decrease in the use of consultants.

The goodwill, which is associated with the acquisition of Nectar, was deemed impaired at the time of the acquisition. This goodwill impairment was adjusted during the nine months ended September 30, 2008 due to a loan which was created due to a provision in the purchase contract offset by an addendum to the purchase contract which allowed for a receivable which entitled the Company to a refund of a deposit on a potential acquisition. These items resulted in additional goodwill impairment of $204,600.

General and administrative expenses decreased by $2,071,240 or 25% to $6,115,533 for the nine months ended September 30, 2009, compared to $8,186,733 for the nine months ended September 30, 2008. The decrease is primarily attributable to a decrease in salary expense of $1,231,000 and bad debt expense of $372,000 for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.

Amortization of discounts on notes increased $3,370,328 or 514% to $4,025,866 for the nine months ended September 30, 2009 compared to $655,538 for the nine months ended September 30, 2008. The Company recognized beneficial conversion features of approximately $360,000, $2,423,000 and $691,000 in February 2009, May 2009 and September 2009, respectively, in connection with the issuance of convertible promissory notes, which were expensed since the notes can be converted at any time.

Interest expense (net) totaled $952,376 for the nine months ended September 30, 2009 compared to $633,677 for the comparable period in 2008. The increase is primarily attributable to interest expense associated with the issuance of additional convertible promissory notes.

The Company incurred a net loss of $9,279,082 for the nine months ended September 30, 2009 compared to a net loss of $7,840,296 for the comparable period in 2008. Currently, Nectar incurs significant operational and development expenses that management believes will continue for the foreseeable future. Nectar generated a net loss of approximately $1,559,000 for the nine months ended September 30, 2009. The Company expects Nectar’s loss to continue until new sales outpace the current level of costs.

In May 2009 Company recognized a deemed dividend to preferred shareholders of $1,666,667 as a result of  a decrease in the per share conversion price of the series A preferred stock from $0.25 to $0.15 pursuant to its price protection provisions.  In February 2009 the Company recognized a deemed dividend to preferred shareholders of $5,599,440 as a result of  a decrease in the per share conversion price of the series B preferred stock from $0.50 $0.25 pursuant to its price protection provisions. In June 2008, the Company recognized a deemed dividend to preferred shareholders of $1,112,200 in connection with the issuance of 498,000 shares of series B preferred stock in exchange for warrants to purchase 8,300,000 shares of common stock.
 
Liquidity and Capital Resources

As of September 30, 2009, the Company had total current assets of $ 4,676,658, and total current liabilities of $ 9,399,380, resulting in a current working capital deficit of $4,722,722. Also, at September 30, 2009 the Company had $ $1,774,299 in cash. Management does not believe that these amounts will be sufficient for the upcoming year, nor does it believe that the current business will be able to sustain the anticipated growth of the operations. Management will attempt to rely on external sources of capital to finance the execution of our business plan. We do not have any firm commitments to raise additional capital nor is there any assurance additional capital will be available at acceptable terms. We continue to seek additional sources of funding for working capital purposes.


 
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On February 7, 2007, the Company began offering up to $2,000,000 of convertible promissory notes. The notes are non-interest bearing, mature in eighteen months and are convertible, at the holders option, into common stock of the Company at $1.00 per share. Each investor will also receive one-half share of common stock for each dollar of the principal amount of the notes purchased. As of March 31, 2009, the Company has sold $2,225,000 in notes. Of this amount $100,000 has been converted into common stock; $725,000 has been repaid and the notes cancelled; and $1,000,000 bearing annual interest of 14% was exchanged for a new convertible note of $1,000,000 bearing annual interest of 14% and 1,065,790 shares of the Company’s common stock as further described below.

On July 28, 2008 the holder of $1,000,000 of convertible promissory notes comprised of a $500,000 note with maturity date in October 2008 and another $500,000 note with a maturity date in December 2008 exchanged these notes for new convertible promissory notes with face value $1,000,000 maturing in December 2009 and 1,065,790 shares of the Company’s common stock. The new notes bear interest at an annual rate of 14% and are convertible into shares of common stock at a conversion price of $0.67 per share.

On August 16, 2007, the Company signed a $5,000,000, 6% convertible promissory note with Vision Opportunity Master Fund, Ltd. Interest on the note is due quarterly and matures within nine months. The note also carries a Mandatory Conversion Option which calls for conversion of the note into Convertible Preferred Stock once the Company is approved to issue preferred stock. The conversion price for this mandatory conversion is $0.60 per share. The Series A Convertible Preferred stock is convertible into Common Stock of the Company at a 4:1 ratio and carries a 6% dividend. The note also carries an optional conversion feature, at the right of the holder, into Common Stock at $0.60 per share. The note also calls for the issuance of Series A, Series B, and Series C warrants and a potential future investment at the option of the holder. During September 2007, Vision converted the promissory note into 8,333,333 shares of Series A Convertible Preferred Stock.

On November 29, 2007, the Company entered into a Note and Warrant Purchase Agreement with Vision Opportunity Master Fund, Ltd. (“Purchaser”) with respect to the sale of Notes in an aggregate principal amount of up to $6,000,000. Also on November 29, 2007, the Company entered into Amendment No. 1 to the Note Purchase Agreement. Under the Note Purchase Agreement, as amended, the Company executed and delivered to Vision Opportunity Master Fund, Ltd. (a) the Company’s $2,500,000 principal amount, senior secured 10% convertible promissory note, (b) the Company’s $600,000 principal amount, senior secured 10% convertible promissory note and, (c) one warrant to purchase an aggregate of 7,300,000 shares of the Company’s common stock, and (d) one warrant to purchase an aggregate of 1,000,000 shares of the Company’s common stock.

On March 7, 2008, the Company closed the second tranche under the Note Purchase Agreement. The Company issued an additional convertible promissory note to the Purchaser in the principal amount of $1,450,000. And on June 20, 2008, the Company closed the third tranche under the Note Purchase Agreement. The Company issued an additional convertible promissory note to the Purchaser in the principal amount of $1,450,000.

The notes issued under the November 29, 2007 agreement accrue interest at 10% per annum from the date of issuance, and are payable, at the Company’s option, in cash or shares of its common stock, quarterly in arrears commencing on  December 31, 2007, March 31, 2008 and June 30, 2008, respectively. The maturity date of the notes is November 2010. The notes contains various events of default such as failing to make a payment of principal or interest when due, which if not cured, would require the Company to repay the holder immediately the outstanding principal sum of and any accrued interest on the notes. Each note requires the Company to prepay under the note if certain “Triggering Events” or “Major Transactions” occur while the note is outstanding.

On June 20, 2008, the Company made several amendments to the convertible notes outstanding with aggregate principal amount $6,000,000 issued under the agreement dated November 29, 2007, including a reduction in the conversion price per share from $0.75 to $0.60. In addition, the exercise price of the warrants outstanding to purchase in aggregate 8,300,000 shares of common stock issued under the same agreement was reduced from $0.90 to $0.72. At the same time the Company and the holder entered into an agreement whereby the holder tendered all the warrants to purchase an aggregate 8,300,000 shares of common stock and the Company issued 498,000 shares of Series B Convertible Preferred Stock to the holder. All the warrants tendered were cancelled.

In order to facilitate the issuance of the Series B Convertible Preferred Stock, the Company first filed with the Delaware Secretary of State a Certificate Reducing the Number of Authorized Shares of Series A Convertible Preferred Stock from 10,000,000 shares to 8,333,333 shares and then the Company filed with the Delaware Secretary of State a Certificate of Designation of the Relative Rights and Preferences of the Series B Convertible Preferred Stock. Under the Certificate of Designation, 1,666,667 shares of the Company’s authorized preferred stock have been designated as Series B Convertible Preferred Stock.

On August 15, 2008 the expiration date of the series C warrants to purchase 2,777,778 shares of common stock at $0.90 per share issued in August 2007 was extended from August 16, 2008 to October 16, 2008.
 
 
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On September 12, 2008 the exercise price of the series A warrants to purchase 8,333,333 shares of common stock was reduced from $0.90 per share to $0.72 per share. At the same time all these warrants were exchanged for 500,000 shares of series B convertible preferred stock.

On September 12, 2008, the exercise price of the series B warrants was reduced from $1.35 per share to $0.75 per share. At the same time the number of shares that can be purchased with these warrants was increased from 2,777,778 to 6,250,000.

On September 12, 2008, the exercise price under the series C warrants was increased from $0.90 to $4.00; the class of stock receivable upon exercise of the series C warrants was changed from common to series B convertible preferred stock; the number of series C warrants outstanding was deceased from 2,777,778 to 625,000. In addition, the holders exercised 312,500 series C warrants, receiving 312,500 shares of series B convertible preferred stock in exchange for $1,250,000.

On October 15, 2008 the expiration date of the Series C Warrants issued to Vision Opportunity Master Fund on August 16, 2007 was changed from October 16, 2008 to November 16, 2008. On November 13, 2008 the exercise price per share of the Series C Warrants was changed from $4.00 to $3.512 and the number of shares of Series B Preferred Stock to be issued upon complete exercise was changed from 312,500 to 356,000. And on November 14, 2008 the outstanding part of the Series C Warrant was entirely exercised. The Company received $1,250,272 in cash and issued 356,000 shares of Series B Convertible Preferred Stock.

On November 13, 2008 the exercise price per share of the Series B Warrants was changed from $0.75 to $0.46. Also on November 13, 2008 the per share conversion price of the Series A Convertible Preferred Stock was changed from $0.60 to $0.25. And also on November 13, 2008, the per share conversion price of the Series B Convertible Preferred Stock was changed from $0.60 to $0.50.

Also, on November 13, 2008, the Company acknowledged that the price protection provision of the convertible notes held by Vision Opportunity Master Fund and Vision Capital Advisors had been triggered resulting in a change in the conversion price from $0.60 to $0.25.

On February 9, 2009 the Company issued to Vision Opportunity Master Fund a convertible promissory note with principal amount $1,500,000 and a warrant to purchase 3,000,000 shares of common stock in exchange for $1,500,000 in cash. The promissory note matures one year from the date of issuance, bears interest at an annual rate of 10% and is initially convertible into shares the Company’s common stock at a conversion price of $0.25. The warrants have an exercise price of $0.25. The conversion price of the promissory notes and the exercise price of the warrants are subject to adjustment upon the occurrence of certain events.

On May 21, 2009 the Company issued to Vision Opportunity Master Fund a convertible promissory note with principal amount $4,542,500 and a warrant to purchase 15,141,667 shares of common stock in exchange for cancellation of the promissory note with principal amount $1,500,000 issued on February 9, 2009 and $3,000,000 in cash. The promissory note issued matures one year from the date of issuance, bears interest at an annual rate of 10% and is initially convertible into shares of the Company’s common stock at a conversion price of $0.15. The warrants have an exercise price of $0.15 per share and a term of five years. In addition, the following price protection provisions were invoked: the conversion price on all convertible notes held by Vision was reduced from $0.25 to $0.15; the conversion price of the Series A Preferred Stock was reduced from $0.25 to $0.15; and the exercise price of the Series B Warrants held by Vision was reduced from $0.46 to $0.25.

On September 24, 2009 the Company issued to Vision Capital Advantage Fund, LP a convertible promissory note with principal amount $1,036,281 and a warrant to purchase 3,454,268  shares of common stock in exchange for $1,036,281 in cash. The promissory note matures in May 2010, bears interest at an annual rate of 10% and is initially convertible into shares the Company’s common stock at a conversion price of $0.15. The warrants have an exercise price of $0.15 and expire in May 2014. The conversion price of the promissory notes and the exercise price of the warrants are subject to adjustment upon the occurrence of certain events.

Cash flows used in operations totaled $3,795,149 for the nine months ended September 30, 2009, compared to $2,969,065 for the nine months ended September 30, 2008. The increase in cash flows used in operations is attributable primarily to decreases in accounts payable and accrued expenses, net loss and loss on early extinguishment of debt offset by an increase in amortization of discounts on notes payable.

Cash flows used by investing activities was $140,898 for the nine months ended September 30, 2009 compared to $216,713 for the nine months ended September 30, 2009. The decrease in cash flows used in investing activities is due primarily to a decrease in the acquisition of fixed assets.

Cash flows provided financing activities increased to $5,346,300 for the nine months ended September 30, 2009 compared cash flows provided by financing activities of $3,293,566 for the nine months ended September 30, 2008. The increase is attributable to an increase in proceeds from the issuance of convertible promissory notes.

 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2009. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. Anthony M. Servidio and Chief Financial Officer, Mr. Anthony Fernandez. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2009, our disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2009 that have materially affected or are reasonably likely to materially affect such controls.

Limitations on the Effectiveness of Internal Controls
 
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls 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. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
  
PART II-OTHER INFORMATION
 
Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. Submission of Matters to Vote of Security Holders.
 
None.
 
 
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Item 5. Other Information
 
None.

Item 6.
 
Exhibits
31.1
 
Certification by Chief Executive Officer pursuant to Rule 13a-14
     
31.2
 
Certification by Chief Financial Officer pursuant to Rule 13a-14
     
32.1
 
Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
Juma Technology Corp.
(Registrant)
     
     
Date: November 12, 2009
 
/s/ Anthony M. Servidio
     
   
Anthony M. Servidio
Chief Executive Officer and Chairman
(Principal Executive Officer)
     
Date: November 12, 2009
 
/s/ Anthony Fernandez
     
   
Anthony Fernandez
Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
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