Attached files
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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.
14
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.
16
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.
17
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.
18
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.
19
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)
|
20