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EX-32.2 - Juma Technology Corp. | v178869_ex32-2.htm |
EX-23.1 - Juma Technology Corp. | v178869_ex23-1.htm |
EX-31.1 - Juma Technology Corp. | v178869_ex31-1.htm |
EX-32.1 - Juma Technology Corp. | v178869_ex32-1.htm |
EX-31.2 - Juma Technology Corp. | v178869_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2009
or
o
|
TRANSITION
REPORT UNDER 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)
|
Registrant’s
telephone number, including area code: (631) 300-1000
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class
|
Name
of each exchange on which registered
|
|
None
|
None
|
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, par value $0.0001
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.oYes x No
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 checkmark 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). oYes ¨
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated
filer ¨ Accelerated
filer ¨
Non-accelerated filer ¨ (Do
not check if a smaller reporting company) Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
¨Yes
xNo
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of June 30, 2009, the last day of the registrant’s most recently
completed second fiscal quarter, was $4,246,968.
As
of March 22, 2010, 46,468,945 shares of the registrant’s common stock
were issued and outstanding.
TABLE
OF CONTENTS
Page
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|||
PART
I
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|||
Item 1.
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Business
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3
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Item 1A.
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Risk
Factors
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8
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Item 2.
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Properties
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16
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Item 3.
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Legal
Proceedings
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17
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Item 4.
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Removed
and Reserved
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17
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PART
II
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|||
Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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18
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Item 7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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19
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Item 8.
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Financial
Statements and Supplementary Data
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F-1
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Item 9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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26
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Item 9A(T).
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Controls
and Procedures
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26
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Item 9B.
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Other
Information
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27
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PART
III
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|||
Item 10.
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Directors,
Executive Officers and Corporate Governance.
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28
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Item 11.
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Executive
Compensation
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31
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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34
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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37
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Item 14.
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Principal
Accounting Fees and Services
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38
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PART
IV
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|||
Item 15.
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Exhibits,
Financial Statement Schedules
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39
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2
PART
I
Item
1. Business
Background
Edmonds
4, Inc. was formed as a Delaware corporation on August 19, 2004 for the purpose
of finding a suitable business in which to invest. On March 25, 2005, pursuant
to the terms of a Stock Purchase Agreement, Glen Landry purchased 100,000 shares
pre-split of the issued and outstanding common stock of Edmonds 4, Inc. from
Richard Neussler, the sole officer, director and stockholder of the Company. At
such time Glen Landry was appointed as the President, Chief Executive Officer,
Chief Financial Officer, and Chairman of the Board of Directors.
As a
result of this change in control, Edmonds 4, Inc. changed its business plan to
the production of cosmetics and creams. On April 8, 2005, the certificate of
incorporation was amended to change the name of the Company to Elite Cosmetics,
Inc., to better reflect the business plan. On March 2, 2006, the certificate of
incorporation was amended to change the name of the Company to X and O
Cosmetics, Inc. (“XO”). Immediately prior to the reverse merger described in the
following paragraph, XO had two employees, and was controlled by Glen Landry.
Mr. Landry beneficially owned 99% of the outstanding stock of XO and was also an
officer and director. XO had no income from operations and had a substantial
accumulated deficit.
Reverse
Merger
On
November 14, 2006, XO consummated an agreement with Juma Technology, LLC,
pursuant to which XO acquired 100% of Juma Technology, LLC’s member interests in
exchange for 33,250,731 shares of our common stock (the “Reverse Merger”). The
transaction was treated for accounting purposes as a recapitalization by Juma
Technology, LLC as the accounting acquirer.
Prior to
the Reverse Merger, there were 259,830,000 shares of our common stock
outstanding. As part of the Reverse Merger, 33,250,731 shares of our common
stock were issued to former members of Juma Technology, LLC and their
affiliates; and XO’s former officer and director, Glen Landry returned
251,475,731 of his 256,500,000 shares of common stock back to treasury. After
giving effect to this share cancellation and the cancellation of 90,000 shares
of common stock owned by Mr. Landry’s wife, there were 8,274,269 shares of
common stock outstanding at the time of the reverse merger. The 8,274,269 shares
were comprised of approximately 3,250,000 shares owned by non-affiliates of XO,
5,024,269 shares owned by Mr. Landry, which shares were held pursuant to the
terms of an escrow agreement between Mr. Landry and certain persons, and were
subsequently transferred by Mr. Landry in private transactions to certain
persons noted in the contribution agreement signed in connection with the
reverse merger, and 10,000 shares issued to an employee for services. Following
the transaction, there were 41,535,000 shares of common stock issued and
outstanding.
On
January 28, 2007, XO changed its name to Juma Technology Corp.
The
Company has carried on Juma Technology, LLC’s business, as described
below.
On March
6, 2007, the Company completed the acquisition of AGN Networks, Inc. (“AGN”)
through the merger of AGN into a newly formed wholly owned subsidiary of the
Company pursuant to an Agreement and Plan of Merger. The Company acquired AGN
networks, Inc. as it is in the business of delivering telephone company service
to operators of Voice over Internet Protocol Telephone systems. Its customers
include mid range and enterprise sized corporate, institutional and government
organizations. AGN’s services enhance functionality and increase fault-tolerance
while providing for robust business continuity via disaster recovery mechanisms.
Its flagship offering allows Internet Protocol (“IP”) PBX’s to be interconnected
to the Public Switched Telephone Network in 30 minutes or less.
In
February 2008, AGN Networks Inc. changed its name to Nectar Services
Corp.
The
Company’s principal executive offices are located at 154 Toledo Street,
Farmingdale, NY 11735 and its telephone number is (631)
300-1000.
Overview
We are 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. Juma is focused on providing converged communications
solutions for voice, data and video network implementations for various vertical
markets with an emphasis in driving long-term professional services engagements,
maintenance, monitoring and management contracts. Juma 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. Juma integrates high-speed network routers and high-capacity
data switches from the industry’s leading manufacturers and deploys what it
believes is best-of-breed communications solutions with a full range of managed
services for its clients. Juma is a complete solution source, enhancing the
abilities of an organization’s technical staff and increasing the reliability
and functionality of clients’ Information Technology (“IT”)
environments.
3
Industry
and Background
Converged
communications has become a major focus for IT managers. Moving communications
onto IP networks yields cost savings for many businesses. A company can move
inter-office voice circuits onto data connections, thereby reducing the number
of carrier circuits and recurring monthly fees. In addition, IP is less
expensive to deploy and administer in both existing and new facilities.
Reduction in the amount of cabling and the ease of being able to move personnel
within facilities are two advantages of convergence.
Savings
are not limited only to facilities management and network operations costs. IP
telephony services are also emerging in the form of carrier services. Public
Switch Telephone Network and voice T-1 lines can be migrated to deliver phone
calls over IP directly through the carrier. Voice over Internet Protocol
(“VoIP”) carrier services, sometimes referred to as IP Centrex, have entered the
mainstream U.S. market and are expected to grow more than five times in the next
two years as new services and providers emerge.
It is
Juma’s belief that the industry will realize the following growth in the near
future:
|
·
|
Voice
communications will continue to evolve as a network-centric
application.
|
|
·
|
Voice
applications and converged networks will continue to be the top areas of
concern for IT managers for the next several years. Development of
security and firewall features will emerge within voice-centric products
to allow more remote network or home worker
deployments.
|
|
·
|
Outsourcing
of services, system management, and infrastructure will continue to
grow.
|
|
·
|
Hosted
telephony offers will continue to grow as traditional wire line providers
begin to evolve their business models and become more IP-centric. However,
these organizations will not have the knowledge and experience necessary
to integrate voice, data and network security effectively for clients.
Traditional wireline providers will need to rely on systems integrators to
sell their communication offerings and engineer customer
networks.
|
|
·
|
Voice
equipment manufacturers will evolve away from hardware-centric solutions
and become more software-based. The pace at which the communications
market is moving will leave manufacturers with less time to develop and
test products, thus encouraging them to adopt standardized hardware
protocols and concentrate research and development efforts on the software
components of their solutions.
|
|
·
|
The
trend in workforce mobilization will continue to grow and be a driving
force for converged solutions.
|
|
·
|
Voice
and video conferencing are additional applications that are moving onto
converged networks. The physical security surveillance and control markets
have also been converting their systems toward network-based applications.
The physical security market is considered to be adjacent to the
communications market since the same facilities management staff within a
company typically administers both
systems.
|
Business
Model and Concept
Juma
believes its key competitive advantage in the converged communications services
market is based upon its two strong lineages which are individually rooted in
voice and data networking.
The
foundation for Juma’s Unified Communications solutions and offerings
stem from these two core and distinct practices, Voice and Data. Unlike other
communications systems integrators, Juma places special emphasis on cross
training voice and data engineering staffs. Competing systems integrators lack
either the breadth of data engineering knowledge or the depth in telephony and
call center systems know-how. Juma’s fundamental approach ensures its ability to
meet the challenges of the overall industry as it transforms itself with
converged applications served by IP data networks.
Utilizing
a consultative approach to sales in all of its practice areas, Juma creates
opportunities by providing custom tailored solutions for its clients. This
approach ensures maximum benefit to the client with minimal account turnover.
Juma maintains certifications from several leading manufacturers including
Avaya, Cisco, Juniper Networks, Extreme Networks, Brocade, Meru, Nortel,
Microsoft and several others.
Juma
chooses equipment and deployment methodologies from specific market-leading
vendors who have common market goals and integrated product roadmaps. Juma is a
Platinum Level Avaya Business Partner. Avaya is the former Enterprise Networks
Group of Lucent Technologies. As one of the world’s largest suppliers of
communications networks, Avaya is at the forefront of unified communications and
customer relationship management systems.
4
A key
focus for Juma is to develop its reoccurring revenue lines of business, through
its wholly owned subsidiary, Nectar Services Corp. The key lines of business
that generate long-term contracts with reoccurring revenue are:
|
·
|
Hosted
Telephony Services (“HTS”)
|
|
·
|
Converged
Management Platform (“CMP”)
|
|
·
|
Enterprise
Session Management (“ESM”)
|
These
respective services will be marketed and sold via both direct and indirect
channel models. For direct sales, Juma will leverage its growing Enterprise and
Small & Medium Business sales forces which offer Juma’s full line of
products and services. The indirect channel will comprise resellers,
distributors and agents of IP Telephony and traditional carrier services. The
development of the indirect channel will provide a cost optimized sales vehicle
for Juma’s advanced services and will provide “white label” opportunities for
the larger indirect agents.
Hosted
Telephony Service - Overview
The
Hosted Telephony Service allows a small to medium size business to gain the
features and functionality of Fortune 500 firms without the increased cost of
purchasing a corporate Private Branch Exchange (“PBX”) and without equipment
overhead and maintenance problems.
Overall
Objectives
|
·
|
Deliver
feature functionality of Avaya Enterprise Communication Manager to
organizations of all sizes at a fixed monthly
cost
|
|
·
|
Service
includes carrier services, maintenance of core Data Center equipment,
management, moves and changes, and 24x7
monitoring
|
|
·
|
Unified
Messaging links Voice, and Fax messages which can be delivered into a
client’s email service enabling one view while maintaining control as to
where each is actually stored
|
|
·
|
Offer
flexible hosted service which allows customer to mix and match local dial
tone, hosted dial tone, hosted PBX, and on-premise survivable PBX into a
custom service that matches the customer’s business and technology
requirements while minimizing risk.
|
Key
Messaging
|
·
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No
purchase of corporate PBX system
licenses
|
|
·
|
Cost
savings on carrier services with bundled
services
|
|
·
|
Industry’s
first high availability hosted telephony platform with carrier and
Customer Premise Equipment based fault tolerance options with zero or
limited feature loss when running in Customer Premise Equipment survivable
mode
|
|
·
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One
bill for all voice communication
needs
|
|
·
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All
Enterprise Avaya telephony advanced features for any size
company
|
Key
Differentiators
|
·
|
Based
on an Enterprise Telephony platform, not Small Business focused IP
Soft-switch for Centrex
replacement.
|
|
·
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Survivability
- reliable service 24/7
|
|
·
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Call
Center Features and functionality
|
|
·
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Extension
to Cellular Technology (leveraging Avaya
technology)
|
|
·
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Allows
customers to use existing carrier
dialtone
|
|
·
|
The
Hosted Telephony Service is directly connected (meaning Nectar’s switching
equipment in Nectar’s data centers) to the Public Switched Telephone
Network.
|
|
·
|
Hosted
Telephony Services can use traditional digital or new IP handsets at the
client premises
|
Converged
Management Platform - Overview
The
Converged Management Platform is an intelligent distributed software platform
that converges monitoring of voice and data equipment which also enables remote
management of the different layers of a client’s network and systems
infrastructure to provide a unified view the health and status of an entire
network. Technology elements are mapped to real business processes
and user groups, determined by the customer, providing immediate recognition of
affected processes. The Platform allows assessments of the overall
systems health and the operation and availability of each component contributing
to the business services (i.e. voicemail phone registration, call accounting,
call center applications, etc.). The software platform is provided as
a service to Service Bureau Operators in enabling them to monitor and manage
their end-clients’ facilities.
5
Highlights
|
·
|
24/7 Remote monitoring and
alarming
|
|
·
|
Business process correlation and
dashboard system
|
|
·
|
Fault Isolation and analysis
services
|
|
·
|
Enabling remote programming
services
|
|
·
|
Enabling release upgrade
management
|
|
·
|
Application topology and event
management
|
|
·
|
OSS
integration
|
Benefits
|
·
|
Manage
applications that span across technology silos such as PBX’s, switches and
servers
|
|
·
|
Map
voice and data assessments to business
processes
|
|
·
|
Eliminate
capital expenditures usually required by the purchase of a traditional
network management software and infrastructure to operate the
software
|
|
·
|
Enables
the reduction of mean time to repair factors in servicing a
client
|
Enterprise
Session Management – Overview
Businesses
easily recognize the advantages and cost savings associated with unified
communications, but implementing a unified communications system can be a
challenge. Often times, companies maintain disparate telephony systems,
which are difficult to manage and fail to take advantage of the full
benefits associated offered by unified communications. Enterprise Session
Management is a managed services software solution that enables customers
to preserve their investment in existing telecommunications systems while
transitioning to VoIP. The solution can deliver significant cost savings,
inherent business continuity, intelligent call-routing and the
centralization of both applications and management. With Enterprise
Session Management, companies can accelerate their transition to VoIP
without discarding their telephony
infrastructure investments. Enterprise Session management
essentially transforms hundreds or even thousands of disparate PBX systems
into a unified, enterprise-wide telephony platform that now
takes advantage of intelligent call routing, dynamic business
continuity and significant cost savings on carrier services by leveraging
existing corporate wide area networks. These services are managed using a
simple and intuitive application that can be easily administered by
existing staff.
The
Enterprise Session Management platform enables carrier class routing and session
management functionality that is completely vendor and carrier agnostic made
specifically for enterprise or business customers. Using simple and
intuitive web-based tools, companies can seamlessly manage their telephony
architecture. Current PBX’s and IP PBX’s require the configuration of
static trunks between systems that which to communicate with each
other. This practice creates design and management complexity that
grows exponentially with the number of systems. Enterprise Session
Management requires a single signaling trunk and PBX’s are automatically peered
assuring numerous benefits.
Benefits
|
·
|
Potential
for significant inbound and outbound toll savings leveraging SIP carrier
services
|
|
·
|
Scalable
|
|
·
|
Enables
an enterprise to leverage wide area data networks to achieve toll
bypass
|
|
·
|
Disaster
recovery (re-routing calls paths
enterprise-wide)
|
|
·
|
Centralized
visibility of call traffic
|
|
·
|
Dynamic
capacity management
|
|
·
|
Enables
an enterprise to diversify their
carriers
|
|
·
|
Standards
based solution points and delivery method ensure continued future
use
|
|
·
|
Simplified
administration
|
|
·
|
Supports
hybrid telephony environment
|
|
·
|
Centralized
signaling
|
|
·
|
Enables
Unified Network based dial plan
|
|
·
|
Robust
VoIP security features
|
6
Competitive
Business Conditions
Management
is aware of similar products and services that compete directly with our
products and services and some of the companies developing these similar
products and services are larger, better-financed companies that may develop
products superior to ours. Some of our current and prospective competitors are
Carousel Industries of North America, Inc., Cross Telecom Corporation, and North
American Communications Resources, Inc, Verizon and AT&T. These companies
are larger and have greater financial resources, which could create significant
competitive advantages for those companies. Our future success depends on our
ability to compete effectively with our competitors. As a result, we may have
difficulty competing with larger, established competitor companies. Generally,
these competitors have:
|
·
|
substantially
greater financial, technical and marketing
resources
|
|
·
|
larger
customer base
|
|
·
|
better
name recognition
|
|
·
|
potentially
more expansive product offerings
|
These
competitors are likely to command a larger market share, which may enable them
to establish a stronger competitive position than we have, in part, through
greater marketing opportunities. If we fail to address competitive developments
quickly and effectively, we may not be able to remain a viable
entity.
Sources
and Availability of Raw Materials
We rely
on third-party suppliers, in particular Avaya and Genband, for most of
the hardware and software necessary for our
services. In addition, for clients that leverage our platform
to connect to the Public Switched Telephone Network, wholesale carrier services
suppliers are used, particularly Global Crossing and
Level-3. Although we believe we can secure other suppliers, we expect
that the deterioration or cessation of any relationship would have a material
adverse effect, at least temporarily, until new relationships are satisfactorily
in place.
We also
run the risk of supplier price increases and component shortages or service
limitations. Competition for materials in short supply can be intense, and we
may not be able to compete effectively against other purchasers who have higher
volume requirements or more established relationships with respect to hardware
and increased competition may drive down carrier-services rates industry-wide
limiting the value of providing carrier services options to clients through the
platform. Even if suppliers have adequate supplies of components or service
options, they may be unreliable in meeting delivery schedules, experience their
own financial difficulties, provide components of inadequate quality/service or
provide them at prices which reduce our profit. Any problems with our
third-party suppliers can be expected to have a material adverse effect on our
financial condition, business, results of operations and continued growth
prospects.
Dependence
on Major Customers
Approximately
ten (10%) of our business is currently derived from our authorization to provide
goods and services to New York State government agencies, local government
agencies, municipalities, and educational institutions, pursuant to numerous New
York State contracts. Were we to no longer be authorized to provide such goods
and services to these entities our business would be adversely affected, as we
would have to bid for the work as opposed to selling directly without bid. This
would make the acquisition of such work much more difficult and
costly.
Patents,
Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
As of
December 31, 2009, we did not own, legally or beneficially, any
patents. However, we have filed for several patent applications
(domestically and internationally) which have been published both with the
United States Patent and Trademark Office and the Economic Union Patent,
Copyright and Trademark Office, and are awaiting examination. We do
legally own several trademarks.
Research
and Development
We
incurred research and development expenditures of $372,023 and $777,480 for the
years ended December 31, 2009 and 2008, respectively. These expenses
were related to the development of the Nectar Services Corp. carrier services
platforms (i.e. managed, carrier, and hosted telephony services). The Company
believes that research and development costs will begin to decrease as the
Nectar platform and product offerings are sold into the market.
7
Existing
and Probable Governmental Regulation
The
current regulatory environment for our services does not impact our business
operations in a significant manner. Nevertheless, the current regulatory
environment for our services remains unclear. Our VoIP and other services are
not currently subject to all of the same regulations that apply to traditional
telephony. It is possible that Congress and some state legislatures may seek to
impose increased fees and administrative burdens on VoIP, data, and video
providers. The FCC has already required us to meet various emergency service
requirements (such as “E911”) and interception or wiretapping requirements, such
as the Communications Assistance for Law Enforcement Act (“CALEA”). In addition,
the FCC may seek to impose other traditional telephony requirements such as
disability access requirements, consumer protection requirements, number
assignment and portability requirements, and other obligations, including
additional obligations regarding E911 and CALEA. Such regulations could result
in substantial costs depending on the technical changes required to accommodate
the requirements, and any increased costs could erode our pricing advantage over
competing forms of communication and may adversely affect our
business.
Compliance
with Environmental Laws
We did
not incur any costs in connection with the compliance with any federal, state,
or local environmental laws.
Employees
As of
January 15, 2010, Juma had 57 full-time employees. Juma also engages the
services of a number of individual and corporate consultants. We believe our
relations with our employees are good. None of our employees are represented by
members of any labor union, and we are not a party to any collective bargaining
agreement.
The
Company leases all of its employees from an unrelated party. In addition to
reimbursing the third party for the salaries of the leased employees, the
Company is charged a service fee by the third party, which is designed to cover
the related employment taxes and benefits.
Item
1A. Risk Factors.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Prospective investors should
carefully consider the risks described below, together with all of the other
information included or referred to in this Annual Report on Form 10-K, before
purchasing shares of our common stock. There are numerous and varied risks,
known and unknown, that may prevent us from achieving our goals. The risks
described below are not the only ones we will face. If any of these risks
actually occurs, our business, financial condition or results of operation may
be materially adversely affected. In such case, the trading price of our common
stock could decline and investors in our common stock could lose all or part of
their investment.
Risks
Related to Our Business
We
may fail to continue as a going concern, in which event you may lose your entire
investment in our shares.
Our
audited financial statements have been prepared on the assumption that we will
continue as a going concern. As indicated by our independent registered public
accountants in their report relative to the Company’s financial statements as of
December 31, 2009 and as discussed in Note 1 to the financial statements, the
Company has incurred significant recurring losses. The realization of a major
portion of its assets is dependent upon its ability to meet its future financing
needs and the success of its future operations. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments that might result from this
uncertainty.
If we
fail to continue in business, you will lose your investment in the Company
shares that you have acquired .
Because
larger and better-financed competitors may affect our ability to operate our
business and achieve profitability, our business may fail.
Management
is aware of similar products and services that compete directly with our
products and services and some of the companies developing these similar
products and services are larger, better-financed companies that may develop
products superior to ours. Many of our current and prospective competitors are
larger and have greater financial resources, which could create significant
competitive advantages for those companies. Our future success depends on our
ability to compete effectively with our competitors. As a result, we may have
difficulty competing with larger, established competitor companies. Generally,
these competitors have:
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substantially
greater financial, technical and marketing
resources;
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larger
customer base;
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better
name recognition; and
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potentially
more expansive product offerings.
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These
competitors are likely to command a larger market share, which may enable them
to establish a stronger competitive position than we have, in part, through
greater marketing opportunities. If we fail to address competitive developments
quickly and effectively, we may not be able to remain a viable
entity.
Because
we depend on our key personnel, the loss of their services or the failure to
attract additional highly skilled personnel could adversely affect our
operations.
If we are
unable to maintain our key personnel and attract new employees with high levels
of expertise in those areas in which we propose to engage, without unreasonably
increasing our labor costs, the execution of our business strategy may be
hindered and our growth limited. We believe that our success is largely
dependent on the continued employment of our senior management and the hiring of
strategic key personnel at reasonable costs. We have entered into written
employment agreements with Anthony M. Servidio, Joseph Fuccillo, Anthony
Fernandez, David Giangano, Joseph Cassano, Edmond Baydian and Frances Vinci.
These agreements provide for terms of one to three years; however, the
applicable executive may terminate such agreement on notice. We do not have
“key-person” insurance on the lives of any of our key officers or management
personnel to mitigate the impact to our company that the loss of any of them
would cause. Specifically, the loss of any of our executive officers would
disrupt our operations and divert the time and attention of our remaining
officers. If any of our current senior managers were unable or unwilling to
continue in his or her present position, or if we were unable to attract a
sufficient number of qualified employees at reasonable rates, our business,
results of operations and financial condition will be materially adversely
affected.
Because
our revenues are subject to fluctuations due to general economic conditions, we
cannot guarantee the success of our business.
Expenditures
by businesses tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue could be materially reduced
by a decline in the economic prospects of businesses or the economy in general,
which could alter current or prospective businesses’ spending priorities or
budget cycles or extend our sales cycle. Due to such risks, you should not rely
on quarter-to-quarter comparisons of our results of operations as an indicator
of our future results.
If
we are unable to promote and maintain our brands, our future revenue and the
entire business may be adversely affected.
We
believe that establishing and maintaining the brand identities of our products
and services is a critical aspect of attracting and expanding a large client
base. Promotion and enhancement of our branded products and services, including
but not limited to Avaya, Inc., will depend largely on our success in continuing
to provide high quality service. If businesses do not perceive our existing
services to be of high quality, or if we introduce new services or enter into
new business ventures that are not favorably received by businesses, we will
risk diluting our brand identities and decreasing our attractiveness to existing
and potential customers.
In order
to attract and retain customers and to promote and maintain brands in response
to competitive pressures, we may also have to increase substantially our
financial commitment to creating and maintaining a distinct brand loyalty among
our customers. If we incur significant expenses in an attempt to improve our
services or to promote and maintain our brands, our profit margins could
significantly decline. Moreover, any brand identities we establish may be
diluted as a result of any inability to protect our trademarks and service marks
or domain names, which could have a material adverse effect on our business,
prospects, financial condition and results of operations. Similarly, should the
Avaya brand cease to exist, that event would likewise have a materially adverse
impact on our business, prospects, financial condition and results of
operations.
If
we are not able to adequately protect our proprietary rights, our operations
would be negatively impacted.
We
believe that our ability to compete partly depends on the superiority,
uniqueness and value of our technology, including both internally developed
technology and technology licensed from third parties. To protect our
proprietary rights, we rely on a combination of patent, trademark, copyright and
trade secret laws, confidentiality agreements with our employees and third
parties, and protective contractual provisions. Despite these efforts, any of
the following may reduce the value of our intellectual property:
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our
applications for patents, trademarks and copyrights relating to our
business may not be granted and, if granted, may be challenged or
invalidated;
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once
issued, patents, trademarks and copyrights may not provide us with any
competitive advantages;
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our
efforts to protect our intellectual property rights may not be effective
in preventing misappropriation of our
technology;
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our
efforts may not prevent the development and design by others of products
or technologies similar to or competitive with, or superior to those we
develop; or
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another
party may obtain a blocking patent and we would need to either obtain a
license or design around the patent in order to continue to offer the
contested feature or service in our
products.
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In
addition, we may not be able to effectively protect our intellectual property
rights in certain foreign countries where we may do business in the future or
from which competitors may operate.
If
we are forced to litigate to defend our intellectual property rights, or to
defend against claims by third parties against us relating to intellectual
property rights, legal fees and court injunctions could adversely affect or end
our business.
Disputes
regarding the ownership of technologies are common and likely to arise in the
future. We may be forced to litigate to enforce or defend our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of other parties’ proprietary rights. Any such litigation could be very
costly and could distract our management from focusing on operating our
business.
If
we are later subject to claims that we have infringed the proprietary rights of
others or exceeded the scope of licenses, we may be required to obtain a license
or pay additional fees or change our designs or technology.
We can
give no assurances that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against us or that any such assertions or prosecutions will not
materially adversely affect our business. Regardless of whether any such claims
are valid or can be successfully asserted, defending against such claims could
cause us to incur significant costs and could divert resources away from our
other activities. In addition, assertion of infringement claims could result in
injunctions that prevent us from distributing our products. If any claims or
actions are asserted against us, we may seek to obtain a license to the
intellectual property rights that are in dispute. Such a license may not be
available on reasonable terms, or at all, which could force us to change our
software designs or other technology.
If we expand into international
markets, our inexperience outside the United States would increase the risk that
our international expansion efforts will not be successful, which would in turn
limit our prospects for growth.
We may
explore expanding our business to other countries. Expansion into international
markets requires significant management attention and financial resources. In
addition, we may face the following risks associated with any expansion outside
the United States:
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challenges
caused by distance, language and cultural
differences;
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legal,
legislative and regulatory
restrictions;
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currency
exchange rate fluctuations;
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economic
instability;
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longer
payment cycles in some countries;
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credit
risk and higher levels of payment
fraud;
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potentially
adverse tax consequences; and
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higher
costs associated with doing business
internationally.
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These
risks could harm our international expansion efforts, which would in turn harm
our business prospects.
If
we experience significant fluctuations in our operating results and rate of
growth, our business may be harmed.
Our
results of operations may fluctuate significantly due to a variety of factors,
many of which are outside of our control and difficult to predict. The following
are some of the factors that may affect us from period to period and may affect
our long-term financial performance:
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our
ability to retain and increase revenues associated with customers and
satisfy customers’ demands;
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our
ability to be profitable in the
future;
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our
investments in longer-term growth
opportunities;
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changes
to service offerings and pricing by us or our
competitors;
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changes
in the terms, including pricing, of our agreements with our equipment
manufacturers;
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the
effects of commercial agreements and strategic alliances and our ability
to successfully integrate them into our
business;
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technical
difficulties, system downtime or
interruptions;
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the
effects of litigation and the timing of resolutions of
disputes;
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the
amount and timing of operating costs and capital
expenditures;
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changes
in governmental regulation and taxation policies;
and
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changes
in, or the effect of, accounting rules, on our operating results,
including new rules regarding stock-based
compensation.
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If
we do not successfully enhance existing products and services or fail to develop
new products and services in a cost-effective manner to meet customer demand in
the rapidly evolving market for internet and IP-based communications services,
our business may fail.
The
market for communications services is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs and frequent
new service and product introductions. We are currently focused on delivering
voice, data, and video services. Our future success will depend, in part, on our
ability to use leading technologies effectively, to continue to develop our
technical expertise, to enhance our existing services and to develop new
services that meet changing customer needs on a timely and cost-effective basis.
We may not be able to adapt quickly enough to changing technology, customer
requirements and industry standards. If we fail to use new technologies
effectively, to develop our technical expertise and new services, or to enhance
existing services on a timely basis, either internally or through arrangements
with third parties, our product and service offerings may fail to meet customer
needs, which would adversely affect our revenues and prospects for
growth.
Our
services may have technological problems or may not be accepted by consumers. To
the extent we pursue commercial agreements, acquisitions and/or strategic
alliances to facilitate new product or service activities, the agreements,
acquisitions and/or alliances may not be successful. If any of this were to
occur, it could damage our reputation, limit our growth, negatively affect our
operating results and harm our business.
In
addition, if we are unable, for technological, legal, financial or other
reasons, to adapt in a timely manner to changing market conditions or customer
requirements, we could lose customers, strategic alliances and market share.
Sudden changes in user and customer requirements and preferences, the frequent
introduction of new products and services embodying new technologies and the
emergence of new industry standards and practices could render our existing
products, services and systems obsolete. The emerging nature of products and
services in the technology and communications industry and their rapid evolution
will require that we continually improve the performance, features and
reliability of our products and services. Our success will depend, in part, on
our ability to:
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enhance
our existing products and services;
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design,
develop, launch and/or license new products, services and technologies
that address the increasingly sophisticated and varied needs of our
current and prospective customers;
and
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respond
to technological advances and emerging industry standards and practices on
a cost-effective and timely basis.
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The
development of additional products and services and other proprietary technology
involves significant technological and business risks and requires substantial
expenditures and lead-time. We may be unable to use new technologies
effectively. Updating our technology internally and licensing new technology
from third parties may also require us to incur significant additional capital
expenditures.
Because
we rely on third-party suppliers for components, software, systems and related
services, we are at risk of interruption of supply or increase in costs, in
which events would harm our business and results of operation.
We rely
on third-party suppliers for some of the hardware and software necessary for our
services. Although we believe we can secure other suppliers, we expect that the
deterioration or cessation of any relationship would have a material adverse
effect, at least temporarily, until new relationships are satisfactorily in
place.
We also
run the risk of supplier price increases and component shortages. Competition
for materials in short supply can be intense, and we may not be able to compete
effectively against other purchasers who have higher volume requirements or more
established relationships. Even if suppliers have adequate supplies of
components, they may be unreliable in meeting delivery schedules, experience
their own financial difficulties, provide components of inadequate quality or
provide them at prices which reduce our profit. Any problems with our
third-party suppliers can be expected to have a material adverse effect on our
financial condition, business, results of operations and continued growth
prospects.
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Because
we outsource certain operations, we are exposed to losses related to the failure
of third-party vendors to deliver their services to us.
We do not
develop and maintain all of the products and services that we offer. We offer
certain of our services to our customers through various third-party service
providers engaged to perform these services on our behalf. In addition, we
outsource parts of our operations to third parties and may continue to explore
opportunities to outsource others. Accordingly, we are dependent, in part, on
the services of third-party service providers, which may raise concerns by our
resellers and customers regarding our ability to control the services we offer
them if certain elements are managed by another company. In the event that these
service providers fail to maintain adequate levels of support, do not provide
high quality service or discontinue their lines of business or cease or reduce
operations, our business, operations and customer relations may be impacted
negatively and we may be required to pursue replacement third-party
relationships, which we may not be able to obtain on as favorable terms or at
all. Although we continually evaluate our relationships with our third-party
service providers and plan for contingencies if a problem should arise with a
provider, transitioning services and data from one provider to another can often
be a complicated and time consuming process and we cannot assure that if we need
to switch from a provider we would be able to do so without significant
disruptions, or at all. If we were unable to complete a transition to a new
provider on a timely basis, or at all, we could be forced to either temporarily
or permanently discontinue certain services which may disrupt services to our
customers. Any failure to provide services would have a negative impact on our
revenues.
If
we experience service interruptions or other impediments to operations, our
business could be significantly harmed.
Our
network infrastructure and the networks of our third-party providers are
vulnerable to damaging software programs, such as computer viruses and worms.
Certain of these programs have disabled the ability of computers to access the
Internet, requiring users to obtain technical support. Other programs have had
the potential to damage or delete computer programs. The development and
widespread dissemination of harmful programs has the potential to seriously
disrupt Internet usage. If Internet usage is significantly disrupted for an
extended period of time, or if the prevalence of these programs results in
decreased Internet usage, our business could be materially and adversely
impacted.
We depend
on the security of our networks and, in part, on the security of the network
infrastructures of our third party telecommunications service providers, our
outsourced customer support service providers and our other vendors.
Unauthorized or inappropriate access to, or use of, our network, computer
systems and services could potentially jeopardize the security of confidential
information, including credit card information, of our users and of other third
parties. Some consumers and businesses have in the past used our network,
services and brand names to perpetrate crimes and may do so in the future. Users
or other third parties may assert claims of liability against us as a result of
any failure by us to prevent these activities. Although we use security
measures, there can be no assurance that the measures we take will be
successfully implemented or will be effective in preventing these activities.
Further, the security measures of our third party network providers, our
outsourced customer support service providers and our other vendors may be
inadequate. These activities may subject us to legal claims, may adversely
impact our reputation, and may interfere with our ability to provide our
services.
Our
operations and services depend on the extent to which our computer equipment and
the computer equipment of our third-party network providers are protected
against damage from fire, flood, earthquakes, power loss, telecommunications
failures, break-ins, acts of war or terrorism and similar events. We have one
technology center in the U.S., located in downtown Manhattan, which contains a
significant portion of our computer and electronic equipment. This technology
center hosts and manages our applications and services. Despite precautions
taken by us and our third-party network providers, over which we have no
control, a natural disaster or other unanticipated problem that impacts this
location or our third-party providers’ networks could cause interruptions in the
services that we provide. Such interruptions in our services could have a
material adverse effect on our ability to provide Internet services to our
subscribers and, in turn, on our business, financial condition and results of
operations.
The
success of our business depends on the capacity, reliability and security of our
network infrastructure, including that of our third-party telecommunications
providers’ networks. We may be required to expand and improve our infrastructure
and/or purchase additional capacity from third-party providers to meet the needs
of an increasing number of subscribers and to accommodate the expanding amount
and type of information our customers communicate over the Internet. Such
expansion and improvement may require substantial financial, operational and
managerial resources.
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If
we are not able to expand or improve our network infrastructure, including
acquiring additional capacity from third-party providers, to meet additional
demand or changing subscriber requirements on a timely basis and at a
commercially reasonable cost, or at all, and our business may fail.
We may
experience increases in usage that exceed our available capacity. As a result,
users may be unable to register or log on to use our services, may experience a
general slow-down in their Internet connection or may be disconnected from their
sessions. Inaccessibility, interruptions or other limitations on the ability of
customers to access services due to excessive user demand, or any failure of our
network to handle user traffic, could have a material adverse effect on our
revenues. While our objective is to maintain excess capacity, our failure to
expand or enhance our network infrastructure, including our ability to procure
excess capacity from third-party providers, on a timely basis or to adapt to an
expanding subscriber base or changing subscriber requirements could materially
adversely affect our business, financial condition and results of
operations.
If
we engage in future acquisitions or strategic investments or mergers, we are
subject to significant risks and losses related to those
acquisitions.
Our
long-term growth strategy includes identifying and acquiring or investing in or
merging with suitable candidates on acceptable terms. In particular, over time,
we may acquire or make investments in or merge with providers of product
offerings that complement our business.
Acquisitions
involve a number of risks and present financial, managerial and operational
challenges, including:
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diversion
of management attention from running our existing
business;
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increased
expenses, including travel, legal administrative and compensation expenses
related to newly hired employees;
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high
employee turnover amongst the employees of the acquired
company;
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increased
costs to integrate the technology, personnel, customer base and business
practices of the acquired company with our
own;
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potential
exposure to additional liabilities;
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potential
adverse effects on our reported operating results due to possible
write-down of goodwill and other intangible assets associated with
acquisitions;
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potential
disputes with sellers of acquired businesses, technologies, services or
products; and
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inability
to utilize tax benefits related to operating losses incurred by acquired
businesses.
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Moreover,
performance problems with an acquired business, technology, service or product
could also have a material adverse impact on our reputation as a whole. In
addition, any acquired business, technology, service or product could
significantly under-perform relative to our expectations, and we may not achieve
the benefits we expect from our acquisitions.
For all
these reasons, our pursuit of an acquisition and/or investment and/or merger
strategy or any individual acquisition or investment or merger, could have a
material adverse effect on our business, financial condition and results of
operations.
Because
director and officer liability is limited, investors may have no recourse
against them personally should the business fail.
As
permitted by Delaware law, our certificate of incorporation, limits the personal
liability of directors to the fullest extent permitted by the provisions of
Delaware Corporate Law. As a result of our charter provision and Delaware law,
stockholders may have limited rights to recover against directors for breach of
fiduciary duty. In addition, our certificate of incorporation does not limit our
power to indemnify our directors and officers to the fullest extent permitted by
law.
If
we were to lose our authorization to sell products and services to New York
State government agencies, our business would suffer.
Approximately
ten (10%) of our business is currently derived from our authorization to provide
goods and services to New York State government agencies, local government
agencies, municipalities, and educational institutions, pursuant to numerous New
York State contracts. Were we to no longer be authorized to provide such goods
and services to these entities our business would be adversely affected, as we
would have to bid for the work as opposed to selling directly without bid. This
would make the acquisition of such work much more difficult and
costly.
Risks
Relating to our Industry
If
the market for VoIP and other communication services does not develop as
anticipated, our business would be adversely affected.
The
success of our VoIP service depends on growth in the number of VoIP users, which
in turn depends on wider public acceptance of VoIP telephony. The VoIP
communications medium is in its early stages and may not develop a broad
audience. Potential new users may view VoIP as unattractive relative to
traditional telephone services for a number of reasons, including the need to
purchase computer headsets or the perception that the price advantage for VoIP
is insufficient to justify the perceived inconvenience. Potential users may also
view more familiar online communication methods, such as e-mail or instant
messaging, as sufficient for their communications needs. There is no assurance
that VoIP will ever achieve broad public acceptance.
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Similarly,
our other communications services offerings are technologically advanced and new
to most users. There is a chance that potential clients will not be comfortable
with including emerging technologies into their corporate infrastructure. Such
reluctance would have a measurable and adverse impact on our
profitability.
Because
we may be subject to various government regulations, costs associated with those
regulations may materially adversely affect our business.
The
current regulatory environment for our services remains unclear. Our VoIP and
other services are not currently subject to all of the same regulations that
apply to traditional telephony. It is possible that Congress and some state
legislatures may seek to impose increased fees and administrative burdens on
VoIP, data, and video providers. The FCC has already required us to meet various
emergency service requirements (such as “E911”) and interception or wiretapping
requirements, such as the Communications Assistance for Law Enforcement Act
(“CALEA”). In addition, the FCC may seek to impose other traditional telephony
requirements such as disability access requirements, consumer protection
requirements, number assignment and portability requirements, and other
obligations, including additional obligations regarding E911 and CALEA. Such
regulations could result in substantial costs depending on the technical changes
required to accommodate the requirements, and any increased costs could erode
our pricing advantage over competing forms of communication and may adversely
affect our business.
The use
of the Internet and private IP networks to provide voice, video and other forms
of real-time, two-way communications services is a relatively recent
development. Although the provisioning of such services is currently permitted
by United States law and largely unregulated within the United States, several
foreign governments have adopted laws and/or regulations that could restrict or
prohibit the provisioning of voice communications services over the Internet or
private IP networks. More aggressive domestic or international regulation of the
Internet in general, and Internet telephony providers and services specifically,
may materially and adversely affect our business, financial condition, operating
results and future prospects, particularly if increased numbers of governments
impose regulations restricting the use and sale of IP telephony
services.
In
addition to regulations addressing Internet telephony and broadband services,
other regulatory issues relating to the Internet in general could affect the
Company’s ability to provide services. Congress has adopted legislation that
regulates certain aspects of the Internet, including online content, user
privacy, taxation, liability for third-party activities and jurisdiction. In
addition, a number of initiatives pending in Congress and state legislatures
would prohibit or restrict advertising or sale of certain products and services
on the Internet, which may have the effect of raising the cost of doing business
on the Internet generally.
If
there are large numbers of business failures and mergers in the communications
industry, our ability to manage costs or increase our subscriber base may be
adversely affected.
The
intensity of competition in the communications industry has resulted in
significant declines in pricing for communications services. The intensity of
competition and its impact on communications pricing have caused some
communications companies to experience financial difficulty. Our prospects for
maintaining or further improving communications costs could be negatively
affected if one or more key communications providers were to experience serious
enough difficulties to impact service availability, if communications companies
merge reducing the number of companies from which we purchase wholesale
services, or if communications bankruptcies and mergers reduce the level of
competition among communications providers.
Risk
Relating to our Common Stock
Since
our common stock is quoted on a service, its stock price may be subject to wide
fluctuations.
Our
common stock is not currently listed on any exchange; but it is authorized for
quotation on the OTC Bulletin Board. Accordingly, the market price of our common
stock is likely to be highly volatile and could fluctuate widely in price in
response to various factors, many of which are beyond our control, including the
following:
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technological
innovations or new products and services by us or our
competitors;
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intellectual
property disputes;
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additions
or departures of key personnel;
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sales
of our common stock;
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our
ability to execute our business
plan;
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operating
results that fall below
expectations;
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loss
of any strategic relationship;
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industry
developments;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our Common Stock.
Because
we do not expect to pay dividends in the foreseeable future, any return on
investment may be limited to the value of our common stock.
We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting it at such time as our board of directors may consider relevant. If we
do not pay dividends, a return on an investment in our common stock will only
occur if our stock price appreciates.
Because
we have become public by means of a reverse merger, we may not be able to
attract the attention of major brokerage firms.
There may
be risks associated with Juma’s becoming public through a “reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of us. No
assurance can be given that brokerage firms will, in the future, assign analysts
to cover the Company or want to conduct any secondary offerings on our
behalf.
Because
our common stock may be deemed a “penny stock,” Investors may find it more
difficult to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Securities Exchange Act of 1934. The penny stock rules apply to
non-NASDAQ companies whose common stock trades at less than $5.00 per share or
that have tangible net worth of less than $5.0 million ($2.0 million if the
company has been operating for three or more years) or that have average
revenues less than $6.0 million for the past three years. These rules require,
among other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
penny stocks because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. Remaining subject to the penny stock rules for any
significant period could have an adverse effect on the market, if any, for our
securities. If our securities are subject to the penny stock rules, investors
will find it more difficult to dispose of our securities.
Furthermore,
for companies whose securities are traded in the OTC Bulletin Board, it is more
difficult to obtain accurate quotations, obtain coverage for significant news
events because major wire services generally do not publish press releases about
such companies, and obtain needed capital.
If
there are large sales of a substantial number of shares of our common stock, our
stock price may significantly decline.
If our
stockholders sell substantial amounts of our common stock in the public market,
including shares issued in connection with certain financings, which financings
are described in the Management’s Discussion of Financial Condition
and Results of Operations below, the market price of our common stock could
fall. These sales also may make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
reasonable or appropriate.
Because
our directors, executive officers and entities affiliated with them beneficially
own a substantial number of shares of our common stock, they have significant
control over certain major decisions on which a stockholder vote is required and
they may discourage an acquisition of us.
Our
executive officers, directors and affiliated persons currently beneficially own,
in the aggregate, a majority of our outstanding common stock. See Item 12,
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. The interests of our current officers and directors may
differ from the interests of other stockholders. As a result, these current
officers, directors and affiliated persons will have significant influence over
all corporate actions requiring stockholder approval, irrespective of how our
other stockholders may vote, including the following actions:
·
|
elect
or defeat the election of our
directors;
|
15
·
|
amend
or prevent amendment of our certificate of incorporation or
by-laws;
|
·
|
effect
or prevent a merger, sale of assets or other corporate transaction;
and
|
·
|
control
the outcome of any other matter submitted to the stockholders for
vote.
|
Management’s
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
If
we raise additional funds through the issuance of equity securities, or
determine in the future to register additional common stock, existing
stockholders’ percentage ownership will be reduced, they will experience
dilution which could substantially diminish the value of their stock and such
issuance may convey rights, preferences or privileges senior to existing
stockholders’ rights which could substantially diminish their rights and the
value of their stock.
We may
issue shares of common stock for various reasons and may grant additional stock
options to employees, officers, directors and third parties. If our board
determines to register for sale to the public additional shares of common stock
or other debt or equity securities in any future financing or business
combination, a material amount of dilution can be expected to cause the market
price of the common stock to decline. One of the factors which generally affect
the market price of publicly traded equity securities is the number of shares
outstanding in relationship to assets, net worth, earnings or anticipated
earnings. Furthermore, the public perception of future dilution can have the
same effect even if actual dilution does not occur.
In order
for us to obtain additional capital or complete a business combination, we may
find it necessary to issue securities, including but not limited to debentures,
options, warrants or shares of preferred stock, conveying rights senior to those
of the holders of common stock. Those rights may include voting rights,
liquidation preferences and conversion rights. To the extent senior rights are
conveyed, the value of the common stock may decline.
Because
being a public company increases our administrative costs and adds other burdens
to our operations, our business may be materially adversely
affected.
As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, rules implemented by the Securities and Exchange Commission, or SEC,
and new listing requirements of the NASDAQ National Market have required changes
in corporate governance practices of public companies. We expect these new rules
and regulations to increase our legal and financial compliance costs and to make
some activities more time consuming and costly. We also expect these new rules
and regulations to make it more difficult and more expensive for us to obtain
director and officer liability insurance, and we may be required to accept
reduced coverage or incur substantially higher costs to obtain coverage. These
new rules and regulations could also make it more difficult for us to attract
and retain qualified members of our board of directors, particularly those
serving on our audit committee.
Because
we are a public reporting company, we are exposed to additional risks relating
to evaluations of our internal controls over financial reporting required by
section 404 of the Sarbanes-Oxley act of 2002.
As a
public company, absent an available exemption, we will be required to comply
with Section 404 of the Sarbanes-Oxley Act by no later than December 31, 2010.
However, we cannot be certain as to the timing of completion of our evaluation,
testing and remediation actions or the impact of the same on our operations.
Furthermore, upon completion of this process, we may identify control
deficiencies of varying degrees of severity that remain un-resolved. As a public
company, we will be required to report, among other things, control deficiencies
that constitute a “material weakness.” A “material weakness” is a significant
deficiency, or combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. If we fail to implement
the requirements of Section 404 in a timely manner, we might be subject to
sanctions or investigation by regulatory agencies such as the SEC. In addition,
failure to comply with Section 404 or the report by us of a material weakness
may cause investors to lose confidence in our financial statements and the
trading price of our common stock may decline. If we fail to remedy any material
weakness, our financial statements may be inaccurate, our access to the capital
markets may be restricted and the trading price of our common stock may
decline.
Item
2. Properties.
The
Company leases various facilities including, the Company’s Long Island
headquarters and New York City office, pursuant to leasing and sublease
agreements accounted for as operating leases.
16
The Long
Island headquarters are leased from Toledo Realty LLC, whose members are made up
of certain officers and employees of the Company, and thus is a related party.
The Long Island headquarters are under a ten-year non-cancelable lease which
expires on May 31, 2016. The Long Island headquarters consist of approximately
7,000 square feet. Among other provisions, the lease provides for monthly rental
payments of $10,500 per month and includes provisions for scheduled increases to
the monthly rental. In addition, the Company is required to reimburse Toledo for
the real estate taxes on the building. The lease agreement also provides for two
five-year lease extensions. Pursuant to the lease, the Company was required to
provide a security deposit totaling $21,000. The Company has provided this
deposit to Toledo.
The New
York City premise is under a five-year lease which expires on November 30, 2011.
The space consists of approximately 2,081 square feet with a gross annual rent
of approximately $88,950.
Both of
the above referenced offices have been recently renovated and management
believes that the condition of each facility is excellent but the Long Island
headquarters may have insufficient space in the foreseeable future.
Item
3. Legal Proceedings.
We are
not a party to any pending legal proceeding. We are not aware of any pending
legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a
material interest adverse to us.
Our
address for service of process in New York is 154 Toledo Street, Farmingdale,
New York 11735.
Item
4. Removed and Reserved.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market
Information
Our
common stock is traded on the OTC Bulletin Board under the symbol “JUMT.OB”. Our
shares of common stock began being quoted on the OTC Bulletin Board effective
June 14, 2007.
The
following table contains information about the range of high and low bid prices
for our common stock for each quarterly period indicated based upon reports of
transactions on the OTC Bulletin Board.
Fiscal Quarter End
|
Low Bid
|
High Bid
|
||||||
March
31, 2008
|
$
|
0.77
|
$
|
0.98
|
||||
June
30, 2008
|
$
|
0.32
|
$
|
0.88
|
||||
September
30, 2008
|
$
|
0.26
|
$
|
0.56
|
||||
December
31, 2008
|
$
|
0.13
|
$
|
0.36
|
||||
March
31, 2009
|
$
|
0.15
|
$
|
0.30
|
||||
June
30, 2009
|
$
|
0.18
|
$
|
0.30
|
||||
September
30, 2009
|
$
|
0.11
|
$
|
0.22
|
||||
December
31, 2009
|
$
|
0.13
|
$
|
0.27
|
The
source of these high and low prices was the OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions and
may not represent actual transactions. The high and low prices listed have been
rounded up to the next highest two decimal places.
It is
anticipated that the market price of our common stock will be subject to
significant fluctuations in response to variations in our quarterly operating
results, general trends in the market for the products we distribute, and other
factors, over many of which we have little or no control. In addition, broad
market fluctuations, as well as general economic, business and political
conditions, may adversely affect the market for our common stock, regardless of
our actual or projected performance. On March 22, 2010, the closing bid price of
our common stock as reported by the OTC Bulletin Board was $0.13 per
share.
Holders
of Our Common Stock
As of
March 22, 2010, we had approximately 39 stockholders of record.
Dividends
We have
not declared any dividends since our incorporation. There are no restrictions in
our articles of incorporation or bylaws that restrict us from declaring
dividends. Delaware Corporate Law, however, does prohibit us from declaring
dividends where, after giving effect to the distribution of the
dividend:
|
1.
|
We
would not be able to pay our debts as they become due in the usual course
of business; or
|
|
2.
|
Our
total assets would be less than the sum of our total liabilities, plus the
amount that would be needed to satisfy the rights of shareholders who have
preferential rights superior to those receiving the
distribution.
|
We have
not paid any dividends on our common stock. Subject to the following paragraph,
we currently intend to retain any earnings for use in our business, and
therefore do not anticipate paying cash dividends in the foreseeable
future.
The
holders of Series A Convertible Preferred Stock are entitled to receive, out of
any assets at the time legally available therefor and as declared by the board
of directors, dividends at the rate of 6% of the stated Liquidation Preference
Amount ($0.60 per share, plus accrued but unpaid dividends) payable quarterly
commencing on the date that is 150 days after the issuance date (or, if earlier,
the date of effectiveness of a registration statement) and on the last business
day of each subsequent calendar quarter period. Each dividend payment may, at
the Company’s option, be paid in cash or registered shares of common stock.
Under its agreement with the holders of the Series A Convertible Preferred
Stock, the Company may not pay any dividends to holders of common stock unless
at the time of such dividend the Company shall have paid all accrued and unpaid
dividends on the outstanding shares of Series A Preferred Stock.
The
holders of Series B Convertible Preferred Stock are not entitled to receive any
dividends.
18
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
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 within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
materially from those included in the forward-looking statements. The Company
intends such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
complying with those safe-harbor provisions. 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 Years Ended December 31, 2009 and 2008
Revenues
for the year ended December 31, 2009 decreased $8,273,990 or 39% to $13,096,702
compared with revenues of $21,370,692 for the year ended December 31, 2008. The
decrease in revenues was predominantly due to decreased sales to existing
customers.
Cost of
goods sold for the year ended December 31, 2009 decreased $8,323,631 or 48% to
$9,195,665 compared to $17,519,296 for the year ended December 31, 2008.
The decrease is primarily attributable to lower project costs.
Gross
margin for the year ended December 31, 2009 increased $49,641 or 1% to
$3,901,037 compared to $3,851,396 for the year ended December 31, 2008. The
increase is the result of more efficient project management.
Selling
expenses decreased by $260,189 or 14% to $1,587,028 for the year ended December
31, 2009, compared to $1,847,217 for the year ended December 31, 2008. The
decrease was predominantly due to a decrease in marketing efforts.
Research
and development expenses decreased to $372,023 for the year ended December 31,
2009 compared to $777,480 for the year ended December 31, 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 Services, Corp.,
was deemed impaired at the time of the acquisition. This goodwill impairment was
adjusted during the year ended December 31, 2008 due to a loan that
was created under 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 during the year ended December 31,
2008.
General
and administrative expenses decreased by $315,298 or 4% to $8,198,930 for the
year ended December 31, 2009, compared to $8,514,228 for the year ended December
31, 2008. The decrease is primarily attributable to a decrease in bad debt
expense of approximately $347,000.
Amortization
of discounts on notes increased $4,118,810 or 601% to $4,803,656 for the year
ended December 31, 2009 compared to $684,846 for the year ended December 31,
2008. The Company recognized beneficial conversion features of approximately
$360,000, $2,423,000 , $691,000 and $333,000 in February 2009, May 2009,
September 2009 and December 2009, respectively, in connection with the issuance
of convertible promissory notes, which were expensed since the notes can be
converted at any time.
19
Interest
expense (net) totaled $1,333,507 for the year ended December 31, 2009 compared
to $832,157 for 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 $ $12,404,694 for the year ended December 31,
2009 compared to a net loss of $9,031,143 for the year ended December 31, 2008.
Currently Nectar incurs significant operational and development expenses that
management believes will continue for the foreseeable future. Nectar generated a
net loss of $2,067,226 for the year ended December 31, 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 approximately $1,666,000 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
approximately $5,599,000 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
approximately $1,112,000 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. In September 2008, the Company recognized a deemed dividend of
approximately $1,103,000 when 500,000 shares of series B preferred stock was
exchanged for 8,333,333 warrants to purchase common stock. In November 2008 the
Company recognized a deemed dividend of approximately $531,000 when
the per share conversion price of the series A convertible preferred stock was
reduced from $0.60 to $0.25. Also in November 2008 the company recognized a
reduction in deemed dividends of approximately $1,007,000 when
the per share conversion price of the series B preferred stock was reduced from
$0.60 to $0.50.
Liquidity
and Capital Resources
As of
December 31, 2009, the Company had total current assets of $3,458,531, and total
current liabilities of $16,355,463, resulting in a current working capital
deficit of $12,896,932. Also, at December 31, 2009 the Company had $ $961,001 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. As reflected in the accompanying financial statements, the
Company’s net loss for the year ended December 31, 2009 was $12,404,694 and
raise substantial doubt about the Company’s ability to continue as a going
concern.
On
February 7, 2007, the Company began offering up to $2,000,000 of Convertible
Promissory Notes (“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 September 30, 2007, the Company had sold $2,225,000 in Notes. Of this
amount $100,000 has been converted into common stock; $800,000 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. 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. 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
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.
20
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
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 Note
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.
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.
21
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. If
the Company receives at least $2,000,000 in gross proceeds from the issuance of
convertible preferred stock or fixed-price convertible notes by June 9, 2009 the
promissory notes will be subject to mandatory conversion into the securities
then issued.
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.
On
December 23, 2009, Company issued to Vision Opportunity Master Fund, Ltd., a
convertible promissory note with principal amount $500,000 and a warrant to
purchase 1,666,667 shares of the Company’s common stock in exchange for $500,000
in cash. The promissory note matures in May 2010, 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 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. In addition pursuant to price
protection provision, the exercise price on warrants to purchase 3,000,000
shares of the Company’s common stock issued in February 2009 was reduced from
$0.25 to $0.15 per share.
Cash
flows used in operations totaled $4,929,491 for the year ended December 31, 2009
compared to $3,922,549 for the year ended December 31, 2008. The increase in
cash flow used in operations is primarily attributable to an increase in net
loss of approximately $3,374,000, an increase in deferred revenue
of approximately $1,314,000 and a decrease in common stock issued for
interest of approximately $360,000 offset by an increase in amortization of
discount on notes payable of approximately $4,119,000.
Cash
flows used in investing activities was $148,440 for the year ended December 31,
2009 compared to cash flows used in investing activities of
$309,085 for the year ended December 31, 2008. The decrease in cash
flows used in investing activities is due the a decrease in
acquisition of fixed assets of approximately $130,000.
Cash
flows provided by financing activities increased to $5,674,886 for the year
ended December 31, 2009 compared to cash flows provided by financing activities
of $4,292,791 for the year ended December 31, 2008. The increase was
predominantly due to an increase in proceeds from the issuance of convertible
notes payable of approximately $3,111,000 and a decrease in repayment of
convertible promissory notes of $650,000 offset by a decrease in proceeds from
warrant exercise of $2,500,000.
The
following summarizes the Company’s principal contractual obligations as of
December 31, 2009:
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
2015 and
Thereafter
|
||||||||||||||||||||||
Long-term
Debt (1)
|
$
|
15,544,893
|
$
|
15,544,893
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||
Capital
Lease Obligations
|
214,242
|
187,705
|
26,537
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
Operating
Lease Obligations (2)
|
1,186,860
|
252,771
|
243,797
|
148,625
|
153,084
|
388,583
|
-
|
|||||||||||||||||||||
Contractual
Obligations(3)
|
356,671
|
165,000
|
165,000
|
26,671
|
-
|
-
|
-
|
|||||||||||||||||||||
Purchase
Obligations
|
3,105,703
|
1,138,607
|
910,000
|
910,000
|
147,096
|
-
|
-
|
|||||||||||||||||||||
$
|
20,408,369
|
$
|
17,288,976
|
$
|
1,345,334
|
$
|
1,085,296
|
$
|
300,180
|
$
|
388,583
|
$
|
-
|
(1)
|
Includes
contractual future principal and interest
payments.
|
(2)
|
Includes
minimum annual lease payments on the Company’s facilities and office
equipment.
|
(3)
|
Includes
minimum contractual amounts dues certain executive offices over the lives
of their respective employment
contracts.
|
22
Off
Balance Sheet Arrangements
As of
December 31, 2009, there were no off balance sheet arrangements.
Critical
Accounting Policies
Our
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which require our
management to make estimates that affect the amounts of revenues, expenses,
assets and liabilities reported. The following are critical accounting policies
which are important to the portrayal of our financial condition and results of
operations and which require some of management’s most difficult, subjective and
complex judgments. The accounting for these matters involves the making of
estimates based on current facts, circumstances and assumptions which could
change in a manner that would materially affect management’s future estimates
with respect to such matters. Accordingly, future reported financial conditions
and results could differ materially from financial conditions and results
reported based on management’s current estimates.
Cash
Equivalents
Juma
considers all highly liquid debt instruments with a maturity of three months or
less to be cash equivalents.
Revenue
Recognition
Juma
derives revenue primarily from the sale and service of communication systems and
applications. Juma 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 ASC, 605-35,
“Construction-Type and Production-Type Contracts”. 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.
Juma 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. Juma also earns
commissions on maintenance contracts. Revenues are recognized on the commissions
over the term of the related maintenance contract.
Advertising
and Promotional Costs
The
Company expenses advertising and promotional costs as incurred. Advertising and
promotional costs totaled $250,597 and $245,355 for the years ended December 31,
2009 and 2008, respectively.
Rebates
From Vendors
The
Company has adopted the provisions of ASC 605-50, “Customer Payments and
Incentives.” ASC 605-50 provides that cash consideration received from a vendor
is presumed to be a reduction of the prices of the vendor's products or services
and should, therefore, be characterized as a reduction in cost of sales. If the
rebate is a payment for assets or services delivered by the customer to the
vendor, the cash consideration should be characterized as revenue, and if the
rebate is a reimbursement of costs incurred by the customer to sell the vendor's
products, the cash consideration should be characterized as a reduction of that
cost.
Earnings
Per Share
Basic
earnings per share are calculated by dividing net income (loss) by the weighted
average of common shares outstanding during the year. 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
utilizing the treasury stock method. The effect of the potentially dilutive
shares for the years ended December 31, 2009 and 2008 have been ignored, as
their effect would be antidilutive. Total potentially dilutive shares excluded
from diluted weighted shares outstanding at December 31, 2009 and 2008 totaled
162,791,229 and 67,299,323, respectively.
Allowance
for Bad Debts
The
balance in allowance for doubtful accounts at December 31, 2009 and 2008 was
$213,471 and $391,501, respectively. Bad debt expense for the years ended
December 31, 2009 and 2008 was $(83,821) and $263,332,
respectively.
23
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.
Fixed
Assets
Fixed
assets are recorded at cost. Maintenance, repairs and minor renewals are charged
to operations as incurred. Major renewals and betterments, which substantially
extend the useful life of the property, are capitalized at cost. Upon sale or
other disposition of assets, the costs and related accumulated depreciation are
removed from the accounts and the resulting gain or loss, if any, is reflected
in income.
Depreciation
is computed using the straight-line method based on the estimated useful lives
as follows:
Office
equipment
|
5
years
|
Software
|
5
years
|
Vehicles
|
5
years
|
Furniture
and fixtures
|
7
years
|
Leasehold
improvements are depreciated over their lease terms, or useful lives if shorter.
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
Fair
Value
The
Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 2009 and 2008 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded if there is uncertainty as to
the realization of deferred tax assets.
Leased
Employees
Juma
leases substantially all its employees from an unrelated party. In addition to
reimbursing the third party for the salaries of the leased employees, Juma is
charged a service fee by the third party which is designed to cover the related
employment taxes and benefits.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Research
and Development Costs
Research
and development costs are charged to expense as incurred. Equipment used in
research and development with alternative uses is capitalized. Research and
development costs include direct costs and payments for leased employees and
consultants. Research and development costs totaled $372,023 and $777,480 for
the years ended December 31, 2009 and 2008, respectively.
24
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of accounts receivable. The Company believes that
concentration with regards to accounts receivable is limited due to its customer
base. The Company maintains substantially all of its cash balances in a limited
number of financial institutions. The balances are insured by the Federal
Deposit Insurance Corporation up to $250,000 per institution through December
31, 2009, at which time the coverage is scheduled to revert to the prior limit
of $100,000. The Company had uninsured cash balances at December 31, 2009 of
$460,909.
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.
25
Item
8. Financial Statements and Supplementary Data
Index to
Financial Statements:
Audited
Financial Statements:
|
|||
F-2
|
Report
of Independent Registered Public Accounting Firm
|
||
F-3
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
||
F-4
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
||
F-5
|
Consolidated
Statements of Changes in Stockholders’ Deficiency for the years ended
December 31, 2009 and 2008
|
||
F-6
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
||
F-7
|
Consolidated
Notes to Financial Statements
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The
Board of Directors
Juma
Technology Corp.
We
have audited the accompanying balance sheets of Juma Technology Corp. as of
December 31, 2009 and 2008 and the related statements of operations, changes in
stockholders’ deficiency and cash flows for the years ended December 31,
2009 and 2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Juma Technology, Corp as of
December 31, 2009, and 2008 and the results of its operations and its cash flows
for the years ended December 31, 2009 and 2008 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has incurred significant recurring losses. The realization of a
major portion of its assets is dependent upon its ability to meet its future
financing needs and the success of its future operations. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
this uncertainty.
Seligson
& Giannattasio, LLP
White
Plains, New York
March 29,
2010
F-2
Juma
Technology Corp. and Subsidiaries
Consolidated
Balance Sheets
December
31,
2009
|
December
31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 961,001 | $ | 364,046 | ||||
Accounts
receivable, (net of allowance of $213,471 and $391,501,
respectively)
|
2,175,034 | 2,792,483 | ||||||
Inventory
|
161,770 | 254,531 | ||||||
Prepaid
expenses
|
26,837 | 17,561 | ||||||
Other
current assets
|
133,889 | 196,922 | ||||||
Total
current assets
|
3,458,531 | 3,625,543 | ||||||
Fixed
assets, (net of accumulated depreciation of $827,839 and $439,457,
respectively)
|
1,224,120 | 1,512,535 | ||||||
Other
assets
|
248,509 | 302,856 | ||||||
Total
assets
|
$ | 4,931,160 | $ | 5,440,934 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable
|
$ | 297,486 | $ | 297,242 | ||||
Convertible
notes payable, (net of discount of $604,435 and plus premium of $93,669,
respectively)
|
12,099,346 | 1,493,669 | ||||||
Current
portion of capital leases payable
|
174,115 | 209,413 | ||||||
Accounts
payable
|
2,022,532 | 2,809,419 | ||||||
Accrued
expenses and taxes payable
|
1,685,810 | 615,939 | ||||||
Deferred
revenue
|
76,174 | 1,021,914 | ||||||
Total
current liabilities
|
16,355,463 | 6,447,596 | ||||||
Capital
leases payable, net of current maturities
|
25,466 | 199,582 | ||||||
Notes
payable
|
— | 43,818 | ||||||
Convertible
notes payable, (net of discount of $0 and $267,216,
respectively)
|
700,000 | 5,732,784 | ||||||
Other
liabilities
|
— | — | ||||||
Total
liabilities
|
17,080,929 | 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 | ||||||
Series C
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, no
shares issued
|
— | — | ||||||
Common
stock, $0.0001 par value, 900,000,000 shares authorized, and 46,468,945
and 46,343,945 shares issued and outstanding, respectively
|
4,646 | 4,634 | ||||||
Additional
paid in capital
|
32,901,105 | 21,225,245 | ||||||
Warrants
|
3,155,145 | 327,139 | ||||||
Retained
deficit
|
(48,211,665 | ) | (28,540,864 | ) | ||||
Total
stockholders' deficiency
|
(12,149,769 | ) | (6,982,846 | ) | ||||
Total
liabilities and stockholders' deficiency
|
$ | 4,931,160 | $ | 5,440,934 |
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
Juma
Technology Corp. and Subsidiaries
Consolidated
Statements of Operations
Year
Ended December 31,
2009
|
2008
|
|||||||
Net
Sales
|
$ | 13,096,702 | $ | 21,370,692 | ||||
Cost
of goods sold
|
9,195,665 | 17,519,296 | ||||||
Gross
margin
|
3,901,037 | 3,851,396 | ||||||
Operating
expenses
|
||||||||
Selling
|
1,587,028 | 1,847,217 | ||||||
Research
and development
|
372,023 | 777,480 | ||||||
Goodwill
impairment
|
— | 204,600 | ||||||
General
and administrative
|
8,198,930 | 8,514,228 | ||||||
Total
operating expenses
|
10,157,981 | 11,343,525 | ||||||
(Loss)
from operations
|
(6,256,944 | ) | (7,492,129 | ) | ||||
Amortization
of discount on notes
|
(4,803,656 | ) | (684,846 | ) | ||||
Interest
(expense), net
|
(1,333,507 | ) | (832,157 | ) | ||||
(Loss)
before income taxes
|
(12,394,107 | ) | (9,009,132 | ) | ||||
Provision
for income taxes
|
10,587 | 22,011 | ||||||
Net
(loss)
|
$ | (12,404,694 | ) | $ | (9,031,143 | ) | ||
Deemed
preferred stock dividend
|
7,266,107 | 1,739,316 | ||||||
Net
(loss) attributable to common shareholders
|
$ | (19,670,801 | ) | $ | (10,770,459 | ) | ||
Basic
and diluted net (loss) per share
|
$ | (0.42 | ) | $ | (0.24 | ) | ||
Weighted
average common shares outstanding
|
46,402,507 | 44,677,516 |
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
Juma
Technology Corp. and Subsidiaries
Consolidated
Statements of Changes in the Stockholders’ Deficiency
Years
ended December 31, 2009 and 2008
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
|
Retained
|
Total
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Warrants
|
Deficit
|
Equity
|
|||||||||||||||||||||||||
Balance
–
December
31, 2007
|
8,333,333 | $ | 833 | 43,943,950 | $ | 4,394 | $ | 12,392,675 | $ | 2,949,682 | $ | (17,770,405 | ) | $ | (2,422,821 | ) | ||||||||||||||||
Warrants
exchanged for Series B Preferred Stock
|
998,000 | 100 | 2,477,435 | (2,477,535 | ) | — | ||||||||||||||||||||||||||
Warrants
exercised
|
668,500 | 67 | 2,529,142 | (28,937 | ) | 2,500,272 | ||||||||||||||||||||||||||
Common
shares issued for interest payable
|
1,116,705 | 112 | 382,388 | 382,500 | ||||||||||||||||||||||||||||
Common
shares issued in convertible debt exchange
|
1,065,790 | 107 | 522,130 | 522,237 | ||||||||||||||||||||||||||||
Common
shares issued for services
|
212,500 | 21 | 49,980 | 50,001 | ||||||||||||||||||||||||||||
Stock
options exercised
|
5,000 | — | 2,500 | 2,500 | ||||||||||||||||||||||||||||
Deemed
dividends on preferred stock
|
1,739,316 | (1,739,316 | ) | — | ||||||||||||||||||||||||||||
Stock
options expense
|
619,172 | 619,172 | ||||||||||||||||||||||||||||||
Note
payable conversion price adjustment
|
341,485 | 341,485 | ||||||||||||||||||||||||||||||
Beneficial
conversion feature recognized
|
46,774 | 46,774 | ||||||||||||||||||||||||||||||
Warrant
terms modification
|
122,248 | (122,248 | ) | — | ||||||||||||||||||||||||||||
Warrants
issued for software
|
6,177 | 6,177 | ||||||||||||||||||||||||||||||
Net
loss
|
(9,031,143 | ) | (9,031,143 | ) | ||||||||||||||||||||||||||||
Balance
–
December
31, 2008
|
9,999,833 | 1,000 | 46,343,945 | 4,634 | 21,225,245 | 327,139 | (28,540,864 | ) | (6,982,846 | ) | ||||||||||||||||||||||
Common
shares issued for services
|
125,000 | 12 | 24,988 | 25,000 | ||||||||||||||||||||||||||||
Beneficial
conversion feature recognized
|
3,806,853 | 3,806,853 | ||||||||||||||||||||||||||||||
Stock
option expense
|
786,027 | 786,027 | ||||||||||||||||||||||||||||||
Deemed
dividends on preferred stock
|
7,266,107 | (7,266,107 | ) | — | ||||||||||||||||||||||||||||
Warrants
issued for cash
|
2,509,641 | 2,509,641 | ||||||||||||||||||||||||||||||
Warrants
issued for services
|
110,250 | 110,250 | ||||||||||||||||||||||||||||||
Warrant
terms modification
|
(208,115 | ) | 208,115 | — | ||||||||||||||||||||||||||||
Net
loss
|
(12,404,694 | ) | (12,404,694 | ) | ||||||||||||||||||||||||||||
Balance
–
December
31, 2009
|
9,999,833 | $ | 1,000 | 46,468,945 | $ | 4,646 | $ | 32,901,105 | $ | 3,155,145 | $ | (48,211,665 | ) | $ | (12,149,769 | ) |
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
F-5
Juma
Technology Corp. and Subsidiaries
Consolidated
Statements of Cash Flows
Year
ended December 31,
2009
|
2008
|
|||||||
Operating
Activities
|
||||||||
Net
loss
|
$ | (12,404,694 | ) | $ | (9,031,143 | ) | ||
Adjustments
to reconcile net (loss) to net cash (used) by operating
activities:
|
||||||||
Depreciation
expense and loss on disposal of assets
|
388,382 | 610,209 | ||||||
Stock
option compensation expense
|
786,027 | 619,172 | ||||||
Amortization
of discount on notes payable
|
4,803,656 | 684,846 | ||||||
Bad
debt expense
|
(83,821 | ) | 263,332 | |||||
Amortization
of loan costs
|
102,820 | 76,876 | ||||||
Early
extinguishment of debt
|
1,116,192 | 767,384 | ||||||
Impairment
of goodwill derived from notes
|
— | 204,600 | ||||||
Common
stock issued for interest
|
— | 359,500 | ||||||
Common
stock and warrants issued for services
|
135,249 | 50,000 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
701,270 | 719,545 | ||||||
Inventory
|
92,761 | (70,174 | ) | |||||
Prepaid
expenses
|
(9,276 | ) | 82,619 | |||||
Other
current assets
|
63,033 | 40,804 | ||||||
Accounts
payable and accrued expenses
|
324,650 | 331,999 | ||||||
Deferred
revenue
|
(945,740 | ) | 367,882 | |||||
Net
cash flows (used) by operating activities
|
(4,929,491 | ) | (3,922,549 | ) | ||||
Investing
Activities
|
||||||||
Acquisition
of fixed assets
|
(99,967 | ) | (230,378 | ) | ||||
Increase
in other assets
|
(48,473 | ) | (78,707 | ) | ||||
Net
cash flows (used) provided by investing activities
|
(148,440 | ) | (309,085 | ) | ||||
Financing
Activities
|
||||||||
Proceeds
from issuance of convertible notes payable
|
6,011,281 | 2,900,000 | ||||||
Proceeds
from stock option exercise
|
— | 2,500 | ||||||
Proceeds
from warrant exercise
|
— | 2,500,272 | ||||||
Repayment
of convertible promissory notes
|
(75,000 | ) | (725,000 | ) | ||||
Repayment
of loan
|
(51,981 | ) | (200,000 | ) | ||||
Repayment
of capital leases payable
|
(209,414 | ) | (184,981 | ) | ||||
Net
cash flows provided by financing activities
|
5,674,886 | 4,292,791 | ||||||
Net
change in cash
|
596,955 | 61,157 | ||||||
Cash,
beginning of period
|
364,046 | 302,889 | ||||||
Cash,
end of period
|
$ | 961,001 | $ | 364,046 | ||||
Supplemental
Cash Flow Information:
|
||||||||
Interest
paid
|
$ | 189,492 | $ | 327,887 | ||||
Income
taxes paid
|
9,518 | 20,312 | ||||||
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 Consolidated Financial
Statements.
F-6
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 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 clients global network and
to the Public Switched Telephone Network in 30 minutes or less, regardless of
PBX manufacturer.
The
Company also operates through a wholly-owned subsidiary, AGN Networks, Inc.
(“AGN”) which was acquired on March 6, 2007 through the Company’s wholly-owned
subsidiary 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 Services, Corp. and Juma Acquisition. All material
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Basis of
Presentation
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As reflected in the financial statements, the
Company’s net loss for the year ended December 31, 2009 was $12,404,694 and
raise substantial doubt about the Company’s ability to continue as a going
concern.
The
Company’s ability to continue as a going concern is dependent upon its ability
to obtain financing to repay its current obligations and its ability to achieve
profitable operations. Management plans to obtain financing through the issuance
of additional debt, the issuance of shares on the exercise of warrants and
potentially through future common share private placements. Management hopes to
realize sufficient sales in future years to achieve profitable operations,
specifically by fully launching the products offered by Nectar Services Corp.
and eliminating the current resource burden of that entity on the Company. The
resolution of the going concern issue is dependent upon the realization of
Management’s plans. There can be no assurance provided that the Company will be
able to raise sufficient debt or equity capital from the sources described above
on satisfactory terms. If Management is unsuccessful in obtaining financing or
achieving profitable operations, the Company may be required to cease
operations. The outcome of these matters cannot be predicted at this
time.
These
financial statements do not give effect to any adjustments which could be
necessary should the Company be unable to continue as a going concern and,
therefore, be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts differing from those
reflected in the financial statements.
Cash
Equivalents
The
Company considers all highly liquid debt instruments with a maturity of three
months or less to be cash equivalents.
F-7
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
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, collectibility 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 ASC 605-35, “Construction-Type and Production-Type Contracts.” 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. Revenues are recognized
on the commissions over the term of the related maintenance
contract.
Advertising
and Promotional Costs
The
Company expenses advertising and promotional costs as incurred. Advertising and
promotional costs totaled $250,597 and $245,355 for the years ended December 31,
2009 and 2008, respectively.
Rebates
from Vendors
The
Company has adopted the provisions of ASC 605-50, “Customer Payments and
Incentives.” ASC 605-50 provides that cash consideration received from a vendor
is presumed to be a reduction of the prices of the vendor's products or services
and should, therefore, be characterized as a reduction in cost of sales. If the
rebate is a payment for assets or services delivered by the customer to the
vendor, the cash consideration should be characterized as revenue, and if the
rebate is a reimbursement of costs incurred by the customer to sell the vendor's
products, the cash consideration should be characterized as a reduction of that
cost. The Company has reported rebates totaling $543,268 and $514,324 for the
years ended December 31, 2009 and 2008. These rebates have been classified as
either a reduction of cost of sales or a reduction of selling expenses,
depending upon the nature of the rebate.
Earnings
Per Share
Basic
earnings per share are calculated by dividing net income (loss) by the weighted
average of common shares outstanding during the year. 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. The effect of the potentially dilutive shares for the
years ended December 31, 2009 and 2008 have been ignored, as their effect would
be antidilutive. Total potentially dilutive shares excluded from diluted
weighted shares outstanding at December 31, 2009 and 2008
totaled 162,791,229 and 67,299,323, respectively.
Allowance
for Bad Debts
The
balance in allowance for doubtful accounts at December 31, 2009 and 2008 was
$213,471 and $391,501, respectively. Bad debt expense for the years ended
December 31, 2009 and 2008 was $(83,821) and $263,332,
respectively.
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.
Fixed
Assets
Fixed
assets are recorded at cost. Maintenance, repairs and minor renewals are charged
to operations as incurred. Major renewals and betterments, which substantially
extend the useful life of the property, are capitalized at cost. Upon sale or
other disposition of assets, the costs and related accumulated depreciation are
removed from the accounts and the resulting gain or loss, if any, is reflected
in income.
F-8
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
Depreciation
is computed using the straight-line method based on the estimated useful lives
as follows:
Office
equipment
|
5
years
|
Software
|
5
years
|
Vehicles
|
5
years
|
Furniture
and fixtures
|
7
years
|
Leasehold
improvements are depreciated over their lease terms or useful lives if shorter.
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
Fair
Value
The
Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 2009 and 2008 does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded if there is uncertainty as to
the realization of deferred tax assets.
Leased
Employees
The
Company leases substantially all its employees from an unrelated party. In
addition to reimbursing the third party for the salaries of the leased
employees, the Company is charged a service fee by the third party which is
designed to cover the related employment taxes and benefits.
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Research
and Development Costs
Research
and development costs are charged to expense as incurred. Equipment used in
research and development with alternative uses is capitalized. Research and
development costs include direct costs and payments for leased employees and
consultants. Research and development costs totaled $372,023 and $777,480 for
the years ended December 31, 2009 and 2008, respectively.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of accounts receivable. The Company believes that
concentration with regards to accounts receivable is limited due to its customer
base. The Company maintains substantially all of its cash balances in a limited
number of financial institutions. The balances are insured by the Federal
Deposit Insurance Corporation up to $250,000 per institution through December
31, 2010, at which time the coverage is scheduled to revert to the prior limit
of $100,000. The Company had uninsured cash balances at December 31, 2009 of
$460,909.
F-9
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
Reclassification
Certain
amounts included in 2008 financial statements have been reclassified to conform
with the 2009 presentation.
Assets
Subject to Lien
The
Company’s major supplier has a $2,000,000 lien on the Company’s
assets.
Subsequent
Events
The
Company evaluated the effects of all subsequent events through March 29, 2010,
the date on which the financial statements were issued.
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.
NOTE 2 -
ACCOUNTS RECEIVABLE
Accounts
receivable consists of the following:
2009
|
2008
|
|||||||
Billed
|
$
|
1,814,132
|
$
|
2,801,264
|
||||
Unbilled
|
574,373
|
382,720
|
||||||
Allowance
for doubtful accounts
|
(213,471
|
)
|
(391,501
|
)
|
||||
$
|
2,175,034
|
$
|
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.
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.
F-10
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
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 -
FIXED ASSETS
Fixed
assets consist of the following at December 31, 2009
and 2008:
2009
|
2008
|
|||||||
Office
equipment
|
$
|
1,129,088
|
$
|
1,069,217
|
||||
Furniture
and fixtures
|
129,443
|
129,443
|
||||||
Software
|
634,245
|
594,149
|
||||||
Leasehold
improvements
|
135,727
|
135,727
|
||||||
Vehicles
|
23,456
|
23,456
|
||||||
2,051,959
|
1,951,992
|
|||||||
Less:
Accumulated depreciation
|
827,839
|
439,457
|
||||||
$
|
1,224,120
|
$
|
1,512,535
|
Depreciation
expense for the years ended December 31, 2009 and 2008 totaled $388,382 and
$391,481, respectively.
Fixed
assets under capital leases are comprised of $393,311 of office equipment,
$227,123 of software and $16,350 of vehicles less accumulated depreciation of
$297,823 for the year ended December 31, 2009.
NOTE 6 -
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; $800,000 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.
F-11
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 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.
F-12
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 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.
F-13
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 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.
On
December 23, 2009, Company issued to Vision Opportunity Master Fund, Ltd., a
convertible promissory note with principal amount $500,000 and a warrant to
purchase 1,666,667 shares of the Company’s common stock in exchange for $500,000
in cash. The promissory note matures in May 2010, 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 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. In addition pursuant to price
protection provision, the exercise price on warrants to purchase 3,000,000
shares of the Company’s common stock issued in February 2009 was reduced from
$0.25 to $0.15 per share. The Company recognized a beneficial conversion feature
of $333,333 in connection with the issuance of the convertible promissory note,
which was expensed since the notes can be converted at any time. The
reduction in the exercise price of the warrants resulted in decrease of
additional paid-in capital allocated to warrants
of $51,401.
NOTE 7 -
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 5-year period at an interest rate
of 7.6% per annum.
F-14
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
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.
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.
Future
minimum lease payments are as follows:
Year
|
Total
Payments
|
Interest
Payments
|
Principal
Payments
|
|||||||||
2010
|
187,705 | 13,590 | 174,115 | |||||||||
2011
|
26,537 | 1,071 | 25,466 |
NOTE 8 -
INCOME TAXES
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes using the enacted tax rates in effect
in the years in which the differences are expected to reverse. Because of the
questionable ability of the Company to utilize these deferred tax assets, the
Company has established a 100% valuation allowance for the asset. Deferred
income taxes are comprised as follows for the years ended December 31, 2009 and
2008,
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Conversion
to accrual basis tax filings
|
$
|
—
|
$
|
(102,261
|
)
|
|||
Net
operating loss
|
7,657,013
|
5,768,134
|
||||||
Goodwill
impairment
|
470,448
|
508,734
|
||||||
Other
deferred tax assets
|
94,006
|
150,543
|
||||||
Depreciation
|
(180,385
|
)
|
(170,334
|
)
|
||||
Net
deferred tax asset
|
8,041,082
|
6,154,816
|
||||||
Valuation
allowance
|
(8,041,082
|
)
|
(6,154,816
|
)
|
||||
Deferred
tax assets
|
$
|
—
|
$
|
—
|
The
Company's income tax expense consists of the following for the years
ended:
December 31,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal
|
$ | — | $ | 20,312 | ||||
State
and local
|
10,587 | 1,699 | ||||||
Total
|
10,587 | 22,011 | ||||||
Deferred:
|
||||||||
Federal
|
— | — | ||||||
State
and local
|
— | — | ||||||
Total
|
— | — | ||||||
Provisions
for income taxes
|
$ | 10,587 | $ | 22,011 |
F-15
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
The
Company files a consolidated income tax return with its wholly-owned
subsidiaries and has net operating loss carryforwards of approximately
$22,521,000 for federal and state purposes, which expire through 2027. The
utilization of this operating loss carryforward may be limited based upon
changes in ownership as defined in the Internal Revenue Code.
A
reconciliation of the difference between the expected income tax rate using the
statutory federal tax rate and the Company’s effective rate is as
follows:
December 31,
|
||||||||
2009
|
2008
|
|||||||
U.S.
Federal income tax statutory rate
|
34.0
|
%
|
34.0
|
%
|
||||
State
income taxes, net of federal effect
|
5.3
|
5.3
|
||||||
Permanent
differences
|
(15.3
|
)
|
(3.3
|
)
|
||||
Valuation
allowance
|
(24.0
|
)
|
(36.0
|
)
|
||||
Effective
tax rate
|
0
|
%
|
0
|
%
|
NOTE 9 -
MAJOR CUSTOMERS
Revenues
to a single customer that exceed ten percent (10%) of total revenues during the
year ended December 31, 2009 and 2008 are as follows,
2009
|
2008
|
|||||||
Customer
A
|
$
|
—
|
$
|
2,781,181
|
Customers
that accounted for more than 10% of the outstanding accounts receivable at
December 31, 2009 and 2008 are as follows,
2009
|
2008
|
|||||||
Customer
B
|
$
|
—
|
$
|
364,235
|
||||
Customer
C
|
—
|
346,219
|
||||||
Customer
D
|
334,199
|
—
|
||||||
Customer
E
|
320,119
|
—
|
NOTE 10 -
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 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, 2010.
The
following is a schedule of future minimum rental payments required under all
operating leases:
December
31,
|
||||
2010
|
252,771
|
|||
2011
|
243,797
|
|||
2012
|
148,625
|
|||
2013
|
153,084
|
|||
2014
and thereafter
|
388,583
|
|||
$
|
1,186,860
|
F-16
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
Equipment
and facilities rental for the year ended December 31, 2009 and 2008 totaled
$264,715 and $529,229, respectively.
NOTE 11 -
EMPLOYMENT AGREEMENTS
The
Company has employment agreements with several of its key employees. The
agreements are for a term of either one or three years and are automatically
renewed subject to certain conditions.
Each
agreement calls for a base salary, which may be adjusted annually at the
discretion of the Company’s Board of Directors, and also provides for
eligibility in the Company’s benefit plans and incentive bonuses which are
payable based upon the attainment of certain profitability
goals
The
aggregate commitment for future salaries excluding bonuses and benefits and
giving effect to employment agreements entered into on February 1,
2010, is as follows:
Year
ending December 31,
2010
|
$
|
1,138,607
|
||
2011
|
910,000
|
|||
2012
|
910,000
|
|||
2013
|
147,096
|
NOTE 12 -
STOCKHOLDERS’ EQUITY
On
November 14, 2006, X and O Cosmetics, Inc., (“XO”) consummated an agreement with
Juma Technology, LLC, pursuant to which XO acquired 100% of Juma Technology
LLC’s member interests in exchange for 33,250,731 shares of our common stock
(the “Reverse Merger”). The transaction was treated for accounting purposes as a
recapitalization by Juma Technology LLC as the accounting acquirer.
As part
of the Reverse Merger, our former officer and director, 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. The shares of our common stock issued to former members of Juma
Technology, LLC may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements.
Certificates representing these shares contain a legend stating the same. In
addition, all shares of common stock held by the former members of Juma
Technology, LLC are generally subject to lock-up provisions that provide
restrictions on the future sale of common stock by the holders for a period of
one year following the issuance of said shares.
Of the
41,535,000 shares issued, 10,000 shares were issued to an employee for services
and 5,024,269 shares were issued to investors and consultants for services. The
shares were valued at the fair value on the date of issuance.
During
July 2006, the Company sold rights to purchase shares of the Company’s common
stock pursuant to subscription agreements totaling $1,150,000. The subscription
agreement offered shares at prices ranging from $0.16 to $0.40 per share and it
was contingent on the Company completing a reverse merger into a public entity.
The reverse merger was completed in November 2007. These subscription agreements
were treated as loans until November 2007 due to the fact that Juma Technology
LLC could not sell common stock. Once the reverse merger was consummated the
4,250,000 shares of common stock were issued and the loans were cancelled. The
Company has a subscription receivable of $18,427 outstanding as of December 31,
2006 which was fulfilled during 2007.
During
December 2006, 668,000 warrants were issued to various consultants for services.
The warrants are exercisable at $0.50 per share and have a five year maturity.
The Company recorded a charge for consulting fees totaling $17,978, the value of
the warrants on the date of issuance which was calculated using the
Black-Scholes valuation method.
F-17
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
NOTE 13 -
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.
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.
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.
On July
16, 2009 the Company adopted the 2009 Stock Option Plan of Juma Technology
Corp., (the “2009 Plan”).The Plan provides for up to 10,000,000 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. Through December 31, 2009 no options have
been issued under the 2009 Plan.
Equity
award activities and related information as of and for the year ended December
31, 2009 is summarized below:
Outstanding Options
|
||||||||||||||||
Number of
Shares
|
Weighted-Average
Exercise price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||||||
Balance
at December 31, 2008
|
12,447,500 | $ | 0.72 | |||||||||||||
Options
granted
|
6,401,250 | 0.16 | ||||||||||||||
Options
exercised
|
- | — | ||||||||||||||
Options
canceled
|
(1,500,000 | ) | 0.71 | |||||||||||||
Balance
at December 31, 2009
|
17,348,750 | 0.52 | 4.41 | $ | 543,620 |
Aggregate
intrinsic value represents the difference between the Company’s closing stock
price on the last trading day of the fiscal period, which was $0.25 as of
December 31, 2009 and the exercise price multiplied by the number of related
options.
The
following schedule summarizes information about stock options outstanding under
all option plans for December 31, 2009:
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||
Range of Exercise
Price
|
Number
Outstanding
|
Weighted-Average
Remaining
Contractual Life
|
Weighted-Average
Exercise Price
|
Number
Exercisable
|
Weighted-Average
Exercise Price
|
|||||||||||||||
$0.14
- $0.16
|
5,738,250 | 4.32 | $ | 0.16 | 4,793,143 | $ | 0.16 | |||||||||||||
$0.20
- $0.52
|
2,829,250 | 6.36 | 0.39 | 1,124,691 | 0.46 | |||||||||||||||
$0.58
- $0.60
|
5,700,000 | 3.20 | 0.60 | 4,044,657 | 0.60 | |||||||||||||||
$1.00
- $1.33
|
3,081,250 | 3.75 | 1.12 | 3,055,296 | 0.90 | |||||||||||||||
$0.14
- $1.33
|
17,348,750 | 4.41 | $ | 0.52 | 13,017,787 | $ | 0.55 |
F-18
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
SFAS 123R
requires the use of a valuation model to calculate the fair value of stock-based
awards. The Company as elected to use the Black-Scholes option-pricing model,
which incorporates various assumptions including volatility, expected life, and
risk-free interest rates.
The
expected volatility is based on the historical volatility of the Company’s
common stock over the most recent period commensurate with the estimated
expected life of the Company’s stock options, adjusted for other relevant
factors including implied volatility of market traded options on the Company’s
common stock. The expected life of an award is based on historical experience
and on the terms and conditions of the stock awards granted to employees, as
well as the potential effect from options that had not been exercised at the
time.
The
assumptions used and the resulting estimate of weighted-average fair value per
share of options granted during this period is summarized as
follows:
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
|||||||
Dividend
yield
|
— | — | ||||||
Volatility
factor
|
71.63 | % | 24.03 | % | ||||
Risk-free
interest rate
|
2.82 | % | 3.15 | % | ||||
Expected
life (years)
|
5.23 | 6.35 |
NOTE 14 -
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, subject to shareholder
approval.
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
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.
In
November 2009, the shareholders of the Company approved an amendment to the
Company’s certificate of incorporation increasing the number of authorized
shares by 10,000,000 shares of preferred stock.
F-19
Juma
Technology Corp. and Subsidiaries
Notes
to Consolidated Financial Statements
December
31, 2009
As of
December 31, 2009, there were $ $696,164 in accrued unpaid dividends on the
series A convertible preferred stock.
NOTE 15 -
MAJOR SUPPLIERS
The
Company predominately uses one supplier to purchase their products. This
supplier accounted for more than 35% and 63% of total equipment purchased during
2009 and 2008, respectively.
NOTE 16 -
RELATED PARTY TRANSACTIONS
Facilities
Lease
On June
1, 2006, the Company entered into a 10 year non-cancelable lease agreement with
Toledo Realty, LLC (“Toldeo”) for its Long Island headquarters. Among other
provisions, the lease provides for monthly rental payments of $10,500 per month
and includes provisions for scheduled increases to the monthly rental. In
addition, the Company is required to reimburse Toledo for the real estate taxes
on the building. The lease agreement also provides for two five year lease
extensions. Pursuant to the lease, the Company was required to provide a
security deposit totaling $21,000.
NOTE 17 -
SUBSEQUENT EVENTS
Issuance
of Convertible Promissory Notes and Warrants to Purchase Common
Stock
On
January 21, 2010 the Company refinanced a $1,000,000 convertible note payable
that matured on December 28, 2009. In return for cancellation of this note, the
Company issued a convertible promissory note with principal amount $1,000,000
and warrants to purchase 1,000,000 shares of the Company’s common stock. The
promissory note matures in July 2011 except for four monthly payments
of $75,000 each commencing on January 15, 2010 and bears
interest at an annual rate of 14%, which is payable monthly. The note is
convertible into shares of the Company’s common stock at a conversion price of
$0.67 per share. The warrants have an exercise price of $0.18 per share and
expire in January 2013.
On
January 28, 2010 the Company issued to Vision Opportunity Master Fund a
convertible promissory note with principal amount $500,000 and a warrant to
purchase 1,666,667 shares of common stock in exchange for $500,000 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.
On
February 25, 2010 the Company issued to Vision Opportunity Master Fund a
convertible promissory note with principal amount $500,000 and a warrant to
purchase 1,666,667 shares of common stock in exchange for $500,000 in cash. The
promissory note matures in May 2010, 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 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. . Also on February 25, 2010 the Company acknowledged the
triggering of the price protection provisions of the series B preferred stock
and warrants to purchase 6,250,000 shares of the Company’s common stock issued
in August 2007; however, the conversion price of the series B preferred stock
and the exercise price of the warrants shall remain at $0.25.
F-20
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure
No events
occurred requiring disclosure under Item 304(b) of Regulation S-K.
Item
9A(T). 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 December 31, 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 December 31, 2009, our disclosure
controls and procedures were 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.
Management's
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rule 13a-15(f) under the
Exchange Act. The Company’s internal control over financial reporting is
designed to provide reasonable assurance to the Company’s management and Board
of Directors regarding the preparation and fair presentation of published
financial statements in accordance with United States’ generally accepted
accounting principles (US GAAP), including those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with US
GAAP and that receipts and expenditures are being made only in accordance with
authorizations of management and directors of the Company, and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
Management
conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included an evaluation of the design of our internal
control over financial reporting and testing of the operational effectiveness of
our internal control over financial reporting. Based on this assessment,
management concluded the Company maintained effective internal control over
financial reporting as of December 31, 2009.
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 that all necessary information will be disclosed in a
timely manner. Our Chief Executive Officer and Chief Financial Officer concluded
that our internal controls over financial reporting 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.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in the
Annual Report.
26
There
have been no change in the Company’s internal control over financial
reporting identified in connection with the evaluation described above that
occurred during the Company's fiscal quarter ended December 31, 2009 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
Item
9B. Other information.
None.
27
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following sets forth certain information about each of our executive officers
and directors and their current positions with the Company.
Name
|
Age
|
Position(s) and Office(s) Held
|
||
Anthony M. Servidio
|
63
|
Chairman
and Chief Executive Officer
|
||
Robert
H. Thomson
|
33
|
Director
|
||
Robert
Rubin
|
68
|
Director
|
||
Kenneth
Archer
|
51
|
Director
|
||
Joseph
Fuccillo
|
37
|
President,
Chief Technology Officer, Director
|
||
Anthony
Fernandez
|
43
|
Chief
Financial Officer
|
||
David
Giangano
|
46
|
President
of Global Channels
|
||
Frances
Vinci
|
58
|
Executive
Vice President
|
||
Joseph
Cassano
|
51
|
EVP
of Sales
|
Set forth
below is a brief description of the background and business experience of each
of our executive officers and directors of the Company.
Anthony
M. Servidio - Chairman and Chief Executive Officer
Mr.
Servidio joined the Company as CEO and Chairman in November 2007, after serving
as a strategic advisor to the firm since July 2007. Mr. Servidio has a
distinguished career in the telecommunications and information technology
industries, having contributed to growth and value creation in a variety of
roles. From June 2006 to June 2007, Mr. Servidio was Senior Vice President,
Strategic Markets, for WestCom Corporation, a telecommunications company
providing voice, data and converged IP solutions to the global financial
services community. WestCom was sold to IPC Communications in June 2007. From
June 2005 to June 2006, Mr. Servidio was President of Cymtec Systems, a network
security solutions technology company. From March 2002 to June 2005, Mr.
Servidio ran global sales for Moneyline Telerate, which was the world’s third
largest financial market data company, before its sale to Reuters in 2004. Prior
to Moneyline, Mr. Servidio was Senior Vice President, Global Banking and Finance
Solutions, for Global Crossing. Mr. Servidio joined Global Crossing when the
company acquired IXnet, a company he helped found in 1995, and grew from its
inception to a business generating over $300 million in annual revenues,
offering network and advanced trader voice solutions through its combination
with IPC. Prior to establishing IXnet, Mr. Servidio was Vice President of Sales
for WorldCom, leading its Global Banking and Finance team. Mr. Servidio’s
previous missions included sales and management roles with RCA Global
Communications, a large Global Telecommunications service provider, where Mr.
Servidio began his career in 1965.
Robert
H. Thomson - Director
Mr.
Thomson was initially appointed to our board on March 29, 2008 to fill the
remaining portion of a departing director's one-year term and to hold office
until the next annual meeting of our stockholders or until removed from office
in accordance with our by-laws. In 2007,
Mr. Thomson joined Vision Capital Advisors LLC, a New York based fund that makes
direct investments in small, high growth businesses. Prior to Vision, Mr.
Thomson was the Managing Director of The Arkin Group LLC (New York, NY - 2006)
in charge of daily operations, financial management, and growth strategies for
this international business intelligence firm. Prior to The Arkin Group LLC, Mr.
Thomson was a Research Associate for the Council on Foreign Relations, a New
York-based think tank focused on international relations and foreign policy. In
February 2010, Mr. Thomson was appointed to the board of T3 Motion, Inc.
(OTCBB:TMMM.OB).
Robert
Rubin - Director
Mr. Rubin
was appointed as a director of the Company in November 2007. Mr. Rubin has been
the Chief Financial Officer of Solar Thin Films, Inc. (OTCBB: SLTN.OB) since
August 2007. He served as Chairman and President of Solar Thin from January 1996
until June 2006 and as CEO from January 1996 until October 2006. He has been a
director of Solar Thin since May 1991. Mr. Rubin also has served as the CEO,
Chairman and sole director and officer of MIT Holding, Inc. (OTCBB: MITD.OB)
since April 2007. Mr. Rubin served as a director of Western Power &
Equipment Corp. (OTCBB:WPEC.OB) from November 1992 to February 2005. Mr. Rubin
has operated and financed numerous companies including Lifetime Corporation
(f/k/a Superior Care, Inc.), for which he was the founder, President, Chief
Executive Officer and a director from its inception in 1976 until May 1986, when
he resigned as an executive officer. Mr. Rubin continued as a director of
Lifetime Corporation until the latter part of 1987. In 1993, Lifetime was sold
to Olsten Corporation, a NYSE-listed company.
28
Kenneth
Archer – Director
Mr.
Archer was appointed to our board on April 22, 2008 to fill the remaining
portion of Mr. Fernandez’s one-year term and to hold office until the next
annual meeting of our stockholders or until removed from office in accordance
with our by-laws. Mr. Archer joined Prime Communications in 2008 and is
responsible for all functional and financial areas of that company. From May
2008 to March 2010, he had been a member of the board of directors of PRG Group,
Inc. (PRGJ.PK), which is the holding company for Prime Communications. In 2005,
prior to joining Prime Communications, Mr. Archer was the Vice President of
North America Channels where he was responsible for the channel strategy,
program, operations, partner management team and the supervision of Avaya’s
portfolio of authorized partners. In 2004 and 2005, Mr. Archer was the Director
of the Direct Response Channel (Direct Marketing Resellers/DMRs) for the Hewlett
Packard Company. From 2002 to 2004, Mr. Archer was the Director of
Major/National Partner for the Hewlett Packard Company, where he was responsible
for certain of Hewlett Packard’s important strategic partners. From 2000 to
2002, Mr. Archer was the Director of Hewlett-Packard’s value added reseller
partners. Prior to this time, Mr. Archer had 20 years of other channel and
direct sales leadership positions with both the Hewlett Packard Company and with
two different channel partners. Mr. Archer earned his BS in Marketing in 1980
from West Chester University in Pennsylvania and his Executive MBA degree in
Business Management in 1993 from Fairleigh Dickinson University in New
Jersey.
Joseph
Fuccillo - President, Chief Technology Officer and Director
Mr.
Fuccillo has been the Company’s President since November 2007, a director since
November 2006 and the Company’s Chief Technology Officer since 2003. Prior to
becoming the Company’s Chief Technology Officer in 2003, Mr. Fuccillo served as
Senior Vice President at Xand Corporation, from 1999 to 2003, an IT hosting and
managed services provider, from 1999 to 2003. During his tenure at Xand
Corporation, Mr. Fuccillo was credited with building the company’s IT hosting
business into a $10 million revenue unit. In 1998, Mr. Fuccillo founded Incisive
Technologies, an independent IT consultancy and value added reseller that
provided systems design and implementation services. From 1995 to 1998, Mr.
Fuccillo led the technology team at Westcon, a major distributor of high-end
network and related security products. Mr. Fuccillo began his career as a
communications analyst with Orange and Rockland Utilities in 1993. He received a
Bachelor of Science degree in Electrical Engineering from Manhattan College and
is a certified technician in a variety of areas.
Anthony
Fernandez, MBA, CPA - Chief Financial Officer
Mr.
Fernandez joined the Company in 2006 and is responsible for all financial
matters related to the Company. He has served as a member of the Company’s board
of directors from November 2006 to until April 2008. In 2005, prior to joining
the Company, Mr. Fernandez was the Director of Finance for Lexington Corporate
Properties Trust where he was responsible for SEC filings, Sarbanes-Oxley
compliance and audit compliance. From 2001 to 2005, Mr. Fernandez was the
Corporate Controller for Register.com, Inc. Mr. Fernandez managed a $210 million
portfolio, all SEC reporting and compliance, tax compliance and financial
computer systems implementations. From 1998 to 2001, Mr. Fernandez was the Chief
Financial Officer for 5B Technologies Company, a technology and employee
staffing company. Prior to this time, Mr. Fernandez had eight years of public
accounting experience with various firms. Mr. Fernandez is a Certified Public
Accountant in the state of New York and obtained his MBA in accounting from
Hofstra University in 1992.
David
Giangano - President of Global Channels
Mr.
Giangano was the founder of the Company in 2002 and currently serves as the
Company’s President of Global Channels. He has served as the Company’s chief
executive officer and president and as a member of the Company’s board of
directors from November 2006 to until November 2007. Mr. Giangano has extensive
experience in building strategic alliances, structuring joint ventures, and
negotiating partnerships. He also brings 20 years of experience designing and
developing a broad spectrum of IT solutions, including those that pertain to
telecommunications systems, IT systems integration, voice and data convergence,
and application development. Mr. Giangano currently holds multiple patents in
disciplines ranging from data encryption to specialized data acquisition and
digital signal processing applications. His technical writings have been
published in NASA and IEEE (Institute of Electrical and Electronics Engineers)
journals and magazines. Mr. Giangano has been with the Company since its
inception in 2002. From 2000 to 2002, Mr. Giangano was the Senior Vice President
of Engineering and System Services at 5B Technologies. From 1997 to 2000, Mr.
Giangano founded and operated Tailored Solutions, a voice and data systems
integration and consulting firm, which was acquired by 5B Technologies. Mr.
Giangano earned a Bachelor of Science degree in Electrical Engineering and spent
10 years with Northrop Grumman Corporation as a Senior Design Engineer and
Project Leader.
29
Frances
Vinci - Executive Vice President
Ms.
Frances Vinci co-founded the Company in 2002 and currently serves as the
Company’s Executive Vice President. She has served as a member of the Company’s
board of directors from November 2006 to until November 2007. Ms. Vinci has 20
years of experience as an Operations, Sales and Human Resources Director. Ms.
Vinci initiated both the telemarketing and professional services division. Prior
to 2002, Ms. Vinci was the Director of Professional services at 5B Technologies
from 1999 to 2002. In that capacity, Ms. Vinci created and implemented an IT
outsourcing and consulting division. From 1980 to 1999, Ms. Vinci worked at
Media Communications Inc. as Vice-President of Sales & Operations, starting
two divisions and contributed to the company’s revenue by turning a service
based division into a profit center.
Joseph
Cassano - Executive Vice President of Sales
Mr.
Cassano joined the Company in 2003 and currently serves as the Company’s
Executive Vice President of Sales. He has served as a member of the Company’s
board of directors from November 2006 to until November 2007. Mr. Cassano brings
over 25 years of experience in sales and operations in the communications
industry. Mr. Cassano is responsible for the sales organization at the Company,
designed to partner with customers to help them build the high-performance
communications solution required to handle emerging business applications. From
2000 to 2003, Mr. Cassano was the Area Vice President of Sales for Expanets of
New York, Avaya’s largest and most strategic business partner. Prior to his
position with Expanets, Mr. Cassano held executive level positions with market
leading technology companies, including Lucent Technologies and AT&T
Information Systems. Mr. Cassano started his career in 1980 with The New York
Telephone Company, now known as Verizon Communications.
Term
of Office
Each of
our directors is appointed or elected for a one-year term to hold office until
the next annual meeting of our stockholders or until removed from office in
accordance with our by-laws. On August 31, 2007 at the Company’s annual meeting
of stockholders, each of Messrs. Giangano, Fuccillo, Cassano, and Fernandez and
Ms. Vinci was elected as a director for a term of one year. In November 2007,
each of Messrs Giangano and Cassano and Ms. Vinci resigned. In November 2007,
each of Messrs Anthony M. Servidio, Rubin, and Skriloff was appointed as members
of the Company’s board of directors. In March 2008, Mr. Skriloff resigned from
the Company’s board of directors and Mr. Thomson was appointed as a member of
the Company’s board of directors. In April 2008, Mr. Fernandez resigned from the
Company’s board of directors and Mr. Archer was appointed as a member of the
Company’s board of directors.
Significant
Employees
As of
December 31, 2009, the Company believes that almost all employees are important
to the success of the Company but the only significant individuals are the
Company’s’ officers and directors referenced above.
Family
Relationships
As of
December 31, 2009, there were no family relationships between or among the
directors, executive officers or persons nominated or chosen by us to become
directors or executive officers.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, during the past ten years, none of the following occurred
with respect to any director, director nominee or executive
officer:
(1) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
(2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(3) being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his or her involvement in
any type of business, securities or banking activities;
(4) being
found by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated;
(5) being
the subject of, or a party to, any federal or state judicial or administrative
order, judgment, decree, or finding, not subsequently reversed, suspended or
vacated, relating to an alleged violation of:
|
(i)
|
any
federal or state securities or commodities law or
regulation;
|
|
(ii)
|
any
law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order
of disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order;
or
|
|
(iii)
|
any
law or regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or
|
(6) being
the subject of, or a party to, any sanction or order, not subsequently reversed,
suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))),
or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
(covering stock, commodities or derivatives exchanges, or other
SROs).
30
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors and executive officers and
persons who beneficially own more than ten percent of a registered class of the
Company’s equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent beneficial
shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. To the best of our knowledge based solely on a
review of Forms 3, 4, and 5 (and any amendments thereof) received by us during
or with respect to the year ended December 31, 2009, the following persons have
failed to file, on a timely basis, the identified reports required by Section
16(a) of the Exchange Act during fiscal year ended December 31,
2009:
Name and principal position
|
Number of
late reports
|
Transactions not
timely reported
|
Known failures to
file a required form
|
|||
Anthony
M. Servidio, Chief Executive Officer and Chairman
|
—
|
—
|
—
|
|||
Robert
H. Thomson, Director
|
—
|
—
|
—
|
|||
Robert
Rubin, Director
|
—
|
—
|
—
|
|||
Kenneth
Archer, Director
|
—
|
—
|
—
|
|||
Joseph
Fuccillo, President, Chief Technology Officer and Director
|
—
|
—
|
—
|
|||
Anthony
Fernandez, Chief Financial Officer
|
—
|
—
|
—
|
|||
David
Giangano, President of Global Channels
|
—
|
—
|
—
|
|||
Frances
Vinci, Executive Vice-President
|
—
|
—
|
—
|
|||
Joseph
Cassano, Executive Vice-President of Sales
|
—
|
—
|
—
|
Code
of Ethics Disclosure
We
adopted a Code of Ethics for Financial Executives, which include our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics was
filed as an exhibit to the annual report on Form 10-KSB for the year ended
December 31, 2005 and filed with the SEC on January 30, 2006.
We
undertake to provide to any person without charge, upon request, a copy of such
code of ethics. Such requests should be addressed to the Company at 154 Toledo
Street, Farmingdale, New York 11735; attention Anthony Fernandez,
CFO.
Security
Holder Nominating Procedures
We do not
have any formal procedures by which our stockholders may recommend nominees to
our board of directors.
Audit
Committee
We do not
have a separately-designated standing audit committee. The entire board of
directors performs the functions of an audit committee, but no written charter
governs the actions of the board of directors when performing the functions of
that would generally be performed by an audit committee. The board of directors
approves the selection of our independent accountants and meets and interacts
with the independent accountants to discuss issues related to financial
reporting. In addition, the board of directors reviews the scope and results of
the audit with the independent accountants, reviews with management and the
independent accountants our annual operating results, considers the adequacy of
our internal accounting procedures and considers other auditing and accounting
matters including fees to be paid to the independent auditor and the performance
of the independent auditor.
For the
year ended December 31, 2009, the board of directors:
|
1.
|
Reviewed
and discussed the audited financial statements with management,
and
|
|
2.
|
Reviewed
and discussed the written disclosures and the letter from our independent
auditors on the matters relating to the auditor's
independence.
|
Based
upon the board of directors’ review and discussion of the matters above, the
board of directors authorized inclusion of the audited financial statements for
the year ended December 31, 2009 to be included in this Annual Report on Form
10-K and filed with the Securities and Exchange Commission.
Item
11. Executive Compensation
The table
below summarizes all compensation awarded to, earned by, or paid to our current
executive officers for each of the last two completed fiscal
years.
31
Name and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
Non-
Qualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||
Anthony M. Servidio
|
2009
|
236,719 | 140,000 | 10,000 | 386,719 | ||||||||||||||||||||||
CEO
& Chairman (1)
|
2008
|
247,500 | – | – | 464,450 | – | – | 9,167 | 721,117 | ||||||||||||||||||
Joseph
Fuccillo
|
2009
|
150,155 | 36,132 | 10,000 | 196,287 | ||||||||||||||||||||||
President,
CTO;Director (2)
|
2008
|
162,500 | – | – | – | – | – | 10,000 | 172,500 | ||||||||||||||||||
Anthony
Fernandez
|
2009
|
150,155 | 60,219 | 10,000 | 220,374 | ||||||||||||||||||||||
Chief
Financial Officer (3)
|
2008
|
162,500 | – | – | – | – | – | 10,000 | 172,500 |
|
(1)
|
Mr.
Servidio was appointed CEO and Chairman in November 2007; he had
previously served as a consultant to the Company since July
2007.
|
|
(2)
|
Mr.
Fuccillo was appointed President in November
2007.
|
|
(3)
|
Mr.
Fernandez was appointed Chief Financial Officer in April
2006.
|
Employment
Agreements
On
February 1, 2010, the Company entered into new employment agreements with
Anthony M. Servidio, Anthony Fernandez, and Joseph Fuccillo.
Anthony
Servidio had entered into an employment agreement with the Company effective as
of January 1, 2008. Under his new employment agreement, which supersedes and
terminates his original employment agreement with the Company dated January 1,
2008, Mr. Servidio will continue to serve as the Company’s Chief Executive
Officer. The new employment agreement terminates on February 28, 2013, subject
to automatic renewal for successive one-year terms. Mr. Servidio’s annual base
salary for 2010 is $250,000. Thereafter, his base salary, at the sole discretion
of the Company’s Board of Directors or Compensation Committee, as the case, may
be increased at the rate of five percent (5%), per annum.
Mr.
Servidio. shall be entitled to be considered for an annual bonus (the “Annual
Bonus”) of up to an aggregate of fifty percent (50%) of his then annual base
salary payable in (i) cash and/or (ii) Company common stock, which may include
stock options, restricted stock and/or deferred compensation, pursuant to the
terms of the executive bonus plan. The award of and the make-up of the Annual
Bonus, shall be at the sole discretion of the Company’s Board of Directors or
the Company’s Compensation Committee, as the case may be. The payment of any
such bonus shall be subject to, among other conditions, Mr. Servidio being
employed under his employment agreement at the time the Annual Bonus is awarded
and at the time the Annual Bonus is paid and the availability of sufficient cash
to meet the Company’s working capital needs. Mr. Servido shall also be entitled
to receive a transaction bonus (the “Transaction Bonus”) to be awarded in the
event of a change of control or sale of all or substantially all the Company’s
assets. The amount of the Transaction Bonus is based on the threshold amounts of
gross sales consideration generated in the applicable transaction.
Mr.
Servidio shall be entitled to participate in the Company’s employee compensation
and other benefit programs. In addition to reimbursement for his documented
reasonable expense incurred in connection with the fulfillment of his duties,
Mr. Servidio shall all be entitled to an annual automobile allowance of $10,000.
The Company may terminate Mr. Servidio’s employment with or without cause. If
Mr. Servidio’s employment is terminated without cause or due to a change of
control, then he is entitled to a severance payment equal to 18 months’ base pay
and 18 months’ benefits. Mr. Servidio may terminate his employment agreement on
90 days’ prior written notice.
Anthony
Fernandez has entered into a similar new employment agreement with the Company,
which supersedes and terminates his original employment agreement with the
Company dated as of November 14, 2006, as amended. Mr. Fernandez will continue
to serve as the Company’s Chief Financial Officer. Mr. Fernandez’s annual base
salary is $165,000.
Mr.
Fernandez’s employment agreement contains employee benefit, bonus, and
termination provisions, which are similar to those contained in Mr. Servidio’s
employment agreement.
Joseph
Fuccillo has entered into a similar new employment agreement with the Company,
which supersedes and terminates his original employment agreement with the
Company dated as of November 14, 2006, as amended. Mr. Fuccillo will continue to
serve as the Company’s Chief Technology Officer and President. Mr. Fuccillo’s
annual base salary is $165,000.
Mr.
Fuccillo’s employment agreement contains employee benefit, Annual Bonus, and
termination provisions, which are similar to those contained in Mr. Servidio’s
employment agreement.
32
Compensation
of the Board of Directors
Ordinarily,
our directors are not paid any fees or compensation for services as members of
our board of directors or any committee thereof.
In April
2008, Mr. Archer was granted five-year options that vest over three years to
purchase 50,000 shares of our common stock at an exercise price of $0.60 per
share. And in September 2009, Mr. Archer was granted three-year
options that vest over one year to purchase 200,000 shares of our
common stock at an exercise price of $0.25 per share. Aside from the foregoing,
our directors did not receive any compensation for their services as director or
committee member during the year ended December 31, 2009.
Outstanding
Equity Awards at 2009 Fiscal Year End
The
following table sets forth the stock options held by the named executives as of
December 31, 2009.
Options Awards
|
Stock Awards
|
|||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#
Exercisable)
|
Number of
Securities
Underlying
Unexercised
Options
(#
Unexercisable)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights that
Have Not
Vested
($)
|
||||||||||||||||
Anthony M. Servidio(1)
|
5,086,986 | 1,913,014 | – | 0.16-0.60 |
04/13-02/14
|
– | – | – | ||||||||||||||||
Joseph
Fuccillo (2)
|
1,616,164 | 83,836 | – | 0.58–1.15 |
02/12-02/14
|
– | – | – | ||||||||||||||||
Anthony
Fernandez (3)
|
1,660,274 | 139,726 | – | 0.58-1.15 |
02/12-02/14
|
– | – | – |
(1)
|
Mr.
Servidio’s options vest in accordance with the following
schedule,
|
1,250,000
on April 22, 2008
1,250,000
on April 22, 2009
1,250,000
on April 22, 2010
1,250,000
on April 22, 2011
2,000,000
ratably over the year ended February 19, 2010
(2)
|
Mr.
Fuccillo’s options vested in accordance with the following
schedule,
|
100,000
on February 7,
2008
1,000,000
on August 21, 2008
600,000 ratably over the year ended
February 19, 2010
(3)
|
Mr.
Fernandez’s options vested in accordance with the following
schedule,
|
100,000
on February 7,
2008
700,000
on August 21, 2008
1,000,000 ratably over the year ended
February 19, 2010
The
17,348,750 options outstanding at December 31, 2009 were granted at exercise
prices ranging from $0.14 to $1.33. At December 31, 2009 the number of options
outstanding held by executive officers and directors was
11,920,000.
Under his
employment agreement effective January 1, 2008, Mr. Servidio is entitled to
receive 5,000,000 options from the Company’s 2007 stock option, priced as
mandated by the plan. 1,250,000 of which shall be vested immediately with
1,250,000 vesting each year for three years.
33
Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information about our compensation plans under which
shares of common stock may be issued upon the exercise of options as of December
31, 2009.
A
|
B
|
C
|
||||||||||
Plan Category
|
Number of
Securities to
Be Issued
upon Exercise
of
Outstanding
Options,
Warrants and
Rights
|
Weighted-
Average Exercise
Price of
Outstanding
Options,
Warrants and
Rights
|
Number of
Securities
Remaining
Available for
Future
Issuance under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column A)
|
|||||||||
Equity compensation plans approved by security holders
|
17,348,750 | $ | 0.52 | 11,332,500 | ||||||||
Equity
compensation plans not approved by security holders
|
– | – | – | |||||||||
Total
|
17,348,750 | $ | 0.52 | 11,332,500 |
34
Title of Class
|
Name and
Address of Beneficial Owner(1)
|
Amount and
Nature of
Beneficial
Ownership
|
% of
Class (2)
|
||||||||
Common
|
Robert
Rubin, Director
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
1,800,000 | 1 | ||||||||
|
|||||||||||
Common
|
Anthony
M. Servidio, CEO & Chairman
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
5,363,014 | 2 | ||||||||
|
|||||||||||
Common
|
Robert
H. Thomson(3)(4),
Director
20
W. 55th Street, 5th floor,
New
York, NY 10019
|
194,483,846 | 75 | ||||||||
|
|||||||||||
Series
A Convertible Preferred Stock
|
Robert
H. Thomson(3)(4),
Director
20
W. 55th Street, 5th floor,
New
York, NY 10019
|
8,333,333 | 100 | ||||||||
|
|||||||||||
Series
B Convertible Preferred Stock
|
Robert
H. Thomson(3)(4),
Director
20
W. 55th Street, 5th floor,
New
York, NY 10019
|
1,666,500 | 100 | ||||||||
|
|||||||||||
Common
|
David
Giangano, President of Global Channels
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
6,488,122 | 3 | ||||||||
|
|||||||||||
Common
|
Frances
Vinci, EVP
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
5,460,301 | 2 | ||||||||
|
|||||||||||
Common
|
Joseph
Fuccillo, President, CTO and Director
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
7,724,423 | 3 |
35
Title of Class
|
Name and
Address of Beneficial Owner(1)
|
Amount and
Nature of
Beneficial
Ownership
|
% of
Class (2)
|
||||||||
Common
|
Joseph Cassano,
EVP
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
4,317,225 | 2 | ||||||||
|
|||||||||||
Common
|
Anthony
Fernandez, CFO
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
2,745,205 | 1 | ||||||||
|
|||||||||||
Common
|
Kenneth
Archer, Director
c/o
Juma Technology Corp.
154
Toledo Street,
Farmingdale,
NY 11735
|
112,923 | 1 | ||||||||
|
|||||||||||
Common
|
Mirus
Opportunistic Fund (5)
c/o
Julius Baer Trust Company
(Cayman
Ltd.)
PO
Box 1100 GT
Windward
III, Regata Office Park
Grand
Cayman
|
2,500,000 | 1 | ||||||||
|
|||||||||||
Total
of Common Stock-All Directors & Executive Officers (9
persons):
|
|
228,495,059 | 89 | ||||||||
|
|||||||||||
Total
of Series A Convertible Preferred Stock-All Directors & Executive
Officers (9 persons):
|
|
8,333,333 | 100 | ||||||||
|
|||||||||||
Total
of Series B Convertible Preferred Stock-All Directors & Executive
Officers (10 persons):
|
|
1,666,500 | 100 |
(1)
|
As
used in this table, “beneficial ownership” means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose
of, or to direct the disposition of, a security). In addition, for
purposes of this table, a person is deemed, as of any date, to have
“beneficial ownership” of any security that such person has the right to
acquire within 60 days after such date but are not deemed to be
outstanding for the purposes of computing the percentage ownership of any
other person shown in the table.
|
(2)
|
Figures
may not add up due to rounding of
percentages.
|
36
(3)
|
Robert
Thomson has been designated by Vision Opportunity Master Fund, Ltd. to our
board of directors. The reported securities are owned directly by Vision
Opportunity Master Fund, Ltd. and its affiliate Vision Capital Advantage
Fund, L.P. (collectively, the “Vision Entities”), and Mr. Thomson has no
direct interest in these shares. The 194,483,846 shares listed represent
the aggregate 1,116,705 common shares held by the Vision Entities as well
as (all figures given in the aggregate) (a) the series A Warrants to
purchase up to 26,595,936 shares of our common stock (b)
the Series B Warrants to purchase up to 6,250,000 shares of common
stock (c) the Senior Secured 10% Convertible Promissory Notes
(the “Notes”) currently convertible
into 87,191,873 shares of our common stock and (d)
the Series A Convertible Preferred Stock convertible into 33,333,332 share
of our common stock (e) the Series B Convertible Preferred
Stock convertible into 39,996,000 share of our common stock, which are
described in the following footnotes. The Series A Warrants, Series B
Warrants, the Notes, the Series A Convertible Preferred Stock and the
Series B Convertible Preferred Stock owned by the Vision Entities are
subject to a beneficial ownership limitation such that the Vision Entities
may not convert or exercise such securities to the extent that the
conversion or exercise would cause the Vision Entities’ common stock
holdings to exceed 4.99% of our total common shares outstanding, provided
that this restriction on conversion can be waived at any time by the funds
on 61 days’ notice. Mr. Thomson disclaims beneficial ownership of all
securities reported herein.
|
(4)
|
The
reported shares of Series A Convertible Preferred Stock are owned directly
by the Vision Entities; such shares are convertible at any time, at the
holders’ election, into 33,333,332 shares of our common stock (the
quotient of the liquidation preference amount of $0.60 per share divided
by the current conversion price of $0.15 per share times the number of
shares of Series A Preferred Stock). The reported shares of Series B
Convertible Preferred Stock are owned directly by the Vision Entities;
such shares are convertible at any time, at the holders’ election, into
39,996,000 shares of our common stock (the quotient of the liquidation
preference amount of $6.00 per share divided by the current conversion
price of $0.25 per share times the number of shares of Series B Preferred
Stock). The Vision Entities may not acquire shares of common stock upon
conversion of the Convertible Preferred Stock to the extent that, upon
conversion, the number of shares of common stock beneficially owned by the
Vision Entities and its affiliates would exceed 4.99% of the issued and
outstanding shares of our common stock; provided, that this restriction on
conversion can be waived at any time by the funds on 61 days’ notice. Mr.
Thomson disclaims beneficial ownership of all securities reported
herein.
|
(5)
|
Based
on Mirus Opportunistic Fund’s Schedule 13D filed with the Commission on
November 14, 2006, Mr. Rolf Schnellman, principal of this Fund, has voting
and dispositive power over the shares owned by this Fund. The address of
Mr. Schnellman is c/o Helper GmbH Dorfplatz 2, CH – 6422 Steinen,
Switzerland.
|
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Except as
described in the following paragraphs, none of our directors or executive
officers, nor any other related person, such as a person who beneficially owns,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, or any members of the immediate
family (including spouse, parents, children, step-children, siblings, and
in-laws) of any of the foregoing persons has any material interest, direct or
indirect, in any transaction since the beginning of the Company’s last fiscal
year or in any presently proposed transaction which, in either case, has or will
materially affect us.
Prior to
the Reverse Merger, throughout 2006 and 2005, the Company made interest-free
advances to Toledo Realty, LLC (“Toledo”), an entity owned by David Giangano,
Frances Vinci, Joseph Fuccillo, Joseph Cassano, Elizabeth D’Alesandro, Steven
Harper and Paul Stavola, each of whom is either an officer, employee or former
employee of the Company. The largest sum of these advances outstanding was
$333,265, which was the approximate dollar amount of the related persons’
interest in the transaction. The advances were primarily used for the
acquisition and improvements made to a building now owned by Toledo and leased
to the Company. This loan was repaid in full by December 31, 2006.
On June
1, 2006, the Company entered into a 10-year non-cancelable lease agreement with
Toledo for its Long Island headquarters. Among other provisions, the lease
provides for monthly rental payments of $10,500 per month and includes
provisions for scheduled increases to the monthly rental. In addition, the
Company is required to reimburse Toledo for the real estate taxes on the
building. The lease agreement also provides for two five-year lease extensions.
Pursuant to the lease, the Company was required to provide a security deposit
totaling $21,000. The Company has provided this deposit to Toledo in 2007. The
approximate dollar amount involved in this transaction and the approximate
dollar amount of the related persons’ interest in the transaction is
approximately $911,000.
In August
2007 and November 2007, the Company entered into two financing transactions with
Vision Opportunity Master Fund, Ltd. A managing director at Vision Capital
Advisors, LLC, an affiliate of Vision Opportunity Master Fund, Ltd., has been a
member of our board of directors since November 2007. The basis for appointing a
managing director at Vision Capital Advisors, LLC to our board of directors is
described under the heading “MANAGEMENT - Arrangements Concerning the Selection
of Directors.” The financing transactions set forth above as well as additional
financing transactions entered into by the Company and Vision Opportunity Master
Fund, Ltd. and one of its affiliates, are described under the heading
“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources.”
37
Board
Independence
At this
time, the Company is not subject to the requirements of a national securities
exchange or an inter-dealer quotation system with respect to the need to have a
majority of its directors be independent. In the absence of such requirements,
the Company has elected to use the definition established by the NASDAQ
independence rule which defines an “independent director” as “a person other
than an officer or employee of the company or its subsidiaries or any other
individual having a relationship, which in the opinion of the company’s board of
directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director.” The definition further provides that
the following relationships are considered bars to independent regardless of the
board’s determination:
Employment
by the Company. Employment of the director or a family member by the Company or
any parent or subsidiary of the company at any time thereof during the past
three years, other than family members in non-executive officer
positions.
$60,000
Compensation. Acceptance by the director or a family member of any compensation
from the Company or any parent or subsidiary in excess of $60,000 during any
twelve month period within three years of the independence
determination.
Auditor
Affiliation. A director or a family member of the director, being a partner of
the Company’s outside auditor or having been a partner or employee of the
company’s outside auditor who worked on the Company’s audit, during the past
three years.
Based on
the foregoing definition, the board of directors has determined that two of the
current directors are “independent directors.”
Item
14. Principal Accounting Fees and Services
Audit
Fees
The
aggregate fees billed by our auditors for professional services rendered in
connection with a review of the financial statements included in our quarterly
reports on Form 10-Q and the audit of our annual consolidated financial
statements for the fiscal years ended December 31, 2009 and December 31, 2008
were approximately $125,550 and $139,838 respectively.
Audit-Related
Fees
Our
auditors did not bill any additional fees for assurance and related services
that are reasonably related to the performance of the audit or review of our
financial statements.
Tax
Fees
The
aggregate fees billed by our auditors for professional services for tax
compliance, tax advice, and tax planning were $5,000 and $5,000 for the fiscal
years ended December 31, 2009 and 2008.
All
Other Fees
The
aggregate fees billed by our auditors for all other non-audit services, such as
attending meetings and other miscellaneous financial consulting, for the fiscal
years ended December 31, 2009 and 2008 were $0 and $0 respectively.
38
Item
15. Exhibits, Financial Statement Schedules.
Exhibit Number
|
Description
|
|
3.1
|
Articles of Incorporation, as
amended (1)
|
|
3.2
|
By-laws, as amended
(1)
|
|
23.1
|
Consent
of Accountants
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
(1)
|
Incorporated
by reference from prior
filings.
|
39
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Juma
Technology Corp.
Registrant
|
||
|
||
By:
|
/s/ Anthony M. Servidio
|
|
Anthony
M. Servidio
|
||
Chief
Executive Officer
March 29
, 2010
|
In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Name/Signature
|
Title
|
Date
|
||
/s/ Anthony M. Servidio
|
Chief
Executive Officer, Chairman (Principal Executive Officer)
|
March
29 , 2010
|
||
Anthony
M. Servidio
|
||||
/s/ Robert H. Thomson
|
Director
|
March 29
, 2010
|
||
Robert
H. Thomson
|
||||
/s/ Robert Rubin
|
Director
|
March 29
, 2010
|
||
Robert
Rubin
|
||||
/s/ Kenneth Archer
|
Director
|
March 29
, 2010
|
||
Kenneth
Archer
|
||||
/s/ Joseph Fuccillo
|
President,
Chief Technology Officer, Director
|
March 29
, 2010
|
||
Joseph
Fuccillo
|
||||
/s/ Anthony Fernandez
|
Chief
Financial Officer, Director (Principal Financial and Accounting
Officer)
|
March 29
, 2010
|
||
Anthony
Fernandez
|
40