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EX-32.2 - Juma Technology Corp.v178869_ex32-2.htm
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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
PART I
Item 1.
Business
 
3
Item 1A.
Risk Factors
 
8
Item 2.
Properties
 
16
Item 3.
Legal Proceedings
 
17
Item 4.
Removed and Reserved
 
17
       
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
18
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
19
Item 8.
Financial Statements and Supplementary Data
 
F-1
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
26
Item 9A(T).
Controls and Procedures
 
26
Item 9B.
Other Information
 
27
       
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
 
28
Item 11.
Executive Compensation
 
31
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
34
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
37
Item 14.
Principal Accounting Fees and Services
 
38
PART IV
Item 15.
Exhibits, Financial Statement Schedules
 
39

 
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

 
·
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
 
·
One bill for all voice communication needs
 
·
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.
 
·
Survivability - reliable service 24/7
 
·
Call Center Features and functionality
 
·
Extension to Cellular Technology (leveraging Avaya technology)
 
·
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:
 
8


 
·
substantially greater financial, technical and marketing resources;
 
·
larger customer base;
 
·
better name recognition; and
 
·
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.
 
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:

 
·
our applications for patents, trademarks and copyrights relating to our business may not be granted and, if granted, may be challenged or invalidated;
 
9

 
 
·
once issued, patents, trademarks and copyrights may not provide us with any competitive advantages;
 
·
our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology;
 
·
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
 
·
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.
  
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:

 
·
challenges caused by distance, language and cultural differences;
 
·
legal, legislative and regulatory restrictions;
 
·
currency exchange rate fluctuations;
 
·
economic instability;
 
·
longer payment cycles in some countries;
 
·
credit risk and higher levels of payment fraud;
 
·
potentially adverse tax consequences; and
 
·
higher costs associated with doing business internationally.

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:

 
·
our ability to retain and increase revenues associated with customers and satisfy customers’ demands;
 
·
our ability to be profitable in the future;
 
·
our investments in longer-term growth opportunities;
 
·
changes to service offerings and pricing by us or our competitors;
 
·
changes in the terms, including pricing, of our agreements with our equipment manufacturers;
 
10

 
 
·
the effects of commercial agreements and strategic alliances and our ability to successfully integrate them into our business;
 
·
technical difficulties, system downtime or interruptions;
 
·
the effects of litigation and the timing of resolutions of disputes;
 
·
the amount and timing of operating costs and capital expenditures;
 
·
changes in governmental regulation and taxation policies; and
 
·
changes in, or the effect of, accounting rules, on our operating results, including new rules regarding stock-based compensation.

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:

 
·
enhance our existing products and services;
 
·
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
 
·
respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

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.

 
11

 

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.
 
12

 
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:

 
·
diversion of management attention from running our existing business;
 
·
increased expenses, including travel, legal administrative and compensation expenses related to newly hired employees;
 
·
high employee turnover amongst the employees of the acquired company;
 
·
increased costs to integrate the technology, personnel, customer base and business practices of the acquired company with our own;
 
·
potential exposure to additional liabilities;
 
·
potential adverse effects on our reported operating results due to possible write-down of goodwill and other intangible assets associated with acquisitions;
 
·
potential disputes with sellers of acquired businesses, technologies, services or products; and
 
·
inability to utilize tax benefits related to operating losses incurred by acquired businesses.

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.
 
13

 
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:

 
·
technological innovations or new products and services by us or our competitors;
 
·
intellectual property disputes;
 
·
additions or departures of key personnel;
 
·
sales of our common stock;
 
·
our ability to execute our business plan;
 
·
operating results that fall below expectations;
 
·
loss of any strategic relationship;
 
14

 
 
·
industry developments;
 
·
economic and other external factors; and
 
·
period-to-period fluctuations in our financial results.
 
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.

 
17

 
 
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