OMB APPROVAL |
OMB Number: 3235-0416 Expires: April 30, 2009 Estimated average burden hours per response 182.00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________ to _________
DATAJUNGLE SOFTWARE INC.
(Exact Name of Small Business Registrant as Specified in its Charter)
NEVADA | 001-05996 | 91-0835748 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1 Hines Road, Suite 202, Ottawa, Ontario, Canada | K2K 3C7 | |
(Address of principal executive offices) | (Zip Code) |
(613) 254-7246
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all documents and reports required to be filed by Sections 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 filings for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act: Large accelerated filer¨ Accelerated filer¨ Non-accelerated filerþ
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.): Yes¨ Noþ
APPLICABLE ONLY TO CORPORATE ISSUERS:
At August 8, 2007, 36,110,549 shares of the registrant’s common stock were outstanding.
Transitional Small Business Disclosure format (check one): Yes¨ Noþ
SEC 2334 (11-0)
Potential persons who are to respond to the collection of information contained in this form are not
required to respond unless the form displays a currently valid OMB control number.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
PAGE
ITEM 1.
Consolidated Condensed Balance Sheets as of June 30, 2007
and December 31, 2006
4
Consolidated Condensed Statements of Operations for the Three Month
and Six Month Periods Ended June 30, 2007 and 2006
5
Consolidated Condensed Statements of Cash Flows for the Six Month
Periods Ended June 30, 2007 and 2006
6
Notes to Consolidated Condensed Financial Statements
7
ITEM 2.
Management’s Discussion and Analysis or Plan of Operation
28
ITEM 3.
Controls and Procedures
34
PART II – OTHER INFORMATION
ITEM 1.
Legal Proceedings
35
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
35
ITEM 3.
Defaults Upon Senior Securities
37
ITEM 4.
Submission of Matters to a Vote of Security Holders
37
ITEM 5.
Other Information
37
ITEM 6.
Exhibits
37
Signatures
38
2
PART 1 – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DATAJUNGLE SOFTWARE INC.
Three and six months ended June 30, 2007 and 2006
3
DATAJUNGLE SOFTWARE INC.
Consolidated Condensed Balance Sheets
June 30, 2007 and December 31, 2006
(In U.S. dollars)
_______________________________________________________________________________________________________
June 30,
December 31,
2007
2006
_______________________________________________________________________________________________________
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
171,830
$
23,157
Accounts receivable
109,343
105,131
Investment tax credits receivable
162,194
127,792
Contracts in process
725
-
Prepaid expenses (note 7(b)
196,551
237,185
_______________________________________________________________________________________________________
640,643
493,265
Deferred consulting services (note 7(b)
110,946
-
Property and equipment
2,604
4,550
_______________________________________________________________________________________________________
$
754,193
$
497,815
________________________________________________________________________________________________________
Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts payable
296,040
237,463
Accrued liabilities
828,240
474,157
Promissory notes payable (note 4)
254,873
112,620
Promissory notes payable to a related party (note 5)
261,005
180,625
Deferred revenue
37,172
39,044
_______________________________________________________________________________________________________
1,677,330
1,043,909
Promissory notes payable (note 4)
37,544
-
Stockholders’ deficiency:
Common stock, $0.001 par value. Authorized 300,000,000;
issued and outstanding 32,760,549 shares at June 30,
2007 and 30,730,549 shares at December 31, 2006 (note 7)
32,761
30,731
Common stock to be issued for services and other obligations;
1,550,000 shares at June 30, 2007 and 175,547 shares at
December 31, 2006 (note 7(b))
212,278
29,050
Additional paid-in capital
7,571,848
6,683,592
Accumulated other comprehensive loss
(290,143)
(201,925)
Deficit
(8,487,425)
(7,087,542)
_______________________________________________________________________________________________________
(960,681)
(546,094)
Basis of presentation (note 2(a))
Guarantees and commitments (note 10)
Subsequent events (note 13)
_______________________________________________________________________________________________________
$
754,193
$
497,815
_______________________________________________________________________________________________________
See accompanying notes to unaudited interim period consolidated condensed financial statements.
4
DATAJUNGLE SOFTWARE INC.
Consolidated Condensed Statements of Operations
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_________________________________________________________________________________________________________________
Three months
Three months
Six months
Six months
ended
ended
ended
ended
June 30,
June 30,
June 30,
June 30,
2007
2006
2007
2006
________________________________________________________________________________________________________________
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(restated -
(restated -
(note 14))
(note 14))
Revenues:
Products
$
69,070
$
21,975
$
99,628
$
40,518
Services
41,158
139,010
153,381
194,969
_____________________________________________________________________________________________________
110,228
160,985
253,009
235,487
Cost of revenues:
Cost of products
977
2,030
977
7,990
Cost of services
13,624
27,881
37,859
57,490
_____________________________________________________________________________________________________
14,601
29,911
38,836
65,480
_____________________________________________________________________________________________________
Gross profit
95,627
131,074
214,173
170,007
Expenses:
General and administrative (note 7(b))
440,672
132,231
886,537
987,852
Research and development (note 8)
127,745
121,851
257,484
258,444
Sales and marketing
134,806
143,996
259,819
295,892
Depreciation of property and equipment
1,151
3,232
2,230
5,335
_____________________________________________________________________________________________________
704,374
401,310
1,406,070
1,547,523
_____________________________________________________________________________________________________
(608,747)
(270,236)
(1,191,897)
(1,377,516)
Other income (expenses):
Interest income
-
-
3,395
-
Interest expense
(85,590)
(169,577)
(207,036)
(367,852)
Loss on extinguishment and modification
of debt
-
(110,563)
-
(550,743)
Foreign exchange loss
(3,880)
(3,822)
(4,345)
(8,301)
_____________________________________________________________________________________________________
(89,470)
(283,962)
(207,986)
(926,896)
_____________________________________________________________________________________________________
Net loss
(698,217)
(554,198)
(1,399,883)
(2,304,412)
Other comprehensive loss:
Currency translation adjustment (note 3)
(78,556)
(12,828)
(88,218)
(14,324)
_____________________________________________________________________________________________________
Comprehensive loss
$
(776,773)
$
(567,026)
$
(1,488,101)
$
(2,318,736)
_________________________________________________________________________________________________________________
Net loss per common share - basic and
diluted (note 9)
$
(0.02)
$
(0.02)
$
(0.04)
$
(0.09)
_________________________________________________________________________________________________________________
Weighted-average number of common shares
outstanding
33,040,108
26,569,879
32,499,996
24,901,451
_________________________________________________________________________________________________________________
See accompanying notes to unaudited interim period consolidated condensed financial statements.
5
DATAJUNGLE SOFTWARE INC.
Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 2007 and 2006
(In U.S. dollars)
_________________________________________________________________________________________________________________
Six months
Six months
ended
ended
June 30,
June 30,
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
(Unaudited)
(restated -
(note 14))
Cash flows from operating activities:
Net loss
$
(1,399,883)
$
(2,304,412)
Items not involving cash:
Depreciation of property and equipment
2,230
5,335
Interest expense
207,036
367,431
Stock-based compensation
70,710
139,227
Consulting fees
471,444
717,483
Financing fees
63,625
18,811
Loss on extinguishment and modification of debt
-
550,743
Change in non-cash operating working capital
341,562
190,739
_____________________________________________________________________________________________________
Net cash used in operating activities
(243,276)
(314,643)
Cash flows from investing activities:
Purchase of property and equipment
-
(3,171)
________________________________________________________________________________________
Cash used in investing activities
-
(3,171)
Cash flows from financing activities:
Proceeds from promissory notes payable
391,000
275,000
Repayments of promissory notes payable
-
(41,000)
Proceeds from promissory notes payable to a related party
58,708
18,398
Share issuance costs
-
(450)
_____________________________________________________________________________________________________
Net cash provided by financing activities
449,708
251,948
Effects of exchange rates on cash and cash equivalents
(57,759)
(9,452)
_____________________________________________________________________________________________________
Net decrease in cash and cash equivalents
148,673
(75,318)
Cash and cash equivalents, beginning of period
23,157
85,802
_____________________________________________________________________________________________________
Cash and cash equivalents, end of period
$
171,830
$
10,484
_________________________________________________________________________________________________________________
Supplemental information to Consolidated Condensed Statements of Cash Flows:
For the six months ended June 30, 2007, the Company did not pay any interest (Six months ended June 30, 2006 - $625).
See accompanying notes to unaudited interim period consolidated condensed financial statements.
6
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
1.
General:
DataJungle Software Inc. (the “Company”) was incorporated in the State of Washington on June 5, 1968 as Quad Metals Corporation (“Quad”). Quad became a Nevada incorporated company on December 11, 2002 when it merged with its wholly-owned subsidiary. The Company was renamed to DataJungle Software Inc. on November 18, 2003. The Company develops and markets a web-based front-end dashboard software product for leading business intelligence platforms. The product allows an end-user to create highly visual and interactive dashboard views on top of their existing databases and data cubes without significant involvement from specialized software programmers.
2.
Summary of significant accounting policies:
(a)
Basis of presentation:
These consolidated condensed financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and include the accounts of DataJungle Software Inc. and its wholly-owned subsidiary, DataJungle Ltd. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting policies are consistent with the policies outlined in the Company’s audited financial statements as at and for the year ended December 31, 2006.
The consolidated condensed financial statements included herein are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring entries) necessary for fair presentation of the consolidated condensed financial position and results of operations of the Company for the periods presented. The consolidated results of operations for the six months ended June 30, 2007 are not necessarily representative of the operating results expected for the full fiscal year ending December 31, 2007. Moreover, these consolidated condensed financial statements do not purport to contain complete disclosure in conformity with generally accepted accounting principles used in the United States of America and should be read in conjunction with the Company’s audited consolidated financial statements as at and for the year ended December 31, 2006.
The consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has minimal revenues, negative working capital of $1,036,687 as at June 30, 2007 and has incurred a loss of $1,399,883 and negative cash flow from operations of $243,276 for the six months then ended. As of June 30, 2007, the Company has an accumulated deficit of $8,487,425 which results in a stockholders’ deficiency of $960,681. In addition, the Company is in violation of the terms and conditions of four promissory notes, expects to continue to incur operating losses for the foreseeable future and has no lines of credit or other financing facilities in place. To date, the Company has been able to finance its operations on a month-to-month basis from investors who recognize the advancement of the Company’s activities.
7
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 2
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
2.
Summary of significant accounting policies (continued):
(a)
Basis of presentation (continued):
All of the factors above raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans to address these issues include raising capital through the private placement of equity and renegotiating the repayment terms of accounts payable, accrued liabilities and promissory notes payable. The Company’s ability to continue as a going concern is subject to management’s ability to successfully implement the above plans. Failure to implement these plans could have a material adverse effect on the Company’s financial position and or results of operations and may result in ceasing operations. The consolidated condensed financial statements do not include adjustments that would be required if the going concern assumption was not appropriate and consequently that the assets are not realized and the liabilities settled in the normal course of operations. Even if successful in obtaining financing in the near term, the Company cannot be certain that cash generated from its future operations will be sufficient to satisfy its liquidity requirements in the longer term and it may need to continue to raise capital by selling additional equity or by obtaining credit facilities.
The Company’s future capital requirements will depend on many factors, including, but not limited to, the market acceptance of its products, the level of its promotional activities and advertising required to generate product sales. No assurance can be given that any such additional funding will be available or that, if available, it can be obtained on terms favorable to the Company.
(b)
Foreign currency translation:
The consolidated condensed financial statements of the Company include the accounts of the Company in U.S. dollars and the accounts of its wholly-owned subsidiary, translated into U.S. dollars using Financial Accounting Standards Board Statement No. 52, “Foreign Currency Translation” for the translation of foreign currency operations. The financial statements of the Company’s subsidiary are measured using the Canadian dollar as its functional currency. Assets and liabilities have been translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Revenues and expenses have been translated into U.S. dollars using the average exchange rate for the period. Gains and losses have been reported as a separate component of accumulated other comprehensive loss.
(c)
Revenue recognition:
For contracts requiring significant customization or services, the Company recognizes revenue using the completed contract method in accordance with the guidance in Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”. Under the completed contract method, revenue is recognized in the period when all substantial obligations of the Company under the terms and conditions of a contract have been satisfied. Cash receipts received in advance of the recognition of revenue and rights to advance payments are recorded in the consolidated condensed balance sheet as deferred revenue. Direct costs associated with a contract that has not been recognized as revenue are capitalized in the consolidated condensed balance sheet as contracts in process. A provision for contract losses is recognized as soon as the losses become evident.
8
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 3
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
2.
Summary of significant accounting policies (continued):
(c)
Revenue recognition (continued):
For sales of product licenses, the Company recognizes revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position 98-9, “Software Revenue Recognition with Respect to Certain Transactions”, issued by the American Institute of Certified Public Accountants. Revenue from sale of product licenses is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable.
Revenue from product support contracts is recognized ratably over the life of the contract. Revenue from services is recognized at the time such services are rendered.
For contracts with multiple elements such as product licenses, product support and services, the Company follows the residual method. Under this method, the total fair value of the undelivered elements of the contract, as indicated by vendor specific objective evidence, is deferred and subsequently recognized in accordance with the provisions of SOP 97-2. The difference between the total contract fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements. Vendor specific objective evidence for support and consulting services is obtained from contracts where these elements have been sold separately. Where the Company cannot determine the fair value of all the obligations, the revenue is deferred until such time as it can be determined or the element is delivered.
(d)
Stock-based compensation:
Effective January 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 123R “Share-Based Payment” (“SFAS 123R”) to account for its stock options. SFAS 123R requires all share-based payments, including stock options granted to employees by the Company, to be recognized in the Statement of Operations based on the fair value of the share-based payments at the date of grant. For purposes of estimating the grant date fair value of stock options, the Company uses the Black Scholes options pricing model and has elected to treat awards with graded vesting as a single award. The fair value is recognized as compensation expense on a straight-line basis over the requisite service period, which in the Company’s circumstances is the stated vesting period of the award, provided that total compensation expense recogni zed at least equals the pro rata fair value of the award that has vested.
9
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 4
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
2.
Summary of significant accounting policies (continued):
(d)
Stock-based compensation (continued):
The Company has adopted the modified prospective method of applying the provisions of SFAS 123R. Under the modified prospective method, the Company recognizes compensation expense based on the requirements of SFAS 123R for all share-based payments granted after the effective date of SFAS 123R. In addition, compensation expense is recognized, subsequent to the effective date of SFAS 123R, for the remaining portion of the vesting period for outstanding awards granted prior to the effective date of SFAS 123R.
3.
Comprehensive loss:
Comprehensive loss includes the net loss and other comprehensive loss (“OCL”). OCL refers to changes in net assets from transactions and other events and circumstances other than transactions with stockholders. These changes are recorded directly as a separate component of stockholders’ deficiency and excluded from net loss. The only comprehensive loss item for the Company relates to foreign currency translation adjustments pertaining to the translation of the financial statements of the Company’s subsidiary, from Canadian dollars, the functional currency of the subsidiary, to U.S. dollars, the reporting and functional currency of the Company.
10
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 5
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
4.
Promissory notes payable:
_________________________________________________________________________________________________________________
June 30,
December 31,
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
Promissory note, payable on June 30, 2006, bearing interest
at 12% per annum, secured by an assignment of accounts
receivable (note 4(a))
$
20,012
$
20,012
Promissory notes, payable on demand, bearing interest at
10% per annum, secured by an assignment of accounts
receivable and a floating charge on all assets of the
Company (note 4(b))
111,000
20,000
Promissory note, payable on June 30, 2007, denominated in
Canadian dollars (C$100,000) bearing interest at 12% per
annum, secured by an assignment of investment tax credits
receivable (note 4(c))
93,861
72,608
Promissory note, payable on June 21, 2009, bearing interest
at 10% per annum, unsecured (note 4(d))
15,579
-
Promissory note, payable on June 29, 2009, bearing interest
at 10% per annum, unsecured (note 4(d))
21,965
-
Promissory notes, payable on June 30, 2007, bearing interest
at 10% per annum, secured by an assignment of accounts
receivable and a floating charge on all assets of the
Company (note 4(e))
30,000
-
_____________________________________________________________________________________________________
$
292,417
$
112,620
Less promissory notes classified as long-term
(37,544)
-
_____________________________________________________________________________________________________
$
254,873
$
112,620
________________________________________________________________________________________________________________
Additional terms and conditions related to the promissory notes payable are as follows:
(a)
The promissory notes and accrued interest are convertible, at the lenders’ option, into shares of common stock of the Company at a price of $0.20 per share and a warrant for the purchase of the number of shares equal to 50% of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010.
11
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 6
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
4. Promissory notes payable (continued):
(a)
Accrued interest of $5,275 (December 31, 2006 - $4,085) has been included in accrued liabilities at June 30, 2007.
On April 19, 2006, $80,000 of the promissory notes together with accrued interest of $3,567 were assigned to another party. Subsequent to this assignment, the other party converted the promissory notes and accrued interest into 417,836 shares of common stock of the Company and a warrant to purchase 208,918 shares of common stock of the Company in accordance with the original conversion provisions. In addition, the Company agreed to issue an additional warrant to purchase 208,918 shares of common stock of the Company as consideration for the agreement to convert the promissory notes and accrued interest into common stock of the Company. The warrants are exercisable at $0.30 per share and expire on December 31, 2010. On April 19, 2006, the fair value of the 208,918 additional warrants was $68,306 using the Black Scholes option pricing model with the following assumptions: e xpected dividend yield 0%; risk-free interest rate of 4.9%; expected volatility of 124%; and an expected life of 4.71 years. As a consequence, the Company recognized a loss of $68,306 on the extinguishment of this debt for the three months ended June 30, 2006.
On May 19, 2006, the Company entered into an agreement to extend the maturity date of $25,000 of the promissory notes to June 30, 2006. As consideration for this extension, the Company agreed to pay $1,250 in additional interest and to repay the principal and accrued interest from the proceeds of any financing in excess of $250,000 or at the rate of 10% of the cash proceeds from sales or any financing less than $250,000. On August 2, 2006, the Company repaid $4,988 to the lender. On September 12, 2006, the lender assigned the promissory note together with accrued interest to another party. On January 10, 2007, this other party assigned the promissory note together with accrued interest to a third party. The Company has failed to make any additional payments of principal or interest. Consequently, the Company is in default of the terms and conditions of the pro missory note. As a result of this default, the promissory note is payable on demand.
(b) On October 12, 2006, the Company received cash consideration of $20,000 in exchange for the issuance of a 10% demand promissory note. The promissory note and accrued interest are convertible, at the lenders’ option, into shares of common stock of the Company at a price of $0.10 per share plus a warrant for the purchase of the number of shares equal to 50% of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010. At the date of issuance, the conversion feature of the promissory note was “in-the-money”. The intrinsic value of this beneficial conversion feature was $17,974. In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, this amount was recorded as additional
12
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 7
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
4.
Promissory notes payable (continued):
(b)
paid-in capital. The promissory note was accreted to its face value through a charge to interest expense of $17,974 for the three months ended December 31, 2006.
On March 16, 2007, the lender assigned the $20,000 promissory note to other parties and the other parties agreed to convert the promissory note into 200,000 shares of common stock of the Company and warrants to purchase 100,000 shares of common stock of the Company in accordance with the original conversion provisions.
During the period from January 1, 2007 to June 30, 2007, the Company received cash consideration of $111,000 from the lender in exchange for the issuance of 10% demand promissory notes. The promissory notes and accrued interest are convertible, at the lenders’ option, into shares of common stock of the Company at a price of $0.10 per share plus a warrant for the purchase of the number of shares equal to 50% of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010.
At the date of issuance, the conversion feature of the promissory note was “in-the-money”. The intrinsic value of this beneficial conversion feature was $106,622. In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, this amount was recorded as additional paid-in capital. The promissory notes were accreted to their face value through a charge to interest expense of $56,000 for the three months ended March 31, 2007 and $50,622 for the three months ended June 30, 2007.
Accrued interest of $3,891 (December 31, 2006 - $438) has been included in accrued liabilities at June 30, 2007.
(c)
On December 22, 2006, the Company received cash consideration of $86,333 (C$100,000) in exchange for the issuance of a 12% promissory note. $84,475 (C$90,000) of the promissory note is due on the earlier of receipt of investment tax credits receivable by the Company or June 30, 2007. The balance of the promissory note together with accrued interest was due on June 30, 2007.
As consideration for services rendered arranging the promissory note, the Company paid the lender a fee of $8,633 (C$10,000) in December 2006. Of this amount, $416 (C$474) was included as a charge to interest expense for the three months ended December 31, 2006 and $4,043 (C$4,737) was included as a charge to interest expense for the three months ended March 31, 2007. The charge to interest expense for the three months ended June 30, 2007 was $4,174 (C$4,789).
In addition, the Company agreed to grant 100,000 shares of common stock of the Company to the lender. In accordance with APB 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”, $72,393 (C$83,853) of the cash consideration received by the Company has been allocated to the promissory note and $13,940 has been allocated to the shares of common stock based on their relative fair values at the date of issuance of the promissory note. The promissory note was accreted to its face value through a periodic charge to interest expense over the period to June 30, 2007. In 2006, $671 (C$765) was charged to interest expense pursuant to this accretion and $6,528 (C$7,648) was charged to interest expense pursuant to this accretion for the three months ended March 31, 2007. The charge to interest expense pursuant to this accretion for t he three months ended June 30, 2007 was $7,043 (C$7,734).
13
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 8
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
4.
Promissory notes payable (continued):
(c)
Accrued interest of $5,863 (December 31, 2006 - $254) has been included in accrued liabilities at June 30, 2007.
At June 30, 2007, the Company had not paid the outstanding principal and interest to the lender or arranged for an extension of the maturity date. As a consequence, the Company is in default of the terms and conditions of this promissory note. As a result of this default, the promissory note is payable on demand.
(d)
In June 2007, the Company received cash consideration of $100,000 and $150,000 in exchange for the issuance of 10% promissory notes maturing on June 21, 2009 and June 29, 2009, respectively. The promissory notes and accrued interest are convertible, at the lender’s option, into shares of common stock of the Company at a price of $0.13 per share. Interest is due and payable on a quarterly basis at the request of the lenders. At the option of the Company, interest can be paid in cash or shares of common stock of the Company calculated at a 10% discount to the average closing price of the common stock for ten trading days prior to the date interest is due to the lenders.
As consideration for the advance of funds to the Company by the lenders, the Company agreed to grant 750,000 shares of common stock of the Company to the lenders. In accordance with APB 14 “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”, $162,388 of the cash consideration received by the Company has been allocated to the promissory notes and $87,612 has been allocated to the shares of common stock based on their relative fair values at the date of issuance of the promissory notes. The promissory notes are being accreted to face value on an effective interest rate basis through a periodic charge to interest expense over the period to maturity. For the three months ended June 30, 2007, $504 was charged to interest expense pursuant to this accretion.
At the date of issuance, the conversion feature of the promissory notes was “in-the-money”. The intrinsic value of this beneficial conversion feature was $126,074. In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, this amount was recorded as additional paid-in capital. The promissory notes are being accreted to their face value on an effective interest rate basis through a periodic charge to interest expense over the period to maturity. For the three months ended June 30, 2007, $726 was charged to interest expense pursuant to this accretion.
(e)
On April 2, 2007, the Company received cash consideration of $30,000 in exchange for the issuance of 10% promissory notes maturing on June 30, 2007. At June 30, 2007, the Company had not paid the outstanding principal or interest to the lenders or arranged for an extension of the maturity date. As a consequence, the Company is in default of the terms and conditions of the promissory notes. As a result of this default, the promissory notes are payable on demand.
14
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 9
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
5.
Promissory notes payable to a related party:
_________________________________________________________________________________________________________________
June 30,
December 31,
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
Promissory notes, payable on demand, denominated in
Canadian dollars (C$48,000), bearing interest at 10% per
annum compounded annually, secured by an assignment of
accounts receivable (note 5(a))
$
45,054
$
41,188
Promissory notes, payable on demand, denominated in
Canadian dollars (C$216,500), bearing interest at 10% per
annum compounded annually, secured by an assignment of
accounts receivable (note 5(b)).
203,210
139,437
Promissory note, payable on demand, bearing interest at 10%
per annum compounded annually, secured by an assignment
of accounts receivable (note 5(c))
12,741
-
_____________________________________________________________________________________________________
$
261,005
$
180,625
_________________________________________________________________________________________________________________
The promissory notes payable to a related party are payable to Capital House Corporation and are secured by a general security agreement representing a first floating charge on all of the assets of the Company.
Additional terms and conditions related to the promissory notes payable to a related party are as follows:
(a)
Accrued interest of $7,131 (December 31, 2006 - $4,477) has been included in accrued liabilities at June 30, 2007.
On April 19, 2006, the lender agreed to modify the terms of these promissory notes by waiving the repayment and security provisions related to specific customer invoices. As consideration for the modification, the Company agreed to permit the lender, at the lender’s option, to convert the promissory notes and accrued interest into shares of common stock of the Company at a price of $0.20 per share and a warrant for the purchase of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010. In accordance with EITF 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”, this modification has been accounted for as an extinguishment of the old debt and the creation of new debt.
On April 19, 2006, the outstanding principal on the promissory notes was $42,257. On the same date, the conversion rights granted as a result of the modification of the promissory notes had a fair value in excess of the outstanding principal. As a consequence, the Company recognized a loss of $42,257 on the modification of this debt for the three months ended June 30, 2006.
15
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 10
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
5.
Promissory notes payable to a related party (continued):
(b)
During the six months ended June 30, 2007, the Company received $45,967 (C$54,000) in cash consideration from the lender in exchange for the issuance of 10% demand promissory notes.
Accrued interest of $12,753 (December 31, 2006 - $3,347) has been included in accrued liabilities at June 30, 2007.
The promissory notes and accrued interest are convertible, at the lenders’ option, into shares of common stock of the Company at a price of $0.10 per share plus a warrant for the purchase of the number of shares equal to 50% of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010.
The conversion feature of the promissory notes issued was “in-the-money”. The intrinsic value of this beneficial conversion feature was $45,967. In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, this amount has been recorded as additional paid-in capital. The promissory notes were accreted to their face value through a charge to interest expense of $45,967 for the six months ended June 30, 2007.
(c)
During the three months ended June 30, 2007, the Company received cash consideration of $12,741 in exchange for the issuance of a 10% demand promissory note.
The promissory note and accrued interest is convertible, at the lenders’ option, into shares of common stock of the Company at a price of $0.10 per share plus a warrant for the purchase of the number of shares equal to 50% of the number of shares received by the lender on conversion. The warrant is exercisable at $0.30 per share and expires on December 31, 2010.
The conversion feature of the promissory note issued was “in-the-money”. The intrinsic value of this beneficial conversion feature was $9,369. In accordance with EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, this amount was recorded as additional paid-in capital. The promissory note was accreted to its face value through a charge to interest expense of $9,369 for the three months ended June 30, 2007.
6.
Stock option plan:
Under the Company’s Stock Option Plan (the “Plan”), up to 5,000,000 shares of common stock of the Company were reserved for issuance to officers, employees and consultants. Options are granted with an exercise price equal to or greater than the stock’s fair market value at the date of grant, vest over a period of time as determined by the Board of Directors and expire no later than ten years from the date of vesting.
At June 30, 2007, there were 1,237,391 additional shares available for grant under the Plan.
16
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 11
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
6.
Stock option plan (continued):
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R to account for its stock options. SFAS 123R requires that the fair value of stock options granted be recognized in the Statement of Operations based on the fair value of the stock options at the date of grant. For purposes of estimating the grant date fair value of stock options, the Company uses the Black Scholes options pricing model based on certain assumptions including the expected term of the options, expected volatility of the underlying stock over the expected term of the options and the risk-free interest rate. The expected term of the options has been estimated by calculating an average of the weighted average vesting period and the weighted average contractual term of the options. Historical volatility of the Company’s shares and historical volatility of other companies that operate in a similar business to the Company is used as a basis for projecting the expected volatility of the underlying stock. The risk-free rate for the expected term of the options is based on the U.S. Treasury yield curve in effect at the time of grant.
The fair value is recognized as compensation expense on a straight-line basis over the requisite service period, which in the Company’s circumstances is the stated vesting period of the award, provided that total compensation expense recognized at least equals the pro rata value of the award that has vested.
During the six months ended June 30, 2007, there were no options granted by the Company. During the six months ended June 30, 2006, 1,100,000 stock options were granted to officers and directors and 495,000 stock options were granted to employees.
The per share weighted-average fair value of the stock options granted during the three months ended June 30, 2007 and 2006 has been calculated using the Black Scholes option-pricing model and related weighted-average assumptions are as follows:
Three months ended June 30, 2007 | Three months ended June 30, 2006 | ||||||
(Unaudited) | (Unaudited) | ||||||
Options granted | - | 225,000 | |||||
Expected volatility | - | 128% | |||||
Expected dividends | - | - | |||||
Expected term (years) | - | 4.0 | |||||
Risk-free rate | - | 4.99% | |||||
Per share weighted average grant date fair value | - | $0.20 | |||||
17
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 12
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
6.
Stock option plan (continued):
A summary of amounts recognized in the consolidated condensed financial statements with respect to the Plan is as follows:
Three months ended June 30, 2007 | Three months ended June 30, 2006 | Six months ended June 30, 2007
| Six months ended June 30, 2006 | |||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||
Amounts recorded as expense, before income tax benefit | $33,229 | $58,776 | $70,710 | $139,227 | ||
Amount of related income tax benefit recognized in loss | - | - | - | - | ||
A summary of share option activity under the Plan as of June 30, 2007 and changes during the six months then ended is presented below:
_________________________________________________________________________________________________________________
2007
(Unaudited)
Weighted
Weighted average
average
remaining
Aggregate
exercise
contractual
intrinsic
Options
price($)
term (Years)
value
_____________________________________________________________________________________________________
Options outstanding, January 1, 2007
3,765,090
$
0.36
4.4
Expired
(2,481)
0.40
-
_________________________________________________________________________________________________________________
Options outstanding, June 30, 2007
3,762,609
$
0.36
3.9
$27,370
_________________________________________________________________________________________________________________
Options exercisable, June 30, 2007
2,737,109
$
0.40
3.5
$27,370
_________________________________________________________________________________________________________________
18
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 13
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
6.
Stock option plan (continued):
The following table summarizes information about stock options outstanding at June 30, 2007:
_________________________________________________________________________________________________________________
Options outstanding
Options exercisable
(Unaudited) (Unaudited)
Weighted
Number
average
Number
Exercise
outstanding
remaining
exercisable
Exercise
price
at 6/30/07
contractual term
at 6/30/07
price
______________________________________________________________________________________________
$
0.009
180,150
1.1 years
180,150
$0.009
0.13
218,759
1.1 years
218,759
0.13
0.18
50,000
5.2 years
-
-
0.25
1,395,000
4.6 years
497,500
0.25
0.31
100,000
4.1 years
44,000
0.31
0.40
83,700
4.1 years
83,700
0.40
0.43
35,000
3.7 years
23,500
0.43
0.51
1,500,000
4.0 years
1,500,000
0.51
0.60
125,000
3.8 years
122,000
0.60
0.65
50,000
3.7 years
50,000
0.65
0.75
25,000
3.5 years
17,500
0.75
_____________________________________________________________________________________________________
3,762,609
3.9 years
2,737,1091
$0.40
___________________________________________________________________________________________________________
At June 30, 2007, there was $112,441 (June 30, 2006 - $261,707) of total unrecognized compensation expense related to unvested stock option awards. This cost is expected to be recognized over a weighted average vesting period of approximately one year.
7.
Stockholders’ deficiency;
(a)
Common stock transactions:
During the six months ended June 30, 2007, the Company issued 2,030,000 shares of common stock pursuant to the transactions described below:
On April 13, 2007, the Company issued 125,000 shares of common stock to an investment banker to provide financing services to the Company. The fair value of the 125,000 shares of common stock was estimated at $21,125 on the date the shares were issued and has been included in general and administrative expenses for the three months ended June 30, 2007.
19
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 14
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
7.
Stockholders’ deficiency (continued);
(a)
Common stock transactions (continued):
In April 2007, the Company issued 255,000 shares of common stock pursuant to a fee agreement with a financial advisor to provide financing services. The fair value of the 255,000 shares of common stock was estimated at $42,375 on the dates that the fees were earned and has been included in general and administrative expenses for the three months ended June 30, 2007.
On January 11, 2007, the Company issued 100,000 shares of common stock pursuant to the terms of a promissory (note 4(c)).
On March 16, 2007, the Company issued 200,000 shares of common stock and warrants to purchase 100,000 shares of common stock of the Company on the conversion of a $20,000 promissory note (note 4(b)). The warrants are exercisable at $0.30 per share and expire on December 31, 2010.
On January 10, 2007, the Company entered into a consulting agreement to purchase investor relations and public relations services until December 31, 2007. As consideration for these services, the Company issued 600,000 shares of common stock to the consultant (note 7(b)).
On February 9, 2007, the Company entered into a consulting agreement to provide investor communication and relations services for a period of six months. As consideration for these services, the Company issued 750,000 shares of common stock to the consultant.
In addition to the above transactions, the Company agreed to issue 750,000 shares of common stock in June 2007 pursuant to the terms of promissory notes (note 4(d)). The fair value of the 750,000 shares has been estimated at $87,612 and has been included in common stock to be issued for services and other obligations at June 30, 2007.
During the six months ended June 30, 2007, no share issuance costs (six months ended June 30, 2006 - $450) were incurred and recorded as a charge to additional paid-in capital.
(b) Warrants and common stock pursuant to consulting agreements:
(i)
On June 28, 2007, the Company entered into an agreement with a consultant to provide corporate finance services to the Company until June 30, 2009. As consideration for these services, the Company agreed to pay the consultant $7,500 for the month of June 2007 and $7,500 per month commencing when the Company has raised $500,000 in financing. Once the Company has raised $2,100,000 in financing, the fee to the consultant will increase to $15,000 per month. In July 2007, the Company had raised $500,000 in financing. The Company also agreed to reduce the exercise price on 2,973,167 Class C warrants from $0.30 per share to $0.10 per share once the Company has raised $500,000 in financing.
20
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 15
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
7.
Stockholders’ deficiency (continued):
(b) Warrants and common stock pursuant to consulting agreements (continued):
(i)
In addition, the Company agreed to issue 500,000 shares of common stock to the consultant and a warrant to purchase 1,500,000 shares of common stock at $0.10 per share until June 28, 2011. The fair value of the 500,000 shares of common stock has been estimated at $65,000 on the date of the agreement. Of the total estimated fair value, $178 has been included in general and administrative expenses for the three months ended June 30, 2007. Of the balance of the estimated fair value, $32,411 has been included in prepaid expenses at June 30, 2007 and $32,411 has been included in deferred consulting services at June 30, 2007. The fair value of the warrant was calculated as $157,501 using the Black Scholes option pricing model with thefollowing assumptions: expected dividend yield 0%; risk-free interest rate of 5.02%; expected volatility of 116%, and an expected life of 4 years. Of this amount, $216 was included in general and administrative expense for the three months ended June 30, 2007. Of the balance of the estimated fair value, $78,750 has been included in prepaid expenses at June 30, 2007 and $78,535 has been included in deferred consulting services at June 30, 2007.
(ii) On January 10, 2007, the Company entered into a consulting agreement to purchase investor relations and public relations services until December 31, 2007. As consideration for these services, the Company issued 600,000 shares of common stock to the consultant. The fair value of the 600,000 shares of common stock was estimated at $120,000 on January 10, 2007. Of the total estimated fair value, $27,042 was included in general and administrative expenses for the three months ended March 31, 2007 and $30,761 has been included in general and administrative expenses for the three months ended June 30, 2007. The balance of $62,197 has been included in prepaid expenses at June 30, 2007 and will be recognized as an expense on a straight-line basis as services are rendered from July 1, 2007 to December 31, 2007.
(iii) On February 9, 2007, the Company entered into a consulting agreement to purchase investor communication and relations services for a period of six months. As consideration for these services, the Company issued 750,000 shares of common stock to the consultant. If the Company had not cancelled the agreement prior to April 8, 2007, the Company had also agreed to issue 450,000 shares of common stock to the consultant on April 8, 2007 and 300,000 shares of common stock to the consultant on June 9, 2007.
On April 2, 2007, the Company cancelled the agreement. The fair value of the 750,000 shares of common stock issued to the consultant was estimated at $127,500 on February 9, 2007. Of the total estimated fair value, $122,596 was included in general and administrative expenses for the three months ended March 31, 2007. The balance of $4,904 has been included in general and administrative expenses for the three months ended June 30, 2007.
21
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 16
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
7.
Stockholders’ deficiency (continued):
(b) Warrants and common stock pursuant to consulting agreements (continued):
(iv) On December 12, 2006, the Company entered into a service agreement to purchase investor relations and communications services for a twelve month period. As compensation for these services, the Company agreed to issue a warrant for the purchase of 155,000 shares of common stock of the Company at $0.30 per share expiring on December 31, 2010. In addition, the Company agreed to make monthly payments of $10,000. For the first six months of the agreement, the Company could elect to make the monthly payments in cash and shares of common stock calculated at a price of $0.15 per share provided that the cash component of each monthly payment is at least $5,000.
The fair value of the 155,000 warrants was calculated as $22,574 using the Black Scholes option pricing model with thefollowing assumptions: expected dividend yield 0%; risk-free interest rate of 4.56%; expected volatility of 107%, and an expected life of 4.05 years. Of this amount, $1,175 was included in general and administrative expense for the year ended December 31, 2006 and $5,567 was included in general and administrative expenses for the three months ended March 31, 2007. In July 2007, the service agreement was cancelled and the service provider agreed to forfeit the 155,000 warrants. As a consequence, the balance of $15,832 has been included in general and administrative expense for the three months ended June 30, 2007.
The Company elected to make the initial payment pursuant to this agreement in cash of $5,000 and 33,333 shares of common stock of the Company. At December 31, 2006, the 33,333 shares of common stock had a fair value of $6,667 which has been included in common stock to be issued for services and other obligations. Of the total obligation of $11,667 at December 31, 2006, $7,151 was included in general and administrative expense for the year ended December 31, 2006 and the balance of $4,516 was included in general and administrative expense in January 2007.
In January 2007, the consultant agreed to modify the payment terms of the agreement to allow the Company to make monthly payments of $10,000 entirely in shares of common stock for a five month period commencing on January 12, 2007. For the period from January 12 to April 12, 2007, the Company is obligated to issue 266,667 shares of common stock pursuant to this modification. The estimated fair value of the common stock is $52,999 which has been included in common stock to be issued for services and other obligations at June 30, 2007. Of this amount, $36,444 was included in general and administrative expense for the three months ended March 31, 2007 and $16,555 has been included in general and administrative expenses for the three months ended June 30, 2007. In July 2007, the service agreement was cancelled and the service provider agreed to forfeit any fees for services s ubsequent to April 12, 2007.
22
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 17
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
7.
Stockholders’ deficiency (continued):
(b) Warrants and common stock pursuant to consulting agreements (continued):
(v)
On August 14, 2006, the Company entered into a consulting agreement to purchase investor relations services for the period to July 31, 2007. As consideration for these services, the Company issued 1,500,000 shares of common stock of the Company and made a cash payment of $3,500 upon signing of the agreement. In addition, the Company agreed to make additional cash payments of $72,000 over the term of the agreement. Under anti-dilution provisions in the agreement, the Company agreed to issue additional shares of common stock to the consultant for a period of thirty-six months after termination of the agreement. Under these anti-dilution provisions, the total number of shares of common stock issued to the consultant will total 4.99% of the issued and outstanding shares of the Company.
The fair value of the 1,500,000 shares of common stock was estimated at $300,000 on the date the shares were issued. On May 24, 2007, the consultant agreed to cancel the consulting agreement and forfeit any shares owing under the anti-dilution provisions. On that date, the Company was obligated to issue an additional 157,585 shares of common stock pursuant to the anti-dilution provisions with an estimated fair value of $28,978. Of the total estimated fair value of $328,979 at May 24, 2007, $122,146 was included in general and administrative expenses for the year ended December 31, 2006 and $88,012 was included in general and administrative expenses for the three months ended March 31, 2007. The balance of $118,821 has been included in general and administrative expenses for the three months ended June 30, 2007. In addition, the consultant agreed to terminate t he cash payments at May 31, 2007. On that date, the Company was obligated to pay $48,000 to the consultant for unpaid fees from October 1, 2006 to May 31, 2007. The Company agreed to pay these fees to the consultant on the earliest of December 31, 2007 or within five days of the Company raising $1.5 million in financing.
(vi)
On January 24, 2006, the Company cancelled a consulting agreement and included the balance of the prepaid expenses and deferred consulting services of $717,483 in general and administrative expenses. On the same date, the Company cancelled Series A warrants to purchase 1,500,000 shares of common stock and all of the Series B warrants. As compensation for cancellation of the Series A warrants, the Company issued 305,000 shares of common stock. On January 24, 2006, the fair value of the 305,000 shares of common stock was $67,100 based on a share price of $0.22 per share on that date. The $67,100 was accounted for as a capital transaction.
(vii)
At December 31, 2005, $31,000 remained as a credit to common stock to be issued for services in stockholders’ deficiency with respect to an obligation to issue 100,000 shares of common stock at $0.31 per share for services rendered and recognized in general and administrative expenses in 2005. In March 2006, the provider of the services agreed to waive the right to receive the 100,000 shares of common stock. As a consequence, the $31,000 credit to common stock to be issued for services was transferred to additional paid-in-capital.
23
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 18
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
8.
Research and development:
_________________________________________________________________________________________________________________
Three months
Three months
Six months
Six months
ended
ended
ended
ended
June 30,
June 30,
June 30,
June 30,
2007
2006
2007
2006
_________________________________________________________________________________________________________________
(Unaudited) (Unaudited)
(Unaudited)
(Unaudited)
Costs incurred
$
138,658
$
131,339
$
278,545
$
276,825
Investment tax credits
(10,913)
(9,488)
(21,061)
(18,381)
_____________________________________________________________________________________________________
$
127,745
$
121,851
$
257,484
$
258,444
_________________________________________________________________________________________________________________
9.
Net loss per common share:
As the Company incurred a net loss during the six months ended June 30, 2007 and 2006, the loss and diluted loss per common share are based on the weighted-average common shares outstanding. The following securities could potentially dilute net loss per common share for the periods presented:
_________________________________________________________________________________________________________________
Six months
Six months
ended
ended
June 30,
June 30,
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
(Unaudited)
Options to purchase common stock
3,762,609
3,877,452
Conversion of promissory notes
5,621,193
1,073,675
Warrants to be issued on the conversion of promissory notes
1,978,413
644,345
Exercise of Series A warrants
200,000
200,000
Exercise of Series C warrants
2,973,167
2,973,167
Exercise of Series D warrants
1,683,589
1,683,589
Exercise of other warrants
2,754,575
-
Common stock to be issued pursuant to consulting agreements
800,000
-
Common stock to be issued pursuant to financing agreements
750,000
-
_________________________________________________________________________________________________________________
24
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 19
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
10.
Guarantees and commitments:
(a) Guarantees:
The Company has entered into agreements that contain features which meet the definition of a guarantee under FASB Interpretation No. 45 (“FIN 45”). FIN 45 defines a guarantee to be a contract that contingently requires the Company to make payments (either in cash, financial instruments, other assets, common shares of the Company or through provision of services) to a third party based onchanges in an underlying economiccharacteristic (such as interest rates or market value) that is related to an asset, liability or an equity security of the other party. The Company has the following guarantees which are subject to the disclosure requirements of FIN 45.
Product warranties
As part of the normal sale of software products, the Company has provided certain of its customers with product warranties of 30 days from date of sale. Based on management’s best estimate of probable liability under its product warranties, no product warranty accrual was recorded as of June 30, 2007 and December 31, 2006.
(b) Commitments:
Operating lease
The Company has entered into an operating lease agreement for office space that expires on December 31, 2007. The future minimum lease payments, including operating costs, are approximately as follows: 2007 -$43,564. Rent expense for operating leases for the three months ended June 30, 2007 and 2006 was $24,136 and $24,440, respectively. Rent expense for the six months ended June 30, 2007 and 2006 was $46,758 and $48,054 respectively.
Corporate finance services and executive management services
Pursuant to the terms of an agreement to purchase corporate finance services, the Company is obligated to make monthly payments to the consultant of $7,500 to June 30, 2009. Once the Company has raised $2,100,00 in financing, the fee to the consultant will increase to $15,000 per month.
25
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 20
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
11. Segmented reporting:
The Company operates in one dominant industry segment, which involves providing web-based software solutions that translate data into tables, charts and maps. The Company’s solutions can extend the functionality of business intelligence software packages from other vendors by adding pre-built software objects on top of those vendor’s solutions. Alternatively, the Company’s pre-built software objects can be assembled and bundled with data from major data vendors to provide functionality and enhanced presentation capabilities.
External revenues attributable to geographic areas based on the location of the customer are as follows:
_________________________________________________________________________________________________________________
Three months
Three months
Six months
Six months
ended
ended
ended
ended
June 30,
June 30,
June 30,
June 30,
2007
2006
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
United States
$
67,095
$
135,691
$
189,345
$
208,908
Canada
25,573
15,191
28,252
16,476
Europe
17,560
10,103
35,412
10,103
________________________________________________________________________________________
Total
$
110,228
$
160,985
$
253,009
$
235,487
_________________________________________________________________________________________________________________
The Company’s assets are located as follows:
_________________________________________________________________________________________________________________
June 30,
December 31,
2007
2006
_________________________________________________________________________________________________________________
(Unaudited)
(Unaudited)
Canada
$
269,919
$
285,603
United States
484,274
212,212
________________________________________________________________________________________
Total
$
754,193
$
497,815
_________________________________________________________________________________________________________________
26
DATAJUNGLE SOFTWARE INC.
Notes to Consolidated Condensed Financial Statements, page 21
Three and six months ended June 30, 2007 and 2006
(In U.S. dollars)
_____________________________________________________________________________________________________________________
12.
Economic dependence:
Four of the Company’s customers account for 68% of revenue for the six months ended June 30, 2007 (Six months ended June 30, 2006 – three customers account for 83%).
13. Subsequent events:
On July 6, 2007, the Company issued 10% promissory notes for cash consideration of $150,000. On August 6, 2007, the Company issued 10% promissory notes for cash consideration of $250,000. These promissory notes are convertible into shares of common stock at $0.13 per share. In addition, the Company agreed to issue 1,200,000 shares of common stock to the lender pursuant to the terms of these promissory notes.
On July 6, 2007, the Company had raised $500,000 in cumulative financing. Pursuant to the terms of a consulting agreement, the Company reduced the exercise price on 2,973,167 Class C warrants from $0.30 per share to $0.10 per share.
On July 25, 2007, the Company agreed to amend a consulting agreement to purchase corporate finance services. Pursuant to the terms of the amendment, a representative of the consultant was appointed Chief Executive Officer and President of the Company. As consideration, the Company agreed to increase the monthly fees to be paid to the consultant from $7,500 per month to $12,500 per month. In addition, the Company granted a warrant to purchase 1,000,000 shares of common stock at $0.20 per share until July 25, 2011 and stock options to purchase 750,000 shares of common stock at $0.20 per share to the consultant. The stock options vest in equal portions over a three year period and expire four years from the date of vesting.
On August 1, 2007, the Company entered into a consulting agreement with a consultant to provide technical services to the Company until July 31, 2008. As consideration for these services, the Company agreed to pay the consultant $10,000 per month. In addition, the Company agreed to issue a warrant to purchase 1,000,000 shares of common stock of the Company at $0.25 per share. The warrant expires on July 31, 2011.
On August 8, 2007, the Company entered into a consulting agreement to purchase investor communications and public relations services until August 7, 2008. As consideration for these services, the Company agreed to issue 600,000 shares of common stock to the consultant.
14. Comparative figures:
Certain comparative figures have been restated to reflect the impact of the beneficial conversion feature on certain promissory notes. The impact of this restatement is to increase interest expense and net loss for the three and six months ended June 30, 2006 by $58,422 and increase additional paid-in capital at June 30, 2006 by a similar amount. The impact on net loss per share for the three and six months ended June 30, 2006 was not material.
27
ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We caution readers that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements that we make in this report. For this
purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements.
We caution readers that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties. In fact, actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Some factors that could adversely affect actual results and performance include:
·
our limited operating history;
·
our minimal sales to date;
·
our future requirements for additional capital funding;
·
the failure of our technology and products to perform as specified;
·
the discontinuance of growth in the use of the Internet;
·
the enactment of new adverse government regulations; and
·
the development of better technology and products by others.
You should carefully consider and evaluate all of these factors and the Risk Factors in our annual report on Form 10-KSB for the year ended December 31, 2006. In addition, we do not undertake to update forward-looking statements after we file this report with the SEC, even if new information, future events or other circumstances have made them incorrect or misleading.
Critical Accounting Policies
The financial statements of the Company are prepared in accordance with generally accepted accounting principles in the United States of America. The following accounting policies are considered to be critical to an understanding of the financial position and results of operations for the Company. The significant accounting policies for the Company have been disclosed in the audited consolidated financial statements as at and for the year ended December 31, 2006.
Results of Operations
For the three months ended June 30, 2007 compared to the three months ended June 30, 2006
Revenue: Revenue for the three months ended June 30, 2007 was $110,228 compared to $160,985 for the three months ended June 30, 2006.
Services revenue decreased from $139,010 in 2006 to $41,158 in 2007. This decrease of approximately $98,000 results primarily from a decrease in revenue from a significant customer in 2007 compared to 2006.
28
Product revenue increased from $21,975 in 2006 to $69,070 in 2007. This increase of approximately $47,000 results from an increase in the number of product contracts from three in 2006 to five in 2007 and an increase in the average size of the contracts in 2007 compared to 2006.
Gross profit: Gross profit for the three months ended June 30, 2007 was $95,627 (87% of revenue) compared to $131,074 (81% of revenue) for the three months ended June 30, 2006.
In 2007, the gross profit on services was $27,534 (67% of services revenue) compared to $111,129 (80% of services revenue) in 2006. The decrease in gross profit of approximately $84,000 in 2007 results primarily from a decrease in gross profit from a significant customer in 2007 compared to 2006. On a percentage basis, the decrease in gross profit in 2007 results from costs related to an initial contract with a major software provider that required a significant labor component and product support costs due to an upgrade in our product.
In 2007, the gross profit on products was $68,093 (99% of product revenue) compared to $19,945 (91% of product revenue) in 2006. Three of the product sales in 2007 were from existing customers and required no incremental costs to deliver.
General and administrative expenses: General and administrative expenses for the three months ended June 30, 2007 were $440,672 compared to $132,231 for the three months ended June 30, 2006. The increase in costs of approximately $308,400 includes the following significant items:
·
Increase in compensation costs of approximately $11,500 in 2007 compared to 2006 resulting from compensation for the Chief Financial Officer.
·
Decrease in stock compensation of approximately $5,300 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Increase in consulting expense of approximately $206,800 in 2007 compared to 2006. In 2007, we incurred costs for investor communications and public relations services. There were no similar costs in 2006.
·
Increase in financing fees of approximately $56,800 in 2007 compared to 2006 due to higher cost financing arrangements in place in 2007.
·
Increase in legal fees of approximately $33,500 in 2007 compared to 2006 due to costs incurred in expectation of closing a round of financing in 2007.
·
Increase of approximately $6,500 in travel costs in 2007 compared to 2006 incurred as a result of financing activities.
·
Net decrease of approximately $1,400 in other costs in 2007 compared to 2006.
Sales and marketing expenses: Sales and marketing expenses for the three months ended June 30, 2007 were $134,806 compared to $143,996 for the three months ended June 30, 2006. The decrease in costs of approximately $9,200 includes the following significant items:
·
Decrease in stock compensation of approximately $14,000 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Increase in compensation related costs of approximately $2,900 in 2007 compared to 2006.
·
Increase of approximately $6,100 in travel and related costs in 2007 due to travel to a Microsoft sponsored event and an increase in travel to existing customers.
·
Net decrease in other costs in 2007 compared to 2006 of approximately $4,200.
29
Research and development expenses: Research and development expenses for the three months ended June 30, 2007 were $127,745 compared to $121,851 for the three months ended June 30, 2006. The increase in costs of approximately $5,900 includes the following significant items:
·
Decrease in stock compensation of approximately $6,300 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Increase in compensation related costs of approximately $2,400 in 2007 compared to 2006.
·
Decrease of approximately $2,800 in expenses for administration of our computer systems in 2007 compared to 2006 due to budget constraints in 2007.
·
Increase in costs of approximately $14,500 due to a decrease in the cost of compensation transferred to cost of sales in 2007 compared to 2006. This results from a decrease in the labor component of certain service contracts in 2007.
·
Decrease in other miscellaneous costs of approximately $500 in 2007 compared to 2006.
The above changes in costs were offset by the following item:
·
Increase in research and development tax credits of $1,400 in 2007 compared to 2006 due to labor incurred on a mapping intelligence component to our Matrix product in 2007.
Interest expense:
Interest expensedecreased from $169,577 for the three months ended June 30, 2006 to $85,590 for the three months ended June 30, 2007. This decrease results primarily from the impact of the intrinsic value of beneficial conversion features on promissory notes issued in 2006 compared to 2007.
Loss on extinguishment and modification of debt:
Loss on extinguishment and modification of debt was $110,563 for the three months ended June 30, 2006 compared to $Nil for the three months ended June 30, 2007. The loss in 2006 resulted from the conversion of promissory notes to equity on terms more favorable than the original terms and modification of other promissory notes to include terms that were more favorable than the original terms of the promissory notes.
Net loss:
Net loss was $698,217 ($0.02 per share) for the three months ended June 30, 2007 compared to $554,198 ($0.02 per share) for the three months ended June 30, 2006. Our revenue and future profitability and future rate of growth are substantially dependent upon our ability to:
·
license our software applications to a sufficient number of clients
·
modify the successful software applications, over time, to provide enhanced benefits to existing users; and
·
successfully develop related software applications.
For the six months ended June 30, 2007 compared to the six months ended June 30, 2006
Revenue: Revenue for the six months ended June 30, 2007 was $253,009 compared to $235,487 for the six months ended June 30, 2006.
Services revenue decreased from $194,969 in 2006 to $153,381 in 2007. This decrease of approximately $42,000 results from a decrease in revenue from a significant customer in 2007 compared to 2006.
30
Product revenue increased from $40,518 in 2006 to $99,628 in 2007. This increase of approximately $59,000 results from a general increase in the number of product contracts from four in 2006 to eight in 2007.
Gross profit: Gross profit for the six months ended June 30, 2007 was $214,173 (85% of revenue) compared to $170,007 (72% of revenue) for the six months ended June 30, 2006.
In 2007, the gross profit on services was $115,522 (75% of services revenue) compared to $137,479 (71% of services revenue) in 2006. The increase in gross profit as a percentage of revenue results primarily from an increase in gross profit on services provided to a major customer in 2007 compared to 2006.
In 2007, the gross profit on products was $98,651 (99% of product revenue) compared to $32,528 (80% of product revenue) in 2006. The product sales in 2007 were primarily from existing customers and required no incremental costs to deliver.
General and administrative expenses: General and administrative expenses for the six months ended June 30, 2007 were $886,537 compared to $987,852 for the six months ended June 30, 2006. The decrease in costs of approximately $101,300 includes the following significant items:
·
Increase in compensation costs of approximately $36,100 in 2007 compared to 2006. This increase results from compensation for the Chief Financial Officer for six months in 2007 compared to five months in 2006 and a bonus awarded to management in 2007 as consideration for an agreement to defer payment of certain amounts of unpaid salary owing to management until such time as the Company has achieved certain revenue targets.
·
Decrease in stock compensation of approximately $20,900 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Decrease in consulting expense of approximately $208,600 in 2007 compared to 2006. In 2006, consulting expense included $717,500 related to the cancellation of a consulting contract and cancellation of the related warrants to purchase 3,000,000 shares of our common stock. In 2007, we incurred $508,900 for investor communications and public relations services.
·
Increase in financing fees of approximately $44,800 in 2007 compared to 2006 due to financing arrangements in place in 2007.
·
Increase in legal fees of approximately $33,500 in 2007 compared to 2006 due to costs incurred in expectation of closing a round of financing in 2007.
·
Increase of approximately $8,800 in travel costs in 2007 compared to 2006 incurred as a result of financing activities.
·
Increase of approximately $6,100 in bank charges in 2007 compared to 2006 resulting primarily from interest and penalties on arrears in certain statutory employee tax payments.
Sales and marketing expenses: Sales and marketing expenses for the six months ended June 30, 2007 were $259,819 compared to $295,892 for the six months ended June 30, 2006. The decrease in costs of approximately $36,100 includes the following significant items:
·
Decrease in stock compensation of approximately $30,500 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Decrease of approximately $7,400 in the costs of on-line demonstrations of our products in 2007 compared to 2006 due to a change in the provider of the related services.
31
·
Increase of approximately $4,000 in travel and related costs in 2007 compared to 2006 due to travel to a Microsoft sponsored event and an increase in travel to existing customers.
·
Increase of approximately $2,100 in telephone costs in 2007 compared to 2006 due to an increase in the number of staff using mobile telephones.
·
Net decrease in other costs in 2007 compared to 2006 of approximately $4,300. In 2006, we incurred costs for the purchase of a mailing list and costs for marketing collateral material. No similar costs were incurred in 2007.
Research and development expenses: Research and development expenses for the six months ended June 30, 2007 were $257,484 compared to $258,444 for the six months ended June 30, 2006. The decrease in costs of approximately $1,000 includes the following significant items:
·
Decrease in stock compensation of approximately $17,100 in 2007 compared to 2006. In 2006, stock options were awarded to management resulting in a higher level of expense in 2006 compared to 2007. There were no stock options granted to management in 2007.
·
Increase in compensation related costs of approximately $21,000 in 2007 compared to 2006 due to the mix of personnel in 2007 partially offset by an increase in the level of support provided by research and development staff to sales efforts in 2007.
·
Decrease in other costs of approximately $13,400 in 2007 compared to 2006. In 2006, we incurred costs for Microsoft certification. There were no similar costs incurred in 2007.
·
Decrease of approximately $8,000 in expenses for administration of our computer systems in 2007 compared to 2006 due to budget constraints in 2007.
·
Increase in costs of approximately $20,000 due to a decrease in the cost of compensation transferred to cost of sales in 2007 compared to 2006. This results from a decrease in the labor component of certain service contracts in 2007.
The above changes in costs were offset by the following item:
·
Increase in research and development tax credits of $2,700 in 2007 compared to 2006 due to labor incurred on a mapping intelligence component to our Matrix product in 2007.
Interest expense:
Interest expensedecreased from $367,852 for the six months ended June 30, 2006 to $207,036 for the six months ended June 30, 2007. This decrease results primarily from the impact of the intrinsic value of beneficial conversion features on promissory notes issued in 2006 compared to 2007.
Loss on extinguishment and modification of debt:
Loss on extinguishment and modification of debt was $550,743 for the six months ended June 30, 2006 compared to $Nil for the six months ended June 30, 2007. The loss in 2006 resulted from the conversion of promissory notes to equity on terms more favorable than the original terms and modification of other promissory notes to include terms that were more favorable than the original terms of the promissory notes.
Net loss:
Net loss was $1,399,883 ($0.04 per share) for the six months ended June 30, 2007 compared to $2,304,412 ($0.09 per share) for the six months ended June 30, 2006. Our revenue and future profitability and future rate of growth are substantially dependent upon our ability to:
·
license our software applications to a sufficient number of clients
·
modify the successful software applications, over time, to provide enhanced benefits to existing users; and
·
successfully develop related software applications.
32
Financial Condition and Liquidity
General: At June 30, 2007, the Company had negative working capital of $1,036,687 compared to negative working capital of $550,644 at December 31, 2006. The Company had cash of $171,830 at June 30, 2007 compared to cash of $23,157 at December 31, 2006. At June 30, 2007, the Company had not repaid or negotiated a further extension of the maturity date for four promissory notes for approximately $144,000. Consequently, the Company is in default of the terms and conditions of these promissory notes.
All of the factors above raise substantial doubt about the Company’s ability to continue as a going concern. Management is reviewing various options to address its working capital and cash flow needs, including without limitation the issuance of new debt or equity securities in one or more series or classes and the negotiation of repayment terms of accounts payable, accrued liabilities and promissory notes payable. The Company’s ability to continue as a going concern is subject to management’s ability to successfully implement the above plans. Failure to implement these plans could have a material adverse effect on the Company’s position and or results of operations and may result in ceasing operations. Even if successful in obtaining financing in the near term, the Company cannot be certain that cash generated from its future operations will be sufficient to satisfy its liquidity requirements in the longer term and it may need to continue to raise capital by selling additional equity or by obtaining credit facilities.
Net cash used in operating activities: During the six months ended June 30, 2007, the Company used $243,276 of cash in operations compared to a use of cash in operations of $314,643 for the six months ended June 30, 2006. The use of cash in operations for the six months ended June 30, 2007 resulted from a net loss of $1,399,883 offset by non-cash consulting fees of $471,444, stock compensation of $70,710, non-cash financing fees of $63,265, depreciation of $2,230, non-cash interest expense of $207,036 and a net change in non-cash working capital of $341,562. The use of cash for the six months ended June 30, 2006 resulted from a net loss of $2,304,412 offset by non-cash consulting fees of $717,483, non-cash compensation expense of $139,227, non-cash financing fees of $18,811, non-cash interest expense of $367,431, non-cash loss on extinguishment and modification of debt of $550,743, depreciation expense of $5,335 an d net change in non-cash working capital of $190,739.
Net cash used in investing activities: During the six months ended June 30, 2007, the Company purchased no property and equipment compared to purchases of $3,171 for the six months ended June 30, 2006.
Net cash provided by financing activities: During the six months ended June 30, 2007, the Company raised $391,000 by issuing 10% promissory notes and raised $58,708 by issuing 10% promissory notes to a related party. During the six months ended June 30, 2006, the Company raised $275,000 by issuing 10% promissory notes and repaid $41,000 of 10% promissory notes. In addition, the Company raised $18,398 in 2006 by issuing 10% promissory notes to a related party.
Commitments:
(a)
Operating lease
The Company has entered into an operating lease for office space that expires on December 31, 2007. The future minimum lease payments including operating costs are as follows:
33
Year | Amount |
2007 | $43,564 |
(b)
Corporate finance services and executive management services
Pursuant to the terms of an agreement to purchase corporate finance services, the Company is obligated to make monthly payments to the consultant of $7,500 to June 30, 2009. Once the Company has raised $2,100,000 in financing, the fee to the consultant will increase to $15,000 per month. In addition, the Company is obligated to make monthly payments to the consultant of $5,000 to June 30, 2009 for executive management services.
On August 1, 2007, the Company entered into a consulting agreement with a consultant to provide technical services to the Company until July 31, 2008. As consideration for these services, the Company agreed to pay the consultant $10,000 per month.
ITEM 3
CONTROLS AND PROCEDURES
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission.
In connection with the review of our consolidated condensed financial statements for the three months ended June 30, 2007, our independent registered public accounting firm advised the Board of Directors and management of certain significant internal control deficiencies that they considered to be, in the aggregate, a material weakness. In particular, our independent registered public accounting firm identified the following weaknesses in our internal control system: (1) a lack of segregation of duties and (2) a lack of formal procedures relating to all areas of financial reporting including a lack of review by management. The independent registered public accounting firm indicated that they considered these deficiencies to be reportable conditions as that term is defined under standards established by the American Institute of Certified Public Accountants. A material weakness is a significant deficiency in one or m ore of the internal control components that alone or in the aggregate precludes our internal controls from reducing to an appropriately low level of risk that material misstatements in our consolidated financial statements will not be prevented or detected on a timely basis. The Company considered these matters in connection with the period-end closing of accounts and preparation of the related consolidated condensed financial statements and determined that no prior period financial statements were materially affected by such matters. Notwithstanding the material weaknesses identified by our independent registered public accountants, we believe that the consolidated condensed financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operation and cash flows of the Company as of, and for, the periods represented in this report.
The size of the Company has prevented us from being able to employ sufficient resources at this time to enable us to have an adequate level of supervision and segregation of duties within our internal control system. Set forth below is a discussion of the significant internal control deficiencies that had not been remediated as of the beginning of the period covered by this report.
34
Lack of segregation of duties. Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. There is one person involved in processing of transactions. Therefore, it is difficult to effectively segregate accounting duties. While we strive to segregate duties as much as practicable, there is insufficient volume of transactions to justify additional full time staff. We are currently seeking, but cannot be assured that we will be able to find, a qualified part time person to perform routine, month end accounting procedures. As a result, this significant internal control deficiency had not been remediated as of the end of the period covered by this report, nor do we know if we will be able to remediate this weakness in the foreseeabl e future. However, we will continue to monitor and assess the costs and benefits of additional staffing.
Lack of formal procedures relating to all areas of financial reporting including a lack of review by management. Due to the size of our Company, and as a consequence of the lack segregation of duties, we do not have formal month end close procedures. As a result, there is a lack of timely review of the consolidated condensed financial statements and Form 10-QSB. This significant internal control deficiency has not been remediated as of the end of the period covered by this report.
If we are unable to remediate the identified material weaknesses, there is a more than remote likelihood that a material misstatement to our SEC reports will not be prevented or detected, in which case investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our ability to raise additional capital and could also have an adverse effect on our stock price.
As required by the SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. This evaluation was performed under the supervision and with the participation of our management, including the President and Chief Executive Officer and Chief Financial Officer, Secretary and Treasurer. Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer, Secretary and Treasurer have concluded that our controls and procedures were not effective as of the end of the period covered by this Report due to the existence of the significant internal control deficiencies described above.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
NONE
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2007, the Company had the following transactions:
·
Issued 10% promissory notes for cash consideration of $56,000. These promissory notes are convertible into shares of common stock at $0.10 per share and a warrant to purchase the number of shares equal to 50% of the number of shares received by the lender on conversion at $0.30 per share. The warrant expires on December 31, 2010.
·
Issued 10% promissory notes to a related party for cash consideration of $45,967. These promissory notes are convertible into shares of common stock at $0.10 per share and a warrant to purchase the number of shares equal to 50% of the number of shares received by the lender on conversion at $0.30 per share. The warrant expires on December 31, 2010.
35
·
Issued 100,000 shares of common stock pursuant to a financing agreement entered into in 2006.
·
Issued 200,000 shares of common stock and warrants to purchase 100,000 shares of common stock at $0.30 per share on the conversion of $20,000 in promissory notes. The warrants expire on December 31, 2010.
·
Issued 1,350,000 shares of common stock to unrelated parties pursuant to service agreements to provide investor communication and investor relations services to the Company.
During the three months ended June 30, 2007, the Company had the following transactions:
·
Issued 10% promissory notes for cash consideration of $12,741 to a related party. These promissory notes are convertible into shares of common stock at $0.10 per share plus a warrant to purchase the number of shares equal to 50% of the number of shares received by the lender on conversion at $0.30 per share. The warrant expires on December 31, 2010.
·
Issued 10% promissory notes for cash consideration of $30,000 maturing on June 30, 2007.
·
Issued 10% promissory notes for cash consideration of $55,000. These promissory notes are convertible into shares of common stock at $0.10 per share and a warrant to purchase the number of shares equal to 50% of the number of shares received by the lender on conversion at $0.30 per share. The warrant expires on December 31, 2010.
·
Issued 10% promissory notes for cash consideration of $100,000 and $150,000 maturing on June 21, 2009 and June 29, 2009, respectively. The promissory notes are convertible into shares of common stock at $0.13 per share. In addition, the Company granted 750,000 shares of common stock to the lenders.
·
Issued 255,000 shares of common stock pursuant to a fee agreement to provide financing services to the Company.
·
Issued 125,000 shares of common stock to the Company to an investment banker for financing services.
·
Agreed to issue 300,000 shares of common stock to a consultant in cancellation of a consulting agreement to provide investor communication and public relations services to the Company.
·
Agreed to issue 500,000 shares of common stock to a consultant to provide corporate financing services to the Company until June 30, 2009. In addition, the Company agreed to issue a warrant to purchase 1,500,000 shares of common stock at $0.10 per share. The warrant expires on June 28, 2011.
For the period from July 1, 2007 to August 8, 2007, the Company had the following transactions:
·
Issued 10% promissory notes for cash consideration of $400,000. These promissory notes are convertible into shares of common stock at $0.13 per share. In addition, the Company granted 1,200,000 shares of common stock to the lender.
·
Granted a warrant to a consultant to purchase 1,000,000 shares of common stock at $0.20 per share until July 25, 2011 and stock options to the consultant to purchase 750,000 shares of common stock at $0.20 per share. The stock options vest in equal portions over a three year period and expire four years from the date of vesting. The consultant also agreed to provide services to the Company as Chief Executive Officer and President.
·
Granted a warrant to a consultant to purchase 1,000,000 shares of common stock at $0.25 per share. The warrant expires on July 31, 2011.
·
On August 8, 2007, the Company entered into a consulting agreement to purchase investor communications and public relations services until August 7, 2008. As consideration for these services, the Company agreed to issue 600,000 shares of common stock to the consultant.
36
The foregoing securities were issued in reliance upon the exemption provided by Section 4(2) under the Securities Act of 1933 and the rules promulgated thereunder.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
At June 30, 2007, the Company had not repaid or negotiated a further extension of the maturity date of June 30, 2006 for $20,012 of promissory notes. The Company has failed to make any additional payments of principal or interest. As at August 3, 2007, the amount outstanding pursuant to this promissory note was $24,912 including accrued interest of $4,900.
At June 30, 2007, the Company had not repaid or negotiated a further extension of the maturity date of June 30, 2007 for promissory notes for $25,000 and $5,000. As at August 3, 2007, the amount outstanding pursuant to these promissory notes was $31,011 including accrued interest of $1,011.
At June 30, 2007, the Company had not repaid or negotiated a further extension of the maturity date of June 30, 2007 for $93,861 (C$100,000) of promissory notes. As at July 31, 2007, the amount outstanding pursuant to these promissory notes was $100,549 (C$107,266) including accrued interest of $6,811 (C$7,266).
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5.
OTHER INFORMATION
NONE
ITEM 6.
EXHIBITS
Exhibit
10.1
Termination of Independent Consulting Agreement dated May 24, 2007
Exhibit
10.2
Consulting Agreement dated June 28, 2007
Exhibit
10.3
Amendment to Consulting Agreement dated July 25, 2007
Exhibit
10.4
Consulting Agreement dated August 1, 2007
Exhibit 31.a
Certification of President & Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.b
Certification of Chief Financial Officer, Secretary & Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.a
Certification of President & Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.b
Certification of Chief Financial Officer, Secretary & Treasurer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
37
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATAJUNGLE SOFTWARE INC.
By:
/s/ Edward Munden
Edward Munden
Chairman of the Board
Dated: August 13, 2007
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the small business issuer and in the capacities and on the dates indicated.
/s/ Edward Munden
Edward Munden
Chairman of the Board
(principal executive officer)
Dated: August 13, 2007
/s/ Larry Bruce
Larry Bruce
Chief Financial Officer, Secretary & Treasurer
(principal financial officer and principal accounting officer)
Dated: August 13, 2007
38
