U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended April 30, 2002.
Commission File Number 000-28761.
JAG MEDIA HOLDINGS, INC.
(Exact name of Registrant as specified in its Charter)
Nevada 88-0380546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6865 SW 18th Street
Suite B-13
Boca Raton, Florida 33433
(Address of Principal Executive Offices)
(561) 393-0605
(Issuer's Telephone Number, Including Area Code)
-----------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 2002, the Registrant had 28,572,693 shares of Class A
common stock and 2,515,556 shares of Series 1 Class B common stock outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
JAG Media Holdings, Inc. and Subsidiaries
(formerly JagNotes.com Inc. and Subsidiaries)
Index to Financial Statements
PAGE
----
Condensed Consolidated Balance Sheet
April 30, 2002 (Unaudited) F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended April 30, 2002 and 2001 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Deficiency)
Nine Months Ended April 30, 2002 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2002 and 2001 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/16
* * *
F-1
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
April 30, 2002
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 36,330
Accounts receivable 32,344
Other current assets 82,819
------------
Total current assets 151,493
Equipment, net of accumulated depreciation of $106,135 64,853
------------
Total $ 216,346
============
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable and accrued expenses $ 418,697
Deferred revenues 100,611
Notes payable to officers 400,000
------------
Total liabilities 919,308
------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock; par value $.00001 per share; 15,000,000
shares authorized; none issued --
Class A common stock, par value $.00001 per share;
155,000,000 shares authorized; 28,572,693 shares
issued and outstanding 286
Class B common stock, par value $.00001 per share;
30,000,000 shares authorized; 2,515,556 shares of
Series 1 issued and outstanding 25
Additional paid-in capital 37,596,776
Unearned compensation (535,934)
Accumulated deficit (37,764,115)
------------
Total stockholders' deficiency (702,962)
------------
Total $ 216,346
============
See Notes to Condensed Consolidated Financial Statements.
F-2
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine and Three Months Ended April 30, 2002 and 2001 (Unaudited)
Nine Months Three Months
Ended April 30, Ended April 30,
---------------------------- ---------------------------------
2002 2001 2002 2001
------------ ------------- ------------- -------------
Revenues $ 467,962 $ 784,595 $ 65,737 $ 156,699
------------ ------------- ------------- -------------
Operating expenses:
Cost of revenues 821,320 6,910,285 154,883 190,908
Selling expenses 28,698 123,225 3,091 12,178
General and administrative expenses 2,579,035 7,802,319 906,494 1,371,651
Write-off of capitalized web site
development costs 263,754
------------ ------------- ------------- -------------
Totals 3,692,807 14,835,829 1,064,468 1,574,737
------------ ------------- ------------- -------------
Loss from operations (3,224,845) (14,051,234) (998,731) (1,418,038)
Other income (expense):
Interest income 13,111 2,771
Interest expense (1,526,811) (38,462)
Gain on sale of subsidiary 196,959 196,959
------------ ------------- ------------- -------------
Net loss $(3,224,845) $(15,367,975) $ (998,731) $(1,256,770)
============ ============= ============= =============
Basic net loss per share $(.13) $(.89) $ (.03) $(.07)
============ ============= ============= =============
Basic weighted average common
shares outstanding 25,112,971 17,354,565 29,170,656 19,312,807
============ ============= ============= =============
See Notes to Condensed Consolidated Financial Statements.
F-3
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
Nine Months Ended April 30, 2002
(Unaudited)
Common Stock
-----------------------------------------------------------------------
Class A Series 1 Class B
---------------------- -------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
------------ ---------- ------------ --------- ---------- ---------
Balance, August 1, 2001 19,312,807 $193
Effects of recapitalization (19,312,807) (193) 17,557,097 $176 1,755,710 $17
Sales of common stock
pursuant to equity
financing agreement,
net of expenses of
$38,575 6,510,465 65 651,045 7
Effects of issuance of
common stock in
exchange for services 1,088,006 11 108,801 1
Effects of issuance of
stock options in
exchange for services
Options exercised 3,417,125 34
Effects of cancellation of
stock options previously
issued in exchange for
services
Amortization of unearned
compensation
Net loss
------------ ---------- ------------ --------- ---------- ---------
Balance, April 30, 2002 -- $ -- 28,572,693 $286 2,515,556 $25
============ =========== ============ ========= ========== =========
Additional
Paid-in Unearned Accumulated
Capital Compensation Deficit Total
------------- ------------ --------------- -----------
Balance, August 1, 2001 $35,669,723 $(975,090) $(34,539,270) $ 155,556
Effects of recapitalization
Sales of common stock
pursuant to equity
financing agreement,
net of expenses of
$38,575 632,812 632,884
Effects of issuance of
common stock in
exchange for services 777,378 (609,300) 168,090
Effects of issuance of
stock options in
exchange for services 561,544 561,544
Options exercised 144,319 144,353
Effects of cancellation of
stock options previously
issued in exchange for
services (189,000) 189,000
Amortization of unearned
compensation 859,456 859,456
Net loss (3,224,845) (3,224,845)
------------- ------------ --------------- -----------
Balance, April 30, 2002 $37,596,776 $(535,934) $(37,764,115) $ (702,962)
============= ============ =============== ===========
See Notes to Condensed Consolidated Financial Statements.
F-4
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2002 and 2001
(Unaudited)
2002 2001
------------- -------------
Operating activities:
Net loss $(3,224,845) $(15,367,975)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 28,755 104,785
Amortization of unearned compensation 859,456 7,660,318
Amortization of capitalized web site development costs 87,917 155,624
Write-off of capitalized web site development costs 263,754
Effects of issuance of common stock and stock options
in exchange for services 589,460
Charges to interest expense for:
Issuance of beneficial conversion rights 217,770
Amortization of deferred financing costs and debt discount 1,161,234
Gain on sale of subsidiary (196,959)
Changes in operating assets and liabilities:
Accounts receivable 8,740 (9,216)
Other current assets 16,801 737,054
Other assets (89,789)
Accounts payable and accrued expenses 295,370 210,071
Deferred revenues (79,753) (159,410)
Noncurrent accrued interest payable 144,771
------------- -------------
Net cash used in operating activities (1,154,345) (5,431,722)
------------- -------------
Investing activities:
Purchases of equipment (268,575)
Web site development costs capitalized (77,068)
Proceeds from sale of subsidiary 1,002,147
-------------
Net cash provided by investing activities 656,504
-------------
Financing activities:
Proceeds from notes payable to officers 400,000
Payments of capital lease obligations (37,055)
Proceeds from private placement of convertible debentures 3,400,000
Costs paid in connection with private placement of
convertible debentures (300,000)
Net proceeds from private placements of common stock 632,884 1,050,000
Proceeds from exercise of stock options 144,353
------------- -------------
Net cash provided by financing activities 1,177,237 4,112,945
------------- -------------
Net increase (decrease) in cash and cash equivalents 22,892 (662,273)
Cash and cash equivalents, beginning of period 13,438 806,586
------------- -------------
Cash and cash equivalents, end of period $ 36,330 $ 144,313
============= =============
See Notes to Condensed Consolidated Financial Statements.
F-5
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of JAG Media Holdings,
Inc. ("JAG Media") and its subsidiaries as of April 30, 2002,
their results of operations for the nine and three months ended
April 30, 2002 and 2001, their changes in stockholders' equity
(deficiency) for the nine months ended April 30, 2002 and their
cash flows for the nine months ended April 30, 2002 and 2001.
Prior to February 21, 2001, JAG Media was known as JagNotes.com
Inc. (see Note 2 herein). JAG Media and its subsidiaries are
referred to together herein as the "Company." Pursuant to rules
and regulations of the Securities and Exchange Commission (the
"SEC"), certain information and disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been condensed or omitted from these consolidated financial
statements unless significant changes have taken place since the
end of the most recent fiscal year. Accordingly, these condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements, notes to
consolidated financial statements and the other information in
the audited consolidated financial statements of the Company as
of July 31, 2001 and for the years ended July 31, 2001 and 2000
(the "Audited Financial Statements") included in the Company's
Annual Report on Form 10-KSB (the "10-KSB") for the year ended
July 31, 2001 that was previously filed with the SEC.
The results of the Company's operations for the nine months
ended April 30, 2002 are not necessarily indicative of the
results of operations to be expected for the full year ending
July 31, 2002.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. However, as shown in the accompanying condensed
consolidated financial statements, during the nine months ended
April 30, 2002 and 2001, the Company only generated revenues of
approximately $468,000 and $785,000, respectively; it incurred
net losses of approximately $3,225,000 and $15,368,000,
respectively; and it had cash flow deficiencies from operating
activities of approximately $1,154,000 and $5,432,000,
respectively. As a result, the Company had a working capital
deficiency of approximately $768,000 and an accumulated deficit
of approximately $37,764,000 as of April 30, 2002. In addition,
management believes that the Company will continue to incur net
losses and cash flow deficiencies from operating activities
through at least April 30, 2003. These matters raise substantial
doubt about the Company's ability to continue as a going
concern.
F-6
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation (continued):
As further explained in Note 1 to the Audited Financial
Statements, the Company gathers and compiles financial and
investment information from contacts at financial institutions,
experienced journalists, money managers, analysts and other Wall
Street professionals and generates revenues by releasing such
information to subscribers on a timely basis through facsimile
transmissions and a web site. Such activities had been conducted
primarily through JAG Media until January 4, 2002. As of that
date, JAG Media became a holding company and its newly-formed
subsidiary, JAG Media LLC, became responsible for such
operations. In September 2000, another subsidiary, JAGfn
Broadband, L.L.C. ("JAGfn"), started an advertiser-based
financial webcast which was sold on February 1, 2001. Another
subsidiary, JagNotes.Euro.com Ltd. ("Euro"), was attempting to
generate foreign revenues. Euro's activities were terminated
prior to January 31, 2001. On January 4, 2002, another
subsidiary, JAG Company Voice LLC, was formed to provide small
to medium sized companies with production and distribution
services for delivering press releases and other company
information over the Internet in streaming video format;
however, it had not conducted any significant operations as of
April 30, 2002.
Primarily as a result of the sale of the advertiser-based
financial webcast operations and the termination of its efforts
to generate foreign revenues during the year ended July 31,
2001, the Company's net loss was reduced to approximately
$3,225,000 for the nine months ended April 30, 2002 from
approximately $15,368,000 for the nine months ended April 30,
2001. The net losses included net noncash charges of
approximately $1,829,000 and $9,102,000 for the nine months
ended April 30, 2002 and 2001, respectively, primarily for the
depreciation of equipment, the amortization and write-off of
capitalized web site development costs, the amortization of
unearned compensation, the issuance of common stock and stock
options in exchange for services, the issuance of beneficial
conversion rights and the amortization of debt financing costs
and discount.
Management believes that, in the absence of a substantial
increase in subscription revenues, it is probable that the
Company will continue to incur losses and negative cash flows
from operating activities through at least April 30, 2003 and
that the Company will need to obtain additional equity or debt
financing to sustain its operations until it can market its
services, expand its customer base and achieve profitability.
As further explained in Note 5 herein, the Company entered into
an agreement with an investment partnership on August 17, 2001
pursuant to which the Company had, in effect, "put" options
whereby, subject to certain conditions, it had been able to
require the investment partnership to purchase shares of its
common stock from time to time at prices based on the market
value and average daily trading volume of its shares. The
maximum aggregate purchase price under this equity line was
$10,000,000. As of April 30, 2002, the Company had received
gross proceeds of approximately $671,000 from the exercise of
"put" options.
F-7
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation (concluded):
The original agreement with the investment partnership was
initially scheduled to expire on September 27, 2004. As also
explained in Note 5 herein, the agreement was terminated in
April 2002 and was replaced by another agreement with the
investment partnership that provides for a new $10,000,000
equity line that will become available as of the date an
appropriate registration statement pursuant to the Securities
Act of 1933 (the "Act") covering the shares issuable under the
new equity line is declared effective by the Securities and
Exchange Commission.
Management believes that the Company will be able to generate
sufficient revenues from its remaining facsimile transmission
and web site operations and obtain sufficient financing from its
agreement with the investment partnership or through other
financing agreements to enable it to continue as a going concern
through at least April 30, 2003. However, if the Company cannot
generate sufficient revenues and/or obtain sufficient additional
financing, if necessary, by that date, the Company may be forced
thereafter to restructure its operations, file for bankruptcy or
entirely cease its operations.
The accompanying condensed consolidated financial statements do
not include any adjustments related to the recoverability and
classification of assets or the amount and classification of
liabilities that might be necessary should the Company be unable
to continue as a going concern.
Note 2 - Effects of amendment to the articles of incorporation:
On February 21, 2002, the stockholders of the Company approved
an amendment to the articles of incorporation pursuant to which
the name of the Company was changed to JAG Media Holdings, Inc.
The stockholders also approved another amendment that authorized
the implementation of changes related to a recapitalization plan
for the Company that was consummated on April 8, 2002. Pursuant
to the recapitalization plan, (i) the total number of shares of
all classes of capital stock authorized for issuance by the
Company increased from 100,000,000 shares to 200,000,000 shares
with a par value of $.00001 per share, of which 15,000,000
shares became authorized for issuance as preferred stock,
155,000,000 shares became authorized for issuance as Class A
common stock and 30,000,000 shares became authorized for
issuance as Class B common stock; and (ii) the Company issued 1
share of Class A common stock and .1 share of Class B common
stock designated as Series 1 Class B common stock in exchange
for every 1.1 shares of common stock outstanding prior to the
recapitalization.
F-8
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Effects of amendment to the articles of incorporation (concluded):
In addition, holders of stock options that were entitled to
receive shares of common stock upon exercise of stock options
issued pursuant to the Company's incentive stock option plan
became entitled to receive an equivalent number of shares of
Class A common stock at the same exercise price upon exercise;
holders of all other stock options and warrants became entitled
to receive a proportional number of shares of Class A common
stock and Series 1 Class B common stock at a proportional
exercise price upon exercise (see Note 11 to the Audited
Financial Statements and Note 5 herein).
Each share of Series 1 Class B common stock is immediately
convertible into one share of Class A common stock. Each share
of Series 1 Class B common stock also may be redeemed by the
Company at any time for either one share of Class A common stock
or equivalent cash value. Each share of Class A common stock and
Series 1 Class B common stock will be equal in respect to
dividends and voting rights. Therefore, each share of Series 1
Class B common stock is, in substance, equivalent to one share
of Class A common stock for financial reporting purposes. In
addition, each share of Class A common stock and each share of
Series 1 Class B common stock is equivalent to one share of
common stock that was outstanding before the recapitalization
for financial reporting purposes
The recapitalization was effectively equivalent to a stock split
and the numbers of shares of common stock outstanding before the
recapitalization have been retroactively restated in the
accompanying unaudited condensed consolidated financial
statements and these notes as an equivalent number of shares of
Class A common stock and Series 1 Class B common stock. However,
the numbers of common shares and the per share amounts reflected
in the accompanying unaudited condensed consolidated financial
statements and these notes prior to the recapitalization are
equivalent to the numbers of Class A common shares and the per
share amounts after the recapitalization on a fully diluted
basis assuming the conversion of the Series 1 Class B common
stock and, accordingly, the recapitalization did not have any
overall effect on per share amounts.
Note 3 - Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). Basic earnings (loss)
per share is calculated by dividing net income or loss by the
weighted average number of common shares outstanding during each
period. The calculation of diluted earnings per share is similar
to that of basic earnings per share, except that the denominator
is increased to include the number of additional common shares
that would have been outstanding if all potentially dilutive
common shares, such as those issuable upon the exercise of
outstanding stock options and warrants and the conversion of the
outstanding convertible debentures, were issued during the
period, the treasury stock method had been applied to the
proceeds from the exercise of the options and warrants and the
interest costs applicable to the convertible debentures had been
added back to the numerator.
F-9
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Net earnings (loss) per share (concluded):
Diluted per share amounts have not been presented in the
accompanying condensed consolidated statements of operations
because the Company had a net loss in the nine and three months
ended April 30, 2002 and 2001 and the assumed effects of the
exercise of the Company's stock options and warrants that were
outstanding during all or part of those periods and the
conversion of its convertible debentures that had been
outstanding during part of the nine months ended April 30, 2001
would have been anti-dilutive.
The following table presents the components of the basic
weighted average common shares outstanding for the nine and
three months ended April 30, 2002 and 2001 as retroactively
adjusted for the effects of the recapitalization:
Nine Months Ended Three Months Ended
April 30, April 30,
------------------------- -----------------------
2002 2001 2002 2001
----------- ------------ ---------- ----------
Class A 22,837,299 15,776,877 26,541,250 17,557,097
Series 1 Class B 2,275,672 1,577,688 2,629,406 1,755,710
----------- ------------ ---------- ----------
Totals 25,112,971 17,354,565 29,170,656 19,312,807
----------- ------------ ---------- ----------
However, as explained in Note 2 herein, the recapitalization had
no effect on the total number of weighted average common shares
outstanding used in the computation of basic net loss per share
in each period.
Note 4 - Income taxes:
As of April 30, 2002, the Company had net operating loss
carryforwards of approximately $22,601,000 available to reduce
future Federal taxable income which will expire from 2019
through 2022.
As of April 30, 2002, the Company's deferred tax assets
consisted of the effects of temporary differences attributable
to the following:
Deferred revenues, net $ 27,000
Unearned compensation 2,255,000
Net operating loss carryforwards 9,027,000
--------------
11,309,000
Less valuation allowance (11,309,000)
--------------
Total $ --
==============
F-10
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Income taxes (concluded):
Due to the uncertainties related to, among other things, the
changes in the ownership of the Company, which could subject its
net operating loss carryforwards to substantial annual
limitations, and the extent and timing of its future taxable
income, the Company offset its net deferred tax assets by an
equivalent valuation allowance as of April 30, 2002.
The Company had also offset the potential benefits from its net
deferred tax assets by an equivalent valuation allowance during
the year ended July 31, 2001. As a result of a decrease in the
valuation allowance of $2,440,000 and an increase in the
valuation allowance of $1,048,000 during the nine and three
months ended April 30, 2002, respectively, and increases in the
valuation allowance of $6,137,000 and $4,824,000 during the nine
and three months ended April 30, 2001, respectively, there are
no credits for income taxes reflected in the accompanying
condensed consolidated statements of operations to offset
pre-tax losses.
Although the Company had a net loss for the nine months ended
April 30, 2002, net deferred tax assets and the offsetting
valuation allowance decreased during that period primarily as a
result of the cancellation of unexercised options and warrants
(see Note 5) and the related reduction in temporary differences
attributable to the amounts of unearned compensation recorded
for financial statement and tax purposes.
Note 5 - Other issuances of common stock, warrants and stock options:
Equity financing agreements:
As further explained in Note 11 to the Audited Financial
Statements, on August 17, 2001, the Company entered into an
equity line purchase agreement (the "Original Equity Line
Agreement") with Cornell Capital Partners, L.P. ("Cornell
Capital") pursuant to which the Company had, in effect,
"put" options whereby, subject to certain conditions, it had
been able to require the investment partnership to purchase
shares of its common stock from time to time at prices based
on the market value and average daily trading volume of its
shares. The maximum aggregate purchase price under the
Original Equity Line Agreement was $10,000,000. The Original
Equity Line Agreement was initially scheduled to expire on
September 27, 2004. However, it was terminated in April 2002
and was replaced by another agreement with the investment
partnership as further described below.
Cornell Capital received 1,500,000 shares of the Company's
common stock (1,363,637 and 136,363 Class A and Series 1
Class B shares, respectively) of as of August 17, 2001 as
additional consideration for entering into the Original
Equity Line Agreement and certain principals of Cornell
Capital agreed to surrender for cancellation outstanding
warrants for the purchase of a total of 690,000 shares of
the Company's common stock (627,273 and 62,727 Class A and
Series 1 Class B shares, respectively). Cornell Capital was
also entitled to a cash fee equal to 5% of the gross
proceeds received by the Company in connection with each
put.
F-11
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(continued):
Equity financing agreements (concluded):
During the nine months ended April 30, 2002, Cornell Capital
was required to pay $671,459 and it received 5,661,510
shares of common stock (5,146,828 and 514,682 Class A and
Series 1 Class B shares, respectively) as a result of the
exercise of put options under the Original Equity Line
Agreement, and the Company received proceeds of $632,884,
net of $38,575 of placement fees.
On April 19, 2002, the Company entered into a new equity
line purchase agreement (the "New Equity Line Agreement")
with Cornell Capital pursuant to which the Company will
have, in effect, new put options whereby, subject to certain
conditions, it can require Cornell Capital to purchase
shares of its Class A common stock from time to time at an
aggregate purchase price of $10,000,000. The term of the New
Equity Line Agreement will extend for 24 months. It will
become available as of the date a registration statement
under the Act filed by the Company for the registration of
the shares issuable to Cornell Capital becomes effective,
unless the New Equity Line Agreement is terminated earlier
at the discretion of the Company. The purchase price will be
95% of the lowest closing bid price of the Company's Class A
common stock over a specified number of trading days
commencing on specified dates. Cornell Capital shall be
entitled to a cash fee equal to 5% of the gross proceeds
received from Cornell Capital in connection with each put.
The timing and amount of the required purchases shall be at
the Company's discretion subject to certain conditions
including (i) a maximum purchase price to be paid by Cornell
Capital for each put of $500,000 and (ii) a requirement that
at least five trading days must elapse before the Company
can deliver a new put notice to Cornell Capital. The Company
will be required to issue 10,000 shares of its Class A
common stock to placement agents as of the effective date as
consideration for their services in connection with the New
Equity Line Agreement.
Options, warrants and other equity instruments issued for
services:
As explained in Note 7 to the Audited Financial Statements,
the Company has issued, from time to time, stock options,
warrants and/or shares of common stock to employees as
compensation and to other nonemployees, including investment
analysts and commentators that have entered into agreements
to provide the Company with financial information that is
released to subscribers, as consideration for consulting,
professional and other services. As explained in Note 2 to
the Audited Financial Statements, the Company recognizes the
cost of such issuances based on the fair value of the equity
instruments issued over the periods in which the related
services are rendered in accordance with the provisions of
Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123").
F-12
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(continued):
Options, warrants and other equity instruments issued for services
(continued):
The following table reconciles the number of shares of common
stock subject to options and warrants that were outstanding at
August 1, 2001 as a result of issuances of options and
warrants to employees and nonemployees as compensation for
services to the number outstanding at April 30, 2002 and sets
forth other related information:
Number of Shares
------------------------------------
Series 1
Class A Class B
Common Common Common Range of
Stock Stock Stock Prices
------------ ----------- ---------- -------------
Options and warrants issued for
services outstanding, August 1,
2001 (A) 8,583,500 $.10 - $6.00
Effects of recapitalization (B) (8,583,500) 8,356,227 227,273 $.10 - $6.00
Options granted to employees and
consultants (C) 4,936,725 $.001 - $.10
Options and warrants cancelled
(C)(D) (5,925,771) (62,728) $.05 - $2.00
Options exercised (E) (3,417,125) $.001 - $.25
------------ ----------- ----------
Options and warrants issued for
services outstanding, April 30,
2002 (F)(G) -- 3,950,056 164,545 $.001 - $6.00
============ =========== ========== ==============
(A) The cost of the options and warrants, determined
based on their aggregate estimated fair values at
the respective dates of issuance, was initially
charged directly to expense or to unearned
compensation to be amortized to expense. The
balance of unearned compensation as of August 1,
2001 was $975,090.
(B) In connection with the Recapitalization (see Note
2 herein), holders of stock options that were
entitled to receive shares of common stock upon
exercise of stock options issued pursuant to the
Company's 1999 Long-term Incentive Plan (the
"Incentive Plan") became entitled to receive an
equivalent number of shares of Class A common
stock at the same exercise price upon exercise;
holders of all other stock options and warrants
became entitled to receive a proportional number
of shares of Class A common stock and Series 1
Class B common stock at a proportional exercise
price upon exercise.
F-13
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(continued):
Options, warrants and other equity instruments issued for services
(continued):
(C) As further explained in Note 11 to the Audited
Financial Statements, on August 31, 2001, pursuant to
amended and restated employment agreements between
the Company and its three senior executives, each
dated August 31, 2001, the Company granted options to
purchase 1,000,000 shares of, effectively, Class A
common stock at $.02 per share to each of the three
senior executives as additional compensation for
services to be rendered under such contracts. Options
previously granted to the three senior executives
pursuant to their original employment agreements,
which gave each executive the right to purchase
900,000 shares of, effectively, Class A common stock
at an exercise price of $.25 per share, were
cancelled. In accordance with the provisions of SFAS
123, the Company charged $24,000 to compensation
expense in the nine months ended April 30, 2002,
which represented the excess of the aggregate fair
value of the options to purchase 1,000,000 shares of
Class A common stock granted to each executive on
August 31, 2001 over the aggregate fair value of the
options to purchase 900,000 shares of Class A common
stock previously granted to each of the executives
immediately prior to the cancellation of those
options.
In addition, during the nine months ended April 30,
2002, the Company issued options for the purchase of
1,936,725 shares of, effectively, Class A common
stock at exercise prices ranging from $.001 to $.10
per share to employees and consultants that did not
have employment or other contractual agreements. The
aggregate estimated fair value of the options at the
respective dates of issuance of $538,000 was charged
directly to compensation and consulting expense
during the nine months ended April 30, 2002.
(D) As a result of the cancellation of options during the
nine months ended April 30, 2002, the Company
reversed the unamortized balance of $189,000 of
charges recorded as unearned compensation in
connection with the original issuances of options to
employees and consultants.
(E) During the nine months ended April 30, 2002, the
Company issued 3,417,125 shares of, effectively,
Class A common stock upon the exercise of options and
received proceeds of $144,353.
F-14
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(continued):
Options, warrants and other equity instruments issued for services
(continued):
(F) These options and warrants also include options for
the purchase of 2,304,600 shares of, effectively,
Class A common stock granted pursuant to the
Incentive Plan which provides for individual awards
to officers, employees, directors, consultants and
certain other individuals that may take the form of
stock options and certain other types of awards for
which the value is based in whole or in part upon the
fair market value of, effectively, the Company's
Class A common stock. The number of shares of Class A
common stock that may be subject to all types of
awards under the Incentive Plan as amended may not
exceed 6,000,000 shares. As of April 30, 2002, the
options for the purchase of all of the 2,304,600
shares of Class A common stock remained outstanding.
(G) These options and warrants will expire at various
dates from July 2005 through March 2012.
A total of $561,544 and $188,544 was charged directly to
compensation and consulting expense during the nine and
three months ended April 30, 2002, respectively, and
$1,908,370 was charged to unearned compensation during the
nine months ended April 30, 2001 as a result of the options
issued as compensation to employees and as consideration for
consulting, professional and other services in the
transactions described above and/or in Note 7 to the Audited
Financial Statements.
In addition, during the nine months ended April 30, 2002,
the Company issued 1,196,807 shares of its common stock
(1,088,066 and 108,801 Class A and Series 1 Class B shares,
respectively) to employees and consultants as compensation
to employees and as consideration for consulting,
professional and other services. The aggregate estimated
fair value of the shares at the respective dates of issuance
was $777,390, of which $168,090 was charged directly to
compensation and consulting expense and $609,300 was charged
to unearned compensation during the nine months ended April
30, 2002. A total of $79,900 was charged directly to
compensation and consulting expense during the three months
ended April 30, 2002.
F-15
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(concluded):
Options, warrants and other equity instruments issued for services
(concluded):
Unearned compensation is being amortized to expense on a
straight-line basis over the period in which the related
services are rendered (such period is limited to the initial
term of any related employment or consulting agreement). A
total of $859,456 and $7,660,318 was amortized during the
nine months ended April 30, 2002 and 2001, respectively, and
a total of $577,268 and $3,794,711 was amortized during the
three months ended April 30, 2002 and 2001, respectively. A
total of $189,000 of unearned compensation was reversed
during the nine months ended April 30, 2002 as a result of
the cancellation of options. The unamortized balance of
charges to unearned compensation of $535,934 has been
reflected as a reduction of stockholders' equity as of April
30, 2002.
The fair values of the options, warrants and shares issued
and/or transferred as compensation to employees and as
consideration for consulting, professional and other
services in the transactions described above were determined
in accordance with SFAS 123 using the Black-Scholes
option-pricing model. The fair values were determined during
the nine months ended April 30, 2002 based on the following
assumptions:
Expected years of option life: 5
Risk-free interest rate: 4.5%
Dividend yield: 0%
Volatility: 307% - 361%
Note 6 - Notes payable to officers:
On April 1, 2001, two executive officers loaned the Company a
total of $400,000 subject to the terms and conditions of
unsecured promissory notes that bear interest at an annual rate
of 2.69% and become payable on July 1, 2002.
Note 7 - Write-off of capitalized web site development costs:
As a result of the Company's continuing losses and the
uncertainties related to its ability to generate income in
future periods, management determined on January 31, 2002 that
the value of the Company's capitalized web site development
costs had been impaired and, accordingly, the remaining
unamortized balance of approximately $264,000 as of that date
was written off.
Note 8 - Legal proceedings:
The Company is involved in various legal proceedings. In the
opinion of management, these actions are routine in nature and
will not have any material adverse effects on the Company's
consolidated financial statements in subsequent years.
* * *
F-16
Item 2. Management's Discussion and Analysis.
RESULTS OF OPERATIONS
Nine months ended April 30, 2002 as compared to the nine months ended
April 30, 2001
Revenues:
Revenues primarily consist of subscription revenues derived from annual,
semi-annual, quarterly and monthly subscriptions relating to our product
JAGNotes. JAGNotes is a daily consolidated investment report that summarizes
newly issued research, analyst opinions, upgrades, downgrades, and analyst
coverage changes from various investment banks and brokerage houses. Until May
1999, JAGNotes was faxed to a limited audience of financial professionals. More
recently, we changed our focus to also include the retail investor by providing
a variety of investment information including but not limited to the JAGNotes
through our web site. During the nine months ended April 30, 2002 subscription
revenues decreased as compared to the nine months ended April 30, 2001 with
total subscription revenues for the comparable periods of approximately $468,000
and $785,000, respectively.
As more fully described in previous filings it was originally our intention to
increase subscription revenues through international expansion and increased
awareness of our United States of America web site. In addition, commensurate
with the establishment of JAGfn Broadband L.L.C. ("JAGfn"), effective August 1,
2000 we began focusing much of our efforts on the establishment of our
webcasting or real time streaming video programming through our web site. It was
our hope that this additional service would have provided our primary source of
revenues in the form of advertising income on a going forward basis and that
subscription income would have been ancillary to our operations as a whole.
However, during the nine months ended April 30, 2001 we halted our international
expansion plans and did not receive any advertising income in connection with
our real time video programming. As a result JAGfn was sold on February 1, 2001
resulting in a gain of approximately $197,000. As a result of this change in
focus we suffered a significant decrease in subscription revenue. We have once
again re-focused our efforts on building the awareness of our JagNotes products
and our web site in an attempt to increase subscription revenues.
While our revenues do include revenues from other sources, such as advertising,
these other revenues are not material to our operations as a whole. In addition,
we did not generate any revenues from our subsidiary JAG Company Voice LLC
("Company Voice") during the nine months ended April 30, 2002. Company Voice was
formed to provide production and distribution services to small and medium sized
publicly traded companies.
Cost of revenues:
Cost of revenues includes the cost to transmit the product over the telephone
and fax lines, on-line service charges for our web site, costs in connection
with the development and maintenance of the web site, payments to commentators
and employees for their reports that are posted on our web site and that were
broadcasted on our webcast during the nine months ended April 30, 2001 and
salaries associated with the production of our webcast during the nine months
ended April 30, 2001. During the nine months ended April 30, 2002 cost of
revenues decreased by approximately $6,089,000 to approximately $821,000 from
approximately $6,910,000 during the nine months ended April 30, 2001.
The primary causes for this decrease were as follows:
o A decrease of approximately $3,420,000 in costs for our
commentators and consultants associated with our web site from
approximately $3,949,000 during the nine months ended April
30, 2001 to approximately $529,000 during the nine months
ended April 30, 2002. Such amounts included cash consideration
of $64,000 and $1,265,000 and non-cash charges related to the
amortization of unearned compensation and the issuance of
stock options in exchange for services of $465,000 and
$2,684,000 during the nine months ended April 30, 2002 and
2001, respectively. The decrease in such costs is commensurate
with the expiration of consulting agreements entered into in
prior years that were not renewed. In addition, we were
relieved of substantially all of our obligations under various
consulting agreements as part of the sale of JAGfn effective
February 1, 2001.
o During the nine months ended April 30, 2001 we incurred salary
charges of approximately $2,438,000 in connection with the
production of the JAGfn webcast. We were relieved of such
costs concurrent with the sale of JAGfn effective February 1,
2001.
o A decrease in costs associated with the development and
maintenance of our web site of approximately $231,000 from
approximately $355,000 during the nine months ended April 30,
2001 to approximately $124,000 during the nine months ended
April 30, 2002. The decrease results from the fact that during
the year ended July 31, 2000 and continuing into the nine
months ended April 30, 2001 we re-designed our web site to
integrate the JAGfn webcast and as a result incurred
additional costs.
Selling expenses:
Selling expenses consist primarily of advertising and other promotional
expenses. During the nine months ended April 30, 2002 selling expenses decreased
approximately $94,000 to approximately $29,000 from its level of approximately
$123,000 during the nine months ended April 30, 2001. The major components of
this decrease are:
o An approximate $45,000 decrease in advertising and promotional
costs from approximately $48,000 during the nine months ended
April 31, 2001 to approximately $3,000 during the nine months
ended April 30, 2002.
o An approximate $50,000 decrease in business travel related
expenses from approximately $76,000 during the nine months
ended April 30, 2001 to approximately $26,000 during the nine
months ended April 30, 2002.
The decrease in both of these expense categories results from our efforts to
better contain costs as we attempt to build our subscription base.
General and administrative expenses:
General and administrative expenses consist primarily of compensation and
benefits for the officers, other compensation, occupancy costs, professional
fees and other office expenses. General and administrative expenses decreased
approximately $5,223,000 during the nine months ended April 30, 2002 to
approximately $2,579,000 from approximately $7,802,000 during the nine months
ended April 30, 2001. The decrease in general and administrative expenses is
primarily attributable to the following:
o A decrease of approximately $1,195,000 in rent expense from
approximately $1,208,000 during the nine months ended April
30, 2001 to approximately $13,000 during the nine months ended
April 30, 2002. The decrease in rent expense is attributable
to the lease costs that were associated with our webcasting
studio and offices in New York City, which we no longer have.
o A decrease of approximately $3,777,000 in amortization of
unearned compensation, a non-cash charge, from approximately
$4,482,000 during the nine months ended April 30, 2001 to
approximately $705,000 during the nine months ended April 30,
2002. These costs were associated with the issuance of common
stock options and warrants to investment bankers and other
parties exploring business expansion opportunities on our
behalf during the fiscal year ended July 31, 2001. As of July
31, 2001 a significant portion of these costs had been fully
amortized thus resulting in the significant decrease.
o A decrease in payroll and payroll related expenses of
approximately $350,000 from approximately $1,018,000 during
the nine months ended April 30, 2001 to approximately $668,000
during the nine months ended April 30, 2002. The decrease
results from a significant downsizing of our staff subsequent
to the year ended July 31, 2001 to be more commensurate with
our operations.
o These decreases were partially offset by an increase in
professional fees of approximately $50,000 from approximately
$618,000 during the nine months ended April 30, 2001 to
approximately $668,000 during the nine months ended April 30,
2002 and an increase in data processing expenses of
approximately $106,000 from approximately $8,000 during the
nine months ended April 30, 2001 to approximately $114,000
during the nine months ended April 30, 2002. These increases
are attributable to various SEC filings in connection with our
recapitalization and JAGfn's termination of its activities
which terminated the sharing of our data processing costs.
The remainder of the decrease is attributable to our efforts to better contain
costs.
Write-off of capitalized web site development costs:
During the nine months ended April 30, 2002, we recognized a charge of
approximately $264,000 associated with the write-off of our capitalized web site
development costs. Our web site was redesigned during 2001 to accommodate our
webcast. As a result of the sale of JAGfn, and the fact that we continue to
incur net operating losses, the carrying value of the capitalized web site costs
was deemed to be impaired in accordance with accounting principles generally
accepted in the United States of America.
Interest expense:
During the nine months ended April 30, 2001 we incurred interest expense of
approximately $1,527,000 of which $1,379,000 was associated with the
amortization of deferred financing costs and debt discounts associated with
outstanding convertible debentures. The remaining $148,000 was a result of
accrued interest on the outstanding principal balance of such debentures. These
debentures were assumed and/or cancelled concurrent with the sale of JAGfn.
Net loss:
As a result of the above, we had a net loss of approximately $3,225,000 during
the nine months ended April 30, 2002 as compared to a net loss of approximately
$15,368,000 during the nine months ended April 30, 2001.
Three months ended April 30, 2002 as compared to the three months ended April
30, 2001
Revenues:
During the three months ended April 30, 2002 subscription revenues decreased as
compared to the three months ended April 30, 2001 with total subscription
revenues for the comparable periods of approximately $66,000 and $157,000,
respectively.
Cost of revenues:
During the three months ended April 30, 2002 cost of revenues decreased by
approximately $36,000 to approximately $155,000 from approximately $191,000
during the three months ended April 30, 2001.
The primary cause for this decrease was a decrease in costs associated with the
development and maintenance of our web-site of approximately $154,000 from
approximately $162,000 during the three months ended April 30, 2001 to
approximately $8,000 during the three months ended April 30, 2002. The decrease
results from the fact that during the year ended July 31, 2000 and continuing
into the three months ended April 30, 2001 we re-designed our web site to
integrate the Jagfn webcast and as a result incurred additional costs.
This decrease was offset by an increase of approximately $15,000 in costs for
our commentators and consultants associated with our web site from approximately
$99,000 during the three months ended April 30, 2001 to approximately $114,000
during the three months ended April 30, 2002. Such amounts included cash
consideration of $15,000 and $6,000 and non-cash charges related to the
amortization of unearned compensation of $99,000 and $93,000 during the three
months ended April 30, 2002 and 2001. These charges increased as a result of
various new consulting agreements entered into during the three months ended
April 30, 2002.
The remainder of the decrease results from a decrease in telephone and fax costs
which coincides with the decrease on our fax subscriber base.
Selling expenses:
During the three months ended April 30, 2002 selling expenses decreased
approximately $9,000 to approximately $3,000 from its level of approximately
$12,000 during the three months ended April 30, 2001. The major components of
this decrease are:
o An approximate $6,000 decrease in advertising and promotional
costs from approximately $6,000 during the three months ended
April 30, 2001 to no charges during the three months ended
April 30, 2002.
o An approximate $3,000 decrease in business travel related
expenses from approximately $7,000 during the three months
ended April 30, 2001 to approximately $4,000 during the three
months ended April 30, 2002.
The decrease in both of these expense categories results from our efforts to
better contain costs as we attempt to build our subscription base.
General and administrative expenses:
General and administrative expenses decreased approximately $466,000 during the
three months ended April 30, 2002 to $906,000 from approximately $1,372,000
during the three months ended April 30, 2001. The decrease in general and
administrative expenses is primarily attributable to the following:
o A decrease of approximately $65,000 in rent expense from
approximately $67,000 during the three months ended April 30,
2001 to approximately $2,000 during the three months ended
April 30, 2002. The decrease in rent expense is attributable
to the lease costs that were associated with our webcasting
studio and offices in New York City, which we no longer have.
o A decrease of approximately $571,000 in amortization of
unearned compensation, a non-cash charge, from approximately
$712,000 during the three months ended April 30, 2001 to
approximately $141,000 for the three months ended April 30,
2002. These costs were associated with the issuance of common
stock options and warrants to investment bankers and other
parties exploring business expansion opportunities on our
behalf during the fiscal year ended July 31, 2001. As of July
31, 2001 a significant portion of these costs had been fully
amortized thus resulting in the significant decrease.
The decreases were partially offset by an increase in professional fees of
approximately $66,000 from approximately $259,000 during the three months ended
April 30, 2001 to approximately $325,000 during the three months ended April 30,
2002 and data processing expenses of approximately $73,000. There were no data
processing expenses incurred during the three months ended April 30, 2001. These
increases are attributable to various SEC filings, including in connection with
our recapitalization.
The remainder of the decrease is attributable to our efforts to better contain
costs.
Interest expense:
During the three months ended April 30, 2001 we incurred interest expense of
approximately $38,000 of which $31,000 was associated with the amortization of
deferred financing costs and debt discounts associated with outstanding
convertible debentures. The remaining $7,000 was a result of accrued interest on
the outstanding principal balance of such debentures. These debentures were
assumed and/or cancelled concurrent with the sale of JAGfn.
Net loss:
As a result of the above, we had a net loss of approximately $999,000 during the
three months ended April 30, 2002 as compared to a net loss of approximately
$1,257,000 during the three months ended April 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended April 30, 2002 and 2001 we only generated revenues
of approximately $468,000 and $785,000 respectively, incurred net losses of
approximately $3,225,000 and $15,368,000, respectively, and had cash flow
deficiencies from operating activities of approximately $1,154,000 and
$5,432,000, respectively. As a result, we had a cash balance of only
approximately $36,000, a working capital deficiency of $768,000 and an
accumulated deficit of approximately $37,764,000 as of April 30, 2002. In
addition, we believe that we will continue to incur net losses through at
least April 30, 2003. These matters raise substantial doubt about our ability to
continue as a going concern.
Our net losses during the nine months ended April 30, 2002 and 2001 included
noncash operating expenses of approximately $1,829,000 and $9,102,000,
respectively. Primarily as a result of the sale of the advertiser-based
financial webcast operations of JAGfn and the termination of our efforts to
generate foreign revenues we reduced our net loss from approximately $15,368,000
for the nine months ended April 30, 2001 to $3,225,000 for the nine months ended
April 30, 2002. We believe that, in the absence of a substantial increase in
subscription revenues, it is probable that we will continue to incur losses and
negative cash flows from operating activities through at least April 30, 2003
and that we will need to obtain additional equity or debt financing to sustain
our operations until we can successfully market our services, expand our
customer base and achieve profitability.
We believe that we will be able to generate sufficient revenues from our
remaining facsimile transmission and web site operations and obtain sufficient
financing from our financing agreement described below or through other
financing agreements to enable us to continue as a going concern through at
least April 30, 2003. However, if we cannot generate sufficient revenues and/or
obtain sufficient additional financing, if necessary, by that date, we may be
forced thereafter to restructure our operations, file for bankruptcy or entirely
cease our operations.
During nine months ended April 30, 2002 we used approximately $1,154,000 in our
operations. Although we had a net loss of approximately $3,225,000 for the nine
months ended April 30, 2002 such loss included non-cash charges of approximately
$1,829,000 primarily associated with depreciation and amortization of our
equipment and capitalized web site development costs, amortization of unearned
compensation, the write-off of capitalized software costs and the issuance of
stock options in exchange for services. In addition we financed our operations
in part by an increase in trade accounts payable of approximately $295,000.
On August 17, 2001, we entered into an equity line purchase agreement (the
"Original Equity Line Agreement") with Cornell Capital Partners, L.P. ("Cornell
Capital") pursuant to which we had, in effect, "put" options whereby, subject to
certain conditions, we had been able to require the investment partnership to
purchase shares of our common stock from time to time at prices based on the
market value and average daily trading volume of our shares. The maximum
aggregate purchase price under the Original Equity Line Agreement was
$10,000,000. The Original Equity Line Agreement was initially scheduled to
expire on September 27, 2004. However, it was terminated in April 2002 and was
replaced by another agreement with the investment partnership as further
described below.
Cornell Capital received 1,500,000 shares of our common stock (equivalent to
1,363,637 and 136,363 Class A and Series 1 Class B shares, respectively) of as
of August 17, 2001 as additional consideration for entering into the Original
Equity Line Agreement. Certain principals of Cornell Capital agreed to surrender
for cancellation outstanding warrants for the purchase of a total of 690,000
shares of the Company's common stock (equivalent to 627,273 and 62,727 Class A
and Series 1 Class B shares, respectively). Cornell Capital was also entitled to
a cash fee equal to 5% of the gross proceeds received by the Company in
connection with each put.
During the nine months ended April 30, 2002, Cornell Capital was required to pay
$671,459 and it received 5,661,510 shares of common stock (5,146,828 and 514,682
Class A and Series 1 Class B shares, respectively) as a result of the exercise
of put options under the Original Equity Line Agreement, and we received
proceeds of $632,884, net of $38,575 of placement fees.
On April 19, 2002, we entered into a new equity line purchase agreement (the
"New Equity Line Agreement") with Cornell Capital pursuant to which we will
have, in effect, new put options whereby, subject to certain conditions, we can
require Cornell Capital to purchase shares of our Class A common stock from time
to time at an aggregate purchase price of $10,000,000. The term of the New
Equity Line Agreement will extend for 24 months. It will become available as of
the date a registration statement under the Securities Act of 1933 filed by us
for the registration of the shares issuable to Cornell Capital becomes
effective, unless the New Equity Line Agreement is terminated earlier at our
discretion. The purchase price will be 95% of the lowest closing bid price of
our Class A common stock over a specified number of trading days commencing on
specified dates. Cornell Capital shall be entitled to a cash fee equal to 5% of
the gross proceeds received from Cornell Capital in connection with each put.
The timing and amount of the required purchases shall be at our discretion
subject to certain conditions including (i) a maximum purchase price to be paid
by Cornell Capital for each put of $500,000 and (ii) a requirement that at least
five trading days must elapse before we can deliver a new put notice to Cornell
Capital. We will be required to issue 10,000 shares of our Class A common stock
to placement agents as of the effective date as consideration for their services
in connection with the New Equity Line Agreement.
During the nine months ended April 30, 2002, options to purchase 3,417,125
shares of common stock were exercised resulting in proceeds of $144,353.
On April 1, 2001 two of our executive officers loaned the Company a total of
$400,000 subject to the terms and conditions of unsecured promissory notes that
bear interest at an annual rate of 2.69%. While the notes become payable on July
1, 2002, at this time we do not have the means to repay these notes. It is our
intention to extend the maturity date of these notes.
In addition, during the nine months ended April 30, 2002, we issued 1,196,807
shares of common stock with a fair value of $777,390 and issued options to
purchase 4,936,725 shares of common stock with a fair value of $561,544 in
exchange for services.
On February 21, 2002, our stockholders approved an amendment to the articles of
incorporation pursuant to which the name of the Company was changed to JAG Media
Holdings, Inc. The stockholders also approved another amendment that authorized
the implementation of changes related to a recapitalization plan for the Company
that was consummated on April 8, 2002. Pursuant to the recapitalization plan,
(i) the total number of shares of all classes of capital stock authorized for
issuance was increased from 100,000,000 shares to 200,000,000 shares with a par
value of $.00001 per share, of which 15,000,000 shares became authorized for
issuance as preferred stock, 155,000,000 shares became authorized for issuance
as Class A common stock and 30,000,000 shares became authorized for issuance as
Class B common stock; and (ii) we issued 1 share of Class A common stock and .1
share of Class B common stock designated as Series 1 Class B common stock in
exchange for every 1.1 shares of common stock outstanding prior to the
recapitalization.
In addition, holders of stock options that were entitled to receive shares of
common stock upon exercise of stock options issued pursuant to the our incentive
stock option plan became entitled to receive an equivalent number of shares of
Class A common stock at the same exercise price upon exercise; holders of all
other stock options and warrants became entitled to receive a proportional
number of shares of Class A common stock and Series 1 Class B common stock at a
proportional exercise price upon exercise.
Each share of Series 1 Class B common stock is immediately convertible into one
share of Class A common stock. Each share of Series 1 Class B common stock also
may be redeemed by us at any time for either one share of Class A common stock
or equivalent cash value. Each share of Class A common stock and Series 1 Class
B common stock will be equal in respect to dividends and voting rights.
Therefore, each share of Series 1 Class B common stock is, for financial
reporting purposes, equivalent to one share of Class A common stock. In
addition, 1 share of Class A common stock and .1 share of Series 1 Class B
common stock is equivalent to 1.1 shares of common stock that were outstanding
before the recapitalization for financial reporting purposes
The recapitalization was effectively equivalent to a stock split and the numbers
of shares of common stock outstanding before the recapitalization have been
retroactively restated in the accompanying management discussion and analysis.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In June 2002, the Company and Reliant Limited, a corporation organized under
the laws of the Isle of Man ("Reliant"), agreed to settle, the civil action
filed by Reliant against the Company and its transfer agent in Superior Court of
the State of New Jersey, County of Monmouth (subsequently removed to U.S.
District Court) relating to that certain Offshore Securities Subscription
Agreement dated January 18, 2000. No money will be paid under the terms of the
settlement, and the parties have agreed to execute a mutual release of claims.
Except as described above, there are no currently pending material law suits or
similar administrative proceedings and, to the best knowledge of management,
there is presently no basis for any other material suit or proceeding against
the Company.
Item 2. Changes in Securities and Use of Proceeds.
On April 8, 2002, the Company filed with the Secretary of State of the State of
Nevada an amendment to Article Fourth of its Articles of Incorporation to (i)
increase the aggregate authorized number of shares of all classes of stock from
100,000,000 to 200,000,000; (ii) create 155,000,000 shares of Class A common
stock, par value $0.00001, and 30,000,000 shares of Class B common stock, par
value $0.00001, of which 3,000,000 shares are designated Series 1 Class B common
stock; (iii) reclassify each outstanding one and one-tenth (1.1) shares of the
Company's existing common stock, par value $0.00001 per share ("Common Stock")
into (a) one (1) share of Class A common stock and (b) one-tenth (1/10th) of a
share of Series 1 Class B common stock upon surrender of physical share
certificates representing the existing Common Stock for new Class A common stock
and Series 1 Class B common stock certificates; and (iv) create a class of
15,000,000 shares of preferred stock.
In connection therewith, the Company filed a Registration Statement on Form 8-A
with the Securities and Exchange Commission (the "Commission") registering the
Class A common stock and Class B common stock under the Securities Exchange Act
of 1934, as amended. The Class A common stock trades on the Nasdaq OTC Bulletin
Board under the symbol "JGMHA".
On April 9, 2002, the Company entered into a $10,000,000 Equity Line Purchase
Agreement with Cornell Capital Partners, L.P., a limited partnership managed by
Yorkville Advisors Management, LLC, a Delaware limited liability company,
pursuant to which it can put its shares of Class A common stock, once registered
with the SEC, from time to time, at a purchase price equal to 95% of the lowest
closing bid price for such shares over the five trading days preceding the sale
of such shares. In connection with this Equity Line Purchase Agreement, the
Company issued Westrock Advisors, Inc. a placement agent fee of 10,000 shares of
its Class A common stock. The Company also agreed to pay a 5% cash fee to
Cornell Capital payable out of each drawdown under the equity line. The
investments under this Equity Line Purchase Agreement will be made in reliance
upon Regulation D. Upon effectiveness of a registration statement filed by the
Company with the Commission, the Company's original equity line purchase
agreement with Cornell Capital Partners, L.P., dated August 17, 2001, will be
superseded by the new agreement and will be of no further force and effect.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On or about January 28, 2002, the Company mailed a Proxy Statement to
shareholders in connection with a special meeting (the "Special Meeting") which
was held on February 21, 2002 in Conference Room 39B located on the 39th Floor
of 101 Park Avenue in New York City in the law offices of Morgan, Lewis &
Bockius LLP. The following matters were voted upon and approved at the Special
Meeting: (a) an amendment to Article First of the Company's Articles of
Incorporation to change the corporate name to JAG Media Holdings, Inc.; and (b)
an amendment to Article Fourth of the Company's Articles of Incorporation to:
(i) create 155,000,000 shares of Class A common stock, par value $0.00001, and
30,000,000 shares of Class B common stock, par value $0.00001, of which
3,000,000 shares are designated Series 1 Class B common stock; (ii) reclassify
each outstanding one and one-tenth (1.1) shares of the Company's existing Common
Stock into (x) one (1) share of Class A common stock and (y) one-tenth (1/10th)
of a share of Series 1 Class B common stock upon surrender of physical share
certificates representing the existing Common Stock for new Class A common stock
and Series 1 Class B common stock certificates; and (iii) create a class of
15,000,000 shares of preferred stock.
As of January 18, 2002, the record date established by the Board of Directors
for the Special Meeting, there were 27,266,124 shares of Common Stock
outstanding, the holders of which were entitled to vote at the Special Meeting.
The holders of 26,279,331 shares of Common Stock, or more than a majority of the
Common Stock, were present in person or represented by proxy at the Special
Meeting. The holders of 25,467,531 shares of Common Stock voted for the approval
of the name change amendment, the holders of 809,100 shares of Common Stock
voted against approval and the holders of 2,700 shares of Common Stock abstained
from the vote. The holders of 15,457,078 shares of Common Stock voted for the
approval of the recapitalization amendment, the holders of 961,996 shares of
Common Stock voted against approval and the holders of 8,800 shares of Common
Stock abstained from the vote.
Item 5. Other Information.
On April 1, 2002, Thomas J. Mazzarisi, the Company's Executive Vice President,
Chief Financial Officer and General Counsel, loaned the Company $200,000 out of
proceeds that he received from the sale of shares of Common Stock in the open
market. The loan is subject to the terms and conditions of an unsecured
promissory note issued by the Company to Mr. Mazzarisi on such date. The note,
which is payable in full to Mr. Mazzarisi on July 1, 2002, bears interest at a
rate of 2.69% per annum and may be prepaid in whole or part at any time without
premium or penalty.
On April 1, 2002, Stephen J. Schoepfer, the Company's Executive Vice President
and Chief Operating Officer, loaned the Company $200,000 out of proceeds that he
received from the sale of shares of Common Stock in the open market. The loan is
subject to the terms and conditions of an unsecured promissory note issued by
the Company to Mr. Schoepfer on such date. The note, which is payable in full to
Mr. Schoepfer on July 1, 2002, bears interest at a rate of 2.69% per annum and
may be prepaid in whole or part at any time without premium or penalty.
The Company has used the proceeds of these loans to fund existing payables and
for general corporate purposes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the three month
period ended April 30, 2002:
o Current Report on Form 8-K filed with the Commission on March
5, 2002, announcing procedures for exchanging stock
certificates pursuant to the plan of recapitalization.
o Current Report on Form 8-K filed with the Commission on March
11, 2002, attaching forms of (i) Letter to Record
Stockholders, (ii) Letter to Beneficial Holders of the
Company's Common Stock and (iii) Letter of Transmittal, in
connection with the plan of recapitalization.
o Current Report on Form 8-K filed with the Commission on March
13, 2002, announcing the retention of D.F. King & Co., Inc. as
information agent in connection with the plan of
recapitalization.
o Current Report on Form 8-K filed with the Commission on March
25, 2002, announcing an update regarding the procedures for
exchanging stock certificates pursuant to the plan of
recapitalization.
o Current Report on Form 8-K filed with the Commission on April
17, 2002, attaching copies of the (i) Certificate of Amendment
of the Company's Articles of Incorporation as filed with the
Secretary of State of the State of Nevada on April 8, 2002,
(ii) Promissory Note, dated April 1, 2002, in the amount of
$200,000 issued to Thomas J. Mazzarisi, (iii) Promissory Note,
dated April 1, 2002, in the amount of $200,000 issued to
Stephen J. Schoepfer and (iv) Press Release announcing the
status of the issuance of new Class A and Series 1 Class B
common stock certificates.
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.
JAGNOTES.COM INC.
Date: June 19, 2002 By: /s/ Gary Valinoti
-------------------
Name: Gary Valinoti
Title: President and Chief Executive Officer
Date: June 19, 2002 By: /s/ Thomas J. Mazzarisi
-------------------------
Name: Thomas J. Mazzarisi
Title: Executive Vice President,
Chief Financial Officer and
General Counsel