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 January 31, 2003.
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 January 31, 2003, the Registrant had 38,034,110 shares of Class A Common
Stock and 1,303,973 shares of Series 1 Class B Common Stock issued and
outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Page No.
Condensed Consolidated Balance Sheet at January 31, 2003 (Unaudited) F-2
Condensed Consolidated Statements of Operations
Six and Three Months Ended January 31, 2003 and 2002 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Deficiency)
Six Months Ended January 31, 2003 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Six Months Ended January 31, 2003 and 2002 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/12
* * *
F-1
JAG Media Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 910,937
Accounts receivable, net of allowance for doubtful accounts
of $7,500 30,622
Other current assets 84,785
-------------
Total current assets 1,026,344
Equipment, net of accumulated depreciation of $133,745 36,812
-------------
Total $ 1,063,156
=============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 163,838
Deferred revenues 72,834
Notes payable to officers 400,000
-------------
Total liabilities 636,672
-------------
Commitments and contingencies
Stockholders' equity:
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; 38,034,110 shares
issued and outstanding 380
Class B common stock, par value $.00001 per share;
30,000,000 shares authorized; 1,303,973 shares of
Series 1 issued and outstanding 13
Additional paid-in capital 40,404,495
Unearned compensation (218,424)
Accumulated deficit (39,759,980)
------------
Total stockholders' equity 426,484
------------
Total $ 1,063,156
============
See Notes to Condensed Consolidated Financial Statements.
F-2
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Six and Three Months Ended January 31, 2003 and 2002 (Unaudited)
Six Months Three Months
Ended January 31, Ended January 31,
---------------------------- ----------------------
2003 2002 2003 2002
------------ ------------ --------- ------------
Revenues $ 240,955 $ 402,225 $ 116,005 $ 219,227
----------- ----------- --------- -----------
Operating expenses:
Cost of revenues 428,121 666,437 229,936 489,303
Selling expenses 1,729 25,607 816 6,075
General and administrative
expenses 1,007,567 1,672,541 543,886 940,853
Write-off of capitalized web site
development costs 263,754 263,754
----------- ----------- --------- -----------
Totals 1,437,417 2,628,339 774,638 1,699,985
----------- ----------- --------- -----------
Loss from operations (1,196,462) (2,226,114) (658,633) (1,480,758)
Other income (expense):
Interest income 2,029 1,907
Interest expense (5,424) (2,713)
----------- ----------- --------- -----------
Net loss $(1,199,857) $(2,226,114) $(659,439) $(1,480,758)
=========== =========== ========= ===========
Basic net loss per share $(.03) $(.10) $(.02) $(.06)
===== ===== ===== =====
Basic weighted average common
shares outstanding 35,199,788 23,150,286 37,653,562 25,369,105
========== =========== ========== ===========
See Notes to Condensed Consolidated Financial Statements.
F-3
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders'
Equity (Deficiency)
Six Months Ended January 31, 2003
(Unaudited)
Common Stock
------------------------------------------
Class A Series 1 Class B
-------------------- ----------------- Additional
Number of Number of Paid-in Unearned Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
--------- ------ --------- ------ ---------- ------------- ----------- -----------
Balance, August 1, 2002 29,667,094 $296 1,681,155 $17 $37,697,274 $(381,432) $(38,560,123) $(1,243,968)
Sales of common stock
pursuant to equity
financing agreement,
net of expenses
of $101,750 5,633,266 57 1,783,193 1,783,250
Sales of common stock
through private
placement, net of
expenses of $25,000 1,136,364 11 474,989 475,000
Effects of issuance of
common stock in
exchange for services 900,604 9 440,082 (212,259) 227,832
Options exercised 319,600 3 8,957 8,960
Amortization of unearned
compensation 375,267 375,267
Effects of conversion of
Series 1 Class B
common stock into Class
A common stock 377,182 4 (377,182) (4)
Net loss (1,199,857) (1,199,857)
---------- ---- --------- --- ----------- --------- ------------ -------------
Balance, January 31, 2003 38,034,110 $380 1,303,973 $13 $40,404,495 $(218,424) $(39,759,980) $ 426,484
========== ==== ========= === =========== ========= ============ =============
See Notes to Condensed Consolidated Financial Statements.
F-4
JAG Media Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended January 31, 2003 and 2002
(Unaudited)
2003 2002
----------- -----------
OPERATING ACTIVITIES:
Net loss $(1,199,857) $(2,226,114)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts 2,750
Depreciation 17,886 19,025
Amortization of unearned compensation 375,267 645,000
Amortization of capitalized web site development costs 87,917
Write-off of capitalized web site development costs 263,754
Effects of issuance of common stock and stock options
in exchange for services 227,832 461,190
Changes in operating assets and liabilities:
Accounts receivable (14,047) (29,891)
Other current assets (38,550) (16,450)
Accounts payable and accrued expenses (734,661) 178,597
Deferred revenues (27,348)
----------- -----------
Net cash used in operating activities (1,363,380) (644,320)
----------- -----------
FINANCING ACTIVITIES:
Net proceeds from private placements of common stock 2,258,250 632,884
Proceeds from exercise of stock options 8,960 51,500
----------- -----------
Net cash provided by financing activities 2,267,210 684,384
----------- -----------
Net increase in cash and cash equivalents 903,830 40,064
Cash and cash equivalents, beginning of period 7,107 13,438
----------- -----------
Cash and cash equivalents, end of period $ 910,937 $ 53,502
=========== ===========
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 January 31, 2003,
their results of operations for the six and three months ended
January 31, 2003 and 2002, their changes in stockholders' equity
(deficiency) for the six months ended January 31, 2003 and their
cash flows for the six months ended January 31, 2003 and 2002.
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, 2002 and for the years ended July 31, 2002 and 2001
(the "Audited Financial Statements") included in the Company's
Annual Report on Form 10-KSB (the "10-KSB") for the year ended
July 31, 2002 that was previously filed with the SEC.
The results of the Company's operations for the six months ended
January 31, 2003 are not necessarily indicative of the results
of operations to be expected for the full year ending July 31,
2003.
The accompanying condensed 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, the Company only generated
revenues of approximately $241,000 and $402,000 and it incurred
net losses of approximately $1,200,000 and $2,226,000 during the
six months ended January 31, 2003 and 2002, respectively. The
Company's net losses include noncash charges for, among other
things, the depreciation of equipment, the amortization of
unearned compensation, the amortization and write-off of
capitalized web site development costs and the issuance of
common stock and stock options in exchange for services.
Although the Company had net noncash charges totaling
approximately $624,000 and $1,477,000 for the six months ended
January 31, 2003 and 2002, respectively, it still had cash flow
deficiencies from operating activities of approximately
$1,363,000 and $644,000 for the six months ended January 31,
2003 and 2002, respectively. Management believes that the
Company will continue to incur net losses and cash flow
deficiencies from operating activities through at least January
31, 2004. 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 (concluded):
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. 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
January 31, 2004 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.
During the six months ended January 31, 2003, the Company
received net proceeds of $475,000 from the sale of shares of its
common stock through a private placement.
As further explained in Note 4 herein, the Company entered into
an agreement with an investment partnership pursuant to which it
has, in effect, "put" options whereby, subject to certain
conditions, it is able to require the investment partnership to
purchase shares of its common stock from time to time at prices
based on the market value of its shares. The maximum aggregate
purchase price under this equity line, which became available in
September 2002, is $10,000,000. As of January 31, 2003, the
Company had received gross proceeds of $1,885,000 from the
exercise of "put" options. Although the timing and amount of the
required purchases under the agreement are at the Company's
discretion, the purchases are subject to certain conditions as
also explained in Note 4 herein and the ability of the
investment partnership to fund the purchases.
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 January 31, 2004. 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.
F-7
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - 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 shares of Class A common stock and
Series 1 Class B common stock outstanding during each period
(see Notes 1, 2 and 7 to the Audited Financial Statements). 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, were issued during the period and
the treasury stock method had been applied to the proceeds from
their exercise.
As of January 31, 2003, there were options and warrants
outstanding for the purchase of a total of 3,585,000 shares of
Class A and Series 1 Class B common stock (see Note 4 herein).
However, 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 six and three months
ended January 31, 2003 and 2002 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 would have been
anti-dilutive.
Note 3 - Income taxes:
As of January 31, 2003, the Company had net operating loss
carryforwards of approximately $24,274,000 available to reduce
future Federal and state taxable income which will expire from
2019 through 2023.
As of January 31, 2003, the Company's deferred tax assets
consisted of the effects of temporary differences attributable
to the following:
Deferred revenues, net $ 17,000
Unearned compensation 2,123,000
Net operating loss carryforwards 9,695,000
-------------
11,835,000
Less valuation allowance (11,835,000)
-------------
Total $ --
=============
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 January 31, 2003.
F-8
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 3 - Income taxes (concluded):
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, 2002. As a result of the increases in
the valuation allowance of $182,000 and $179,000 during the six
and three months ended January 31, 2003, respectively, and the
decreases in the valuation allowance of $3,488,000 and
$3,785,000 during the six and three months ended January 31,
2002, 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 six and three months
ended January 31, 2002, net deferred tax assets and the
offsetting valuation allowance decreased during those periods
primarily as a result of the cancellation of unexercised options
and warrants and the related reduction in temporary differences
attributable to the amounts of unearned compensation recorded
for financial statement and tax purposes.
Note 4 - Issuances of common stock and stock options:
Equity financing agreement:
As further explained in Note 5 to the Audited Financial
Statements, on April 9, 2002, the Company entered into an
equity line purchase agreement (the "2002 Equity Line
Agreement") with Cornell Capital Partners L.P. ("Cornell
Capital") pursuant to which the Company has, in effect, 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 2002 Equity Line became available
on August 28, 2002 when a registration statement under the
Securities Act of 1933 (the "Act") filed by the Company for
the registration of the shares issuable to Cornell Capital
became effective. The Company was 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 2002 Equity Line Agreement. The term of
the 2002 Equity Line Agreement will extend for 24 months
unless it 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 by the Company from
Cornell Capital in connection with each put.
F-9
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Issuances of common stock and stock options (continued):
Equity financing agreement (concluded):
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; (ii) at least five trading
days must elapse before the Company can deliver a new put
notice to Cornell Capital; (iii) the registration statement
covering the shares issuable to Cornell Capital pursuant to
the equity line must remain effective at all times and (iv)
on any given closing date, there shall be at least one bid
for the Class A common stock on the Nasdaq OTC Bulletin
Board. In addition, the obligation of Cornell Capital to
complete its purchases under the 2002 Equity Line is not
secured or guaranteed and, accordingly, if Cornell Capital
does not have available funds at the time it is required to
make a purchase, the Company may not be able to force it to
do so.
During the six months ended January 31, 2003, Cornell
Capital was required to pay $1,885,000 and it received
5,633,266 shares of Class A common stock and the Company
received proceeds of $1,783,250 net of $101,750 of placement
fees as a result of the exercise by the Company of put
options pursuant to the 2002 Equity Line Agreement. The
Company was also required to issue an additional 10,000
shares of Class A common stock to placement agents in
connection with the sale of the shares. As of January 31,
2003, the Company had the ability to require Cornell Capital
to purchase shares of its common stock pursuant to the 2002
Equity Line Agreement at an aggregate purchase price of
$8,115,000 through August 28, 2004.
Shares sold through private placement:
On December 10, 2002, the Company sold 1,136,364 shares of
its Class A common stock through a private placement
intended to be exempt from registration under the Act, and
it received proceeds of $475,000, net of a $25,000 placement
fee.
Shares issued to pay salaries:
During the six months ended January 31, 2003, the Company
agreed to issue a total of 650,604 shares of its Class A
common stock with an aggregate fair value of $261,091 to pay
salaries.
Shares issued to consultants:
During the six months ended January 31, 2003, the Company
issued a total of 250,000 shares of its Class A common stock
with an aggregate fair value of $179,000 to pay for
consulting services. The fair value of the shares was
originally charged to unearned compensation and is being
amortized to expense over the terms of the consulting
agreements.
F-10
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Issuances of common stock and stock options (continued):
Options and warrants issued for services (concluded):
As explained in Note 7 to the Audited Financial Statements,
the Company has issued, from time to time, stock options and
warrants for the purchase 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").
The following table reconciles the number of shares of
common stock subject to options and warrants that were
outstanding at August 1, 2002 as a result of issuances of
options and warrants to employees and nonemployees as
compensation for services to the number outstanding at
January 31, 2003 and sets forth other related information:
Number of Shares
-----------------------
Series 1
Class A Class B
Common Common Range of
Stock Stock Prices
--------- --------- ----------
Options and warrants issued for services
outstanding, August 1, 2002 (A) 3,940,054 164,546 $.001 - $6.00
Options cancelled (200,000) $2.00
Options exercised (B) (319,600) $.02 - .05
--------- -------
Options and warrants issued for services
outstanding, January 31, 2003 (C)(D) 3,420,454 164,546 $.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 and
subsequently amortized to expense.
(B) During the six months ended January 31, 2003, the
Company issued 319,600 shares of Class A common stock
upon the exercise of options and received proceeds of
$8,960.
F-11
JAG Media Holdings, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Issuances of common stock and stock options (concluded):
Options and warrants issued for services:
(C) These options and warrants also include options for the
purchase of 1,750,000 shares of, effectively, Class A
common stock granted pursuant to the Company's 1999
Long-term Incentive Plan (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.
(D) These options and warrants will expire at various dates
from July 2005 through March 2012.
Note 5 - 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%. Pursuant to the agreements, as last amended on January
31, 2003, the notes will mature on the earlier of (i) March 31,
2003 or (ii) the effective date of a change in control of the
Company, as defined.
Note 6 - 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-12
Item 2. Management's Discussion and Analysis.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to accounts receivable, equipment, stock based compensation,
income taxes and contingencies. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The accounting policies and estimates used as of July 31, 2002, as outlined in
our previously filed Form 10-KSB, have been applied consistently for the six and
three months ended January 31, 2003.
Related party transactions
On April 1, 2002, two of our executive officers loaned JAG Media 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%. Pursuant to the agreements, as last
amended, on January 31, 2003, the notes will mature on the earlier of (i) March
31, 2003 or (ii) the effective date of a "Change in Control" of JAG Media, as
such term is defined in our Long-Term Incentive Plan.
Six months ended January 31, 2003 as compared to the six months ended
January 31, 2002
Revenues:
Revenues primarily consist of subscription revenues 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 at an average monthly
charge of $150. During the year ended July 31, 1999, we began the process of
changing our focus to also include the retail investor by providing a variety of
investment information including but not limited to JAGNotes through our web
site. During the six months ended January 31, 2003, subscription revenues
decreased as compared to the six months ended January 31, 2002 with total
subscription revenues for the comparable periods of approximately $241,000 and
$402,000, respectively.
As explained above, in previous filings it was originally our intention to
increase subscription revenues through international expansion and increased
awareness of our U.S. 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 year
ended July 31, 2001, we halted our international expansion plans and did not
receive any advertising income in connection with our real time streaming video
programming. As a result of this change in focus, we suffered a significant
decrease in subscription revenues. We have once again re-focused our efforts on
building the awareness of our JAGNotes product 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 significant revenues from our subsidiary JAG Company
Voice LLC ("Company Voice") during the six months ended January 31, 2003.
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, and payments to
commentators and employees for their reports that are posted on our web site.
During the six months ended January 31, 2003, cost of revenues decreased by
approximately $238,000 to approximately $428,000 from approximately $666,000
during the six months ended January 31, 2002.
During the six months ended January 31, 2002, consulting fees were approximately
$414,000 as compared to approximately $373,000 for the six months ended January
31, 2003. Such fees included non-cash charges associated with the amortization
of unearned compensation of approximately $320,000 and $342,000 for the six
months ended January 31, 2002 and 2003, respectively. The decrease in consulting
fees is commensurate with the expiration of consulting contracts associated with
commentators for our JagNotes web site offset by new consulting agreements
associated with the anticipated launch of the Company Voice.
Costs associated with the maintenance and amortization of our web site decreased
by approximately $166,000 from $180,000 for the six months ended January 31,
2002 to approximately $14,000 for the six months ended January 31, 2003. The
decrease results primarily from the fact that capitalized web site development
costs were fully amortized or written off as of July 31, 2002 and, accordingly,
we did not have a similar type charge during the six months ended January 31,
2003.
In addition, costs associated with the transmission of our product over
telephone and fax lines and costs associated with the maintenance of our web
site decreased commensurate with our decrease in revenues.
Selling expenses:
Selling expenses consist primarily of advertising and other promotional
expenses. During the six months ended January 31, 2003, selling expenses
decreased approximately $24,000 to approximately $2,000 from their level of
approximately $26,000 during the six months ended January 31, 2002. This
decrease results solely from our efforts to better contain costs.
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 $665,000 during the six months ended January 31, 2003 to
approximately $1,008,000 from approximately $1,673,000 during the six months
ended January 31, 2002.
The decrease in general and administrative expenses is primarily attributable to
the fact that during the six months ended January 31, 2002 we recognized a
charge of approximately $565,000 associated with the amortization of previously
unearned compensation resulting from stock options granted to investment bankers
during the year ended July 31, 2001 in exchange for exploring business expansion
opportunities on our behalf.
The remainder of the decrease is attributable to our efforts to better contain
costs.
Write-off of capitalized web site development costs:
During the six months ended January 31, 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 under U.S. accounting principles.
Net loss:
Primarily as a result of the above, we had a net loss of approximately
$1,200,000 during the six months ended January 31, 2003 as compared to a net
loss of approximately $2,226,000 during the six months ended January 31, 2002.
Three months ended January 31, 2003 as compared to the three months ended
January 31, 2002
Revenues:
During the three months ended January 31, 2003, subscription revenues decreased
as compared to the three months ended January 31, 2002 with total subscription
revenues for the comparable periods of approximately $116,000 and $219,000,
respectively.
As explained above, during the year ended July 31, 2001, we halted our
international expansion plans and did not receive any advertising income in
connection with our real time streaming video programming. As a result, we
suffered a significant decrease in subscription revenues. We have once again
re-focused our efforts on building the awareness of our JAGNotes product 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 significant revenues from our subsidiary Company Voice
during the three months ended January 31, 2003.
Cost of revenues:
During the three months ended January 31, 2003, cost of revenues decreased by
approximately $259,000 to approximately $230,000 from approximately $489,000
during the three months ended January 31, 2002.
During the three months ended January 31, 2002, consulting fees were
approximately $352,000 as compared to approximately $205,000 for the three
months ended January 31, 2003. Such fees included non-cash charges associated
with the amortization of unearned compensation of approximately $46,000 and
$178,000 for the three months ended January 31, 2002 and 2003, respectively. The
decrease in consulting fees is commensurate with the expiration of consulting
contracts associated with commentators for our JagNotes web site offset by new
consulting agreements associated with the anticipated launch of the Company
Voice.
Costs associated with the maintenance and amortization of our web site decreased
by approximately $35,000 from $41,000 for the three months ended January 31,
2002 to approximately $6,000 for the six months ended January 31, 2002. The
decrease results primarily from the fact that capitalized web site development
costs were fully amortized or written off as of July 31, 2002 and, accordingly,
we did not have a similar type charge during the three months ended January 31,
2003.
In addition, costs associated with the transmission of our product over
telephone and fax lines and costs associated with the maintenance of our web
site decreased commensurate with our decrease in revenues.
Selling expenses:
During the three months ended January 31, 2003, selling expenses decreased
approximately $5,000 to approximately $1,000 from their level of approximately
$6,000 during the three months ended January 31, 2002. This decrease results
solely from our efforts to better contain costs.
General and administrative expenses:
General and administrative expenses decreased approximately $397,000 during the
three months ended January 31, 2003 to approximately $544,000 from approximately
$941,000 during the three months ended January 31, 2002.
The decrease in general and administrative expenses is primarily attributable to
the fact that during the three months ended January 31, 2002 we recognized a
charge of approximately $282,000 associated with the amortization of previously
unearned compensation resulting from stock options granted to investment bankers
during the year ended July 31, 2001 in exchange for exploring business expansion
opportunities on our behalf.
The remainder of the decrease is attributable to our efforts to better contain
costs.
Write-off of capitalized web site development costs:
During the three months ended January 31, 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 explained above.
Net loss:
Primarily as a result of the above, we had a net loss of approximately $659,000
during the three months ended January 31, 2003 as compared to a net loss of
approximately $1,481,000 during the three months ended January 31, 2002.
Liquidity and Capital Resources:
We only generated revenues of approximately $241,000 and $402,000 and incurred
net losses of approximately $1,200,000 and $2,226,000 during the six months
ended January 31, 2003 and 2002, respectively. Our net losses include noncash
charges for, among other things, the depreciation of equipment, the amortization
of unearned compensation, the amortization of capitalized web site development
costs and the issuance of common stock and stock options in exchange for
services. Although we had net noncash charges totaling approximately $624,000
and $1,477,000 for the six months ended January 31, 2003 and 2002, respectively,
we still had cash flow deficiencies from operating activities of approximately
$1,363,000 and $644,000 for the six months ended January 31, 2003 and 2002,
respectively. In addition, we believe that we will continue to incur net losses
and cash flow deficiencies from operating activities through at least January
31, 2004. These matters raise substantial doubt about our ability to continue as
a going concern.
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 January 31, 2004 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 2002 Equity Line Agreement described below or through other
financing agreements to enable us to continue as a going concern through at
least January 31, 2004. 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.
In connection with such possible restructuring, on February 14, 2003, we issued
a press release announcing that the Company had entered into a Letter of Intent,
dated February 14, 2003 (the "Letter of Intent"), to acquire OIL@WORK Group,
Inc., a privately held Delaware corporation based in Dallas, Texas ("OIL@WORK").
OIL@WORK has invested $4,000,000 over the last three years to reengineer a
traditional, but upscale, "concierge" auto repair service as a
communications-based auto maintenance business.
Through its BOS Intelligent Technology subsidiary, OIL@WORK is developing a
technology platform that permits remote activities such as customer reminders of
upcoming service events, in-vehicle communication directly with drivers, remote
vehicle diagnostics, online service histories for all customer vehicles, Global
Positioning Satellite (GPS) technology to track and direct field technicians
efficiently, bar code scanning for efficient management of parts inventories and
Web streaming video of field and garage services permitting customers to see
their repairs being made. OIL@WORK is applying its new technology to the auto
"concierge" service it provides to tenants of office buildings. Its service
allows owners to have their automobiles serviced while they are at work without
having to use their own free time or valuable business hours.
The Letter of Intent contemplates that OIL@WORK, the Company and a newly formed
wholly owned subsidiary of the Company will enter into an acquisition agreement
pursuant to which the merger subsidiary would merge with and into OIL@WORK with
OIL@WORK as the surviving corporation. At the effective time of the merger, all
issued and outstanding shares of OIL@WORK would be converted into the right to
receive an aggregate number of shares of the Company's Class A common stock,
which upon issuance would represent 50.1% of the Company's outstanding capital
stock on a fully diluted basis. Consummation of the merger is subject to several
significant conditions, including, among others, (i) satisfactory completion of
due diligence, (ii) Board approval and, in the case of OIL@WORK, requisite
stockholder approval, (iii) the execution of definitive documentation, (iv) the
condition that OIL@WORK improve its net equity position by $3.0 million prior to
the merger and (v) various other customary conditions. Accordingly, there is no
assurance that the definitive documentation called for in such letter of intent
will ever be executed, or if executed, that the proposed transaction will be
consummated.
In connection with the proposed OIL@WORK transaction, we also announced our
intention to declare and set a record date for a special stock dividend to our
pre-merger stockholders, which will be payable as soon as possible after the
merger is complete. To effect such dividend, we intend to designate a new series
of Class B common stock which will be distributed by dividend to our
stockholders of record as of the close of business on the stated record date in
the ratio of one share of Series 2 Class B common stock for every 100 shares of
Class A common stock. Such shares of Series 2 Class B common stock would be
redeemable, which redemption by us shall be mandatory to the fullest extent
permitted by law within six months following final resolution of our pending
lawsuit in Texas federal court against various brokerage firms at a redemption
price which is the greater of (a) par value or (b) ninety percent of the net
proceeds to us of such lawsuit after payment of fees and expenses incurred in
connection with such lawsuit and all taxes on net income accrued or paid with
respect to such net amount. The stock dividend is intended to insure that the
principal benefits of our pending lawsuit accrue to our pre-merger investors.
Our cash and cash equivalent position of approximately $911,000 as of January
31, 2003 results primarily from sales of shares of our common stock pursuant to
an equity line agreement and to a private placement completed during the six
months ended January 31, 2003 described below.
On April 9, 2002, we entered into an equity line purchase agreement (the "2002
Equity Line Agreement") with Cornell Capital Partners L.P. ("Cornell Capital")
pursuant to which we have, in effect, 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 2002 Equity Line Agreement became available to us on August 28, 2002, the
date a registration statement under the Securities Act of 1933, as amended,
filed by us for the registration of the shares issuable to Cornell Capital
became effective, and will remain available for a period of 24 months thereafter
unless it is terminated earlier by us in our sole 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 by
the Company 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 have
issued 10,000 shares of our Class A common stock to a placement agent as of the
effective date as consideration for their services in connection with the 2002
Equity Line Agreement.
During the six months ended January 31, 2003, Cornell Capital was required to
pay $1,885,000 and it received 5,633,266 shares of Class A common stock and we
received proceeds of $1,783,250 net of $101,750 of placement fees as a result of
the exercise by us of put options pursuant to the 2002 Equity Line Agreement. As
of January 31, 2003, we had the ability to require Cornell Capital to purchase
shares of our common stock pursuant to the 2002 Equity Line Agreement at an
aggregate purchase price of $8,115,000 through August 28, 2004.
During our last fiscal quarter we thought it would be prudent to diversify our
source of financing beyond our current private equity line. On December 10,
2002, we sold 1,136,364 shares of Class A common stock through a private
placement and received proceeds of $475,000 net of a $25,000 placement fee.
During the six months ended January 31, 2003, options to purchase 319,600 shares
of Class A common stock were exercised resulting in proceeds of $8,960.
On April 1, 2002, 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%. Pursuant to the agreements, as last
amended on January 31, 2003, the notes will mature on the earlier of (i) March
31, 2003 or (ii) the effective date of a "Change in Control" of JAG Media, as
such term is defined in our Long-Term Incentive Plan.
In addition, during the six months ended January 31, 2003, we issued 900,604
shares of Class A common stock with a fair value of $440,091 in exchange for
services.
During the six months ended January 31, 2003, we used cash of approximately
$1,363,000 in our operations of which approximately $735,000 was used to reduce
accounts payable and accrued expenses.
We do not believe that our business is subject to seasonal trends or inflation.
On an ongoing basis, we will attempt to minimize any effect of inflation on our
operating results by controlling operating costs and whenever possible, seeking
to insure that subscription rates reflect increases in costs due to inflation.
The FASB and the Accounting Standards Committee of the American Institute of
Certified Public Accountants had issued certain accounting pronouncements as of
January 31, 2003 that will become effective in subsequent periods; however, we
do not believe that any of those pronouncements would have significantly
affected our financial accounting measurements or disclosures had they been in
effect during the six months ended January 31, 2003 and 2002 or that they will
have a significant effect at the time they become effective.
Item 3. Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of our disclosure controls and procedures that we
have in place with respect to the accumulation and communication of information
to management and the recording, processing, summarizing and recording thereof
for the purpose of preparing and filing this quarterly report on Form 10-QSB as
of a date within 90 days before the filing date of this quarterly report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that our current disclosure controls and procedures are an effective
means for timely communication of material information relating to us required
to be disclosed in the reports we file or submit under the Securities Exchange
Act of 1934, as amended.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
that they carried out their evaluation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On June 20, 2002, JAG Media Holdings, Inc. (referred to herein as "we", "JAG
Media" or the "Company") and its President and Chief Executive Officer, Gary
Valinoti, filed a complaint in the 165th District Court of Harris County, Texas
against over 150 brokerage firms, alleging, among other things, a conspiracy
among the defendants to short sell JAG Media stock. The original lawsuit was
subsequently amended on June 24, 2002 and was recently removed to the United
States District Court for the Southern District of Texas. The plaintiffs
subsequently filed a motion in United States District Court for the Southern
District of Texas to have the action remanded back to the state court where it
was originally commenced. That motion was denied and the action is proceeding in
the federal district court. The court is currently entertaining several motions
to dismiss made by various defendants. Briefing on those issues has commenced.
Additionally, the discovery process has begun, and the plaintiffs are
currently pursuing document production.
In this action, the plaintiffs seek an immediate accounting of all short
positions, an accounting of all profits made by the defendants in trading JAG
Media stock, disgorgement of any profits made by those defendants, actual
damages incurred as a result of the defendants' trading activities, exemplary
damages for the defendants' intentional conduct and attorneys fees and costs
incurred as a result of this litigation. In our view, unusual patterns of
trading suggest a substantial illegal short position in our shares, which we
hope to verify through various pre-trial discovery procedures.
On July 29, 2002, the same plaintiffs filed a related complaint against the same
defendants in the United States District Court for the District of Nevada. This
action alleges violations of various securities laws, including but not limited
to, sections 9 (a) and 10 (b) of the Securities Exchange Act of 1934, violations
of 18 U.S.C.A. 1962 and 1964 (commonly known as the Racketeer Influenced and
Corrupt Organizations Act), common law fraud, conspiracy and negligent
misrepresentation by the defendants. In this action, the plaintiffs seek an
accounting of all profits made by the defendants in trading JAG Media stock,
disgorgement of any profits made by those defendants, actual damages incurred as
a result of the defendants' trading activities, exemplary damages for the
defendants' intentional conduct, treble damages for the defendants' alleged RICO
violations and attorneys fees and costs incurred as a result of this litigation.
In our view, unusual patterns of trading suggest an illegal coordinated effort
to affect the price of our shares, which we hope to verify through various
pre-trial discovery procedures.
There are no currently pending material lawsuits or similar administrative
proceedings against JAG Media and, to the best of our knowledge, there is
presently no basis for any other suit or proceeding.
Item 2. Changes in Securities and Use of Proceeds.
Equity Line.
As of April 9, 2002, we 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 we can put shares of our Class A Common Stock, par value
$0.00001 per share ("Class A Common Stock"), which have been registered with the
U.S. Securities and Exchange Commission (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, we issued Westrock Advisors, Inc. a placement
agent fee of 10,000 shares of our Class A Common Stock. We also have agreed to
pay a 5% cash fee to Cornell Capital payable out of each drawdown under the
equity line. The registration statement covering the shares issuable to Cornell
Capital and Westrock under the equity line was declared effective by the SEC on
August 28, 2002.
During the period from November 1, 2002 through January 31, 2003, we sold
Cornell Capital 131,579, 939,850 and 302,198 shares of Class A Common Stock
under the equity line at prices per share of $0.456, $0.532 and $0.91,
respectively, and we received total proceeds of $793,250, net of $41,750 of
placement fees.
Bay Point Private Placement.
Pursuant to a Subscription Agreement, dated as of December 10, 2002, Bay Point
Investment Partners LLC ("Bay Point") purchased 1,136,364 shares of our Class A
Common Stock at a price per share of $0.44 for a total consideration of
$500,000. The purchase price represented a 30% discount to the closing bid price
of our Class A Common Stock on December 9, 2002. The issuance of such securities
was exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. The registration statement covering the resale
of shares issued to Bay Point was declared effective by the SEC on March 14,
2003.
In connection with the private placement, we paid a placement agent fee equal to
5% of the gross proceeds received from Bay Point, or $25,000, to RMC 1 Capital
Markets, Inc.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On or about January 7, 2003, JAG Media mailed a Proxy Statement to shareholders
in connection with its annual meeting (the "Annual Meeting") which was held on
January 31, 2003 in Conference Room 39D-1 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 Annual Meeting: (a)
election of Gary Valinoti, Thomas J. Mazzarisi and Stephen J. Schoepfer to serve
as the directors of the Company for the ensuing year; (b) the ratification of
the selection of J.H. Cohn LLP as the Company's independent accountants for
2002; and (c) the proposal to authorize our Board of Directors to implement
"custody only" trading of the Company's Class A Common Stock.
As of January 2, 2003, the record date established by our Board of Directors for
the Annual Meeting, there were 37,092,712 shares of the Company's Class A Common
Stock, and 1,430,301 shares of Series 1 Class B Common Stock, par value $0.00001
per share ("Series 1 Class B Common Stock"), outstanding, the holders of which
were entitled to vote at the Annual Meeting. The holders of 36,940,308 shares of
Class A Common Stock and Series 1 Class B Common Stock, or more than a majority
of Class A Common Stock and Series 1 Class B Common Stock outstanding and
entitled to vote at the Annual Meeting, were present in person or represented by
proxy at the Annual Meeting. The holders of 36,936,461 shares of Class A Common
Stock and Series 1 Class B Common Stock voted for the election of the directors
named in the Proxy Statement and the holders of 3,847 shares of Class A Common
Stock and Series 1 Class B Common Stock withheld their vote for the nominated
directors. No other directors were nominated by the shareholders. The holders of
36,532,495 shares of Class A Common Stock and Series 1 Class B Common Stock
voted for the approval of the selection of J.H. Cohn LLP as the Company's
independent public accountants, and the holders of 167,523 shares of Class A
Common Stock and Series 1 Class B Common Stock voted against approval. Lastly,
the holders of 21,893,153 shares of Class A Common Stock and Series 1 Class B
Common Stock voted in favor of the Board of Directors implementing "custody
only" trading of the Company's shares and the holders of 375,278 shares of Class
A Common Stock and Series 1 Class B Common Stock voted against such proposal.
Item 5. Other Information.
Amendments to Promissory Notes.
Pursuant to an amendment dated January 31, 2003 to the promissory note, dated
April 1, 2002, issued by us to Thomas J. Mazzarisi, our Executive Vice
President, Chief Financial Officer and General Counsel, in the amount of
$200,000, the maturity date of said note was extended from January 31, 2003 to
the earlier of (i) March 31, 2003 or (ii) the effective date of a "Change in
Control" of JAG Media, as such term is defined in the JAG Media Long-Term
Incentive Plan, as amended to date. The note remains issued and outstanding as
of the date of this filing.
Pursuant to an amendment dated January 31, 2003 to the promissory note, dated
April 1, 2002, issued by us to Stephen J. Schoepfer, our Executive Vice
President and Chief Operating Officer, in the amount of $200,000, the maturity
date of said note was extended from January 31, 2003 to the earlier of (i) March
31, 2003 or (ii) the effective date of a "Change in Control" of JAG Media, as
such term is defined in the JAG Media Long-Term Incentive Plan, as amended to
date. The note remains issued and outstanding as of the date of this filing.
Custody Only Trading.
In the proxy statement for our Annual Meeting which was mailed to our
stockholders on or about January 7, 2003, the Board of Directors of JAG Media
announced that it was considering implementing "custody only" trading of the
Class A Common Stock as a possible mechanism to protect our stockholders against
naked short selling of the Class A Common Stock. Naked short selling occurs when
a broker permits its customer to sell shares it does not own and has not
borrowed, so it cannot deliver the shares sold to the purchaser. This procedure
is one way to help ensure that short sellers deliver the shares they sell to
their purchasers. In a press release dated January 24, 2003, we announced that
our Board of Directors had decided to amend our By-Laws to adopt custody only
trading. As of that date in excess of 21,000,000 shares (representing in excess
of 98% of the votes cast on the matter) had been voted in favor of the custody
only trading proposal contained in our proxy statement.
Our management subsequently reviewed the guidance statement of the Depository
Trust Company ("DTC") issued on January 28, 2003 to all DTC participants which
stated that issuers do not have the right to remove their securities from the
DTC system. We then retained counsel to assist us in assessing our options in
light of the guidance statement.
We have not yet determined what further steps to take, if any, in implementing
custody only trading.
Acquisition of OIL@WORK.
On February 14, 2003, we issued a press release announcing that the Company had
entered into a Letter of Intent, dated February 14, 2003 (the "Letter of
Intent"), to acquire OIL@WORK Group, Inc., a privately held Delaware corporation
based in Dallas, Texas ("OIL@WORK").
Background Information Regarding OIL@WORK:
OIL@WORK has invested $4,000,000 over the last three years to reengineer a
traditional, but upscale, "concierge" auto repair service as a
communications-based auto maintenance business.
Through its BOS Intelligent Technology subsidiary, OIL@WORK is developing a
technology platform that, when implemented, will enable it to remotely connect
to both its customers and its workforce. The platform permits remote activities
such as customer reminders of upcoming service events, in-vehicle communication
directly with drivers, remote vehicle diagnostics, online service histories for
all customer vehicles, Global Positioning Satellite (GPS) technology to track
and direct field technicians efficiently, bar code scanning for efficient
management of parts inventories and Web streaming video of field and garage
services permitting customers to see their repairs being made. This technology
platform would provide OIL@WORK both the opportunity to manage its business more
cost effectively and to provide levels of customer service above the industry
standard. OIL@WORK is also examining the potential for marketing its technology
platform to other automotive "after-sales" service providers.
OIL@WORK is applying its new technology to the auto "concierge" service it
provides to tenants of office buildings. Its service allows owners to have their
automobiles serviced while they are at work without having to use their own free
time or valuable business hours. OIL@WORK is currently offering its services at
34 buildings in the Dallas/Fort Worth area. In 2002, OIL@WORK generated gross
revenues of $368,000 from the pilot services it performed in conjunction with
carrying out its research and development activities.
Structure of Transaction:
The Letter of Intent contemplates that OIL@WORK, the Company and a newly formed
wholly owned subsidiary of the Company ("Merger Sub") will enter into an
acquisition agreement pursuant to which Merger Sub would merge into OIL@WORK
with OIL@WORK as the surviving corporation (the "Merger"). At the effective time
of the Merger (the "Effective Time"), all issued and outstanding shares of
OIL@WORK would be converted into the right to receive an aggregate number of
shares of the Company's Class A Common Stock, which upon issuance would
represent 50.1% of the Company's outstanding capital stock on a fully diluted
basis (the "New JAG Shares").
Consummation of the Merger would be subject to the satisfaction of various
customary conditions as well as the condition that OIL@WORK improve its net
equity position by $3.0 million prior to the Effective Time. The Company's
current subsidiaries, JAG Media LLC and JAG Company Voice LLC, will continue to
operate as subsidiaries of the Company following the Merger.
Post-Closing Actions:
At the closing of the proposed transaction, it is anticipated that the Company
will exercise its right to terminate its $10,000,000 equity line with Cornell
Capital Partners LP. In addition, Messrs. Gary Valinoti, Stephen J. Schoepfer
and Thomas J. Mazzarisi (collectively, the "Management Stockholders") would
resign from their positions as executive officers and directors of the Company
at the Effective Time, but would continue to be involved as consultants or
employees to the Company's JAG Media LLC or JAG Company Voice LLC subsidiaries
for varying periods of time as yet undetermined. The former OIL@WORK
stockholders (the "OAW Stockholders") together with the Management Stockholders
would then vote their shares of the Company, representing a majority of all
outstanding shares of the Company, in favor of (a) an amendment to the Company's
Articles of Incorporation to effect a name change to better reflect the overall
business in which the Company expects to engage following the acquisition of
OIL@WORK; (b) an amendment to the bylaws of the Company providing (inter alia)
for an increase in the number of members that constitute the Board of Directors
from three to seven; and (c) the election of up to seven new OIL@WORK nominees
to the Board of Directors. The transaction with OIL@WORK would trigger the
change-in-control provisions in the existing employment agreements of the
Management Stockholders, resulting in the issuance to each Management
Stockholder of new options to acquire 1,000,000 shares of Class A Common Stock
at an exercise price equal to 25% of the closing bid price of the stock
immediately prior to such change-in-control, which options would be fully vested
and immediately exercisable in full and expire on the earlier of ten years from
such change-in-control and three years after termination of employment. In
addition, upon resignation from their positions as officers of the Company at
the Effective Time, the Management Stockholders would be entitled to severance
payments equal to the remaining compensation due to them under their respective
employment agreements with the Company. Any shares in the Company received by
the Management Stockholders pursuant to the foregoing, together with any other
such shares held by them, would be subject to the lock-up provision described in
the fourth bullet point below.
Lock-Up Provisions:
As part of the transaction, the OAW Stockholders and Management Stockholders
have agreed to the following post-Merger lock-up provisions:
o Each OAW Stockholder who is also an officer of OIL@WORK (each an "OAW
Officer") will agree not to sell more than five percent (5%) of his New JAG
Shares during the first calendar year following the closing. Each OAW
Officer will be permitted to sell an additional ten percent (10%) of his
New JAG Shares during the one-year period commencing on the first
anniversary of the closing. The remaining eighty-five percent (85%) of his
New JAG Shares may be sold at any time following the second anniversary of
the closing.
o Each OAW Stockholder who (i) is not an OAW Officer and (ii) did not invest
in OIL@WORK just prior to the Merger will agree to not sell more than seven
and one-half percent (7.5%) of his New JAG Shares during the first calendar
year following the closing. Such stockholder will be permitted to sell an
additional fifteen percent (15%) of his New JAG Shares during the one-year
period commencing on the first anniversary of the closing. The remaining
seventy-seven and one-half percent (77.5%) of his New JAG Shares may be
sold at any time following the second anniversary of the closing.
o Each OAW Stockholder who (i) is not an OAW Officer and (ii) invested in
OIL@WORK just prior to the Merger, will agree to not sell more than ten
percent (10%) of his New JAG Shares during the first calendar year
following the closing. Such stockholder will be permitted to sell an
additional twenty-five percent (25%) of his New JAG Shares during the
one-year period commencing on the first anniversary of the closing. The
remaining sixty-five percent (65%) of his New JAG Shares may be sold at any
time following the second anniversary of the closing.
o Each Management Stockholder will agree to not sell 50% of his shares for a
period of one calendar year following the closing. Each Management
Stockholder will be permitted to sell an additional twenty-five percent
(25%) of his shares during the one-year period commencing on the first
anniversary of the closing. The remaining twenty-five percent (25%) of his
shares may be sold at any time following the second anniversary of the
closing.
In addition, each OAW Stockholder and each Management Stockholder for so long as
he continues as an employee or consultant of the Company following the Effective
Time, would invest under a new Employee Stock Purchase Plan an amount from time
to time which is the equivalent of ten percent (10%) of any proceeds (net of
taxes) received by such person from the sale of any shares which are effected at
a price per share in excess of $5.00. Under the terms of the Employee Stock
Purchase Plan, such investment shall be made at a ten percent (10%) discount to
the then current fair market value of the Class A Common Stock.
Except for certain specified provisions, the Letter of Intent is non-binding.
There is no assurance that the definitive documentation called for in the Letter
of Intent will ever be executed, or if executed, that the proposed transaction
between the Company and OIL@WORK will be consummated.
Stock Dividend:
In connection with the proposed OIL@WORK transaction, we also announced our
intention to declare and set a record date for a special stock dividend to our
pre-Merger stockholders which will be payable as soon as possible after the
Merger is complete.. To effect such dividend, we intend to file a Certificate of
Designation with the Secretary of State of the State of Nevada which designates
a new series of Class B common stock, par value $0.00001 per share ("Series 2
Class B Common Stock"), of the Company which will be distributed by dividend to
the our stockholders of record as of the close of business on the stated record
date in the ratio of one share of Series 2 Class B Common Stock for every 100
shares of Class A Common Stock. Such shares of Series 2 Class B Common Stock
would be non-voting, have dividend and liquidation rights equal to the Class A
Common Stock and be redeemable, which redemption by the Company shall be
mandatory to the fullest extent permitted by law within six months following
final resolution of the Company's pending lawsuit in Texas federal court against
various brokerage firms at a redemption price which is the greater of (a) par
value or (b) ninety percent of the net proceeds to the Company of such lawsuit
after payment of fees and expenses incurred in connection with such lawsuit and
all taxes on net income accrued or paid with respect to such net amount. The
shares of Series 2 Class B Common Stock will not have a CUSIP number.
Certificates for such shares will specify the beneficial owner of such shares
and will be mailed to such beneficial owner. Accordingly, the stock dividend is
expected to inhibit short selling of our shares unless the sellers are able to
deliver the shares they sell as the stock dividend will only be payable to
actual stockholders as of the record date for the dividend.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
- ----------- -----------
3.1 Amendment to Bylaws of Registrant (1)
4.1 Amendment, dated January 31, 2003, to Promissory Note, dated April
1, 2002 in the amount of $200,000 issued to Thomas J. Mazzarisi.
(3)
4.2 Amendment, dated January 31, 2003, to Promissory Note, dated April
1, 2002 in the amount of $200,000 issued to Stephen J. Schoepfer.
(3)
99.1 Section 906 Certification of Chief Executive Officer and Chief
Financial Officer.
99.2 Letter of Intent, dated February 14, 2003, between the Registrant,
OIL@WORK Group, Inc. and certain stockholders of OIL@WORK Group,
Inc. (2)
(1) Previously filed as an exhibit to our Current Report on Form 8-K
filed on January 27, 2003.
(2) Previously filed as an exhibit to our Current Report on Form 8-K
filed on February 18, 2003.
(3) Previously filed as an exhibit to Amendment No. 1 to our
Registration Statement on Form SB-2 filed on February 24, 2003.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the three month
period ended January 31, 2003:
o Current Report on Form 8-K filed with the Commission on
November 26, 2002, attaching a press release which announced
the Company's consideration of a "custody only" trading
policy.
o Current Report on Form 8-K filed with the Commission on
January 27, 2003, attaching (i) a press release which
announced the adoption by Board of Directors of a "custody
only" trading policy and (ii) an amendment to the corporate
bylaws reflecting such policy.
o Current Report on Form 8-K filed with the Commission on
January 30, 2003, attaching a press release which announced an
update regarding the status of implementing a "custody only"
trading policy.
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.
JAG MEDIA HOLDINGS, INC.
Date: March 17, 2003 By: /s/ Gary Valinoti
-------------------
Name: Gary Valinoti
Title: President and Chief Executive Officer
Date: March 17, 2003 By: /s/ Thomas J. Mazzarisi
-------------------------
Name: Thomas J. Mazzarisi
Title: Executive Vice President,
Chief Financial Officer and
General Counsel
CERTIFICATIONS
I, Gary Valinoti, Chief Executive Officer of JAG Media Holdings, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of JAG Media
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
/s/ Gary Valinoti
--------------------
Name: Gary Valinoti
Title: Chief Executive Officer
I, Thomas J. Mazzarisi, Chief Financial Officer of JAG Media Holdings,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of JAG Media
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
/s/ Thomas J. Mazzarisi
------------------------
Name: Thomas J. Mazzarisi
Title: Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Section 906 Certification of Chief Executive Officer
and Chief Financial Officer.