<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 2000
REGISTRATION NO. 333-42172
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT ON
FORM SB-2
UNDER THE SECURITIES ACT OF 1933
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JAGNOTES.COM INC.
(Name of Small Business Issuer in its Charter)
Nevada
(State of Incorporation)
8999 88-0380456
(Primary Standard Industrial (IRS Employer I.D. No.)
Classification Code No.)
226 West 26th Street
Studio D
New York, New York 10001
(646) 205-8314
(Address and Telephone Number of Principal Executive Office and
Principal Place of Business)
Gary Valinoti
President & Chief Executive Officer
JagNotes.com Inc.
226 West 26th Street, Studio D
New York, New York 10001
Tel: (646) 205-8314
Fax: (646) 205-8315
(Name, address and telephone number of agent for service)
With a copy to:
Thomas J. Mazzarisi, Esq.
Executive Vice President and General Counsel
JagNotes.com Inc.
1200 N. Federal Highway, Suite 200
Boca Raton, Florida 33432
Tel: (561) 447-8248
Fax: (561) 447-8247
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[LOGO]
JagNotes.com Inc.
Prospectus
19,453,571 Shares of Common Stock
This prospectus relates to the resale by certain persons who are, or
will become, stockholders of JagNotes.com Inc. of up to 19,453,571 shares of our
common stock:
CALP II Limited Partnership is an "underwriter" within the meaning of
the Securities Act in connection with the resale under this prospectus of up to
10,000,000 shares it may receive pursuant to an equity line of credit agreement
entered into with us on June 14, 2000, as amended from time to time.
Accordingly, the 15% discount on the purchase of the common stock to be received
by CALP II Limited Partnership pursuant to such agreement will be an
underwriting discount under the Securities Act.
Our common stock is traded in the over the counter market and quoted on
the Nasdaq OTC Bulletin Board under the symbol "JNOT." The closing bid and asked
prices on November 20, 2000 were $0.75 and $0.8125, respectively.
------------------
Brokers or dealers effecting transactions in these shares should
confirm that the shares are registered under applicable state law or that an
exemption from registration is available.
These shares have not been approved by the SEC or any state securities
commission nor have these organizations determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
This investment is highly speculative and involves a high degree of
risk. You should purchase these shares only if you can afford a complete loss.
See "Risk Factors" beginning on page 11 for more information.
-----------------
The date of this prospectus is November 22, 2000
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TABLE OF CONTENTS
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Summary 3
Risk Factors 11
Use of Proceeds 23
Selected Financial Data 24
Management's Discussion and Analysis of Financial Condition and Results of Operation 25
Market for Common Stock and Related Stockholder Matters 33
The Company 35
Management and Executive Compensation 49
Security Ownership of Certain Beneficial Owners and Management 55
Selling Stockholders 57
Plan of Distribution 60
Description of Securities 67
Legal Matters 69
Experts 70
Other Information 70
</TABLE>
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SUMMARY
This section highlights selected information only and may not contain
all of the information that may be important to you. Please read this entire
prospectus before making your investment decision. This summary, including the
summary financial information, is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus.
Throughout this prospectus, when we refer to (i) "JagNotes" or when we
speak of ourselves generally, we are referring collectively to JagNotes.com Inc.
and its subsidiaries unless the context indicates otherwise or as otherwise
noted and (ii) "CALP II," we are referring to CALP II Limited Partnership, one
of the selling stockholders offering shares covered by this prospectus.
JagNotes and JAGfn are servicemarks of JagNotes.com Inc.
The Company
We have been providing financial and investment information within the
investment community since 1989. In May 1999, we began offering our services on
a subscription fee basis to the general public for the first time through our
U.S. web site. At www.jagfn.com, our subscribers access timely financial data
and reports and commentary from the financial community. On October 9, 2000 we
began "JAGfn", an advertising based live webcasting service covering fast
breaking financial news during the trading day. In addition to being shown on
our web site, we have syndicated the JAGfn webcast to make it available through
other web sites and portals in the hope of increasing our audience and
eventually our advertising revenue from the webcast.
The JAGfn webcast is presented each weekday from 8:30 a.m. to 4:30 p.m.
ET. The webcast features fast breaking news, up-to-the-minute market information
and expert Wall Street commentary targeted at online investors and financial
professionals. The webcast attempts to combine the most popular elements of the
mediums which have proven attractive to investors - live TV, talk radio,
newswire services, newsletters, chat rooms and message boards - into one
Internet-based webcast. This live, original programming is available free of
charge to users of the JAGfn.com web site. The JAGfn webcast is also being made
available on numerous other web sites which have entered into syndication
agreements with JAGfn. Our webcast may also be offered in the future through
other platforms such as radio, satellite and cable.
A detailed description of our business strategy is provided under the
heading "The Company" below.
Our address is 226 West 26th Street, Studio D, New York, New York 10001
and our telephone number is (646) 205-8314.
4
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The Offering
The shares covered by this prospectus which are being offered by the
selling stockholders consist of:
o up to 10,000,000 shares of common stock that CALP II may purchase
from us pursuant to an equity line of credit agreement,
o up to 2,000,000 shares of common stock that CALP II may acquire upon
exercise of stock purchase warrants which we may issue to CALP II,
from time to time, in connection with an equity line of credit
agreement,
o up to 5,000,000 shares of common stock that may be issued to CALP II
upon conversion of an 8% Convertible Debenture due June 12, 2003,
o 428,571 shares of common stock that may be issued to CALP II upon
exercise of a stock purchase warrant,
o 250,000 shares of common stock that may be issued to Thomson
Kernaghan & Co., Ltd. upon exercise of a stock purchase warrant,
o 25,000 shares of common stock that may be issued to Butler Gonzalez,
LLP upon exercise of a stock purchase warrant,
o 500,000 shares of common stock that may be issued to Strategic
Growth International, Inc. upon exercise of a stock option and
o an aggregate of 1,250,000 shares of common stock that may be issued
to The May Davis Group, Inc. and five of its affiliates upon the
exercise of stock purchase warrants.
Private Equity Line of Credit
Because our expenditures have significantly exceeded our cash revenues
generated to date, we will require more capital to achieve our current business
strategy. At this time, our principal source of funding is CALP II Limited
Partnership, which has entered into a $10,000,000 equity line of credit
agreement with us. Under the equity line credit agreement, we are entitled to
periodically cause CALP II to purchase shares of our common stock. The following
is a summary of the terms of that agreement under which $1,166,667 has been
drawn down to date:
5
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Securities to be sold: JagNotes common stock
----------------------------------------------------------- --------------------------------------------------------
Maximum purchase price: $10,000,000
----------------------------------------------------------- --------------------------------------------------------
Period of sale: The period beginning on June 14, 2000 and ending on
December 14, 2002.
----------------------------------------------------------- --------------------------------------------------------
Maximum amount of each draw: $900,000
----------------------------------------------------------- --------------------------------------------------------
Minimum amount of each draw: Notwithstanding any other limitation imposed by the
terms and conditions of the equity line of credit
agreement, we may draw down any amount up to and
including $400,000, net of any placement agent
commissions, during each 15 day period within the term
of the agreement until such time as we have drawn down
a total of $10,000,000 under the equity line or the
agreement has been otherwise terminated as described
below.
----------------------------------------------------------- --------------------------------------------------------
Draw dates: Dates selected by us but no more frequently than once
every 15 days. Our access to the equity line has recently
been tolled until January 1, 2001 pursuant to an
amendment to the equity line of credit agreement dated
October 31, 2000.
----------------------------------------------------------- --------------------------------------------------------
Sale price per share to CALP II: 85% of average of the five lowest closing bid prices
of our common stock over the ten trading days
beginning on the date we elect to exercise our put
right.
----------------------------------------------------------- --------------------------------------------------------
Payment and delivery of shares: Ten trading days following a draw.
----------------------------------------------------------- --------------------------------------------------------
Conditions to draws: - The closing price of our common stock on the date on
which CALP II advances the funds to us must be at least
$1.00 per share.
- The average trading volume for each of the trading days
within the ten calendar days preceding the date on which
CALP II advances the funds to us shall be at least
20,000. The average trading volume shall be computed by
multiplying the average bid price by the average daily
trading volume of our common stock during such ten
calendar day period.
----------------------------------------------------------- --------------------------------------------------------
- There has been no suspension in the trading of our
common stock by either the SEC or the Nasdaq OTC
Bulletin Board or any other relevant market on which our
common stock is traded.
----------------------------------------------------------- --------------------------------------------------------
- The registration statement, which includes this
prospectus, must be effective.
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6
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<TABLE>
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Penalties: - If the effectiveness of this registration statement is
suspended for any period exceeding ten days (not
including any period during which a post-effective
amendment to this registration statement has been filed
with, but not yet been declared effective by, the SEC),
we have agreed to pay CALP II a penalty equal to 3% of
the purchase price of the shares of common stock then
held by CALP II for each ten day period that the
registration statement is not effective.
----------------------------------------------------------- --------------------------------------------------------
- If we terminate or breach our agreement with CALP II
prior to drawing down a minimum of $5,000,000 from the
equity line of credit, we must issue warrants to CALP II
for the remaining full undrawn amount up to $5,000,000.
The warrants shall be exercisable at a price equal to the
lowest closing bid price of our common stock during the
three months prior to breach or termination. We also must
pay CALP II the undrawn amount up to $5,000,000
multiplied by a amount equal to the difference between
(i) the average of the five lowest closing bid prices of
our common stock over a ten trading day period preceding
the breach or termination and (ii) 85% of such average
market price.
----------------------------------------------------------- --------------------------------------------------------
Termination: CALP II shall have no further obligations to purchase
shares of our common stock pursuant to the equity line
of credit agreement if the effectiveness of this
registration statement is suspended for more than 30
trading days (not including any period during which a
post-effective amendment to this registration
statement has been filed with, but not yet been
declared effective by, the SEC).
----------------------------------------------------------- --------------------------------------------------------
Ability to immediately resell shares: CALP II is able to immediately resell to the public any
shares it acquires from us.
----------------------------------------------------------- --------------------------------------------------------
Warrant coverage: On each date on which CALP II advances funds to us
under the private equity line, we must issue to CALP
II a warrant to purchase a number of shares of common
stock equal to 20% of the number of shares that are
subject to the advance at an exercise price equal to
110% of the average bid price for the five trading
days preceding the advance date.
----------------------------------------------------------- --------------------------------------------------------
Finders' fee: For arranging the sale to CALP II, we have agreed to
pay to The May Davis Group, Inc., and Thomson
Kernaghan & Co., Ltd., as agents, an aggregate of 10%
of the cash received from each draw in addition to the
warrants issued to Thomson Kernaghan as described
below.
----------------------------------------------------------- --------------------------------------------------------
</TABLE>
7
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Pursuant to an amendment to our equity line of credit agreement with
CALP II dated October 31, 2000, we have agreed that our right to put shares to
CALP II in accordance with the terms of such agreement will be tolled until
January 1, 2001, provided that CALP II is not in default of any of its other
funding obligations to JagNotes. Following January 1, 2001, we may once again
put our shares to CALP II by delivering advance notices in accordance with the
terms of the Equity Line of Credit Agreement, except that, notwithstanding any
limitation imposed by such agreement, we may request an advance of any amount up
to and including $400,000, net of the ten percent commission payable to Thomson
Kernaghan and May Davis with respect to each advance notice that we deliver to
CALP II.
CALP II Convertible Debenture
On June 12, 2000, we effected a private placement of a convertible
debenture in the principal amount of $2,500,000 due June 12, 2003 and bearing
interest at 8% per year. The principal of and interest on the debenture is
convertible into our common stock at the lesser of $0.80 per share or 75% of the
average of the five lowest closing bid prices for such shares during the 20
trading days preceding the conversion. We can require such conversion at a rate
based on a matrix of market price per share and daily volume in each 15 day
period ranging from a high of $900,000 ($3.00 per share and 200,000 shares of
daily trading volume) to $30,000 ($1.00 per share and 30,000 shares of daily
trading volume). In August 2000, CALP II converted 46,442 shares of our common
stock upon partial conversion of the CALP II Convertible Debenture. On November
17, 2000, we issued an additional 1,241,128 shares of common stock to CALP II
pursuant to an $800,000 conversion notice from CALP II dated November 10, 2000.
If CALP II opted to convert the remaining $1,650,000 principal amount of the
CALP II Convertible Debenture as of November 10, 2000, CALP II would be entitled
to acquire approximately 2,434,623 shares of our common stock, or approximately
14.2% of the number of shares of common stock that were then outstanding after
the conversion; however, because the terms and conditions of the CALP II
Convertible Debenture restrict CALP II from acquiring in excess of 10% of the
outstanding shares of our common stock upon conversion, we would not be required
to issue to CALP II any shares which would cause CALP II's beneficial ownership
of our common stock to exceed 10%.
As collateral for the CALP II Convertible Debenture we have agreed to
deposit 2,000,000 shares of our common stock in a segregated account with
Thomson Kernaghan If an event of default occurs under the CALP II Convertible
Debenture, CALP II is entitled to foreclose on these shares. Upon conversion of
the CALP II Convertible Debenture, the shares held in escrow will be returned to
us pro rata in accordance with the conversion amount.
If we fail to maintain the effectiveness of the registration statement
of which this prospectus is a part, CALP II may require us to pay a penalty
equal to 2% of the purchase price of the shares of common stock then held by
CALP II for each 30 day period that the registration
8
<PAGE>
statement is not effective. However, we are not required to pay damages to CALP
II in connection with any ineffective period commencing on the date a
post-effective amendment to this registration statement is filed and ending on
the date such post effective amendment is declared effective by the SEC.
Stock Purchase Warrants
CALP II Limited Partnership
In connection with the issuance of the CALP II Convertible Debenture,
CALP II also received a five-year stock purchase warrant to purchase 428,571
shares of our common stock at a price of $1.75 per share. To date, we have
issued CALP II additional five-year stock purchase warrants to purchase an
aggregate of 227,168 shares of common stock pursuant to the terms of our equity
line of credit agreement.
Placement Agent and Legal Fees
Thomson Kernaghan received, as part of its placement agency fee, a
five-year stock purchase warrant to purchase 250,000 shares of our common stock
at a price of $2.00 per share. As part of their legal fee in connection with the
preparation of documents relating to the CALP II Convertible Debenture and the
private equity line, Butler Gonzalez LLP received a five-year stock purchase
warrant to purchase 25,000 shares of our common stock at a price of $2.00 per
share.
Investment Banking Services
Pursuant to a consulting agreement, dated as of July 21, 2000, we
issued stock purchase warrants to The May Davis Group, Inc. and its designees
named in the selling stockholder table of this prospectus to acquire an
aggregate of 1,250,000 shares of our common stock in exchange for investment
banking services which have been and shall continue to be provided to us by
these consultants. Each stock purchase warrant issued in connection with the May
Davis consulting agreement is for a five-year term and is exercisable at a price
of $2.00 per share.
Stock Option
Pursuant to an agreement, dated March 14, 2000, we granted a stock
option to Strategic Growth International, Inc. to purchase 500,000 shares of our
common stock at $3.50 per share in exchange for investor relations consulting
services provided to us.
9
<PAGE>
Summary Financial Data
The consolidated statement of operations data for the years ended July
31, 1999 and July 31, 2000, and the consolidated balance sheet data as of July
31, 2000 have been derived from financial statements which have been audited by
J.H. Cohn LLP, independent public accountants, and included elsewhere in this
prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Fiscal years ended July 31,
---------------------------
2000 1999
---- ----
Subscription revenues $ 1,042,033 $ 800,716
Net loss $(16,663,658) $(1,028,292)
Basic net loss per share $ (1.18) $ (.11)
Basic weighted average Common
Shares outstanding 14,166,218 9,237,693
Consolidated Balance Sheet Data
Fiscal year ended July 31, 2000
-------------------------------
Total assets $4,263,339
Total liabilities $2,340,213
Stockholders' equity $1,923,126
10
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RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks occur, our business, results of operations and financial
condition could be harmed, the trading price of our common stock could decline,
and you could lose all or part of your investment.
Risks Related to Our Business
We have a history of losses, anticipate losses for the foreseeable future and
may never achieve profitability.
As of July 31, 2000 we had incurred losses to date of approximately
$17,874,000, and we expect to incur additional losses for at least the rest of
fiscal year 2000 and fiscal year 2001. From August 1 through October 31, 2000,
our cash expenses totaled approximately $2,556,358 compared to revenues of
$310,262. We may never achieve profitability. We have made, and will continue to
make, very significant expenditures well before our revenues increase to cover
these additional costs. We are not able to estimate when, if ever, our revenues
will increase to cover these costs. We will continue to incur significant losses
for the foreseeable future and cannot assure you that our revenue will grow in
the future or that additional financing will be made available to us. When we
require additional funding and do not obtain it, we may be forced to
restructure, file for bankruptcy or cease operations, any of which could cause
you to lose all or part of your investment in our common stock. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
CALP II Limited Partnership and Thomson Kernaghan & Co., Ltd. are our only
committed sources of capital.
We are entirely dependent for our working capital upon equity
investments in our company by CALP II Limited Partnership, a foreign investor
and Thomson Kernaghan, a Canadian broker-dealer. Although (i) CALP II has agreed
to advance us a net of $800,000 per month beginning in January 2001 until we
have drawn down a maximum of $10 million pursuant to the terms and conditions of
our equity line of credit agreement (approximately $1.2 million of which we have
already drawn down) and (ii) Thomson Kernaghan has agreed to purchase, or cause
to be purchased, six convertible debentures for an additional net amount of $3
million (of which we have drawn down $1,500,000), we cannot assure you that
these funds will be sufficient to sustain our operations due to the high costs
associated with the establishment of our webcasting business.
In addition, CALP II's obligation to purchase our shares under the
equity line of credit agreement is dependent upon various conditions, including
maintaining an effective registration statement which covers such shares, being
satisfied. If these conditions are not satisfied, we cannot require CALP II to
purchase our shares. Since the obligations of CALP II to complete its purchases
is not secured or guaranteed, if CALP II does not have available funds at the
time it is required to make a purchase or if CALP II otherwise refuses to honor
its obligation to us, we may not be able to force it to do so.
11
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In the absence of timely receipt of such funds or if the amounts
received prove insufficient to sustain the cost of our operations, we would be
forced to restructure, file for bankruptcy or cease operations, any of which
could cause you to lose all or part of your investment in our common stock.
We will require additional funds to achieve our current business strategy.
We will require more capital to achieve our current business strategy.
As we require additional funds to sustain our operations as well as our planned
expansion and growth we will have to seek additional equity or other financing.
Such financing is very difficult to achieve under current market conditions and
may not be available. Even if it is, it may be on terms that are materially
adverse to your interests with respect to dilution of book value, dividend
preferences, liquidation preferences, or other terms.
We cannot guarantee that we will be able to obtain additional financing
as we need it. When our operations require additional financing, if we are
unable to obtain it on reasonable terms, we would be forced to restructure, file
for bankruptcy or cease operations, any of which could cause you to lose all or
part of your investment in our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We are new to the retail marketplace, to the Internet and to broadband
webcasting.
Until recently our business was limited to distributing reports by fax
to a limited number of institutional traders, brokers, investment managers and
the like. We did not launch our web site or begin to focus on expansion into the
public retail market until 1999. Accordingly, there is a limited operating
history upon which to judge our current operations. In addition, we have in
October 2000 focused our primary efforts on webcasting, which is a new business
for us and generally a business in its infancy. We anticipate that the initial
costs of implementing our webcasting project through the first year of operation
will fall within the range of $8,000,000 to $10,000,000, approximately half of
which amount will be allocated to the construction, maintenance and rent of our
studio space and labor costs for studio personnel. In deciding whether to
purchase these shares, you should consider our prospects in light of the risks,
expenses, and difficulties frequently encountered by a small business beginning
operations in a new but highly competitive industry. We expect our operating
expenses to increase significantly as a result of our new webcasting focus and
the international expansion of our business and, since we have a limited
operating history marketing our products and services to the public over the
Internet, we cannot assure you that our business will be profitable or that we
will ever generate sufficient revenues to meet our expenses and support our
anticipated activities. See "Business" and "Financial Statements."
We may not be able to earn sufficient revenues from advertising on our new
webcasting service to support the continuation of our business.
12
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All advertising on our webcast is currently on a free-trial basis. We
do not know when we will receive advertising revenues from our webcast. We also
do not know what the advertising rates will then be or how large a viewership we
will be able to attract, as this is both a new service and a new means of
transmitting video and audio which does not yet provide as large or clear a
picture as traditional television.
We may not be able to adequately expand our subscriber base because many of our
competitors offer free financial information.
We must expand our subscriber base to be successful. Our subscriber
base has grown more slowly than anticipated. Although we are still attempting to
expand our subscriber base, our efforts may be ineffective, our competitors may
be more successful than we are in attracting customers, or the number of
Internet users seeking or willing to pay for financial information may not
increase or may decrease. Any of these would adversely affect us. Moreover, many
of our competitors offer financial information for free and are likely to
continue to do so at an increasing rate. Our current and potential subscribers
may be unwilling to pay for our service if they feel they can receive comparable
information for free. If we cannot expand our subscriber base, that portion of
our business will have little, if any, financial success. See "Business - Our
Business Strategy."
Shareholders may experience significant dilution from our sale of shares to CALP
II Limited Partnership and Thomson Kernaghan & Co., Ltd.
As the market price for our common stock decreases, the number of
shares which may be sold to CALP II pursuant to the equity line of credit
agreement or issued upon conversion of the CALP II Convertible Debenture will
increase. If we were to require CALP II to purchase our shares at a time when
our stock price is depressed, our existing shareholders' interest in our company
will be significantly reduced. The registration statement of which this
prospectus is a part covers 10,000,000 shares for sale to CALP II pursuant to
the equity line of credit agreement and up to 2,000,000 shares which may be
acquired by CALP II upon the exercise of stock purchase warrants that may be
issued by us in connection with such agreement. If we determine to sell CALP II
more than a total of 10,000,000 shares under the equity line of credit
agreement, we would need to file an additional registration statement. We have
also registered 5,000,000 shares with the SEC which may be issued to CALP II
upon conversion of the CALP II Convertible Debenture.
We have also agreed to register a significant number of shares with the
SEC in connection with an additional $3,000,000 principal amount of convertible
debentures and related warrants issuable to Thomson Kernaghan or its designee(s)
pursuant to a letter agreement we entered into with Thomson Kernaghan on October
31, 2000.
Shareholders will experience significant dilution if, as the result of
a declining market price of JagNotes common stock, we are forced to sell most or
all of these shares to CALP II and Thomson Kernaghan.
The resale by CALP II Limited Partnership of our shares may lower the market
price of our common stock.
13
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The resale by CALP II of the common stock that it purchases from us
will increase the number of our publicly traded shares, which could lower the
market price of our common stock. Moreover, the shares that we sell to CALP II
will be available for immediate resale. If we continue to exercise our put right
under the equity line of credit agreement every 15 days and CALP II elects to
immediately resell such shares or if CALP II elects to exercise the warrants it
has received and resell such shares, our market price could decrease
significantly and you could experience significant dilution. In addition, the
mere prospect of this transaction could by itself lower the market price for our
common stock.
We may not receive all of the proceeds that we anticipate from our agreement
with CALP II Limited Partnership.
Our equity line of credit agreement requires CALP II to purchase up to
$10,000,000 of our shares, as we elect from time to time. We have registered
10,000,000 shares to sell to CALP II under such agreement. Since the price at
which we will sell our shares to CALP II is at a 15% discount to the average
market price of our common stock, if our closing stock price is less than $1.00
per share on the day prior to the date of sale, we will receive gross proceeds
of less than $10,000,000, unless we determine to file an additional registration
statement. In addition, depending on the trading volume and market price of our
shares, we may not be able to raise funds through the sale of shares to CALP II
as fast as we would like or as much as we would like.
Many of our commentators may have competing web sites.
Many of our commentators have their own web sites on which they provide
financial information. Specifically, Michael Paulenoff, Elaine Garzarelli,
Dorsey, Wright & Associates and Mark Leibovit all currently have competing web
sites, with the latter four offering free information. If current or potential
future subscribers were to turn to these sites for financial information in lieu
of jagfn.com, our business and financial condition could be adversely affected.
We may not be successful at building brand awareness or building strategic
relationships.
Our growth and success depends in part on our ability to build
awareness of the JagNotes and JAGfn names. The JagNotes name has only limited
recognition within the financial community and little if any recognition among
the general public, and jagfn.com is just now being used for the first time. Our
ability to attract viewers to our new webcast, build our subscriber base, offer
new services or otherwise expand the business will be limited if we cannot
increase that name recognition. We have no funds available for general
advertising to promote our name recognition. We cannot guarantee that we will be
successful in doing so. See "Business - Our Business Strategy."
We may experience difficulties in developing new and enhanced services and
features for our web sites.
14
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We believe that our web sites will be more attractive to subscribers if
we introduce additional or enhanced services in the future in order to retain
our current users and attract new users. For example, we are considering the
introduction of the following products and services in the future:
o technological enhancements to our web sites such as the greater use
of streaming audio and video to deliver information to investors
over the Internet;
o web sites serving Latin America which will offer country-specific
content for the region in the local language of each country;
o additional specialized commentators; and
o an educational corner that will provide an ongoing series of
market-related seminars and training sessions intended to improve
the skills of investors and traders.
If we introduce a service that is not favorably received, our current
users may not continue using our service as frequently. New users could also
choose a competitive service over ours.
We may also experience difficulties that could delay or prevent us from
introducing new services. Such difficulties may include the lack of financing to
expand into our webcasting operations overseas and in special markets and the
inability to hire and retain qualified commentators. We may also encounter
technological problems in enhancing our web sites. Furthermore, these services
may contain errors that are discovered after the services are introduced. We may
need to modify significantly the design of these services on our web sites to
correct these errors. Our business could be adversely affected if we experience
difficulties in introducing new services or if these new services are not
accepted by users.
We may not successfully attract or manage mergers and strategic alliances.
We currently intend to evaluate strategic alliances, partnerships or
joint ventures, as a means of acquiring additional sources of content,
distribution and investment. Pursuing such transactions will entail a number of
risks and difficulties. We compete with a wide variety of information providers
and there may be competition for content providers, distribution channels and
funding. We can offer no guarantee that we will be able to locate suitable
candidates for alliances or risk sharing partners. If we are able to do so, we
will require a high level of managerial skill to successfully evaluate and
implement these transactions. We have little experience in evaluating and
implementing transactions of this type, and we cannot guarantee that we will be
able to successfully pursue this strategy.
We may not be able to successfully establish a foreign market.
As part of our growth strategy we are actively pursuing distribution
opportunities for our webcast service in Canada, Latin America, Europe and Asia,
but we have little or no experience in such markets. In addition, although we
anticipate commencing operations in Latin America in
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2001, we cannot guarantee that we will be able to finance or successfully
implement our foreign growth strategy or that we can otherwise successfully
expand into foreign markets.
We may not be able to successfully manage our new strategy and growth.
Our business strategy requires us to rapidly change the focus of our
business to webcasting and grow our business. We may not be able to do so,
however, and if we do, that change and growth will put a strain on our
financial, managerial, technical and operational resources. Growth on this scale
will demand that we rapidly and successfully expand our staff and operations and
will require a high level of managerial skill. We have little experience in
managing this sort of expansion. If we fail to do so successfully, our business
and your investment will likely suffer.
We may not be able to adequately protect our intellectual property rights.
We have certain intellectual property rights including, among others:
o The JagNotes and JAGfn names and marks;
o Subscriber lists and related information;
o Content and information provider lists and related information;
o Proprietary web site content; and
o Licensed commentators' content.
To protect our rights to our intellectual property, we rely on a
combination of trademark and copyright law, trade secret protection,
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners and others. The protective
steps we have taken may be inadequate to deter misappropriation of our
proprietary information. We may be unable to detect the unauthorized use of, or
take appropriate steps to enforce, our intellectual property rights. Effective
trademark, copyright and trade secret protection may not be available in every
country in which we offer or intend to offer our services. Failure to adequately
protect our intellectual property could harm our brand, devalue our proprietary
content and affect our ability to compete effectively. Further, defending our
intellectual property rights could result in the expenditure of significant
financial and managerial resources, which could materially adversely affect our
business, results of operations and financial condition.
We may have to defend against intellectual property infringement claims and
libel and defamation claims, which may cause significant operational
expenditures.
Parties may assert claims against us that we have violated a patent or
infringed a copyright, trademark or other proprietary right belonging to them.
Parties could also bring libel, defamation or similar claims based on the
content published on our web sites. Much of the content on our web sites comes
from third parties, so to protect ourselves against such claims, our license
agreements with third party content providers generally require that the content
providers defend, indemnify and hold us harmless with respect to any claim by a
third party that the licensed content they have provided infringes on any
proprietary right. Agreements with our commentators generally require them to
defend, indemnify and hold us harmless with respect to any third party claim for
libel or defamation in connection with our commentators' work product. However,
we cannot assure you that these measures will be adequate to protect us from
such claims. Any such claims, whether meritorious or not, could result in the
expenditure of significant financial and managerial resources on our part, which
could materially adversely affect our business, results of operations and
financial condition.
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Failure to maintain our reputation for trustworthiness may reduce the number of
our readers, which may harm our business.
It is very important that we maintain our reputation as a trustworthy
provider of financial news and commentary. The occurrence of events, including
our misreporting a news story or the non-disclosure of stock ownership by one or
more of our commentators, could harm our reputation for trustworthiness. These
events could result in a significant reduction in the number of our readers or
viewers, which could materially adversely affect our business, results of
operations and financial condition.
We depend on key people in management and operations.
We depend on our president's and other key employees' contacts within
the professional financial community for certain information that we provide to
our subscribers. Accordingly, our success will be largely dependent on our
ability to retain our president and other key personnel. As of the date of this
prospectus we have not entered into written or formal employment agreements with
any of these people, nor do we have key person life insurance policies on any of
our key personnel. Furthermore, our business strategy calls for rapid growth of
the business and expansion into the new area of webcasting. We need to attract
and retain additional qualified managers, officers and other key personnel in
the future in order to successfully manage this planned growth. We cannot
guarantee that we will be able to do so. If we lose the services of any of our
key personnel or are unable to attract, hire, train and retain qualified
officers, managers and operating, production, marketing and financial personnel,
our business, and your investment, could be adversely affected. See "Business"
and "Directors and Executive Officers of the Registrant."
We may not be able to attract and retain analysts and commentators.
Our success will in large part depend on our ability to attract and
retain the services of top analysts and commentators. Competition for these
professionals is intense and we expect it to become more so. As of the date of
this prospectus, we have contracts with various analysts and commentators, and
we intend to enter into agreements with additional commentators in the future.
Typically, these contracts run for one year and are renewable at our option for
an additional one year term. In addition, there are a number of new commentators
who provide reports for us on a month-to-month basis without receiving any
compensation. We cannot guarantee that we will be able to maintain and/or renew
these contracts or arrangements, nor can we guarantee that we will be able to
attract additional or replacement commentators and analysts now or in the
future. As our webcasting costs increase, we will have less money available to
pay commentators. In addition, as we use stock and stock options as a
significant part of our compensation package to attract and retain commentators,
a continuing decline in our stock price will adversely affect our ability to
attract and retain such commentators. If we are unable to do so, our business
could suffer.
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We may face difficulties concerning continued availability of our sources of
information for certain products.
Certain products that we offer through our site, including JAGNotes and
the Rumor Room, rely on information from independent third party sources. We do
not maintain written agreements with these sources to provide this information,
so we cannot guarantee that any of these sources will continue to provide the
information necessary to maintain these products on our site. If information
from these sources is altered, curtailed or discontinued this could adversely
affect the viability of these products. This, in turn, could decrease the demand
for our site or otherwise materially adversely affect our business.
We may suffer cash flow shortages as we transition to Internet-based
subscriptions and an advertiser-based webcast service.
Our current institutional and retail subscribers have historically paid
a higher subscription rate than our retail Internet subscribers pay. We expect
our current retail subscribers to convert to the cheaper Internet-based pricing
structure, which could result in a reduction in revenues. A portion of our
institutional subscriber base has discontinued service under their current fee
structure and re-subscribed at the lower Internet retail rate, which results in
a reduction in revenues, and more institutional subscribers are likely to do so.
We also expect that some current subscribers to our web site may access our free
webcast service only and not renew their subscriptions to our subscription
service.
Risks Related to Our Industry
The broadband industry is in its infancy and unproven.
Our success and survival depend upon the success of our new webcast
strategy. This strategy in turn relies on sufficient customers having access to
our webcast through broadband, or high speed, access to the Internet. Broadband
access is currently limited and may not grow fast enough to permit us to sustain
our new webcast strategy. Also viewers may prefer traditional television, cable
and satellite media and not be attracted to broadband Internet streaming audio
and video, which still provides a smaller picture and lower quality than
television images. Even if broadband access increases rapidly and gains viewer
acceptance, advertisers may not allocate their advertising budgets to an
unproven medium for some time. We believe that currently most, if not all,
broadband advertising is being offered free of charge for trial periods. Our
business could suffer for any of the above described reasons, and we would be
forced to restructure, file for bankruptcy or cease operations, any of which
could cause you to lose all or part of your investment in our common stock.
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We are in an intensely competitive business with low barriers to entry.
Our webcast's primary competitors provide financial news, commentary
and analysis on the Internet such as America Online Personal Finance Channel,
CBSMarketwatch.com, TheStreet.com, Yahoo Finance Vision, WebFN.com, Reuters PLC
and Investor Broadcast Network. However, we believe that our webcast also
competes with televised financial news services such as CNBC, CNNfn, Bloomberg,
FOX News Channel and others such as The Nightly Business Report and Wall Street
Week. We expect competition in our webcasting business to intensify and increase
in the future.
Providing financial information and analysis over the Internet is a
relatively new business, but it is already intensely competitive. An increasing
number of web-based financial information providers are competing for
subscribers, customers, advertisers, content providers, analysts, commentators
and staff, and we continue to face competition from traditional news and
information sources including television and print. We expect competition from
both sources to intensify and increase in the future. Many such competitors have
substantially greater financial and other resources than we have.
Our major competitors include:
o Online financial news and information providers including
TheStreet.com, MarketWatch.com, The Motley Fool.com, FT.com,
European Investor.com, Worldly Investor.com and
Hemmington-Scott.com
o Internet portals and search engines such as America Online, MSN
and Yahoo
o Traditional media sources such as The Wall Street Journal, The
Financial Times, Barrons, CNNfn, and CNBC, all of whom also have
an Internet presence
o Terminal-based financial news providers including Bloomberg,
Reuters and Dow Jones
o Online brokerage firms such as E*Trade, Charles Schwab or DLJ
Direct
Most of our current and potential competitors have greater name
recognition, financial, technical and marketing resources, and more extensive
customer bases than we do, all of which could be leveraged to gain market share
to our detriment.
The barriers to entry into our business are relatively low - i.e., it
is not difficult for new competitors to enter the market. Much of the
information we provide is publicly available and we do not have any patented or
otherwise protected technologies that would preclude or inhibit competitors from
entering our markets. Our current and future competitors may develop or offer
services that have significant price, substantive, creative or other advantages
over the services we provide. If they do so and we are unable to respond
satisfactorily, our business and financial condition will likely be adversely
affected. See "Business - Competition."
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System slowdowns or failures could hurt our business.
In order for our business to be successful, we must provide
consistently fast and reliable access to our web sites. Slowdowns, breakdowns or
failures in our computer and communication systems, or of the Internet
generally, are often beyond our control and could jeopardize access to our site
at any time. In addition, heavy traffic on our site or on the Internet generally
could severely slow access to, and the performance of, our site. Repeated system
slowdowns will likely impair our ability to service and maintain our existing
subscriber base and attract new subscribers. Failures of or damage to our
computer or communications systems could render us unable to operate our site or
even our business for extended periods of time.
We may not be able to adequately protect ourselves against security risks.
All Internet businesses are subject to electronic and computer security
risks. We have taken steps to protect ourselves from unauthorized access to our
systems and use of our site, but we cannot guarantee that these measures will be
effective. If our security measures are ineffective, unauthorized parties could
alter, misappropriate, or otherwise disrupt our service or information. If such
unauthorized parties were able to access certain of our, or our customers',
proprietary information, including subscribers' credit card numbers, we would
face significant unexpected costs and a risk of material loss, either of which
could adversely affect our business.
Our business is dependent on the continued public interest in the stock market.
The recent success of the stock market has generated unprecedented
public interest in the stock market and investing. Our success as retail
financial information providers depends upon the continued maintenance or growth
of this interest. It is not clear what impact the recent downturn in the stock
market will have on our business. A number of factors that are out of our
control could lead to a stagnate or depressed stock market which would likely
decrease the public's interest in investment and financial information. If this
were to happen, it is likely that we would lose a significant percentage of our
then current and potential subscriber base.
Our stock - and technology and Internet stocks generally - have been and may
continue to be volatile.
The market for our stock has been and is likely to continue to be
highly volatile and subject to wide price and volume fluctuations. These
variations are the result of many factors, most of which are beyond our control.
Furthermore, Internet and technology related stocks generally have been subject
to wide fluctuations in price and volume that often appear to be unrelated to
the operating success of these companies. Such volatility can present risks for
investors. Moreover, such volatility often leads to securities litigation
brought by investors who are seeking to recoup losses resulting from rapid and
significant drops in price and/or volume. While we are not aware of any pending
or threatened suit or basis therefor, such suits are costly and we could be
adversely affected if such a suit were brought against us.
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Risks Related to Our Capital Structure
A large percentage of our stock is owned by relatively few people, including
officers and directors.
As of November 20, 2000, our named executive officers and directors
beneficially owned or controlled a total of approximately 3,340,500 shares, or
approximately 19.4% of our outstanding common stock. We estimate that CALP II
could beneficially own up to 4,336,490 shares, or approximately 21.3% of our
outstanding common stock, taking into account shares issuable upon the exercise
stock purchase warrants and the conversion of an 8% convertible debenture due
June 2003, without regard to restrictions in such debenture on conversion once
CALP II owns 10% of our share of outstanding common stock.
A large number of our shares are eligible for future sale.
We had 17,223,425 shares of common stock outstanding on November 20,
2000. Of these, a substantial number of shares were "restricted securities"
under Rule 144 of the Securities Act at such date. Restricted securities may be
sold only if they are registered under the Securities Act or if an exemption
from the registration requirements of the Securities Act is available.
Generally, stockholders may sell restricted securities without registration
after having held them for one year and subject to certain volume limitations.
A significant portion of the currently outstanding restricted
securities have become eligible for resale. If these shares are sold by our
current or future stockholders, the market price for our stock could decrease.
Furthermore, the mere prospect of such sales may have a depressive effect on the
market price of our stock.
The market for our stock is limited.
Our stock is traded on the Nasdaq OTC Bulletin Board, but there was
only very limited and sporadic trading activity prior to March 26, 1999. Trading
activity since that time has fluctuated and at times been limited. We cannot
guarantee that a consistently active trading market for our stock will continue,
especially while we remain on the OTC Bulletin Board. See "Market for Common
Stock and Related Stockholder Matters."
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NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking
statements within the meaning of the federal securities laws. Generally,
forward-looking statements can be identified by the use of terms like "may,"
"will," "expect," "anticipate," "plan," "hope" and similar words, although this
is not a complete list and some forward-looking statements may be expressed
differently. Our discussions relating to our liquidity and capital resources,
our subscription and advertising revenues, our business strategy, our
competition, and the future of the Internet, broadband access and webcasting
over the Internet, among others, contain such statements. Our actual results may
differ materially from those contained in our forward-looking statements for a
variety of reasons including those expressly set forth under "Risk Factors" or
as otherwise detailed from time to time in our filings with the SEC.
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USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock by
the selling stockholders. However, we will receive proceeds from our sale of
common stock to CALP II under the equity line of credit agreement. We could
receive proceeds of up to $10,000,000 under the equity line of credit agreement
with CALP II, before payment of any expenses and fees, including the placement
agent fees to The May Davis Group, Inc. and Thomson Kernaghan & Co., Ltd. We
cannot assure you that we will, or will be allowed to, require CALP II to
purchase any of our common stock pursuant to the equity line of credit
agreement.
We will also receive the proceeds, if any, relating to the exercise of:
o the warrants to be issued to CALP II in connection with the
equity line of credit agreement,
o the warrant issued to CALP II in connection with the CALP II
Convertible Debenture,
o the warrant issued to Thomson Kernaghan in connection with their
role as placement agent for the CALP II Convertible Debenture,
o the warrant issued to Butler Gonzalez LLP as part of their legal
fee in connection with the preparation of documents relating to
the CALP II Convertible Debenture and the private equity line,
o the stock option granted to Strategic Growth International, Inc.
in exchange for investor relations consulting services provided
to us and
o the warrants issued to The May Davis Group, Inc. and five of its
affiliates in return for investment banking services provided to
us.
We plan to use the net proceeds received, if any, from the sale of
common stock to CALP II under the equity line of credit agreement, the exercise
of the warrants by CALP II, Thomson Kernaghan, Butler Gonzalez and May Davis and
its affiliates as well as the exercise of the stock option by Strategic Growth
International for the funding of operating losses and for general corporate
purposes, including implementing our webcasting project, launching web sites in
markets outside of the United States and expanding the range of services offered
to our subscribers and other users. We have not yet determined the amount of net
proceeds to be used specifically for each of the foregoing purposes but
anticipate that a majority of such proceeds shall be used in our webcasting
project.
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SELECTED FINANCIAL DATA
The consolidated statement of operations data for the years ended
July 31, 1999 and July 31, 2000 and the consolidated balance sheet data as of
July 31, 2000 have been derived from financial statements which have been
audited by J.H. Cohn LLP, independent public accountants, and included elsewhere
in this prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Fiscal years ended July 31,
---------------------------
2000 1999
---- ----
Subscription revenues $ 1,042,033 $ 800,716
Net loss $(16,663,658) $(1,028,292)
Basic net loss per share $ (1.18) $ (.11)
Basic weighted average Common
Shares outstanding 14,166,218 9,237,693
Consolidated Balance Sheet Data
Fiscal year ended July 31, 2000
-------------------------------
Total assets $4,263,339
Total liabilities $2,340,213
Stockholders' equity $1,923,126
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors. The following discussion is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and our financial
statements and the notes thereto appearing elsewhere in this filing.
Results of Operations
Year ended July 31, 2000 as compared to the Year ended July 31, 1999
Subscription revenue:
Subscription revenue is 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 at an average monthly charge of
$150. During the year ended July 31, 1999 and continuing through the year ended
July 31, 2000 we were in the process of completing the development of our web
site and changing our focus to also include the retail investor. While revenues
for the year ended July 31, 1999 showed a decline as a result of our change in
focus, revenues for the year ended July 31, 2000 increased by 30% or
approximately $241,000 from approximately $801,000 to approximately $1,042,000.
The increase in revenues is attributable to an increase in the average number of
subscribers from the equivalent of approximately 12,000 retail subscriptions at
July 31, 1999 to approximately 13,000 at July 31, 2000 which is mainly the
result of new retail subscriptions to our web sites and recently instituted
distribution agreements with several other web sites. While there can be no
guarantee of future increases, we would expect revenues to continue to increase
in the future as a result of our becoming increasingly better known through our
webcasting effort as well as the continuing effect of our distribution
agreements. Subsequent to July 31, 2000 we launched our webcasting or real time
streaming video programming through our web site. We expect that this additional
service will eventually provide for an increase in revenues in the form of
advertising income.
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 for their reports that are posted on the web sites. During the year
ended July 31, 2000 cost of revenues increased by approximately $7,911,000 to
approximately $8,540,000 from approximately $629,000.
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The primary cause of this increase is the introduction of the on-line
services and the cost of the commentators who write reports for our web site.
The major components of this increase are:
(i) An increase of approximately $4,622,000 in non-cash charges for the
amortization of unearned compensation associated with the issuance of
common stock and stock options to the commentators for services from
approximately $271,000 during the year ended July 31, 1999 to
approximately $4,893,000 during the year ended July 31, 2000.
(ii) An increase of approximately $1,993,000 of cash payments to the
commentators from approximately $113,000 during the year ended July 31,
1999 to approximately $2,106,000 during the year ended July 31, 2000.
(iii) Approximately $1,145,000 expensed in connection with the on-line
services and the development and maintenance of our web sites during
the year ended July 31, 2000 including approximately $407,000 expensed
in connection with the write off of capitalized software costs for our
original web site. Such costs increased approximately $1,060,000 from
approximately $85,000 during the year ended July 31, 1999.
The balance of the increase is attributable to an overall increase in the number
of telephone and fax lines. It is our intention to continue to attract
additional commentators and experts for our new webcasting efforts as well as
the subscription portion of our web sites. In addition, we expect to incur
considerable costs in connection with the launch and operation of our webcast.
Accordingly, in periods subsequent to July 31, 2000 the cost of revenues will
continue to grow by a substantial amount.
Selling expense:
Selling expenses consist primarily of advertising and other promotion
expenses. During the year ended July 31, 2000 selling expenses increased
approximately $1,573,000 from approximately $292,000 to approximately
$1,865,000. The major components of this increase are:
(i) Approximately $670,000 expensed in connection with the production and
airing of an infomercial.
(ii) Approximately $502,000 for business travel expended in connection with
exploring opportunities for web sites in other countries. Such costs
increased approximately $419,000 from approximately $83,000 for the
year ended July 31, 1999.
The remainder of the increase is attributed to an overall increase in
advertising and promotional costs incurred in connection with promoting our web
sites.
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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 increased
approximately $4,659,000 during the year ended July 31, 2000 from approximately
$895,000 to approximately $5,554,000. The increase in general administrative
expenses is primarily attributable to the following:
(i) An approximate $1,271,000 increase in professional fees for the year
ended July 31, 2000 from approximately $201,000 to approximately
$1,472,000. The increase in professional fees results from attorneys'
fees relating to general corporate matters such as reviewing and
negotiating contracts with consultants and other parties and
establishing our foreign operations, as well as outside accounting and
attorneys' fees in connection with various filings with the SEC.
(ii) An approximate $1,176,000 increase in salaries to officers and office
staff for the year ended July 31, 2000 from approximately $431,000 to
approximately $1,607,000 The increase in salaries results from
additional personnel needed in order to properly support the expansion
of our business.
(iii) For the year ended July 31, 1999 rent expense was immaterial. Rent
expense for the year ended July 31, 2000 was approximately $766,000.
The increase is associated with the growing space required to support
additional staff and locations as we continue to change our focus and
attempt to increase our subscriber base. This expense is expected to
increase materially in the future in light of studio costs for
producing the new webcast.
(iv) An approximate $958,000 non cash charge incurred during the year ended
July 31, 2000 for amortization of unearned compensation associated with
the issuance of common stock options and warrants to investment banking
advisors and other parties exploring business expansion opportunities.
The remainder of the increase is attributable to general office expenditures as
a result of adding new locations and staff.
Operating income:
As a result of the above, we incurred an operating loss of
approximately $14,953,000 for the year ended July 31, 2000 as compared to an
operating loss of approximately $1,015,000 for the year ended July 31, 1999.
Interest expense:
As more thoroughly discussed within liquidity and capital resources
below, On June 12, 2000 we sold a $2,500,000 convertible debenture to CALP II
that bears interest at 8% and matures in June 2003.
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As additional consideration in connection with the sale of the CALP II
Convertible Debenture, we also issued a warrant to CALP II for the purchase of
428,571 shares of our common stock at $1.75 per share that is exercisable
through June 12, 2005. We also issued warrants for the purchase of 275,000
shares of our common stock at $2.00 per share that are exercisable through June
12, 2005 as consideration for legal and other professional services received in
connection with the sale of the CALP II Convertible Debenture. We valued the
warrant issued to CALP II at $934,285 and the warrants issued for legal and
other professional services at $599,500 based on estimated fair values
determined by using the Black-Scholes option-pricing model method pursuant to
the provisions of SFAS 123. Accordingly, we initially increased additional
paid-in capital by $1,533,785 for the fair value of the all of the warrants and
reduced the carrying value of the CALP II Convertible Debenture by $934,285 for
the debt discount attributable to the fair value of the warrant issued to CALP
II and increased deferred financing costs by $599,500 for the fair value of the
warrants issued for services.
The fair value of our common stock on June 12, 2000 was $2.25 per share
which exceeded the conversion price for the CALP II Convertible Debenture.
Pursuant to interpretations issued by the staff of the Securities and Exchange
Commission, such excess constitutes a beneficial conversion feature or right for
which the value is measured by the difference between the aggregate conversion
price and the fair value of the common stock into which the securities are
convertible, multiplied by the number of shares into which the securities are
convertible. Accordingly, the beneficial conversion rights attributable to the
issuance of the CALP II Convertible Debenture had a fair value of approximately
$1,794,000, which equaled the excess of the aggregate proceeds CALP II would
have received if CALP II had converted the CALP II Convertible Debenture and
sold the 1,908,397 shares of common stock (the amount of shares that would have
been received if conversion occurred on June 12, 2000) for approximately
$4,294,000 based on the fair market value of $2.25 per share on June 12, 2000.
Since the CALP II Convertible Debenture became convertible upon issuance, we
recorded a charge of $1,794,000 to interest expense for the beneficial
conversion rights and a corresponding increase in additional paid-in capital.
Accordingly, interest expense of $1,895,000 for the year ended July 31,
2000 consists of the following components:
(i) Approximately $25,000 of accrued interest for the period from
June 12, 2000 through July 31, 2000.
(ii) Approximately $39,000 of interest expense associated with the
amortization of debt discount.
(iii) Approximately $37,000 of interest expense associated with the
amortization of deferred financing costs.
(iv) Approximately $1,794,000 of interest expense related to the
effects of beneficial conversion rights.
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Liquidity and Capital Resources
We only generated revenues of approximately $1,042,000 and $801,000,
and incurred net losses of approximately $16,664,000 and $1,028,000 and cash
flow deficiencies from operating activities of approximately $8,460,000 and
$1,103,000, during 2000 and 1999, respectively. As a result, we had an
accumulated deficit of approximately $17,874,000 as of July 31, 2000. Although
we had a cash balance of $807,000 and working capital of $1,161,000 as of
July 31, 2000, and a substantial portion of our net losses in 2000 and 1999 were
attributable to noncash operating expenses, we believe that the Company will
continue to incur net losses and cash flow deficiencies from operating
activities through at least July 31, 2001. In the absence of the financing
arranged in June and October 2000 described below these matters would have
raised substantial doubt about our ability to continue as a going concern.
We believe that our profitability will depend principally on our
ability to earn revenues from the sale of advertising and sponsorships in our
real time video reporting services that did not become available until October
2000. This revenue, in turn, will depend on the market acceptance of such
webcasting services including the ability to attract viewers and advertisers. We
also believe that we will need additional equity or debt financing to sustain
operations until we can market our webcast to attract sufficient viewers, sell
advertising and sponsorships and achieve profitability. We believe that we could
achieve profitability more rapidly and could obtain better terms for financing
through an appropriate strategic alliance with a company that already has web
site marketing expertise and financial resources. While management has had
discussions with potential strategic partners and plans to continue efforts to
find appropriate strategic partners, we have not entered into any definitive
agreements for marketing or financial assistance and, accordingly, we cannot
assure investors that we will be able to obtain appropriate financing
arrangements, expand our viewership and our subscriber base, sell advertising
and/or achieve profitability.
Our cash and cash equivalent position of approximately $807,000 as of
July 31, 2000 results primarily from a series of private placements that
occurred in March and April 1999, January 2000 and June 2000. The private
placements in March and April 1999 raised capital of approximately $7,560,000,
net of $708,000 in fees. In connection with these first two private placements
555,130 warrants were granted entitling the holders of such warrants to purchase
within two years of issuance one share of common stock for $14 per share.
Pursuant to a subscription agreement entered into January 17, 2000 the third
private placement raised capital of $2,474,960 net of related costs of $275,040.
On June 12, 2000, we sold CALP II a convertible debenture that has a
principal balance of $2,500,000, matures June 12, 2003 and bears interest at an
annual rate of 8%. We received gross proceeds from the sale of $2,500,000. The
sale was made through a private placement that was intended to be exempt from
registration under the Securities Act. The principal balance of, and interest
accrued on, the CALP II Convertible Debenture is convertible, in whole or in
part, at the option of CALP II into shares of our common stock at the lesser of
$0.80 per share or 75% of the average of the five lowest closing bid prices for
such shares on the 20 trading days preceding the conversion. We can require such
conversion at a rate based on a matrix of market price per share and daily
volume in each 15 day period preceding the required conversion. The rate can
range from a high of $900,000 ($3.00 per share and 200,000 shares of daily
trading volume) to $30,000 ($1.00 per share and 30,000 shares of daily trading
volume). We agreed to deposit 2,000,000 shares of our common stock in a
segregated account with one of the placement agents for the transaction as
collateral for the CALP II Convertible Debenture. Upon conversion of the CALP II
Convertible Debenture, a pro rata portion of the shares held in escrow will be
returned to us. In connection with the issuance of the CALP II Convertible
Debenture, CALP II also received a five-year stock purchase warrant to purchase
428,571 shares of our common stock at a price of $1.75 per share. Placement
agents and their counsel received a fee of 10% of the principal amount of the
CALP II Convertible Debenture as well as five-year stock purchase warrants to
purchase 275,000 shares of our common stock at $2.00 per share.
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<PAGE>
As of June 14, 2000, we entered into another financing agreement with
CALP II pursuant to which we can require CALP II to purchase shares of our
common stock from time to time at an aggregate purchase price of $10,000,000 and
a price per share equal to 85% of the average of the five lowest closing bid
prices for such shares on the 20 trading days preceding the date of each
required purchase. We can require CALP II to make minimum purchases of $350,000
(recently amended to $400,000), net of placement agent commissions, every 15
days or additional purchases based on the rate determined by the matrix for the
required conversion of the CALP II Convertible Debenture described above. We
also agreed to issue to CALP II on each date on which CALP II advances funds to
us under the Equity Line of Credit Agreement a warrant to purchase a number of
shares equal to 20% of the number of shares that are subject to the advance. The
exercise price for these warrants will be equal to 110% of the highest reported
bid price of the Company's common stock for the five trading days preceding the
date on which an advance is made to us by CALP II. In addition, the placement
agents and their counsel will receive a fee equal to 10% of the proceeds from
the sale of any shares made pursuant to the Equity Line of Credit Agreement. We
had not sold any shares of common stock to CALP II pursuant to the Equity Line
of Credit Agreement as of July 31, 2000. Access to the foregoing equity line has
recently been tolled until January 1, 2001 pursuant to an amendment dated
October 31, 2000.
On October 20, 2000, Thomson Kernaghan agreed to provide the Company
with additional financing totaling $3,000,000 through weekly purchases of a
total of six additional debentures during the period from October 20, 2000 to
December 1, 2000. Each of the six TK Convertible Debentures Thomson Kernaghan
agreed to purchase will have a principal balance of $500,000, bear interest at
an annual rate of 8% and mature three years from the date of its issuance. As of
November 17, 2000, Thomson Kernaghan had purchased TK Convertible Debentures
with an aggregate principal balance of $1,500,000. The sale of the TK
Convertible Debentures is being made through a private placement that is
intended to be exempt from registration under the Securities Act. The principal
balance of, and interest accrued on, the TK Convertible Debentures will be
convertible, in whole or in part, at the option of Thomson Kernaghan into shares
of our common stock at the lesser of $.80 per share or 75% of the average of the
five lowest closing bid prices for such shares on the 20 trading days preceding
the conversion. We will also be able to require conversion of the TK Convertible
Debentures at a rate based on the matrix of market price per share and daily
volume in each 15 day period preceding the required conversion.
As additional consideration in connection with the sale of the TK
Convertible Debentures, we also issued a warrant to Thomson Kernaghan for the
purchase of 3,000,000 shares of our common stock at $1.25 per share that is
exercisable through October 20, 2005. The warrant issued to Thomson Kernaghan
had an estimated fair value of $3,450,000, as determined by the Black-Scholes
option-pricing model method pursuant to the provisions of SFAS 123, which will
be recorded as debt discount and/or deferred financing costs and amortized to
interest expense over the related terms of the TK Convertible Debentures. We
also agreed to issue to Thomson Kernaghan on each date on which Thomson
Kernaghan purchases a TK Convertible Debenture a warrant to purchase a number of
shares equal to 20% of the number of shares that would be issued assuming the TK
Convertible Debenture was immediately converted into common stock upon issuance.
The exercise price for these warrants will be equal to 110% of the average bid
price of our common stock for the five trading days preceding the date on which
Thomson Kernaghan purchases a TK Convertible Debenture. We will determine the
number and fair value of such warrants as of the respective dates of issuance
and increase debt discount and/or deferred financing costs accordingly.
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<PAGE>
As additional consideration in connection with the sale of the TK
Convertible Debentures, we also reduced the conversion price for the CALP II
Convertible Debenture from the lesser of $0.80 per share or 75% of the average
of the five lowest closing bid prices for such shares on the 20 trading days
preceding the conversion. The fair value of our common stock on October 20, 2000
was $1.25 per share which exceeded the adjusted conversion price for the
Debenture and the conversion price for the TK Convertible Debentures of $.80 per
share. Such excess constitutes a beneficial conversion feature or right which
had a fair value at October 20, 2000 of approximately $3,300,000. Since the CALP
II Convertible Debenture was convertible and the TK Convertible Debentures
become convertible upon issuance, we will record a charge of approximately
$3,300,000 to interest expense for the beneficial conversion rights and a
corresponding increase in additional paid-in capital in October 2000.
Through July 31, 2000 we have entered into agreements with
approximately fifty-five commentators, employees and other consultants expiring
through May 2002. Through July 31, 1999 aggregate consideration paid under these
agreements consisted of cash payments of $564,000, the issuance of 120,000
shares of common stock with a fair value of $1,460,000, the grant of options to
purchase 235,000 shares of common stock at $2.00 per share with a fair value of
$1,661,850 and the grant of options to purchase 100,000 shares of common stock
at $16.25 per share with a fair value of $165,000. During the year ended July
31, 2000, we paid cash consideration of approximately $2,656,000 and granted
options and warrants to purchase 4,282,500 shares of common stock at prices
ranging from $1.50-$6.00 per share with a fair value of approximately
$11,189,000 in connection with all our employment and consulting agreements. In
addition, during the year ended July 31, 2000 pursuant to an amended consulting
agreement, we cancelled options to purchase 100,000 shares of common stock at
$16.25 per share and issued the consultant options to purchase 200,000 shares of
common stock at $2.00 share with a fair value of $894,000. The fair value of the
original options was $165,000. Accordingly, during the year ended July 31, 2000
we recorded additional unearned compensation of $729,000. The fair value of the
options and warrants granted are computed in accordance with FASB-123
"Accounting for Stock Based Compensation." The unearned compensation will be
amortized as a non-cash charge to operations on a straight-line basis over the
life of the applicable agreements. In addition, at July 31, 2000, approximately
$511,000 is included in prepaid expenses for cash payments made pursuant to the
agreements in excess of services rendered to us.
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During the year ended July 31, 2000 we used approximately $8,460,000 in
our operations. The major uses of this cash were to fund our net loss for the
year ended July 31, 2000. In addition, during the year ended July 31, 2000 we
incurred non-cash charges of approximately $6,053,000 related to the
amortization of unearned compensation and $1,870,000 related to the issuance of
beneficial conversion rights and amortization of deferred finance costs and debt
discounts in connection with the CALP II Convertible Debenture.
During the year ended July 31, 2000 we used approximately $1,500,000 in
investing activities of which approximately $1,053,000 was used for the purchase
of equipment, construction of our real time video studios and additions to our
web sites. The remainder was used for the investment in two related Internet
businesses.
Pursuant to the employment and consulting agreements we are committed
to make cash payments of $1,125,000, $369,000 during the years ended July 31,
2001, and 2002 respectively. In addition, we lease office space under month to
month and noncancelable leases that expire through November 2003. As of July 31,
2000, we are required to make minimum rental payments of $1,449,000, $1,565,000,
$97,000 and $32,000 during the years ended July 31, 2001, 2002, 2003 and 2004
respectively. In addition to minimum rental payments, certain of the leases
require reimbursement for operating expenses (e.g. maintenance, utilities, etc.)
and the lease for our Chelsea Studios calls for the reimbursement of all
production costs associated with our web cast which is estimated to be
$1,500,000 a year. If the cash generated from operations in excess of the
financings described above is not sufficient to fund our liquidity requirements
or planned growth, we will need to raise additional funds through public or
private financing, strategic relationships or other arrangements. We will also
attempt to raise cash before such time. There can be no assurance that such
additional funding or strategic alliances, if needed, will be available on terms
attractive to us or at all. The failure to raise capital when needed will affect
our ability to remain in business, our results of operations and financial
condition.
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.
Impact of the Year 2000
During the year ended July 31, 2000 we completed our Year 2000
assessment. The costs of such assessment were not significant. In addition, we
have experienced no problems in the operations of our business as a result of
anticipated Year 2000 effects on computer systems.
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MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded in the over-the-counter market on the
OTC Bulletin Board under the symbol JNOT since approximately March 26, 1999.
Prior to that date, the stock was traded under the symbol PFSS with only limited
and sporadic trading.
The following table reflects quarterly high and low bid prices of
JagNotes' common stock during the last eight calendar quarters. The average
daily trading volume during this period was approximately 101,949 shares, with a
high daily volume of 3,522,800 shares and a low of 396 shares. Such prices are
inter-dealer quotations without retail mark-ups, mark-downs or commissions, and
may not represent actual transactions.
----------------------------------------- ------------- --------------
High Low
----------------------------------------- ------------- --------------
Calendar Year 1999
----------------------------------------- ------------- --------------
First Quarter (1) $18.125 $15.875
----------------------------------------- ------------- --------------
Second Quarter (2) $16.375 $5.594
----------------------------------------- ------------- --------------
Third Quarter (3) $13.000 $5.500
----------------------------------------- ------------- --------------
Fourth Quarter (4) $7.125 $3.625
----------------------------------------- ------------- --------------
Calendar Year 2000
----------------------------------------- ------------- --------------
First Quarter (5) $5.563 $3.875
----------------------------------------- ------------- --------------
Second Quarter (6) $4.375 $1.031
----------------------------------------- ------------- --------------
Third Quarter (7) $2.344 $0.938
----------------------------------------- ------------- --------------
Fourth Quarter (8) $1.938 $0.938
----------------------------------------------------------------------
(1)As described above, 1999 first quarter information is limited to
the period from March 26, 1999 through March 31, 1999.
(2)Second quarter information covers the period from April 1, 1999
through June 30, 1999.
(3)Third quarter information covers the period from July 1, 1999
through September 30, 1999.
(4)Fourth quarter information covers the period from October 1, 1999
through December 31, 2000.
(5)First quarter information covers the period from January 1, 2000
through March 31, 2000.
(6)Second quarter information covers the period from April 1,
2000 through June 30, 2000.
(7)Third quarter information covers the period from July 1, 2000
through September 30, 2000.
(8)Fourth quarter information covers the period from October 1, 2000
through October 31, 2000.
----------------------------------------------------------------------
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<PAGE>
As of November 14, 2000, there were approximately 66 stockholders of
record of the JagNotes' common stock. On November 20, 2000, the closing bid
price for the JagNotes' common stock was $0.75.
We have never paid any cash dividends on our common stock and
anticipates that, for the foreseeable future, no cash dividends will be paid on
its common stock. Payment of future cash dividends will be determined by our
board of directors based upon conditions then existing, including our financial
condition, capital requirements, cash flow, profitability, business outlook and
other factors. In addition, our future credit arrangements may restrict the
payment of dividends.
34
<PAGE>
THE COMPANY
Overview of Our Business
We have been providing financial and investment information within the
investment community since 1989. In May 1999, we began offering our services on
a subscription fee basis to the general public for the first time through our
U.S. web site. At www.jagfn.com, our subscribers access timely financial data
and reports and commentary from the financial community. On October 9, 2000 we
began "JAGfn", an advertising based live webcasting service covering fast
breaking financial news during the trading day. In addition to being shown on
our web site, we have syndicated the JAGfn webcast to make it available through
other web sites and portals in the hope of increasing our audience and
eventually our advertising revenue from the webcast.
On August 1, 2000, we formed a New York limited liability company named
JAGfn Broadband LLC to operate the JAGfn webcast. On or about August 18, 2000,
JagNotes.com Inc. and JAGfn Broadband LLC entered into an Assignment and
Assumption Agreement whereby JagNotes.com Inc. made a capital contribution of
certain assets relating to the webcast to JAGfn Broadband LLC. JagNotes.com Inc.
currently owns 100% of such LLC; however, we plan to grant a 5% equity interest
in JAGfn Broadband LLC to each of our three key executive officers pursuant to
the terms and conditions of employment agreements to be entered into at a later
date.
From 1989 to 1992, we operated as an unincorporated business entity. In
1992, we incorporated in the State of New Jersey as New Jag, Inc. On
December 14, 1993, JagNotes, Inc. merged with and into us, and we changed our
name to JagNotes, Inc. We operated as JagNotes, Inc. until March 1999 when we
were acquired by Professional Perceptions, Inc., a Nevada corporation, which
subsequently changed its name to JagNotes.com Inc. JagNotes, Inc. remained a
wholly-owned subsidiary of JagNotes.com Inc. until August 16, 1999 when it
merged with and into JagNotes.com Inc. Although our corporate name remains the
same for the time being, we now do business under the trade name "JAGfn". We
have one wholly-owned operating subsidiary named JagNotes-Euro.com, Ltd., a
corporation organized under the laws of England, which we intend to dissolve.
(See Recent Events.)
Until 1999, we targeted only a limited audience of financial
professionals and we did not engage in organized sales and marketing efforts. As
discussed in more detail below, in 1999 we decided to change our focus by
expanding onto the Internet and targeting retail subscribers with the hope of
expanding our subscriber base and our business. As our subscriber base and
subscription revenues have grown more slowly than anticipated, we have recently
refocused our efforts on the establishment of our webcasting network, which
features original, live financial programming focusing on market-moving
information geared toward online investors and financial professionals. The
webcast is based on an advertising model which is to be supported by the sale of
streaming media advertising spots and sponsorships. Webcasting over the Internet
is a new business, both for us and generally. Accordingly, it is not yet known
whether the public will accept it. In any case, we do not anticipate receiving
material advertising revenues through 2001. We anticipate the start-up costs of
our webcasting project through the first year of operation to be between
approximately $8,000,000 and $10,000,000. Although we are looking for other
sources of financing, we are currently dependent solely on CALP II Limited
Partnership ("CALP II") and Thomson Kernaghan for the continued financing of our
business. The continued availability of such financing is not assured. (See the
risk factor titled "CALP II Limited Partnership and Thomson Kernaghan & Co.,
Ltd. are our only committed sources of capital")
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<PAGE>
We currently derive our revenues primarily from the sale of
subscriptions to our web sites. To build brand awareness, we have engaged in
limited advertising on the Internet and in print media. We have aired an
infomercial for our product and we intend to promote our JAGfn webcasting
project as funding permits.
Recent Events
Due to the low number of subscribers to our jagnotes-euro.com web site
in England and the substantial expense required in order to more effectively
market the site, we terminated our operations there on October 31, 2000. We
decided to utilize any savings obtained from closing our European site to help
pay costs associated with the start-up of our U.S. webcast operations.
Industry Background
The growth of the Internet has changed the way investors seek
information and manage their portfolios. Individual investors are increasingly
seeking access to information that was formerly available only to financial
professionals. Professional investors who have traditionally relied on print and
other media for information are demanding faster information and greater
accessibility. As more and more investors begin to trade online, we expect the
demands for financial information over the Internet to increase significantly.
The number of U.S. households that use an online securities trading
service has risen from 2.7 million in May 1999 to 3.5 million in January 2000, a
30 percent increase, according to J.D. Power and Associates. The 2000 Online
Trading Investor Satisfaction Interim Tracking Study by J.D. Power found that
the new entrants into the online trading market are primarily baby boomers with
investment portfolios of $100,000 or more. In Europe, online brokerage use is
also growing. According to research by Datamonitor, during the average workday,
466 new online accounts are opened in Sweden, 685 in the United Kingdom, and
1,178 in Germany.(1)
Although our webcast is available to users with a 56k dial-up
connection, the best viewing results can be obtained by using a broadband
connection. Broadband, short for "broadbandwidth" is, in simple terms, a
high-speed network capable of carrying video and voice. In technical terms
bandwidth describes the data throughput of "bits" (or the smallest component) of
information over a network per unit of time, measured in kilobits, megabits or
gigabits. There are currently several different types of broadband networks
available to users. They include fiber optics, DSL, cable, satellite, wireless,
and copper T-1. All of these platforms, through different methods, deliver
broadbandwidth to the end user, with each having its advantages and
disadvantages. Since the broadband industry is still in its embryonic stage,
opinions vary widely as to which platform will predominate.(2) By year-end 2000,
broadband subscribers are expected to represent 23% of the overall Internet
access market. By year-end 2003, broadband users are expected to represent 40%
of the access market.(3) Although currently broadband access is concentrated in
universities and the work place, residential broadband users are expected to
exceed business broadband users by 2001 and nearly double the number of business
broadband users by 2003.(4)
------------
(1) Online Trading Continues to Catch On, http://cyberatlas.internet.com/
markets/finance/article/0,,5961_318491.00.html (March 9, 2000)
(2) Fortune, October 9, 2000, p. 28.
(3) The Business of Broadband, http:// www.emarketer.com/ereports/ebroadband/
welcome.html (September 2000)
(4) The Business of Broadband, http:// www.emarketer.com/ereports/ebroadband/
welcome.html (September 2000)
36
<PAGE>
Our Products
We offer two products to the public through our JAGfn.com web sites:
our live financial webcast offered free of charge through the trading day to
those with broadband access and 56k dial-up access and our subscription based
service available over the Internet generally featuring commentaries, select
financial data and breaking financial news, including our original early morning
JAGNotes product showing the day's upgrades, downgrades and new coverages by
major stock analysts.
Our Webcast
The JAGfn webcast is presented each weekday from 8:30 a.m. to 4:30 p.m.
ET. The webcast features fast breaking news, up-to-the-minute market information
and expert Wall Street commentary targeted at online investors and financial
professionals.
This live, original programming is available free of charge to users of
the JAGfn.com web site. The JAGfn webcast is also being made available on
numerous other web sites which have entered into syndication agreements with
JAGfn. Currently, more than 70 affiliate sites have entered into syndication
agreements to carry the webcast, including Terranova Trading, My Discount
Broker, Web Street and CyBerCorp.
The webcast attempts to combine the most popular elements of the
mediums which have proven attractive to investors - live TV, talk radio,
newswire services, newsletters, chat rooms and message boards - into one
Internet-based webcast. The webcast may also be offered in the future through
other platforms such as radio, satellite and cable.
Emmy Award-winning TV producer Jack Reilly is in charge of the
development and production of JAGfn's programming.
Jack Reilly prior to joining JagNotes in January 2000, was a news
consultant to several media companies, including CBS Inc. and King World
Productions. From 1994 to 1997, he served as vice president and managing
director of CNBC Business News, where he oversaw the production and development
of the network's daytime and early-evening programming. Before joining CNBC, Mr.
Reilly was executive producer at Good Morning America at ABC and executive
producer of Entertainment Tonight. He won a national Emmy Award in 1993 and has
been nominated for Emmy Awards 14 other times. Mr. Reilly attended Emerson
College.
37
<PAGE>
Anchoring JAGfn each weekday are Peter Barnes, Kate Bohner and Mabel
Jong, all of whom are former CNBC Business News reporters.
Peter Barnes served as host of "Take Action America" on the America's
Voice television network. From 1993 to 1998 he was Washington, D.C.,
correspondent for CNBC Business News covering national news and political issues
as they impacted the economy, business community and financial markets. Also at
CNBC, he was host of the Washington-based morning show "Capitol Gains," and in
1997 hosted the Cable ACE Award-winning documentary "America's Retirement
Crisis." Barnes was formerly an anchor/reporter for CBS O&O WCAU-TV in
Philadelphia, an anchor/reporter for Fox News in Los Angeles and, from 1985 to
1988, a staff reporter for The Wall Street Journal. He earned an MBA in finance
from the University of Pennsylvania's Wharton School of Business.
Kate Bohner is a former reporter for CNBC Business News, where she
covered high-profile personalities for the network. Her "Power File" segment on
the daily CNBC show Power Lunch took a look at the comings and goings of figures
from the worlds of business, media, entertainment, fashion and sports. Prior to
working with CNBC, Ms. Bohner was an associate editor with Forbes, where she
wrote "The Informer" column and a correspondent for CNNfn, where she contributed
to the "Big Buzz" segment. In 1997, Ms. Bohner co-authored "The Art of the
Comeback" with Donald Trump.
Mabel Jong was a correspondent with ABC News based in San Francisco and
New York, later hosting the nationally syndicated business show, "Money Talks".
Prior to joining ABC News, she was a New York-based correspondent and anchor for
CNBC from 1993 and 1996. Her work on a mini-documentary on China earned her a
Cable ACE nomination. In addition to her duties at CNBC, she reported for NBC
Nightly News. Jong has traveled extensively throughout Asia, spending nearly
five years as a journalist there, and hosting a nightly business program for the
largest television station in Hong Kong. Ms. Jong graduated from UCLA and was a
Knight journalism fellow at Harvard and Stanford University.
JAGfn also currently features 12 former financial professionals each of
whom reports upon a critical financial sector: casino gaming, high tech,
healthcare, financial, retail, energy industry, basic material, utilities,
consumer cyclicals, consumer non-cyclicals and telecommunications. JAGfn may add
or delete sector coverage from time to time as the market changes its focus and
the webcast viewers express their coverage preferences. These sector experts
appear live throughout the programming day to offer their explanation of events
in their respective sectors. They also watch for volatility in their market
segment, and are ready to cut into regularly scheduled programming with news and
analysis on stocks making sudden intra-day moves.
38
<PAGE>
Throughout the trading day one or more of the commentators on our web
site, including market expert Elaine Garzarelli, business news reporter Dan
Dorfman, global economist Maria Fiorini Ramirez, technical analyst Ralph Bloch,
short-seller specialist Doug Kass, former New York Congresswoman Susan Molinari,
options strategist Larry McMillan, high-tech futurist and former White House
advisor Dr. James Canton, may appear on our webcast. In addition, any notable
rumors appearing in the JAGfn Rumor Report on our U.S. web site may be disclosed
on the webcast and discussed by our experts. In general, coverage during trading
hours is largely unstructured and unscripted, reflecting the nature of the
securities markets and the often unexpected developments on which we are
reporting.
The JAGfn webcast is divided into pre-market, intra-day, and
post-market shows.
-- "The Morning Look" 8:30-9:30 a.m. (ET): For one hour prior to
the opening bell on Wall Street, JAGfn gives viewers news,
information and analysis likely to be relevant to the day's
trading.
-- "The Trading Day" 9:30 a.m.-4:00 p.m. (ET): Between the opening
and closing bells on Wall Street, JAGfn provides up-to-the-minute
information, news, analysis and commentary geared toward helping
viewers identify and better understand what is happening in the
market.
-- "The Look Ahead" 4:00-4:30p.m. (ET): JAGfn's post-market
show is intended to look ahead to the next day's session by
providing information and commentary, which the webcast team
believes will be relevant to the next day's trading.
Our Subscription Service
On our subscription-based web site, we offer our subscribers selected
investor information products in text and chart form that we believe are of
interest to active investors. These products fall into three categories:
o Commentaries from experienced journalists, money managers,
analysts and other Wall Street professionals.
o The delivery of breaking news and potentially market moving
information.
o Selected financial data targeted at the active investor and
trader.
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<PAGE>
Commentaries
The commentary on our web site is provided by experienced journalists,
money managers, analysts and other Wall Street professionals. Their reports
range from analysis of individual stocks and industry sector performance to
analysis of broad market and economic matters. In many cases our commentators
also provide and analyze detailed financial and technical data. We believe that
these commentaries can provide our subscribers with the kind of insights into
financial matters that previously was available only to institutional investors,
traders and high net-worth individuals. We select our commentators to offer our
subscribers a broad range of analysis to appeal to a broad range of investment
and trading styles. The topics of these commentaries vary daily. Although we
have no set criteria for choosing our commentators, we look for individuals who:
o are well respected by members of the Wall Street community,
including traders, economists, investment bankers and other
institutional investors;
o have experience either as a journalist, money manager or
financial analyst and/or have an educational background in
business, finance or economics; and
o have the ability to attract and retain subscribers for our web
sites.
As of the date of this prospectus, JAGfn has more than 30 commentators
who provide technical analysis and commentary for our U.S. web site including,
among others, the commentators named above who will be contributing to our
subscription service as well as our webcast.
Several of our commentators provide similar services to investors
either through their own web sites or through web sites, television programs,
newspapers and magazines owned and operated by other companies. In some cases
our commentators provide their services for free on their own web sites. See the
risk factors titled "We may not be able to adequately expand our subscriber base
because many of our competitors offer free financial information" and "Many of
our commentators may have competing web sites" on page 14 for further
information.
Securities Law Compliance Policy - To ensure impartiality and prevent
any conflict-of-interest or appearance of conflict, our employees and our
breaking news journalists, such as Dan Dorfman, are not permitted to own
individual stocks (though they may, and most will, own equity in JagNotes)
except in one case through a blind account which is controlled by a
representative of Salomon Smith Barney Inc. Our outside commentators are not
subject to this policy, but they disclose in their reports their current
positions in any of the stocks that they write about or otherwise take steps to
insure the integrity of their work.
Breaking News and Market Moving Information
To meet investors' demand for more timely and market moving information
we offer our subscribers three targeted products:
Streetside with Dan Dorfman - For more than 30 years Dan Dorfman has
covered Wall Street in print and on television. His credentials include
reportage for CNN, CNBC, the Wall Street Journal, USA Today, Esquire and New
York and Money magazines. In January 1996, Mr. Dorfman's employment with Money
Magazine was terminated because he declined to disclose the sources for his
columns to Money's managing editor. In 1996 Mr. Dorfman took a leave of absence
from his employment with CNBC as a result of a stroke. Prior to this leave of
absence, and while Mr. Dorfman was still doing a daily broadcast at CNBC, CNBC
retained an independent law firm to conduct an extensive investigation of
alleged improper conduct by Mr. Dorfman. Based upon this investigation, CNBC and
its investigators concluded that Mr. Dorfman did not engage in any conduct that
violated any law or internal corporate policy. Mr. Dorfman chose not to return
to his position at CNBC following his leave of absence. His recovery from the
stroke is continuing.
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Mr. Dorfman's column appears each weekday at 1:00 p.m.
JagNotes Upgrade/Downgrade Report - The JagNotes upgrade/downgrade
report 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. Each morning we gather this
information, then compile and release it in a concise, easy to read format
before the markets open. We believe that this early, convenient access to
potentially market moving information gives our subscribers access to some of
the information traditionally available when the market opens to institutional
investors, professional traders and high net worth individuals.
The JAGfn Rumor Report - Because rumors can move equities, we have
established the "Rumor Room" where we post rumors about various stocks that have
been heard on the street. When we hear rumors, we post the information in the
Rumor Report and indicate the date and time of the rumor. We also attempt to
contact the company or companies involved in the rumors for a comment and post
the results of this inquiry with the rumor. While we realize that rumors are
inherently unreliable as indicated by a cautionary note introducing this portion
of our site, we believe that every trader and investor - large and small -
should have access to this information to determine its usefulness.
The JAGfn Rumor Report is available to our subscribers and updated
throughout the day.
Select Financial Data
To complement our other investor information products, we also provide
our subscribers with access to various financial data that we believe is
attractive to the active investor. This data is housed in areas of the site we
refer to as "Intraday News," "Stock Central," "Today's JAGNotes," "Fixed Income
Center," "Mutual Fund Center," and "IPO Center." It includes information such as
Quotes, Splits & Dividends, OTC Short Interest, Charting, Insider Buying &
Selling, BestCalls.com's calendar of earnings conference calls and related
investor events and Morningstar.com's Investment Quicktake(R) Reports and
screening tools for mutual funds, and other similar publicly available data that
is typically useful to the active investor or trader.
Advertising Revenue
Revenue from the sale of streaming advertisements and sponsorships are
expected to be the primary source of revenue from the JAGfn webcast. Currently
there are approximately 20 advertisers running streaming advertisements during
the JAGfn webcast. These advertisers are running their ads on a free trial basis
and will evaluate converting to a paid advertising structure after they have had
an opportunity to monitor the webcast and its viewership. We cannot at this time
predict when we may begin to receive such revenues, what rates we can expect to
earn, or how many viewers we will attract. There are currently no sponsors of
any portion of the webcast.
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While we expect the primary source of our revenue from our current U.S.
web site to be subscriptions, we may supplement this with advertising and
sponsorship-based revenue. However, we have not to date been able to earn
material amounts for banner and other advertising and we have not been able to
attract any site sponsors.
Subscriptions
Most of the written commentary on our web site is accessible only to
paid subscribers. Subscriptions are offered at the rate of $9.95 per month, or
$99.95 per year. We have offered free trial subscriptions at times in the past
and may do so in the future.
We also maintain our original JAGNotes fax-based service for a limited
number of mostly institutional subscribers. Through this service, we provide
these subscribers faxed copies of our daily JAGNotes upgrade/downgrade report,
which is updated two or three times every weekday morning before the stock
market opens. We also allow these subscribers access to our Internet-based
information by providing them with a specified number of access codes. The price
for this combined service is approximately $150 per month. The number of
fax-based customers is declining.
The content of our subscription web site contains all of the
information provided in the JAGNotes fax-based service as well as the
commentaries described above and other product offerings which do not appear in
our faxed reports. The information contained on our web site is updated at
various times throughout each day. The various commentaries are updated pursuant
to a schedule set forth on our U.S. web site.
We are currently evaluating whether to continue providing our combined
fax/Internet service. Some of the alternatives we are examining include: (a)
removing JAGNotes from the web site and returning it to a fax only subscription
service at the higher institutional rate, and (b) offering JAGNotes as a
separate subscription service within the JAGfn web site, also at the higher
institutional rate.
Our Business Strategy
Our goal is to position ourselves as a leading Internet-based worldwide
financial information provider, relying predominantly on streaming video and
audio for the dissemination of such information. In time, we hope that we will
become a primary financial information resource for institutional investors and
the general public alike.
The continuation and success of our business depends on our ability to
obtain the requisite financing and be able to:
o continue and expand our webcasting service and, in particular,
obtain distribution of our webcast service on non-Internet
platforms;
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o obtain adequate revenues from advertisers and sponsorships for
the webcast service;
o pursue strategic alliances;
o launch webcasts in markets outside the United States;
o expand our subscriber base in the United States and
internationally; and
o leverage the reputation of our commentators.
Additional facets of our business strategy include:
Expand Webcast Audience and Selling Advertising on the Webcast. Our
webcast seeks to integrate news, analysis and commentary on viewer's desktops to
create a value-added "one-stop-shopping" product for serious investors and
traders. In addition, our webcast guests and contributors encourage viewers to
subscribe to the JAGfn.com web site subscription service to retrieve earlier and
more complete reporting and analysis of stocks and stories each trading day. We
plan to continue our webcast syndication strategy in order to expand our
Internet viewer audience as quickly as possible and also explore distribution
opportunities in other media to the extent we are financially able to do so.
Expand Subscriber Base. Some avenues that we are exploring to attract
new subscribers include:
o Promoting our web site service in our webcasts;
o Offering our JAGNotes early morning service as a separate
subscription-based service on our web site and/or by fax;
o Expanding on and improving our web site content;
o Offering free trial subscriptions;
o Traditional public relations;
o Leveraging our reputation among financial professionals to
attract new subscribers to our web site;
o Co-promoting services through financial institutions,
particularly those who currently subscribe to our JAGNotes
early morning product;
o Pursuing distribution arrangements with third party
information providers that service financial institutions and
individual investors; and
o Pursuing strategic alliances with existing web-based
information providers and other media companies.
To implement the last two strategies, we have entered into the
following agreements:
o A two year agreement with ILX Systems, a division of Thomson
Information Services, Inc., pursuant to which ILX Systems makes
available to users of its products subscriptions to access our
web site content.
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o An agreement with BestCalls.com pursuant to which our
subscribers can access BestCalls.com's comprehensive calendar
of earnings conference calls and related investor events.
o A co-marketing agreement with Totally Free Paging.com pursuant
to which Totally Free Paging.com provides our subscribers the
convenience and accessibility of not only receiving JAGfn.com
web site content, but also viewing pages sent during the past
30 days, listening to voicemail messages, picking up faxes and
even sending instant messages all at one Internet location.
o A distribution agreement with Unilink Financial Services Ltd.
pursuant to which Unilink offers JAGfn.com content to
subscribers of Unilink. Unilink is a provider of
subscriber-based financial information to leading market data
vendors.
o A distribution agreement with COMTEX News Network, Inc.
pursuant to which COMTEX offers JAGfn.com web site content to
subscribers of COMTEX in exchange for royalty payments to
JagNotes.
Develop New Geographic Markets. To take advantage of the unlimited
reach of the Internet, subject to available financing in each case or finding
appropriate risk-sharing partners, we hope to have: (a) web sites serving Latin
America, (b) distribution networks for our current JAGfn U.S. webcast in Canada,
Europe, Asia and Latin America, and (c) more limited and localized versions of
the JAGfn webcast addressing major financial markets in the global markets
mentioned above.
In July 1999 we established JagNotes-Euro.com, Ltd., which has been
incorporated in England as a wholly owned subsidiary of JagNotes.com Inc. We
opened our jagnotes-euro.com web site on December 1, 1999 but due to the low
number of subscribers to our web site in England, we recently terminated our
operations there. (See Recent Events.)
We are working on the establishment of our Latin American sites and
hope to commence operations in Latin America during the year 2001 as funding
becomes available. Our estimated costs for establishing our Latin American sites
is approximately $10 million. To date, we also have retained the services of
Elena Landau to serve as a consultant and a commentator with respect to our
Latin American operations. Ms. Landau will have a 5% equity interest in our
Latin American subsidiary when it is established.
Web Site Development. We are currently working to improve our
subscription service on www.jagfn.com into a comprehensive source for financial
information and analysis which is the primary source of such information and
analysis for our subscribers. Our subscription service on our web site was
recently redesigned to make it more user friendly and to accommodate audio and
video streaming. In addition to the existing content, we plan to continue to
improve and expand the features of our site to provide greater value to our
subscribers as our financial resources permit.
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Pursue Strategic Alliances. We believe that we can effectively grow our
business by pursuing strategic affiliations, partnerships, joint ventures or
other relationships with strategic partners. We are pursuing alliances with web
portals, investment firms, online brokerage houses, market news providers and
cable and satellite television networks in an effort to obtain additional
distribution of our webcast, expand our name recognition and increase our
subscriber base.
On February 9, 2000, we purchased a 7% interest in the company
which owns the vrtrader.com web site for $300,000. Mark Leibovit, who is one of
our commentators, owns this company. The vrtrader.com web site provides
technical market information. We also have paid $200,000 for a 2% interest in
MyBrowzer.com, Inc. Under the terms of our agreement, MyBrowzer has also agreed
to license its proprietary browser software to us for an annual fee of $50,000.
As of the date of this prospectus, we do not have any other pending negotiations
for similar investments.
We will require additional funds in order to implement our business
strategy. At our current usage rate of cash, the cash generated from our
operations will not be sufficient to fund the liquidity requirements of our
current business strategy. Accordingly, we will need to raise additional funds
through public or private financing, strategic relationships or other
arrangements. There can be no assurances that we will be able to do so.
Competition
Providing financial information and analysis over the Internet is a
relatively new business, but it is already intensely competitive. An increasing
number of web-based financial information providers are competing for
subscribers, customers, advertisers, content providers, analysts, commentators
and staff. Many such competitors have substantially greater financial and other
resources than we have.
Webcast
Our webcast's primary competitors provide financial news, commentary
and analysis on the Internet such as America Online Personal Finance Channel,
CBSMarketwatch.com, TheStreet.com, Yahoo Finance Vision, WebFN.com, Reuters PLC
and Investor Broadcast Network. However, we believe that our webcast also
competes with televised financial news services such as CNBC, CNNfn, Bloomberg,
FOX News Channel and others such as The Nightly Business Report and Wall Street
Week.
Subscription Service
We provide a variety of categories of information to our subscribers,
including daily financial news, technical analysis of stock activity and
selected financial data of corporations. Each of these components of our
business competes to a different degree with the following information sources:
o Online financial news and information providers including
TheStreet.com, MarketWatch.com, The Motley Fool.com, FT.com,
European Investor.com, Worldly Investor.com and
Hemmington-Scott.com
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o Internet portals and search engines such as America Online,
MSN and Yahoo
o Traditional media sources such as The Wall Street Journal, The
Financial Times, Barrons, CNNfn, and CNBC, all of whom also
have an Internet presence
o Terminal-based financial news providers including Bloomberg,
Reuters and Dow Jones
o Online brokerage firms such as E*Trade, Charles Schwab or DLJ
Direct
Because there is not a readily defined market in which we compete, we
cannot predict which information source or sources will be our primary
competition in the future. However, we expect competition from each of the above
information sources to intensify and increase in the future. Most of our current
and potential competitors have greater name recognition, larger financial,
technical and marketing resources, and more extensive customer bases than we do,
all of which could be leveraged to gain market share to our detriment.
General
The barriers to entry into our business are relatively low - i.e., it
is not difficult for new competitors to enter the market. Much of the
information we provide is publicly available and we do not have any patented or
otherwise protected technologies that would preclude or inhibit competitors from
entering our markets. Our current and future competitors may develop or offer
services that have significant price, content, creative or other advantages over
the services we provide.
In order for us to successfully compete in this business, we will need
to reliably provide services which a large audience finds valuable. We believe
that a successful implementation of our business strategy will allow us to do
so.
Web Site Technical Information
We lease five web servers, which are the computer systems on which all
the content for our U.S. web site is maintained and through which we operate
that web site. Our U.S. servers are maintained by Woodbourne Solutions and are
located in their facility in Germantown, Maryland. The bandwidth for our webcast
service is currently provided by Digital Island. Our U.S. web site was recently
redesigned by Zero-G at a cost of approximately $500,000. They also handle
ongoing design matters for the U.S. web site and assist us in placing content on
that site.
Employees
As of October 31, 2000, we had 59 employees. As of that date, we had
entered into employment agreements with 25 of our employees, none of whom are
named executive officers or directors of JagNotes. We are currently in the
process of concluding employment contracts with three of our named executive
officers.
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Facilities
We lease an office suite located in an office building at 1415 Wyckoff
Road, Second Floor, Farmingdale, New Jersey 07727. The space is approximately
3,736 square feet. Our lease for this office space expires on October 31, 2001.
We are in discussions with the landlord to terminate this lease prior to the
expiration date as our executive and administrative personnel are now
headquartered at our New York City studio location described below.
We have entered into a lease with Chelsea Television Studios for
approximately 3,000 square feet of studio space and approximately 4,000 square
feet of ancillary office and support space located at 226 West 26th Street, New
York, New York (the "Chelsea Lease"). This space houses the production of our
webcasting service. Under the Chelsea Lease, the landlord provides not only the
studio space, but also the required studio equipment and the technical personnel
required to produce our webcast. We expect to pay approximately $3,150,000 for
rent and labor costs associated with this space doing the first year of the
Chelsea Lease. Most of our executive, administrative and technical staff
personnel currently occupy office space at this facility.
JagNotes-Euro.com, Ltd., our wholly owned subsidiary, leased a full
service office suite located at 60 Lombard Street, Suite 3.16, London EC3 during
fiscal year 2000. Because we terminated our European operations on October 31,
2000, we are in discussions with the landlord to terminate this lease.
Legal Proceedings
There are no currently pending law suits or similar administrative proceedings
against the company and, to the best of our knowledge, there is presently no
basis for any suit or proceeding.
We carry Internet Professional Liability insurance coverage. This
coverage is for risks relating to:
o copyright and trademark infringement and libel, slander and
defamation claims arising out of our advertising,
broadcasting, publishing and web site content; and
o web site set up including programming, design, installation
and consulting services.
We also carry Commercial General Liability insurance coverage.
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Where you can find more information about us
We are required to file annual, quarterly and special reports, proxy
statements and other information with the SEC. You can read and copy any of this
information at the SEC's public reference rooms in Washington, D.C., New York,
and Chicago. Please call the SEC at (800) SEC-0330 if you would like further
information on the public information rooms. This information is also available
from the SEC's web site at http://www.sec.gov.
In the future we intend to distribute annual reports containing audited
financial statements and other information to our stockholders after the end of
each fiscal year. We do not intend to regularly distribute quarterly reports to
our stockholders, but we will gladly send them to you upon your written request
to our Corporate Secretary.
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MANAGEMENT AND EXECUTIVE COMPENSATION
Management
Set forth below is information regarding our directors and executive
officers:
Gary Valinoti, age 42, was a co-founder of the predecessor to
JagNotes.com Inc. and has served as the President and Chief Executive Officer of
JagNotes.com Inc. since March 1999. Mr. Valinoti is also a member of JagNotes'
Board of Directors. From August 1992 - March 1999 Mr. Valinoti served as
President, and as a member of the Board of Directors, of JagNotes, Inc., the
company that produced the JAGNotes fax service throughout that period. Prior to
his involvement with JagNotes, Inc., Mr. Valinoti held positions with various
firms in the securities industry including Mosely, Hallgarten, Estabrook &
Weeden where he was involved in institutional and currency trading, and started
the firm's arbitrage department. Mr. Valinoti attended Wagner College.
Thomas J. Mazzarisi, age 43, has served as JagNotes' Executive Vice
President and General Counsel since March 1999 and is also a member of the
Board of Directors of JagNotes. From 1997 until joining JagNotes, Mr. Mazzarisi
practiced law from his own firm in New York, specializing in international
commercial transactions. From 1988 until 1997, Mr. Mazzarisi was a Senior
Associate at the law firm of Coudert Brothers where he also specialized in
international commercial transactions. Prior to joining Coudert Brothers, Mr.
Mazzarisi was Deputy General Counsel of the New York Convention Center
Development Corporation. Mr. Mazzarisi is a graduate of Fordham University where
he received a B.A. in Political Economy and was elected to Phi Beta Kappa. Mr.
Mazzarisi received his J.D. from Hofstra University School of Law.
Stephen R. Russo, age 39, has served as JagNotes' Chief Financial
Officer since March 1999. Since 1984, Mr. Russo has also served as President of
Stephen R. Russo & Co., Certified Public Accountants. From 1981-1984 Mr. Russo
served as Senior Staff Accountant for Edwin Weinberg & Associates, where he was
responsible for certified audits of corporate accounts, as well as corporate and
individual tax matters. Mr. Russo is a graduate of St. Thomas Aquinas College
where he received a B.S. in Accounting. Mr. Russo is a member of the New York
State Society of Certified Public Accountants, the American Institute of
Certified Public Accountants and the Rockland County Business Association.
Stephen J. Schoepfer, age 41, is our Executive Vice President, Chief
Operating Officer and Secretary and is on our Board of Directors. Prior to
joining JagNotes in July 1999, he was a Financial Advisor with the investment
firm of Legg Mason Wood Walker. Prior to joining Legg Mason, Mr. Schoepfer
served as a Financial Advisor and Training Coordinator at Prudential Securities.
Mr. Schoepfer attended Wagner College.
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Compensation of Executive Officers
The following table sets forth certain summary information regarding
compensation paid to our Chief Executive Officer and certain executive officers
for services rendered during the fiscal years ended July 31, 1998, 1999 and
2000. Except as listed in the table below, no executive officer holding office
in fiscal year 2000 received total annual salary and bonus exceeding $100,000.
No such officers have been awarded any stock options, stock appreciation rights
or other long term or incentive compensation not reflected below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
---------------------------------- ----------- -------------------------------------------------- -----------------------
Name and Principal Position Fiscal All Other
Year Annual Compensation Compensation
--------------------------------------------------
Other
Annual
Salary Bonus Compensation
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Gary Valinoti (President and 2000 $100,000 --- --- ---
Chief Executive Officer) 1999 $110,550 --- --- ---
1998 $110,550 --- --- ---
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Stephen J. Schoepfer 2000 $100,000 $50,000 --- ---
(Chief Operating Officer) 1999 --- --- --- ---
1998 --- --- --- ---
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Thomas J. Mazzarisi 2000 $100,000 --- --- ---
(Executive Vice President and 1999 --- --- --- ---
General Counsel) 1998 --- --- --- ---
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Stephen Russo 2000 $20,000 --- --- ---
(Chief Financial Officer) 1999 --- --- --- ---
1998 --- --- --- ---
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Jeffrey Goss (Mr. Goss served as 2000 $86,997 --- --- ---
Secretary and Vice President of 1999 $110,550 --- --- ---
JagNotes.com Inc. until June 1998 $110,550 --- --- ---
2000, but is no longer employed
by JagNotes)
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Anthony Salandra (Mr. Salandra 2000 --- --- --- ---
served as President and director 1999 $110,550 --- --- ---
of JagNotes, Inc. during fiscal 1998 $110,550 --- --- ---
year 1999, but is no longer
employed by JagNotes)
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
Barry Belzer, (Mr. Belzer served 2000 --- --- --- ---
as Secretary and director of 1999 $110,550 --- --- ---
JagNotes, Inc. during fiscal 1998 $110,550 --- --- ---
year 1999, but is no longer
employed by JagNotes)
---------------------------------- ----------- --------------- ------------- -------------------- -----------------------
</TABLE>
We are in the process of expanding our staff and, accordingly, we
expect that our executive compensation expenses will increase in the current and
future fiscal years.
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Director Compensation
We currently do not compensate our directors, all of whom receive
compensation as officers.
Stock Options and SARs
No stock options or freestanding SARs were granted to any of our named
executive officers during the fiscal year ended July 31, 2000. We expect to
enter into employment agreements with three of our named executive officers
during our fiscal quarter ending January 31, 2001, pursuant to which such
officers will be granted stock options to purchase an aggregate of 900,000
shares of our common stock (See Employment Contracts.)
1999 Long-Term Incentive Plan
In October, 1999 our Board of Directors approved the 1999 Long-Term
Incentive Plan. The purpose of the plan is to allow us to attract and retain
officers, employees, directors, consultants and certain other individuals and to
compensate them in a way that provides additional incentives and enables such
individuals to increase their ownership interests in JagNotes. Individual awards
under the plan may take the form of:
o either incentive stock options or non-qualified stock options;
o stock appreciation rights;
o restricted or deferred stock;
o dividend equivalents;
o bonus shares and awards in lieu of JagNotes' obligations to pay
cash compensation; and
o other awards, the value of which is based in whole or in part upon
the value of the common stock.
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The plan will generally be administered by a committee appointed by our
board of directors, except that the board will itself perform the committee's
functions under the plan for purposes of grants of awards to directors who serve
on the committee. The board may also perform any other function of the
committee. The committee generally is empowered to select the individuals who
will receive awards and the terms and conditions of those awards, including
exercise prices for options and other exercisable awards, vesting and forfeiture
conditions, performance conditions, the extent to which awards may be
transferable and periods during which awards will remain outstanding. Awards may
be settled in cash, shares, other awards or other property, as the committee may
determine.
The maximum number of shares of common stock that may be subject to
outstanding awards under the plan will not exceed 15% of the aggregate number of
shares of common stock outstanding effective at the time of such grant. At July
31, 2000, the number of shares deliverable upon exercise of incentive stock
options was limited to 2,220,000. The plan also provides that no participant may
be granted in any calendar year options or other awards that may be settled by
delivery of more than 500,000 shares, and limits payments under cash-settled
awards in any calendar year to an amount equal to the fair market value of that
number of shares as of the date of grant or the date of settlement of the award,
whichever is greater. As of July 31, 2000 there were a total of 1,782,500 shares
of common stock subject to outstanding options granted under the plan. Each of
the foregoing options has an exercise price of $2.00 per share.
The plan will remain in effect until terminated by the board of
directors. The plan may be amended by our board of directors without the consent
of our stockholders, except that any amendment, although effective when made,
will be subject to stockholder approval if required by any Federal or state law
or regulation or by the rules of any stock exchange or automated quotation
system on which our common stock may then be listed or quoted. The number of
shares reserved or deliverable under the plan, the annual per-participant
limits, the number of shares subject to options automatically granted to
non-employee directors, and the number of shares subject to outstanding awards
are subject to adjustment in the event of stock splits, stock dividends and
other extraordinary corporate events.
We generally will be entitled to a tax deduction equal to the amount of
compensation realized by a participant through awards under the plan, except no
deduction is permitted in connection with incentive stock options if the
participant holds the shares acquired upon exercise for the required holding
periods; and deductions for some awards could be limited under the $1.0 million
deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under the plan during a
grace period of approximately one year following the effectiveness of the
registration statement covering the shares, and should not apply to certain
options, stock appreciation rights and performance-based awards granted
thereafter if we comply with certain requirements under Section 162(m).
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Employment Contracts
We expect to enter into three-year employment agreements (each an
"Executive Agreement") with each of Gary Valinoti (our President and Chief
Executive Officer), Stephen J. Schoepfer (our Executive Vice President and Chief
Operating Officer) and Thomas J. Mazzarisi (our General Counsel and Executive
Vice President) (collectively, the "Executives") during our fiscal quarter
ending January 31, 2001. Each Executive Agreement will provide for an base
salary of $150,000, with annual increases of $25,000. The Executive Agreements
will also provide that each employee shall be entitled to an annual bonus of at
least $25,000 payable on the first business day in January following the year in
which the bonus is earned. Such bonus may be higher than $25,000 if so
determined by the board of directors in its discretion. In addition, pursuant to
the Executive Agreements, each Executive will be entitled to the same medical
and other benefits, including health and life insurance coverage, as are
provided to other employees of JagNotes. In the event JagNotes terminates the
employment of any of the Executives "without cause" or such Executive resigns
for "good reason" as defined in the Executive Agreements, such Executive shall
be entitled to receive (i) continued medical and life insurance coverage for a
period equal to the greater of one year or the number of years and fractions
thereof between the date of such termination and the end of the term of
employment (the "Severance Period") and (ii) a lump sum cash payment equal to
the Severance Period multiplied by the greater of the $25,000 or the highest
annual bonus previously paid to such Executive during the term of the Executive
Agreement. A change in control of JagNotes (as defined in our 1999 Long-Term
Incentive Plan) will be deemed to be a "good reason" for resignation under the
Executive Agreements.
In addition, pursuant to the Executive Agreements, we intend to grant
to each of Gary Valinoti, Stephen J. Schoepfer and Thomas J. Mazzarisi a 5%
ownership interest in our webcast subsidiary, JAGfn Broadband LLC together with
the right to receive a 5% ownership interest in any subsidiary of JagNotes.com
Inc. eventually established for the purpose of carrying out our anticipated
Latin American operations. Such ownership interests shall not be diluted.
Pursuant to the terms and conditions of the Executive Agreements, we
also intend to grant to each of the Executives options to purchase an aggregate
of 900,000 shares of our common stock exercisable at a price per share of $0.25.
Of the 900,000 options granted to each Executive, 400,000 will vest immediately
upon the execution of the Executive Agreements. 250,000 options will become
exercisable on January 1, 2001 and an additional 250,000 options will become
exercisable on June 1, 2001. We expect that the options will be subject to the
terms of our 1999 Long-Term Incentive Plan and may be exercised, in whole or in
part, by the Executives on a cashless basis.
As of the date of this prospectus, the terms and conditions of these
anticipated Executive Agreements had not yet been finalized.
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Indemnification of Officers and Directors
Our Articles of Incorporation provide that we shall indemnify our
officers, directors, employees and agents to the full extent permitted by Nevada
law. Our Bylaws include provisions to indemnify our officers and directors and
other persons against expenses (including judgments, fines and amounts paid for
settlement) incurred in connection with actions or proceedings brought against
them by reason of their serving or having served as officers, directors or in
other capacities. We do not, however, indemnify them in actions in which it is
determined that they have not acted in good faith or have acted unlawfully or
not in JagNotes' best interest. In the case of an action brought by or in the
right of JagNotes, we shall indemnify them only to the extent of expenses
actually and reasonably incurred by them in connection with the defense or
settlement of these actions and we shall not indemnify them in connection with
any matter as to which they have been found to be liable to JagNotes, unless the
deciding court determines that, notwithstanding such liability, that person is
fairly entitled to indemnity in light of all the relevant circumstances.
We do not currently maintain director's and officer's liability
insurance but we may do so in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors and officers pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
54
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the common stock as of November 20, 2000, by (i) each
person known by JagNotes to be the beneficial owner of more than five percent of
the common stock, (ii) each executive officer and director of JagNotes, and
(iii) all executive officers and directors of JagNotes as a group. See also
"Directors and Executive Officers of the Registrant" and "Executive
Compensation."
<TABLE>
<CAPTION>
---------------------------------------------- -------------------------------------------- ------------------------
Name and Address of Beneficial Owner Number of Shares Beneficially Owned Percentage of Class(1)
---------------------------------------------- -------------------------------------------- ------------------------
<S> <C> <C>
Gary Valinoti (President, CEO and Director) 3,155,500 (2) 18.3%
226 West 26th Street
Studio D
New York, NY 10001
---------------------------------------------- -------------------------------------------- ------------------------
Stephen R. Russo (Chief Financial Officer) 0 0
226 West 26th Street
Studio D
New York, NY 10001
---------------------------------------------- -------------------------------------------- ------------------------
Thomas J. Mazzarisi (Executive Vice 110,000 X
President, General Counsel and Director)
1200 N. Federal Highway,
Suite 200
Boca Raton, FL 33432
---------------------------------------------- -------------------------------------------- ------------------------
Stephen J. Schoepfer (Executive Vice President, 75,000 X
Chief Operating Officer and Director)
226 West 26th Street
Studio D
New York, NY 10001
---------------------------------------------- -------------------------------------------- ------------------------
CALP II Limited Partnership 4,336,490 (3)(4) 21.3%(3)(4)
c/o Thomson Kernaghan & Co.,Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
CANADA M5H2V2
---------------------------------------------- -------------------------------------------- ------------------------
All executive officers and directors as a 3,340,500 19.4%
group (4 persons)
---------------------------------------------- -------------------------------------------- ------------------------
</TABLE>
x Less than one percent.
(1) Based on 17,223,425 shares outstanding, plus the number of shares which
the beneficial owner has the right to acquire within 60 days, if any.
(2) Includes 444,500 shares owned Mr. Valinoti's wife, Cathleen Valinoti.
(3) Includes (i) 1,241,128 shares of common stock issued to CALP II on
November 17, 2000 pursuant to an $800,000 conversion notice from CALP II
dated November 10, 2000, (ii) 655,739 shares of common stock issuable
upon the exercise of stock purchase warrants issued to CALP II to date
pursuant to our Equity Line of Credit Agreement and (iii) 2,439,623
shares of common stock which may be acquired if the CALP II Convertible
Debenture were converted in full as of November 10, 2000. We note that
the terms and conditions of the CALP II Convertible Debenture restrict
CALP II from acquiring in excess of 10% of the outstanding shares of our
common stock upon conversion.
(4) Excludes 1,135,850 shares of common stock issued to CALP II to date
pursuant to our Equity Line of Credit Agreement and 46,442 shares of
common stock issued to CALP II upon partial conversion of the CALP II
Convertible Debenture in August 2000, which CALP II does not own of
record; we have no information as to any continued beneficial ownership
of these shares.
On October 30, 2000, we entered into an agreement with Thomson
Kernaghan pursuant to which Thomson Kernaghan agreed to purchase, or cause to be
purchased, six convertible debentures aggregating $3 million, each bearing
interest at 8% per year for three years with a conversion price equal to the
lesser of 75% of the average of the five lowest closing bid prices of our common
stock during the 20 trading days immediately preceding the date of conversion
and $0.80 per share. Such debentures have warrant coverage equal to 20% of the
number of shares issuable upon conversion of the debentures with an exercise
price based upon the formula set forth in our Equity Line of Credit Agreement
with CALP II. In addition, we agreed to issue Thomson Kernaghan or its
designee(s) an additional five-year stock purchase warrant for 3,000,000 shares
of our common stock, exercisable at a price of $1.25 per share. As of November
20, 2000, we had not yet issued any of these securities to Thomson Kernaghan,
nor have we been informed of the identity of Thomson Kernaghan's designee(s), if
any. If all of the above-described securities are issued in the name of Thomson
Kernaghan, Thomson Kernaghan could be deemed to beneficially own in excess of 5%
of our outstanding common stock.
56
<PAGE>
SELLING STOCKHOLDERS
The shares covered by this prospectus which are being offered by the
selling stockholders consist of (i) up to 10,000,000 shares of common stock that
CALP II may purchase from us pursuant to an equity line of credit agreement,
(ii) up to 5,000,000 shares of common stock that may be issuable to CALP II upon
conversion of an 8% Convertible Debenture due June 12, 2003, (iii) up to
2,000,000 shares of common stock that CALP II may acquire upon the exercise of
stock purchase warrants issued in connection with the equity line of credit
agreement, (iv) 428,571 shares of common stock that may be issued to CALP II
upon exercise of a stock purchase warrant, (v) 250,000 shares of common stock
that may be issued to Thomson Kernaghan upon exercise of a stock purchase
warrant, (vi) 25,000 shares of common stock that may be issued to Butler
Gonzalez, LLP upon exercise of a stock purchase warrant, (vii) 500,000 shares of
common stock that may be issued to Strategic Growth International, Inc. ("SGI")
upon exercise of a stock option and (viii) an aggregate of 1,250,000 shares of
common stock that may be issued to May Davis Group and five of its affiliates,
Robert Farrell, Mark A. Angelo, C. Max Rockwell, Joseph Donohue and Hunter S.
Singer, upon exercise of stock purchase warrants. The address of CALP II is c/o
Thomson Kernaghan & Co., Ltd., 365 Bay Street, 10th Floor, Toronto, Ontario M5H
2V2. The address of Thomson Kernaghan is 365 Bay Street, 10th Floor, Toronto,
Ontario M5H 2V2. The address of Butler Gonzalez, LLP is 1000 Stuyvesant Avenue
Suite # 6, Union, NJ 07083. The address of SGI is 111 Great Neck Road, Suite
606, Great Neck, New York 11021-5402. The address of May Davis and its
affiliates is 1 World Trade Center, New York, New York 10048.
We have agreed to pay all the expenses we incur in connection with the
registration of the shares issuable to the selling stockholders:
o pursuant to the equity line of credit agreement;
o upon conversion of the CALP II Convertible Debenture;
o upon exercise of stock purchase warrants to be issued to CALP
II in connection with the equity line of credit agreement;
o upon exercise of a stock purchase warrant to acquire 428,571
shares of common stock;
o upon exercise of a stock purchase warrant to acquire 250,000
shares of common stock;
o upon exercise of a stock purchase warrant to acquire 25,000
shares of common stock;
o upon exercise of a stock option to acquire 500,000 shares of
common stock; and
57
<PAGE>
o upon exercise of stock purchase warrants to acquire an
aggregate of 1,250,000 shares of common stock.
The selling stockholders will pay all broker commissions and other
selling expenses they incur, as well as any legal and other expenses that they
may incur in the registration or sale of its shares. Except for these
relationships, none of CALP II, Thomson Kernaghan or Butler Gonzalez, LLP has
had a material relationship with us or any of our affiliates within the past
three years.
The following table sets forth information about the ownership of our
common stock by the selling stockholders as of November 20, 2000.
The number of shares in the table attributed to CALP II represents an
estimate of the number of shares of common stock to be offered by CALP II, if
CALP II were to fully convert the CALP II Convertible Debenture as of November
10, 2000 and offer all the resulting shares of common stock for sale. In August
2000, we issued to CALP II 46,442 shares of our common stock upon partial
conversion of the CALP II Convertible Debenture. On November 17, 2000, we issued
an additional 1,241,128 shares of common stock to CALP II pursuant to an
$800,000 conversion notice from CALP II dated November 10, 2000. If CALP II
opted to convert the remaining $1,650,000 principal amount of the CALP II
Convertible Debenture as of November 10, 2000, CALP II would be entitled to
acquire approximately 2,439,623 shares of our common stock, or approximately
14.2% of the number of shares of common stock that were then outstanding after
the conversion; however, because the terms and conditions of the CALP II
Convertible Debenture restrict CALP II from acquiring in excess of 10% of the
outstanding shares of our common stock upon conversion, we would not be required
to issue to CALP II any shares which would cause CALP II's beneficial ownership
of our common stock to exceed 10%. The actual number of shares of common stock
issuable upon conversion of the CALP II Convertible Debenture is indeterminate,
and could be materially less or more than the amount estimated due to the
conversion price adjustments explained in the section of this prospectus
entitled "Description of Securities" on page 67. We agreed to register at least
5,000,000 shares in connection with the issuance of the CALP II Convertible
Debenture; the additional shares covered by this prospectus for sale by CALP II
are to accommodate the possibility that the actual number of shares issuable
upon conversion of the CALP II Convertible Debenture increases as a result of
adjustments in the conversion price. This table, however, assumes no adjustments
to the conversion prices. We cannot assure you that CALP II will sell any or all
of the shares that it may acquire upon the conversion of the CALP II Convertible
Debenture. CALP II's determination whether to hold or convert the CALP II
Convertible Debenture and sell the resulting shares will depend upon many
factors, including our prospects, general market conditions and the prevailing
price of our common stock. In addition, subject to various limitations, we can
require conversion.
58
<PAGE>
<TABLE>
<CAPTION>
------------------------------- --------------------------- --------------------------- ----------------------------
Shares Of Common Stock To
Shares Of Common Stock Maximum Number Of Shares Be Beneficially Owned
Beneficially Owned Prior To Be Sold Pursuant To After The Offering
Name Of Selling Stockholder To The Offering This Prospectus (1) (1)
------------------------------- --------------------------- --------------------------- ----------------------------
Number Percent
------ -------
<S> <C> <C> <C> <C>
CALP II Limited Partnership 4,336,490(2) 17,428,571(3) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Thomson Kernaghan & Co., Ltd. 250,000(4) 250,000(4) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Butler Gonzalez, LLP 25,000(5) 25,000(5) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Strategic Growth
International, Inc. 500,000(6) 500,000( 6) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
The May Davis Group, Inc. 100,000(7) 100,000(7) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Robert Farrell 230,000(8) 230,000(8) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Mark A. Angelo 230,000(8) 230,000(8) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
C. Max Rockwell 230,000(8) 230,000(8) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Joseph Donohue 230,000(8) 230,000(8) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Hunter S. Singer 230,000(8) 230,000(8) 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
Total 6,361,490 19,453,571 0 0
------------------------------- --------------------------- --------------------------- ----------------------------
</TABLE>
--------------------
(1) Assumes the sale of all the shares of common stock which are being offered
pursuant to this prospectus.
(2) Includes (i) 1,241,128 shares of common stock issued to CALP II on November
17, 2000 pursuant to an $800,000 conversion notice from CALP II dated
November 10, 2000, (ii) 655,739 shares of common stock issuable upon the
exercise of stock purchase warrants issued to CALP II to date pursuant to
our Equity Line of Credit Agreement and (iii) 2,439,623 shares of common
stock which may be acquired if the CALP II Convertible Debenture were
converted in full as of November 10, 2000; and excludes 1,135,850 shares of
common stock issued to CALP II to date pursuant to our Equity Line of
Credit Agreement and 46,442 shares of common stock issued to CALP II upon
partial conversion of the CALP II Convertible Debenture in August 2000,
which CALP II does not own of record; we have no information as to any
continued beneficial ownership of these shares.
(3) Includes (i) up to 10,000,000 shares to be purchased from us pursuant to
the terms and conditions of an equity line of credit agreement dated as of
June 14, 2000 (as amended), (ii) up to 5,000,000 shares to be issued in
connection with the conversion of the CALP II Convertible Debenture, (iii)
up to 2,000,000 shares which may be acquired upon the exercise of stock
purchase warrants issued in connection with the equity line of credit
agreement and (iv) 428,571 shares of our common stock which may be acquired
upon the exercise of a stock purchase warrant.
(4) Includes 250,000 shares of our common stock which may be acquired upon the
exercise of a stock purchase warrant.
(5) Includes 25,000 shares of our common stock which may be acquired upon the
exercise of a stock purchase warrant.
(6) Includes 500,000 shares of our common stock which may be acquired upon the
exercise of a stock option.
(7) Includes 100,000 shares of our common stock which may be acquired upon the
exercise of a stock purchase warrant.
(8) Includes 230,000 shares of our common stock which may be acquired upon the
exercise of a stock purchase warrant.
59
<PAGE>
PLAN OF DISTRIBUTION
Private Equity Line of Credit
Overview
On June 14, 2000, we entered into a private equity credit agreement
with CALP II. Pursuant to the agreement, CALP II has agreed to purchase our
common stock during the 30-month period commencing on the date the registration
statement, of which this prospectus forms a part, is declared effective by the
SEC. From time to time during the term of the agreement, but no more frequently
than once every 15 calendar days, we can require CALP II to purchase between
$30,000 and $900,000 of our common stock until all the purchases total
$10,000,000. The purchase price for each share will equal 85% of the market
price of our common stock, which is defined as the average of the five lowest
closing bid prices of our common stock during the ten trading days beginning
with the date we exercise our put right (referred to herein as the "Market
Price").
CALP II's obligation to purchase shares of our common stock is subject
to various conditions, the principal conditions being:
o The closing price (the "Stock Price") of our common stock on
the date preceding the date on which CALP II advances the
funds to us must be at least $1.00 per share.
o The average trading volume for each of the trading days within
the ten calendar days preceding the date we exercise our put
right shall be at least $20,000, with such average trading
volume being computed based upon the average bid price
multiplied by the average daily trading volume of our common
stock. The average bid price is determined by taking the
average of the highest reported bid prices of our common stock
in each five trading day period preceding each trading day
within the ten calendar days immediately preceding the date on
which funds are advanced to us by CALP II. The average trading
volume is determined by dividing the sum of the trading volume
for each trading day within the ten calendar days immediately
preceding the date on which funds are advanced to us by CALP
II by the number of trading days within such ten day calendar
period (the "Average Daily Volume Traded").
o There shall have been no suspension in the trading of our
common stock by either the SEC or the Nasdaq OTC Bulletin
Board or any other relevant market on which our common stock
is traded.
o This prospectus must continue to be effective to permit CALP
II to publicly resell the shares that it acquires from us
under the equity line of credit agreement.
60
<PAGE>
The maximum amount which may be advanced to us under the equity line of
credit on any occasion CALP II advances funds to us shall equal the difference
between (i) $444,444 or, if greater, the amount indicated opposite the range of
the Average Daily Volume Traded on such date as set forth in the table below,
and (so long as (i) exceeds (ii)) (ii) the sum of advances made under the equity
line of credit agreement in the ten calendar days immediately preceding the date
we elect to exercise our put right.
Stock Price
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.50 $ 2.00 $ 2.50 $ 3.00
20,000 | $ 30,000 $ 45,000 $ 60,000 $ 75,000 $ 90,000
Average 50,000 | $ 75,000 $112,500 $150,000 $187,500 $225,000
Daily 100,000 | $150,000 $225,000 $300,000 $375,000 $450,000
Volume 150,000 | $225,000 $337,500 $450,000 $562,500 $675,000
Traded 200,000 | $300,000 $450,000 $600,000 $750,000 $900,000
</TABLE>
On November 20, 2000, we had 17,223,425 shares of common stock
outstanding. The following table shows the number of shares we would issue to
CALP II and the price it would pay for those shares given the hypothetical
variables shown in the table:
<TABLE>
<CAPTION>
Average Daily Purchase Number of Shares
Volume Traded Market Price Advance Amount Price Issued
<S> <C> <C> <C> <C>
$20,000 $1.00 $30,000(1)(5) $0.85 35,294
$223,665(2) $0.8875(3) $0(5) NA NA
$223,665(2) $0.8875(3) $444,444(6) $0.754375 335,277
$200,000 $3.00 $900,000(4) $2.55 352,941
</TABLE>
(1) Represents the minimum matrix amount under the equity line of credit
agreement.
(2) Represents the Average Daily Volume Traded assuming we received an advance
on November 10, 2000.
(3) Represents the Market Price of our common stock assuming we received an
advance on November 10, 2000.
(4) Represents the maximum advance amount under the equity line of credit
agreement.
(5) Assumes that we choose not to draw down up to $444,444 as permitted by an
amendment to our agreement with CALP II described below.
(6) Assumes that we choose to draw down the minimum amount permitted by the
amendment to the equity line of credit agreement described below.
61
<PAGE>
In addition to issuing shares of our common stock to CALP II in
accordance with the above-described matrix, we also have agreed to issue to CALP
II on each date on which CALP II advances funds to us under the equity line a
warrant to purchase a number of shares of common stock equal to 20% of the
number of shares that are subject to an advance under the equity line. The
exercise price for these warrants will be equal to 110% of the average of the
highest reported bid prices of our common stock for the five trading days
preceding the date on which an advance is made to us by CALP II.
Notwithstanding any other limitation described above, pursuant to an
amendment to the equity line of credit agreement entered into on July 19, 2000,
we may opt to draw down any amount up to and including $400,000, net of any
placement agent fees due to May Davis and Thomson Kernaghan, during each 15
calendar day period within the term of the equity line of credit agreement until
such time as we have drawn down a total of $10,000,000 under the equity line or
the agreement has been terminated pursuant to its terms. Access to the equity
line has recently been tolled until January 1, 2001 pursuant to an amendment to
the equity line of credit agreement dated October 31, 2000.
Under a related registration rights agreement, we have agreed to file
and maintain the effectiveness of a registration statement for the resale by
CALP II of the shares it purchases under the equity line of credit agreement.
If, after the registration statement becomes effective, we fail to maintain the
effectiveness, CALP II may require us to pay a penalty equal to 3% of the
purchase price of the shares of common stock then held by CALP II for each ten
day period that the registration statement is not effective. However, we are not
required to pay damages to CALP II in connection with any ineffective period
commencing on the date a post-effective amendment to this registration statement
is filed and ending on the date such post effective amendment is declared
effective by the SEC.
In connection with the equity line of credit agreement, we agreed to
pay to May Davis and Thomson Kernaghan, as agents, an aggregate of 10% of the
cash received from each draw.
Manner of sales; Broker-dealer compensation
CALP II may resell any shares of common stock that it acquires from us
pursuant to the equity line of credit agreement. It may elect to sell any of
these shares in privately negotiated transactions or in the over-the-counter
market through brokers and dealers. These brokers and dealers may act as agent
or as principals and may receive compensation in the form of discounts,
concessions or commissions from CALP II or from the purchasers of its shares of
common stock for whom the broker-dealers may act as agent or to whom the
broker-dealers may sell as principal, or both. CALP II also may sell the shares
in reliance upon Rule 144 under the Securities Act from time to time if it is
eligible to do so. We have been advised by CALP II that it has not made any
arrangements for the distribution of the shares. Broker-dealers who effect sales
for CALP II may arrange for other broker-dealers to participate. Broker-dealers
engaged by CALP II will receive commissions or discounts from it in amounts to
be negotiated prior to the sale.
62
<PAGE>
Filing of a post-effective amendment in some instances
If CALP II notifies us that it has entered into a material arrangement
(other than a customary brokerage account agreement) with a broker or dealer for
the sale of shares of common stock under this prospectus through a block trade,
purchase by a broker or dealer or similar transaction, we will file a supplement
to this prospectus, if required, pursuant to Rule 424(b) under the Securities
Act, disclosing:
o the name of each broker-dealer;
o the number of shares involved;
o the price at which those shares were sold;
o the commissions paid or discounts or concessions allowed to
the broker-dealer(s);
o if applicable, that the broker-dealer(s) did not conduct any
investigation to verify the information contained or
incorporated by reference in this prospectus, as amended; and
o any other facts material to the transaction.
Persons deemed to be underwriters
CALP II is an "underwriter" within the meaning of the Securities Act in
connection with the sale of the shares it may receive pursuant to the equity
line of credit agreement. Accordingly, the 15% discount on the purchase of the
common stock to be received by CALP II will be an underwriting discount under
the Securities Act. In addition, any broker-dealers that participate with CALP
II in the sale of those shares also will be deemed to be "underwriters" within
the meaning of the Securities Act in connection with these sales. Accordingly,
any discounts, concessions or commissions received by any of these
broker-dealers acting on behalf of CALP II and any profits received by them on
the resale of the shares of common stock will be deemed to be underwriting
discounts and commissions under the Securities Act.
Stock Repurchase Programs
We do not have a stock repurchase program and have no intention of
establishing such a program at this time. From time to time our affiliates may
purchase our stock in the secondary market for their own account. Any such
purchases will be conducted in compliance with the anti-manipulation rules under
the Securities Exchange Act.
63
<PAGE>
CALP II Convertible Debenture, Certain Stock Purchase Warrants
and SGI Stock Option
We have issued to CALP II a convertible debenture in the principal
amount of $2,500,000 due June 12, 2003 and bearing interest at 8% per year. The
principal of and interest on the debenture are convertible into our common stock
at the lesser of $0.80 per share or 75% of the average of the five lowest
closing bid prices for such shares during the 20 trading days preceding the
conversion. Once such shares are registered with the SEC, we can require such
conversion at a rate based on a matrix of market price per share and daily
volume in each 15 day period ranging from a high of $900,000 ($3.00 per share
and 200,000 shares of daily trading volume) to $30,000 ($1.00 per share and
30,000 shares of daily trading volume). This prospectus covers up to 5,000,000
shares of our common stock which may be issued to CALP II upon conversion of the
CALP II Convertible Debenture and may be offered and sold from time to time by
CALP II.
If, after the registration statement of which this prospectus is a part
becomes effective, we fail to maintain the effectiveness, CALP II may require us
to pay a penalty equal to 2% of the purchase price of the shares of common stock
then held by CALP II for each 30 day period that the registration statement is
not effective. However, we are not required to pay damages to CALP II in
connection with any ineffective period commencing on the date a post-effective
amendment to this registration statement is filed and ending on the date such
post effective amendment is declared effective by the SEC.
In addition to the shares issuable upon conversion of the CALP II
Convertible Debenture, the following shares which are covered by this prospectus
may be offered and sold from time to time by the selling stockholders:
o shares issuable upon the exercise by CALP II of a five-year
warrant to purchase 428,571 shares of our common stock;
o shares issuable upon the exercise by Thomson Kernaghan of a
five-year warrant to purchase 250,000 shares of our common
stock;
o shares issuable upon the exercise by Butler Gonzalez, LLP of a
five-year warrant to purchase 25,000 shares of our common
stock;
o shares issuable upon the exercise by SGI of a stock option to
purchase 500,000 shares of our common stock; and
o shares issuable upon the exercise by May Davis and its
affiliates of five-year warrants to purchase an aggregate of
1,250,000 shares of our common stock.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The selling
stockholders may sell the shares on the Nasdaq OTC Bulletin Board at prices and
at terms then prevailing or at prices related to the then current market price
or in private sales at negotiated prices directly or through brokers.
64
<PAGE>
The selling stockholders and any underwriter, dealer or agent who
participates in the distribution of the shares issuable upon conversion of the
CALP II Convertible Debenture or the exercise of the related stock purchase
warrants or SGI stock option may be deemed to be underwriters under the
Securities Act and, any discount, commission or concession received by these
persons might be deemed to be an underwriting discount or commission under the
Securities Act. We have agreed to indemnify the selling stockholders against
some liabilities arising under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from the selling stockholders, and, if acting as agent for the
purchase of the shares, from the purchaser. Usual and customary brokerage fees
will be paid by the selling stockholders. Broker-dealers may agree with the
selling stockholders to sell a specified number of shares at a stipulated price
per share, and, to the extent the broker-dealer is unable to do so acting as
agent for the selling stockholders, to purchase as principal any unsold share at
the price required to fulfill the broker-dealer commitment to the selling
stockholders. Broker-dealers who acquire shares as principal may then resell the
shares from time to time in transactions in the over-the-counter market, in
negotiated transactions or by a combination of these methods of sale, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with resales may pay to or receive from the purchasers of the shares commissions
as described above.
In order to comply with the securities laws of some states, if
applicable, the shares will be sold in some jurisdictions only through
registered or licensed brokers or dealers. In some states, the shares may not be
sold unless the shares have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
We have agreed to use our best efforts to maintain the effectiveness of
the registration statement of which this prospectus forms a part with respect to
the shares issuable pursuant to the conversion of the CALP II Convertible
Debenture and the exercise of the related warrants and the SGI stock option
until the earlier of the sale of the shares or two years from the date of this
prospectus. No sales may be made under this prospectus after that date unless we
amend or supplement this prospectus to indicate that we have agreed to extend
the period of effectiveness. There can be no assurance that the selling
stockholders will sell all or any of the shares offered under this prospectus.
65
<PAGE>
Regulation M
We have advised the selling stockholders that the anti-manipulation
rules under the Exchange Act may apply to sales of shares in the market and to
the activities of the selling stockholders and any of their affiliates. The
selling stockholders have advised us that during the time as the selling
stockholders may be engaged in the attempt to sell shares registered under this
prospectus, they will:
o not engage in any stabilization activity in connection with
any of the shares;
o not bid for or purchase any of the shares or any rights to
acquire the shares, or attempt to induce any person to
purchase any of the shares or rights to acquire the shares
other than as permitted under the Securities Exchange Act;
o not effect any sale or distribution of the shares until after
the prospectus shall have been appropriately amended or
supplemented, if required, to describe the terms of the sale
or distribution; and
o effect all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with
market makers, or in privately negotiated transactions where
no broker or other third party, other than the purchaser, is
involved.
The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against some
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any broker-dealers,
and any profits received on the resale of shares, may be deemed to be
underwriting discounts and commissions under the Securities Act if the
broker-dealers purchase shares as principal.
66
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
JagNotes' Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, $.00001 par value. We had 17,223,425 shares
of common stock outstanding on November 20, 2000.
Holders of shares of common stock are entitled to one vote for each
share on all matters to be voted on by the stockholders and are not entitled to
cumulate their votes in the election of directors. Holders of shares of common
stock are entitled to share ratably in dividends, if any, as may be declared
from time to time by the Board of Directors in its discretion, from funds
legally available therefor. In the event of our liquidation, dissolution or
winding up, the holders of shares of our common stock are entitled to share pro
rata all assets remaining after payment in full of all liabilities. Holders of
common stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares.
On June 14, 2000, we entered into a private equity credit agreement
with CALP II Limited Partnership (as amended, the "Equity Line of Credit
Agreement"). Pursuant to the agreement, CALP II has agreed to purchase our
common stock during the 30-month period commencing on August 4, 2000. From time
to time during the term of the agreement, but no more frequently than once every
15 calendar days, we can require CALP II to purchase between $30,000 and
$900,000 of our common stock until all the purchases total $10,000,000. The
purchase price for each share will equal 85% of the market price of our common
stock, which is defined as the average of the five lowest closing bid prices of
our common stock during the ten trading days beginning with the date we exercise
our put right.
Pursuant to an amendment to the Equity Line of Credit Agreement dated
July 19, 2000, we were given the right to draw down any amount up to and
including $350,000, net of any placement agent fees due to Thomson Kernaghan and
The May Davis Group, Inc. ("May Davis") during each 15-day calendar day period .
Pursuant to a further amendment to the Equity Line of Credit Agreement
dated October 31, 2000, we have agreed that our right to put shares to CALP II
in accordance with the terms of such agreement will be tolled until January 1,
2001, provided that CALP II is not in default of any of its other funding
obligations to JagNotes. Following January 1, 2001, we may once again put our
shares to CALP II by delivering advance notices in accordance with the terms of
the Equity Line of Credit Agreement, except that, notwithstanding any limitation
imposed by such agreement, we may request an advance of any amount up to and
including $400,000, net of the ten percent commission payable to Thomson
Kernaghan and May Davis with respect to each advance notice that we deliver to
CALP II.
67
<PAGE>
Convertible Debentures
On June 12, 2000, we effected a private placement of a convertible
debenture in the principal amount of $2,500,000 due June 12, 2003 and bearing
interest at 8% per year. The principal of and interest on the CALP II
Convertible Debenture are convertible into our common stock at the lesser of
$.80 per share or 75% of the average of the five lowest closing bid prices for
such shares during the 20 trading days preceding the conversion. So long as such
shares are registered with the SEC, we can require such conversion at a rate
based on a matrix of market price per share and daily volume in each 15 day
period ranging from a high of $900,000 ($3.00 per share and 200,000 shares of
daily trading volume) to $30,000 ($1.00 per share and 30,000 shares of daily
trading volume).
As collateral for the CALP II Convertible Debenture we have agreed to
deposit 2,000,000 shares of our common stock in a segregated account with
Thomson Kernaghan. If an event of default takes place under the CALP II
Convertible Debenture, CALP II shall be entitled to foreclose on these shares.
Upon conversion of the CALP II Convertible Debenture, the shares held in escrow
will be returned to us pro rata in accordance with the conversion amount.
If we fail to maintain the effectiveness of the registration statement
covering the shares issuable upon conversion of the CALP II Convertible
Debenture, CALP II may require us to pay a penalty equal to 2% of the purchase
price of the shares of common stock then held by CALP II for each 30 day period
that the registration statement is not effective. However, we are not required
to pay damages to CALP II in connection with any ineffective period commencing
on the date a post-effective amendment to this registration statement is filed
and ending on the date such post effective amendment is declared effective by
the SEC.
On October 30, 2000, we entered into an agreement with Thomson
Kernaghan pursuant to which Thomson Kernaghan agreed to purchase or cause to be
purchased six convertible debentures aggregating $3 million (the "TK Convertible
Debentures"), each bearing interest at 8% per year for three years with a
conversion price equal to the lesser of 75% of the average of the five lowest
closing bid prices of our common stock during the 20 trading days immediately
preceding the date of conversion and $0.80 per share. Three such debentures are
now issuable as we have received $1,500,000 to date. A ten percent commission is
payable to Thomson Kernaghan in connection with its placement of such
debentures.
We have agreed to register the shares issuable upon conversion of the
TK Convertible Debentures on a Registration Statement on Form SB-2 no later than
December 29, 2000. So long as such shares are registered with the SEC, we can
require such conversion at a rate based on a matrix of market price per share
and daily volume in each 15 day period ranging from a high of $900,000 ($3.00
per share and 200,000 shares of daily trading volume) to $30,000 ($1.00 per
share and 30,000 shares of daily trading volume).
Options
As of July 31, 2000, there were options outstanding to purchase an
aggregate of 2,599,000 shares of JagNotes' common at exercise prices ranging
from $1.50 to $3.00 per share, subject to certain vesting requirements, at any
time prior to various dates through July 2010, provided, however, that certain
of these options will expire prior to such dates upon the termination of certain
contracts with us.
68
<PAGE>
Warrants
As of July 31, 2000, the following warrants to purchase shares of our
common stock were outstanding:
o warrants to purchase, at any time prior to May 3, 2001,
555,130 shares of common stock at $10.00 per share;
o warrants to purchase, at any time prior to March 15, 2005,
750,000 shares of common stock at $6.00 per share;
o warrants to purchase, at any time prior to June 12, 2005,
275,000 shares of our common stock at $2.00 per share;
o a warrant to purchase, at any time prior to June 12, 2005,
428,571 shares of our common stock at $1.75 per share; and
o warrants to purchase, at any time prior to July 21, 2005,
1,250,000 shares of our common stock at $2.00 per share.
From August 1, 2000 through October 31, 2000, we issued additional
warrants to CALP II Limited Partnership for an aggregate of 227,169 shares of
common stock at exercise prices ranging from $1.21 to $1.94 per share, in
connection with our drawdowns under the Equity Line of Credit Agreement
described above. In addition, we have agreed to issue substantial additional
warrants as described below in connection with the recent amendments to our
Equity Line of Credit Agreement and the issuance of the TK Convertible
Debentures. (See Part II--Recent Sale of Unregistered Securities.)
Registrar and Transfer Agent
The registrar and transfer agent for our common stock is Computershare
Investor Services, Suite Z-2, 12039 W. Alameda Parkway, Lakewood, Colorado
80228.
LEGAL MATTERS
The validity of the shares offered hereby was passed upon for JagNotes
by Thomas J. Mazzarisi, Esq., New York, New York. As of the date of this
prospectus, Mr. Mazzarisi is the beneficial owner of 110,000 shares of our
common stock. Mr. Mazzarisi serves as the Executive Vice President and General
Counsel of JagNotes.
69
<PAGE>
EXPERTS
JagNotes' consolidated financial statements as of July 31, 1999 and
July 31, 2000 and for the years then ended have been audited by J.H. Cohn LLP,
independent public accountants, and have been included in this prospectus in
reliance upon the report of J.H. Cohn LLP (which is also included in this
prospectus) and upon their authority as experts in accounting and auditing. n
statement that contains this prospectus.
JagNotes engaged J.H. Cohn LLP as its new independent public
accountants in April, 1999. JagNotes did not consult with any other accounting
firm regarding the application of accounting principles to a specified
transaction, either contemplated or proposed, or the type of opinion that might
be rendered regarding JagNotes' financial statements, nor did it consult with
J.H. Cohn LLP with respect to any accounting disagreement or any reportable
event, at any time prior to the appointment of such firm.
OTHER INFORMATION
This prospectus is part of a registration statement on Form SB-2 that
we have filed with the SEC. Certain information is contained in the registration
statement that is not contained in this prospectus. Please consult the
registration statement for further information.
You should rely only on the information contained in this prospectus.
We have not authorized any person to provide any other information. You should
not assume that the information in this prospectus or any supplement is accurate
as of any date other than the date on the front of this prospectus or any
supplement. This prospectus is neither offering to sell nor seeking an offer to
buy any securities other than the shares covered by this prospectus, nor is this
prospectus offering to sell or seeking an offer to buy securities in any
unlawful way.
70
<PAGE>
Item 7.
JagNotes.com Inc. and Subsidiaries
Index to Financial Statements
PAGE
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheet
July 31, 2000 F-3
Consolidated Statements of Operations
Years Ended July 31, 2000 and 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
Years Ended July 31, 2000 and 1999 F-5
Consolidated Statements of Cash Flows
Years Ended July 31, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7/23
* * *
F-1
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders
JagNotes.com Inc.
We have audited the accompanying consolidated balance sheet of JagNotes.com Inc.
and Subsidiaries as of July 31, 2000, and the related consolidated statements of
operations, changes in stockholders' equity (deficiency) and cash flows for the
years ended July 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of JagNotes.com Inc.
and Subsidiaries as of July 31, 2000, and their results of operations and cash
flows for the years ended July 31, 2000 and 1999, in conformity with generally
accepted accounting principles.
J.H. Cohn LLP
Roseland, New Jersey
October 13, 2000, except for Note 11 as
to which the date is November 6, 2000
F-2
<PAGE>
JagNotes.com Inc. and Subsidiaries
Consolidated Balance Sheet
July 31, 2000
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $ 806,586
Accounts receivable 50,034
Other current assets 985,926
------------
Total current assets 1,842,546
Equipment, net of accumulated depreciation of $41,560 460,490
Capitalized web site development costs, net of accumulated
amortization of $423,459 538,405
Investments in other companies, at cost 500,000
Deferred financing costs, net of accumulated amortization of $36,854 847,646
Other assets 74,252
------------
Total $ 4,263,339
============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 309,200
Deferred revenues 342,700
Current portion of capital lease obligations 29,212
------------
Total current liabilities 681,112
Convertible debenture, net of unamortized debt discount of $895,356 1,604,644
Noncurrent accrued interest payable 25,000
Capital lease obligations, net of current portion 29,457
------------
Total liabilities 2,340,213
============
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.00001 per share; 14,800,005
shares issued and outstanding 148
Additional paid-in capital 28,677,530
Unearned compensation (8,880,551)
Accumulated deficit (17,874,001)
------------
Total stockholders' equity 1,923,126
------------
Total $ 4,263,339
============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
JagNotes.com Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended July 31, 2000 and 1999
2000 1999
------------ ------------
Subscription revenues $ 1,042,033 $ 800,716
------------ ------------
Operating expenses:
Cost of revenues 8,132,400 628,758
Write-off of capitalized web site costs 407,375
Selling expenses 1,865,212 292,261
General and administrative expenses 5,553,837 894,922
------------ ------------
Totals 15,958,824 1,815,941
------------ ------------
Loss from operations (14,916,791) (1,015,225)
Other income (expense):
Interest income 147,809 60,873
Interest expense (1,894,676)
------------ ------------
Loss before income taxes (16,663,658) (954,352)
Provision for income taxes 73,940
------------ ------------
Net loss $(16,663,658) $ (1,028,292)
============ ============
Basic net loss per share $ (1.18) $ (.11)
============ ============
Basic weighted average common shares outstanding 14,166,218 9,237,693
============ ============
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
JagNotes.com Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
Common Stock
---------------------------- Additional
Number of Paid-in Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1998 3,500,000 $ 73,445 $ (182,051) $ (108,606)
Shares effectively issued in
connection with reverse
acquisition 3,820,900 (73,372) $ 73,372
Sales of units of common stock
and warrants through private
placements, net of expenses
of $707,700 6,655,390 67 7,559,993 7,560,060
Effects of issuance of common
stock in exchange for services 20,000 147,500 $ (147,500)
Effects of issuance of stock
options in exchange for
services 1,826,850 (1,826,850)
Effects of transfer of 100,000
shares of common stock by
executive officer in exchange
for services provided to the
Company 1,312,500 (1,312,500)
Amortization of unearned com-
pensation 271,462 271,462
Net loss (1,028,292) (1,028,292)
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 1999 13,996,290 140 10,920,215 (3,015,388) (1,210,343) 6,694,624
Sales of common stock through
private placement, net of
expenses of $275,040 785,715 8 2,474,952 2,474,960
Exercise of stock options 18,000 36,000 36,000
Effects of issuance of stock
options and warrants in
exchange for services 11,918,685 (11,918,685)
Effects of issuance of beneficial
conversion rights and warrants
in connection with private place-
ment of convertible debenture 3,327,678 3,327,678
Amortization of unearned com-
pensation 6,053,522 6,053,522
Net loss (16,663,658) (16,663,658)
------------ ------------ ------------ ------------ ------------ ------------
Balance, July 31, 2000 14,800,005 $ 148 $ 28,677,530 $ (8,880,551) $(17,874,001) $ 1,923,126
============ ============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
JagNotes.com Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(16,663,658) $ (1,028,292)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 24,076 17,059
Write-off of capitalized web site development costs 407,375
Amortization of unearned compensation 6,053,522 271,462
Charges to interest expense for:
Issuance of beneficial conversion rights 1,793,893
Amortization of deferred financing costs and debt discount 75,783 73,940
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable (31,134) 44,654
Other current assets (382,394) (603,532)
Other assets (12,004)
Accounts payable and accrued expenses 177,805 55,664
Deferred revenues 59,478 78,535
Noncurrent accrued interest payable 25,000
------------ ------------
Net cash used in operating activities (8,460,254) (1,102,514)
------------ ------------
Investing activities:
Net repayments of loans to officer 24,839
Purchases of equipment (385,740)
Web site development costs capitalized (702,500) (259,364)
Investments in other companies (350,000) (150,000)
Purchases of other assets (62,248)
------------ ------------
Net cash used in investing activities (1,500,488) (384,525)
------------ ------------
Financing activities:
Payments of capital lease obligations (37,554)
Proceeds from private placement of convertible debenture 2,500,000
Costs paid in connection with private placement of
convertible debenture (285,000)
Net proceeds from private placements of common stock
and units of common stock and warrants 2,474,960 7,560,060
Proceeds from exercise of stock options 36,000
------------ ------------
Net cash provided by financing activities 4,688,406 7,560,060
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,272,336) 6,073,021
Cash and cash equivalents, beginning of year 6,078,922 5,901
------------ ------------
Cash and cash equivalents, end of year $ 806,586 $ 6,078,922
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ -- $ --
============ ============
Income taxes paid $ -- $ 32,785
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 1 - Organization and business:
JagNotes.com Inc. ("JagNotes") was originally incorporated during 1997
in Nevada as Professional Perceptions, Inc. to develop operations as a
consultant to retailers. However, JagNotes never generated any
significant revenues or expenses in connection with such operations and
it was inactive at the time of the exchange of shares described below.
JagNotes, Inc. ("JNI") and its predecessors have been providing
financial and investment information within the financial community
since 1989. It operated as an unincorporated business from 1989 until
August 1992 when it was incorporated in New Jersey as NewJag, Inc. Its
name was changed to JagNotes, Inc. in December 1993. JNI gathers and
compiles information from contacts at financial institutions and
releases such information to subscribers on a timely basis through
facsimile transmissions and a web site, www.jagfn.com, which opened in
April 1999. Subscribers receive information about newly-issued research
reports and analyst opinions, upgrades, downgrades and coverage
changes. Prior to 1999, JNI's customers were primarily financial
professionals. During 1999, JNI began to focus its marketing efforts on
retail subscribers. During 2000, the initial web site was redesigned
and a program commenced to enhance the web site by making it capable of
providing subscribers with "real time streaming video and audio"
reports related to developments in the financial markets. Management
considers all of the financial services provided to subscribers to be
within the same business segment.
As of March 16, 1999, JagNotes had 3,820,900 outstanding shares of
common stock, with a par value of $.00001 per share. Effective as of
that date, certain stockholders of JNI purchased a total of 2,900,000
of the outstanding shares of JagNotes' common stock and JagNotes issued
3,500,000 shares of common stock to acquire all of the 1,000 shares of
common stock, which had no par value, of JNI then outstanding (the
"Exchange"). As a result, JNI became a wholly-owned subsidiary of
JagNotes, and JagNotes had 7,320,000 shares of common stock
outstanding, of which 6,400,000 shares, or 87.4%, were owned by the
former stockholders of JNI and 920,000, or 12.6%, were owned by the
former stockholders of JagNotes. However, since the former stockholders
of JNI became the owners of a majority of the outstanding common shares
of JagNotes after the Exchange and JagNotes had no significant
operating activities or assets and liabilities prior to the Exchange,
the Exchange was treated effective as of March 16, 1999 as a "purchase
business combination" and a "reverse acquisition" for accounting
purposes in which JagNotes was the legal acquirer and JNI was the
accounting acquirer. As a result, the assets and liabilities of the
accounting acquirer, JNI, continued to be recorded at their historical
carrying values as of March 16, 1999; however, common stock and
additional paid-in capital were adjusted as of March 16, 1999 to
reflect the $.00001 per share par value of the shares of the legal
acquirer, JagNotes, and all references to the number of shares of
common stock of JNI as of dates or for periods prior to the Exchange
have been restated to reflect the ratio of the number of common shares
of JagNotes effectively exchanged for common shares of JNI. In
addition, the accompanying consolidated financial statements for the
periods prior to March 16, 1999 are comprised, effectively, of the
historical financial statements of JNI.
F-7
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 1 - Organization and business (concluded):
The "Company" as used herein refers to JNI prior to March 16, 1999, and
it refers to JagNotes together with JNI from March 16, 1999 through
August 16, 1999 (the date JNI was merged into JagNotes) and
JagNotes.Euro.com Ltd. ("Euro"), a wholly-owned subsidiary of JagNotes,
from July 8, 1999 (the date of Euro's inception). The Company's foreign
activities had been insignificant prior to July 31, 2000.
Note 2 - Basis of presentation and summary of significant accounting policies:
Basis of presentation:
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. However, as
shown in the accompanying consolidated financial statements, the
Company only generated revenues of approximately $1,042,000 and
$801,000, and it incurred net losses of approximately $16,664,000 and
$1,028,000 and cash flow deficiencies from operating activities of
approximately $8,460,000 and $1,103,000, during 2000 and 1999,
respectively. As a result, the Company had an accumulated deficit of
approximately $17,874,000 as of July 31, 2000. Although the Company had
a cash balance of $807,000 and working capital of $1,161,000 as of July
31, 2000, and a substantial portion of its net losses in 2000 and 1999
were attributable to noncash operating expenses, management believes
that the Company will continue to incur net losses and cash flow
deficiencies from operating activities through at least July 31, 2001.
In the absence of the mitigating factors set forth below, these matters
would raise substantial doubt about the Company's ability to continue
as a going concern.
Management believes that the profitability of the Company will depend
significantly upon the Company's ability to generate advertising
revenues from its real time reporting services, which did not become
available to the subscribers to its web site until October 2000. The
Company's ability to generate sufficient advertising revenues will
depend, in turn, on its ability to increase the number of visitors to
its web sites. It also believes that the Company could achieve
profitability more rapidly through an appropriate strategic alliance
with a company that already has web site marketing expertise and
substantial financial resources. While management has had discussions
with potential strategic partners and plans to continue efforts to find
appropriate strategic partners, the Company has not entered into any
definitive agreements for marketing assistance and, accordingly, it
cannot determine if or when the Company will be able to generate
sufficient advertising or other revenues and/or achieve profitability.
Therefore, management believes that the Company will need additional
equity or debt financing to sustain operations until it can market its
services, expand its customer base and achieve profitability. The
Company had entered into an equity financing agreement prior to July
31, 2000 that gave it the right to require an investor to pay it up to
$10,000,000 for purchases of shares of its common stock at 85% of the
average of specified closing bid prices, although such purchases are
subject to certain conditions (see Notes 9 and 11). On October 20,
2000, it entered into another agreement for the sale of debentures with
an aggregate principal balance of $3,000,000 (see Note 11). As a
result, management believes that the Company will have sufficient
financial resources to enable it to continue to operate through at
least July 31, 2001. However, if it cannot achieve profitability or
obtain additional financing by that date, the Company may be forced
thereafter to restructure, file for bankruptcy or cease operations.
F-8
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 2 - Basis of presentation and summary of significant accounting policies
(continued):
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Principles of consolidation:
As a result of accounting for the Exchange as a purchase business
combination and a reverse acquisition (see Note 1), the accompanying
consolidated financial statements include the accounts of (i) JagNotes
from March 16, 1999, the date of the reverse acquisition, through July
31, 2000, (ii) JNI from August 1, 1998 through August 16, 1999, the
date JNI was merged into JagNotes and (iii) Euro from July 8, 1999 (the
date of its inception) through July 31, 2000. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Revenue recognition:
Fees for subscriptions are generally billed in advance on a monthly,
quarterly, semi-annual or annual basis. Revenues from subscriptions are
recognized ratably over the subscription period. Subscription fees
collected that relate to periods subsequent to the date of the
consolidated balance sheet are included in deferred revenues.
Cash equivalents:
Cash equivalents consist of highly liquid investments with a maturity
of three months or less when acquired.
Equipment:
Equipment is stated at cost, net of accumulated depreciation.
Depreciation is provided using accelerated methods over the estimated
useful lives of the assets which range from three to seven years.
F-9
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 2 - Basis of presentation and summary of significant accounting policies
(continued):
Web site development costs:
The Company accounts for costs incurred in connection with the
development of a web site in accordance with Statement of Position
98-1, "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use" and Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs." Accordingly, all costs
incurred in planning the development of a web site are expensed as
incurred. Costs, other than general and administrative and overhead
costs, incurred in the web site application and infrastructure
development stage, which involves acquiring or developing hardware and
software to operate the web site, are capitalized. Fees paid to an
Internet service provider for hosting a web site on its server(s)
connected to the Internet are expensed over the estimated period of
benefit. Other costs incurred during the operating stage, such as
training, administration and maintenance costs, are expensed as
incurred. Costs incurred during the operating stage for upgrades and
enhancements of a web site are capitalized if it is probable that they
will result in added functionality. Capitalized web site development
costs are amortized on a straight-line basis over their estimated
useful life.
The Company capitalized costs of approximately $702,000 and $259,000 in
2000 and 1999, respectively, that were incurred in connection with the
acquisition and development of software in the application and
infrastructure development stage and the enhancement of its web sites.
The Company also redesigned the software it initially developed for its
web site and wrote down previously capitalized web site development
costs of approximately $407,000 during 2000.
Debt issuance costs and debt discount:
Loan fees and other debt issuance costs are deferred and amortized to
interest expense over the term of the related loan on a straight-line
basis. Debt discount is offset against the principal balance and
amortized using the interest method over the term of the related loan.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS
121"). Under SFAS 121, impairment losses on long-lived assets, such as
equipment and capitalized web site development costs, are recognized
when events or changes in circumstances indicate that the undiscounted
cash flows estimated to be generated by such assets are less than their
carrying value and, accordingly, all or a portion of such carrying
value may not be recoverable. Impairment losses are then measured by
comparing the fair value of assets to their carrying amounts.
F-10
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 2 - Basis of presentation and summary of significant accounting policies
(continued):
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted to
$1,262,477 and $182,597 in 2000 and 1999, respectively.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences between
the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The income tax provision or credit is
the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Stock options:
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company recognizes the cost of options, warrants and other
equity instruments issued to employees and nonemployees as
consideration for services to expense over the periods in which the
related services are rendered by a charge to compensation cost and a
corresponding credit to equity (additional paid-in capital). Generally,
cost is accrued based on the fair value of the equity instruments at
the date of issuance, which is estimated based on the Black-Scholes or
another option-pricing model that meets criteria set forth in SFAS 123,
and the assumption that all of the options or other equity instruments
will ultimately vest. The effect of actual forfeitures is recognized as
they occur.
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 debenture, 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 debenture had been added back to the numerator.
F-11
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 2 - Basis of presentation and summary of significant accounting policies
(concluded):
Net earnings (loss) per share (concluded):
Diluted per share amounts have not been presented in the accompanying
consolidated statements of operations because the Company had a net
loss in 2000 and 1999 and the assumed effects of the exercise of all of
the Company's outstanding stock options and warrants and the conversion
of the outstanding convertible debenture would have been anti-dilutive.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting Standards
Executive Committee of the American Institute of Certified Public
Accountants had issued certain accounting pronouncements as of July 31,
2000 that will become effective in subsequent periods; however,
management of the Company does not believe that any of those
pronouncements would have significantly affected the Company's
financial accounting measurements or disclosures had they been in
effect during the years ended July 31, 2000 and 1999 or that they will
have a significant affect at the time they become effective.
Note 3 - Investments in other companies:
During 2000, the Company purchased a 7% equity interest in another
Internet-based provider of financial and investment information and a
2.5% equity interest in a company that has developed software that will
allow multiple web pages to be utilized at the same time. Such software
could also facilitate access to the Company's web sites through web
sites maintained by other providers of financial and investment
information. The investees are not public companies and, accordingly,
these investments are accounted for pursuant to the cost method. The
aggregate carrying value of the investments was $500,000 as of July 31,
2000.
Note 4 - Income taxes:
As of July 31, 2000, the Company had net operating loss carryforwards
of approximately $11,243,000 available to reduce future Federal taxable
income which will expire in 2019 and 2020.
As of July 31, 2000, the Company's deferred tax assets consisted of the
effects of temporary differences attributable to the following:
Deferred revenues, net $ 117,000
Goodwill 5,000
Unearned compensation 2,481,000
Net operating loss carryforwards 4,490,000
-----------
7,093,000
Less valuation allowance (7,093,000)
-----------
Total $ --
===========
F-12
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 4 - Income taxes (concluded):
Due to the uncertainties related to, among other things, the extent and
timing of its future taxable income, the Company offset its net
deferred tax assets by an equivalent valuation allowance as of July 31,
2000. The Company had also offset the potential benefits of
approximately $440,000 from net operating loss carryforwards by an
equivalent valuation allowance as of July 31, 1999. There was no
valuation allowance as of July 31, 1998.
The Company had no provision or credit for income taxes in 2000. The
provision for income taxes in 1999 consisted of the following:
Deferred Federal income tax $57,280
Deferred state income tax 16,660
-------
Total $73,940
=======
The following table reconciles the expected statutory credit for
Federal income tax to the Company's effective tax rate for 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Tax at Federal statutory rate (34)% (34)%
Increase (decrease) from effects of:
State income taxes, net of Federal income tax benefit 1
Increase in valuation allowance of $7,093,000 and
$440,000 34 41
--- ---
Effective rate -- % 8 %
=== ===
</TABLE>
Note 5 - Capital lease obligations:
The Company uses computer equipment under lease agreements classified
as capital leases. The Company's obligations under capital leases as of
July 31, 2000 are set forth below:
Year Ending
July 31, Amount
----------- ------
2001 $33,764
2002 30,951
-------
Total minimum lease payments 64,715
Less amount representing interest 6,046
-------
Present value of net minimum lease payments 58,669
Less current portion 29,212
-------
Long-term portion $29,457
=======
F-13
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 5 - Capital lease obligations (concluded):
The Company effectively acquired equipment at a cost of $96,223 in 2000
by incurring capital lease obligations. These noncash transactions are
not reflected in the accompanying consolidated statements of cash
flows. The net carrying value of equipment used by the Company under
capital leases was $93,550 as of July 31, 2000.
Note 6 - Convertible debenture:
On June 12, 2000, the Company sold an investor (the "Investor") a
convertible debenture (the "Debenture") that has a principal balance of
$2,500,000, matures June 12, 2003 and bears interest at an annual rate
of 8%. The Company received gross proceeds from the sale of $2,500,000.
The sale was made through a private placement that was intended to be
exempt from registration under the Securities Act of 1933 (the "Act").
The principal balance of, and interest accrued on, the Debenture is
convertible, in whole or in part, at the option of the Investor into
shares of the Company's common stock at the lesser of $1.31 per share
or 75% of the average of the five lowest closing bid prices for such
shares on the 20 trading days preceding the conversion provided that
the investor does not hold in excess of 10% of the outstanding stock of
the Company. The Company can require such conversion at a rate based on
a matrix of market price per share and daily volume in each 15 day
period preceding the required conversion. The rate can range from a
high of $900,000 ($3.00 per share and 200,000 shares of daily trading
volume) to $30,000 ($1.00 per share and 30,000 shares of daily trading
volume). The Company agreed to deposit 2,000,000 shares of its common
stock in a segregated account with one of the placement agents for the
transaction as collateral for the Debenture. Upon conversion of the
Debenture, a pro rata portion of the shares held in escrow will be
returned to the Company.
As additional consideration in connection with the sale of the
Debenture, the Company also issued a warrant to the Investor for the
purchase of 428,571 shares of the Company's common stock at $1.75 per
share that is exercisable through June 12, 2005. The Company also
issued warrants for the purchase of 275,000 shares of the Company's
common stock at $2.00 per share that are exercisable through June 12,
2005 as consideration for legal and other professional services
received in connection with the sale of the Debenture. The Company
valued the warrant issued to the Investor at $934,285 and the warrants
issued for legal and other professional services at $599,500 based on
estimated fair values determined by using the Black-Scholes
option-pricing model method pursuant to the provisions of SFAS 123.
Accordingly, the Company initially increased additional paid-in capital
by $1,533,785 for the fair value of all of the warrants and reduced
the carrying value of the Debenture by $934,285 for the debt discount
attributable to the fair value of the warrant issued to the Investor
and increased deferred financing costs by $599,500 for the fair value
of the warrants issued for services. The Company also increased
deferred financing costs by $285,000 for other payments made for legal
and other professional services received in connection with the sale of
the Debenture.
F-14
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 6 - Convertible debenture (concluded):
The fair value of the Company's common stock on June 12, 2000 was $2.25
per share which exceeded the conversion price for the Debenture.
Pursuant to interpretations issued by the staff of the Securities and
Exchange Commission, such excess constitutes a beneficial conversion
feature or right for which the value is measured by the difference
between the aggregate conversion price and the fair value of the common
stock into which the securities are convertible, multiplied by the
number of shares into which the securities are convertible.
Accordingly, the beneficial conversion rights attributable to the
issuance of the Debenture had a fair value of approximately $1,794,000,
which equaled the excess of the aggregate proceeds the Investor would
have received if the Investor had converted the Debenture and sold the
1,908,397 shares of common stock (the amount of shares that would have
been received if conversion occurred on June 12, 2000) for
approximately $4,294,000 based on the fair market value of $2.25 per
share on June 12, 2000. Since the Debenture became convertible upon
issuance, the Company recorded a charge of $1,794,000 to interest
expense for the beneficial conversion rights and a corresponding
increase in additional paid-in capital.
The issuances of the warrants and the beneficial conversion rights were
noncash transactions and, accordingly, they are not reflected in the
accompanying consolidated statements of cash flows.
Note 7 - Employee benefit plans:
The Company maintains a profit-sharing plan and a money purchase plan
for the benefit of all eligible employees. The Company's contributions
to these defined contribution plans are made on a discretionary basis.
The Company made no contributions to the plans in 2000 and 1999.
Note 8 - Fair value of financial instruments:
The Company's material financial instruments at July 31, 2000 for which
disclosure of estimated fair value is required by certain accounting
standards consisted of cash and cash equivalents, accounts receivable,
accounts payable and the Debenture. In the opinion of management, cash
and cash equivalents, accounts receivable and accounts payable were
carried at values that approximated their fair values at July 31, 2000
because of their liquidity and/or their short-term maturities. Since
the Debenture was sold to an unrelated party on June 12, 2000,
management believes that its net carrying value also approximated fair
value at July 31, 2000.
F-15
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 9 - Other issuances of common stock, warrants and stock options:
Private placements of common stock and warrants:
During 2000, the Company received proceeds of $2,474,960, net of
related costs and expenses of $275,040, from the sale of 785,715 shares
of common stock. During 1999, it received proceeds of $7,560,060, net
of related costs and expenses of $707,700, from the sale of 6,655,390
shares of common stock and 555,130 warrants to purchase shares of
common stock at $14.00 per share through April 2001. The sales of
common stock during 2000 and units of common stock and warrants during
1999 were made through private placements intended to be exempt from
registration under the Act.
As explained in Note 6, the Company also issued a warrant to the
Investor in connection with the private placement of the Debenture for
the purchase of 428,571 shares of the Company's common stock at $1.75
per share that is exercisable through June 12, 2005. All of the
warrants issued in connection with the private placements of the units
and the Debenture remained outstanding as of July 31, 2000.
Options, warrants and other equity instruments issued for services:
In addition to the warrants sold through the private placements
described above and in conjunction with the sale of the Debenture to
the Investor as described in Note 6, 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 1, 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 SFAS 123.
F-16
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 9 - 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, 1998
as a result of issuances as a result of issuances of those options and
warrants to employees and nonemployees as compensation for services to
the number outstanding at July 31, 2000 and sets forth other related
information:
<TABLE>
<CAPTION>
Range of
Number Exercise
of Shares Prices
--------- --------------
<S> <C> <C>
Options and warrants issued for services
outstanding, August 1, 1998 --
Options and warrants granted to employees
and investment analysts and
commentators (A) 335,000 $2.00 - $16.25
----------
Options and warrants issued for services
outstanding, July 31, 1999 335,000 $2.00 - $16.25
Warrants issued for legal and other
professional services (B) 275,000 $ 2.00
Options and warrants granted to employees
and investment analysts and
commentators (C) (D) 4,382,500 $1.50 - $ 6.00
Options cancelled (C) (100,000) $ 16.25
Options exercised (18,000) $ 2.00
----------
Options and warrants issued for services
outstanding, July 31, 2000 (E) 4,874,500 $1.50 - $ 6.00
========== ==============
</TABLE>
(A) The cost of the options and warrants of $1,826,850, determined
based on their aggregate estimated fair values at the
respective dates of issuance, was initially charged to
unearned compensation in 1999 as further explained below.
(B) The warrants were issued for services received in connection
with the sale of the Debenture. The cost of the warrants of
$599,500, determined based on their aggregate estimated fair
value at the date of issuance, was initially charged to debt
financing costs in 2000 as further explained in Note 6.
F-17
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 9 - Other issuances of common stock, warrants and stock options
(continued):
Options, warrants and other equity instruments issued for services
(continued):
(C) The cost of the options and warrants of $11,918,685,
determined based on their aggregate estimated fair values at
the respective dates of issuance, was initially charged to
unearned compensation in 2000 as further explained below. The
aggregate cost includes $729,000 for the incremental cost of
options to purchase 200,000 shares at $2.00 per share that
were issued pursuant to an amendment to an agreement with an
investment analyst that also provided for the cancellation of
options granted in 1999 to purchase 100,000 shares at $16.25
per share. The incremental cost represents the fair value of
the options to purchase 200,000 shares at the date of grant in
2000 of $894,000, net of the fair value of the options to
purchase 100,000 shares cancelled at the original date of
grant in 1999 of $165,000.
(D) These options and warrants also include options for the
purchase of 1,782,500 shares granted pursuant to the Company's
1999 Long-term Incentive Plan (the "Incentive Plan") which was
approved by the Board of Directors on October 1, 1999. The
Incentive Plan 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 the Company's
common stock. The number of shares of common stock that may be
subject to all types of awards under the Incentive Plan may
not exceed 15% of the aggregate number of shares of the
Company's common stock outstanding as of the date of grant. As
of July 31, 2000, the number of shares that could have been
subject to awards under the Incentive Plan was limited to
2,220,000 shares and the options for the purchase of all of
the 1,782,500 shares remained outstanding.
(E) These options and warrants will expire at various dates from
June 2005 through July 2010.
F-18
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 9 - Other issuances of common stock, warrants and stock options
(continued):
Options, warrants and other equity instruments issued for services
(continued):
The following table summarizes information about the number of shares
of common stock subject to options and warrants that were outstanding
at July 31, 2000 as a result of issuances of those options and warrants
to employees and nonemployees as compensation for services:
<TABLE>
<CAPTION>
Options and
Options and Warrants Outstanding Warrants Exercisable
-------------------------------------------------- -----------------------
Weighted
Average
Years of Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.50 50,000 9.92 $1.50 4,167 $1.50
2.00 3,574,500 7.62 2.00 998,192 2.00
3.50 500,000 4.625 3.50 187,500 3.50
6.00 750,000 4.625 6.00 140,625 6.00
--------- ---------
$1.50 - $6.00 4,874,500 6.87 2.76 1,330,484 2.63
============= ========= ===== ===== ========= =====
</TABLE>
During 1999, the Company also issued 20,000 shares of common stock and
an executive officer of the Company transferred 100,000 shares of
common stock of the Company that he had owned to investment analysts
and commentators as consideration for consulting services. The transfer
of shares by the executive officer was accounted for as a donation of
the shares to and a reissuance of the shares by the Company.
Accordingly, the Company charged a total of $1,460,000 to unearned
compensation in 1999 for the shares issued and transferred as
consideration for consulting services, of which $147,500 represented
the estimated fair value of the 20,000 shares issued by the Company and
$1,312,500 represented the estimated fair value of the 100,000 shares
transferred by the executive officer.
A total of $11,918,685 and $3,286,850 was charged to unearned
compensation during 2000 and 1999, respectively, as a result 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. 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 $6,053,552 and $271,462 was amortized during
2000 and 1999, respectively. The unamortized balance of $8,880,551 and
$3,015,388 has been reflected as a reduction of stockholders' equity as
of July 31, 2000 and 1999, respectively.
F-19
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 9 - Other issuances of common stock, warrants and stock options
(concluded):
Options, warrants and other equity instruments issued for services
(concluded):
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
"minimum value method" through October 31, 1999 (due to the limited
amount of trading of the Company's shares through that date) and the
Black-Scholes option-pricing model thereafter. The fair values were
determined in 2000 and 1999 based on the following assumptions:
Expected years of option life: 5
Risk-free interest rate: 6%
Dividend yield: 0%
Volatility:
Through October 31, 1999 0%
November 1, 1999 through January 31, 2000 79%
February 1, 2000 through April 30, 2000 110%
May 1, 2000 through July 31, 2000 154%
Equity financing agreement:
As of June 14, 2000, the Company entered into another financing
agreement (the "Equity Financing Agreement") with the Investor that
purchased the Debenture (see Note 6) pursuant to which the Company can
require the Investor to purchase shares of the Company's common stock
from time to time at an aggregate purchase price of $10,000,000 and a
price per share equal to 85% of the average of the five lowest closing
bid prices for such shares on the 20 trading days preceding the date of
each required purchase. It can require the Investor to make minimum
purchases of $350,000, net of placement agent commissions, every 15
days or additional purchases based on the rate determined by the matrix
for the required conversion of the Debenture described in Note 6. The
Company also agreed to issue to the Investor on each date on which the
Investor advances funds to the Company under the Equity Financing
Agreement a warrant to purchase a number of shares equal to 20% of the
number of shares that are subject to the advance. The exercise price
for these warrants will be equal to 110% of the highest reported bid
price of the Company's common stock for the five trading days preceding
the date on which an advance is made to the Company by the Investor. In
addition, the placement agents and their counsel will receive a fee
equal to 10% of the proceeds from the sale of any shares made pursuant
to the Equity Financing Agreement. The Company had not sold any shares
of common stock to the Investor pursuant to the Equity Financing
Agreement as of July 31, 2000 (see Note 11).
F-20
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 10 - Commitments and contingencies:
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. At July 31, 2000, the Company had
balances that exceeded Federal insurance limits by approximately
$707,000. The Company reduces its exposure to credit risk by
maintaining its cash deposits with major financial institutions and
monitoring their credit ratings.
The Company extends credit to its customers. Generally, it does not
require any collateral. The Company closely monitors the extension of
credit while maintaining appropriate allowances for potential credit
losses. Accordingly, management does not believe that the Company was
exposed to significant credit risk at July 31, 2000.
Consulting and employment agreements:
As of July 31, 2000, the Company was obligated to make approximate cash
payments under consulting and employment agreements totaling
approximately $1,494,000, of which $1,125,000 and $369,000 is payable
in the years ending July 31, 2001 and 2002, respectively.
Operating leases:
The Company leases office space under month-to-month leases and
noncancelable leases that expire through November 2003. Rent expense
under all of the leases, which are classified as operating leases,
totaled approximately $766,000 and $43,000 for 2000 and 1999,
respectively. As of July 31, 2000, minimum rental obligations under the
noncancelable leases totaled approximately $3,143,000, of which
$1,449,000, $1,565,000, $97,000 and $32,000 is payable in the years
ending July 31, 2001, 2002, 2003 and 2004, respectively.
Note 11 - Subsequent events:
Additional consulting and employment agreements:
From August 1, 2000 through October 13, 2000, the Company entered into
consulting and employment agreements with several other investment
analysts and commentators (see Notes 9 and 10). The majority of the
agreements have an initial term of one year and are renewable at the
option of the Company for another year. The consideration paid or to be
paid by the Company pursuant to these agreements will consist of cash
payments aggregating approximately $1,795,000 and issuances of options
to purchase 322,000 shares of the Company's common stock at $2.00 per
share. These options, which will expire at various dates through
October 2010, had an aggregate fair value at the respective dates of
issuance of approximately $491,000.
F-21
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 11 - Subsequent events (continued):
Financing agreements:
On October 20, 2000, Thomson Kernaghan ("TK") a company related to the
Investor (see Note 6) agreed to provide the Company with additional
financing totaling $3,000,000 through weekly purchases of a total of
six additional debentures (the "New Debentures") during the period from
October 20, 2000 to December 1, 2000. Each of the six New Debentures TK
agreed to purchase will have a principal balance of $500,000, bear
interest at an annual rate of 8% and mature three years from the date
of its issuance. In addition, TK will receive a 10% fee for each New
Debenture. As of November 6, 2000, TK had purchased New Debentures with
an aggregate principal balance of $1,000,000. The sale of the New
Debentures is being made through a private placement that is intended
to be exempt from registration under the Act. The principal balance of,
and interest accrued on, the New Debentures will be convertible, in
whole or in part, at the option of the Investor into shares of the
Company's common stock at the lesser of $.80 per share or 75% of the
average of the five lowest closing bid prices for such shares on the 20
trading days preceding the conversion. The Company will also be able to
require conversion of the Debenture and the New Debentures at the rate
based on the matrix of market price per share and daily volume in each
15 day period preceding the required conversion described in Note 6.
As additional consideration in connection with the sale of the New
Debentures, the Company also issued a warrant to TK for the purchase of
3,000,000 shares of the Company's common stock at $1.25 per share that
is exercisable through October 20, 2005. The warrant issued to TK had
an estimated fair value of $3,450,000, as determined by the
Black-Scholes option-pricing model method pursuant to the provisions of
SFAS 123, of which $3,000,000 (which equals the principal balance of
the New Debentures) will be recorded as debt discount and/or deferred
financing costs and amortized to interest expense over the related
terms of the New Debentures. The Company also agreed to issue to TK on
each date on which TK purchases a New Debenture a warrant to purchase a
number of shares equal to 20% of the number of shares that would be
issued assuming the New Debenture was immediately converted into common
stock upon issuance. The exercise price for these warrants will be
equal to 110% of the average bid price of the Company's common stock
for the five trading days preceding the date on which TK purchases a
New Debenture. The Company will determine the number and fair value of
such warrants as of the respective dates of issuance.
F-22
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Consolidated Financial Statements
Note 11 - Subsequent events (concluded):
Financing agreements (concluded):
As additional consideration in connection with the sale of the New
Debentures, the Company also reduced the conversion price for the
Debenture from the lesser of $1.31 per share to $.80 per share or 75%
of the average of the five lowest closing bid prices for such shares on
the 20 trading days preceding the conversion. The fair value of the
Company's common stock on October 20, 2000 was $1.25 per share which
exceeded the adjusted conversion price for the Debenture and the
conversion price for the New Debentures of $.80 per share. Such excess
constitutes beneficial conversion features or rights which had an
aggregate fair value at October 20, 2000, determined as explained in
Note 6, of approximately $3,300,000, of which approximately $1,600,000
and $1,700,000 applies to the Debenture and the New Debentures,
respectively. However, the Company will not record any additional
charges for the fair values of the beneficial conversion rights since
the fair values of the beneficial conversion rights and/or warrants
previously issued to the Investor in connection with the Debenture and
the fair value of the warrants issued to TK had already offset the
proceeds allocated to the Debenture and the New Debentures.
On October 31, 2000, the Equity Financing Agreement (see Note 9) was
also amended to suspend the Company's right to require the Investor to
purchase common stock of the Company until January 1, 2001 and increase
the minimum value of common stock the Company will be able to require
the Investor to purchase every 15 days from $350,000 to $400,000.
During the period from August 1, 2000 to November 6, 2000, the Investor
converted a portion of the principal balance of the Debenture totaling
$50,000 and accrued interest of $662 into 46,442 shares of common
stock. The Company also issued 1,135,850 shares of common stock and
warrants to purchase 227,168 shares of common stock to the Investor and
received proceeds of $1,050,003, net of placement fees of $116,667,
pursuant to the Equity Financing Agreement. The warrants will be
exercisable at prices ranging from $1.21 to $1.94 per share through
September 2005.
* * *
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
Our Articles of Incorporation provide for the indemnification of our
directors, officers, employees and agents to the fullest extent permitted by the
laws of the State of Nevada. Section 78.7502 of the Nevada General Corporation
Law permits a corporation to indemnify any of its directors, officers, employees
or agents against expenses actually and reasonably incurred by such person in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (except for an action
by or in right of the corporation) by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, provided that it
is determined that such person acted in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 78.751 of the Nevada General Corporation Law requires that the
determination that indemnification is proper in a specific case must be made by
(a) the stockholders, (b) the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding
or (c) independent legal counsel in a written opinion (i) if a majority vote of
a quorum consisting of disinterested directors is not possible or (ii) if such
an opinion is requested by a quorum consisting of disinterested directors.
Other Expenses of Issuance and Distribution.
Registration fee $6,985*
Blue Sky fees and expenses 2,500
Legal fees and expenses 60,000
Accounting fees and expenses 15,000
Printing and related expenses 10,000
Miscellaneous 5,000
-----------
TOTAL $99,485
All of the above expenses except the SEC registration fee are
estimated. All of the above expenses have been, or will be, paid by JagNotes.
* Paid on July 25, 2000.
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Recent Sales of Unregistered Securities.
We have made the following sales of unregistered securities within the
last three years:
On October 30, 2000, we entered into an agreement with Thomson
Kernaghan pursuant to which Thomson Kernaghan agreed to purchase, or cause to be
purchased, six convertible debentures aggregating $3 million, each bearing
interest at 8% per year for three years with a conversion price equal to the
lesser of 75% of the average of the five lowest closing bid prices of our common
stock during the 20 trading days immediately preceding the date of conversion
and $0.80 per share. Such debentures have warrant coverage equal to 20% of the
number of shares issuable upon conversion of the debentures with an exercise
price based upon the formula set forth in our Equity Line of Credit Agreement
described below. We agreed to pay Thomson Kernaghan, as placement agent,
$300,000, representing an aggregate of 10% of the gross proceeds received by us
pursuant to the sale of the above-referenced debentures. In addition, we agreed
to issue Thomson Kernaghan or its designee(s) an additional five-year stock
purchase warrant for 3,000,000 shares of our common stock, exercisable at a
price of $1.25 per share. In connection with this private placement, we also
agreed to amend the conversion rate on the outstanding $2.5 million CALP II
Convertible Debenture issued to CALP II Limited Partnership on June 12, 2000, to
be the same conversion rate as for the convertible debentures issued to Thomson
Kernaghan. The issuance of such securities are exempt from registration under
the Securities Act pursuant to Regulation S promulgated thereunder.
On July 21, 2000, we entered into a consulting agreement with May Davis
pursuant to which we issued five-year warrants to acquire an aggregate of
1,250,000 shares of our common stock at a price of $2.00 per share to May Davis
and five of its affiliates in exchange for investment banking services. The
issuance of such securities was exempt from registration under the Securities
Act pursuant to Section 4(2) thereof.
On June 14, 2000, we entered into a $10,000,000 Equity Line of Credit
Agreement with CALP II, a foreign investor, pursuant to which we can put our
shares, from time to time, at a purchase price equal to 85% of the average of
the five lowest closing bid prices for such shares over the ten trading days
preceding the sale of such shares, subject to volume limitations based upon
current trading volumes and market price per share. Pursuant to an amendment to
the Equity Line of Credit Agreement dated October 31, 2000, we have agreed that
our right to put shares to CALP II in accordance with the terms of such
agreement will be tolled until January 1, 2001, provided that CALP II is not in
default of any of its other funding obligations to JagNotes. Following January
1, 2001, we may once again put our shares to CALP II by delivering advance
notices in accordance with the terms of the Equity Line of Credit Agreement,
except that, notwithstanding any limitation imposed by such agreement, we may
request an advance of any amount up to and including $400,000, net of the ten
percent commission payable to Thomson Kernaghan and May Davis with respect to
each advance notice that we deliver to CALP II. On each date on which CALP II
advances funds to us under the private equity line, we have agreed to issue to
CALP II a warrant to purchase a number of shares of common stock equal to 20% of
the number of shares that are subject to the advance at an exercise price equal
to 110% of the average bid price for the five trading days preceding the advance
date. We also paid a 10% finders' fee and issued warrants to acquire 250,000
shares of our common stock to certain placement agents in connection with the
transaction. The investments under the Equity Line of Credit Agreement will be
made in reliance upon Regulation S.
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On June 12, 2000, we closed a private sale of a convertible debenture
in the principal amount of $2,500,000 due June 12, 2003 and bearing interest at
8% per year, which is convertible into shares of our common stock, to CALP II.
The issuance of such securities was exempt from registration under the
Securities Act pursuant to Regulation S promulgated thereunder.
On March 15, 2000, we entered into a consulting agreement with M.S.
Farrell & Co. pursuant to which we issued warrants to acquire 750,000 shares of
our common stock to M.S. Farrell in exchange for investment banking services.
The issuance of such securities was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
On March 14, 2000, we entered into an agreement with Strategic Growth
International, Inc. pursuant to which we granted options to acquire 500,000
shares of our common stock to Strategic Growth International in exchange for
investor relations services. The issuance of such securities was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
In January 2000, we closed a private sale of 785,715 shares of common
stock to Reliant Limited, a corporation organized under the laws of the Isle of
Man, for cash consideration of $2,750,000, $1,500,000 of which was paid to us on
January 17, 2000 and $1,250,000 of which was paid to us on or about March 28,
2000. A 10% fee was paid to the placement agent out of each drawdown. The
issuance of such securities was exempt from registration under the Securities
Act pursuant to Regulation S promulgated thereunder.
In May 1999, we closed a private sale of 1,665,390 shares of common
stock and 555,130 warrants to 27 accredited investors for cash consideration of
approximately $7,327,000 received in March and April of 1999. The issuance of
such securities was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder.
In May 1999, we issued 20,000 shares of its common stock to one person
in exchange for services. The issuance of such shares was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and/or
Rule 506 of Regulation D promulgated thereunder.
In March 1999, we (then known as Professional Perceptions, Inc.) issued
a total of 4,990,000 shares of common stock to 9 sophisticated investors for
cash consideration of $940,000. The issuance of such securities was exempt from
registration under the Securities Act pursuant to Rule 504 of Regulation D
promulgated thereunder.
In March 1999, we (then known as Professional Perceptions, Inc.) issued
3,500,000 shares of common stock to the stockholders of JagNotes, Inc. in
exchange for all of the outstanding shares of JagNotes, Inc. The issuance of
such securities was exempt from registration under the Securities Act pursuant
to Section 4(2) thereof and Regulation D promulgated thereunder.
In March and April 1998, we (then known as Professional Perceptions,
Inc.) sold 720,900 shares of common stock to approximately 30 investors for cash
consideration totaling approximately $70,000. The issuance of such securities
was exempt from registration under the Securities Act pursuant to Rule 504 of
Regulation D promulgated thereunder.
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In December 1997, we (then known as Professional Perceptions, Inc.)
sold 3,100,000 shares of common stock to the three founders of JagNotes.com in
exchange for $5,275. The issuance of such securities was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and
Regulation D promulgated thereunder.
Exhibits.
2.1 Agreement and Plan of Reorganization dated March 16, 1999
between Professional Perceptions, Inc. (now known as
JagNotes.com Inc.); Harold Kaufman, Jr., an officer, director
and principal stockholder thereof; NewJag, Inc.; and the
stockholders of NewJag, Inc. (1)
2.2 Agreement and Plan of Merger dated as of July 29, 1999 by and
among JagNotes Notes, Inc., a New Jersey corporation, and
JagNotes.com, Inc., a Nevada corporation (2)
3.1 Articles of Incorporation of JagNotes.com Inc., as amended (2)
3.2 Bylaws of JagNotes.com Inc. (2)
4.1 Form of Common Stock Purchase Warrant issued in connection
with May 1999 private placement (6)
4.2 Stock Option to acquire 500,000 shares of common stock granted
to Strategic Growth International, Inc. on March 14, 2000,
included in Exhibit 10.2 (4)
4.3 Stock Purchase Warrant to acquire 750,000 shares of common
stock issued to M.S. Farrell & Co., Inc. on March 15, 2000,
included in Exhibit 10.3 (4)
4.4 2000 8% Convertible Debenture, due June 12, 2003 (5)
4.5 Form of Stock Purchase Warrant issued in connection with June
2000 private placement. (5)
4.6 Form of Stock Purchase Warrant issued in connection with May
Davis Consulting Agreement, included in Exhibit 10.9. (7)
5.1 Opinion of Thomas J. Mazzarisi, Esq. (7)
10.1 1999 Long Term Incentive Plan (3)
10.2 Agreement, dated as of March 14, 2000, by and between
JagNotes.com Inc. and Strategic Growth International, Inc. (4)
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10.3 Consulting Agreement, dated as of March 15, 2000, by and
between JagNotes.com Inc. and M.S. Farrell & Co., Inc. (4)
10.4 Securities Purchase Agreement, dated as of June 12, 2000, by
and between JagNotes.com Inc. and CALP II Limited
Partnership (5)
10.5 Equity Line of Credit Agreement, dated as of June 14, 2000, by
and between JagNotes.com Inc. and CALP II Limited
Partnership (5)
10.6 First Amendment, dated July 19, 2000, to Equity Line of Credit
Agreement, dated as of June 14, 2000, between JagNotes.com
Inc. and CALP II Limited Partnership. (7)
10.7 Second Amendment, dated October 31, 2000, to Equity Line of
Credit Agreement, dated as of June 14, 2000 (as amended),
between JagNotes.com Inc. and CALP II Limited Partnership. (8)
10.8 Placement Agency Agreement, dated as of June 12, 2000, by and
between JagNotes.com Inc. and Thomson Kernaghan and Company,
Ltd. (5)
10.9 Placement Agency Agreement, dated as of June 12, 2000, by and
between JagNotes.com Inc. and The May Davis Group, Inc. (5)
10.10 Consulting Agreement, dated as of July 21, 2000, by and
between JagNotes.com Inc. and The May Davis Group, Inc. (7)
10.11 Letter Agreement, dated October 30, 2000, by and between
JagNotes.com Inc. and Thomson Kernaghan & Co., Ltd. (8)
21.1 List of Subsidiaries
23.1 Consent of J.H. Cohn LLP
23.2 Consent of Thomas J. Mazzarisi, Esq. counsel for the
Registrant (included in Exhibit 5.1).
27 Financial Data Schedule
99.1 Articles of Merger of JagNotes, Inc. into JagNotes.com, Inc.
(including Certificate of Correction related thereto) (2)
-------------------
(1) Previously filed as an exhibit to our Registration Statement on
Form SB-2 filed on July 30, 1999.
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(2) Previously filed as an exhibit to Amendment No. 1 to our Registration
Statement on Form SB-2 filed on September 30, 1999.
(3) Previously filed as an exhibit to Amendment No. 2 to our Registration
Statement on Form SB-2 filed on October 26, 1999.
(4) Previously filed as an exhibit to our Quarterly Report on Form 10-QSB
filed on June 16, 2000.
(5) Previously filed as an exhibit to our Current Report on Form 8-K filed
on June 16, 2000.
(6) Previously filed as an exhibit to Post-Effective Amendment No. 2 to
our Registration Statement on Form SB-2 filed on June 22, 2000.
(7) Previously filed as an exhibit to our Registration Statement on
Form SB-2 filed on July 25, 2000.
(8) Previously filed as an exhibit to our Annual Report on Form 10-KSB
filed on November 14, 2000.
Undertakings.
A. Supplementary and Periodic Information, Documents and Reports
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority in that
Section.
B. Item 512 Undertaking with Respect to Rule 415 Under the
Securities Act of 1933
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers
or sales are being made, a post-effective amendment to this Registration
Statement:
(a) To include any prospectus required
by Section 10(a)(3) of the Securities Act of 1933;
(b) To reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and
(c) To include any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
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(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 ("Securities Act") may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has duly caused this Post
Effective Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York on November 21, 2000.
JAGNOTES.COM INC.
By: /s/ Gary Valinoti
--------------------
Name: Gary Valinoti
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Gary Valinoti November 21, 2000
---------------------------------------------
Gary Valinoti, President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Stephen Russo November 21, 2000
---------------------------------------------
Stephen Russo, Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas Mazzarisi November 21, 2000
---------------------------------------------
Thomas Mazzarisi, Executive Vice President,
General Counsel and Director
/s/ Stephen Schoepfer November 21, 2000
---------------------------------------------
Stephen Schoepfer, Executive Vice President,
Chief Operating Officer, Secretary and Director
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