<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended April 30, 2000.
Commission File Number 000-28761.
JAGNOTES.COM INC.
(Exact name of Registrant as specified in its Charter)
Nevada 88-0380546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 Wyckoff Road, 2nd Floor
Farmingdale, New Jersey 07727
(Address of Principal Executive Offices)
(732) 919-0078
(Issuer's Telephone Number, Including Area Code)
-----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of June 14, 2000, the registrant had 14,782,005 shares of common
stock outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
JagNotes.com Inc. and Subsidiaries
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at April 30, 2000 (Unaudited)
and July 31, 1999 F-2
Condensed Consolidated Statements of Operations
Nine and Three Months Ended April 30, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended April 30, 2000 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2000 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/14
Item 2. Management's Discussion and Analysis or Plan of Operation
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
* * *
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
April 30, 2000 (Unaudited) and July 31, 1999
<TABLE>
<CAPTION>
April July
Assets 30, 2000 31, 1999
------ ------------ ------------
(Unaudited) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,311,905 $ 6,078,922
Accounts receivable 123,595 18,900
Other current assets 1,056,257 753,532
------------ ------------
Total current assets 2,491,757 6,851,354
Equipment, net of accumulated depreciation of $33,003
and $17,484 130,216 2,603
Capitalized software costs, net of accumulated amortization
of $201,732 and $16,084 482,632 243,280
Investment in other investment information provider 300,000
Other assets 374,252 12,004
------------ ------------
Totals $ 3,778,857 $ 7,109,241
============ ============
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 210,572 $ 131,395
Deferred revenues 305,588 283,222
------------ ------------
Total liabilities 516,160 414,617
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.00001 per share; 14,782,005
and 13,996,290 shares issued and outstanding 148 140
Additional paid-in capital 21,115,672 10,920,215
Unearned compensation (7,013,990) (3,015,388)
Accumulated deficit (10,839,133) (1,210,343)
------------ ------------
Total stockholders' equity 3,262,697 6,694,624
------------ ------------
Totals $ 3,778,857 $ 7,109,241
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine and Three Months Ended April 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended April 30, Ended April 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subscription revenues $ 831,875 $ 641,963 $ 204,179 $ 218,232
------------ ------------ ------------ ------------
Operating expenses:
Cost of revenues 4,703,385 107,881 1,635,033 42,801
Write-off of capitalized software
costs 48,252 48,252
Selling expenses 1,826,861 78,584 882,917 72,170
General and administrative ex-
penses 4,010,435 496,278 2,132,705 202,948
------------ ------------ ------------ ------------
Totals 10,588,933 682,743 4,698,907 317,919
------------ ------------ ------------ ------------
Loss from operations (9,757,058) (40,780) (4,494,728) (99,687)
Interest income 128,268 30,064
------------ ------------ ------------ ------------
Loss before income taxes (9,628,790) (40,780) (4,464,664) (99,687)
Provision (credit) for income taxes 838 (31,146)
------------ ------------ ------------ ------------
Net loss $ (9,628,790) $ (41,618) $ (4,464,664) $ (68,541)
============ ============ ============ ============
Basic net loss per share $(.68) $(.01) $(.31) $(.01)
===== ===== ===== =====
Basic weighted average common
shares outstanding 14,217,666 7,461,901 14,605,439 9,002,922
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended April 30, 2000 (Unaudited)
<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, 1999 13,996,290 $ 140 $10,920,215 $ (3,015,388) $ (1,210,343) $ 6,694,624
Sale of common stock, net
of expenses of $275,040 785,715 8 2,474,952 2,474,960
Effects of issuance of stock
options and warrants in
exchange for services 7,720,505 (7,720,505)
Amortization of unearned
compensation 3,721,903 3,721,903
Net loss (9,628,790) (9,628,790)
------------ ------- ----------- ------------ ------------ -----------
Balance, April 30, 2000 14,782,005 $ 148 $21,115,672 $ (7,013,990) $(10,839,133) $ 3,262,697
============ ======= =========== ============ ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(9,628,790) $ (41,618)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 15,519 975
Amortization of software costs 137,396
Write-off of capitalized software costs 48,252
Amortization of unearned compensation 3,721,903 6,400
Deferred income taxes 10,295
Changes in operating assets and liabilities:
Accounts receivable (104,695) 6,204
Other current assets (452,725) (239,506)
Other assets (100,000)
Accounts payable and accrued expenses 79,177 677,700
Deferred revenues 22,366 (19,981)
----------- -----------
Net cash provided by (used in) operating activities (6,261,597) 400,469
----------- -----------
Investing activities:
Purchases of equipment (143,132)
Software costs capitalized (425,000) (16,500)
Investment in other investment information provider (150,000)
Escrow deposit for purchase of investment in software
developer (262,248)
----------- -----------
Net cash used in investing activities (980,380) (16,500)
----------- -----------
Financing activities - net proceeds from private placements
of common stock 2,474,960 7,505,016
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,767,017) 7,888,985
Cash and cash equivalents, beginning of period 6,078,922 5,901
----------- -----------
Cash and cash equivalents, end of period $ 1,311,905 $ 7,894,886
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and basis of presentation:
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 its initial web site, www.JagNotes.com, which opened in
April 1999. Subscribers receive information about newly-issued
research reports and analyst opinions, upgrades, downgrades and
coverage changes. Initially, JNI's customers were primarily
financial professionals. During the year ended July 31, 1999,
JNI began to focus its marketing efforts on retail subscribers.
It has also been upgrading its initial web site. Management
considers all of the financial services provided 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-6
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and basis of presentation (continued):
The "Company" as used herein refers to JNI prior to March 16,
1999 and JagNotes together with JNI from March 16, 1999 through
August 16, 1999 and JagNotes.Euro.com Ltd., a wholly-owned
subsidiary of JagNotes that commenced operations and the
development of an international web site on July 8, 1999.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of the Company as of
April 30, 2000, its results of operations for the nine and three
months ended April 30, 2000 and 1999, its cash flows for the
nine months ended April 30, 2000 and 1999 and its changes in
stockholders' equity for the nine months ended April 30, 2000.
Information included in the condensed consolidated balance sheet
as of July 31, 1999 has been derived from the audited
consolidated balance sheet included in the Company's amended
Form SB-2 (the "SB-2") previously filed with the Securities and
Exchange Commission (the "SEC"). Pursuant to rules and
regulations of the SEC, certain information and disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted from these consolidated financial
statements unless significant changes have taken place since the
end of the most recent fiscal year. Accordingly, these unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, notes to
consolidated financial statements and the other information in
the SB-2.
The consolidated results of operations for the nine and three
months ended April 30, 2000 are not necessarily indicative of
the results to be expected for the full year.
The accompanying condensed consolidated financial statements
have been prepared based on the assumption that the Company will
continue as a going concern. However, during the nine months
ended April 30, 2000, the Company only generated revenues of
approximately $832,000, while it incurred a net loss of
$9,629,000 and its operating activities used $6,262,000 of cash.
Management believes that the Company will continue to incur net
losses and its operating activities will continue to use cash
through at least April 30, 2001.
F-7
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and basis of presentation (concluded):
Management also believes that the commercial success and
profitability of the Company will depend significantly on its
ability to expand its subscriber base in the United States and
internationally which, in turn, will depend on its ability to
expand the range of services it will provide to subscribers,
including the ability to bring "real time" video reporting to
subscribers through the web sites it is developing. Therefore,
although the Company had working capital of $1,976,000 and cash
balances of $1,312,000 as of April 30, 2000, management believes
that the Company will need substantial amounts of additional
liquid resources to meet obligations under contractual
commitments and fund the activities needed to expand its
subscriber base and the range of services it will provide. In
the absence of the financing arrangements described in Note 8,
the conditions described above, among others, would have raised
substantial doubts about the Company's ability to continue as a
going concern.
Note 2 - Earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). Basic earnings (loss)
per share is calculated by dividing net income or loss by the
weighted average number of shares 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 stock
options and warrants, were issued during the period.
Diluted earnings per share has not been presented in the
accompanying condensed consolidated statements of operations
because: (i) the Company had net losses for the nine and three
months ended April 30, 2000 and, accordingly, the assumed
effects of the exercise of all of the Company's outstanding
stock options and warrants and the application of the treasury
stock method would have been anti-dilutive and (ii) the Company
did not have any potentially dilutive common shares during the
nine and three months ended April 30, 1999.
Note 3 - Capitalized software development costs:
The Company capitalizes the costs of purchased software which is
ready for use in connection with the development of its web
site. Such costs are amortized using the straight-line method
over estimated useful lives which do not exceed five years.
During the three months ended April 30, 2000, management decided
that the Company's initial web site in the United States would
not be commercially successful unless the software was
redesigned, and the Company entered into a contract for the
purchase of such redesigned software. The redesigned software
became operational in June 2000. As a result, management reduced
the estimated useful life of the old software and wrote down its
cost by $48,000 as of April 30, 2000.
F-8
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Investment in and commitment to invest in other companies:
During the nine months ended April 30, 2000, the Company
purchased a 7% equity interest in another Internet-based
provider of financial and investment information. As of April
30, 2000, the investment was carried at its cost of $300,000.
The investee is controlled by a consultant to the Company.
During the nine months ended April 30, 2000, the Company had
also made deposits and incurred other costs aggregating
$262,248 (which were included in other assets) related to an
agreement for its acquisition of a minority equity interest in a
company that has developed software that will allow multiple web
pages to be utilized at the same time. The software could
facilitate access to the Company's web sites through web sites
maintained by other providers of financial and investment
information. If the agreement is consummated, the Company would
own approximately 2.5% equity interest in this investee.
Note 5 - Income taxes:
As of April 30, 2000, January 31, 2000 and July 31, 1999, the
Company had net operating loss carryforwards of approximately
$6,534,000, $3,659,000 and $538,000, respectively, available to
reduce future Federal taxable income which will expire in 2020.
The Company did not have any net operating loss carryforwards as
of April 30, 1999, January 31, 1999 and July 31, 1998.
The Company's deferred tax assets as of April 30, 2000 and July
31, 1999 consisted of the effects of temporary differences
attributable to the following:
April 30, July 31,
2000 1999
----------- ---------
Deferred revenues, net $ 72,700 $ 105,600
Goodwill 6,400 11,200
Unearned compensation 1,595,000 108,400
Net operating loss carryforwards 2,609,700 214,800
----------- ---------
4,283,800 440,000
Less valuation allowance (4,283,800) (440,000)
----------- ---------
Totals $ -- $ --
=========== =========
F-9
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Income taxes (concluded):
Due to the uncertainties primarily related to the extent and
timing of the Company's future taxable income arising from the
changes in the nature of its business described in Note 1, the
Company offset its deferred tax assets by an equivalent
valuation allowance as of April 30, 2000, January 31, 2000 and
July 31, 1999. Accordingly, although the Company had pre-tax
losses for the nine and three months ended April 30, 2000, it
increased the valuation allowance by $3,843,800 and $1,783,400
for the nine and three months ended April 30, 2000,
respectively, and did not recognize a credit for Federal income
taxes in either period.
The Company's effective tax rates for the nine and three months
ended April 30, 1999 differed from the statutory Federal income
tax rate of 34% primarily as a result of the effects of
nondeductible expenses and state income taxes.
Note 6 - Commitments:
Web site development costs:
As of April 30, 2000, the Company had contractual
obligations aggregating approximately $289,000 for services
to be rendered subsequent to that date in connection with
the on-going development of its web site.
Consulting and employment agreements:
As of April 30, 2000, the Company was obligated to make
approximate cash payments under consulting and employment
agreements as follows:
Year Ending
January 31, Consulting Employment Total
------------ ---------- ---------- ----------
2001 $1,170,000 $ 176,000 $1,346,000
2002 529,000 529,000
2003 19,000 19,000
---------- ---------- ----------
Totals $1,718,000 $ 176,000 $1,894,000
========== ========== ==========
Operating leases:
The Company leases office space under month-to-month and
longer term noncancelable operating leases. Rent expense was
$221,000 and $65,000 for the nine and three months ended
April 30, 2000, respectively. Rent expense was not material
for the nine and three months ended April 30, 1999. As of
April 30, 2000, minimum rental obligations under
noncancelable operating leases that expire through October
2001 totaled approximately $115,000 of which $79,000 and
$36,000 is payable in the years ending April 30, 2001 and
2002, respectively.
F-10
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Other issuances of common stock, warrants and stock options:
During the nine months ended April 30, 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. The sales were made through private placements exempt
from registration under the Securities Act of 1933.
On October 1, 1999, the Board of Directors approved the 1999
Long-term Incentive Plan (the "Incentive Plan") which provides
for individual awards to officers, employees, directors,
consultants and certain other individuals that may take the form
of stock options and certain other types of awards for which the
value is based in whole or in part upon the fair market value of
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 April 30, 2000, the number of shares that could have been
subject to awards under the Incentive Plan was limited to
2,217,301 shares.
As of April 30, 2000, the Company had granted options under the
Incentive Plan and had granted other stock options and warrants
for the purchase of a total of 1,635,500 shares of common stock.
Substantially all of these options and warrants were granted
from March 1, 1999 through April 30, 2000 pursuant to several
consulting agreements primarily with investment analysts and
commentators (see Note 6). Most of the agreements have an
initial term of one year and are renewable at the option of the
Company for an additional year.
The number of shares subject to options and warrants as of
August 1, 1999 and April 30, 2000 and the changes in the number
of shares subject to options and warrants during the nine months
ended April 30, 2000 along with information as to related
charges to compensation and unearned compensation is set forth
below:
<TABLE>
<CAPTION>
Range of
Number Exercise
of Shares Price
--------- ---------------
<S> <C> <C>
Options outstanding, August 1, 1999 (A) 335,000 $2.00 - $16.25
Options and warrants granted (B) (C) 2,150,500 $2.00 - $6.00
Options cancelled (C) (100,000) $16.25
---------
Options and warrants outstanding, April 30, 2000 2,385,500 $2.00 - $6.00
========= =============
</TABLE>
F-11
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Other issuances of common stock, warrants and stock options
(continued):
(A) During the year ended July 31, 1999, the Company
issued options to purchase a total of 335,000 shares
of common stock, at exercise prices of $2.00 and
$16.25 per share that were initially scheduled to
expire at various dates through July 2009, and a
total of 20,000 shares of common stock as part of the
consideration paid or to be paid pursuant to
agreements with consultants. In addition, an
executive officer of the Company transferred 100,000
shares of common stock with a fair value of
$1,312,500 to one of the consultants. The options had
an estimated fair value of $1,826,850 and the shares
issued and transferred had an estimated fair value of
$1,460,000. Accordingly, the Company recorded a total
of $3,286,850 as unearned compensation during the
year ended July 31, 1999 in connection with such
issuances.
(B) Includes options for the purchase of 810,500 shares
granted pursuant to the Incentive Plan.
(C) During the nine months ended April 30, 2000, the
Company issued options to purchase a total of
1,400,500 shares of common stock at exercise prices
ranging from $2.00 to $3.50 per share and warrants to
purchase 750,000 shares of common stock that are
scheduled to expire at various dates through April
2010 as part of the consideration paid or to be paid
pursuant to agreements with consultants. The options
and warrants had an estimated fair value of
$7,885,505. Options for the purchase of 200,000
shares were issued pursuant to an amendment to an
agreement consummated with a consultant during the
year ended July 31, 1999. The amendment resulted in
the cancellation of options for the purchase of
100,000 shares at $16.25 per share under the original
agreement that had an estimated fair value of
$165,000 at the date of grant. Accordingly, the
Company recorded a total of $7,720,505 (the fair
value of the options and warrants issued less the
fair value of the options and warrants cancelled at
their respective grant dates) as unearned
compensation during the nine months ended April 30,
2000 .
The fair values of the options, warrants and shares issued and
transferred pursuant to the consulting agreements were
determined in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
using the "minimum value method" through October 31, 1999 (due
to the limited amount of trading in the Company's shares through
that date) and the Black-Scholes option-pricing model
thereafter. The fair values were determined 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%
F-12
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 7 - Other issuances of common stock, warrants and stock options
(concluded):
Unearned compensation is being amortized to expense on a
straight-line basis over the initial term of each consulting
agreement. A total of $3,721,903, $1,546,180 and $271,462 was
amortized during the nine and three months ended April 30, 2000
and the year ended July 31, 1999, respectively. The unamortized
balance of $7,013,990 and $3,015,388 has been reflected as a
reduction of stockholders' equity as of April 30, 2000 and July
31, 1999, respectively.
Note 8 - Subsequent events:
Employment agreements:
From May 1, 2000 through June 15, 2000, the Company entered
into consulting agreements with several other investment
analysts and commentators (see Note 6). Each agreement has
an initial term of one year and is 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 $50,000 and issuances
of options to purchase 450,000 shares of the Company's
common stock at $2.00 per share that will expire at various
dates through June 2010. The options had a fair value of
approximately $555,500 at their respective grant dates (see
Note 7), which will be amortized to compensation expense on
a straight-line basis over the initial term of each
consulting agreement.
Financing agreements:
On June 12, 2000, the Company effected a private placement
of a convertible debenture in the principal amount of
$2,500,000 that matures June 12, 2003 and bears interest at
an annual rate of 8%. The principal of and interest on the
debenture is convertible at the option of the investor into
common stock of the Company 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. 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 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). The purchaser of the debenture also
received a warrant to purchase 572,519 shares of the
Company's common stock at a price of $3.62 per share
during the five year period subsequent to the date of
issuance.
F-13
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Subsequent events (concluded):
Financing agreements (concluded)
As of June 14, 2000, the Company entered into a $10,000,000
equity line of credit agreement with the same investor
pursuant to which it can put its shares to the investor,
from time to time, once they are registered with the SEC, at
a 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. The Company may put such
shares to the investor at the rate determined by the matrix
for the forced conversion of the debenture described
in the preceeding paragraph.
Placement agents and their counsel received a fee of 10% of
the principal amount of the debenture and proceeds of the
sale of shares under the equity line, as well as five year
warrants to purchase 27,500 shares of the Company's common
stock at $2.00 per share and the payment of their legal
fees. In addition, the Company is required to pay all of the
SEC registration costs for the shares to be issued upon
conversion of the debenture, under the equity line of credit
and upon exercise of the warrants.
F-14
<PAGE>
Item 2. Management's Discussion and Analysis.
RESULTS OF OPERATIONS
Nine months ended April 30, 2000 as compared to the Nine months ended April 30,
1999
Subscription revenue:
Subscription revenue is derived from annual, semi-annual, quarterly and monthly
subscriptions relating to our product "Jag Notes". Jag Notes 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 nine month
period ended April 30, 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 nine months ended April 30, 2000 increased
by 30% or approximately $190,000 over the same nine month period ended April 30,
1999 or from approximately $642,000 to approximately $832,000. The increase in
revenues is attributable to: (i) An increase in the number of subscribers from
the equivalent of approximately 10,300 retail subscriptions at April 30, 1999 to
approximately 16,000 at April 30, 2000 which is mainly the result of new retail
subscriptions to our web sites and (ii) 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 as well as the continuing
effect of our distribution agreements. Although the European website was
launched on December 1, 1999, through April 30, 2000 no subscription revenue was
earned. The website has been made available to interested parties on a free
trial basis.
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
<PAGE>
payments to commentators for their reports that are posted on the web sites.
During the nine months ended April 30, 2000 cost of revenues increased by
approximately $4,596,000 to approximately $4,703,000 from approximately
$107,000.
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) A $2,837,000 non-cash charge for the amortization of unearned
compensation associated with the issuance of common stock and
stock options to the commentators for services during the nine
months ended April 30, 2000.
(ii) Approximately $1,007,660 of cash payments to the commentators
which pertains to services performed during the nine months ended
April 30, 2000.
(iii) Approximately $657,000 expensed in connection with the on-line
services and the development and maintenance of our web sites
during the nine months ended April 30, 2000.
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 for our web sites. Accordingly, in periods subsequent to
April 30, 2000 the cost of revenues will likely continue to grow.
Selling expense:
Selling expenses consist primarily of advertising and other promotion expenses.
During the nine months ended April 30, 2000 selling expenses increased
approximately $1,748,000 from approximately $79,000 to approximately $1,827,000.
The major components of this increase are:
(i) Approximately $577,00 expensed in connection with the
production and airing of an infomercial.
<PAGE>
(ii) Approximately $460,000 for business travel expended in connection
with exploring opportunities for web sites in other countries.
The remainder of the increase is attributed to an overall increase in
advertising and promotional costs incurred in connection with promoting our web
sites.
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 $3,514,000 during the nine months ended April 30, 2000 from
approximately $496,000 to approximately $4,010,000. The increase in general
administrative expenses is primarily attributable to the following:
(i) An approximate $1,104,00 increase in professional fees for the
nine months ended April 30, 2000 from approximately $6,000 to
approximately $1,110,000. 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, as well as outside accounting and attorneys fees in
connection with various filings with the Securities and Exchange
Commission.
(ii) An approximate $782,000 increase in salaries to officers and
office staff for the nine months ended April 30, 2000 from
approximately $308,000 to approximately $1,090,000. The increase
in salaries results from additional staff needed in order to
properly support the expansion of our business.
(iii) For the nine months ended April 30, 1999 rent expense was
immaterial. Rent expense for the nine months ended April 30, 2000
was approximately $221,000. The increase is associated with the
growing space required to support additional staff and
<PAGE>
locations as we continue to change our focus and attempt to
increase our subscriber base.
(iv) An approximate increase of $884,000 in consulting fees from
approximately $218,000 for the nine months ended April 30, 1999 to
approximately $1,102,000 for the nine months ended April 30, 2000
paid in connection with investor relations, investment banking
advice, and exploring business expansion opportunities.
Approximately $745,000 of the $1,102,000 was a non cash charge
for the amortization of unearned compensation associated with the
issuance of stock options and warrants to consultants for
services during the nine months ended April 30, 2000.
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, the Company incurred an operating loss of
approximately $9,629,000 for the nine months ended April 30, 2000 as compared to
an operating loss of approximately $42,000 for the nine months ended April 30,
1999.
RESULTS OF OPERATIONS
Three months ended April 30, 2000 as compared to the three months ended April
30, 1999
Subscription revenue:
Subscription revenue is derived from annual, semi-annual, quarterly and monthly
subscriptions relating to our product "Jag Notes". Jag Notes 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 nine month
period ended April 30, 2000 we were in the process of completing the development
of our web site and changing our focus to
<PAGE>
also include the retail investor. Revenues for the three months ended April 30,
1999 as compared to the three months April 30, 2000 were comparable. While there
can be no guarantee of future increases, we would expect revenues to increase in
the future as a result of our becoming increasingly better known as well as the
continuing effect of our distribution agreements. Although the European website
was launched on December 1, 1999, through April 30, 2000 no subscription revenue
was earned. The web site has been made available to interested parties on a free
trial basis.
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
three months ended April 30, 2000 cost of revenues increased by approximately
$1,592,000 to approximately $1,635,000 from approximately $43,000.
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:
(iv) A $661,000 non-cash charge for the amortization of unearned
compensation associated with the issuance of common stock and
stock options to the commentators for services during the three
months ended April 30, 2000.
(v) Approximately $489,000 of cash payments to the commentators which
pertains to services performed during the three months ended
April 30, 2000.
(vi) Approximately $342,000 expensed in connection with the on-line
services and the development and maintenance of our web sites
during the three months ended April 30, 2000.
<PAGE>
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 for our web sites. Accordingly, in periods subsequent to
April 30, 2000 the cost of revenues will likely continue to grow.
Selling expense:
Selling expenses consist primarily of advertising and other promotion expenses.
During the three months ended April 30, 2000 selling expenses increased
approximately $811,000 from approximately $72,000 for the three months ended
April 30, 1999 to approximately $883,000. The primary reasons for this increase
are attributable to the following:
(iii) Approximately $577,00 expensed in connection with the production
and airing of an infomercial.
(iv) Approximately $166,000 for business travel expended in connection
with exploring opportunities for web sites in other countries.
The remainder of the increase is attributed to an overall increase in
advertising and promotional costs incurred in connection with promoting our web
sites.
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 $1,930,000 during the three months ended April 30, 2000 from
approximately $203,000 for the three months ended April 30, 1999 to
approximately $2,133,000. The increase in general administrative expenses is
primarily attributable to the following:
(i) An approximate increase of $854,000 in consulting fees from
approximately $48,000 for the three months ended April 30, 1999 to
approximately $902,000 for the three months ended April 30,
<PAGE>
2000 paid in connection with investor relations, investment
banking advice, and exploring business expansion opportunities.
Approximately $643,000 of the $902,000 was a non cash charge for
the amortization of unearned compensation associated with the
issuance of stock options and warrants to consultant for services
during the three months ended April 30, 2000.
(ii) An approximate $441,000 increase in salaries to officers and
office staff for the three months ended April 30, 2000 from
approximately $94,000 for the three months ended April 30, 1999 to
approximately $535,000. The increase in salaries results from
additional staff needed in order to properly support the expansion
of our business.
(iii) An approximate $366,000 increase in professional fees for the
three months ended April 30, 2000 from approximately $2,000 for
the three months ended April 30, 1999 to approximately $368,000.
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, as well
as outside accounting and attorneys fees in connection with
various filings with the Securities and Exchange Commission.
(iv) For the three months ended April 30, 1999 rent expense was
immaterial. Rent expense for the three months ended April 30, 2000
was approximately $65,000. The increase is associated with the
growing space required to support additional staff and locations
as we continue to change our focus and increase our subscriber
base.
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, the Company incurred an operating loss of
approximately $4,465,000 for the three months ended April 30, 2000 as compared
to an operating loss of approximately $69,000 for the three months ended April
30, 1999.
<PAGE>
Liquidity and Capital Resources
During the nine months ended April 30, 2000, the Company only generated revenues
of approximately $832,000, while it incurred a net loss of $9,629,000 and its
operating activities used $6,262,000 of cash. Management believes that Company
will continue to incur net losses and its operating activities will continue to
use cash through at least April 30, 2001. Management also believes that the
commercial success and profitability of the Company will depend significantly on
its ability to expand its subscriber base in the United States and
internationally which, in turn, will depend on its ability to expand the range
of services it will provide to subscribers, including the ability to bring "real
time" video reporting to subscribers through the web sites it is developing.
Therefore, although the Company had working capital of approximately $1,976,000
and cash and cash equivalents of $1,312,000 as of April 30, 2000, management
believes that the Company will need substantial amounts of additional liquid
resources to meet obligations under contractual commitments and fund the
activities needed to expand its subscriber base and the range of services it
will provide. In the absence of the additional financing described below, the
conditions described above, among others, would have raised substantial doubts
about the Company's ability to continue as a going concern.
The Company's cash and cash equivalent position of approximately $1,312,000 as
of April 30, 2000 results primarily from three private placements that occurred
in March and April 1999 and January 2000. The first two private placements in
March and April 1999 raised capital of approximately $7,560,000, net of $708,000
in fees. In connection with the first two private placements, as of April 30,
2000 there were 555,130 warrants outstanding 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 the Company 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.
<PAGE>
The principal of and interest on the debenture is convertible into common stock
of the Company at the lesser of $1.31 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 Securities
and Exchange Commission, 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
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). The purchaser of the debenture also received a five year warrant
to purchase 527,519 shares of the Company at a price of $3.62 per share.
As of June 14, 2000 the Company entered into a $10,000,000 equity line of credit
agreement with the same investor pursuant to which it can put its shares, once
registered with the Securities and Exchange Commission, from time to time, at a
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. The Company
may put such shares at the rate described above for the forced conversion of its
debenture.
Placement agents and their counsel receive a fee of 10% of the principal amount
of the debenture and proceeds of the sale of shares under the equity line, as
well as five year warrants to purchase 275,000 shares of the Company at $2.00
per share and payment of legal fees. In addition, the Company is required to pay
all the costs of registering with the Securities and Exchange Commission its
shares to be issued upon conversion of its debenture, under its equity credit
line and upon exercise of its warrants.
Through April 30, 2000 we have entered into agreements with approximately forty
commentators 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 nine months ended April 30, 2000, we paid
cash consideration of approximately $1,669,000 and granted options to purchase
1,200,500 shares
<PAGE>
of common stock at prices ranging from $2.00-$3.50 per share with a fair value
of approximately $4,734,000 in connection with all our employment and consulting
agreements. In addition, during the nine months ended April 30, 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 nine months ended April 30, 2000 the Company recorded additional
unearned compensation of $729,000. Furthermore, pursuant to one of the
consulting agreements warrants to purchase 750,000 shares of common stock at an
exercise price of $6 per share and a fair value of $2,258,000 were issued. 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 April 30, 2000,
approximately $687,000 is included in prepaid expenses for cash payments made
pursuant to the agreements in excess of services rendered to the Company.
During the nine months ended April 30, 2000 we used approximately $6,262,000 in
our operations. The major uses of this cash were to fund our net loss for the
nine months ended April 30, 2000. In addition, during the nine months ended
April 30, 2000 we incurred a non-cash charge of $3,722,000 related to the
amortization of unearned compensation.
During the nine months ended April 30, 2000 we used approximately $980,000 in
investing activities of which approximately $568,000 was used for the purchase
of equipment and additions to our web sites. The remainder was used for the
investment in two related Internet businesses.
We currently anticipate that our capital expenditures will approximate on a
short-term basis $289,000 in order to complete our web sites. Pursuant to the
employment and consulting agreements we are committed to make cash payments of
$1,346,000, $529,000 and $19,000 during the years ended April 30, 2001, 2002 and
2003 respectively. Thereafter, if the cash generated from operations in excess
of the financing described above is not sufficient to fund our liquidity
requirements or planned growth, we may need
<PAGE>
to raise additional funds through public or private financing, strategic
relationships or other arrangements. We may 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 could materially affect our business,
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.
Year 2000 Disclosure
During the nine months ended April 30, 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.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no currently pending law suits or similar administrative
proceedings and, to the best of our knowledge, there is presently no basis for
any suit or proceeding.
Item 2. Changes in Securities and Use of Proceeds.
Pursuant to an Agreement, dated March 14, 2000 (the "SGI Agreement"),
between JagNotes.com Inc. (the "Company") and Strategic Growth International,
Inc. ("SGI"), the Company granted an option to SGI to purchase 500,000 shares of
the Company's common stock, par value $0.00001 per share ("Common Stock"), at
$3.50 per share in exchange for investor relations consulting services provided
to the Company pursuant to the terms and conditions of the SGI Agreement.
Pursuant to a Consulting Agreement, dated as of March 15, 2000 (the "MS
Farrell Agreement"), between the Company and M.S. Farrell & Co., Inc. ("M.S.
Farrell"), the Company issued a warrant to M.S. Farrell, a consultant of the
Company, to purchase 750,000 shares of Common Stock exercisable at a price of
$6.00 per share on a cashless basis, in exchange for consulting and investment
banking services provided to the Company pursuant to the terms and conditions of
the MS Farrell Agreement.
In the ordinary course of business, the Company also granted options to
acquire an aggregate of 313,000 shares of Common Stock to various consultants of
the Company during the three month period ended April 30, 2000, each at an
exercise price of $2.00 per share. The shares of Common Stock underlying the
above-referenced options are registered on a Registration Statement on Form S-8,
filed by the Company with the Securities and Exchange Commission on January 11,
2000.
In addition, during the three month period ended April 30, 2000, the
Company received additional proceeds of $1,250,000 from Reliant Limited, a
corporation organized under the laws of the Isle of Man, for the purchase of
357,144 shares of Common Stock, representing the second tranche of a private
sale which closed in January 2000. A 10% fee of $125,000 was paid to the
placement agent out of this second tranche. The issuance of such securities was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Regulation S promulgated thereunder.
<PAGE>
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
------ -----------
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. (incorporated by
reference to the Company's Registration Statement on Form SB-2 filed
with the SEC on July 30, 1999).
2.2 Agreement and Plan of Merger, dated as of July 29, 1999, by and among
Jag Notes, Inc., a New Jersey corporation, and JagNotes.com, Inc., a
Nevada corporation (incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 filed with the SEC on
September 30, 1999).
3.1 Articles of Incorporation of JagNotes.com Inc., as amended
(incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 filed with the SEC on September 30,
1999).
3.2 Bylaws of JagNotes.com Inc. (incorporated by reference to Amendment No.
1 to the Company's Registration Statement on Form SB-2 filed with the
SEC on September 30, 1999).
<PAGE>
10.1 1999 Long Term Incentive Plan (incorporated by reference to Amendment
No. 2 to the Company's Registration Statement on Form SB-2 filed with
the SEC on October 26, 1999).
10.2 Agreement, dated as of March 14, 2000, by and between the Company and
Strategic Growth International, Inc.
10.3 Consulting Agreement, dated as of March 15, 2000, by and between the
Company and M.S. Farrell & Co., Inc.
27.1 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the three month
period ended April 30, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
JAGNOTES.COM INC.
Date: June 16, 2000 By: /s/ Gary Valinoti
----------------------------------------------
Name: Gary Valinoti
Title: President and Chief Executive Officer
Date: June 16, 2000 By: /s/ Stephen R. Russo
----------------------------------------------
Name: Stephen R. Russo
Title: Chief Financial Officer
