<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 2000
REGISTRATION NO. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
REGISTRATION STATEMENT ON
FORM SB-2
UNDER THE SECURITIES ACT OF 1933
-----------------
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.)
1415 Wyckoff Road
Farmingdale, New Jersey 07727
(732) 919-0078
(Address and Telephone Number of Principal Executive Office and
Principal Place of Business)
-------------------------
Gary Valinoti
President & Chief Executive Officer
JagNotes.com Inc.
1415 Wyckoff Road
Farmingdale, New Jersey 07727
Tel: (732) 919-0078
Fax: (732) 919-7419
(Name, address and telephone number of agent for service)
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
-------------------------
<PAGE>
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / / ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================ ==================== ==================== ====================== ======================
Title of each class of Proposed maximum Proposed
securities to be Amount to be offering price maximum aggregate Amount of
registered registered(1) per unit(2) offering price(2) registration fee
---------------------------- -------------------- -------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock
$.00001 par value 19,453,571 shares $1.36(3) $26,456,856.56(3) $6,985
---------------------------- -------------------- -------------------- ---------------------- ----------------------
Previously Paid $0
---------------------------- -------------------- -------------------- ---------------------- ----------------------
TOTAL DUE $6,985
============================ ==================== ==================== ====================== ======================
</TABLE>
(1) The shares of common stock set forth in the Calculation of Registration
Fee Table, and which may be offered pursuant to this Registration
Statement, includes, pursuant to Rule 416(a) of the Securities Act of
1933, as amended, such additional number of shares of the registrant's
common stock that may become issuable as a result of any stock split,
stock dividend or similar event. In addition, we have registered (i)
5,000,000 shares based on a good faith estimate of the maximum amount
issuable pursuant to the floating conversion rate of an 8% Convertible
Debenture, (ii) 10,000,000 shares based on a good faith estimate of the
maximum amount that may be sold pursuant to an equity line of credit
agreement and (iii) 2,000,000 shares based on a good faith estimate of the
maximum amount issuable upon the exercise of stock purchase warrants to be
delivered in connection with the equity line of credit agreement.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee under Rule 457.
(3) Based upon the average of the bid and asked prices for the common stock on
July 19, 2000, as reported by the OTC Bulletin Board.
-------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE>
Subject to Completion, dated July 25, 2000
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. 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 July 19, 2000 were $1.31 and $1.41, 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 9 for more information.
-----------------
The date of this prospectus is July __, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary 3
Risk Factors 9
Use of Proceeds 18
Selected Financial Data 19
Management's Discussion and Analysis of Financial Condition and Results of Operation 20
Market For Common Stock and Related Stockholder Matters 28
The Company 29
Management and Executive Compensation 43
Security Ownership of Certain Beneficial Owners and Management 47
Selling Stockholders 48
Plan of Distribution 49
Description of Securities 54
Legal Matters 55
Experts 55
Other Information 55
Index to Financial Statements F-1
</TABLE>
<PAGE>
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 subsidiary 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(SM) and JAGfn(SM) are servicemarks of JagNotes.com Inc.
The Company
JagNotes is an Internet-based provider of financial and investment
information. At our web site, www.jagfn.com, our subscribers can access timely
financial information, reports and commentary as well as "JagNotes," a daily
early-morning investment report that summarizes newly issued research, analyst
opinions, upgrades, downgrades and analyst coverage changes from various
investment banks and brokerage houses. While our target market in the past has
been primarily limited to institutional investors, we are now, through the
Internet, targeting retail subscribers in an effort to expand our subscriber
base.
We have recently focused our efforts on the establishment of a free,
advertising based webcasting network named JAGfn, which will feature original,
live financial programming focusing on breaking news and market-moving
information geared toward online investors and financial professionals. Subject
to financing being available, we are planning to launch our webcasting business
in August 2000, broadcasting nine hours of market coverage each trading day,
starting at 8:00 a.m. EST and concluding at 5:00 p.m. EST. The webcast will
feature the following three programs:
o an early morning program to prepare subscribers for the opening of
market trading;
o a program during market hours, offering in-depth, real-time market
coverage; and
o a program following the close of the securities markets that
emphasizes portfolio and market strategies for the next morning's
opening bell.
We intend to create a webcasting schedule which is fast-paced, informative
and entertaining. We expect coverage during trading hours to be largely
unstructured and unscripted, reflecting the nature of the securities markets
themselves.
A detailed description of our business strategy is provided under the
heading "The Company" below.
Our address is 1415 Wyckoff Road, Farmingdale, New Jersey 07727 and our
telephone number is (732) 919-0078.
3
<PAGE>
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 Thompson
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:
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 $350,000, 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.
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.
<PAGE>
Conditions to draws: - The closing 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.
- 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.
- 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.
- The registration statement, which
includes this prospectus, must be
effective.
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 an 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.
5
<PAGE>
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 Thompson Kernaghan &
Co., Ltd., as agents, an aggregate of
10% of the cash received from each draw
in addition to the warrants issued to
Thompson Kernaghan & Co., Ltd. as
described below.
As soon as practicable after the effectiveness of the registration
statement of which this prospectus is a part, we plan to draw down $350,000
under the equity line, which, given our closing price of $1.41 per share on July
18, 2000, and our ten calendar day average daily trading volume of $57,532
shares for the period ending on July 18, 2000, would be the maximum initial
amount we could draw down under the equity line if our first drawdown took place
on July 19, 2000. We expect to effect subsequent drawdowns of the applicable
maximum amount available under the equity line every 15 trading days thereafter
until either the whole line has been utilized, or if earlier, December 14, 2002,
the termination date of the equity line.
8% Convertible Debenture Due June 12, 2003
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 $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
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). If the 8% Convertible
Debenture were converted in full as of July 19, 2000, CALP II would be entitled
to acquire approximately 2,427,185 shares of our common stock, or approximately
14% of the number of shares of common stock that were then outstanding after the
conversion; however, because the terms and conditions of the 8% Convertible
Debenture restrict CALP II from acquiring in excess of 10% of the outstanding
shares of our common stock upon conversion, we only would be required to issue
1,642,445 shares of common stock to CALP II.
As collateral for the 8% Convertible Debenture we have agreed to deposit
2,000,000 shares of our common stock in a segregated account with Thompson
Kernighan & Co., Ltd. If an event of default occurs under the 8% Convertible
Debenture, CALP II is entitled to foreclose on these shares. Upon conversion of
the 8% Convertible Debenture, the shares held in escrow will be returned to us
pro rata in accordance with the conversion amount.
If the registration statement of which this prospectus is a part not
declared effective by the SEC by October 10, 2000, the conversion price of the
8% Convertible Debenture will be reduced by 2% for the first 30 days following
such date and an additional 2% each 30 days thereafter until the registration
statement is declared effective by the SEC. In addition, if, after the
registration statement 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.
Stock Purchase Warrants
CALP II Limited Partnership
In connection with the issuance of the 8% 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 Agent and Legal Fees
Thompson Kernaghan & Co., Ltd. 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
6
<PAGE>
connection with the preparation of documents relating to the 8% 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 will 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.
7
<PAGE>
Summary Financial Data
The consolidated statement of operations data for the year ended July 31,
1998 and the consolidated balance sheet data as of July 31, 1998 have been
derived from financial statements which have been audited by Stephen R. Russo,
CPA, independent certified public accountant, and included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
July 31, 1999 and the consolidated balance sheet data as of July 31, 1999 have
been derived from financial statements which have been audited by J.H. Cohn LLP,
independent public accountants, and included elsewhere in this prospectus. The
consolidated statement of operations data for the nine months ended April 30,
2000 and 1999 and the consolidated balance sheet data as of April 30, 2000 have
not been audited, but have been derived from unaudited financial information
prepared, in management's opinion, on the same basis as the audited financial
statements. In the management's opinion, this unaudited financial information
includes all adjustments, consisting of normal recurring adjustments, necessary
to present such information fairly.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Fiscal Years Ended July 31, April 30,
--------------------------- ---------
1999 1998 2000 1999
(Unaudited)
<S> <C> <C> <C> <C>
Subscription Revenues $800,716 $932,553 $831,875 $641,963
Net Income (Loss) $(1,028,292) $2,649 $(9,628,790) $(41,618)
Basic Net Earnings (Loss) $(.11) $-- $(.68) $(.01)
per Share
Basic Weighted Average
Common Shares Outstanding 9,237,693 3,500,000 14,217,666 7,461,901
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
Fiscal Year Ended July 31, 1999 April 30, 2000
------------------------------- --------------
(Unaudited)
<S> <C> <C>
Total Assets $7,109,241 $3,778,857
Total Liabilities $414,617 $ 516,160
Stockholders' Equity $6,694,624 $3,262,697
</TABLE>
8
<PAGE>
RISK FACTORS
An investment in these shares is highly speculative and involves a high
degree of risk. In this section of the prospectus we highlight certain specific
risks with respect to JagNotes, its business and the purchase of these shares.
These risk factors are not a complete list of all risks factors that may affect
JagNotes or its stock. Please carefully consider these risk factors and the
other information contained in this prospectus, before deciding to purchase
these shares.
Risks Related to Our Business
We have a history of losses, anticipate losses for the foreseeable future and
may never achieve profitability
As of April 30, 2000 we had incurred losses to date of $10,839,133, and we
expect to incur additional losses in the rest of fiscal year 2000 and fiscal
year 2001. 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. In May and June of 2000, we incurred aggregate
expenses of approximately $1,700,000 compared to aggregate revenues of
approximately $230,000. 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. If 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 is our only committed source of capital
We are entirely dependent upon equity investments in our company by CALP
II Limited Partnership, a selling stockholder named in this prospectus. Although
CALP II has agreed to advance us a minimum of $700,000 per month until we have
drawn down a maximum of $10,000,000 pursuant to the terms and conditions of an
equity line of credit agreement, we cannot assure you that these funds will be
sufficient to sustain our operations. If we want to draw down in excess of
$350,000 every fifteen days after this prospectus is declared effective by the
SEC, we will have to meet certain conditions set forth in the equity line of
credit agreement, including, among others, conditions relating to our closing
stock price and the average trading volume of our common stock which we do not
currently meet. As a result, we cannot assure you that we will be able to draw
down in excess of $350,000 on any given draw date. Due to the high costs
associated with the establishment of our webcasting business, the committed
funds from CALP II may not be sufficient to allow us to stay in business.
Therefore, 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.
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 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 could 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 and to the Internet
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 expect soon
to focus much of our efforts on webcasting, subject to being able to raise the
requisite capital, 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
$5,000,000 and $6,000,000, 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 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."
9
<PAGE>
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, we will have
little, if any, financial success. See "The Company - Our Business Strategy."
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, Richard W. Arms, Jr, Michael Paulenoff,
Elaine Garzarelli, Dorsey, Wright & Associates, Mark Leibovit, E*Offering and
Mastrapasqua & Associates 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
build our subscriber base, offer new services or otherwise expand the business
will be limited if we cannot increase that name recognition. We cannot guarantee
that we will be successful in doing so. See "The Company - Our Business
Strategy."
We may experience difficulties in developing new and enhanced services and
features for our web sites
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 and possibly Asia which will offer
country-specific content for the region in the local language of
each country;
10
<PAGE>
o additional specialized commentators;
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; and
o an expanded fixed income section providing more commentary and data
on corporate and government bonds.
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 overseas and webcasting operations 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 acquisitions and strategic alliances
We currently intend to evaluate acquisitions, strategic alliances,
partnerships or joint ventures, as a means of acquiring additional sources of
content for our subscribers. 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. We can offer no guarantee
that we will be able to locate suitable candidates for alliances or acquisition.
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 expansion into
European, Latin American and possibly Asian markets, but we have little or no
experience in such markets. Although we have opened our European web site,
through April 30, 2000, no subscription revenue was earned from this web site.
In addition, although we anticipate commencing operations in Latin America in
2000, we cannot guarantee that we will be able to finance or implement
successfully our foreign growth strategy or that we can otherwise successfully
expand into foreign markets.
We may not be able to successfully manage our growth
Our business strategy requires us to rapidly grow our business. We may not
be able to do so, however, and if we do, that 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
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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.
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,
which could materially adversely affect our business, results of operations and
financial condition.
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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 existing executive officers. 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. 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, marketing and financial personnel, our
business, and your investment, could be adversely affected. See "Business" and
"Management."
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. None of our commentator contracts runs for less
than one or more than two years. We cannot guarantee that we will be able to
maintain and/or renew these contracts, nor can we guarantee that we will be able
to attract additional or replacement commentators and analysts now or in the
future. 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.
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
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.
Risks Related to Our Industry
We are in an intensely competitive business with low barriers to entry
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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.
Our largest competitors include:
o Online financial news and information providers including
TheStreet.com, MarketWatch.com, The Motley Fool, FT.com, European
Investor.com, Worldly Investor.com and Hemmington-Scott.com
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
o Internet portals and search engines such as America Online and Yahoo
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 "The
Company - Competition."
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.
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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. 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 fluctuations. These price 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.
Risks Related to this Offering
A large percentage of our stock is owned by relatively few people, including
officers and directors
As of the date of this prospectus, our officers and directors beneficially
owned or controlled a total of approximately 3,320,500 shares, or approximately
23% of our outstanding common stock. See "Security Ownership of Certain
Beneficial Ownership and Management." If you purchase shares covered by this
prospectus, you may be subject to certain risks due to the concentrated
ownership of our common stock. For example, these stockholders could, if they
were to act together, affect the outcome of other stockholder votes which could,
among other things, affect elections of directors, delay or prevent a change in
control or other transaction that might be beneficial to you as a stockholder.
A large number of our shares are eligible for future sale
We had 14,782,005 shares of common stock outstanding on June 14, 2000. Of
these, approximately 6,800,000 shares are freely tradeable and approximately
8,000,000 shares are "restricted securities" under Rule 144 of the Securities
Act of 1933. 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.
In addition to the shares covered by this prospectus, approximately
6,000,000 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.
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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."
Shareholders may experience significant dilution from our sale of shares to CALP
II Limited Partnership
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 8% 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. This prospectus 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.
This prospectus also covers up to 5,000,000 shares which may be issued to CALP
II upon conversion of the 8% Convertible Debenture and 428,571 shares issuable
to CALP II upon the exercise of a related stock purchase warrant. 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.
The resale by CALP II Limited Partnership of our shares may lower the market
price of our common stock
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. There are no contractual restrictions on the
ability of CALP II to offer shares under this prospectus. If we continue to
exercise our put right under the equity line of credit agreement every 15 days
and CALP II continues to immediately 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 be able to obtain payment from CALP II Limited Partnership
As discussed below in the section "Plan of Distribution" CALP II's
obligation to purchase our shares under the equity line of credit agreement is
dependent upon various conditions being satisfied. If these conditions are not
satisfied, we cannot require CALP II to purchase our shares. Since the
obligation of CALP II to complete its purchase 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.
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 are registering
10,000,000 shares under this prospectus 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.
For additional information concerning our agreement with CALP II, see "Plan of
Distribution."
Investors will be relying on our management's judgment regarding the use of
proceeds from this offering
Our management will have broad discretion with respect to the use of the
net proceeds from this offering, and investors will be relying on the judgment
of our management regarding the application of these proceeds. Presently,
anticipated uses include 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
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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. See "Use of Proceeds."
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 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 Thompson 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 8% Convertible
Debenture,
o the warrant issued to Thompson Kernaghan & Co., Ltd. in connection
with their role as placement agent for the 8% 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
8% 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, Thompson 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 year ended July 31,
1998 and the consolidated balance sheet data as of July 31, 1998 have been
derived from financial statements which have been audited by Stephen R. Russo,
CPA, independent certified public accountant, and included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
July 31, 1999 and the consolidated balance sheet data as of July 31, 1999 have
been derived from financial statements which have been audited by J.H. Cohn LLP,
independent public accountants, and included elsewhere in this prospectus. The
consolidated statement of operations data for the nine months ended April 30,
2000 and 1999 and the consolidated balance sheet data as of April 30, 2000 have
not been audited, but have been derived from unaudited financial information
prepared, in management's opinion, on the same basis as the audited financial
statements. In the management's opinion, this unaudited financial information
includes all adjustments, consisting of normal recurring adjustments, necessary
to present such information fairly.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Fiscal Years Ended Nine Months Ended
------------------ -----------------
July 31, April 30,
-------- ---------
1999 1998 2000 1999
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Subscription Revenues $800,716 $932,553 $831,875 $641,963
Net Income (Loss) $(1,028,292) $2,649 $(9,628,790) $(41,618)
Basic Net Earnings (Loss) $(.11) $-- $(.68) $(.01)
per Share
Basic Weighted Average
Common Shares Outstanding 9,237,693 3,500,000 14,127,666 7,461,901
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
Fiscal Year Ended July 31, 1999 April 30, 2000
------------------------------- --------------
(Unaudited)
Total Assets $7,109,241 $3,778,857
Total Liabilities $414,617 $516,160
Stockholders' Equity $6,694,624 $3,262,697
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and the notes to those statements that appear
elsewhere in this prospectus. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this prospectus, particularly
in "Risk Factors".
RESULTS OF OPERATIONS
Year Ended July 31, 1999 as compared to year ended July 31, 1998
Subscription Revenues:
Subscription revenue is derived from annual, semi-annual, quarterly and
monthly subscriptions relating to our product, the JagNotes upgrade/downgrade
report. The JagNotes 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.
Until May 1999, The JagNotes report was faxed to a limited audience of financial
professionals at an average monthly charge of $150. During the year ended July
31, 1999 we were in the process of completing the development of our U.S. web
site and changing our focus to also include the retail investor. As a result of
this change in focus, our revenues showed a decline for the year ended July 31,
1999 of approximately $132,000, or approximately 75 subscribers, to
approximately $801,000, or approximately 430 subscribers, from approximately
$933,000, or 505 subscribers for the year ended July 31, 1998. As part of this
transition process, we provided retail subscriptions to our web site to such
financial professionals. We estimate that approximately 8,500 such subscriptions
were in effect as of July 31, 1999. In addition, at July 31, we had
approximately 3,100 new retail subscriptions to our web site, of which
approximately 30% are annual subscriptions. We therefore had a total of
approximately 11,600 subscribers as of July 31, 1999. While we cannot predict
when our revenues will increase, we believe that the decline in revenues is
temporary, as we expect an increase in subscribers due to our becoming better
known as well as to recently instituted distribution agreements.
Cost of Revenues:
Cost of revenues includes the cost to transmit the product over telephone
and fax lines, on-line service charges for our web site, costs in connection
with the development and maintenance of our web site and payments to
commentators for their reports that are posted on the web site. During the year
ended July 31 1999, cost of revenues increased approximately $517,000 to
approximately $629,000 from approximately $112,000 for the year ended July 31,
1998.
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 $271,000 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 year ended July
31, 1999;
(ii) Approximately $113,000 of cash advanced to the commentators which
pertains to services performed during the year ended July 31, 1999;
and
(iii) Approximately $85,000 expensed in connection with the on-line
services and the development and maintenance of the U.S. web site.
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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 the web site. Accordingly, in periods subsequent to
July 31, 1999, the cost of revenues will likely continue to increase.
From August 1, 1999 through October 31, 1999, we entered into consulting
agreements with another four commentators. Four of these agreements have an
initial term of one year and are renewable at our option for another year. The
fifth agreement has a two year term unless earlier terminated by us pursuant to
its terms. The aggregate consideration we paid in connection with these
agreements consisted of cash payments of $160,000 and the issuance of options to
purchase 160,000 shares of common stock at $2.00 per share. These options expire
at various dates through October 2009. To the extent that these options were
granted at or below market value, we will incur a non-cash charge to
compensation expense and a corresponding increase to additional paid-in capital.
Selling Expenses:
Selling expenses consist primarily of advertising and other promotion
expenses. During the year ended July 31, 1999, our selling expenses increased by
approximately $254,000 to approximately $292,000 from $38,000 for the year ended
July 31, 1998. The primary reasons for this increase are an increase in
travel-related expenses and advertising costs incurred in promoting our new
focus and web page.
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 $150,000 during the year ended July 31, 1999 from approximately
$745,000 for the year ended July 31, 1998 to $895,000. The increase in general
and administrative expenses is primarily attributable to an approximately
$191,000 increase in professional fees from approximately $10,000 for the year
ended July 31, 1998 to approximately $201,000 for the year ended July 31, 1999.
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.
In addition, we incurred the following costs for the year ended July 31, 1999
that were not included during the year ended July 31, 1998:
(i) Approximately $32,000 paid to various consultants and other
non-employees who provided administrative services;
(ii) Approximately $26,000 relating to investor relations; and
(iii) Approximately $43,000 in occupancy costs.
These increases were offset by the following:
(i) A decrease of approximately $87,000 in salaries; and
(ii) A decrease of approximately $40,000 in the amount contributed to the
our profit sharing plan.
The other items that make up the general and administrative expenses were
fairly consistent between the periods being presented.
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Operating Income:
As a result of the above, we incurred an operating loss of approximately
$1,015,000 for the year ended July 31, 1999 as compared to an operating profit
of approximately $37,000 for the year ended July 31, 1998.
Nine months ended April 30, 2000 as compared to the nine months ended April 30,
1999
Subscription Revenues:
Subscription revenue is derived from annual, semi-annual, quarterly and
monthly subscriptions relating to our product, The JagNotes upgrade/downgrade
report. The JagNotes 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.
Until May 1999, The JagNotes report 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 better known as well as the continuing effect of our distribution
agreements. Although the European web site 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 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.
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Selling Expenses:
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.
(ii) Approximately $460,000 for business travel expended in connection
with (a) attendance at trade shows; (b) pursuing strategic alliances
and other web site development activities; and (c) 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 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.
(v) The remainder of the increase is attributable to general office
expenditures as a result of adding new locations and staff operating
income.
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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.
Three months ended April 30, 2000 as compared to the three months ended April
30, 1999
Subscription Revenues:
Subscription revenue is derived from annual, semi-annual, quarterly and
monthly subscriptions relating to our product, the JagNotes upgrade/downgrade
report. The JagNotes 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.
Until May 1999, The JagNotes report 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 U.S. web site and
changing our focus to 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 web site 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:
(i) 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.
(ii) Approximately $489,000 of cash payments to the commentators which
pertains to services performed during the three months ended April
30, 2000.
(iii) 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.
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 Expenses:
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:
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(i) Approximately $577,000 expensed in connection with the production
and airing of an infomercial.
(ii) 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, 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.
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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 (a) implement its webcasting project; (b) expand
its subscriber base in the United States and internationally; (c) launch web
sites in markets outside the United States; (d) expand the range of services
offered to subscribers and other users; and (e) develop and increase advertising
revenue in connection with all of its web sites. 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 to 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.
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 428,571 shares of the Company at a price of $1.75 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. However, the Company is entitled to a
minimum drawdown of $350,000, net of placement agent commissions, every 15 days
under the equity line. The Company also agreed to issue to the investor on each
date on which the investor advances funds to the Company under the equity line a
warrant to purchase a number of shares 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 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.
Pursuant to a consulting agreement with The May Davis Group, Inc., May
Davis and certain of its affiliates received five-year stock purchase warrants
to acquire up to an aggregate of 1,250,000 shares of the Company's common stock
at $2.00 per share in exchange for investment banking services rendered to the
Company.
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
26
<PAGE>
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 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 canceled 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 approximately $300,000 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. In addition, we estimate that we will
incur costs of approximately $5,000,000 to $6,000,000 over the next 12 months in
connection with the launch of our webcasting operations. At our current usage
rate of cash, the cash generated from operations and the proceeds of the
financing described above may not be sufficient to sustain our planned growth
and expansion. Accordingly, we may need to raise additional funds through public
or private financing, strategic relationships or other arrangements or may even
have to curtail or even cease our expansion plans. 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, and we could 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 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.
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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 seven calendar quarters. The average
daily trading volume during this period was approximately 94,682 shares, with a
high daily volume of 1,335,700 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) $1.590 $1.310
-------------------------------------------------------------------
(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 July 19, 2000.
As of July 5, 2000, there were approximately 71 stockholders of record of
the JagNotes' common stock. On July 19, 2000, the closing bid price for the
JagNotes' common stock was $1.31.
JagNotes has never paid any cash dividends on its 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.
28
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THE COMPANY
Our Business Generally
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. We have recently
announced our intent to begin 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 also intend to syndicate the JAGfn webcast to
other web sites and portals in the hope of increasing viewership and thereby
also increasing advertising revenue from the webcast.
From 1989 to 1992, we operated as an unincorporated business entity. In
1992, we incorporated in the State of New Jersey as New JagNotes, 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. We have one wholly-owned operating
subsidiary named JagNotes-Euro.com, Ltd., a corporation organized under the laws
of England.
Until recently, 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 has grown
more slowly than anticipated, more recently, we have focused our efforts on the
establishment of a webcasting network named JAGfn, which will feature original,
live financial programming focusing on breaking news and market-moving
information geared toward online investors and financial professionals. The
webcasting project will be based on an advertising model supported by the sale
of streaming media advertising spots. We anticipate the start-up costs of our
webcasting project through the first year of operation to be between
approximately $5,000,000 and $6,000,000.
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 have entered into a strategic alliance with AltaVista Company, a
high-traffic Internet portal. We will also make a special marketing effort in
connection with the launch of our JAGfn webcasting project.
Our Industry Generally
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 US 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, the growth of the online
brokerage industry is also growing. According to research by
29
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Datamonitor, during the average workday, 466 new online accounts are opened in
Sweden, 685 in the United Kingdom, and 1,178 in Germany.(1)
Our Products
On our subscription-based web sites, we offer our subscribers certain
investor information products in text and chart form that we believe make our
web sites attractive to active investors. These products fall into three
categories:
o Commentaries from experienced, respected and high profile
journalists, money managers, analysts and other Wall Street
professionals.
o The delivery of breaking news and potentially market moving
information.
o Select financial data targeted at the active investor and
trader.
In addition, as described in our business strategy discussion below, we
are developing a webcasting network which will feature original, live financial
programming geared to the U.S. trading day.
Commentaries
The commentaries on our web sites are provided by experienced, respected
and high profile journalists, money managers, analysts and other Wall Street
professionals. Their reports range from analysis of individual stock and
industry sector performance to analysis of broad market and economic matters in
general. In many cases our commentators also provide and analyze detailed
financial and technical data. We believe that these commentaries will provide
our subscribers with the type of insights into financial matters that previously
were 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.
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 10 for further
information.
--------
1 Online Trading Continues to Catch On,
http://cyberatlas.internet.com/markets/finance/article/0,,5961_318491.00.html
30
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As of the date of this prospectus, the following commentators provide
technical analysis and commentary for our U.S. web site:
Elaine Garzarelli - Ms. Garzarelli has been engaged in quantitative
analysis of the stock market for over twenty years. Her education and training
is in economics and statistics and she holds a doctorate from Drexel University.
Ms Garzarelli uses her proprietary "Sector Analysis" methodology to predict
industry earnings and general market movements. Ms. Garzarelli is presently the
president of Garzarelli Capital, Inc. and Garzarelli.com and she also manages
money through her Chicago-based firm, Garzarelli Investment Management. Ms
Garzarelli is also a frequent guest on ABC Good Morning America, CNBC, The
Nightly Business Report, CNN's MoneyLine, and Fox Business News.
Ms. Garzarelli provides reports, based on her quantitative analysis, each
Friday.
Seth Tobias - During his thirteen years of Wall Street experience, Mr.
Tobias has worked on both the buy and sell side. Since January, 1996, Mr. Tobias
has managed the Circle T Partners family of hedge funds. Preceding the formation
of Circle T Partners, Mr. Tobias held positions as a futures trader, equity
sales trader and assistant portfolio manager at JRO Associates.
Mr. Tobias provides his market report on Tuesday of each week.
Ralph Bloch - Mr. Bloch has been involved in technical analysis of the
stock market for over forty years. He began his career at Merrill Lynch and is
presently Senior Vice President and Chief Market Analyst at Raymond James &
Associates, Inc. Mr. Bloch has lectured at the University of Florida, New York
University Graduate School and Fairleigh Dickinson University. Mr. Bloch is also
routinely quoted by prominent news organizations such as Reuters, the Dow Jones
Wire, U.S. News and World Report, The Wall Street Journal, Barron's, Investor's
Business Daily, and various foreign publications.
Mr. Bloch provides daily market recap reports.
Mastrapasqua & Associates - Mastrapasqua & Associates is an independently
owned money management firm located in Nashville, TN. The firm manages
approximately $650 million, which is equally divided between high net worth
individuals and institutions. The firm was started in 1993 with an investment
style focused on growth at reasonable prices. The two principals who write the
weekly reports for our site are:
Frank Mastrapasqua - Mr. Mastrapasqua began his career in the academic
world as faculty member at Northeastern University and at the University
of Houston where he was a department chair and professor of finance. After
serving as chief economist to American General Capital Management,
Faulkner, Dawkins and Sullivan and L.F. Rothschild, Unterberg, Towbin, in
1981, he joined Smith Barney where he was Senior Vice President, Chief
Economist and Director of Fixed Income Research. He subsequently joined
J.C. Bradford & Co. in 1986 as Partner, Director of Research and Chief
Investment Strategist.
Tad Trantum - Mr. Trantum, President and Co-Founder of Mastrapasqua &
Associates, worked as an analyst on Wall Street with H.C. Wainwright & Co.
and L.F. Rothschild, Unterberg, Towbin. He was appointed by President
Carter to serve as a Commissioner for the Interstate Commerce Commission
in 1979. He subsequently served as President and CEO of a regional
railroad, before becoming a Partner and Senior Security Analyst with J.C.
Bradford & Co. in 1987.
Mr. Mastrapasqua provides capital market reports and Mr. Trantum provides
a sector report, both on Monday each week.
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<PAGE>
Dorsey, Wright & Associates, Inc. - Dorsey, Wright & Associates is a
privately owned registered investment advisory firm that provides management of
equity portfolios for investors and investment research services on a worldwide
basis for institutions and broker-dealers.
Thomas J. Dorsey - Mr. Dorsey, the firm's president, founded Dorsey,
Wright & Associates in January 1987. He previously worked nine years at
Wheat, First Securities where he developed and managed their Risk
Management & Options Strategy department, before which he was an account
executive at Merrill, Lynch.
Mr. Dorsey conducts Risk Management seminars across the country on behalf
of the major stock exchanges in the United States for industry
professionals as well as individual investors. He has written numerous
articles on equity market and options analysis for such publications as
The Wall Street Journal, Barron's, Technical Analysis of Stocks and
Commodities Magazine, and Futures Magazine. He is also the author of Point
& Figure Charting, The Essential Application for forecasting and tracking
market prices as well as a member of the Philadelphia Stock Exchange Board
of Advisors.
Watson H. Wright - Mr. Wright, the firm's secretary and treasurer, worked
as an account executive at Wheat, First Securities, and its Options
Strategy department, where he became Vice President and assistant
Director, before leaving to help found Dorsey, Wright & Associates.
Dorsey, Wright & Associates provides several "Point and Figure" charts,
each of which sets forth technical information about a corporation and its
publicly traded securities, along with custom commentary each weekday.
Vincent Boening - For more than 35 years, Mr. Boening has specialized in
interpreting the chart patterns of individual stocks and market averages. Since
1963, Mr. Boening has authored "Technical Commentary," a market letter in which
he analyzes and interprets the chart patterns of certain listed and OTC stocks.
During his career, Mr. Boening has held various positions at major financial
institutions, including Legg Mason Wood Walker, Fidelity Management & Research
and White, Weld, where he specialized in the area of technical analysis of chart
patterns. Mr. Boening was also a consultant for Donaldson Lufkin & Jenrette and
has a continuing relationship with that firm's International Department,
providing services to certain European institutions.
Mr. Boening's report "Chart Patterns" provides technical analysis based on
chart patterns of individual stocks and market indices on Monday, Wednesday and
Friday of each week.
Richard W. Arms, Jr. - Mr. Arms is the author of four books on strategic
market analysis and has authored numerous articles for national publications,
including Barron's and Pension & Investment Age. He is the publisher of "The
Arms Advisory Letter," a weekly advisory service for institutions. He is a
frequent lecturer and has appeared on Wall Street Week with Louis Rukeyser.
Mr. Arms provides his "Equivolume" report, which discusses and charts
relationships between stock price and volume on Monday, Wednesday and Friday of
each week.
Mark Leibovit - Since 1979 Mr. Leibovit has published his VRS newsletter
which provides information on short swing, high performance stock trades and
intra-day market timing based on his proprietary trading program. In 1999, Mr.
Leibovit founded vrtrader.com which provides various products based upon Mr.
Leibovit's "Volume Reversal"(TM) methodology. In the mid 1970's, Mr. Leibovit
was a market maker on the Midwest Options Exchange and the Chicago Board Options
Exchange. Mr. Leibovit also served as an "Elf" on Louis Rukeyser's "Wall Street
Week" for seven years and has also been a frequent guest on PBS' "The Nightly
Business Report with Paul Kangas," CNBC, CNN, the Business News Network and
other radio and television programs.
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Mr. Leibovit provides market reports based on his "Volume Reversal"
methodology on Monday - Thursday, with updates of those reports issued twice
daily.
L. Douglas Lee - Mr. Lee is Chief Economist at Washington Economics.
Previously he was Chief Economist at Washington Analysis Corporation, which he
joined in 1984. Mr. Lee also served as Chief U.S. Economist for HSBC Securities.
Prior to that, he was also Chief U.S. Economist for NatWest USA. From 1981-1983
Mr. Lee was a senior economist at Data Resources Inc. and manager of their
Defense Information Service. Before that he served as senior economist and
research director for the Joint Economic Committee of Congress. Mr. Lee has
published numerous articles, is quoted frequently in national newspapers and
magazines, and appears regularly on CNBC, CNN, Nightly Business Report, and in
other media.
Mr. Lee provides daily early morning reports focusing on various economic
indicators and their potential effect on the market, various sectors and
industries and individual companies.
E*Offering - E*Offering is an online investment banking firm funded in
part by E*TRADE Group Inc. and Sandy Robertson, founder and former CEO of
Robertson Stephens & Co. It provides full-service investment research and
capital markets capabilities to institutional and individual investors.
E*Offering provides market reports that will be authored, on a rotating
basis, by its team of analysts.
Kate Bohner - Ms. 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.
Ms. Bohner provides financial news reports and special feature reports on
Tuesday, Thursday and Friday of each week.
Stephen Langan - Mr. Langan is currently the Chief Market Strategist at
Donald & Co. Prior to joining Donald & Co., Mr. Langan held positions as a
specialist in major market index options and as a market maker. During this time
Mr. Langan began building his own stock trading system and in 1993 he started
"TrendWatch," a market advisory service whose customers included floor
specialists, market makers and high net worth individuals. Mr. Langan has
appeared on CNBC, CNNfn, Bloomberg Television and radio. He has also been quoted
in USA Today, Investors Business Daily, The New York Times and other
publications.
Mr. Langan provides reports on short-term market volatility each weekday.
Douglas A. Kass - Mr. Kass has been involved in the investment business
since 1972 and is currently the President of DAK Management Corporation, which
manages several investment partnerships. Prior to forming DAK Management, Mr.
Kass was Senior Portfolio Manager at Omega Advisors, a New York-based investment
partnership with over $3 billion in assets. Mr. Kass co-authored "Citibank" with
Ralph Nader and the Center for the Study of Responsive Law. He has been quoted
in the Wall Street Journal, Barron's, Forbes, Business Week, USA Today and
Investor's Business Daily and has appeared on CNBC, Lou Dobb's Moneyline on CNN
and on PBS' Nightly Business Report. Mr. Kass has also been the subject of a
cover story in Barron's and has authored several articles for that publication.
Mr. Kass provides reports on Sunday of each week and will be a part of a
new feature of the site called "The Bear Cave," where Mr. Kass and other
commentators will express their market views from a short-side or "bear"
perspective.
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Dane C. Andreef - Mr. Andreef is currently the General Partner and
Portfolio Manager of Andreef Equity, L.P., and the Managing Director and
Portfolio Manager of Andreef Overseas, LTD. Prior to establishing his own funds,
Mr. Andreef was an associate at Granite Capital International Group and prior to
that a telecommunications analyst at Furman Selz.
Mr. Andreef provides reports on investment opportunities in turnaround
companies on Sunday and Wednesday of each week.
Michael Paulenoff - Mr. Paulenoff is the President of MJP Market
Strategies, which provides intraday strategic financial market analysis to
institutional and individual clients. He has been an analyst and a participant
in the financial and commodity markets since his graduation from the Georgetown
University School of Foreign Service in 1979, working for Smith Barney, Harris
Upham, Drexel, Burnham, Lambert and Republic National Bank. He also authored The
Business-One Irwin Guide to Futures Markets.
Mr. Paulenoff's report "Rates, Reasons and Resistance" provides discussion
and analysis of U.S. and global interest rates and fixed income investments on
Tuesday and Friday of each week.
Dr. James Canton - Dr. Canton joined us in February of 2000 to host the
Tech Sector. He is a internationally recognized technology futurist, media
commentator, keynote speaker and author. For over twenty years, Dr. Canton has
been analyzing leading edge technologies. He is noted for his accurate forecasts
about technology's impact on business, markets and the economy. He is the
President of the Institute for Global Futures, a leading Think Tank that advises
the Fortune 1000. Articles about Dr. Canton have appeared in the Dow Jones News,
Wall Street Journal, NY Times and US News & World Report. Since 1998, Dr. Canton
also has been a regular Guest Host on CNN, Financial News where he reports on
the technology sector. In addition, Dr. Canton serves as an Advisor, White House
Science and Technology Task Force and is author of Technofutures: How
Leading-Edge Technology Will Transform Business in the 21st Century (Hay House,
1999).
Susan Molinari - Susan Molinari joined our news team in June 2000. In
addition to serving as one of our commentators, Ms. Molinari is Chairperson of
Washington-based Susan Molinari, L.L.C., a government affairs and strategic
communications firm with clients in the areas of telecommunications,
transportation and finance. She is also Senior Public Affairs Consultant to
Fleishman-Hillard, the global public relations firm, and regularly appears on
national television as a public affairs commentator. Ms. Molinari was a member
of Congress from 1990 to 1997. Prior to Congress, Susan Molinari was twice
elected to the New York City Council, where she was Minority Leader. In 1997,
she left Congress to co-anchor the team inaugurating "CBS News Saturday
Morning," where she conducted on-air interviews of national and international
newsmakers. Co-author of the book "Representative Mom: Balancing Budgets, Bill
and Baby in the U.S. Congress," Susan Molinari has also authored scores of
articles published by national magazines and daily newspapers on a wide variety
of subjects, ranging from the role of women in politics to national fiscal
policy.
Certain other commentators not under contract to us also supply commentary
appearing on our web site.
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 and Kate Bohner, 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 to us their current positions in any
of the stocks that they write about or otherwise take steps to insure the
integrity of their work.
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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.
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 Rumor Room - 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 Room 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 Rumor Room 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 an area of the site we refer to
as the "Trading 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.
Subscriptions
Most of the content 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.
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We also maintain our original JagNotes fax-based service for a 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 content of our web site contains all of the information provided in
the faxed reports as well as the commentaries described above and other product
offerings which do not appear in our faxed reports. Unlike the daily investment
report, the information contained on our web site is updated up to three times
throughout each weekday. The various commentaries are updated pursuant to a
schedule set forth on our web site.
We intend to continue providing our combined fax/Internet service in the
future primarily to institutional subscribers. We believe that many financial
institutions are willing to pay a higher price for this combined service because
they consider a faxed report to be a more efficient means of receiving the
information or because their employees do not have direct Internet access.
Advertising Revenue
While we expect the primary source of our revenue from our current U.S.
site to be subscriptions, we may supplement this with advertising and
sponsorship-based revenue. As we have also just begun selling advertising and
sponsorship on the site, we have not yet realized any material advertising
revenue. As we implement our marketing plan, we intend to aggressively pursue
advertisers and sponsors for portions of the site. Financial service companies
which have an Internet presence will initially be the primary target of our
sponsorship efforts.
Our webcasting service now under development will be entirely advertiser
supported, with no subscription fee.
Our Business Strategy
Our goal is to position JagNotes as a leading Internet-based worldwide
financial information provider. In time, we hope that JagNotes will become a
primary financial information resource for institutional investors and the
general public alike.
The success of our business depends on our ability to obtain the requisite
financing and be able to:
o implement our webcasting project;
o expand our subscriber base in the United States and
internationally;
o launch web sites in markets outside the United States;
o expand the range of services offered to subscribers and other
users;
o leverage the reputation of our commentators; and
o pursue acquisitions and strategic alliances.
We plan to continue to service the institutional segment of our business,
but we recognize that retail subscribers and viewers represent our largest
potential market and are the key to our development. We will use an integrated
marketing model to attract new subscribers and, to the extent funding permits,
will employ a mix of communications media to increase name awareness in the
retail market and increase visits by potential subscribers with a view to
ultimately generating new subscribers. We also now plan to use streaming media
technology in the distribution of our webcast program, which we have designed to
provide market reports, investment intelligence, news and information to viewers
through an advertising supported service.
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Establish Webcasting Business.
On February 23, 2000, we announced that, subject to financing being
available, we intend to provide streaming audio and video content to our
subscribers and other viewers over the Internet. Our webcasting program will
seek to uncover the stories that could move stocks as well as the stories behind
stocks that are already moving.
We expect to launch our webcasting business in August 2000, broadcasting
nine hours of market coverage each trading day, starting at 8:00 a.m. EST and
concluding at 5:00 p.m. EST. We have retained Jack Reilly, former vice president
of CNBC Business News and executive producer of ABC's Good Morning America
program, and Peter Barnes, a former reporter for CNBC Business News, to assist
us in developing daily programming for a webcasting network which will be named
JAGfn. We have agreed to pay Mr. Reilly and Mr. Barnes annual base salaries of
$200,000 and $175,000, respectively, for services provided to us by them in
connection with the webcasting project during the year 2000. In addition, we
have agreed to issue to Messrs. Reilly and Barnes stock options to purchase up
to an aggregate of 500,000 shares of our common stock pursuant to the terms and
conditions of their respective consulting agreements with JagNotes. We
anticipate that the initial costs of implementing our webcasting project through
the first year of operation will fall within the range of $5,000,000 and
$6,000,000.
Throughout the trading day, a team of in-house commentators will report on
market activity. The programming will replicate the format and style of sports
coverage, with its "color" and "play-by-play" analysis and real-time
improvisation. The webcast will feature the following three programs:
o an early morning program to prepare subscribers for the
opening of market trading;
o a program during market hours, offering in-depth, real-time
market coverage; and
o a program following the close of the securities markets that
emphasizes portfolio and market strategies for the next
morning's opening bell.
We intend to create a webcasting schedule which is fast-paced, informative
and entertaining. We expect coverage during trading hours to be particularly
lively and free wheeling, largely unstructured and unscripted, reflecting the
nature of the securities markets themselves. We currently expect Mr. Barnes to
serve as an anchor for the network together with JagNotes commentator and former
CNBC Business News reporter, Kate Bohner.
Initially our webcast will originate from Chelsea Television Studios on
West 26rd Street in New York City.
Additional facets of our business strategy include:
Expand Subscriber Base. Some avenues that we are exploring to attract new
subscribers include:
o Transmitting video programs over the Internet;
o Promoting web site service in our webcasts;
o Expanding on and improving our web site content;
o Offering free trial subscriptions;
o Traditional public relations;
o Using our good 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 JagNotes;
o Pursuing distribution arrangements with third party
information providers that service financial institutions and
individual investors; and
o Pursuing strategic alliances with, or acquisition of, existing
web-based information providers and other media companies.
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To implement the last three strategies, we have entered into the following
agreements:
o A short-term content licensing agreement with AltaVista
Company, pursuant to which we will provide certain selected
JAGfn.com content to AltaVista for display every weekday on
co-branded web pages hosted and served by AltaVista. This
limited content is to include on a daily basis the Rumor Room,
subject to a 15 minute delay, as well as our daily JagNotes
upgrade/downgrade report and L. Douglas Lee's "Coming
Attractions" in real time. In addition, AltaVista will provide
its users with free access in real time on selected days to
content from several of our commentators including, among
others, Dan Dorfman, Kate Bohner, Seth Tobias and Dorsey,
Wright & Associates. AltaVista will be the sole major Internet
portal with the U.S. rights to such content. In return,
AltaVista will provide a graphic link to our web site enabling
AltaVista users to subscribe directly to our entire web site.
o A one year revenue-sharing distribution agreement with Track
Data, pursuant to which Track Data will offer its customers
subscriptions to access our web site content in the form of a
live news feed. Subscribers to Track Data's online trading
service will receive a delayed news feed of our web site
content at no cost.
o A similar one year agreement with ILX Systems, a division of
Thomson Information Services, Inc., pursuant to which ILX
Systems will make available to users of its products
subscriptions to access our web site content.
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 JagNotes
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 will offer 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 will offer JAGfn.com content to
subscribers of COMTEX in exchange for royalty payments to
JagNotes.
Develop New Geographic Markets. Our Internet presence allows us to access
investors and financial information seekers worldwide. To take advantage of the
unlimited reach of the Internet, in addition to our U.S. site, subject to
financing being available, we eventually plan to have web sites serving three
key geographic regions:
o Europe
o Latin America
o Asia
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These regional web sites will offer country-specific content in each
region which will be delivered in the local language of each country. These
sites will focus on:
o Commentaries from experienced, respected and high profile
journalists, money managers, analysts and other financial
professionals from the region.
o The delivery of breaking news and potentially market moving
information from the region.
o Select financial data from local markets targeted at the
active investor and trader.
o Educational content intended to make regional subscribers
better informed about various investment matters.
All of our subscribers will have access to our U.S. and regional
sites. We have not yet determined the subscription rates for all of our regional
sites or whether subscription rates will be charged at all. Educational content
will eventually be an important component of our regional sites because online
investing has not yet penetrated these regional markets to the extent it has in
the United States, but this content will be added later.
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.
We have retained the services of various commentators for our
JagNotes-Euro site, including the following:
o Neil Bennett, City Editor of the Sunday Telegraph;
o Nicola Horlick, Managing Director of SG Asset Management;
o Michael Clarke, stock market correspondent of the Evening
Standard;
o Jason Nisse, City Editor of The Independent on Sunday;
o Stuart Rock, Editorial Director of Caspian Publishing; and
o Alan Thomas, independent money manager and stock market
analyst.
In addition, the French company Valquant provides charts for selected
European companies.
We are currently working on the establishment of our Latin American site
and intend to commence operations in Latin America during the year 2000 as
funding becomes available. Our estimated costs for establishing our Latin
American sites is approximately $4 million. To date, we also have retained the
services of three commentators, Elena Landau, Agmar Rodrigues Faria and Antonio
Delfim Netto, to provide reports on our Latin American web site once
established. Ms. Landau also serves as a consultant with respect to our Latin
American operations and will have a 5% equity interest in our Latin American
subsidiary when it is established.
Web Site Development. Our goal is to develop 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 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. Additional features we plan to
offer include:
o Additional specialized commentators
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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
o An expanded fixed income section providing more commentary and
data on corporate and government bonds
Leverage the Reputation of our Commentators. Because most of our
commentators are high profile individuals in the financial world, we plan to use
their association with JagNotes as a marketing tool. Many of our commentators
are frequent guests on television and radio financial programs and we expect
that this exposure should further enhance the reputation of our commentators and
our site.
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 currently pursuing alliances
with investment firms, online brokerage houses, market news providers, web
portals and cable television networks in an effort to obtain additional content,
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 approximately $62,000. 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.
Note: These are our strategies, goals and targets. We believe in them, but
we cannot guarantee that we will be successful in implementing them or that,
even if implemented, they will be effective in creating a profitable business.
In addition we are dependent on having sufficient cash to carry out our
strategy. Please read "Risk Factors" beginning on page 9 before making any
investment decision.
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.
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:
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o Online financial news and information providers including
TheStreet.com, MarketWatch.com, The Motley Fool, FT.com, European
Investor.com, Worldly Investor.com and Hemmington-Scott.com
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
o Internet portals and search engines such as America Online and Yahoo
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.
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 valuable services at a competitive price to a large subscriber
base. We believe that a successful implementation of our business strategy will
allow us to do so and to compete successfully as a leading financial and
investment information provider.
Web Site Technical Information
We lease five web servers, which are the computer systems on which all
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 servers for our Euro site
are maintained by Exodus Communications in their Jersey City, New Jersey
facility. Our two back-up servers are maintained by Above.net and PC
Communications and are located in San Jose, California and Jersey City, New
Jersey.
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.
site and assist us in placing content on that site. Our European web site is
designed and maintained by Blue Tac, Ltd.
Employees
As of June 30, 2000, we had 30 employees. As of that date, we had entered
into employment agreements with seven of our employees, none of whom are
officers or directors of JagNotes.
Facilities
We lease an office suite located in an office building at 1415 Wyckoff
Road, Second Floor, Farmingdale, New Jersey 07727. The space houses 10 employees
and is approximately 3,736 square feet. This space houses certain of our
executive and administrative personnel and related administrative equipment.
This office does not house the servers for the site, which are housed at
separate locations as indicated above (see "Web Site Technical
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Information"). Our lease for this office space expires on October 31, 2001. We
believe that we will be able to obtain a suitable replacement for this space on
commercially reasonable terms if our lease is not renewed.
We have paid a deposit to Chelsea Television Studios pursuant to a letter
of intent relating to a lease 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 26rd Street, New York, New York. This space will house the
production of our webcasting service. We expect to pay approximately $2,700,000
for rent and labor costs associated with this space, although the terms and
conditions of our proposed lease with Chelsea Television Studios have not yet
been finalized. Certain executive and administrative staff personnel currently
occupy office space at this facility.
JagNotes-Euro.com, Ltd., our wholly owned subsidiary, leases a full
service office suite located at 60 Lombard Street, Suite 3.16, London EC3. We
have leased this space on a short-term basis, which we can renew until such time
as we can determine what permanent facilities we require.
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.
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.
42
<PAGE>
MANAGEMENT AND EXECUTIVE COMPENSATION
Management
Following is certain information about our executive officers and
directors. We have not entered into employment agreements with any of our
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
JagNotes' Board of Directors. 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.
Executive Compensation
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 and 1999.
Except as listed in the table below, no executive officer holding office in
fiscal year 1999 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.
43
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------------------------
Other
Fiscal Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
----------------------------------- ---------- ----------------------- ---------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Gary Valinoti, President, Chief 1999 $110,550 - - -
Executive Officer and director 1998 $110,550 - - -
----------------------------------- ---------- ----------------------- ---------------------- ------------------- ------------------
Jeffrey Goss (Mr. Goss served as 1999 $110,550 - - -
Secretary and Vice President of
JagNotes, Inc. until June 2000, 1998 $110,550 - - -
but is no longer employed by
JagNotes.).
----------------------------------- ---------- ----------------------- ---------------------- ------------------- ------------------
Anthony Salandra (Mr. Salandra 1999 $110,550 - - -
served as President and director
of JagNotes, Inc. during fiscal 1998 $110,550 - - -
year 1999, but is no longer
employed by JagNotes).
----------------------------------- ---------- ----------------------- ---------------------- ------------------- ------------------
Barry Belzer (Mr. Belzer served 1999 $110,550 - - -
as Secretary and director of
JagNotes, Inc. during fiscal year 1998 $110,550 - - -
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.
Director Compensation
We currently do not compensate our directors.
1999 Long-Term Incentive Plan
In October, 1999 the 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;
44
<PAGE>
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.
The plan will generally be administered by a committee appointed by the
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 April
30, 2000, the number of shares deliverable upon exercise of incentive stock
options was limited to 2,217,301. 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 April 30, 2000 there were a total of 810,500 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 the board of directors without the consent of
JagNotes' 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 JagNotes' 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.
JagNotes 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 this
registration statement, and should not apply to certain options, stock
appreciation rights and performance-based awards granted thereafter if JagNotes
complies with certain requirements under Section 162(m).
Employment Contracts
We have not entered into employment agreements with any of our officers.
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,
45
<PAGE>
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.
46
<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 the date of this prospectus 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 "Management 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)
1415 Wyckoff Road, Second Floor
Farmingdale, New Jersey 07727 3,155,500(2) 21.4%
------------------------------------------------------ ------------------------------------------------- ---------------------------
Stephen Russo (Chief Financial Officer)
1415 Wyckoff Road, Second Floor
Farmingdale, New Jersey 07727 0 0
------------------------------------------------------ ------------------------------------------------- ---------------------------
Thomas Mazzarisi (Executive Vice President, General
Counsel and Director)
1415 Wyckoff Road, Second Floor
Farmingdale, New Jersey 07727 110,000 x
------------------------------------------------------ ------------------------------------------------- ---------------------------
Stephen Schoepfer (Executive Vice President, Chief
Operating Officer and Director)
1415 Wyckoff Road, Second Floor
Farmingdale, New Jersey 07727 75,000 x
------------------------------------------------------ ------------------------------------------------- ---------------------------
All executive officers and directors as a group
(5 persons) 3,320,500 23.0%
------------------------------------------------------ ------------------------------------------------- ---------------------------
</TABLE>
x Less than one percent.
(1) Based on 14,782,005 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.
47
<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 Thompson Kernaghan & Co., Ltd. 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 The May Davis Group. Inc.
("May Davis") and five of its affiliates, Robert Farrell, Mark A. Angelo, C. Max
Rockwell, Joseph Donahue and Hunter S. Singer, upon exercise of stock purchase
warrants. The address of CALP II is c/o Thompson Kernaghan & Co., Ltd., 365 Bay
Street, 10th Floor, Toronto, Ontario M5H 2V2. The address of Thompson Kernaghan
& Co., Ltd. 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 8% 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; and
o upon exercise of a stock option to acquire 500,000 shares of common
stock; and
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, Thompson Kernaghan & Co., Ltd. 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 July 13, 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 8% Convertible Debenture as of July 10, 2000
and offer all the resulting shares of common stock for sale. If the 8%
Convertible Debenture were converted in full as of July 10, 2000, CALP II would
be entitled to acquire approximately 2,358,491 shares of our common stock, or
approximately 14% of the number of shares of common stock that were then
outstanding after the conversion; however, because the terms and conditions of
the 8% Convertible Debenture restrict CALP II from acquiring in excess of 10% of
the outstanding shares of our common stock upon conversion, we only would be
required to issue 1,642,445 shares of common stock to CALP II. The actual number
of shares of common stock issuable upon conversion of the 8% 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 53. We agreed to
register at least 5,000,000 shares in connection with the issuance of the 8%
Convertible Debenture; the additional shares covered by this prospectus for sale
by CALP II
48
<PAGE>
are to accommodate the possibility that the actual number of shares issuable
upon conversion of the 8% 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 8% Convertible
Debenture. CALP II's determination whether to hold or convert the 8% 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.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK MAXIMUM NUMBER OF SHARES TO BE SHARES OF COMMON STOCK TO BE
BENEFICIALLY OWNED PRIOR TO SOLD PURSUANT TO THIS BENEFICIALLY OWNED AFTER THE
NAME OF SELLING STOCKHOLDER THE OFFERING PROSPECTUS (1) OFFERING (1)
--------------------------- --------------------------- ------------------------------ ----------------------------
Number Percent
------ -------
<S> <C> <C> <C> <C>
CALP II Limited Partnership 2,765,020(2) 17,428,571(3) 0 0
Thompson 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 4,790,020 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) 2,336,449 shares of common stock which may be acquired if the
8% Convertible Debenture were converted in full as of July 13, 2000 and
(ii) 428,571 shares of our common stock which may be acquired upon the
exercise of a stock purchase warrant.
(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, (ii) up to 5,000,000 shares to be issued in connection with the
conversion of an 8% 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.
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
49
<PAGE>
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.
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) $388,889 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>
<CAPTION>
$ 1.00 $ 1.50 $ 2.00 $ 2.50 $ 3.00
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 June 14, 2000, we had 14,782,005 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:
50
<PAGE>
<TABLE>
<CAPTION>
Average Daily Number of
Volume Traded Market Price Advance Amount Purchase Price Shares Issued
<S> <C> <C> <C> <C>
$20,000 $1.00 $30,000(1) $0.85 35,294
$57,532(2) $1.41(3) $75,000(5) $1.20 62,500
$57,532(2) $1.41(3) $388,889(6) $1.20 324,074
$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 our put right was
exercised on July 19, 2000.
(3) Represents the Market Price of our common stock assuming our put right was
exercised on July 19, 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 $388,889 as permitted by an
amendment to our credit 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.
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 $350,000, net of any
placement agent fees due to The May Davis Group, Inc. and Thompson Kernaghan &
Co., Ltd., 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.
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.
In connection with the equity line of credit agreement, we agreed to pay
to The May Davis Group, Inc. and Thompson Kernaghan & Co., Ltd., 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.
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);
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<PAGE>
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.
8% Convertible Debenture Due June 12, 2003, 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 $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 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
8% Convertible Debenture and may be offered and sold from time to time by CALP
II.
If the registration statement of which this prospectus is a part is not
declared effective by the SEC by October 10, 2000, the conversion price of the
8% Convertible Debenture will be reduced by 2% for the first 30 days following
such date and an additional 2% each 30 days thereafter until the registration
statement is declared effective by the SEC. In addition, if, after the
registration statement 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.
In addition to the shares issuable upon conversion of the 8% 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 Thompson Kernaghan & Co., Ltd.
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.
The selling stockholders and any underwriter, dealer or agent who
participates in the distribution of the shares issuable upon conversion of the
8% 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
52
<PAGE>
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 8% 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.
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,
53
<PAGE>
may be deemed to be underwriting discounts and commissions under the Securities
Act if the broker-dealers purchase shares as principal.
DESCRIPTION OF SECURITIES
Common Stock
JagNotes' Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock, $.00001 par value, of which 14,782,005 shares were
outstanding as of June 14, 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 a liquidation, dissolution or
winding up of JagNotes, the holders of shares of 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.
8% Convertible Debenture Due June 12, 2003
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 $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
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 8% Convertible Debenture we have agreed to deposit
2,000,000 shares of our common stock in a segregated account with Thompson
Kernaghan & Company, Ltd. If an event of default takes place under the 8%
Convertible Debenture, CALP II shall be entitled to foreclose on these shares.
Upon conversion of the 8% Convertible Debenture, the shares held in escrow will
be returned to us pro rata in accordance with the conversion amount.
If the registration statement of which this prospectus is a part is not
declared effective by the SEC by October 10, 2000, the conversion price of the
8% Convertible Debenture will be reduced by 2% for the first 30 days following
such date and an additional 2% each 30 days thereafter until the registration
statement is declared effective by the SEC. In addition, if, after the
registration statement 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.
Options
As of April 30, 2000, there were options outstanding to purchase an
aggregate of 1,635,500 shares of JagNotes' common stock (including 500,000
shares being registered hereunder) at exercise prices ranging from $2.00 to
$3.50 per share , subject to certain vesting requirements, at any time prior to
various dates through April 2010, provided, however, that certain of these
options will expire prior to such dates upon the termination of certain
contracts with us.
Warrants
As of July 13, 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 275,000 shares of our common stock at $2.00 per
share, at any time prior to June 12, 2005, which shares are being
registered hereunder;
54
<PAGE>
o a warrant to purchase 428,571 shares of our common stock at $1.75
per share, at any time prior to June 12, 2005, which shares are
being registered hereunder; and
o warrants to purchase 1,250,000 shares of our common stock at $2.00
per share, at any time prior to July 21, 2005, which shares are
being registered hereunder.
Registrar and Transfer Agent
The registrar and transfer agent for JagNotes' 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 will be 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.
EXPERTS
JagNotes' consolidated financial statements as of July 31, 1999 and for
the year 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.
JagNotes' consolidated financial statements for the year ended July 31,
1998 have been audited by Stephen R. Russo, CPA, independent certified public
accountant, and have been included in this prospectus in reliance upon his
report (which is also included in this prospectus) and upon his authority as an
expert in accounting and auditing.
In April 1999 Stephen Russo, CPA, resigned as JagNotes' independent public
accountant in order to join JagNotes as its Chief Financial Officer. The report
issued by Mr. Russo on JagNotes' financial statements for the fiscal year ended
July 31, 1998 did not contain any adverse opinion or disclaimer of opinion and
was not qualified as to audit scope or accounting principles, nor were there any
material disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure during these years.
At JagNotes' request, Mr. Russo has furnished JagNotes with a letter
addressed to the Securities and Exchange Commission stating that he agrees with
the foregoing statements. This letter is attached as an exhibit to the
registration 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.
55
<PAGE>
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.
56
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants F-2/3
Consolidated Balance Sheet
July 31, 1999 F-4
Consolidated Statements of Operations
Years Ended July 31, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended July 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows
Years Ended July 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8/14
Condensed Consolidated Balance Sheets
April 30, 2000 (Unaudited) and July 31, 1999 F-15
Condensed Consolidated Statements of Operations
Nine and Three Months Ended April 30, 2000 and 1999 (Unaudited) F-16
Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended April 30, 2000 (Unaudited) F-17
Condensed Consolidated Statements of Cash Flows
Nine Months Ended April 30, 2000 (Unaudited) F-18
Notes to Condensed Consolidated Financial Statements F-19/27
</TABLE>
* * *
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 (formerly JagNotes, Inc.) as of July 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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. as
of July 31, 1999, and their results of operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
As described in Note 7 to the consolidated financial statements, the Company has
restated the 1999 consolidated financial statements to reflect the appropriate
amount of compensation expense related to the issuance of certain stock options.
J.H. COHN LLP
Roseland, New Jersey
October 8, 1999
F-2
<PAGE>
Report of Certified Public Accountant
To the Board of Directors and Stockholders
JagNotes.com Inc.
I have audited the accompanying consolidated statements of operations,
stockholders' equity (deficiency) and cash flows of JagNotes.com Inc. and
Subsidiary (formerly JagNotes, Inc.) for the year ended July 31, 1998. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
JagNotes.com Inc. and Subsidiary for the year ended July 31, 1998, in conformity
with generally accepted accounting principles.
Stephen R. Russo, CPA
Nanuet, New York
October 12, 1998
F-3
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Consolidated Balance Sheet
July 31, 1999
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $6,078,922
Accounts receivable 18,900
Other current assets 753,532
----------
Total current assets 6,851,354
Equipment, net of accumulated depreciation of $17,484 2,603
Capitalized software development costs, net of accumulated
amortization of $16,084 243,280
Other assets 12,004
----------
Total $7,109,241
==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 131,395
Deferred revenues 283,222
----------
Total liabilities 414,617
----------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.00001 per share; 13,996,290
shares issued and outstanding 140
Additional paid-in capital 10,920,215
Unearned compensation (3,015,388)
Accumulated deficit (1,210,343)
----------
Total stockholders' equity 6,694,624
----------
Total $7,109,241
==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Consolidated Statements of Operations
Years Ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Subscription revenues $ 800,716 $932,553
Cost of revenues 628,758 112,362
------------ ------------
Gross profit 171,958 820,191
------------ ------------
Operating expenses:
Selling expenses 292,261 38,115
General and administrative expenses 894,922 744,577
------------ ------------
Totals 1,187,183 782,692
------------ ------------
Income (loss) from operations (1,015,225) 37,499
Interest income 60,873
------------ ------------
Income (loss) before income taxes (954,352) 37,499
Provision for income taxes 73,940 34,850
------------ ------------
Net income (loss) $ (1,028,292) $ 2,649
============ ============
Basic net earnings (loss) per share $(.11) $ -
===== ======
Basic weighted average common shares outstanding 9,237,693 3,500,000
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Consolidated Statements of Stockholders' Equity (Deficiency)
Years Ended July 31, 1999 and 1998
<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, 1997 3,500,000 $73,445 $ (184,700) (111,255)
Net income 2,649 2,649
---------- --------- ----------- ----------
Balance, July 31, 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
========== ========= =========== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Consolidated Statements of Cash Flows
Years Ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $(1,028,292) $ 2,649
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 17,059 1,336
Amortization of unearned compensation 271,462
Deferred income taxes 73,940 8,135
Changes in operating assets and liabilities:
Accounts receivable 44,654 1,967
Other current assets (753,532)
Other assets (12,004)
Accounts payable and accrued expenses 55,664 (10,652)
Deferred revenues 78,535 (6,335)
----------- -----------
Net cash used in operating activities (1,252,514) (2,900)
----------- -----------
Investing activities:
Net repayments of loans to officer 24,839 396
Software development costs capitalized (259,364)
------------ -----------
Net cash provided by (used in) investing activities (234,525) 396
------------ ----------
Financing activities - net proceeds from private placements of
units of common stock and warrants 7,560,060
-----------
Net increase (decrease) in cash and cash equivalents 6,073,021 (2,504)
Cash and cash equivalents, beginning of year 5,901 8,405
----------- -----------
Cash and cash equivalents, end of year $ 6,078,922 $ 5,901
=========== ===========
Supplemental disclosure of cash flow information:
Income taxes paid $ 32,785 $ 26,715
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
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.JagNotes.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. 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.
The "Company" as used herein refers to JNI prior to March 16,
1999 and JagNotes together with JNI subsequent to that date.
F-8
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 2 - Summary of significant accounting policies:
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 JagNotes as of July 31, 1999 and for the
period from March 16, 1999 to July 31, 1999, the accounts of
JNI, its wholly-owned subsidiary, as of July 31, 1999 and
for the years ended July 31, 1999 and 1998 and the accounts
of JagNotes-Euro.com, Ltd., its other wholly-owned
subsidiary, as of July 31, 1999 and for the period from July
8, 1999 (the date of its inception) to July 31, 1999. All
significant intercompany accounts and transactions have been
eliminated in consolidation. On August 16, 1999, JNI was
merged into JagNotes.
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 five to seven years.
Capitalized software costs:
The Company capitalizes the costs of purchased software
which is ready for service. Costs of purchased software are
amortized using the straight-line method over their
estimated useful lives which do not exceed three years.
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 software 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-9
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 2 - Summary of significant accounting policies (concluded):
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations
amounted to $182,597 and $27,198 for 1999 and 1998,
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.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and,
if applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS 128"). Basic earnings
(loss) per share is calculated by dividing net income or
loss by the weighted average number of shares 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 consolidated statements of operations because:
(i) the Company did not have any potentially dilutive common
shares as of July 31, 1998 and (ii) the Company had a net
loss in 1999 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.
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, 1999 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 as of July 31, 1999 and/or during the years ended
July 31, 1999 and 1998.
F-10
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 3 - Loans receivable from officer:
Loans receivable from an officer, which totaled $24,839 at July
31, 1998, were noninterest bearing and repaid during 1999.
Note 4 - Income taxes:
As of July 31, 1999, the Company had net operating loss
carryforwards of approximately $538,000 available to reduce
future Federal taxable income which will expire in 2019. The
Company did not have any net operating loss carryforwards as of
July 31, 1998 and 1997.
As of July 31, 1999 and 1998, the Company's deferred tax assets
consisted of the effects of temporary differences attributable
to the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred revenues, net $ 105,600 $ 56,365
Goodwill 11,200 17,575
Unearned compensation 108,400
Net operating loss carryforwards 214,800
---------- ----------
440,000 73,940
Less valuation allowance (440,000)
---------- ----------
Totals $ - $ 73,940
========== ==========
</TABLE>
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 July 31, 1999.
In 1999 and 1998, the Company's provisions for income taxes
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Federal:
Current $ 19,823
Deferred $ 57,280 6,300
---------- ----------
Totals 57,280 26,123
---------- ----------
State:
Current 6,892
Deferred 16,660 1,835
---------- ----------
Totals 16,660 8,727
---------- ----------
Totals $ 73,940 $ 34,850
========== ==========
</TABLE>
F-11
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 4 - Income taxes (concluded):
The provisions for income taxes differ from the amounts computed
using the Federal statutory rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<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 15
Valuation allowance 41
Nondeductible life insurance and other expenses 45
Other (primarily surtax exemptions) (1)
---- ----
Totals 8 % 93 %
==== ====
</TABLE>
Note 5 - 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 1999. Contributions aggregated approximately $51,000 in
1998.
Note 6 - Fair value of financial instruments:
The Company's material financial instruments at July 31, 1999
for which disclosure of estimated fair value is required by
certain accounting standards consisted of cash and cash
equivalents, accounts receivable and accounts payable. 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, 1999 because of their
liquidity and/or their short-term maturities.
Note 7 - Other issuances of common stock and stock options:
During 1999, the Company 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. The sales were made through
private placements exempt from registration under the Securities
Act of 1933. Each warrant entitles the holder to purchase one
share of common stock at $14.00 per share through April 2000.
All of the warrants sold remained outstanding as of July 31,
1999.
F-12
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 7 - Other issuances of common stock and stock options (concluded):
From March 1, 1999 through July 31, 1999, the Company entered
into consulting agreements with several investment analysts and
commentators. Most agreements have an initial term of one year
and are renewable at the option of the Company for an additional
year. During 1999, as part of the consideration paid or to be
paid pursuant to these agreements, (i) the Company issued a
total of 20,000 shares of common stock with a fair value of
$147,500 and options to purchase a total of 335,000 shares of
common stock at $2.00 per share that expire at various dates
through July 2009 with a fair value of $1,826,850 to the
consultants; and (ii) 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 fair value of the
options was determined using the minimum value method in
accordance with the guidance in Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, using the Black-Scholes option-pricing model and
assuming a risk-free interest rate of 6%, expected dividends of
0%, expected option lives of five years and expected volatility
of 0%. The transfer of the shares by the executive officer to
the consultant on behalf of the Company has been accounted for,
effectively, as a donation of the shares to the Company's
capital and the reissuance of the shares as a payment for the
services.
Accordingly, the Company recorded a total of $3,286,850 as
unearned compensation based on the fair value of the common
shares and stock options issued to the consultants by the
Company and the executive officer in 1999 which is being
amortized to expense on a straight-line basis over the initial
one year term of each consulting agreement. A total of $271,462
was amortized during 1999 and the balance of $3,015,388 has been
reflected as a reduction of stockholders' equity as of July 31,
1999. The accompanying 1999 consolidated financial statements
have been restated from those originally issued by the Company
to correct an understatement of the fair value of the stock
options issued to the consultants by the Company that was
originally charged to unearned compensation of $1,608,650, and
an understatement of the amount amortized of $113,000, in 1999.
The effect of the correction of the misstatement was to increase
net loss and net loss per share by $113,000 and $.01,
respectively, in 1999.
Note 8 - Commitments and contingencies:
Concentrations of credit risk:
Financial instruments which subject the Company to
concentrations of credit risk consist primarily of cash and
cash equivalents and accounts receivable. The Company
maintains cash and cash equivalents in bank deposit and
other accounts the balances of which, at times, may exceed
Federally insured limits. At July 31, 1999, the Company had
balances in excess of Federally insured limits in the amount
of $5,978,922. Exposure to credit risk is reduced by placing
such deposits or other temporary investments in high quality
financial institutions.
F-13
<PAGE>
JagNotes.com Inc. and Subsidiaries
(Formerly JagNotes, Inc.)
Notes To Consolidated Financial Statements
Note 8 - Commitments and contingencies (concluded):
Concentrations of credit risk (concluded):
The Company performs ongoing credit evaluations of its
customers. Generally, the Company does not require any
collateral. The Company establishes an allowance for
doubtful accounts receivable based upon factors surrounding
the credit risk of customers, historical trends and other
information. Through July 31, 1999, losses arising from
uncollectible accounts had not been material.
Consulting agreements:
As of July 31, 1999, the Company was obligated to make cash
payments aggregating approximately $227,000 during the year
ending July 31, 2000 to consultants in conjunction with the
agreements described in Note 7.
Office lease:
During the year ended July 31, 1999, the Company leased
office space on a month-to-month basis. Total rent expense
was approximately $43,000 in 1999.
Web site development costs:
As of July 31, 1999, the Company had contractual obligations
aggregating approximately $115,000 for services to be
rendered subsequent to that date in connection with the
on-going development of its web site.
Note 9 - Subsequent events:
From August 1, 1999 through October 8, 1999, the Company entered
into consulting agreements with several other investment
analysts and commentators (see Notes 7 and 8). 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 $110,000 and issuances of options to
purchase 80,000 shares of the Company's common stock at $2.00
per share that will expire at various dates through October
2009.
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: (1) stock options, (2) stock appreciation rights and (3)
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. The number of
shares that may be subject to awards of incentive stock options
is limited to 2,096,444.
* * *
F-14
<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
============= =============
Liabilities and Stockholders' Equity
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-15
<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-16
<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-17
<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-18
<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-19
<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 elsewhere herein. 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
included elsewhere herein.
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 make
significant cash expenditures through at least April 30, 2001.
F-20
<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. If
the Company requires additional funding over and above the
financing arrangements described in Note 8 and such financing is
not available, the conditions described above, among others,
would have raised substantial doubts about the Company's ability
to continue as a going concern. Therefore, the Company may be
forced to restructure, file for bankruptcy or cease operations.
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-21
<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 a 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:
<TABLE>
<CAPTION>
April 30, July 31,
2000 1999
----------- ---------
<S> <C> <C>
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 $ - $ -
=========== =========
</TABLE>
F-22
<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:
<TABLE>
<CAPTION>
Year Ending
January 31, Consulting Employment Total
-------------- ------------- ---------------- -------------
<S> <C> <C> <C>
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
========== ======== ==========
</TABLE>
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-23
<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-24
<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-25
<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). As collateral for the debenture, the
Company agreed to deposit 2,000,000 shares of its common
stock in a segregated account with Thompson Kernaghan & Co.,
Ltd, one of the placement agents for the transaction. If an
event of default takes place under the debenture, the
investor shall be entitled to foreclose on these shares.
Upon conversion of the debenture, the shares held in escrow
will be returned to the Company pro rata in accordance with
the conversion amount. The purchaser of the debenture also
received a warrant to purchase 428,571 shares of the
Company's common stock at a price of $1.75 per share during
the five year period subsequent to the date of issuance.
F-26
<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
preceding paragraph. However, the Company is entitled to a
minimum drawdown of $350,000, net of placement agent
commissions, every 15 days under the equity line. The
Company also agreed to issue to the investor on each date on
which the investor advances funds to the Company under the
equity line a warrant to purchase a number of shares 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 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.
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 275,000 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.
Pursuant to an agreement with a consultant entered into on
July 21, 2000, the consultant and certain of its affiliates
received five-year stock purchase warrants to acquire up to
an aggregate of 1,250,000 shares of the Company's common
stock at $2.00 per share in exchange for investment banking
services rendered to the Company.
F-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
The Articles of Incorporation of JagNotes provide for the indemnification of
the directors, officers, employees and agents of JagNotes 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 will be paid by JagNotes.
Recent Sales of Unregistered Securities.
JagNotes has made the following sales of unregistered securities within
the last three years:
On July 21, 2000, we entered into a consulting agreement with The May
Davis Group, Inc. pursuant to which we issued warrants to acquire an aggregate
of 1,250,000 shares of our common stock 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 of 1933 pursuant to Section
4(2) thereof.
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, a
Canadian investor. The issuance of such securities was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Regulation S
promulgated thereunder.
On June 14, 2000, we entered into a $10,000,000 Equity Line of Credit
Agreement with CALP II, a Canadian investor, pursuant to which we can put our
shares, once registered with the SEC, 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. In connection with the Equity Line of Credit Agreement, we issued CALP II
a five-year stock purchase warrant to purchase 428,571 shares of our common
stock. We have agreed to pay a 10% finders' fee and issue warrants to acquire
250,000 shares of our common stock to certain placement agents in connection
with this transaction. The investments under the Equity Line of Credit Agreement
will be made in reliance upon Regulation S.
<PAGE>
On March 15, 2000, we entered into a consulting agreement with M.S.
Farrell & Co., Inc. 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 of 1933 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 a stock option to acquire
500,000 shares of our common stock to Strategic Growth International in exchange
for investor relations sevices. The issuance of such securities was exempt from
registration under the Securities Act of 1933 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 during the three month
period ended April 30, 2000. A 10% fee was paid to the placement agent out of
the each drawdown. The issuance of such securities was exempt from registration
under the Securities Act of 1933, as amended, 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 of 1933
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 of 1933 pursuant to Section 4(2) thereof and/or Rule
506 of Regulation D promulgated thereunder.
In March 1999, the Company (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 of 1933 pursuant to Rule 504 of
Regulation D promulgated thereunder.
In March 1999 the Company (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 of 1933
pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.
In March and April 1998 the Company (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 of 1933
pursuant to Rule 504 of Regulation D promulgated thereunder.
In December 1997 the Company (then known as Professional Perceptions,
Inc.) sold 3,100,000 shares of common stock to the three founders of the Company
in exchange for $5,275. The issuance of such securities was exempt from
registration under the Securities Act of 1933 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)
II-2
<PAGE>
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.
5.1 Opinion of Thomas J. Mazzarisi, Esq.
10.1 1999 Long Term Incentive Plan (3)
10.2 Agreement, dated as of March 14, 2000, by and between the Company
and Strategic Growth International, Inc. (4)
10.3 Consulting Agreement, dated as of March 15, 2000, by and between the
Company and M.S. Farrell & Co., Inc. (4)
10.4 Securities Purchase Agreement, dated as of June 12, 2000, by and
between the Company and CALP II Limited Partnership (5)
10.5 Equity Line of Credit Agreement, dated as of June 14, 2000, by and
between the Company 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 the Company and CALP
II Limited Partnership
10.7 Placement Agency Agreement, dated as of June 12, 2000, by and
between the Company and Thompson Kernaghan and Company, Ltd. (5)
10.8 Placement Agency Agreement, dated as of June 12, 2000, by and
between the Company and May Davis Group, Inc. (5)
10.9 Consulting Agreement, dated as of July 21, 2000, by and between the
Company and The May Davis Group, Inc.
16.1 Letter Regarding Change in Certifying Accountant (1)
21.1 List of Subsidiaries
23.1 Consent of J.H. Cohn LLP
23.2 Consent of Stephen Russo, CPA
23.3 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 the Company's Registration Statement on
Form SB-2 filed on July 30, 1999.
(2) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 filed on September 30, 1999.
(3) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form SB-2 filed on October 26, 1999.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB filed on June 16, 2000.
(5) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed on June 16, 2000.
(6) Previously filed as an exhibit to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 filed on June 22, 2000.
II-3
<PAGE>
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.
(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.
II-4
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Farmingdale, State of New Jersey on July 24, 2000.
JAGNOTES.COM INC.
By: /s/ Gary Valinoti
-------------------------------------
Gary Valinoti
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 July 24, 2000
-------------------------------
Gary Valinoti, President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Stephen Russo July 24, 2000
-------------------------------
Stephen Russo, Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas Mazzarisi July 24, 2000
-------------------------------
Thomas Mazzarisi, Executive Vice President,
General Counsel and Director
/s/ Stephen Schoepfer July 24, 2000
-------------------------------
Stephen Schoepfer, Executive Vice President,
Chief Operating Officer, Secretary and Director
