<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
Quarterly Report Pursuant To Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended January 31, 2000.
Commission File Number 000-28761.
JAGNOTES.COM INC.
(Exact name of Registrant as specified in its Charter)
Nevada 88-0380546
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1415 Wyckoff Road, 2nd Floor
Farmingdale, New Jersey 07727
(Address of Principal Executive Offices)
(732) 919-0078
(Issuer's Telephone Number, Including Area Code)
-----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of March 16, 2000, the registrant had 14,424,861 shares of common
stock outstanding.
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
JagNotes.com Inc. and Subsidiaries
PAGE
Condensed Consolidated Balance Sheets at January 31, 2000
(Unaudited) and July 31, 1999 F-2
Condensed Consolidated Statements of Operations
Six and Three Months Ended January 31, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders'
Equity Six Months Ended January 31, 2000 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows
Six Months Ended January 31, 2000 (Unaudited) F-5
Notes to Condensed Consolidated Financial Statements F-6/11
Item 2. Management's Discussion and Analysis or Plan of Operation 12-21
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
* * *
F-1
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
January 31, 2000 (Unaudited) and July 31, 1999
<TABLE>
<CAPTION>
January July
Assets 31, 2000 31, 1999
------------ ------------
(Unaudited) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,664,217 $ 6,078,922
Accounts receivable 71,400 18,900
Other current assets 1,211,506 753,532
------------ ------------
Total current assets 4,947,123 6,851,354
Equipment, net of accumulated depreciation of $23,381
and $17,484 55,747 2,603
Capitalized software development costs, net of accumulated
amortization of $68,365 and $16,084 365,999 243,280
Other assets 12,004 12,004
------------ ------------
Totals $ 5,380,873 $ 7,109,241
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 118,386 $ 131,395
Deferred revenues 206,306 283,222
------------ ------------
Total liabilities 324,692 414,617
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.00001 per share; 14,424,861
and 13,996,290 shares issued and outstanding 144 140
Additional paid-in capital 16,346,146 10,920,215
Subscriptions receivable (1,250,000)
Unearned compensation (3,665,640) (3,015,388)
Accumulated deficit (6,374,469) (1,210,343)
------------ ------------
Total stockholders' equity 5,056,181 6,694,624
------------ ------------
Totals $ 5,380,873 $ 7,109,241
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Six and Three Months Ended January 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended January 31, Ended January 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Subscription revenues $ 627,696 $ 423,731 $ 321,590 $ 194,463
Cost of revenues 3,068,352 65,080 1,716,041 20,427
------------ ------------ ------------ ------------
Gross profit (loss) (2,440,656) 358,651 (1,394,451) 174,036
------------ ------------ ------------ ------------
Operating expenses:
Selling expenses 943,944 6,414 504,118 2,963
General and administrative expenses 1,877,730 293,330 1,213,868 143,059
------------ ------------ ------------ ------------
Totals 2,821,674 299,744 1,717,986 146,022
------------ ------------ ------------ ------------
Income (loss) from operations (5,262,330) 58,907 (3,112,437) 28,014
Interest income 98,204 42,303
------------ ------------ ------------ ------------
Income (loss) before income taxes (5,164,126) 58,907 (3,070,134) 28,014
Provision for income taxes 31,984 14,711
------------ ------------ ------------ ------------
Net income (loss) $ (5,164,126) $ 26,923 $ (3,070,134) $ 13,303
============ ============ ============ ============
Basic net earnings (loss) per share $ (.37) $ .01 $ (.22) $ --
============ ============ ============ ============
Basic weighted average common
shares outstanding 14,031,288 3,500,000 14,066,166 3,500,000
============ ============ ============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended January 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------- Additional
Number of Paid-in Subscriptions Unearned Accumulated
Shares Amount Capital Receivable Compensation Deficit Total
------ ------ ------- ---------- ------------ ------- -----
<S> <C> <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 $150,040 428,571 4 1,349,956 1,349,960
Effects of issuance of stock
options in exchange for
services 2,825,975 (2,825,975)
Amortization of unearned
compensation 2,175,723 2,175,723
Subscriptions for the purchase
of 357,144 shares, net of
estimated expenses of $125,000 1,250,000 $ (1,250,000)
Net loss (5,164,126) (5,164,126)
---------- ---- ----------- ------------ ----------- ------------ -----------
Balance, January 31, 2000 14,424,861 $144 $16,346,146 $ (1,250,000) $(3,665,640) $ (6,374,469) $ 5,056,181
========== ==== =========== ============ =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
JagNotes.com Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended January 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $(5,164,126) $ 26,923
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 5,897
Amortization of software costs 52,281
Amortization of unearned compensation 2,175,723
Deferred income taxes 7,040
Changes in operating assets and liabilities:
Accounts receivable (52,500) 7,943
Other current assets (457,974)
Accounts payable and accrued expenses (13,009) (13,818)
Deferred revenues (76,916) (25,580)
----------- -----------
Net cash provided by (used in)
operating activities (3,530,624) 2,508
----------- -----------
Investing activities:
Software development costs capitalized (175,000) (2,500)
Purchases of equipment (59,041)
----------- -----------
Net cash used in investing activities (234,041) (2,500)
----------- -----------
Financing activities - net proceeds from private
placements of common stock 1,349,960
-----------
Net increase (decrease) in cash and cash
equivalents (2,414,705) 8
Cash and cash equivalents, beginning of period 6,078,922 5,901
----------- -----------
Cash and cash equivalents, end of period $ 3,664,217 $ 5,909
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and basis of presentation:
JagNotes.com Inc. ("JagNotes") was originally incorporated during
1997 in Nevada as Professional Perceptions, Inc. to develop
operations as a consultant to retailers. However, JagNotes never
generated any significant revenues or expenses in connection with
such operations and it was inactive at the time of the exchange of
shares described below.
JagNotes, Inc. ("JNI") and its predecessors have been providing
financial and investment information within the financial community
since 1989. It operated as an unincorporated business from 1989 until
August 1992 when it was incorporated in New Jersey as NewJag, Inc.
Its name was changed to JagNotes, Inc. in December 1993. JNI gathers
and compiles information from contacts at financial institutions and
releases such information to subscribers on a timely basis through
facsimile transmissions and 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. 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.
Management considers all of the financial services provided to be
within the same business segment.
As of March 16, 1999, JagNotes had 3,820,900 outstanding shares of
common stock, with a par value of $.00001 per share. Effective as of
that date, certain stockholders of JNI purchased a total of 2,900,000
of the outstanding shares of JagNotes' common stock and JagNotes
issued 3,500,000 shares of common stock to acquire all of the 1,000
shares of common stock, which had no par value, of JNI then
outstanding (the "Exchange"). As a result, JNI became a wholly-owned
subsidiary of JagNotes, and JagNotes had 7,320,000 shares of common
stock outstanding, of which 6,400,000 shares, or 87.4%, were owned by
the former stockholders of JNI and 920,000,or 12.6%, were owned by
the former stockholders of JagNotes. However, since the former
stockholders of JNI became the owners of a majority of the
outstanding common shares of JagNotes after the Exchange and JagNotes
had no significant operating activities or assets and liabilities
prior to the Exchange, the Exchange was treated effective as of March
16, 1999 as a "purchase business combination" and a "reverse
acquisition" for accounting purposes in which JagNotes was the legal
acquirer and JNI was the accounting acquirer. As a result, the assets
and liabilities of the accounting acquirer, JNI, continued to be
recorded at their historical carrying values as of March 16, 1999;
however, common stock and additional paid-in capital were adjusted as
of March 16, 1999 to reflect the $.00001 per share par value of the
shares of the legal acquirer, JagNotes, and all references to the
number of shares of common stock of JNI as of dates or for periods
prior to the Exchange have been restated to reflect the ratio of the
number of common shares of JagNotes effectively exchanged for common
shares of JNI. In addition, the accompanying consolidated financial
statements for the periods prior to March 16, 1999 are comprised,
effectively, of the historical financial statements of JNI.
F-6
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and basis of presentation (concluded):
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 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 January 31, 2000, its results
of operations for the six and three months ended January 31, 2000 and
1999, its cash flows for the six months ended January 31, 2000 and
1999 and its changes in stockholders' equity for the six months ended
January 31, 2000. Pursuant to rules and regulations of the Securities
and Exchange Commission (the "SEC"), certain information and
disclosures normally included in financial statements prepared in
accordance with 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.
Information included in the condensed consolidated balance sheet as
of July 31, 1999 has been derived from the audited consolidated
balance sheet included in the Company's Form SB-2, as amended, (the
"SB-2") previously filed with the SEC. Pursuant to rules and
regulations of the SEC, certain information and disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted from these consolidated financial statements unless
significant changes have taken place since the end of the most recent
fiscal year. Accordingly, these unaudited condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements, notes to consolidated financial
statements and the other information in the SB-2.
The consolidated results of operations for the six and three months
ended January 31, 2000 are not necessarily indicative of the results
to be expected for the full year.
Note 2 - Earnings 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.
F-7
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Earnings per share (concluded):
Diluted earnings per share has not been presented in the accompanying
condensed consolidated statements of operations because: (i) the
Company did not have any potentially dilutive common shares during
the six and three months ended January 31, 1999 and (ii) the Company
had net losses for the six and three months ended January 31, 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.
Note 3 - Income taxes:
As of January 31, 2000, October 31, 1999 and July 31, 1999, the
Company had net operating loss carryforwards of approximately
$3,659,000, $1,750,000 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
January 31, 1999, October 31, 1998 and July 31, 1998.
The Company's deferred tax assets as of January 31, 2000 and July 31,
1999 consisted of the effects of temporary differences attributable
to the following:
January 31, July 31,
2000 1999
----------- -----------
(Unaudited)
Deferred revenues, net $ 53,800 $ 105,600
Goodwill 8,000 11,200
Unearned compensation 977,400 108,400
Net operating loss carryforwards 1,461,200 214,800
----------- -----------
2,500,400 440,000
Less valuation allowance (2,500,400) (440,000)
----------- -----------
Totals $ -- $ --
=========== ===========
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
January 31, 2000, October 31, 1999 and July 31, 1999. Accordingly,
although the Company had pre-tax losses for the six and three months
ended January 31, 2000, it increased the valuation allowance by
$1,224,700 and $835,700 for the six and three months ended January
31, 2000, respectively, and did not recognize a credit for Federal
income taxes in either period.
The Company had effective tax rates of 54% and 53% for the six and
three months ended January 31, 1999, respectively. The effective tax
rates differed from the statutory Federal income tax rate of 34%
primarily as a result of the effects of nondeductible expenses and
state income taxes.
F-8
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 4 - Commitments:
Web site development costs:
As of January 31, 2000, the Company had contractual obligations
aggregating approximately $69,000 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 January 31, 2000, the Company was obligated to make
approximate cash payments under consulting and employment
agreements as follows:
Year Ending
January 31, Consulting Employment Total
----------- ---------- ---------- -----
2001 $1,338,000 $ 168,000 $1,506,000
2002 398,000 398,000
2003 150,000 150,000
---------- --------- ----------
Totals $1,886,000 $ 168,000 $2,054,000
========== ========= ==========
Operating leases:
The Company leases office space under month-to-month and longer
term noncancelable operating leases. Rent expense was $156,000 and
$78,000 for the six and three months ended January 31, 2000,
respectively. Rent expense was not material for the six and three
months ended January 31, 1999. As of January 31, 2000, minimum
rental obligations under noncancelable operating leases that
expire through October 2001 totaled approximately $144,000 of
which $83,000 and $61,000 is payable in the years ending January
31, 2001 and 2002, respectively.
Note 5 - Other issuances of common stock, warrants and stock options:
During the six months ended January 31, 2000, the Company received
proceeds of $1,349,960, net of related costs and expenses of
$150,040, from the sale of 428,571 shares of common stock. The sales
were made through private placements exempt from registration under
the Securities Act of 1933. In addition, the Company received
subscriptions as of January 31, 2000 for the purchase of an
additional 357,144 shares of common stock through the private
placements from which it is due to receive approximate proceeds of
$1,250,000.
F-9
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(continued):
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 January 31, 2000, the number of shares
that could have been subject to awards of incentive stock options was
limited to 2,163,729 shares.
As of January 31, 2000, the Company had granted options under the
Incentive Plan and had granted other stock options for the purchase
of a total of 822,500 shares of common stock. Substantially all of
these options were granted from March 1, 1999 through January 31,
2000 pursuant to several consulting agreements primarily with
investment analysts and commentators (see Note 4). 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 as of August 1, 1999 and
January 31, 2000 and the changes in the number of shares subject to
options during the six months ended January 31, 2000 along with
information as to related charges to compensation and unearned
compensation is set forth below:
Range of
Number Exercise
of Shares Price
-------- --------------
Options outstanding, August 1, 1999 (A) 335,000 $2.00 - $16.25
Granted (B) (C) 587,500 $2.00
Cancelled (C) (100,000) $16.25
--------
Options outstanding, January 31, 2000 (D) 822,500 $2.00
======== =====
(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.
F-10
<PAGE>
JagNotes.com Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
Note 5 - Other issuances of common stock, warrants and stock options
(concluded):
(B) Includes options for the purchase of 497,500 shares granted pursuant
to the Incentive Plan.
(C) During the six months ended January 31, 2000, the Company issued
options to purchase a total of 587,500 shares of common stock at an
exercise price of $2.00 per share that are scheduled to expire at
various dates through January 2010 as part of the consideration paid
or to be paid pursuant to agreements with consultants. The options
had an estimated fair value of $2,990,975. Options for the purchase
of 200,000 of the 587,500 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
$2,825,975 (the fair value of the options issued less the fair value
of the options cancelled at their respective grant dates) as unearned
compensation during the six months ended January 31, 2000 .
The fair values of the options and shares issued and transferred pursuant
to the 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%
Subsequent to October 31, 1999 78%
Unearned compensation is being amortized to expense on a straight-line
basis over the initial term of each consulting agreement. A total of
$271,462, $2,175,723 and $1,273,313 was amortized during the year ended
July 31, 1999 and the six and three months ended January 31, 2000,
respectively. The unamortized balance of $3,015,388 and $3,665,640 has been
reflected as a reduction of stockholders' equity as of July 31, 1999 and
January 31, 2000, respectively.
* * *
F-11
<PAGE>
Item 2. Management's Discussion and Analysis.
RESULTS OF OPERATIONS
Six months ended January 31, 2000 as compared to the six months ended January
31, 1999
Subscription revenue:
Subscription revenue is derived from annual, semi-annual, quarterly and monthly
subscriptions relating to our product " Jag Notes". Jag Notes is a daily
consolidated investment report that summarizes newly issued research, analyst
opinions, upgrades, downgrades, and analyst coverage changes from various
investment banks and brokerage houses. Until May 1999, JagNotes was faxed to a
limited audience of financial professionals at an average monthly charge of
$150. During the year ended July 31, 1999 and continuing through the six month
period ended January 31, 2000 we were in the process of completing the
development of our Web Site and changing our focus to also include the retail
investor. While revenues for the year ended July 31, 1999 showed a decline as a
result of our change in focus, revenues for the six months ended January 31,
2000 increased by 48% or approximately $204,000 over the comparable period
ending January 31, 1999 or from approximately $424,000 to approximately
$628,000. The increase in revenues is attributable to: (i) An increase in the
number of subscribers from the equivalent of approximately 10,500 retail
subscriptions at January 31, 1999 to approximately 13,500 at January 31, 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 the launch of our European
website as well as our continuing to realize the benefit of our distribution
agreements. Although the European website was launched on December 1, 1999,
through January 31, 2000 no subscription revenue was earned. The website has
been made available to interested parties on a free trial basis
Cost of Revenues:
Cost of revenues includes the cost to transmit the product over the telephone
and fax lines, on-line service charges for our web site, costs in
<PAGE>
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 six
months ended January 31, 2000 cost of revenues increased by approximately
$3,003,000 to approximately $3,068,000 from approximately $65,000 for the
comparable period ending January 31, 1999.
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 $2,176,000 non-cash charge for the amortization of unearned
compensation associated with the issuance of common stock and stock
options to the commentators for services rendered during the six months
ended January 31, 2000.
(ii) Approximately $519,000 of cash payments to the commentators which
pertains to services performed during the six months ended January 31,
2000 and;
(iii) Approximately $315,000 expensed in connection with the on-line services
and the development and maintenance of our web sites during the six
months ended January 31, 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
January 31, 2000 the cost of revenues will likely continue to grow.
Selling expense:
Selling expenses consist primarily of advertising and other promotion expenses.
During the six months ended January 31, 2000 selling expenses increased
approximately $938,000 from approximately $6,000 for the comparable period
ending January 31, 1999 to approximately $944,000. The primary reasons for this
increase are attributable to an increase in travel related expenses and
promotional costs incurred in promoting our new focus
<PAGE>
and web sites as well as exploring opportunities for web sites in other
countries and developing ancillary products.
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 $1,584,000 during the six months ended January 31, 2000 from
approximately $293,000 for the six months ended January 31, 1999 to
approximately $1,877,000 for the six months ended January 31, 2000. The increase
in general administrative expenses is primarily attributable to the following:
(i) An approximate $738,000 increase in professional fees for the six
months ended January 31, 2000 from approximately $4,000 to
approximately $742,000. The increase in professional fees results from
attorneys' fees relating to general corporate matters such as reviewing
and negotiating contracts with consultants and other parties and
establishing new international operations, as well as outside
accounting and attorneys fees in connection with various filings with
the Securities and Exchange Commission.
(ii) An approximate $341,000 increase in salaries to officers and office
staff for the six months ended January 31, 2000 from approximately
$214,000 to approximately $555,000. The increase in salaries results
from additional staff needed in order to properly support our growing
subscriber base and the expansion of our business.
(iii) For the six months ended January 31, 1999 rent expense was immaterial.
Rent expense for the six months ended January 31, 2000 was
approximately $156,000. 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.
<PAGE>
(iv) For the six months ended January 31, 2000 we incurred approximately
$60,000 in connection with investor relations activities. We incurred
no such costs for the six months ended January 31, 1999.
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 $5,164,000 for the six months ended January 31, 2000 as compared
to an operating profit of approximately $27,000 for the six months ended January
31, 1999.
Three months ended January 31, 2000 as compared to the three months ended
January 31, 1999
Subscription revenue:
Subscription revenue is derived from annual, semi-annual, quarterly and monthly
subscriptions relating to our product " Jag Notes". Jag Notes is a daily
consolidated investment report that summarizes newly issued research, analyst
opinions, upgrades, downgrades, and analyst coverage changes from various
investment banks and brokerage houses. Until May 1999, JagNotes was faxed to a
limited audience of financial professionals at an average monthly charge of
$150. During the year ended July 31, 1999 and continuing through the six month
period ended January 31, 2000 we were in the process of completing the
development of our Web Site and changing our focus to also include the retail
investor. While revenues for the year ended July 31, 1999 showed a decline as a
result of our change in focus, revenues for the three months ended January 31,
2000 increased by 65%, or approximately $127,000 over the same three month
period ended January 31, 1999 or from approximately $194,000 to approximately
$321,000. The increase in revenues is attributable to: (i) An increase in the
number of subscribers from the equivalent of approximately 10,500 retail
subscriptions at January 31, 1999 to approximately 13,500 at January 31, 2000
which is
<PAGE>
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 the launch of our European website as well
as our continuing to realize the benefit of our distribution agreements.
Although the European website was launched on December 1, 1999, through
January 31, 2000 no subscription revenue was earned. The website has been made
available to interested parties on a free trial basis
Cost of Revenues:
Cost of revenues includes the cost to transmit the product over the telephone
and fax lines, on-line service charges for our web site, costs in connection
with the development and maintenance of the web site and payments to
commentators for their reports that are posted on the web sites. During the
three months ended January 31, 2000 cost of revenues increased by approximately
$1,696,000 to approximately $1,716,000 from approximately $20,000 for the
comparable period ending January 31, 1999.
The primary cause of this increase is the introduction of the on-line services
and the cost of the commentators who write reports for our web site. The major
components of this increase are:
(iv) A $1,274,000 non-cash charge for the amortization of unearned
compensation associated with the issuance of common stock and stock
options to the commentators for services rendered during the three
months ended January 31, 2000;
(v) Approximately $277,000 of cash payments to the commentators which
pertains to services performed during the three months ended January
31, 2000;
(vi) Approximately $144,000 expensed in connection with the on-line services
and the development and maintenance of our web sites during the three
months ended January 31, 2000.
<PAGE>
The balance of the increase is attributable to an overall increase in the number
of telephone and fax lines. It is our intention to continue to attract
additional commentators for our web sites. Accordingly, in periods subsequent to
January 31, 2000 the cost of revenues will likely continue to grow.
Selling expense:
Selling expenses consist primarily of advertising and other promotion expenses.
During the three months ended January 31, 2000 selling expenses increased
approximately $501,000 from approximately $3,000 for the three months ended
January 31, 1999 to approximately $504,000 . The primary reasons for this
increase are attributable to an increase in travel related expenses and
promotional costs incurred in promoting our new focus and web sites as well
exploring opportunities for web sites in other countries and developing
ancillary products.
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 $1,071,000 during the three months ended January 31, 2000 from
approximately $143,000 for the three months ended January 31, 1999 to
approximately $1,214,000. The increase in general administrative expenses is
primarily attributable to the following:
(v) An approximate $509,000 increase in professional fees for the three
months ended January 31, 2000 from approximately $2,000 for the three
months ended January 31, 1999 to approximately $511,000. The increase
in professional fees results from attorneys' fees relating to general
corporate matters such as reviewing and negotiating contracts with
consultants and other parties and establishing new international
operations, as well as outside accounting and attorneys fees in
connection with various filings with the Securities and Exchange
Commission.
<PAGE>
(vi) An approximate $225,000 increase in salaries to officers and office
staff for the three months ended January 31, 2000 from approximately
$105,000 for the three months ended January 31, 1999 to approximately
$330,000. The increase in salaries results from additional staff needed
in order to properly support our growing subscriber base and the
expansion of our business.
(vii) For the three months ended January 31, 1999 rent expense was
immaterial. Rent expense for the three months ended January 31, 2000
was approximately $78,000. 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.
(viii) For the three months ended January 31, 2000 we incurred approximately
$9,000 in connection with investor relations activities. We incurred no
such costs for the three months ended January 31, 1999.
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 $3,070,000 for the three months ended January 31, 2000 as compared
to an operating profit of approximately $13,000 for the three months ended
January 31, 1999 .
Liquidity and Capital Resources
At January 31, 2000, the Company had working capital of $4,622,431 including
cash and cash equivalents of $3,664,217 primarily as a result of 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 January 31, 2000 there were 555,130 warrants outstanding
entitling the holders of such
<PAGE>
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 $1,349,960 net of related
costs of $150,040. The subscription agreement provides for an additional
$1,250,000 to be raised as well.
Through January 31, 2000 we have entered into agreements with approximately
forty commentators and other consultants expiring at various times through May
2002. Through July 31, 1999 aggregate consideration paid under these agreements
consisted of cash payments of $564,000, the issuance of 120,000 shares of common
stock with a fair value of $1,460,000, the grant of options to purchase 235,000
shares of common stock at $2.00 per share with a fair value of $1,661,850 and
the grant of options to purchase 100,000 shares of common stock at $16.25 per
share with a fair value of $165,000. During the six months ended January 31,
2000, we paid cash consideration of approximately $656,000 and granted options
to purchase 387,500 shares of common stock at $2.00 per share with a fair value
of approximately $2,097,000 in connection with additional employment and
consulting agreements. In addition, during the six months ended January 31, 2000
pursuant to an amended consulting agreement, we cancelled options to purchase
100,000 shares of common stock at $16.25 per share and issued the consultant
options to purchase 200,000 shares of common stock at $2.00 share with a fair
value of $894,000. The fair value of the original options at the date of grant
was $165,000. Accordingly, during the six months ended January 31, 2000 the
Company recorded additional unearned compensation of $729,000. The fair value of
the options 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 January 31, 2000, included in prepaid
expenses is approximately $418,000 for cash payments made pursuant to the
aforementioned agreements for services to be rendered to the Company in future
periods.
During the six months ended January 31, 2000 we used approximately $3,531,000 in
our operations. The major uses of this cash were to fund our net loss for the
six months ended January 31, 2000. In addition, during the six months ended
January 31, 2000 we incurred a non-cash charge of $2,176,000 related to the
amortization of unearned compensation.
<PAGE>
During the six months ended January 31, 2000 we used approximately $234,000 in
investing activities for the purchase of equipment and additions to our web
sites.
We believe that the net proceeds from the aforementioned offerings, together
with our current cash, will be sufficient to meet our anticipated needs for
working capital and capital expenditures to operate our current business for at
least the next twelve months. However, if the Company continues to utilize
working capital at its current pace, and is unable to raise additional capital,
we might have to curtail or even halt our current development and expansion
plans. We currently anticipate that our capital expenditures will approximate on
a short term basis $69,000 in order to complete both our web sites. Pursuant to
the employment and consulting agreements we are committed to make cash payments
of $1,506,000, $398,000 and $150,000 during the years ended January 31, 2001,
2002 and 2003 respectively. In addition, at January 31, 2000 we have escrow
deposits of approximately $412,000 related to the purchase of minority interests
in two Companies. Subsequent to January 31, 2000 we closed on one of the
purchases and in connection therewith, paid additional cash consideration of
$150,000. If the cash generated from operations is not sufficient to fund our
liquidity requirements or planned growth, we may need to raise additional funds
through public or private financing, strategic relationships or other
arrangements. We may also attempt to raise cash before such time. There can be
no assurance that such additional funding or strategic alliances, if needed,
will be available on terms attractive to us or at all. The failure to raise
capital when needed could materially affect our business, results of operations
and financial condition.
We do not believe that our business is subject to seasonal trends or inflation.
On an ongoing basis, we will attempt to minimize any effect of inflation on our
operating results by controlling operating costs and whenever possible, seeking
to insure that subscription rates reflect increases in costs due to inflation.
<PAGE>
Year 2000 Disclosure
During the six months ended January 31, 2000 we completed our Year 2000
assessment. The costs of such assessment were not significant. In addition, we
have experienced no problems in the operations of our business as a result of
anticipated Year 2000 effects on computer systems.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no currently pending law suits or similar administrative
proceedings and, to the best of our knowledge, there is presently no basis for
any suit or proceeding.
Item 2. Changes in Securities and Use of Proceeds.
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 is a receivable as of March 16, 2000. A
10% fee was paid to the placement agent out of the first drawdown. The issuance
of such securities was exempt from registration under the Securities Act of
1933, as amended, pursuant to Regulation S promulgated thereunder.
During the six months ended January 31, 2000 options to purchase 587,500
shares of common stock at an exercise price of $2.00 per share have been
granted to various consultants. Options to purchase 100,000 shares of common
stock at $16.25 per share previously granted have been cancelled. See Note 5 to
the Condensed Consolidated Financial Statements contained herein.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Reorganization, dated March 16, 1999, between
Professional Perceptions, Inc. (now known as JagNotes.com Inc.); Harold
Kaufman, Jr., an officer, director and principal stockholder thereof;
NewJag, Inc.; and the stockholders of NewJag, Inc. (incorporated by
reference to the Company's Registration Statement on Form SB-2 filed
with the SEC on July 30, 1999).
2.2 Agreement and Plan of Merger, dated as of July 29, 1999, by and among
Jag Notes, Inc., a New Jersey corporation, and JagNotes.com, Inc., a
Nevada corporation (incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form SB-2 filed with the SEC on
September 30, 1999).
3.1 Articles of Incorporation of JagNotes.com Inc., as amended
(incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 filed with the SEC on September 30,
1999).
3.2 Bylaws of JagNotes.com Inc. (incorporated by reference to Amendment No.
1 to the Company's Registration Statement on Form SB-2 filed with the
SEC on September 30, 1999).
10.1 1999 Long Term Incentive Plan (incorporated by reference to Amendment
No. 2 to the Company's Registration Statement on Form SB-2 filed with
the SEC on October 26, 1999).
27.1 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the six months
ended January 31, 2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JAGNOTES.COM INC.
Date: March 16, 2000 By: /s/ Gary Valinoti
-------------------------------
Name: Gary Valinoti
Title: President and Chief Executive Officer
Date: March 16, 2000 By: /s/ Stephen R. Russo
------------------------------
Name: Stephen R. Russo
Title: Chief Financial Officer
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