##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended October 31, 2007.
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to  .
 Commission file number 000-28761
 JAG MEDIA HOLDINGS, INC.
  Nevada
(State or other jurisdiction of 
incorporation or organization)
    
    88-0380546
(I.R.S. Employer
Identification No.)
 
 
  þ o
  o o þ
  o þ




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##### 



JAG MEDIA HOLDINGS, INC.
 FORM 10-Q
 For the Quarter Ended October 31, 2007
 INDEX
 PagePart I. Financial Information
    
    
    1Item 1: Financial Statements (Unaudited)
    
    
    1Condensed Consolidated Balance Sheets at October 31, 2007 (Unaudited) and July 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the Three Months ended October 31, 2007 and 2006 (Unaudited)
    
    
    2Condensed Consolidated Statement of Changes in Stockholders Deficiency for the Three Months ended October 31, 2007 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2007 and 2006 (Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2: Managements Discussion and Analysis
    
    
    17Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4T: Controls and Procedures
    
    
    22Part II. Other Information
    
    
    23Item 1: Legal Proceedings
    
    
    23Item 1A: Risk Factors
    
    
    23Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3: Defaults Upon Senior Securities
    
    
    23Item 4: Submission of Matters to Vote of Security Holders
    
    
    23Item 5: Other Information
    
    
    23Item 6: Exhibits
    
    
    23Signatures
    
    
    24EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATI0NEX-32.1: CERTIFICATIONS




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
 October 31,
    
    
    July 31,2007
    
    
2007(unaudited)
    
    
    (see note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    138,002
    
    
    $
    507Accounts receivable, net of allowance for doubtful accounts of $7,500
    
    
    53,600
    
    
    
    34,345Other current assets
    
    
    329,526
    
    
    
    44,426Total current assets
    
    
    521,128
    
    
    
    79,278Equipment, net of accumulated depreciation of $162,425 and$154,975
    
    
    47,621
    
    
    
    55,071Totals
    
    $
    568,749
    
    
    $
    134,349Liabilities and Stockholders DeficiencyCurrent liabilities:Accounts payable and accrued expenses
    
    $
    975,973
    
    
    $
    1,088,819Deferred revenues
    
    
    25,817
    
    
    
    18,695Derivative liability
    
    
    9,069,300
    
    
    
    11,058,561Total current liabilities
    
    
    10,071,090
    
    
    
    12,166,075Convertible debentures payable, net of unamortized debt discount of $787,580
and $912,820
    
    
    1,132,420
    
    
    
    2,607,180Total liabilities
    
    
    11,203,510
    
    
    
    14,773,255Mandatorily redeemable Class B common stock; par value $.00001 per share:400,000 shares designated as Series 2; 381,749 shares issued and
outstanding
    
    
    4
    
    
    
    440,000 shares designated as Series 3; 21,500 shares issued and
outstanding
    
    
    4
    
    
    
    4Commitments and contingenciesStockholders deficiency:Preferred stock; par value $.00001 per share; 50,000,000 shares authorized, none issuedCommon stock; par value $.00001 per share; 500,000,000 shares authorized;
53,103,617 and 48,048,617 shares issued and outstanding
    
    
    531
    
    
    
    480Additional paid-in capital
    
    
    48,478,693
    
    
    
    45,806,278Accumulated deficit
    
    
    (59,113,989
    )
    
    
    (60,445,668
    )Total stockholders deficiency
    
    
    (10,634,765
    )
    
    
    (14,638,910
    )Totals
    
    $
    568,749
    
    
    $
    134,349
  1




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##### Table of Contents



Three MonthsEnded October 31,2007
    
    
    2006 (restated)Revenues
    
    $
    36,732
    
    
    $
    43,331Operating expenses:Cost of revenues
    
    
    4,621
    
    
    
    24,650Selling expenses
    
    
    7,296
    
    
    
    24,262General and administrative expenses
    
    
    437,227
    
    
    
    266,850Totals
    
    
    449,144
    
    
    
    315,762Loss from operations
    
    
    (412,412
    )
    
    
    (272,431
    )Other income (expense):Gain on change in value of derivative liability
    
    
    1,933,938
    
    
    
    492,951Interest income
    
    
    
    
    
    
    77Interest expense
    
    
    (189,847
    )
    
    
    (468,249
    )Net income (loss)
    
    $
    1,331,679
    
    
    $
    (247,652
    )Basic net income (loss) per share
    
    $
    0.03
    
    
    $
    (0.01
    )Diluted net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.01
    )Basic weighted average common shares outstanding
    
    
    50,666,552
    
    
    
    43,972,608Diluted weighted average common shares outstanding
    
    
    58,080,023
    
    
    
    43,972,608
  2




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Common Stock
    
    
    Additional Paid-in
    
    
    AccumulatedNumber of Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance, August 1, 2007
    
    
    48,048,617
    
    
    $
    480
    
    
    $
    45,806,278
    
    
    $
    (60,445,668
    )
    
    $
    (14,638,910
    )Amortization of unearned stock-based compensation
    
    
    
    
    
    
    
    
    
    
    3,300
    
    
    
    
    
    
    
    3,300Effect of issuance of common stock in exchange for services
    
    
    150,000
    
    
    
    2
    
    
    
    95,998
    
    
    
    
    
    
    
    96,000Shares issued on conversion of convertible debentures
    
    
    4,000,000
    
    
    
    40
    
    
    
    1,599,960
    
    
    
    
    
    
    
    1,600,000Shares issued on exercise of options
    
    
    905,000
    
    
    
    9
    
    
    
    447,542
    
    
    
    
    
    
    
    447,551Capital contribution from payment by prospective merger
partner of the Companys costs related to merger
    
    
    
    
    
    
    
    
    
    
    230,113
    
    
    
    
    
    
    
    230,113Reclassification of derivative liability upon exercise of
options for 655,000 shares
    
    
    
    
    
    
    
    
    
    
    295,502
    
    
    
    
    
    
    
    295,502Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,331,679
    
    
    
    1,331,679Balance, October 31, 2007
    
    
    53,103,617
    
    
    $
    531
    
    
    $
    48,478,693
    
    
    $
    (59,113,989
    )
    
    $
    (10,634,765
    )
  3




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2007
    
    
    2006 (restated)Operating activities:Net income (loss)
    
    $
    1,331,679
    
    
    $
    (247,652
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation
    
    
    7,321
    
    
    
    9,018Amortization of unearned stock-based compensation
    
    
    3,300
    
    
    
    9,233Gain on change in value of derivative liability
    
    
    (1,933,938
    )
    
    
    (492,951
    )Amortization of debt discount
    
    
    125,240
    
    
    
    369,098Costs of the Company paid by potential merger partner
    
    
    230,113
    
    
    
    27,161Effect of issuance of common stock in exchange for services
    
    
    25,600
    
    
    
    Amortization of deferred consulting costs
    
    
    65,631
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (19,255
    )
    
    
    (5,380
    )Other current assets
    
    
    9,313
    
    
    
    (67,096
    )Accounts payable and accrued expenses
    
    
    (112,831
    )
    
    
    2,001Deferred revenues
    
    
    7,122
    
    
    
    (3,004
    )Net cash used in operating activities
    
    
    (260,705
    )
    
    
    (399,572
    )Investing activities:Equipment purchases
    
    
    
    
    
    
    (15,545
    )Net cash used in investing activities
    
    
    
    
    
    
    (15,545
    )Financing activities:Issuance of common stock upon exercise of stock options
    
    
    398,200
    
    
    
    Net cash provided by financing activities
    
    
    398,200
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    137,495
    
    
    
    (415,117
    )Cash and cash equivalents, beginning of period
    
    
    507
    
    
    
    450,618Cash and cash equivalents, end of period
    
    $
    138,002
    
    
    $
    35,501Supplemental disclosure of noncash financing activities:Noncash effect of convertible debentures converted to common stock
    
    $
    1,600,000
    
    
    $
    200,000Receivable from consultant for options exercised
    
    $
    78,750Fair value
of fully-vested shares issued to consultant in exchange for services
    
    $
    70,400Reclassification of derivative liability
    
    $
    55,323Fair value of options issued for future services
    
    $
    240,179
  4




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Note 1  Basis of presentation
      5




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Note 1  Basis of presentation (continued)
    Note 2  Net earnings (loss) per share
    Basic earnings per share computation
 Three Months EndedOctober 31, 2007Numerator:Net income
    
    $
    1,331,679Denominator:Basic weighted average common shares outstanding
    
    
    50,666,552Basic net income per share
    
    $
    0.03
 6




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Diluted earnings per share computation
 Three Months EndedOctober 31, 2007Numerator:Net income
as reported
    
    $
    1,331,679Add:     
Interest expense on convertible debentures
    
    
    64,868Debt discount on convertible debentures
    
    
    125,240Deduct: Gain on change in value of derivative liability attributable to
options and warrants issued to non-employees          assumed to have been
exercised at the beginning of period
    
    
    (1,933,938
    )Net loss, as
adjusted
    
    $
    (412,151
    )Denominator:Basic weighted average common shares outstanding
    
    
    50,666,552Incremental shares from assumed conversion:Exercise of stock options
    
    
    731,264Exercise of warrants
    
    
    2,632,207Conversion of convertible debt
    
    
    4,050,000Diluted weighted average common shares
    
    
    58,080,023Diluted net
loss per share
    
    $
    (0.01
    )
 Note 3  Income taxes
   Deferred revenues, net
    
    $
    9,000Unearned compensation
    
    
    20,000Net operating loss carryforwards
    
    
    13,443,00013,472,000Less valuation allowance
    
    
    (13,472,000
    )Total
    
    $
    
   7




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Note 4  Equity and debt financing agreements with YA Global Investments, L.P.:
       8




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9




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Note 5
 Issuances of common stock and stock options and other equity
transactions
       10




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11




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WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateExercise
    
    Contractual
    
    IntrinsicShares
    
    Price
    
    Term
    
    ValueOptions outstanding August 1, 2007
    
    
    1,000,000
    
    
    $
    0.02Granted
    
    
    655,000
    
    
    $
    0.68Exercised
    
    
    (905,000
    )
    
    $
    0.49Options outstanding at end of period
    
    
    750,000
    
    
    $
    0.02
    
    
    
    3.84
    
    
    $
    600,000Options exercisable at end of period
    
    
    750,000
    
    
    $
    0.02
    
    
    
    3.84
    
    
    $
    600,000
  Three Months Ended
    
    Three Months EndedOctober 31, 2007
    
    October 31, 2006Risk-free interest rate
    
    
    6.00
    %
    
    
    6.00
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Expected life
    
    3 months
    
    5 yearsExpected volatility factor
    
    210.949% to 216.543%
    
    
    231.079
    %
      Note 6  Litigation
  12




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Note 7  Cryptometrics merger
       13




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Note 8  Restatement of Unaudited Interim Financial Statements
    14




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As Previously
    
    
    RestatementReported
    
    
    Adjustment
    
    
    As Restated10/31/2006
    
    
    10/31/2006
    
    
    10/31/2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    35,501
    
    
    $
    
    
    
    $
    35,501Accounts receivable, net of allowance for doubtful accounts of $7,500
    
    
    20,960
    
    
    
    
    
    
    
    20,960Other current assets
    
    
    138,748
    
    
    
    
    
    
    
    138,748Total current assets
    
    
    195,209
    
    
    
    
    
    
    
    195,209Equipment, net of accumulated depreciation of $127,798
    
    
    83,214
    
    
    
    
    
    
    
    83,214Total
    
    $
    278,423
    
    
    $
    
    
    
    $
    278,423Liabilities and Stockholders DeficiencyCurrent liabilities:Accounts payable and accrued expenses
    
    $
    236,987
    
    
    $
    
    
    
    $
    236,987Deferred revenues
    
    
    19,444
    
    
    
    
    
    
    
    19,444Derivative liability
    
    
    2,466,660
    
    
    
    (133,861
    )
    
    
    2,332,799Total current liabilities
    
    
    2,723,091
    
    
    
    (133,861
    )
    
    
    2,589,230Convertible debentures payable, net of unamortized debt discount of $1,678,813
    
    
    2,196,187
    
    
    
    
    
    
    
    2,196,187Total liabilities
    
    
    4,919,278
    
    
    
    (133,861
    )
    
    
    4,785,417Mandatorily redeemable Class B common stock; par value $.00001 per share: 400,000
shares designated as Series 2: 381,014 shares issued and outstanding
    
    
    4
    
    
    
    
    
    
    
    440,000 shares designated as Series 3; 21,500 shares issued and outstanding
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Commitments and contingenciesStockholders deficiency:Preferred stock; par value $.00001 per share;
50,000,000 shares authorized, none issuedCommon stock; par value $.00001 per share;
500,000,000 shares authorized; 44,579,589 shares
issued and outstanding
    
    
    446
    
    
    
    
    
    
    
    446Additional paid-in capital
    
    
    44,383,563
    
    
    
    27,161
    
    
    
    44,410,724Accumulated deficit
    
    
    (49,024,868
    )
    
    
    106,700
    
    
    
    (48,918,168
    )Total stockholders deficiency
    
    
    (4,640,859
    )
    
    
    133,861
    
    
    
    (4,506,998
    )Total
    
    $
    278,423
    
    
    $
    
    
    
    $
    278,423
 15




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AsPreviously
    
    
    Restatement
    
    
    AsReported
    
    
    Adjustment
    
    
    RestatedRevenues
    
    $
    43,331
    
    
    $
    
    
    
    $
    43,331Operating expenses:Cost of revenues
    
    
    24,650
    
    
    
    
    
    
    
    24,650Selling expenses
    
    
    24,262
    
    
    
    
    
    
    
    24,262General and administrative expenses
    
    
    239,689
    
    
    
    27,161
    
    
    
    266,850Totals
    
    
    288,601
    
    
    
    27,161
    
    
    
    315,762Loss from operations
    
    
    (245,270
    )
    
    
    (27,161
    )
    
    
    (272,431
    )Other income (expense):Gain on change in value of derivative liability
    
    
    359,090
    
    
    
    133,861
    
    
    
    492,951Interest income
    
    
    77
    
    
    
    
    
    
    
    77Interest expense
    
    
    (468,249
    )
    
    
    
    
    
    
    (468,249
    )Net loss
    
    $
    (354,352
    )
    
    $
    106,700
    
    
    $
    (247,652
    )Basic and diluted net loss per share
    
    $
    (0.01
    )
    
    
    
    
    
    $
    (0.01
    )Basic and diluted weighted average common shares outstanding
    
    
    43,972,608
    
    
    
    
    
    
    
    43,972,608
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Item 2. Managements Discussion and Analysis
 Critical Accounting Policies and Estimates
   Related Party Transactions
  Off-Balance Sheet arrangements
  Results of operations
  Three MonthsEnded October 31,2007
    
    
    2006 (restated)
    
    
    $ ChangeRevenues
    
    $
    36,732
    
    
    $
    43,331
    
    
    $
    (6,599
    )Operating expenses:Cost of revenues
    
    
    4,621
    
    
    
    24,650
    
    
    
    (20,029
    )Selling expenses
    
    
    7,296
    
    
    
    24,262
    
    
    
    (16,966
    )General and administrative expenses
    
    
    437,227
    
    
    
    266,850
    
    
    
    170,377Totals
    
    
    449,144
    
    
    
    315,762
    
    
    
    133,432Loss from operations
    
    
    (412,412
    )
    
    
    (272,431
    )
    
    
    (139,981
    )Other income (expense) :Gain on change in value of derivative
liability
    
    
    1,933,938
    
    
    
    492,951
    
    
    
    1,440,987Interest income
    
    
    
    
    
    
    77
    
    
    
    (77
    )Interest expense
    
    
    (189,847
    )
    
    
    (468,249
    )
    
    
    278,402Net income
(loss)
    
    $
    1,331,679
    
    
    $
    (247,652
    )
    
    $
    1,579,331
 17




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Revenues
  Cost of revenues
   Selling expenses
  General and administrative expenses
  Gain on change in value of derivative liability
  Interest expense
  18




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Liquidity and Capital Resources
       19




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Seasonality
  21




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Recent Accounting Pronouncements
  Recent Events
  
 Item 3. Quantative and Qualitative Disclosure About Market Risk
  
 Item 4T. Controls and Procedures
      
    
    Management implemented additional review procedures to ensure that all accounting transactions were
adequately communicated amongst and between accounting personnel so that all transactions paid for
or assumed by another party on behalf of us are recorded by us on a
timely and accurate basis.
    
    Management also undertook additional review procedures to ensure that all spreadsheet formulas are
prepared on a consistent basis and that results are reviewed prior to application to financial
statement valuations.
  22




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Date of Conversion
    
    Principal Amount Converted
    
    Number of Shares IssuedAugust 23, 2007
    
    $
    500,000
    
    
    
    1,250,000August 28, 2007
    
    $
    420,000
    
    
    
    1,050,000September 25, 2007
    
    $
    550,000
    
    
    
    1,375,000September 28, 2007
    
    $
    130,000
    
    
    
    325,000
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    Section 302 Certification of Chief Executive Officer.31.2
    
    Section 302 Certification of Chief Financial Officer.32.1
    
    Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
 23




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SIGNATURES
  JAG MEDIA HOLDINGS, INC.Date: December 26, 2007
    By:
    /s/ Thomas J. MazzarisiName:
    Thomas J. MazzarisiTitle:
    Chairman of the Board and Chief

Executive OfficerDate: December 26, 2007
    By:
    /s/ Stephen J. SchoepferName:
    Stephen J. SchoepferTitle:
    President, Chief Financial Officer,
Chief Operating Officer and
Secretary 24




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EXHIBIT INDEX
 31.1
    
    Section 302 Certification of Chief Executive Officer31.2
    
    Section 302 Certification of Chief Financial Officer32.1
    
    Section 906 Certification of Chief Executive Officer and Chief Financial Officer