UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 5(d) OF THE SECURITIES ACT OF 1934:
For the Quarterly Period ended June 30, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from __________________ to __________________
Commission File number 1-12023
Level Jump Financial Group, Inc.
(Exact Name of registrant as specified in its charter)
Florida N/A
- ---------------------------------------- --------------------
(State or other jurisdiction of I.R.S. Employer ID No.
incorporation or organization)
30 Broad Street, 28th Floor
New York, New York 10004
----------------------------------------
(Address of principal executive offices)
(212) 344-5867
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES ____ NO. ____
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 4, 2000, 8,249,500 shares of the Issuer's Common Stock were
outstanding.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited condensed consolidated financial statements of Level
Jump Financial Group, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. All
adjustments which, in the opinion of management, are necessary for a fair
presentation of the financial condition and results of operations have been
included. Operating results for the three month period and six month period
ended June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000.
These interim condensed consolidated financial statements should be read in
conjunction with the Company's latest Annual Report on Form 10-KSB for the year
ended December 31, 1999.
Level Jump Financial Group, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
Jun. 30, Dec. 31,
2000 1999
------------------------------------------------------------------------------------------- --------------- ----------------
Assets
Current
Cash and cash equivalents $436,467 $19,426
Deposits with clearing broker 336,589 -
Receivable from clearing broker 56,982 -
Investments in marketable securities 196,505 2,172,389
Accounts receivable, net of allowances (2000 - $439,787, 1999 - $210,099) 47,867 290,944
Prepaid expenses and deposits 94,105 45,984
Deferred income taxes 85,405 71,474
Due from related parties 42,262 218,517
--------------- ----------------
1,296,182 2,818,734
Investments 240,799 321,032
Fixed assets 239,588 42,556
Deferred income taxes 16,980 16,179
Goodwill 329,957 -
--------------- ----------------
$2,123,506 $3,198,501
------------------------------------------------------------------------------------------- --------------- ----------------
Liabilities and Shareholders' Equity
Current
Payable to clearing broker $146,019 -
Securities sold, not yet purchased, at market value 53,182 -
Accounts payable 125,427 65,657
Accrued liabilities 29,594 16,306
Bank loan 300,000 500,000
Obligations under capital lease 12,226 -
Deferred income taxes 17,971 454,070
Deferred revenues 2,000 130,534
Income taxes payable 579,216 628,453
--------------- ----------------
1,265,635 1,795,020
Deferred lease inducements 5,299 8,443
Obligations under capital lease 69,440 -
--------------- ----------------
74,739 8,443
--------------- ----------------
1,340,374 1,803,463
--------------- ----------------
Shareholders' equity
Share capital
Authorized
4,999,998 Preferred shares, $.0025 par value
1 Preferred share, class A, $.0025 par value
1 Preferred share, class B, $.0025 par value
200,000,000 Common shares, $.0025 par value
Issued
1 Preferred share, class A, $.0025 par value - -
1 Preferred share, class B, $.0025 par value - -
8,249,500 Common shares (Note 2) (1999 - 7,863,500) 20,624 19,659
Par value in excess of capital 708,116 (16,419)
Retained earnings 203,269 518,351
Accumulated other comprehensive income (loss) appreciation of investments (148,877) 873,447
--------------- ----------------
783,132 1,395,038
--------------- ----------------
$2,123,506 $3,198,501
------------------------------------------------------------------------------------------- --------------- ----------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
Level Jump Financial Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the For the
Three Three
Months Ended Months Ended Jun.
Jun. 30, 2000 30, 1999
-----------------------------------------------------------------------------------------------------------------
Revenue
Commissions $40,768 -
Trading 135,375 -
Investment banking - -
Investor relations 33,832 $467,739
-------------------- --------------------
209,975 467,739
Cost of revenues 82,645 154,724
-------------------- --------------------
Gross profit 127,330 313,015
-------------------- --------------------
Operating expenses
Sales and marketing 26,259 32,471
Product development - 1,029
General and administration 605,008 172,551
Amortization of goodwill 17,366
-------------------- --------------------
648,633 206,051
-------------------- --------------------
Income (loss) from operations (521,303) 106,964
Investment income 276,217 52,835
-------------------- --------------------
Income (loss) before income taxes (245,086) 159,799
Provision for income taxes 13,904 41,706
-------------------- --------------------
Net income (loss) for the period (Note 1) (258,990) $118,093
--------------------------------------------------------------------------------------- --------------------
Basic and diluted earnings (loss) per share (Note 3) ($0.03) $0.03
Shares used in per share
calculation - basic and diluted 8,222,643 3,700,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Level Jump Financial Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the For the
Six Six
Months Ended Months Ended Jun.
Jun. 30, 2000 30, 1999
------------------------------------------------------------------------------------------------------------
Revenue
Commissions $40,768 -
Trading 135,375 -
Investment banking 98,715 -
Investor relations 50,719 $963,543
-------------------- --------------------
325,577 963,543
Cost of revenues 199,631 243,659
-------------------- --------------------
Gross profit 125,946 719,884
-------------------- --------------------
Operating expenses
Sales and marketing 90,766 55,092
Product development - 10,480
General and administration 1,198,311 381,183
Amortization of goodwill 17,366 -
-------------------- --------------------
1,306,443 446,755
-------------------- --------------------
Income (loss) from operations (1,180,497) 273,129
Investment income 845,464 257,935
-------------------- --------------------
Income (loss) before income taxes (335,033) 531,064
Provision (recovery) for income taxes (19,951) 174,423
-------------------- --------------------
Net income (loss) for the period (Note 1) ($315,082) $356,641
-----------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per share (Note 3) ($0.04) $0.10
Shares used in per share
calculation - basic and diluted 8,110,214 3,700,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Level Jump Financial Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the For the
Six Six
Months Ended Months Ended
Jun. 30, 2000 Jun. 30, 1999
- -------------------------------------------------------------------------- -------------------- ------------------
Cash flows from operating activities
Net income (loss) ($315,082) $356,641
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations
Amortization 36,472 6,118
Bad debts 229,688 9,000
Deferred income taxes 51,522 16,040
Realized capital gains (840,070) (260,850)
Fees satisfied by securities - (853,304)
Consulting and compensation
expenses satisfied by securities 155,112 73,597
Changes in assets and liabilities, net of business
combination
Deposits with clearing broker (324,716) -
Receivable from clearing broker (56,982) -
Investments in marketable securities, trading (134,082) -
Accounts receivable, net 13,389 (170,711)
Prepaid expenses and deposits (48,121) (2,352)
Payable to clearing broker 146,019 -
Securities sold, not yet purchased, at market 53,182 -
value
Accounts payable 50,629 (18,190)
Accrued liabilities 43,288 (258,185)
Deferred revenues (128,534) 233,750
Income taxes (49,237) 166,550
Deferred lease inducements (3,144) -
-------------------- --------------------
(1,120,667) (701,896)
-------------------- --------------------
Cash flows from investing activities
Due from related parties 176,255 738,852
Purchases of fixed assets (129,441) (12,246)
Purchases of marketable securities (3,300)
Acquisition of Southland Securities Corporation (350,000) -
Proceeds from sale of marketable securities 1,426,280 437,226
-------------------- --------------------
1,119,794 1,163,832
-------------------- --------------------
Cash flows from financing activities
Due to related parties - (40,119)
Repayment of bank loan (200,000) -
Repayment of obligations under capital lease (5,031) -
Proceeds from issuance of common shares 623,000 3,700
Dividends - (364,510)
Payment against bank overdraft (55) -
-------------------- --------------------
417,914 (400,929)
-------------------- --------------------
Net increase in cash and cash equivalents
during the period 417,041 61,007
Cash and cash equivalents, beginning of period 19,426 5,658
-------------------- --------------------
Cash and cash equivalents, end of period $436,467 $66,665
- -------------------------------------------------------------------------- -------------------- --------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Level Jump Financial Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the For the
Six Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
- --------------------------------------------------------------------------- --------------- ------------------
Supplementary schedule of non-cash investing and
financing activities:
Marketable securities received for services not rendered
(included in accounts payable) - (58,750)
Marketable securities payable on share exchange (included in
accrued liabilities) - (180,000)
Marketable securities paid on share exchange (included in
accrued liabilities) 30,000
Deferred taxes on unrealized gains (losses) of marketable
securities (63,038) 338,833
Obligations under capital lease 85,897 -
- --------------------------------------------------------------------------- ---------------- -------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Level Jump Financial Group, Inc.
Summary of Significant Accounting Policies
(Unaudited)
June 30, 2000 and 1999
- -------------------------------------------------------------------------------
Nature of Business Level Jump Financial Group, Inc. (the "Company") operates in
and Basis of two business segments: broker-dealer and financial public
Presentation relations. The Company's wholly owned subsidiary, Level Jump
Trading, Inc., is a National Association of Securities
Dealers ("NASD") registered broker-dealer that is engaged in
market making, customer brokerage and investment banking
activities. The Company's wholly owned subsidiary,
thestockpage.com, provides financial public relations
services to small- and micro-cap publicly traded or listed
companies.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The
Company has not recognized any significant revenues from its
financial public relations services for the six months ended
June 30, 2000. As a result, the Company has incurred
operating losses, has a negligible working capital balance,
and has negative cash flows from operations. The Company has
been covering losses through the sale of marketable
securities and the issuance of common stock, however, the
Company will not be able to continue covering losses through
the sale of marketable securities beyond the next two
months. These factors raise substantial doubt about the
Company's ability to operate as a going concern. The
financial statements do not include any adjustments that
might result from the outcome of the uncertainty.
Subsequent to June 30, 2000, the Company signed a financial
public relations contract that includes compensation in
freely tradable common stock with a market value of
approximately $150,000. The Company's management is actively
searching for new equity financing, however there is no
assurance that such sources will be found.
On October 28, 1999, Caldera Corporation ("Caldera")
acquired all of the issued and outstanding common shares of
the Company and agreed to assume certain obligations with
respect to issuing additional common shares under
exchangeable share agreements and a performance equity plan
and issuing preferred shares under a voting agreement. In
exchange for the issued and outstanding common stock of the
Company, the shareholders of the Company were issued common
shares of Caldera in a number that gave the shareholders of
the Company control of Caldera. In addition, at the time of
the transaction, the board of directors of Caldera resigned
and the officers and directors of the Company were appointed
to the board of directors of Caldera. In January, 2000,
Caldera Corporation's name was formally changed to Level
Jump Financial Group, Inc.
On January 31, 2000, the board of directors of the Company
passed a resolution to merge the Company into Level Jump
Financial Group, Inc. (previously Caldera Corporation). On
February 14, 2000, the state of Colorado accepted the merger
and the Company ceased to exist. All obligations of the
Company were assumed by Level Jump Financial Group, Inc.
(previously Caldera Corporation). Going forward, all
references to the Company in these financial statements are
to Level Jump Financial Group, Inc. (previously Caldera
Corporation).
6
The accompanying unaudited condensed consolidated interim
financial statements reflect all adjustments, which in the
opinion of management, are necessary for a fair presentation
of the results of operations for the periods shown. The
results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year
or for any future period.
The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned
subsidiaries, Level Jump Trading, Inc., Level Jump Asset
Management, Inc., Level Jump Financial Group (Canada), Inc.,
and thestockpage.com inc.
These financial statements should be read in conjunction
with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999.
Segmented Information
The Company has adopted Statement of Financial Accounting
Standards 131 ("SFAS 131"), "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 requires
companies to disclose quantitative and qualitative
disaggregated information about their lines of business.
With the purchase of Southland Securities, the Company now
operates in two lines of business: Broker-Dealer and
Financial Public Relations.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board
("FASB") issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 requires
companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii)
the earnings' effect of the hedged forecast transaction. For
a derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of
change. SFAS 133, as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The
Company is evaluating the standard and has not determined
the impact on the financial results or condition of the
Company.
In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101
summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in
financial statements. The Company is required to adopt SAB
101 in the fourth quarter of fiscal 2000. The Company does
not expect the adoption of SAB 101 to have a material effect
on its financial position or results of operations.
7
Level Jump Financial Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2000 and 1999
- -------------------------------------------------------------------------------
1. Comprehensive Income (Loss)
The components of comprehensive income (loss), net of tax, are as follows:
Three Months Three Months
Ended Ended
Jun. 30, Jun. 30,
2000 1999
-------------------- --------------------
Comprehensive income
Net income (loss) ($258,990) $118,093
Net unrealized gain (loss) on securities, (net of
reclassification adjustment) (715,800) 618,488
-------------------- --------------------
($974,790) $736,581
-------------------- --------------------
Six Months Six Months
Ended Ended
Jun. 30, Jun. 30,
2000 1999
-------------------- --------------------
Comprehensive income
Net income (loss) ($315,082) $356,641
Net unrealized gain (loss) on securities, (net of
reclassification adjustment) (1,022,324) 584,045
-------------------- --------------------
($1,337,406) $940,686
-------------------- --------------------
2. Shareholders' Equity
On January 24, 2000, the Company issued 178,000 common shares at a price
per share of $2.50 for total proceeds of $445,000.
On January 24, 2000, the Company issued 20,000 common shares as
compensation for a consulting agreement for investor relations and
financial advisory services. The contract is for a term of nine months and
the Company is recognizing consulting expenses of $102,500 during the term
of the contract.
On April 13, 2000, the Company issued 186,000 common shares at a price per
share of $1.00 for total proceeds of $186,000. The Company paid a
commission to a finder of $8,000 and 2,000 common shares.
3. Earnings per Share
For the three months and six months ending June 30, 2000, the number of
shares used for basic and diluted loss per share are the same because the
inclusion of common stock equivalents would be antidilutive.
For the three months and six months ending June 30, 1999, the company had
no common stock equivalents.
8
4. Purchase of Southland Securities Corporation
On April 3, 2000, Level Jump acquired Southland Securities Corporation
("Southland"), which was accounted for as a purchase. Southland is a
National Association of Securities Dealers registered broker-dealer. The
purchase price for the transaction was $10,000 paid on January 3, 2000,
$190,000 paid at the time of close and $150,000 paid after the outcomes of
two arbitrations had been determined. Both arbitrations had settled by June
30 and $150,000 was paid to the previous owner in May.
On April 7, 2000, the Company changed the name of Southland to Level Jump
Trading, Inc. The net assets of Southland on the date of acquisition, at
their fair value, were as follows:
Bank overdraft ($55)
Deposits with clearing broker 11,873
Accounts payable (9,141)
-----------
Net assets $2,677
-----------
Goodwill, the amount the purchase price exceeds the fair value of net
assets purchased, of $347,323 has been booked and is being amortized on a
straight line basis over a period of five years.
Selected unaudited pro forma combined results of operations for the six
months ended June 30, 1999, the year ended December 31, 1999 and the six
months ended June 30, 2000, assuming the Southland acquisition occurred on
January 1, 1999 and 2000 respectively, are presented as follows:
Six Months Year Six Months
Ended Ended Ended
Jun. 30, Dec. 31, Jun. 30,
2000 1999 1999
-------------- --------------- ---------------
Total revenues $152,286 $3,044,214 $891,659
Net income (loss) ($577,800) $282,464 $150,454
Net income per common and ($0.07) $0.02 $0.04
common equivalent share
5. Net Capital Requirements
As a registered broker-dealer, Level Jump Trading is subject to the
requirements of Rule 15c3-1 (the net capital rule) under the Securities
Exchange Act of 1934, as amended. The object of the rule is to require the
broker-dealer to have at all times sufficient liquid assets to cover its
current indebtedness. Specifically, the rule prohibits a broker-dealer from
permitting its "aggregate indebtedness" from exceeding fifteen times its
net capital as those terms are defined.
On June 30, 2000, Level Jump Trading's aggregate indebtedness and net
capital were $61,979 and $244,553, respectively, a ratio of 0.25 to 1.00.
9
6. Segmented Information
The Company is engaged in two lines of business: Broker-Dealer and
Financial Public Relations. Each line of business is operated in separate
subsidiaries. Level Jump Trading, the Broker-Dealer, is located in New
York, NY and Fort Worth, TX. thestockpage.com, Financial Public Relations,
is located in Toronto, Ontario, Canada. Prior to April 3, 2000, the Company
operated in one line of business, Financial Public Relations, and
comparative data is not included. The following is a summary of the
Company's operations by business segment for the three months and six
months ending June 30, 2000:
Financial
Broker-Dealer Public
Relations
---------------- --------------
For the three months ended
June 30, 2000
Revenue $176,143 $33,832
Cost of revenues 70,345 12,300
Operating expenses 151,609 497,024
Income (loss) from operations ($45,811) ($475,492)
Investment income 12,047 264,170
---------------- --------------
Income (loss) before income taxes ($33,764) ($211,322)
---------------- --------------
For the six months ended June 30, 2000
Revenue $274,858 $50,719
Cost of revenues 70,345 129,286
Operating expenses 151,609 1,154,834
Income (loss) from operations $52,904 ($1,233,401)
Investment income (71,657) 917,121
---------------- --------------
Income (loss) before income taxes ($18,753) ($316,280)
---------------- --------------
June 30, 2000
Assets $582,176 $1,541,330
---------------- --------------
10
7. Commitments and Contingencies
At June 30, 2000, thestockpage.com has current income taxes payable to the
Canadian federal government and Ontario provincial government of $579,216.
This liability is past due and interest is accruing at a rate of 9%.
Because of operating losses, the decline in value of securities, limited
cash flow, and intercompany loans that cannot be repaid immediately,
thestockpage.com cannot repay its Federal and Provincial tax liabilities at
this time. The Federal and Provincial governments have a number of options
available to them when attempting to collect unpaid taxes including:
attachment or seizure of assets, garnishment of accounts receivable, bank
accounts or wages, and cancellation of thestockpage.com's articles of
incorporation. To date, thestockpage.com has not entered into any formal
repayment arrangements with the Federal or Provincial governments.
thestockpage.com has had some preliminary discussions with the Provincial
government regarding repayment options but no agreement has been reached.
There is significant risk that thestockpage.com could be shut down by the
Canadian Federal and/or Ontario Provincial governments because of its
inability to repay its current income taxes.
thestockpage.com and its management are involved in a dispute with a third
party regarding failed negotiations between thestockpage.com and its
management to sell an interest in thestockpage.com to the third party.
Claims and counterclaims have been filed by thestockpage.com and the third
party respectively. Management believes the claims are without merit, and
does not believe that the Company's potential exposure related to this
matter would have a material adverse effect on the Company's financial
position.
thestockpage.com has filed a claim against a previous client for failure to
make complete payment for performance under a contract. The previous client
has filed a counterclaim seeking damages for breach of contract and
interference in economic relations. The proceeding is currently at a very
early stage and the Company is unable to predict its ultimate outcome.
Management believes the counterclaim is without merit and intends to defend
against it vigorously.
A previous contractor to Level Jump Trading has made a demand under the
provisions of the Texas Deceptive Trade Practices-Consumer Protection Act.
The demand alleges that Level Jump Trading owes the contractor $117,848 for
past services. The proceeding is currently at a very early stage and the
Company is unable to predict its ultimate outcome. Management believes the
demand is without merit and intends to defend against it vigorously. As
part of the Purchase Agreement between the Company and the previous owner
of Level Jump Trading (previously Southland Securities), the Company is
indemnified for up to $150,000 for past liabilities. The Company has
provided notice to the previous owner per the terms of the Purchase
Agreement and is working with the previous owner to respond to the demand.
A claim has been filed against the Company and a director alleging that the
Company, the director and a number of unrelated parties owe up to $90,000
as a finders fee for a transaction. Management believes that the Company
should not have been named in the claim as the Company was not party to the
alleged transaction. Management intends to file a summary judgment seeking
to have the Company's name removed from the claim. The proceeding is
currently at a very early stage and the Company is unable to predict its
ultimate outcome. Management believes the claim is without merit and
intends to defend against it vigorously.
Management is not currently aware of any other legal proceeds or claims
that the Company believes will have, individually or in the aggregate, a
material adverse effect on the Company's financial position or results of
operations.
11
Item 2. Management's Discussion and Analysis
When used in this Form 10-QSB and in future filings by Level Jump with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"management expects," "Level Jump expects," "will continue," "is anticipated" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speak only as of the date made. These statements are subject to
risks and uncertainties, some of which are described below. Actual results may
differ materially from historical earnings and those presently anticipated or
projected. Level Jump has no obligation to publicly release the results of any
revisions that may be made to any forward-looking statements to reflect
anticipated events or circumstances occurring after the date of such statements.
Introduction
The Company continues to focus its development on the broker-dealer and
financial public relations activities for small and micro-cap companies. Because
of the limitations of its current financial resources and revenues and the
overall climate for on-line financial services, the Company has decided to
devote its limited resources solely to its core business and put on indefinite
hold the former overall business strategy of developing a diversified financial
services organization centered on a web-based transaction enabled financial
portal. To have continued the larger business strategy and approach, a
successful implementation of it would have required financial and human
resources currently beyond those available to the Company and a longer time
frame than would be justified for the expenditures of effort and investment.
The transaction enabled financial portal for Level Jump Trading is still under
development. The Company had intended to launch it in July 2000. Due to delays
in its development, however, the Company anticipates launching the web site
later in 2000. Management has not set a firm date at this time. The transaction
enabled financial portal will provide free financial data and information along
with brokerage and corporate finance services for investors.
Based on its experience to date, the Company believes there is significant
opportunity in the relatively unexploited niche of the small-cap markets. This
market is characterized by being serviced in an inefficient and fragmented
manner, by regulatory changes and by expense concerns that have caused more
established investment banking firms to withdraw from this market. For a
business like the Company, this business and regulatory climate and the
information dissemination capabilities of the Internet create a potent mix of
12
opportunities for the Company and its clients. Therefore, the Company plans to
continue to position itself in these markets by offering a suite of on-line and
off-line securities services and financial public relations for small-cap
companies and investors interested in the unique opportunities these companies
offer.
On April 3, 2000, the Company consummated the purchase of an NASD registered
broker-dealer now operating as a wholly owned subsidiary under the name of Level
Jump Trading, Inc. Since its acquisition, management has been building a trading
and market making infrastructure in New York, NY and Fort Worth, TX and
developing an on-line transaction enabled financial portal. Level Jump Trading
currently employs six persons in its two offices and is increasing its customer
account base. Level Jump Trading will continue to seek to add brokers and
traders and customers. The revenues of Level Jump Trading have steadily
increased during the quarter ended June 30, 2000 and with the addition of
personnel will be expected to further increase. However, because of the
volatility of the financial markets in general and the small cap market in which
Level Jump Trading focuses, there is no assurance that its revenues will
continue to increase or that it will not experience significant declines or
losses from customers withdrawing their accounts or reducing their activities or
losses from client activities such as margin loans that are extended by Level
Jump Trading that are not repaid on a timely basis or at all. Because of its
size, the Company believes there is still significant risk in this activity that
should be considered by the stockholders and investors.
thestockpage.com has undergone an image repositioning and sales process
restructuring during the last six months. These activities are expected to
continue through the third quarter. It is beginning to see the results of these
efforts through the execution of two contracts for financial public relations
services to be rendered during the third and fourth quarters of 2000, improved
response to marketing efforts and the commencement of contract discussions with
several other potential clients. The Company expects its financial results from
the activities of thestockpage.com to fluctuate from period to period based on
the success of its marketing and the services selected by clients, timing of
services and payment and the compensation packages negotiated. As a result, the
Company will experience significant changes in the amounts of revenues, expenses
and losses from these activities. The variations are not expected to cease until
its customer base is significantly larger and the effect of a single customer or
absence of customers in a period is lessened. Overall, these activities may
result in substantial losses.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
- -----------------------------------------------------------------------------
For the three months ended June 30, 2000, revenues decreased by 55% to $209,975
from $467,739 for the prior comparable period. Investor relations' revenues
decreased by 93% because thestockpage.com did not sign any new clients for its
financial public relations' service or traditional investor relations' service
during the second quarter. thestockpage.com continued its sales efforts and for
the third quarter of 2000 signed up two clients and is working to close a number
of additional clients. thestockpage.com's image repositioning has almost been
completed and management believes that this will translate into additional
revenues. Level Jump Trading contributed $176,143 in revenues to the Company.
The broker-dealer had positive results from broker commissions and securities
trading activities.
The Company's gross profit as a percentage of revenues decreased to 61% for the
three months ended June 30, 2000 from 67% for the prior comparable period. Gross
profit margin in the broker-dealer was 60% and cost of revenue consisted of
clearing fees, ECN fees and commissions to traders. Management anticipates the
gross profit margin in the broker-dealer to remain at around 60% through the end
of the fiscal year. Gross profit margin from financial public relations was 64%.
There is minimal cost of revenues from investor relations' services as
thestockpage.com conducted no investor relations' campaigns during the period.
Cost of revenue in 1999 consisted of direct salaries and costs for investor
relations' campaigns.
Operating expenses for the three months ended June 30, 2000 were $648,633, an
increase from $206,051 in the prior comparable period. Sales and marketing
expenses decreased to $26,259 from $32,471 for the prior comparable period.
13
Product development costs decreased to $0 from $1,029 for the prior comparable
period. General and administration costs increased to $605,008 from $172,551.
This increase is attributable to increases in staff salaries in thestockpage.com
and Level Jump Trading, rent expense from a larger office in Toronto, Ontario
and offices in New York, NY and Fort Worth, TX, professional fees and regulatory
fees.
For the three months ended June 30, 2000, investment income increased to
$276,217 from $52,835 in the prior comparable period. Investment income is
primarily comprised of capital gains on the sales of securities. Realized gains
are dependent on market and company specific conditions and can vary
dramatically from quarter to quarter and year to year. In the three months ended
June 30, 2000, thestockpage.com realized substantial gains from one client that
experienced increases in stock prices since thestockpage.com began holding the
securities.
The Company's effective tax rate differs from the statutory tax rate because of
operating losses in thestockpage.com and tax rate differences on capital gains
between Canada and the United States.
For the three months ended June 30, 2000, the Company's net loss was $258,990 as
compared to net income of $118,093 for the prior comparable period.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
- -------------------------------------------------------------------------
For the six months ended June 30, 2000, revenues decreased by 66% to $325,577
from $963,543 for the prior comparable period. Investor relations' revenues
decreased by 95% as thestockpage.com did not sign any new clients for its
financial public relations' service or traditional investor relations' service.
thestockpage.com continued its sales efforts and for the third quarter of 2000
has signed up two clients and is working to close a number of additional
clients. thestockpage.com's image repositioning has almost been completed and
management believes that this will translate into additional revenues. Level
Jump Trading contributed $176,143 in revenues to the Company. The broker-dealer
had positive results in broker commissions and securities trading activities.
The Company's gross profit as a percentage of revenues decreased to 39% for the
six months ended June 30, 2000 from 75% for the prior comparable period. Gross
profit margin in the broker-dealer was 74% and cost of revenue consisted of
clearing fees, ECN fees and commissions to traders. Management anticipates the
gross profit margin in the broker-dealer to stabilize at around 60% through the
end of the fiscal year as the Company is currently focused on market making and
customer brokerage. As the Company signs investment banking contracts, the gross
profit margin is expected to improve. Gross profit margin from financial public
relations was a deficit of 155%. In the first three months of the current fiscal
year, thestockpage.com completed a financial public relations campaign that
incurred substantial direct costs. Cost of revenue in 1999 consisted of direct
salaries and costs for investor relations' campaigns.
Operating expenses for the six months ended June 30, 2000 were $1,306,443, an
increase from $446,755 in the prior comparable period. Sales and marketing
expenses increased to $90,766 from $55,092 for the prior comparable period. This
increase is attributable to financial public relations costs to increase Level
Jump's profile in the investment community. Product development costs decreased
to $0 from $10,480 for the prior comparable period. General and administration
costs increased to $1,198,311 from $381,183. This increase is attributable to an
allowance for doubtful accounts, increases in staff salaries in thestockpage.com
and Level Jump Trading, rent expense from a larger office in Toronto, Ontario
and offices in New York, NY and Fort Worth, TX, professional fees and regulatory
fees.
For the six months ended June 30, 2000, investment income increased to $845,464
from $257,935 in the prior comparable period. Investment income is primarily
comprised of capital gains on the sales of securities. Realized gains are
dependent on market and company specific conditions and can vary dramatically
from quarter to quarter and year to year. In the six months ended June 30, 2000,
thestockpage.com realized substantial gains from two clients that experienced
increases in stock prices since thestockpage.com began holding the securities.
14
The Company's effective tax rate differs from the statutory tax rate because of
operating losses in thestockpage.com and tax rate differences on capital gains
between Canada and the United States.
For the six months ended June 30, 2000, the Company's net loss was $315,082 as
compared to net income of $356,641 for the prior comparable period.
Liquidity and Capital Resources
- -------------------------------
At June 30, 2000, the Company had net working capital of $30,547. The Company's
principal sources of liquidity include cash and cash equivalents, deposits with
clearing broker, and investments in marketable securities.
At June 30, 2000, thestockpage.com has current income taxes payable to the
Canadian federal government and Ontario provincial government of $579,216. This
liability is past due and interest is accruing at a rate of 9%. Because of
operating losses, the decline in value of securities, limited cash flow, and
intercompany loans that cannot be repaid immediately, thestockpage.com cannot
repay its Federal and Provincial tax liabilities at this time. The Federal and
Provincial governments have a number of options available to them when
attempting to collect unpaid taxes including: attachment or seizure of assets,
garnishment of accounts receivable, bank accounts or wages, and cancellation of
thestockpage.com's articles of incorporation. To date, thestockpage.com has not
entered into any formal repayment arrangements with the Federal or Provincial
governments. thestockpage.com has had some preliminary discussions with the
Provincial government regarding repayment options but no agreement has been
reached. There is significant risk that thestockpage.com could be shut down by
the Canadian Federal and/or Ontario Provincial governments because of its
inability to repay its current income taxes.
On August 1, 2000, the Company repaid its bank loan of $300,000.
The Company has a $1,120,667 deficit in cash from operating activities for the
six months ending June 30, 2000 compared to a deficit of $701,896 for the
comparable prior period. The decrease in cash generated from operations during
the six months ending June 30, 2000 is primarily due to the net loss, increases
in realized capital gains, deposits with clearing broker and investments in
marketable securities - trading. Offsetting these amounts was a decrease in
accounts receivable and increase in payable to clearing broker.
Net cash of $1,119,794 was generated by investing activities for the six months
ending June 30, 2000 due to sales of marketable securities of $1,426,282 that
significantly exceeded purchases of fixed assets of $129,442 and the acquisition
of Southland for $350,000. In the comparable prior period, net cash of
$1,163,832 was generated by investing activities primarily due to the proceeds
from sales of marketable securities of $437,226 and the decrease in amounts due
from related parties of $738,852.
Net cash of $417,914 was generated by financing activities for the six months
ending June 30, 2000 due to issuance of common shares of $623,000 that was
partially offset by repayment of the bank loan of $200,000. In the comparable
prior period, a net deficit of $400,929 was caused by the payment of dividends
and a decrease in due to related parties.
On January 24, 2000, the Company issued 178,000 common shares to four
individuals at a price per share of $2.50 for total proceeds of $445,000. On
April 13, 2000, the Company issued 186,000 common shares to two individuals at a
price per share of $1.00 for total proceeds of $186,000. The Company paid a
commission of $8,000 and issued 2,000 common shares with a value of $1.00 per
share to a finder for assistance in raising $100,000 of the $186,000. The other
$86,000 of proceeds was raised through a director of the Company and no
commission was paid.
15
For the six months ended June 30, 2000, the Company's net increase in cash and
cash equivalents was $417,969 as compared to a net increase of $61,007 for the
prior comparable period.
The Company expects to fund short-term operations and other cash expenditures
through the use of available cash, sales of marketable securities, and new
equity sources. The Company has been covering losses through the sale of
marketable securities and the issuance of common stock. The Company's investment
position has declined significantly over the past six months and the Company
will not be able to continue covering losses in thestockpage.com beyond the next
one to two months through the sale of marketable securities. Subsequent to June
30, 2000, the Company signed a financial public relations contract that includes
compensation in freely tradable common stock with a market value of
approximately $150,000.The Company is actively looking for additional sources of
equity, however, there is no assurance that such sources will be found. If
thestockpage.com does not sign up a number of new clients or the Company does
not find additional sources of equity, thestockpage.com will have to
dramatically curtail its operations and this may include laying off staff and
reducing sales and marketing efforts. Over the long-term, management believes
that to realize its business plan, the Company will need to raise significant
external financing. If these funds are not raised, the Company will have to
scale back the implementation of its on-line financial services strategy. This
could include delaying and/or stopping development of the web site.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
A previous contractor to Level Jump Trading made a demand under the provisions
of the Texas Deceptive Trade Practices-Consumer Protection Act on May 31, 2000.
The demand alleges that Level Jump Trading owes the contractor $117,848 for past
services. Level Jump Trading has denied the demand. The proceeding is currently
at a very early stage and the Company is unable to predict its ultimate outcome.
Management believes the demand is without merit and intends to defend against it
vigorously. As part of the Purchase Agreement between the Company and the
previous owner of Level Jump Trading (previously Southland Securities), the
Company is indemnified for up to $150,000 for past liabilities. The Company has
provided notice to the previous owner per the terms of the Purchase Agreement
and is working with the previous owner to respond to the demand.
On July 11, 2000, a claim was filed against the Company and a director in the
Ontario Superior Court of Justice alleging that the Company, the director and a
number of unrelated parties owe up to $90,000 as a finders fee for a
transaction. Management believes that the Company should not have been named in
the claim as the Company was not party to the alleged transaction. Management
intends to file a motion for summary judgment seeking to have the Company's name
removed from the claim. The proceeding is currently at a very early stage and
the Company is unable to predict its ultimate outcome. Management believes the
claim is without merit and intends to defend against it vigorously.
Item 2. Changes in Securities
Sales of Unregistered Securities
- --------------------------------
On April 13, 2000 the Company issued 186,000 shares of common stock to two
investors at a price per share of $1.00 for total proceeds of $186,000. In
connection with the sale of shares, the Company issued 2,000 shares of common
stock to an individual as a finder. All the shares of common stock were issued
pursuant to Section 4(2) of the Securities Act of 1933, to persons who qualified
as sophisticated investors in similarly risk rated investments.
16
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed.
Exhibit 27.1 - Financial Data Schedule.
(b) Reports on Form 8-K.
None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act o 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
Dated: August 11, 2000 Level Jump Financial Group, Inc.
By: /s/Robert Landau
-----------------------------
Robert Landau
President
By: /s/ David Roff
-----------------------------
David Roff
Treasurer
By: /s/ Brice Scheschuk
-----------------------------
Brice Scheschuk
Secretary
(Principal Financial and
Accounting Officer)