UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: March 31, 2001
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-12023
LEVEL JUMP FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida N/A
(State of Incorporation) (IRS Employer Identification No.)
1980 Post Oak Boulevard, Suite 1777, Houston, Texas 77056
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 961-4004
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 May 1, 2001, 9,358,250 shares of Common Stock were issued and outstanding.
PART I - FINANCIAL STATEMENTS
Item 1: Financial Statements
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Shareholders' Equity F-3
Consolidated Statements of Cash Flows F-4
Notes to Financial Statements F-5
2
Level Jump Financial Group, Inc.
Consolidated Balance Sheets
(in United States dollars)
March 31, 2000 ch 31, 2001
Assets
Cash and cash equivalents $ 137,194 $ 14,686
Deposits with clearing broker - 395,763
Receivable from clearing broker -
Receivable from customer 232 -
Securities owned
Marketable, at market value - 400,485
Not readily marketable, at estimated fair value 196,730 63,300
Prepaid expenses and deposits 424,704 29,048
Deferred income taxes 29,510 -
Fixed assets 139,296 132,776
Goodwill - 290,883
------------------------------
Total Assets $ 927,666 $1,326,941
==============================
Liabilities and Shareholders' Equity
Liabilities
Payable to clearing broker $ - $ 373,274
Securities sold, not yet purchased, at market value - 130,631
Accounts payable 45,763 46,953
Accrued liabilities 116,670 22,423
Note payable - 95,590
Obligations under capital lease 85,897 -
Deferred income taxes 29,510 -
Deferred revenues 301,773 -
Due to related parties - 465,902
Income taxes payable - -
Deferred lease inducements 7,055 -
------------------------------
Total Liabilities 586,668 1,134,773
Shareholders' equity
Share capital
Authorized
1999 - 4,999,998 Preferred shares, $.0025 par value
1999 - 1 Preferred share, Class A, $.0025 par value -
1999 - 1 Preferred share, Class B, $.0025 par value -
2000 - 4,942,000 Preferred shares, $.0025 par value
2000 - 58,000 Preferred shares, Class C, $10 stated value
200,000,000 Common shares, $.0025 par value
Issued
58,000 Preferred shares, Class C, $10 stated value - 580,000
8,778,000 Common shares, $.0025 par value 20,154 23,346
Par value in excess of capital 530,586 847,456
Retained earnings (deficit) (209,742) (1,258,634)
- -
-----------------------------
Total Shareholders' Equity 340,998 192,168
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 927,666 $1,326,941
=============================
F-1
Level Jump Financial Group, Inc.
Consolidated Statements of Operations
(in United States dollars)
For the For the
Quarter Ended Quarter Ended
Mar. 31, 2000 Mar. 31, 2001
Revenue
Commissions $ 98,715 $ 139,309
Trading - 130,589
Interest - 505
Investment banking (810) -
Investments - -
--------------------------
97,905 270,403
Expenses
Compensation and benefits 4,815 58,259
Clearance fees - 18,709
Depreciation - 9,226
Commissions - 60,510
Professional Fees - 90,823
Occupancy - 20,581
Sales and Marketing 58,406 -
Amortization - 5,956
Other expenses 192,923 8,805
---------------------------
Total operating expenses 256,144 272,869
---------------------------
Income (loss) from operations before income taxes (158,239) (2,466)
Income Taxes - -
---------------------------
Net income (loss) (158,239) (2,466)
Other comprehensive income
Net of income tax - -
Unrealized holding losses - (148,959)
---------------------------
Comprehensive income (loss) $ (158,239) $ (151,425)
===========================
Basic earnings (loss) per common share: (0.02) (0.02)
Diluted earnings (loss) per common share: (0.02) (0.02)
Shares used in per share calculation - basic 8,061,500 9,338,000
Shares used in per share calculation - diluted 8,061,500 9,338,000
F-2
Level Jump Financial Group, Inc.
Consolidated Statements of Shareholders' Equity
(in United States dollars)
For the years ended December 31, 2000 and 1999
Accumulated
Other Compre-
Par Value Comprehensive hensive
Preferred Shares Common Shares in Excess Retained Income Income
Number Amount Number Amount of Capit Earnings (Loss) Total (Loss)
Balance at December 31, 1998 100 72 329,350 53,856 383,278
Dividends paid (364,510) (364,510)
Issuance of preferred share, Class A 1 -
Issuance of preferred share, Class B 1 -
Issuance of common shares 3,700,000 37,000 37,000
Change in par value (33,300) (33,300)
Exchange of preferred shares for
exchangeable preferred shares
in subsidiary (100) (72) 72 -
Recapitalization upon reverse acquisition 1,387,500 9,018 (9,018) -
Acquisition of Caldera Corporation 2,776,000 6,941 (7,401) (460)
Comprehensive income
Net income 553,439 553,439 553,439
Net unrealized gain on securities
net of reclassification adjustment 819,591 819,591 819,591
-----------
Comprehensive income 1,373,030
------------------------------------------------------------------------------===========
Balance at December 31, 1999 2 - 7,863,500 19,659 (16,419) 518,351 873,447 1,395,038
Issuance of common shares, Jan. 24 178,000 445 444,555 445,000
Issuance of common shares for services,
Jan. 24 20,000 50 102,450 102,500
Issuance of common shares, Apr. 13 188,000 470 177,530 178,000
Issuance of common shares for services,
Nov. 9 510,000 1,275 49,725 51,000
Cancellation of preferred shares, Class A
and (B), Dec. 12 (2) - -
Issuance of common shares for services,
Dec. 14 18,500 46 3,422 3,468
Issuance of preferred shares, Class C,
Dec 58,000 580,000 31,595 611,595
Comprehensive income
Net loss (1,624,748) (1,624,748) (1,624,748)
Net unrealized loss on securities
net of reclassification adjustment (873,447) (873,447) (873,447)
----------
Comprehensive income (2,498,195)
--------------------------------------------------------------------------------==========
Balance at December 31, 2000 58,000 $580,000 8,778,000 $ 21,945 792,858 $(1,106,397) $ - $ 288,406
=============================================================================
Disclosure of reclassification adjustment:
Unrealized holding gains arising during
the year ended December 31, 1999 1,455,422
Less: Reclassification adjustment for
realized capital gains
included in net income 230,184
--------
Unrealized gains on securities 1,225,238
Less: Tax expense (405,647)
--------
Net unrealized gain on securities 819,591
========
Unrealized holding losses arising during
the year ended December 31, 2000 (1,577,189)
Less: Reclassification adjustment
for realized capital gains
included in net income -
--------
Unrealized losses on securities (1,577,189)
Add: Tax benefit 703,742
--------
Net unrealized gain on securities (873,447)
========
F-3
Level Jump Financial Group, Inc.
Consolidated Statements of Cash Flows
(in United States dollars)
For the For the
Quarter Ended Quarter Ended
Mar. 31, 2000 Mar. 31, 2001
Cash flows from operating activities
Net income (loss) from continuing operations (158,239) (151,425)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) continuing operations
Amortization, Depreciation 2,755 10,386
Deferred income taxes - -
Permanent impairment in securities owned, not
readily marketable -
Fees satisfied by securities
Consulting and compensation expenses satisfied
by securities 102,500 56,000
Changes in assets and liabilities of continuing
operations, net of business combinations
Accounts receivable (232) -
Deposits with clearing broker 38,490
Receivable from clearing broker 12,258
Marketable securities owned, at market value (129,637)
Prepaid expenses and deposits (76,693) 1,233
Payable to clearing broker 115,711
Securities sold, not yet purchased, at market value 122,550
Accounts payable 20,354 (16,268)
Accrued liabilities 112,793 10,447
Deferred revenues (98,365) (10,000)
Income taxes payable (1,678) -
Deferred lease inducements (1,388) (1,708)
-------------------------
Net cash provided by (used in) operations (98,193) 58,037
Cash flows from investing activities
Purchases of fixed assets (45,091) -
Purchases of not readily marketable security 1 (111,040)
Acquisition of Southland Securities Corporation (320,000) -
-------------------------
Net cash (used) by investing activities (365,090) (111,040)
Cash flows from financing activities
Due to related parties 147,288 433,957
Proceeds from note payable - 95,590
Proceeds from issuance of common shares 445,001 -
Proceeds from issuance of preferred shares, Class C - -
Obligations under capital lease (800) (87,994)
Payment against loan payable - (433,957)
-------------------------
Net cash provided by financing activities 591,489 7,596
Net increase in cash and cash equivalents during the period 128,206 4,967
Cash and cash equivalents, beginning of period 8,988 (19,653)
-------------------------
Cash and cash equivalents, end of period 137,194 (14,686)
=========================
Supplementary cash flow information
Cash paid for interest - -
Cash paid for income tax - -
Supplementary schedule of non-cash investing and
financing activities
Obligations under capital lease (included in
purchases of fixed assets) 86,697 -
F-4
Level Jump Financial Group, Inc.
Notes to Financial Statements
March 31, 2001
Note 1 - BASIS OF PRESENTATION
The unaudited financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such SEC rules and regulations; nevertheless. The Company
believes that the disclosures are adequate to make the information presented not
misleading. The financial statements and the notes hereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2000
which was filed March 23, 2001. In the opinion of the Company, all adjustments,
including normal recurring adjustments necessary to present fairly the financial
position of Level Jump Financial Group, Inc. as of March 31, 2001 and the
results of its operations and cash flows for the quarter then ended, have been
included. The results of operations for the interim period are not necessarily
indicative of the results for the full year.
NOTE 2 - NATURE OF BUSINESS
Level Jump Financial Group, Inc. (the "Company") operates in one business
segment: broker-dealer. On April 3, 2000, the Company acquired a wholly owned
subsidiary, BNJ Capital Securities Corp. ("BNJ"), a National Association of
Securities Dealers ("NASD") registered broker-dealer. BNJ was incorporated July
1, 1996 in the state of Texas. The original name of BNJ was Birchman Financial
Group, Inc. On August 12, 1996, the company name was changed to Southland
Securities Corporation. On April 7, 2000, the company name was changed to Level
Jump Trading, Inc. On November 3, 2000, the company name was changed to BNJ
Capital Securities Corp. BNJ operates as a broker-dealer in securities. All
customers' securities, funds and accounts are processed and carried by a
correspondent broker-dealer.
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).
During the fourth quarter 2000, the board of directors of the Company initiated
a restructuring of the Company. On December 12, 2000, thestockpage.com, a
significant subsidiary of the Company, was sold to two members of the board of
directors. The sale of thestockpage.com was accounted for as a discontinued
operation. On December 18, 2000, related party debtholders converted $611,595 in
loans into Class C preferred shares of the Company. On December 28, 2000, Level
Jump Asset Management, Inc., a dormant subsidiary of the Company, was wound up.
On February 15, 2001, the board of directors of the Company sold a controlling
interest in the Company to a third party. As part of the sale agreement, the
existing board of directors resigned and was replaced by a new board of
directors appointed by the third party.
F-5
These consolidated financial statements have been prepared by management in
accordance with generally accepted accounting principles for broker-dealers in
the United States. Upon completion of the sale of thestockpage.com which has
been accounted for as a discontinued operation, the Company operates solely as a
broker-dealer in securities through its subsidiary, BNJ. Accordingly, the
Company has prepared its financial statements using the conventions for
broker-dealers. The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, BNJ Capital
Securities Corp. and Level Jump Financial Group (Canada), Inc. Level Jump
Financial Group (Canada), Inc. is dormant and management of the Company is
winding up Level Jump Financial Group (Canada), Inc.
Note 3 - RELATED PARTY TRANSACTION
On March 31,2001 the Company obtained a loan from a related party in the amount
of $95,589.91. The note is unsecured , bears an interest rate of 12% per annum
and is due April 15, 2002 principal and interest. As additional consideration
the Company granted the older options to purchase up to 100,000 shares of common
stock in Cavallo, Inc. at a rate of $0.25 per share. This option expires on or
before April 15, 2004.
Common Stock - During the quarter the Company issued 500,000 shares of common in
return for consulting and legal services valued at $50,000 to the majority
shareholder. Additionally the Company issued 60,000 to shareholders in return
for consulting services valued at $6,000.
Note 4 - FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report, the Company's annual Report on Form 10-KSB and other reports and
documents that the Company files with the Securities and Exchange Commission.
F-6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less.
Securities
Customers' securities transactions are recorded on a settlement date basis,
which is generally three business days after trade date with related revenues
and expenses recorded on a trade date basis. The Company's securities
transactions are recorded on a trade date basis. Marketable securities are
recorded at market value and securities not readily marketable are valued at
fair value as determined by the Board of Directors. The resulting difference
between cost and market (or fair value) is included in income.
Income Taxes
The Company accounts for income taxes under the asset and liability method as
required by SFAS No. 109, "Accounting for Income Taxes", issued by the Financial
Accounting Standards Board ("FASB"). Under this method, deferred income tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Fixed Assets
Fixed assets are recorded at cost less accumulated amortization. Amortization is
provided for at rates intended to write off the assets over the estimated useful
lives. Computer equipment and software and furniture and fixtures are amortized
on a straight-line basis ranging from 3 to 5 years. Leasehold improvements are
amortized on a straight-line basis over the term of the lease.
Investment Banking
Investment banking revenues are fees earned for financial advisory services and
are recorded over the term of the advisory contracts at the fair value of
consideration received. Consideration received prior to completion of the
advisory contracts is recorded as deferred revenue.
Stock Options
The Company applies the recognition and measurement principles of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and the disclosure provision of FASB SFAS No. 123, "Accounting for
Stock-Based Compensation", in accounting for stock options granted to employees.
Under APB 25, compensation cost is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
Earnings Per Share
Basic earnings (loss) per share is computed using the weighted average number of
common shares that are outstanding during the period. Diluted earnings (loss)
per share is computed using the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options using the treasury stock method. At December 31, 2000, diluted loss per
share is equal to basic loss per share because the inclusion of common stock
equivalents is anti-dilutive. At December 31, 1999, common equivalent shares
include the exchangeable preferred shares issued and outstanding in
thestockpage.com which in turn can be exchanged into common shares of the
Company.
F-7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Impairment of Assets
Management reviews assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management assesses impairment by comparing the carrying amount to
individual cash flows. If deemed impaired, measurement and recording of an
impairment loss is based on the fair value of the asset.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
Allowance for Doubtful Accounts
Management reviews accounts receivable for collectability on an ongoing basis,
and records an allowance for uncollectable accounts. The establishment of the
allowance relies on the judgment of management, on historical precedent and
expectations as to future collections.
Deferred Lease Inducements
Deferred lease inducements are being amortized over the term of the lease.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which was adopted by the Company. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in an entity's
financial statements. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Accumulated other
comprehensive income, as presented on the 1999 balance sheet, consists of the
net unrealized gains on available-for-sale securities, net of the related tax
effect.
Recent Accounting Standards
In June 1998, the 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 does not expect the adoption of SFAS
133 to have a material effect on its financial position or results of
operations.
F-8
NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Receivable and Payable From / To Clearing Broker
Receivable and payable from / to clearing broker are from trading activity and
are collateralized by marketable securities. Interest is at a fluctuating rate.
Securities Owned / Securities Sold Not Yet Purchased
All securities owned / securities sold not yet purchased consist of NASDAQ and
over the counter stocks.
Fixed Assets
Fixed assets consisted of the following:
Year Year
Ended Ended
Dec. 31, 2000 Dec. 31, 1999
-----------------------------
Leasehold improvements $ 38,300 $ 6,750
Furniture and fixtures 83,863 -
Computer equipment and software 78,142 3,911
-----------------------------
200,305 10,661
Less: accumulated amortization (54,292) (398)
-----------------------------
Net book value $ 146,013 $ 10,263
-----------------------------
Amortization expense was $53,894 and $398 at December 31, 2000 and 1999
respectively.
Accrued Liabilities
Accrued liabilities consisted of the following:
Year Year
Ended Ended
Dec. 31, 2000 Dec. 31, 1999
-----------------------------
Commissions payable to trading representatives $12,022 $ -
Payroll and sales taxes payable (receivable) (46) 3,877
-----------------------------
$11,976 $ 3,877
-----------------------------
NOTE 4 - DISCONTINUED OPERATIONS
On October 30, 2000, the Company decided to sell its investor relations'
subsidiary, thestockpage.com inc. to two directors and members of the management
team. On October 30, 2000, the sale was approved by the disinterested members of
the board of directors. On October 31, 2000, shareholders who are the owners of
record of the Company's voting securities having the right to vote the
equivalent of 12,619,553 shares of common stock executed and delivered to the
Company their written consent to the sale.
On December 12, 2000, the sale of thestockpage.com was completed for
consideration of: i) the cancellation of 5,912,500 shares of thestockpage.com's
exchangeable stock, each share exchangeable upon certain conditions into one
share of the Company's common stock, par value $.0025 per share, (ii) the
surrender for cancellation of each share of the Company's Class A preferred
stock and Class B preferred stock held by the purchasers, (iii) the cancellation
of employment agreements that the Company had with each of the purchasers, and
(iv) $100 in cash. The sale resulted in a loss of $470,182.
F-9
NOTE 4 - DISCONTINUED OPERATIONS (CONT'D)
This business has been accounted for as a discontinued operation and,
accordingly, its net assets have been segregated from continuing operations in
the accompanying consolidated balance sheets, and its operating results are
segregated and reported as discontinued operations in the accompanying
consolidated statements of operations and cash flows.
Net assets of thestockpage.com at December 31, 1999 are summarized as follows:
Dec. 31,
1999
----------------
Cash and cash equivalents $10,438
Investments in marketable securities 2,172,389
Accounts receivable, net 290,944
Due from related parties 373,103
Long term investments in marketable securities 124,302
Fixed assets 32,293
Other assets 90,872
Accounts payable and accrued liabilities (52,677)
Bank loan (500,000)
Deferred income taxes (439,316)
Deferred revenues (32,169)
Income taxes payable (626,775)
----------------
$1,443,404
----------------
thestockpage.com had revenues of $256,425 and $2,729,103 in 2000 and 1999
respectively.
NOTE 5 - PURCHASE OF BNJ CAPITAL SECURITIES CORP. (PREVIOUSLY 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. On November 3, 2000, the Company changed the name of Level Jump
Trading, Inc. to BNJ Capital Securities Corp. 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.
F-10
NOTE 5 - PURCHASE OF BNJ CAPITAL SECURITIES CORP. (PREVIOUSLY SOUTHLAND
SECURITIES CORPORATION) (CONT'D)
Selected unaudited pro forma combined results of operations for the years ended
December 31, 2000 and 1999, assuming the Southland acquisition occurred on
January 1, 1999 and 2000 respectively, are presented as follows:
Year Year
Ended Ended
Dec. 31, Dec. 31,
2000 1999
-------------------------
Total revenues $369,526 $315,094
Net income (loss) ($1,887,466) $282,464
Net income per common and common equivalent share ($0.23) $0.02
NOTE 6 - ISSUANCE OF NOTE PAYABLE
On September 29, 2000, the Company received $803,900 fair value of freely
tradable common stock of two United States Over-the-Counter Bulletin Board
issuers from two external parties in a non-monetary transaction. In exchange for
the common stock, the Company issued a note payable to the external parties. The
amounts received were used to capitalize the Company's broker-dealer subsidiary.
The note is non-interest bearing and has a maturity date of February 15, 2001.
The Company can sell the common stock with prior permission from the lenders.
Any amounts sold by the Company are repayable in cash on the maturity date. Any
amounts still held as common stock are repayable in common stock on the maturity
date. $400,000 in cash value of the note payable can be converted at the
lenders' option into a 39.9% equity interest in the Company's broker-dealer
subsidiary. At December 31, 2000, the note payable had a value of $433,957.
NOTE 7 - CAPITAL LEASE
The Company entered into a capital lease that commenced on March 8, 2000 for
certain fixed assets including leasehold improvements, furniture and fixtures,
computer equipment and software. The lease was for a term of five years. At
December 31, 2000, the Company was in default on its lease payments. On February
16, 2001, the Company negotiated a settlement of its lease obligation with the
lessor for a cash payment of $84,239. At December 31, 2000, the Company
recognized a lease obligation of $87,994.
The following is a schedule of the fixed asset balances under capital leases at
December 31, 2000:
Dec. 31,
2000
-------------
Leasehold improvements $7,325
Furniture and fixtures 61,532
Computers and equipment and software 17,840
-------------
86,697
Less: Accumulated amortization 16,132
-------------
$70,565
-------------
F-11
NOTE 8 - INCOME TAXES
The Company is taxable at the federal and state levels within the United States
and a subsidiary of the Company is taxable within Canada. The provision for
income taxes is composed of the following:
Dec. 31, Dec. 31,
2000 1999
---------------- ------------------
Current:
Federal $ - $ -
State 1,678
Foreign 684 -
---------------- ------------------
$ 684 $1,678
---------------- ------------------
The following is a reconciliation of income tax computed at the federal
statutory rate to the provision for taxes:
Dec. 31, Dec. 31,
2000 1999
-------------- ------------------
Tax benefit computed at statutory rate: ($157,926) ($7,726)
Increase in taxes resulting from:
State taxes 1,678
Foreign taxes 684
Valuation allowance 157,926 7,726
-------------- ------------------
$ 684 $1,678
-------------- ------------------
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of the deferred
income tax assets and liabilities are as follows:
Dec. 31, Dec. 31,
2000 1999
-------------- ---------------
Deferred income tax assets:
Net operating loss carryforwards $157,926 $36,430
Valuation allowance 157,926 21,676
-------------- ---------------
- 14,754
Deferred income tax liabilities:
Deferred revenue - 14,754
-------------- ---------------
Net deferred income tax assets (liabilities) $ - $ -
-------------- ---------------
The net change in the deferred income tax asset valuation allowance was an
increase of $136,250 at December 31, 2000. The Company has provided for a
valuation allowance against deferred tax assets due to uncertainties as to the
Comany's ability to utilize its net operating losses. At December 31, 2000, the
Company had net operating losses of approximately $1,139,215 which expire in
varying amounts from 2014 through 2020.
F-12
NOTE 9 - SHAREHOLDERS' EQUITY
Preferred Shares
At December 31, 2000, the Company had 5,000,000 authorized preferred shares,
$.0025 par value, of which 58,000 were issued and outstanding.
As a condition of closing the sale of thestockpage.com, inc., on December 12,
2000 the Company cancelled one Class A preferred share, $.0025 par value and one
Class B preferred share, $.0025 par value.
On December 18, 2000, the Company issued 58,000 Class C preferred shares, $10
stated value, to thestockpage.com in cancellation of a loan for $611,595 made by
thestockpage.com to the Company. The Class C preferred shares do not have any
redemption rights or, except as required by law, any voting rights. The Class C
preferred shares are entitled to non-cumulative, cash dividends of 6% per annum,
as and when declared by the board of directors. The Class C preferred shares are
convertible into 2,320,000 common shares at the rate of 40 common shares for
each preferred share, subject to protection against dilution, including stock
dividends, stock subdivisions or splits, stock combinations and
reclassifications and consolidations, mergers and reorganizations where the
Company is not the surviving entity.
Common Shares
At December 31, 2000, the Company had 200,000,000 authorized common shares,
$0.0025 par value of which 8,778,000 were issued and outstanding. During 2000,
the Company issued 366,000 common shares for proceeds of $623,000. During 2000,
the Company issued an additional 548,500 common shares for services valued at
$156,968.
Exchangeable Preferred Shares of thestockpage.com
As a condition of closing the sale of thestockpage.com, inc., on December 12,
2000 the Company cancelled agreements with thestockpage.com that allowed the
holders of exchangeable preferred shares within thestockpage.com to exchange
those shares into 5,912,500 common shares of the Company.
NOTE 10 - NET CAPITAL REQUIREMENTS
As a registered broker-dealer, BNJ is subject to the requirements of Rule 15c3-1
(the net capital rule) under the Securities Exchange Act of 1934, as amended.
The basic concept 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 December 31, 2000, BNJ's aggregate indebtedness and net capital were $56,761
and $265,648, respectively, a ratio of 0.21 to 1.00.
NOTE 11 - STOCK OPTIONS
On May 1, 1999, the Company approved the 1999 Performance Equity Plan, a fixed
employee stock-based compensation plan that allows the Company to grant
incentive stock options, non-qualified stock options and stock purchase rights
to employees, officers and directors to purchase a maximum of 2,750,000 common
shares of the Company. Stock options granted under the plans are for periods not
to exceed ten years, and must be issued at prices not less than 100%, for
incentive and non-qualified stock options, of the fair market value of the stock
on the date of grant as determined by the board of directors. The vesting period
to exercise the option to purchase stock is determined by the board of directors
and ranges from one to five years, subject to a holding period of not less than
six months from the date of grant of an award under this plan.
F-13
NOTE 11 - STOCK OPTIONS (CONT'D)
Activity under the Company's stock option plan is summarized as follows:
Weighted
Average
Available Options Price Per
For Grant Outstanding Share
---------------- ----------------- ----------------
Balance at December 31, 1999 1,168,741 1,581,259 $1.02
Options granted, option price equal to
fair market value (75,000) 75,000 1.79
Options granted, option price greater than
fair market value (450,000) 450,000 1.28
Options cancelled 1,673,475 (1,673,475) 1.11
Options exercised - - -
Common shares issued under the
performance equity plan (528,500) - -
---------------- ----------------- ----------------
Balance at December 31, 2000 1,788,716 432,784 $1.03
---------------- ----------------- ----------------
The following table summarizes information concerning outstanding and
exercisable stock options at December 31, 2000.
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------- ----------------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Number Contractual Price Number Price
Exercise Price Outstanding Life (in Years) Per Share Exercisable Per Share
- ------------------------ ---------------- ------------------ --------------- ----------------- ----------------
$0.00 - $0.50 63,595 3.6 $0.36 63,595 $0.36
$0.51 - $1.00 291,500 6.7 1.00 30,500 1.00
$1.01 - $1.50 54,000 6.6 1.50 9,000 1.50
$1.51 - $2.00 6,189 4.4 1.82 6,189 1.82
$2.01 - $2.50 17,500 4.3 2.36 17,500 2.36
---------------- ------------------ --------------- ----------------- ----------------
432,784 6.1 $1.03 126,784 $0.94
---------------- ------------------ --------------- ----------------- ----------------
The Company applies APB Opinion No. 25 in accounting for its fixed employee
stock compensation plan. Accordingly, no compensation expense has been
recognized for the year ended December 31, 2000. Had compensation expense been
determined based on the fair value at the grant dates as prescribed in FASB SFAS
No. 123, the Company's results would have been as follows:
Dec. 31, Dec. 31,
2000 1999
-------------- -------------
Net income (loss)
As reported ($1,624,748) $553,439
Pro forma (1,863,178) 544,798
-------------- -------------
Basic earnings (loss) per share ($0.20) $0.07
Diluted earnings (loss) per share ($0.20) $0.05
-------------- -------------
Basic earnings (loss) per share as Pro forma ($0.23) $0.07
Diluted earnings (loss) per share as Pro forma ($0.23) $0.05
-------------- -------------
F-14
NOTE 11 - STOCK OPTIONS (CONT'D)
The fair value of each stock option grant was determined on the date of grant.
The weighted average fair market value of a stock option with an exercise price
equal to the estimated market price of a common share on the date of grant for
the year ended December 31, 2000 was $2.22. The weighted average fair market
value of a stock option with an exercise price that exceeds the estimated market
price of a common share on the date of grant for the year ended December 31,
2000 was $0.93. The fair market value of the stock options was determined using
the Black Scholes option pricing model, based on the following assumptions:
Year
Ended
Dec. 31,
2000
------------------
Dividend yield -
Risk free interest rate 5.75%
Expected life 3.30 Years
Expected volatility 221.49%
Because additional stock options are expected to be granted each year, the above
pro forma disclosure is not representative of pro forma effects on reported
financial results for future years.
F-15
NOTE 12 - EARNINGS PER SHARE
The computation of basic and diluted earnings per share were as follows:
Year Year
Ended Ended
Dec. 31, Dec. 31,
2000 1999
--------------- --------------
Basic:
Net loss from continuing operations attributable
to common shares ($1,053,522) ($51,506)
Income (loss) from discontinued operations attributable
to common shares (101,044) 604,945
Loss on disposal (470,182) -
Net income (loss) attributable to common shares (1,624,748) 553,439
--------------- --------------
Weighted average common shares outstanding (see (a)) 8,253,556 7,863,500
--------------- --------------
Basic earnings (loss) per share from continuing operations ($0.13) ($0.01)
Basic earnings (loss) per share from discontinued operations (0.01) 0.08
Basic earnings (loss) per share on disposal (0.06) -
Basic earnings (loss) per share (0.20) 0.07
--------------- --------------
Diluted:
Adjusted loss from continuing operations attributable
to common shares ($1,053,522) ($51,506)
Adjusted income (loss) from discontinued operations
attributable to common shares (101,044) 604,945
Adjusted loss on disposal (470,182) -
Adjusted income (loss) attributable to common shares (1,624,748) 553,439
--------------- --------------
Weighted average common shares outstanding (see (b)) 8,253,556 7,863,500
Assumed exercise of stock options, net of common shares
assumed repurchased with the proceeds - -
--------------- --------------
8,253,556 7,863,500
--------------- --------------
Diluted earnings (loss) per share from continuing operations ($0.13) ($0.01)
Diluted earnings (loss) per share from discontinued operations (0.01) 0.08
Diluted earnings (loss) per share on disposal (0.06) -
Diluted earnings (loss) per share (0.20) 0.07
--------------- --------------
(a) The weighted average common shares outstanding during 1999 as used in the
computation of basic earnings per share is represented by 7,863,500 common
shares issued. The weighted average common shares outstanding is comprised of
the following:
Caldera shares outstanding prior to the reverse merger 2,776,000
Shares issued as part of the reverse merger 5,087,500
-------------
7,863,500
-------------
The weighted average common shares outstanding during 2000 as used in the
computation of basic earnings per share is represented by 8,253,556 common
shares issued.
(b) At December 31, 1999 and 2000, weighted average common shares outstanding
are equal to common shares for basic EPS because the inclusion of common stock
equivalents is anti-dilutive to adjusted net loss from continuing operations.
F-16
NOTE 13 - RELATED PARTY TRANSACTIONS
Included in amounts due to related parties as at December 31, 2000 are loan
payables of $31,945 to two officers and shareholders with no interest rate and a
maturity date of February 15, 2001, and as at December 31, 1999, are loan
payables of $151,386 to a previously owned subsidiary of the Company and $3,200
to an officer and shareholder.
All of the above amounts were recorded at the exchange value.
NOTE 14 - FINANCIAL INSTRUMENTS
Fair Value - The carrying value of monetary assets and liabilities approximates
fair value.
Concentrations of Risk - BNJ's deposits, trading securities, customers'
securities, funds and accounts are processed and carried by Penson Financial
Services, a clearing broker-dealer.
NOTE 15 - CONTINGENCIES
Operating Lease
In 1999, the Company signed a lease for office space in New York, New York. The
lease is for a period of four years and three months with an option to renew for
a five-year period. Minimum annual lease commitments for office space with a
remaining term of one year or more at December 31, 2000 are as follows:
Year ending December 31,
2001 $54,307
2002 55,936
2003 57,614
2004 4,945
------------------
$172,802
------------------
The Company is a guarantor on a lease for office space in Toronto, Ontario,
Canada entered into by a previously owned subsidiary of the Company. The
previously owned subsidiary no longer occupies the premises and has subleased
the entire office space to an unrelated external party. The sublease is for the
term of the lease with minimum annual sublease payments that exceed the minimum
lease payments required to be made by the previously owned subsidiary. The lease
is for a period of five years with an option to renew for an additional
five-year period. Minimum annual lease commitments under the Toronto office
space lease are as follows:
Year ending December 31,
2001 $93,583
2002 93,583
2003 96,776
2004 97,840
2005 24,460
------------------
$406,242
------------------
Legal
On May 31, 2000, a previous contractor to BNJ made a demand under provisions of
the Texas Deceptive Trade Practices-Consumer Protection Act. The demand alleges
that BNJ owes the contractor up to $117,848 for past services. $17,848 of the
claim relates to the current owner and $100,000 relates to the previous owner,
of which the current owner is indemnified in full. On July 18, 2000, BNJ denied
the previous contractor's demand. BNJ has received no response from the previous
contractor since denying the claim. BNJ contacted the previous contractor's
legal counsel in September 2000 and was told that the previous contractor had
not yet responded to BNJ's denial of demands. In December 2000, BNJ and its
legal counsel agreed to close the file as no response had been received from the
previous contractor. Management believes the demand is without merit and intends
to defend against it vigorously if necessary.
F-17
NOTE 15 - CONTINGENCIES (CONT'D)
On May 18, 2000, BNJ settled an arbitration alleging that BNJ conspired with an
individual who purchased stock without sufficient funds. The previous owner of
BNJ agreed to pay $175,000 to the claimant which was paid directly by the
previous owner and was not recorded in the books of BNJ.
On June 29, 2000, BNJ was dismissed as a respondent in an arbitration relating
to the trading activities of a former employee. BNJ did not have to pay damages
as part of its dismissal.
On September 27, 2000, the Company and a director settled a claim that had been
brought against the Company and a director alleging that the Company, the
director and a number of unrelated parties owed up to $90,000 as a finders fee
for a transaction. The Company did not make any payments or provide any other
consideration to settle the claim.
On December 12, 2000, the Company and a previously owned subsidiary settled a
lawsuit with a past customer of the subsidiary. The Company did not make or
receive any payments or provide or receive any other consideration in settling
the claim.
The Company is not currently aware of any other legal proceedings 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.
NOTE 16 - SUBSEQUENT EVENTS
On January 5, 2001, the Company issued 500,000 common shares for services valued
at $50,000.
On February 15, 2001, the board of directors of the Company sold a controlling
interest in the Company to a third party. As part of the sale agreement, the
existing board of directors resigned and was replaced by a new board of
directors appointed by the third party.
F-18
Item 2: Management's Discussion and Analysis of Financial Condition
Forward-Looking Statements
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 expression 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.
During the fiscal year ending December 31, 2000, Level Jump took a
number of steps to reorganize itself and dispose of assets that were either
non-performing or were loss making operations. These actions included the sale
of thestockpage.com, an investor relations subsidiary, conversion of $611,595 in
related party debts to Class C Preferred Stock, termination of certain
employment agreements, the cancellation of the Class A Preferred Stock and the
Class B Preferred Stock and the termination of certain other agreements relating
to the capital structure of Level Jump.
As a result of these changes, the only operating business of Level Jump
is its brokerage business located in New York and operating under the name of
BNJ. BNJ is a registered broker-dealer, subject to the NASD.
The financial statements have been prepared in accordance with
generally accepted accounting principles for broker-dealers. The sale of
thestockpage.com has been accounted for as a discontinued operation. The
subsidiaries other than BNJ are being wound up.
Also, during fiscal year 2000, the former controlling shareholders
contracted to sell their controlling interest in Level Jump to Jacob
International Inc. This transaction was consummated in February 2001, and new
management was installed at that time.
Quarter ended March 31, 2001 compared to quarter ended March 31, 2000
Revenues for the three months ended March 31, 2001 were $97,905,
compared to $270,403 for the quarter ended March 31, 2000. The decline in
revenues is attributed to the general downturn in the securities business and
the reluctance of customers to enter into securities transactions in the current
economic climate. Although the company has sought to build the brokerage
business during the last eighteen months, this effort has been hampered by a
volatile market and a general decline in the industry. Level Jump, through its
subsidiary, BNJ, will continue to focus on the micro- and small-cap securities
markets and is introducing investment banking and financial consulting services.
Management believes that these business activities will generate revenues in the
future.
3
The operating expenses for the quarter ended March 31, 2001 were
$256,144 compared to $272,869 for the corresponding quarter in 2000. BNJ reduced
many of its operating expenses, however, the consolidated expenses did not
change appreciably from one quarter to the next because of an increase in
professional and legal expenses and settlement of certain outstanding
obligations which had to be dealt with in connection with the change of control
of Level Jump. In addition, sales and marketing expenses increased during the
2001 quarter in an attempt to increase business opportunities for the company.
No assurance can be given that the marketing efforts will result in improved
revenues. Level Jump is continuing to take steps to reduce and limit expenses
where possible, while at the same time trying to promote its current services.
The consolidated operating loss of Level Jump was $158,239 for the
quarter ended March 31, 2001 compared to a loss of $2,466 for the quarter ended
March 31, 2000. The comprehensive loss for the quarter ended March 31, 2001 was
$158,239 compared to $151,425 for the quarter ended March 31, 2000. The
operating loss was substantially greater than the prior period because of the
reduced revenues and the operating expenses for the quarter. In the 2000
quarter, there was an extraordinary charge for unrealized holding losses in the
amount of $148,959 which was the principal reason for the comprehensive loss in
that quarter.
Liquidity and Capital Resources
At March 31, 2001, Level Jump has net assets of $927,666. This
represents an decrease of assets $267,185 compared to net assets of $1,194,851
at December 31, 2000. The decrease in assets was principally due to a decrease
in goodwill. In accordance with GAAP as applied by broker-dealers, Level Jump
does not classify its assets and liabilities as current and non-current. The
principal sources of liquidity include deposits with its clearing broker and
marketable securities owned. Level Jump's primary obligations included accrued
liabilities, capital lease obligations, deferred income taxes and deferred
revenues.
Level Jump expects to fund short-term operations and other cash
expenditures through the use of available cash and liquid securities, infusions
of cash from related persons to the principal stockholder and management, and
new equity sources. Level Jump has been covering losses through the issuance of
common stock and issuance of notes. Over the long-term, management believes that
to realize its business plan, the company will need to raise significant
external financing. There is no assurance that Level Jump will be able to obtain
any significant capital infusion, and if obtainable whether it will be on terms
that are acceptable for the company. Level Jump does not have any sources of
financing at this time.
The independent auditors issued their opinion on the financial
statements at December 31, 2000 on the basis that the company will continue as a
going concern. The company's operating losses have continued into the first
quarter of fiscal year 2001 and are expected to continue thereafter. Therefore,
there continues to be substantial doubt from a financial point of view that
Level Jump will be able to continue as a going concern.
4
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities and Use of Proceeds
None
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:
None
(b) Reports on Form 8-K:
On January 9, 2001, Level Jump filed a report on Form 8-K to
report the sale of thestockpage.com, inc. under Item 2 which
occurred on December 12, 2000. The required financial
statements are those filed in the Form 10-KSB for Level Jump
for the fiscal year ended December 31, 2000.
On February 15, 2001, Level Jump filed a report on Form 8-K to
report the change of control of the company under Item 1 at
the time of the consummation of the sale of shares of common
stock to Jacob International Inc.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORION ACQUISITION CORP. II
Dated: May 29, 2001 /S/ Marc Harris Nathan
----------------------
Marc Harris Nathan,
Secretary
6