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: September 30, 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 59-3243555
(State of Incorporation) (IRS Employer Identification No.)
4550 Post Oak Place, Suite 175
Houston, Texas 77027
(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 November 19, 2001, 9,358,250 shares of Common Stock were issued and
outstanding.
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PART I - FINANCIAL STATEMENTS
Item 1: Financial Statements
Consolidated Financial Statements F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Cash Flows F-3
Notes to Financial Statements F-4
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LEVEL JUMP FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Sept. 30, 2001 Sept. 30, 2000
-------------- --------------
ASSETS
Current
Cash and Cash Equivalents $ 56,218 $ 65,000
Deposits WithClearing Broker 524,924 152,065
Receivable From Clearing Broker 5,220 -
Accounts Receivable, net of allowances - 53,252
Investments in Marketable Secirities, at FMV 352,148 1,271,764
Prepaid Expenses and Deposits 29,863 58,152
Deferred Income Taxes - 104,139
Note Receivable 60,000 -
Due From Related Parties 12,651 -
--------- ----------
Total 1,041,024 1,704,372
Note Receivable (Long Term Portion) 60,000 -
Investments 254,321 187,600
Fixed Assets 112,343 231,301
Goodwill (net of amortization of 69,460) 282,205 312,591
----------- ----------
TOTAL ASSETS $ 1,749,893 $2,435,864
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current
Payable to Clearing Broker $ 322,892 $ 160,781
Securities Sold, Not Yet Purchased, at Mkt. Value 4,060 -
Accounts Payable 16,174 75,197
Accrued Liabilities 2,254 51,577
Note Payable 147,055 803,900
Obligations Under Capital Lease - 12,545
Commissions Payable 116,233 -
Deferred Income Taxes - 3,589
Deferred Revenues - 229,044
Due to Related Parties 465,902 615
Income Taxes Payable - 592,066
----------- -----------
Total 1,074,570 1,929,314
=========== ===========
Deferred Lease Inducements - 3,510
Obligations Under Capital Lease - 64,815
----------- -----------
TOTAL LIABILITIES 1,074,570 1,997,639
----------- -----------
SHAREHOLDERS' EQUITY
Preferred Shares, Class A - -
Preferred Shares, Class B - -
Preferred Shares, Class C 580,000 -
Redeemable Preferred Shares - -
Common Shares 23,346 20,624
Capital in Excess of Par Value 847,459 708,116
Retained Earnings (844,213) (264,221)
Accumulated Other Comprehensive Income 68,731 (26,294)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 675,323 438,225
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,749,893 $2,435,864
=========== ==========
</Table>
F-1
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<Table>
<Caption>
LEVEL JUMP FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Periods
(Unaudited)
July 1, 2001 to Jan. 1, 2001 to July 1, 2000 to Jan. 1, 2000 to
Sept. 31, 2001 Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2000
--------------- --------------- --------------- ---------------
Revenues
Commissions $ 20,306 $ 188,187 $ 58,450 $ 99,218
Trading 314,634 540,249 (14,823) 120,552
Investment Banking 12,000 12,000 20,000 118,715
Investor Relations - - 178,733 229,452
Consulting Income
Commission - Brokerage - 263,281 - -
--------------- ------------- ------------- ---------
Total Revenues 346,940 1,003,717 242,360 567,937
Cost of Revenues (204,835) (441,103) (130,097) (329,728)
--------------- ------------- ------------- ---------
Gross Profit 142,105 562,614 112,263 238,209
--------------- ------------- ------------- ---------
Operating Expenses
Sales and Marketing - 50,000 1,959 92,725
General and Administrative 73,522 232,542 461,895 1,681,915
Amortization of Goodwill 4,341 13,024 17,366 13,023
Management Compensation - 155,876 - -
--------------- ------------- ------------- ---------
Total Operating Expenses 77,863 451,442 481,220 1,787,663
--------------- ------------- ------------- ---------
Other Income (Expense)
Interest Income 2,690 4,660 - -
Investment Income - - (165,890) 679,574
--------------- ------------- ------------- ---------
Total 2,690 4,660 (165,890) 679,574
--------------- ------------- ------------- ---------
Income (Loss) Before Income Taxes 66,932 115,832 (534,847) (869,880)
(Provision) Recovery For Income Taxes - - 67,357 87,308
--------------- ------------- ------------- ---------
NET INCOME (LOSS) 66,932 115,832 (467,490) (782,572)
Other Comprehensive Income Net of Income Taxes
Unrealized Holding Gains (Losses) 92,333 68,731 - -
--------------- ------------- ------------- ---------
COMPREHENSIVE INCOME $ 159,265 $ 184,563 $ (467,490) $ (782,572)
=============== ============= ============= ==========
Basic Earnings (Loss) Per Share $ 0.02 $ 0.02 $ (0.06) $ (0.10)
Diluted Earnings (Loss) Per Share $ 0.02 $ 0.02 $ (0.06) $ (0.10)
Shares Used in Per Share Calculation -
Basic 9,338,000 9,338,000 8,249,500 8,156,982
Diluted 9,770,784 9,770,784 8,249,500 8,156,982
</Table>
F-2
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<Table>
<Caption>
LEVEL JUMP FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods
(unaudited)
Jan. 1, 2001 to Jan. 1, 2000 to
Sept. 30, 2001 Sept. 30, 2000
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) From Operations $ 115,832 $ (782,572)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used in) Operations
Depreciation, Amortization 23,525 69,256
Bad Debts 12,075 229,688
Realized Capital Gain (664,777)
Deferred Income Taxes - (16,519)
Fees Satisfied by Securities - (365,803)
Consulting and Compensation Satisfied by Securities 56,000 171,112
Changes in Assets and Liabilities
Deposits With Clearing Broker (167,651) (140,192)
Investments in Marketable Securities, Trading - (887,149)
Accounts Receivable, net 7,038 8,004
Prepaid Expenses and Deposits 418 (12,168)
Payable To Clearing Broker 65,329 160,781
Securities Sold Not Yet Purchased, at Mkt. Value (4,021) -
Accounts Payable (47,047) 400
Accrued Liabilities (9,722) 65,271
Commissions Payable 116,233 -
Deferred Revenues (10,000) 98,510
Income Taxes - (36,387)
Deferred Lease Inducements (1,708) (4,933)
--------- ----------
Net Cash Provided By (Used In) Operating Acitvities 156,301 (2,107,478)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Due From Related Parties (12,651) 218,517
Purchase of Fixed Assets - (136,572)
Purchase of Marketable Securities (18,000) (3,300)
Proceeds From Sale of Marketable Securities 170,175 1,506,284
Purchase of Not Readily Marketable Securities (254,321) -
Acquisition of Southland Securities Corporation - (350,000)
--------- ----------
Net Cash Provided By (Used In) Investing Activities (114,797) 1,234,929
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Due to Related Parties 433,957 615
Repayment of Bank Loan (433,957) (500,000)
Repayment of Obligations Under Capital Leasee (87,994) (9,337)
Increase in Note Receivable (120,000) -
Proceeds From Loan 147,055 -
Proceeds From Note Payable - 803,900
Proceeds From Issuance of Common Stock 56,000 623,000
Payment Against Bank Overdraft - (55)
--------- ----------
Net Cash Provided By (Used In) Financing Activities (4,939) 918,123
--------- ----------
Net Increase (Decrease) in Cash During Period 36,565 45,574
Cash and Cash Equivalents - Beginning of Period 19,653 19,426
--------- ----------
Cash and Cash Equivalents - End of Period $ 56,218 $ 65,000
========= ==========
</Table>
F-3
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LEVEL JUMP FINANCIAL GROUP
FOOTNOTES
September 30, 2001 Quarterly
- -------------------------------------------------------------------------------
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in conformity with the accounting principles stated in the
audited financial statements for the year ended December 31, 2000 and
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position as of
September 30, 2001 and the results of operations for the periods
presented. These statements have not been audited by the Company's
independent certified public accountants. The operating results for the
interim periods are not necessarily indicative of results for the full
fiscal year.
The notes to the consolidated financial statements appearing in the
Company's Annual Report as filed on SEC Form 10-SB for the years ended
December 31, 2000 and 1999 should be read in conjunction with this
Quarterly Report on Form 10-QSB.
NOTE 2 - NOTE RECEIVABLE
Note dated May 10, 2001 due May 10, 2004 with interest at 6%, payable
in installments.
NOTE 3 - LOAN PAYABLE
During the quarter ending September 30, 2001, the Company issued a
Promissory Note for $45,729.76 payable to the order of Martin R.
Nathan, Trustee. The note is unsecured and bears an annual interest
rate of 12%. The note is due and payable in full on or before April 15,
2002. The note also grants an option to purchase up to 100,000 shares
of common stock in Cavallo, Inc. at the rate of $0.25 per share. The
option expires April 15, 2004.
In May, 2001, the Company acted as an advisor to the purchaser and
seller in a transaction. For these services the Company was to receive
2,776,000 and 400,000 shares of OKTI and such shares were to be
"free-trading". The shares had an agreed upon value of $0.01 per share.
In May, 2001, the Company entered into a consulting agreement with
Pardo Investors, Inc. For this agreement the Company is to receive
100,000 fully paid and non-assessable common shares of Cirus Telecom,
Inc. (restricted pursuant to SEC Rule 144).
On September 30, 2001 the Company entered into an Unsecured Promissory
Note payable to the order of ALJC CORPORATION for $101,325.19. The Note
is due April 15, 2002 in full including interest at 10%
F - 4
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LEVEL JUMP FINANCIAL GROUP
FOOTNOTES
September 30, 2001 Quarterly
- --------------------------------------------------------------------------------
NOTE 4 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS No. 109") "Accounting For Income
Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually from differences between the
financial statement and income tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, plus or minus the change
during the period in deferred tax assets and liabilities. There was no
cumulative effect of adoption or current effect in continuing
operations mainly because the Company has accumulated a net operating
loss of $799,113, which expires by 2015. The Company has made no
provision for a deferred tax asset due to the net operating loss
carry-forward because a valuation allowance has been provided which is
equal to the deferred tax asset. It cannot be determined at this time
that a deferred tax asset is more likely than not to be realized.
NOTE 5 - OTHER
On January 5, 2001, the Company issued 500,000 common shares for
services valued at $50,000.
On February 5, 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 be a new board of directors appointed by the third party.
On March 31, 2001, the Company received from Cynet, Inc. a stock
purchase warrant for the right to purchase 800,000 shares of warrant
stock at $0.20 per share. The term is 10 years.
NOTE 6 - SUBSEQUENT EVENT
On October 1, 2001 the Company tentatively reached an agreement for the
sale of the stock of BNJ Capital Securities Corporation, its wholly
owned subsidiary. The sale of BNJ is subject to NASD approval. The
Company received a deposit of $100,000 in cash, a dividend of all
furniture, fixtures and equipment of the Texas office and a Promissory
Note for $325,000 payable in 36 equal consecutive monthly payments that
could commence on December 1, 2001, bearing interest at 10% per annum,
and secured by the assets of BNJ Capital Securities Corporation.
F - 5
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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
Management continues to analyze the appropriate course and scope of
business activities of Level Jump, particularly since September 11, 2001, a day
of tragedy for the world. Management believes that the original focus on micro-
and small-cap companies is fundamentally sound and continues to capitalize upon
this endeavor. Since the change of management on February 15, 2001, Level Jump
has commenced implementation of a plan to restructure the under-performing
aspects of Level Jump and become more risk adverse. Level Jump has also begun
to add complimentary new services such as investment banking and financial
consulting. These activities increase revenue without unduly taxing current
resources.
The current economic condition of the United States and the world has
convinced management that the operations of its presently owned broker-dealer,
BNJ Capital Securities Corp., of New York City which is primarily engaged as a
trader or market maker, is not necessary to the future growth of Level Jump.
Therefore, Level Jump has entered into a contract to sell BNJ to its management
subject to approval of the National Association of Securities Dealers, Inc.
Management believes that the sale of BNJ as a "going business" generates higher
revenue than liquidation at this time or change of orientation, and avoids
potential conflicts with former and future managers and employees of BNJ.
Management seeks to balance income opportunities among various areas related to
investment and merchant banking including retail, wholesale and trading
operations. Such a balance allows for reduction of the risk of loss in the
capital intense "Trading" operations and reduction of the future capital needs
of the Company.
Level Jump continues to aggressively pursue acquisition candidates in
order to decrease marginal costs and increase operational efficiencies. Level
Jump is negotiating to acquire an interest in a broker-dealer which is
oriented to retail and investment banking operations, having a much smaller
trading operation (and much reduced exposure to trading losses) and has
negotiated with key employees for future operations. Level Jump has
substantially reduced or rearranged indebtedness of Level Jump owed to
non-affiliates and/or third parties.
2
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The success of Level Jump's activities for the past quarter changing
focus and implementing a more risk adverse environment is evident by the change
in earnings. For the nine-month period January 1, 2000 to September 30, 2000,
the Company loss was $762,572, while Level Jump earned $184,563 for the period
January 1, 2001 to September 30, 2001, and earnings per share enjoyed a
turn-around from the same nine month period 2000 of a loss of ten cents ($0.10)
per share to earnings of two cents ($0.02) per share. For the three-month period
July 1, 2000 to September 30, 2000, Level Jump loss was $467,490, while Level
Jump earned $159,265 for the period January 1, 2001 to September 30, 2001,
and earnings per share for the same quarterly period 2000 of a loss of six cents
($0.06) per share to earnings of Two cents ($0.02) per share.
Level Jump's outlook in both the short and long term is very positive
even though we find ourselves in an extremely harsh economic environment at the
present time.
Quarter ended September 30, 2001 compared to quarter ended September 30, 2000
Consolidated revenues for the nine months ended September 30, 2001 were
$1,003,717, compared to $567,937 for the corresponding period ended September
30, 2000. For the quarter ended September 30, 2001, Level Jump revenues were
greatly improved over the recent prior periods by an increase in the Level Jump
trading revenues. Although Level Jump will seek to sustain this level of
brokerage income and improve it as well as to improve the revenues from other
sources, the overall economic climate of the United States, the general downturn
in the securities business and the World Trade Center disaster may impede or
prevent the efforts. There can be no assurance that Level Jump will be
profitable.
Level Jump plans to continue to focus its management consulting
services to development stage (micro- and small-cap) corporations and its
brokerage business on the micro- and small-cap securities markets. This segment
of the market is volatile and currently subject to a general decline. There can
be no assurance that this business orientation will result in or continue to
provide sustainable profits. Level Jump has also organized Sandstone
hydrocarbons, Inc., a subsidiary which is reviewing some oil and gas leases
and/or investments.
During the current quarter, Level Jump has consulted for several
companies. For these services, Level Jump has received shares of common stock of
the issuers to which it provided services and a note receivable. Each of the
clients is considered a micro-cap company with securities that trade on the
"pink sheets" or the OTC BB. Although the company believes the securities and
note it holds or received to have value, there is no assurance that the company
will be able to realize that assigned value at any date in the future.
The total operating expenses for the nine months ended September 30,
2001 were $451,552 compared to $1,787,667 for the corresponding nine month
period in 2000. Although Level Jump reduced many of its operating expenses,
however, the consolidated expenses still include significant amounts for
professional and legal expenses and settlement of certain outstanding
obligations that had to be dealt with in connection with the change of control
of Level Jump. 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.
3
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The consolidated income of Level Jump was $115,832 for the nine months
ended September 30, 2001 compared to a loss of $782,572 for the nine months
ended September 30, 2000. The improvement in income was the result of
substantially less expenses.
The consolidated income amount was the result of the increase in Level
Jump's brokerage commission income and BNJ's trading revenues. Level Jump
believes the significant change from a loss to an income position is as a result
of its efforts to increase services available to customers, reduce costs and
promote its business through careful management. There can be no assurance that
the generation of income will be sustainable into future periods, especially in
light of the anticipated sale of BNS.
Liquidity and Capital Resources
At September 30, 2001, Level Jump has total assets of $1,041,024
compared to net assets of $1,194,851 at December 31, 2000. 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 has funded
and expects to fund in the near future short-term operational requirements 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. These amounts have been evidenced by notes issued to the lenders.
In the future, if available, Level Jump will attempt to seek equity
financing to provide a more regular source of funds for operations. Management
believes that to realize its business plan over the longer term, 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. Level Jump does
not have any sources of equity or long term capital at this time.
Although Level Jump may explore acquisitions to expand and diversify
its business from time to time, it currently has no acquisition plans at this
time. Once general economic and industry conditions stabilize, management plans
to more aggressively to seek acquisition opportunities, as a means of growing
its business and achieving sustainable revenues.
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 through the first
three months of fiscal year 2001 and may continue thereafter, although it earned
an operating profit for the quarter ending September 30, 2001. 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
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PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
From time to time, Level Jump is subject to legal proceedings and
claims which arise in the ordinary course of its business. Although occasional
adverse decisions or settlements may occur, management believes that the final
disposition of such matters will not have a material adverse effect on its
financial position, results of operations or liquidity
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:
5
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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.
LEVEL JUMP FINANCIAL GROUP, INC.
Dated: November 20, 2001 /s/ Marc Harris Nathan
----------------------
Marc Harris Nathan,
Secretary
6