SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[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
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
COMMISSION FILE NUMBER: 000-29331
SUTTON TRADING SOLUTIONS, INC.
-----------------------------------------------------------------
(Exact name of Small Business Issuer as Specified in its Charter)
NEVADA 76-0270295
- --------------------------------- -------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1000 Woodbury Road, Suite 214, Woodbury, NY 11797
-------------------------------------------------
(Address of Principal Executive Offices)
(516) 682-9700
----------------------------------------------
Issuer's Telephone Number. Including Area Code
Ikon Ventures, Inc.
-------------------
(Former Name)
Check whether the issuer (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[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of November 19, 2001, the
registrant had 21,474,798 shares of common stock outstanding.
SUTTON TRADING SOLUTIONS, INC.
FORM 10-QSB
For the Quarter Ended September 30, 2001
Index Page
Number
PART I FINANCIAL INFORMATION
Item 1 Consolidated Condensed Balance Sheets at September 30, 2001
and March 31, 2001 (unaudited for September 30, 2001 period) ..... 3
Consolidated Condensed Statements of Operations for the three
months ended September 30, 2001 and 2000 (unaudited) and for
the six months ended September 30, 2001 and 2000 (unaudited) ..... 4
Consolidated Statements of Comprehensive Income for the three
months ended September 30, 2001 and 2000 (unaudited) and for
the six months ended September 30, 2001 and 2000 (unaudited) ..... 6
Consolidated Condensed Statements of Cash Flows for the six
months ended September 30, 2001 and 2000 (unaudited) ............. 8
Notes to Consolidated Financial Statements ....................... 9
Item 2 Management's Discussion and Analysis or Plan of Operation ........ 14
PART II
Item 1 Legal Proceedings ................................................ 18
Item 2 Changes in Securities ............................................ 18
Item 3 Defaults Upon Senior Securities .................................. 19
Item 4 Submission of Matters to a Vote of Security Holders .............. 19
Item 5 Other Information ................................................ 19
Item 6 Exhibits and Reports on Form 8 - K ............................... 19
2
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
ASSETS September 30, March 31,
------ 2001 2001
----------- -----------
(Unaudited) (Audited)
(As Restated)
CURRENT ASSETS:
Cash $ 40,256 $ 207,879
Receivables:
Trade, net 251,607 3,644
Employees and affiliated company 10,000 129,209
Other 82,996 90,754
Prepaid expenses 455,674 160,208
----------- -----------
Total current assets 840,533 591,694
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures, computers and equipment 582,676 956,299
Software 2,041,426 1,321,219
Leasehold Improvements 9,027 40,850
----------- -----------
2,633,129 2,318,368
Less: accumulated depreciation and amortization (145,016) (124,138)
----------- -----------
2,488,133 2,194,230
----------- -----------
OTHER ASSETS:
Investments (Notes 3 and 4) -- 367,196
Goodwill, net 11,774 14,973
Other 33,591 6,181
----------- -----------
45,365 388,350
----------- -----------
$ 3,374,011 $ 3,174,274
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other liabilities $ 2,029,911 $ 1,564,508
Capital lease obligation 40,246 66,490
Notes payable (Note 3) -- 1,000,000
----------- -----------
Total current liabilities 2,070,157 2,630,998
----------- -----------
LONG-TERM LIABILITIES:
Capital lease obligation 56,059 78,953
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, $.025 par value, 1,000,000 shares authorized,
888,888 and 0 shares issued and outstanding 22,222 --
Common stock, $.001 par value, 100,000,000 shares authorized,
20,135,910 and 13,644,246 shares issued and outstanding, respectively 20,136 13,644
Additional paid-in capital 7,591,015 2,414,844
Accumulated other comprehensive income (6,928) (142,489)
Deficit (6,378,650) (1,821,676)
----------- -----------
1,247,795 464,323
----------- -----------
$ 3,374,011 $ 3,174,274
=========== ===========
The accompanying notes are an integral part of these statements.
3
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------
Three Months Ended
September 30,
2001 2000
------------ ------------
REVENUE:
Transaction fees $ 284,637 $ 612,049
Data fees 76,454 31,042
Other 10,263 10,000
------------ ------------
Total Revenue 371,354 653,091
------------ ------------
EXPENSES:
Clearing costs 46,812 90,393
Trading costs and user fees 37,423 71,791
Service fees (Note 4) 3,259,133 --
Salaries and related expenses 268,947 149,293
Licensing fees 29,806 123,325
General and administrative 584,924 378,082
------------ ------------
Total operating expenses 4,227,045 812,884
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (10,192) --
Other, net (316,991) 293
------------ ------------
Total other expense (327,183) 293
------------ ------------
NET LOSS BEFORE MINORITY INTEREST (4,182,874) (159,500)
MINORITY INTEREST IN LOSS OF SUBSIDIARY -- --
------------ ------------
NET LOSS $ (4,182,874) $ (159,500)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss $ (0.23) $ (0.01)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 17,948,502 13,644,246
============ ============
The accompanying notes are an integral part of these statements.
4
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------
Six Months Ended
September 30,
2001 2000
------------ ------------
REVENUE:
Transaction fees $ 835,534 $ 1,127,787
Data fees 192,806 107,696
Other 10,975 40,019
------------ ------------
Total Revenue 1,039,315 1,275,502
------------ ------------
EXPENSES:
Clearing costs 110,508 183,838
Trading costs and user fees 147,658 118,275
Service fees (Note 4) 3,259,133 --
Salaries and related expenses 589,998 274,862
Licensing fees 79,906 189,227
General and administrative 1,032,389 727,301
------------ ------------
Total operating expenses 5,219,592 1,493,503
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (67,830) --
Other, net (308,867) 592
------------ ------------
Total other expense (376,697) 592
------------ ------------
NET LOSS BEFORE MINORITY INTEREST (4,556,974) (217,409)
MINORITY INTEREST IN LOSS OF SUBSIDIARY -- --
------------ ------------
NET LOSS $ (4,556,974) $ (217,409)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss $ (0.29) $ (0.02)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 15,808,134 13,644,246
============ ============
The accompanying notes are an integral part of these statements.
5
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED STATEMENTS OF
--------------------------
COMPREHENSIVE INCOME (UNAUDITED)
--------------------------------
Three Months Ended
September 30,
2001 2000
----------- -----------
NET LOSS $(4,182,874) $ (159,500)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments (5,540) --
----------- -----------
COMPREHENSIVE LOSS $(4,188,414) $ (159,500)
=========== ===========
The accompanying notes are an integral part of these statements.
6
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED STATEMENTS OF
--------------------------
COMPREHENSIVE INCOME (UNAUDITED)
--------------------------------
Six Months Ended
September 30,
2001 2000
----------- -----------
NET LOSS $(4,556,974) $ (217,409)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments (1,388) --
----------- -----------
COMPREHENSIVE LOSS $(4,558,362) $ (217,409)
=========== ===========
The accompanying notes are an integral part of these statements.
7
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------
Six Months Ended
September 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,556,974) $ (217,409)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 29,831 6,284
Loss on sale of securities 288,829 --
Loss on abandonment of leasehold improvements 28,162 --
Issuance of stock for services 3,259,133 --
Decrease (increase) in receivables (247,963) 17,871
Decrease in prepaid expenses 45,401 --
Increase in other assets (19,652) --
Increase (decrease) in accounts payable and accrued expenses 498,288 (26,663)
----------- -----------
Net cash provided by (used in) operating activities (674,945) (220,938)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in related party receivables 119,209 90,154
Acquisition of subsidiary, net of cash acquired -- (16,639)
Purchases of property and equipment (342,923) (518,980)
----------- -----------
Net cash used in investing activities (223,714) (444,444)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (49,138) (9,471)
Proceeds from notes payable 400,000 --
Issuance of common stock 400,000 800,000
----------- -----------
Net cash provided by financing activities 750,862 790,529
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (19,826) --
----------- -----------
NET INCREASE IN CASH (167,623) 125,147
CASH, beginning of period 207,879 123,905
----------- -----------
CASH, end of period $ 40,256 $ 249,052
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of common stock for LLC interest $ -- $ 273,542
=========== ===========
Issuance of common stock for prepaid services $ 400,000 $ --
=========== ===========
Issuance of common stock and preferred stock for notes payable
and interest payable $ 1,157,885 $ --
=========== ===========
Exchange of investment for payment of note payable $ 175,000 $ --
=========== ===========
Sale of investment for return of common stock $ 33,895 $ --
=========== ===========
The accompanying notes are an integral part of these statements.
8
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Interim Reporting
- -----------------
The consolidated condensed financial statements of Sutton Trading Solutions,
Inc. (formerly Ikon Ventures, Inc.), its wholly owned U.S. subsidiary Sutton
Online, Inc. and its European subsidiary, Sutton Online Europe BV (collectively,
the "Company") for the quarterly period ended September 30, 2001 have been
prepared by the Company, are unaudited, and are subject to year-end adjustments.
These unaudited financial statements reflect all known adjustments (which
include only normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented in accordance with
accounting principles generally accepted in the United States of America. The
results presented herein for the interim periods are not necessarily indicative
of the actual results to be expected for the fiscal year.
The notes accompanying the consolidated financial statements for the years ended
March 31, 2001 and 2000 included on Form 8-K as filed with the Securities and
Exchange Commission include additional information pertinent to an understanding
of these interim financial statements.
Organization and Business
- -------------------------
Sutton Online, Inc. ("Sutton") was originally organized as a limited liability
company in April 1999 and was merged into Sutton Online, Inc. in May 2000. In
August 2001, the shareholders of Ikon Ventures, Inc. ("Ikon") approved an
exchange of common stock of Ikon for all of the outstanding common stock of
Sutton. As a result of this transaction, Ikon owns Sutton as a wholly owned
subsidiary. The stock exchange between Ikon and Sutton has been considered a
reverse acquisition. Under reverse acquisition accounting, Sutton was considered
the acquirer for accounting and financial reporting purposes, and acquired the
assets and assumed the liabilities of Ikon. Ikon had no assets at acquisition
and had liabilities of $76,000. The acquisition was accomplished through the
issuance of 2.2222222 shares of Ikon common stock for each share of Sutton, or
15,222,219 shares of Ikon common stock. Subsequent to the reverse acquisition,
Ikon changed its name to Sutton Trading Solutions, Inc. (see Note 4).
The consolidated condensed financial statements include Sutton Trading
Solutions, Inc. (formerly Ikon Ventures, Inc.), its wholly owned U.S. subsidiary
Sutton Online, Inc., and its wholly owned European subsidiary, Sutton Online
Europe BV ("Europe") (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. The fiscal year
end of the Company's European subsidiary is December 31. This subsidiary is
included on the basis of closing dates that precede the Company's closing date
by three months.
The Company offers trade routing and level II software and data for online
investors including individuals, hedge funds and money managers, and provides
brokerage firms with the necessary tools to offer financial products via the
internet. Through its European subsidiary, the Company is developing software to
provide a trading platform to customers for the purpose of routing trades in US
stocks as well as stocks traded on several European exchanges.
The Company's business requires it to have a relationship with a securities
broker-dealer as well as a clearing organization to clear trades. Management
believes that it could replace its current relationships with another
broker-dealer and/or clearing organization at similar costs of trading.
The Company has suffered losses from operations and has a working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. The Company believes that its cash on hand and the cash generated
by its operations will be sufficient to fund operations only through the end of
2001. The ability of the Company to operate beyond such date is contingent upon
its obtaining additional debt and/or equity capital prior to such date.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
9
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash Equivalents
- ----------------
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Fair Value of Financial Instruments
- -----------------------------------
Financial instruments, including cash, receivables, investments and other
assets, are carried at amounts that approximate fair value. Accounts payable,
loans and notes payable and other liabilities are carried at amounts that
approximate fair value.
Software Development Costs
- --------------------------
The Company capitalizes software development costs incurred to develop certain
of the Company's software for advanced online trading systems that will allow
users to buy and sell securities on various worldwide exchanges in accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." As of September 30, 2001, the software
has not been completed and, accordingly, is not available for use. The software
will be amortized over the economic life of the software.
Property and Equipment
- ----------------------
The Company provides for depreciation of leasehold improvements, furniture,
vehicles, computers and equipment using the straight-line method based on
estimated useful lives of, generally, three to seven years.
Foreign Currency
- ----------------
The Company's foreign subsidiary uses the local currency as their functional
currency. Accordingly, assets and liabilities of the foreign subsidiary are
translated into United States dollars at end-of-period exchange rates. Revenue
and expenses are translated at average exchange rates in effect during the
period. Gains or losses from foreign currency translation are included in other
comprehensive income.
Goodwill
- --------
Goodwill is amortized on a straight-line basis over a period of fifteen years.
Long-Lived Assets
- -----------------
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset.
Revenue Recognition
- -------------------
The Company recognizes revenue from trade routing on a
transaction-by-transaction basis. Revenue from Level II software and data is
recognized on a monthly usage basis.
10
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Stock Split
- -----------
On March 22, 2001, Sutton effected a 1 to 2.5 reverse stock split whereby each
2.5 shares were exchanged for one newly issued share. All references to shares
and share prices, including retroactive treatment, reflect the split on the
basis of the effective ratio.
Net Loss Per Share of Common Stock
- ----------------------------------
Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding, giving effect to the reverse acquisition and
the reverse stock split as discussed above. Common stock equivalents are not
included in the weighted average calculation since their effect would be
anti-dilutive.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
SFAS 133 has had no impact on the Company.
In June 2001, the FASB issued Statement of Financial Accounting Standard No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS 142 addresses the
financial accounting and reporting for goodwill and other intangible assets that
will no longer be amortized. The provisions of SFAS 142 must be adopted for
fiscal years beginning after December 15, 2001, with early application permitted
for companies with fiscal years beginning after March 15, 2001. The Company is
currently assessing the impact of the implementation of SFAS 142 on its
financial position and results of operations.
NOTE 2 - BUSINESS COMBINATIONS
In June 2000, the Company organized a newly formed subsidiary in the
Netherlands, Sutton Online Europe BV for cash of approximately $17,000. Through
this subsidiary, the Company acquired a 51% interest in the outstanding common
stock of Sutton Data Services s.r.o. ("SDS"). SDS was a recently formed entity
and had no operations. The acquisition was accounted for as a purchase and the
results of operations of Europe on a consolidated basis have been included from
the acquisition date. The excess of the purchase price over the fair value of
tangible net assets acquired amounted to approximately $16,000, and was recorded
as goodwill. Since both Europe and SDS had no operations prior to formation and
acquisition, the pro forma results of operations for the periods ended September
30, 2001 and 2000 (assuming formation and acquisition as of April 22, 1999)
would not be different than those in the accompanying results of operations. In
October 2001, the Company purchased the remaining 49% of the outstanding common
stock of SDS (see Note 5). This resulted in the Company recording additional
goodwill of approximately $373,000.
NOTE 3 - NOTES PAYABLE
In July 2001, the Company delivered 310,000 shares of common stock of Global
Capital Partners, Inc. ("GCAP"), its former parent, to a note holder in payment
of $175,000 in notes payable. In August 2001, the Company issued 1,888,888
shares of common stock and 222,222 warrants to purchase common stock (both
numbers are after giving effect to the reverse acquisition-see Note 1) and
888,888 shares of preferred stock in payment of notes payable of $1,125,000 plus
interest accrued on the notes (see Note 4).
11
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 3 - NOTES PAYABLE (continued)
At September 30, 2001 and March 31, 2001, notes payable consists of the
following:
September 30, 2001 March 31, 2001
------------------ --------------
Promissory notes, interest rate of 10% per annum plus
10,000 shares of GCAP per month, due April 30, 2001,
subsequently renewed to July 16, 2001 $ -- $ 175,000
Convertible promissory notes, interest rate of 10% per
Annum plus 55,000 shares of GCAP, due July 31, 2001,
Convertible into 200,000 shares and warrants to purchase
100,000 shares of common stock at $2.50 per share -- 300,000
Convertible promissory note, interest rate of 10% per
annum, due July 31, 2001, convertible into 350,000 shares
and warrants to purchase 175,000 shares of common
stock at $2.50 per share (if holder does not convert this
note, holder will receive warrants to purchase 50,000 shares
at $2.50 per share) -- 525,000
---------- ----------
$ -- $1,000,000
---------- ----------
NOTE 4 - SHAREHOLDERS' EQUITY
Debt Forgiveness
- ----------------
In June 2001, a shareholder forgave a debt of $30,000. This amount was credited
to paid-in capital.
Preferred Stock
- ---------------
In August 2001, 888,888 shares of Series A exchangeable preferred stock of
Sutton Online, Inc. were issued in payment of a $525,000 note payable. The
preferred stock is exchangeable at the option of the preferred shareholder at
any time into 888,888 shares of the Company's common stock and a warrant to
purchase 388,889 shares of the Company's common stock at $2.50 per share.
Holders of the preferred stock are not entitled to receive dividends, except
when and as declared by the board of directors. In October 2001, the preferred
stock was exchanged for 888,888 shares of the Company's common stock (see Note
5).
Common Stock
- ------------
In August 2001, 1,888,888 shares of common stock (after giving effect to the
reverse acquisition-see below) were issued in payment of $600,000 in notes
payable.
In August 2001, Ikon Ventures, Inc. ("Ikon") effected an exchange of common
stock of Ikon for all of the outstanding common stock of Sutton. The stock
exchange between Ikon and Sutton has been considered a reverse acquisition. (see
Note 1). The reverse acquisition was accomplished through the issuance of
2.2222222 shares of Ikon common stock for each share of Sutton, or 15,222,219
shares of Ikon common stock. At the date of the reverse acquisition, Ikon had
310,913 outstanding shares of common stock. The common stock and paid-in capital
amounts have been restated on the accompanying March 31, 2001 balance sheet to
reflect the reverse acquisition.
In connection with the acquisition of Sutton, Ikon borrowed $100,000 and loaned
such amount to Sutton, and on the date of the acquisition, the $100,000 was
converted to 25,000 shares of Ikon common stock. In addition, Ikon sold 100,000
shares of common stock for proceeds of $400,000. Also, the Company issued
4,500,000 shares as service fees valued at $3,600,000, $400,000 of which was for
a prepaid contract.
In addition, 22,222 shares of common stock were returned to the Company in
connection with the sale of an investment.
12
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY (continued)
Stock Warrants
- --------------
In connection with the reverse acquisition, 3,000,000 warrants to purchase
shares of Sutton Online, Inc. were exchanged for 6,666,667 warrants to purchase
shares of Ikon Ventures, Inc. All other terms of the warrants remained the same.
In addition, the Company issued 222,222 warrants (after giving effect to the
reverse acquisition) in connection with the conversion of notes payable (see
Note 3).
No warrants were exercised during the six months ended September 30, 2001. At
September 30, 2001, warrants to purchase common stock were outstanding as
follows (after giving effect to the reverse acquisition):
Number Outstanding
And Exercisable at
Expiration Date September 30, 2001 Exercise Price
--------------- ------------------ --------------
May 3, 2004 6,888,889 $ 2.50
NOTE 5 - SUBSEQUENT EVENTS
On October 1, 2001, the Company purchased the remaining 49% of the outstanding
common stock of SDS through the issuance of 250,000 shares of common stock at
$1.50 per share.
In October 2001, the Company entered into a promissory note for $160,000. The
note bears interest at a flat rate of $12,500 plus additional consideration of
100,000 shares of common stock of the Company, and is due February 1, 2001. At
September 30, 2001, the note holder had advanced the Company $50,000, and such
amount is included in the accompanying balance sheet as other liabilities. The
Company also borrowed $20,000 under another promissory note in October 2001. The
note bears interest at 10% and is due November 26, 2001. If the note is not
repaid by November 26, 2001, the note holder will be entitled to receive 10,000
shares of common stock of the Company per month, until the note is paid.
In October 2001, the Series A exchangeable preferred stock of Sutton Online,
Inc. was exchanged for 888,888 shares of the Company's common stock.
In November 2001, the Company issued 100,000 shares of common stock in
connection with a prepaid service agreement; 50,000 shares of the stock issued
are to be held in escrow and released after the sixth month of the agreement,
unless the Company terminates the agreement.
In November 2001, the Company granted an option under the Company's 1999
Incentive Program to a director of the Company to purchase 75,000 shares of the
Company's common stock, with an exercise price of $2.45 and a term of five
years.
13
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
We commenced operations in May 1999, initially focusing on providing direct
access software developed by others to retail clients of the firm to effect
securities transactions online. Since November 1999, we have transitioned to
become an application service provider (ASP) of our own proprietary platform,
GlobalDAT(TM). Through our Sutton Online, Inc. subsidiary, we provide
individuals, broker-dealers, and other financial institutions with direct access
to global markets via stock exchanges, market participants, and electronic
communication networks (ECNs) through a seamless and simple Internet interface.
We offer two principal solutions: SONIC 2000(TM) -: a third party US direct
access trading platform, and GlobalDAT(TM) (Global Direct Access Trading): a
proprietary global direct access trading platform - providing global direct
trading access to European and American markets. We offer these products in the
role of an ASP, allowing business-to-business (B2B) clients to outsource much of
their transaction infrastructure on a cost-effective basis, maximizing clients
"hard" and "soft" dollar return on investment. Our wholly owned subsidiary,
Sutton Data Services, s.r.o. is our Prague based software developer that has
created and maintains the GlobalDAT(TM) platform and is further engaged in
providing specialized custom solutions for B2B clients. With the SONIC 2000(TM)
and GlobalDAT(TM) products, we believe we have created an innovative and
comprehensive solution that fulfills the complete transaction platform needs of
a sizeable customer base seamlessly and cost-effectively, affording direct
access to global equities markets in a single, easy-to-use Internet interface.
By 1996, the financial services industry had adopted the Financial Information
Exchange Protocol, commonly referred to as the FIX protocol, which provides the
brokerage industry with a common underlying language to enable electronic
trading and communications. Therefore, we have built GlobalDAT(TM) around the
FIX protocol, which enables GlobalDAT(TM) to interface with multiple front- end
systems as well as stock exchanges, market makers, and ECN's. By providing
execution capabilities to these front-end systems, the Company anticipates a
growth in revenue during calendar 2002 due to an increased number of
transactions.
In November 2001, the Company entered into a strategic relationship with Omiris
Networks, headquartered in London. Omiris is expected to provide access to over
22 European stock exchanges to the company's clients using the GlobalDAT(TM)
direct access platform. Omiris has agreed to use its best efforts to introduce
our GlobalDAT(TM) product to their network members and it is expected that such
introductions will result in an increased number of users and number of
transactions on our GlobalDAT(TM) product. In turn, we will route transactions
to key US markets for the Omiris members. Revenues in calendar 2002 are expected
to increase in part due the added volume anticipated by this agreement.
Our revenues are comprised of transaction fees, data fees and software licensing
fees that are primarily derived from domestic and international brokerage firms,
banks and financial institutions. We also have entered into interconnectivity
agreements, introducing broker dealer agreements, and technical support
agreements. All of such agreements are for an initial period of one year, with
automatic renewal of one additional year. Transaction fees and technical support
fees are billed to the customer on a monthly basis based on volume.
International Data Corporation (IDC) has estimated that online brokerage
revenues will expand to approximately $5.4 trillion by 2004, as technology
development proceeds towards the development of comprehensive, real-time
transaction platforms. Already, driven by the superior speed and access to
information and market research that Internet-based equity trading platforms
afford, the growth of US online brokerage population has been considerable, with
IDC estimating some 9.1 million online brokerage accounts in 2000. This figure
is expected by IDC to rise to over 60 million accounts and some 20 million users
by 2004. The growth of international online brokerage firms is anticipated by
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IDC to be even more pronounced, with European brokerage accounts rising from
1.85 million in 1999 to over 16 million in 2004. Asian Pacific markets are
anticipated by IDC to undergo a period of hyper growth with online brokerage
accounts rising from an estimated 8 million in 200 to over 42 million in 2005.
With our focus upon providing comprehensive solutions for web-enabled
transaction processing and equity trading, the Company Believes it is well
positioned to benefit from the anticipated growth of online equity trading
word-wide, as brokerages, financial institutions, and semi-professional traders
migrate increasingly to global e-trading.
On September 30, 2000 the Company had 9 software licensing agreements. On
September 30, 2001 the Company had 19 software licensing agreements, an increase
of 47%. The Company plans to further increase the number of software licensing
agreements by entering into various third party agreements for the distribution
of GlobalDAT(TM), leveraging our current B2B relationships, and the execution of
referral contracts. As of September 30, 2001 the Company had 662 retail trading
accounts, 611users of SONIC 2000(TM), and 10 internal users of GlobalDAT(TM) The
Company expects the number of GlobalDAT(TM) users to increase substantially over
the next quarter due to the implementation of the product and the conversion of
existing SONIC 2000(TM) users to GlobalDAT(TM). The Company may seek to grow its
retail business by either internal growth or by acquisition to the extent its
resources permit.
Under various services agreements, we provide technology support services,
including systems administration, internal network support, support and
procurement for desktops of end-user equipment, operations and disaster recovery
services, voice and data communications, support and development of systems for
clearance and settlement services. In addition, certain clients of the Company
provide online access to their customers through use of the Company's electronic
trading platform for which the Company receives fees.
As discussed below, the three months and the six months ended September 20,
2001, were characterized by a decrease in transaction fee revenue, along with an
increase in data fee revenue, offset by higher operating costs and lower
transaction revenue. The Company expects operating losses to continue for the
foreseeable future as it implements the GlobalDAT(TM) platform. In addition, at
September 30, 2001, the Company had a working capital deficiency of
approximately $1,229,625. The ability of the Company to continue as a going
concern is contingent upon its obtaining additional debt and/or equity capital
prior to December 31, 2001. No assurance can be given that additional capital
will be obtained. If such capital is not obtained, the Company will have to
curtail its operations.
Revenue
Total revenue for the three and six months ended September 30, 2001, was
approximately $371,000 and $1,040,000 respectively. These amounts represented a
decrease from the three and six months ended September 30th, 2000 of 43% and 18%
respectively. Total revenue for the three month and six month periods ended
September 30th, 2000 was approximately $653,000 and $1,275,000. The decrease in
total revenue is due primarily to the decrease in overall trading activity by
online traders, technical support and broker dealer clients.
Transactions fees for the three and six months ended September 30, 2001 were
$285,000 and $836,000 respectively, which is a decrease of 53% and 26%
respectively, over the same periods in 2000. Such decrease is primarily due to
the general downturn in the stock markets. Data Fees for the three and six
months ended September 30, 2001 were $76,000 and 193,000 respectively which is a
145% and 80% increase over the same periods in 2000, which is primarily due to
the increase in the number of software users during 2001. The NASDAQ composite
index had reached a record high in March 2000, compared to a market downturn
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through the period ended September 30, 2001, losing approximately 69% of its
value. The sharp decline in the value of equities owned by clients has
significantly impacted the total assets in our broker dealer customers,
resulting in lower transaction volumes. Also contributing to the decrease in
revenues is the impact of the market being closed for four trading days
following the events of September 11, 2001.
During the period ended September 30, 2001, the Company recognized a total
realized loss of $288,829. In connection with an agreement dated September 26,
2001, the Company sold its ownership in Total Solutions for a return of common
stock of the Company; this resulted in a realized loss of $26,895. The remaining
realized loss of $261,934 represents the recognition of previous unrealized
losses in connection with the exchange of marketable securities for the payment
of notes payable of $175,000.
Operating Expenses
Operating expenses for the three and six months ended September 30, 2001 were
approximately $4,217,045 and $5,199,592 respectively. These amounts represent an
increase over the three and six-month period ended September 30, 2000, of 419%
and 248% respectively. The operating expenses for the three and six-month period
ended September 30, 2000 were $812,884 and $1,493,503 respectively.
These increases are primarily due to the issuance of 4,500,000 shares of common
stock for services rendered. [Services fees of $3,259,133 were recognized in
connection with this transaction during the period ended September 30, 2001. -
need to discuss]
Salary expenses increased for the period ended September 30, 2001 due to
additional customer service employees as well as the addition of a full time
chief executive officer and controller.
General and administrative expenses increased due to an increase in
communications expenses, mainly due to the addition of an AT&T Co-Location
facility which provides redundancy and fail safety measures for our clients, as
well as additional connectivity to our Sutton Data Services office.
Notes Payable
In August 2001, the Company issued 1,888,888 shares of common stock (after
giving effect to the reverse acquisition) and 888,888 shares of preferred stock
in payment of notes payable of $1,125,000 plus interest accrued on the notes.
Also, the Company delivered 310,000 shares of marketable securities to a note
holder in payment of $175,000 in notes payable and accrued interest.
Debt Forgiveness
In June 2001, a shareholder forgave a debt of $30,000. This amount was credited
to paid-in capital.
Going Concern
The Company has incurred significant losses from operations, primarily from the
issuance of stock for compensation, and has generated insufficient operating
revenue to fund its expenses. These factors (among others) raise substantial
doubt about the Company's ability to continue as a going concern. The Company
believes that its cash on hand and the cash generated by its operations will be
sufficient to fund operations only through the end of 2001. The ability of the
Company to operate beyond such date is contingent upon its obtaining additional
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debt and/or equity capital prior to such date. The Company is in negotiations
with various parties but no assurance can be given that the Company will be able
to secure additional capital. If the Company is unsuccessful in obtaining
additional capital, it will have to curtail its operations.
Forward Looking Statements
This Form 10-QSB and other reports filed by the Company from time to
time with the Securities and Exchange Commission (collectively the "Filings")
contain or may contain forward looking statements and information that are based
upon beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management.
When used in the filings the words "anticipate", "believe", "estimate",
"expect", "future", "intend", "plan" and similar expressions as they relate to
the Company or the Company's management identify forward looking statements.
Such statements reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties and assumptions relating to the
Company's operations and results of operations and any businesses that may be
acquired by the Company. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may differ significantly from those anticipated, believed, estimated,
intended or planned.
17
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
During the three months ended September 30, 2001, Registrant issued the
following securities without registration under the Securities Act of
1933, as amended (the "Act"):
(a) On June 19, 2001, Registrant sold and issued its convertible
promissory note in the amount of $100,000 to Charles Conzentino, an
accredited, non-affiliated investor. Such note was converted on August
8, 2001, into 25,000 shares of Registrant's common stock in accordance
with the terms thereof. The note and the shares were issued and sold in
reliance upon the exemption provided by Rule 506 of Regulation D, as
promulgated under the Act.
(b) On August 8, 2001, Registrant completed a private placement of
100,000 shares of its common stock at $4.00 per share (an aggregate
purchase price of $400,000) to three accredited, non-affiliated
investors in reliance upon the exemption provided by Rule 506 of
Regulation D, as promulgated under the Act. The shares were issued to
the following investors:
No. of Shares
Name Purchased Amount Invested
---- --------- ---------------
Douglas Kiggins 75,000 $300,000
Corporate Communications
Network, Inc. 12,500 $ 50,000
Charles Conzentino 12,500 $ 50,000
(c) On August 8, 2001, Registrant issued 500,000 shares of its common
stock to Summit Trading Limited ("STL"), an accredited, non-affiliated
investor, in consideration of STL's agreement to pay all of the fees
and expenses of Investor Relations Services, Inc, a public relations
firm employed by Registrant for a one year period. The number of shares
issued to STL was arbitrarily determined by negotiations between the
parties and no value was assigned to the shares. The shares were issued
in reliance upon the exemption provided by Rule 506 of Regulation D.
(d) On August 8, 2001, Registrant issued an aggregate of 15,222,219
shares of its common stock to the stockholders (22) of Sutton Online
Inc. ("SOL") in exchange for their shares of SOL. All of such
stockholders were accredited or sophisticated investors. The exchange
ratio was arbitrarily determined by negotiations between the parties
and no value was assigned to the shares issued. The shares were issued
in reliance upon the exemption provided by Section 4(2) of the Act.
With respect to the issuances of securities referred to above,
investors were furnished with information regarding the Registrant and
the offering and issuance, and each had the opportunity to verify
information supplied. Additionally, Registrant obtained a
18
representation from each investor of such investor's intent to acquire
the securities for the purpose of investment only, and not with a view
toward the subsequent distribution thereof. The securities bear
appropriate restrictive legends, and Registrant issued stop transfer
instructions to its transfer agent.
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 August 22, 2001, the Registrant filed a Current Report on Form 8-K
reporting a change in control, the acquisition of all of the issued and
outstanding capital stock of Sutton Online, Inc. ("SOL") and a change
in its fiscal year. Such report included the financial statements of
SOL for the periods specified in Rule 3-05(b) of Regulation S-X and the
pro forma financial information required pursuant to Article 11 of
Regulation S-X.
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SIGNATURES
In accordance with 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 hereunto duly authorized.
SUTTON TRADING SOLUTIONS, INC.
Date: November 19, 2001 By: /s/ JONATHAN SIEGEL
-------------------------------------
Jonathan Siegel
Chairman and CEO
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