SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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
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 February 13, 2002, the
registrant had 23,157,298 shares of common stock outstanding.
SUTTON TRADING SOLUTIONS, INC.
FORM 10-QSB
For the Quarter Ended December 31, 2001
Index Page
Number
PART I FINANCIAL INFORMATION
Item 1 Consolidated Condensed Balance Sheets at December 31, 2001
and March 31, 2001 (unaudited for December 31, 2001 period) 3
Consolidated Condensed Statements of Operations for the three
months ended December 31, 2001 and 2000 (unaudited) and for the
nine months ended December 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Comprehensive Income for the three
months ended December 31, 2001 and 2000 (unaudited) and for the
nine months ended December 31, 2001 and 2000 (unaudited) 6
Consolidated Condensed Statements of Cash Flows for the nine
months ended December 31, 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 __
2
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
ASSETS December 31, March 31,
------ 2001 2001
------------ ------------
(Unaudited) (Audited)
(As Restated)
CURRENT ASSETS:
Cash $ 52,347 $ 207,879
Receivables:
Trade, net 47,285 3,644
Employees and affiliated company 10,000 129,209
Other 35,585 90,754
Prepaid expenses 338,613 160,208
------------ ------------
Total current assets 483,830 591,694
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures, computers and equipment 518,316 956,299
Software 2,175,017 1,321,219
Leasehold Improvements 9,438 40,850
------------ ------------
2,702,771 2,318,368
Less: accumulated depreciation and amortization (162,058) (124,138)
------------ ------------
2,540,713 2,194,230
------------ ------------
OTHER ASSETS:
Investments (Notes 3 and 4) - 367,196
Goodwill, net 389,798 14,973
Other 30,583 6,181
------------ ------------
420,381 388,350
------------ ------------
$ 3,444,924 $ 3,174,274
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other liabilities $ 2,017,739 $ 1,564,508
Capital lease obligation 47,059 66,490
Notes payable (Note 3) 120,000 1,000,000
------------ ------------
Total current liabilities 2,184,798 2,630,998
------------ ------------
LONG-TERM LIABILITIES:
Capital lease obligation 35,700 78,953
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, $.0001 par value, 3,000,000 shares authorized,
2,000,000 and 0 shares issued and outstanding 200 -
Common stock, $.001 par value, 100,000,000 shares authorized,
23,157,298 and 13,644,246 shares issued and outstanding, respectively 23,158 13,644
Additional paid-in capital 9,598,215 2,414,844
Note receivable (1,000,000) -
Accumulated other comprehensive income (45,361) (142,489)
Deficit (7,351,786) (1,821,676)
------------ ------------
1,224,426 464,323
------------ ------------
$ 3,444,924 $ 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
December 31,
2001 2000
------------ ------------
REVENUE:
Transaction fees $ 282,879 $ 539,799
Data fees 64,476 54,570
Other - 38,550
------------ ------------
Total Revenue 347,355 632,919
------------ ------------
EXPENSES:
Clearing costs 41,172 82,718
Communications 75,320 70,820
Trading costs and user fees 70,402 85,378
Technical support 80,688 56,486
Service fees (Note 4) 66,700 -
Salaries and related expenses 300,316 162,353
Licensing fees 30,994 73,508
General and administrative 367,571 422,293
------------ ------------
Total operating expenses 1,033,163 953,556
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (255,326) -
Other, net 1,381 -
------------ ------------
Total other expense (253,945) -
------------ ------------
NET LOSS $ (939,753) $ (320,637)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss $ (0.04) $ (0.02)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 21,048,280 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)
------------------------------------
Nine Months Ended
December 31,
2001 2000
------------ ------------
REVENUE:
Transaction fees $ 1,118,413 $ 1,667,586
Data fees 257,282 162,265
Other 10,975 63,550
------------ ------------
Total Revenue 1,386,670 1,893,401
------------ ------------
EXPENSES:
Clearing costs 151,680 266,556
Communications 225,671 179,346
Trading costs and user fees 218,060 203,654
Technical support 286,153 74,085
Service fees (Note 4) 3,325,833 -
Salaries and related expenses 890,314 436,215
Licensing fees 110,900 212,697
General and administrative 1,078,364 1,027,537
------------ ------------
Total operating expenses 6,286,975 2,400,090
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (322,319) -
Other, net (307,486) 592
------------ ------------
Total other expense (629,805) 592
------------ ------------
NET LOSS $ (5,530,110) $ (506,097)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss $ (0.28) $ (0.04)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 19,498,391 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
December 31,
2001 2000
------------ ------------
NET LOSS $ (939,753) $ (320,637)
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments (38,433) -
------------ ------------
COMPREHENSIVE LOSS $ (978,186) $ (320,637)
============ ============
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)
--------------------------------
Nine Months Ended
December 31,
2001 2000
------------ ------------
NET LOSS $ (5,530,110) $ (506,097)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments (45,361) -
------------ ------------
COMPREHENSIVE LOSS $ (5,575,471) $ (506,097)
============ ============
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)
Nine Months Ended
December 31,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,530,110) $ (506,097)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 46,873 12,568
Loss on sale of securities 288,829 -
Loss on abandonment of leasehold improvements 28,162 -
Issuance of stock for services and interest expense 3,507,333 -
Decrease (increase) in receivables 3,770 (45,302)
Decrease in prepaid expenses 117,462 -
Increase in other assets (16,644) -
Increase in accounts payable and accrued expenses 483,092 208,072
------------ ------------
Net cash used in operating activities (1,071,233) (330,759)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in related party receivables 119,209 90,154
Acquisition of subsidiary, net of cash acquired - (16,639)
Purchases of property and equipment (412,565) (525,829)
------------ ------------
Net cash used in investing activities (293,356) (452,314)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (62,684) (9,471)
Proceeds from notes payable 930,000 -
Increase in subscription receivable - (100,000)
Issuance of common stock 400,000 800,000
------------ ------------
Net cash provided by financing activities 1,267,316 690,529
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (58,259) -
------------ ------------
NET DECREASE IN CASH (155,532) (92,544)
CASH, beginning of period 207,879 123,905
------------ ------------
CASH, end of period $ 52,347 $ 31,361
============ ============
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, net of return of stock on
contract Cancellation $ 355,000 $ -
============ ============
Issuance of common stock and preferred stock for notes payable
and interest payable $ 1,816,085 $ -
============ ============
Exchange of investment for payment of note payable $ 175,000 $ -
============ ============
Sale of investment for return of common stock $ 33,895 $ -
============ ============
Purchase of minority interest in subsidiary $ 375,000 $ -
============ ============
Issuance of note receivable for purchase of preferred and common stock $ 1,000,000 $ -
============ ============
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 Data Services sro
(collectively, the "Company") for the quarterly period ended December 31, 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 Data
Services sro ("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
U.S. 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.
9
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
The Company has suffered losses from operations and has insufficient cash to
fund its operations for the next twelve months that raises substantial doubt
about its ability to continue as a going concern. The Company is receiving
additional equity funding of $1,300,000 between January 2002 and May 2002, as
described in Notes 4 and 5. However, the ability of the Company to continue
operations is contingent upon its obtaining additional debt and/or equity
capital to fund its operations, or reducing its recurring losses from
operations.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
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, other assets,
accounts payable, loans and notes payable and other liabilities are carried at
amounts that approximate fair value due to the short term nature of those
instruments.
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 this date, 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.
10
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
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.
11
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 December
31, 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 4). 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 and 388,889 warrants to purchase common stock
in payment of notes payable of $1,125,000 plus interest accrued on the notes
(see Note 4).
During the period from October 1, 2001 through December 31, 2001, the Company
borrowed $530,000 under various note payable agreements. Of these notes,
$250,000 was then converted to shares of common stock and warrants to purchase
common stock (see Note 4).
At December 31 and March 31, 2001, notes payable consists of the following:
December March
--------- -----
31, 2001 31, 2001
-------- --------
Promissory note, interest rate of 10% per annum plus
10,000 shares of common stock per month if not repaid by due date,
due November 26, 2001, subsequently repaid in January 2002
$ $
20,000 -
Promissory notes, interest rate of 10% per annum plus
25,000 shares of common stock per month if not repaid by due date,
due January 7, 2002, subsequently repaid in January 2002.
50,000 -
12
Promissory notes, interest of $5,000 plus 32,500 shares of common
stock per month if not repaid by February 1, 2002, subsequently
repaid in January 2002.
50,000 -
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
======== =======
120,000 000,000
======== =======
13
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY
Debt Forgiveness
- ----------------
In June 2001, a shareholder forgave a debt of $30,000, which 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 Series A
exchangeable preferred stock of Sutton Online, Inc. was exchanged for 888,888
shares of the Company's common stock.
In December 2001, 2,000,000 shares of Series A exchangeable preferred stock of
Sutton Online, Inc. were issued, along with common stock, for a note receivable
in the amount of $1,000,000 (see below).
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, the shareholders of Ikon Ventures, Inc. ("Ikon") approved 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 in connection with the
acquisition, 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.
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.
During the period from October 1, 2001 through December 31, 2001, the Company
issued 120,000 shares of common stock as payment of interest of $248,200 on
notes payable, and 62,500 shares of common stock for conversion of notes payable
in the amount of $250,000 to equity.
In November 2001, the Company issued 100,000 shares of common stock in
connection with a prepaid service agreement valued at $275,000; 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. Also, in December
2001, 400,000 shares of common stock were returned to the Company in connection
with the termination of a prepaid service contract.
In December 2001, the Company issued 2,000,000 shares of common stock for a note
receivable in the amount of $1,000,000 (see below).
14
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 4 - SHAREHOLDERS' EQUITY (continued)
Note Receivable
- ---------------
In December 2001, the Company sold 2,000,000 shares of preferred stock of Sutton
Online, Inc. and 2,000,000 shares of common stock of the Company for a note
receivable in the amount of $1,000,000. The note requires payment of principal
as follows: $50,000 due 1/8/02, $400,000 due 1/15/02, $212,500 due 2/15/02,
$212,500 due 3/15/02 and $125,000 due 4/15/02. The note does not bear interest
unless the principal payments are not made on each due date; the amount past due
then bears interest at 15%.
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).
In October 2001, the Company issued 388,888 warrants in connection with the
conversion of notes payable (see Note 3).
In November 2001, the Company granted an option under its 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.
During the three months ended December 31, 2001, the Company also issued 62,500
warrants with an exercise price of $2.50, in connection with the conversion of
notes payable.
No warrants were exercised during the nine months ended December 31, 2001. At
December 31, 2001, warrants to purchase common stock were outstanding as follows
(after giving effect to the reverse acquisition):
Number Outstanding
And Exercisable at
Expiration Date December 31, 2001 Exercise Price
--------------- ----------------- --------------
May 3, 2004 7,340,278 $ 2.50
November 7, 2006 75,000 2.45
---------
7,415,278
=========
NOTE 5 - SUBSEQUENT EVENTS
On January 1, 2002, the Company entered into a five year consulting agreement
with a shareholder whereby the Company will pay the consultant annual
compensation in the amount of 20% of the net income before taxes of the Company.
In January 2002, the Company received $450,000 relating to the $1,000,000 note
receivable as of December 31, 2001, as shown on the accompanying statement of
financial condition.
In January 2002, the Company repaid the $120,000 in notes payable, as shown on
the accompanying balance sheet as of December 31, 2001.
15
SUTTON TRADING SOLUTIONS, INC.
(formerly Ikon Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 5 - SUBSEQUENT EVENTS (continued)
In December 2001, the Company agreed to sell on February 15, 2002, 300,000
shares of preferred stock of Sutton Online, Inc. and 300,000 shares of common
stock of the Company for a note receivable in the amount of $300,000. The note
will require payments of $87,500 due 4/15/02 and $212,500 due 5/15/02. The note
will not bear interest unless the principal payments are not made on each due
date; the amount past due then bears interest at 15%.
16
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 ECNs. 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
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 December 31, 2000 the Company had 12 software licensing agreements.
On December 31, 2001 the Company had 17 software licensing agreements, an
increase of 42%. 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.
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.
17
During the three months ended December 31, 2001, the Company's focus
was primary in three areas: the raising of sufficient capital to fund the
Company's immediate working capital requirements, the launch of GlobalDAT(TM)
and the purchase of a broker/dealer.
With regard to raising capital, as more fully discussed below under
"Liquidity," in December 2001, the Company sold 2,000,000 shares of its common
stock and 2,000,000 shares of preferred stock of Sutton Online, Inc. for an
aggregate consideration of $1,000,000 (plus the conversion of $410,000 of
indebtedness into equity). Of such amount, $450,000 of which was received in the
month of January, $157,000 was used to repay all non-trade debt, eliminating all
notes payable from the balance sheet. The balance is being used for general
working capital, including the purchase of additional hardware to enhance the
reliability and functionality of GlobalDAT(TM), and the continued funding of
Sutton Data Services, s.r.o., the Company's wholly owned software development
subsidiary. The purchaser also agreed to purchase on February 15, 2002, an
additional 600,000 shares of the Company's common stock and 600,000 shares of
preferred stock of Sutton Online, Inc. for an aggregate consideration of
$300,000, of which $87,500 is payable on April 15, 20002 and $212,500 is payable
on May 15, 2002. The Company intends to continue it's current funding initiative
to further enhance its ability to successfully penetrate the market and obtain
profitability. No assurance can be given, however, that the Company will be able
to obtain additional capital.
With regards to the launch of GlobalDAT(TM), the Company continued to
enhance and improve the product, adding features as a result of potential
customers that tested the product and provided feedback. Additionally, the
Company continued to test GlobalDAT(TM) with 10 internal users, bringing the
product closer to full rollout. The Company made a strategic decision to defer
the rollout of GlobalDAT(TM) until it had raised to sufficient funds to enable
the Company to support such rollout Having obtained that goal, the Company is
expecting the delivery of certain equipment that provides enhanced capacity and
reliability, and expects to launch GlobalDAT(TM) during the Spring of 2002. The
Company expects the number of GlobalDAT(TM) users to increase substantially
during fiscal 2002 due to the implementation of the product and the conversion
of existing SONIC 2000(TM) users to GlobalDAT(TM).
The Company concluded that the addition of an existing NASD (National
Association of Securities Dealers) member in the online trading business would
allow the Company to provide turnkey solutions completely autonomously, with all
of the key elements in-house. Specifically, the Company would own the
broker/dealer, the software development firm, the A.S.P (Application Service
Provider), and the European joint-venture vehicle. Additionally, the Company
concluded that the addition of a broker/dealer would substantially increase
trade volumes and revenues initially due to its existing business. The Company
expects to grow its retail business through the acquisition of the broker/dealer
and the exploitation of the broker/dealer's current management's ability to run
a retail operation. The Company is in negotiation to acquire such a
broker/dealer but no assurance can be given that such negotiations will prove
successful. In any event, because of the Company's lack of financial resources,
it is likely that the acquisition price of any broker/dealer would be payable in
shares of the Company's capital stock.
Revenue:
Total revenue for the three and nine months ended December 31, 2001,
was approximately $347,000 and $1,387,000 respectively. These amounts represent
a decrease from the three and nine-month periods ended December 31, 2000, of 45%
and 27% respectively. Total Revenue for the three and nine-month periods ended
December 31, 2000, was approximately $633,000 and $1,893,000. The decrease in
total revenue is due primarily to the decrease in overall trading activity by
online traders, technical support and broker dealer clients.
Transaction fees for the three and nine months ended December 31, 2001,
were $283,000 and $1,118,000 respectively, which is a decrease of 48% and 33%
respectively over the same periods in 2000. Such decrease is primarily due to
the general downturn in the stock market. Data fees for the three and nine
months ended December 31, 2001, were approximately $65,000 and $257,000
respectively which is an 18% and 59% increase over the same periods in 2000,
which is primarily due to the increase in the number of software users during
2001. The increase in data fees superimposed with the simultaneous decrease in
transaction fees demonstrates that while the number of software users has been
increasing, the downturn in the stock market has resulted in a lower average
number of transactions per user.
During the nine month period ended December 31, 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,
s.r.o. for a return of common stock of the Company; which 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 Expense:
Operating expenses for the three and nine months ended December 31,
2001, were approximately $1,033,000 and $6,287,000 respectively. These amounts
represent an increase over the three and nine-month period ended December 31,
2000, of 8% and 162% respectively. The operating expenses for the three and nine
18
month period ended December 31, 2000, were approximately $954,000 and
$2,400,000. These increases for the three month period are primarily due to the
85% increase in salary expense from the prior period due to additional customer
support employees as well as the addition of a full time Chief Executive Officer
and Controller.
Operating expenses also increased in the three-month period due to
200,000 shares of common stock issued for two prepaid service contracts. These
increases were offset, however, by a 50% reduction in clearing costs and a 60%
reduction in licensing fees over the same period last year.
The increase in operating expenses for the nine-month period ended
December 31, 2001, is primarily due to the issuance of 4,500,000 shares of
common stock for services rendered. Communications expenses increased 26% for
the nine-month period ended December 31, 2001, 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 in Prague.
Technical support fees increased in the three and nine-month period
ended December 31, 2001, 43% and 286% respectively over the prior period due to
a business mix change. In 2000, our business was based primarily around retail
clients; in 2001, that mix changed to more of a B-to-B business, consistent with
our transition to a B-to-B vendor of proprietary software and trading solutions.
As the mix of our transaction fees shifts more toward B-to-B technical support
vendors and broker/dealers, our Technical Support expenses increase as well.
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.
During the period October 1, 2001 through December 31, 2001, the
Company borrowed $530,000 under various notes payable agreements. Interest was
generated on one of the notes in the form of additional consideration for
100,000 shares of common stock valued at $250,000, thus increasing our interest
expense for the three-month period ended December 31, 2001. $250,000 of the
notes were converted to shares of common stock and warrants to purchase common
stock, $160,000 was forgiven by the note holder on December 31, 2001, and the
balance of the $120,000 were repaid in January 2002 for principal plus interest.
Notes Receivable:
In December 2001, the Company sold 2,000,000 shares of preferred stock
of Sutton Online, Inc. and 2,000,000 shares of common stock of the Company, as a
unit, for a note receivable in the amount of $1,000,000. The note requires
payment of principal as follows: $50,000 due 1/8/02, $400,000 due 1/15/02,
$212,500 due 2/15/02, $212,500 due 3/15/02 and $125,000 due 4/15/02. $450,000 of
the note has since been paid, consistent with the 1/8/02 and 1/15/02 due dates.
The preferred stock is entitled to a liquidation preference of $.50 per share
and, so long as any shares are outstanding, Sutton Online, Inc. may not, without
the approval of holders of at least a majority of the then issued and
outstanding shares of preferred stock, pledge any of its assets to secure any
future loan (excluding any pledge as part of an installment purchase or purchase
money financing). At the option of the holders, the preferred stock is
exchangeable in whole (but not in part) into a class or series of the Company's
preferred stock that has substantially the same rights and privileges as the
Sutton Online, Inc. preferred stock if, as and when any such series or class
shall be authorized by the Company. Upon the sale or transfer of any of the
shares of the Company's common stock comprising the unit, the company has the
right to redeem an equal number of shares of p[referred stock for the par value
thereof, $.001 per share.
Liquidity
In December 2001, the Company entered into a subscription agreement
providing for the sale in two tranches, the first on December 31, 2001, and the
second on February 15, 2002, of an aggregate of 2,600,000 shares of preferred
stock of Sutton Online, Inc. and 2,600,000 shares of the Company's common stock
for notes receivable in the aggregate amount of $1,300,000. Pursuant to such
agreement, on December 31, 2001, the Company sold 2,000,000 shares of preferred
stock of Sutton Online, Inc. and 2,000,000 shares of the company's common stock
for a note receivable in the amount of $1,000,000. The note requires payment of
principal as follows: $50,000 due 1/8/02, $400,000 due 1/15/02, $212,500 due
2/15/02, $212,500 due 3/15/02 and $125,000 due 4/15/02. The note does not bear
19
interest unless the principal payments are not made on each due date; the amount
past due then bears interest at 15%. As provided under the agreement, on
February 15, 2002, the Company will sell 300,000 shares of preferred stock of
Sutton Online, Inc. and 300,000 shares of common stock of the Company for a note
receivable in the amount of $300,000. The note will require payments of $87,500
due 4/15/02 and $212,500 due 5/15/02. The note will not bear interest unless the
principal payments are not made on each due date; the amount past due then will
bear interest at 15%. Additionally, as part of the first tranche, the Company
converted $410,000 of then existing indebtedness to equity.
Of the $450,000 that was received in January 2002, representing the
first two payments against the $1,000,000 note, $157,000 was used to repay all
non-trade debt, eliminating all notes payable from the balance sheet. After
applying much of the balance for general working capital, the Company has
approximately $55,000 in cash as of the date hereof. The company believes that
such amount, together with the amounts due under the aforementioned promissory
notes, along with cash flow generated by the Company's operations, should be
sufficient to fund the Company's operations through June 30, 2002. The Company
intends to continue it's current funding initiative to raise additional working
capital and to further enhance its ability to successfully penetrate the market
and obtain profitability. No assurance can be given, however, that the Company
will be able to obtain such additional capital on terms acceptable to the
Company.
20
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
During the three months ended December 31, 2001, Registrant
issued the following securities without registration under the
Securities Act of 1933, as amended (the "Act"):
(a) On October 1, 2001, the Registrant issued 250,000 shares of
its common stock to Radek Hulan, a sophisticated investor, in
payment of the purchase price of $375,000 ($1.50) of Mr. Hulan's
49% interest in Sutton Data Services, SRO. The shares were issued
and sold in reliance upon the exemption provided by Section 4(2)
of the Act.
(b) On October 26, 2001, the Registrant issued a warrant to
purchase 388,889 shares of its common stock at an exercise price
of $2.50 per share to GlobalNet Financial.com Inc., an accredited
investor, in connection with the conversion of notes payable in
the aggregate amount of $525,000. The warrant was issued and sold
in reliance upon the exemption provided by Rule 506 of Regulation
D.
(c) On October 26, 2001, the Registrant issued 888,888 shares of
its common stock to GlobalNet Financial.com Inc., an accredited
investor, in exchange for 888,888 shares of Series A exchangeable
preferred stock of Sutton Online, Inc. in accordance with the
terms thereof. The shares were issued and sold in reliance upon
the exemption provided by Rule 506 of Regulation D.
(d) On November 1, 2001 Registrant issued 100,000 shares of its
common stock to The Wells Group, Inc., an accredited investor, in
payment of public relations services to be rendered to the
Registrant. Of such amount, 50,000 shares are being held in
escrow and will be released on the six month anniversary of the
agreement unless sooner terminated by the Registrant. The amount
of shares issued was determined by negotiations between the
parties and no value was attributed to such shares in the
applicable contract. The closing bid price of Registrant's common
stock on November 1, 2001, was $2.75. The shares were issued and
sold in reliance upon the exemption provided by Rule 506 of
Regulation D.
(e) On November 7, 2001, the Registrant granted an option under
the Registrant's 1999 Incentive Program to Richard Joyce, a
sophisticated investor and a director of Registrant, to purchase
75,000 shares of its common stock, with an exercise price of
$2.45 and a term of five years. The option was issued in reliance
upon the exemption provided under Section 4(2) of the Act.
(f) On December 31, 2001, the Registrant sold 2,000,000 shares of
its common stock (as part of a unit together with 2,000,000
shares of preferred stock of Registrant's subsidiary, Sutton
Online, Inc.) to Tiburon Management Limited, an accredited
investor, in exchange for a $1,000,000 recourse note. The note
provides for payment of the principal as follows: $50,000 due
1/8/02, $400,000 due 1/15/02, $212,500 due 2/15/02, $212,500 due
3/15/02 and $125,000 due 4/15/02. The shares were issued and sold
in reliance on the exemption provided by Rule 506 of Regulation
D.
21
(g) During the quarter the Registrant issued 100,000 and 20,000
shares of its common stock to Tiburon Asset Management, LLC and
Tiburon Management Limited, respectively, both accredited
investors, in payment of interest of $248,000 on notes payable to
such parties. The shares were issued in reliance upon the
exemption provided by Rule 506 of Regulation D
(h) During the quarter, the Registrant issued 50,000 and 12,500
shares of common stock and 50,000 and 12,500 warrants (at an
exercise price of $2.50), to Tiburon Management Limited and
Tiburon Asset Management, LLC, respectively, both accredited
investors, in payment of Registrant's notes payable to such
parties in the aggregate amount of $250,000. The shares and
warrants were issued and sold in reliance upon the exemption
provided by Rule 506 of Regulation D.
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 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
None
22
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: February 14, 2002 By: /s/ Jonathan Siegel
--------------------------
Jonathan Siegel
Chairman and CEO
23