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, 2002
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) 578-5888
----------------------------------------------
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 September 12, 2002, the
registrant had 24,079,520 shares of common stock outstanding.
SUTTON TRADING SOLUTIONS, INC.
FORM 10-QSB
For the Quarter Ended September 30, 2002
Index Page
Number
PART I FINANCIAL INFORMATION
Item 1 Consolidated Condensed Balance Sheets at September 30, 2002
and March 31, 2002 (unaudited for September 30, 2002 period) 3
Consolidated Condensed Statements of Operations for the three
months ended September 30, 2002 and 2001 (unaudited) 4
Consolidated Condensed Statements of Operations for the six
months ended September 30, 2002 and 2001 (unaudited) 5
Consolidated Statements of Comprehensive Income for the three
months ended September 30, 2002 and 2001 (unaudited) 6
Consolidated Statements of Comprehensive Income for the six
months ended September 30, 2002 and 2001 (unaudited) 7
Consolidated Condensed Statements of Cash Flows for the six months
ended September 30, 2002 and 2001 (unaudited) 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis or Plan of Operation 12
Item 3 Controls and Procedures 14
PART II
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8 - K 15
Signature 15
Certifications 16
Exhibit 99.1 20
Exhibit 99.2 21
2
PART I
FINANCIAL INFORMATION
Item 1 Financial Statements
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
ASSETS
------ September 30 March 31
2002 2002
------------ ------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 7,351 $ 163,358
Receivables:
Trade, net -- 114,965
Employees and affiliated company -- 141,020
Other -- 15,916
Prepaid expenses -- 168,918
------------ ------------
Total current assets 7,351 604,177
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Computers and equipment -- 873,179
Software -- 588,903
Vehicles -- 269,445
Leasehold Improvements -- 9,438
------------ ------------
-- 1,740,965
Less: accumulated depreciation and amortization -- (407,524)
------------ ------------
-- 1,333,441
------------ ------------
OTHER ASSETS:
Goodwill, net -- 389,905
Other -- 24,275
------------ ------------
-- 414,180
------------ ------------
$ 7,351 $ 2,351,798
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other liabilities $ 1,089,857 $ 1,010,697
Capital lease obligation 82,951 91,043
------------ ------------
Total current liabilities 1,172,808 1,101,740
------------ ------------
LONG-TERM LIABILITIES:
Capital lease obligation 76,125 76,125
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 4):
Preferred stock, $.0001 par value, 3,000,000 shares authorized,
2,600,000 (liquidation value $1,300,000) shares issued
and outstanding 260 260
Common stock, $.001 par value, 100,000,000 shares authorized,
23,657,298 and 23,757,298 shares issued and outstanding,
respectively 23,658 23,758
Additional paid-in capital 9,698,655 9,973,555
Note receivable -- (425,000)
Accumulated other comprehensive income 49,322 49,322
Deficit (11,013,477) (8,447,962)
------------ ------------
(1,241,582) 1,173,933
------------ ------------
$ 7,351 $ 2,351,798
============ ============
The accompanying notes are an integral part of these statements.
3
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------
Three Months Ended
September 30,
-----------------------------
2002 2001
------------ ------------
REVENUE:
Transaction fees $ -- $ 284,637
Data fees 3,397 86,717
------------ ------------
Total Revenue 3,397 371,354
------------ ------------
EXPENSES:
Clearing costs -- 46,812
Trading costs and user fees 4,534 37,423
Salaries and related expenses 23,685 268,947
Technical support 3,397 --
Service fees -- 3,259,133
Occupancy and equipment -- --
Consulting and other professional fees 11,507 --
General and administrative 27,553 614,730
------------ ------------
Total operating expenses 70,676 4,227,045
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (5,803) (10,192)
Other -- (316,991)
Loss on Asset Disposal -- --
------------ ------------
Total other expense (5,803) (327,183)
------------ ------------
NET LOSS $ (73,082) $ (4,182,874)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss (0.003) $ (0.23)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 23,657,298 17,948,502
============ ============
The accompanying notes are an integral part of these statements.
4
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------
Six Months Ended
September 30,
-----------------------------
2002 2001
------------ ------------
REVENUE:
Transaction fees $ 206,086 $ 835,534
Data fees 55,724 203,781
------------ ------------
Total Revenue 261,810 1,039,315
------------ ------------
EXPENSES:
Clearing costs 42,652 110,508
Trading costs and user fees 59,234 147,658
Salaries and related expenses 103,469 589,998
Technical support 79,583 --
Service fees 3,259,133
Occupancy and equipment 114,629 --
Consulting and other professional fees 42,123 --
General and administrative 206,356 1,112,295
------------ ------------
Total operating expenses 648,046 5,219,592
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (5,803) (67,830)
Other 125 (308,867)
Loss on Asset Disposal (2,173,601) --
------------ ------------
Total other expense (2,179,279) (376,697)
------------ ------------
NET LOSS $ (2,565,515) $ (4,556,974)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss $ (0.11) $ (0.29)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 23,657,298 15,808,134
============ ============
The accompanying notes are an integral part of these statements.
5
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF
--------------------------
COMPREHENSIVE INCOME (UNAUDITED)
--------------------------------
Three Months Ended
September 30,
---------------------------
2002 2001
----------- -----------
NET LOSS $ (73,082) $(4,182,874)
OTHER COMPREHENSIVE INCOME (Loss):
Foreign currency translation adjustments -- (5,540)
----------- -----------
COMPREHENSIVE LOSS $ (73,082) $(4,188,414)
=========== ===========
The accompanying notes are an integral part of these statements.
6
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF
--------------------------
COMPREHENSIVE INCOME (UNAUDITED)
--------------------------------
Six Months Ended
September 30,
---------------------------
2002 2001
----------- -----------
NET LOSS $(2,565,515) $(4,556,974)
OTHER COMPREHENSIVE INCOME (Loss):
Foreign currency translation adjustments -- (1,388)
----------- -----------
COMPREHENSIVE LOSS $(2,565,515) $(4,558,362)
=========== ===========
The accompanying notes are an integral part of these statements.
7
SUTTON TRADING SOLUTIONS, INC.
CONSOLIDATED CONDENSED
----------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------
Six Months Ended
September 30,
--------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,565,515) $(4,556,974)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization -- 29,831
Loss on sale of securities -- 288,829
Loss on abandonment of leasehold improvements -- 28,162
Issuance of stock for services -- 3,259,133
Loss on disposal of assets 2,173,601 --
Bad Debt Write-off 46,288 --
Reversal of Common Stock issued for Compensation (275,000) --
Decrease (increase) in Other Assets 39,275 (19,652)
Decrease (increase) in receivables -- 45,401
Decrease in prepaid expenses 148,753 (247,963)
Increase (decrease) in accounts payable and accrued expenses 71,068 498,288
----------- -----------
Net cash used in operating activities (361,530) (674,945)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in related party receivables (156,276) 119,209
Acquisition of subsidiary, net of cash acquired -- --
Cash paid on disposal of subsidiary (63,201) --
Purchases of property and equipment -- (342,923)
----------- -----------
Net cash used in investing activities (219,477) (223,714)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations -- (49,138)
Payments received on note receivable 425,000 --
Proceeds from notes payable -- 400,000
Issuance of common stock -- 400,000
----------- -----------
Net cash provided by financing activities 425,000 750,862
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (19,826)
----------- -----------
NET (DECREASE) INCREASE IN CASH (156,007) (167,623)
CASH, beginning of period 163,358 207,879
----------- -----------
CASH, end of period $ 7,351 $ 40,256
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of common stock for LLC interest $ -- $ --
=========== ===========
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
On July 2, 2002, Sutton Data Services, s.r.o. ("SDS"), the Company's
wholly-owned subsidiary in the Czech Republic, filed for bankruptcy protection
because it was unable to meet its obligations and the Company was unable to
provide the necessary funding. Due to the bankruptcy filing in the Czech
Republic, the Company was not able to obtain the books and records of SDS for
the current periods. SDS was funded substantially all by its parent company in
the United States. Accordingly, in order to prepare the quarterly financial
statements for the quarter ended September 30, 2002, the Company used the last
available financial statements of SDS (December 31, 2001) and wrote off all of
its assets to zero. In addition, the Company recorded expenses for all funds
transmitted to SDS.
The accompanying consolidated financial statements of the Company are unaudited
and include, in the opinion of management, all normal recurring adjustments
necessary to present fairly the consolidated balance sheet as of September 30,
2002, and the related statements of operations, comprehensive income,
shareholders' equity and cash flows for the periods presented. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the Company's fiscal
2002 audited consolidated financial statements and the related notes thereto
included in the Company's Form 10-KSB filed with the Commission on August 16,
2002.
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 2001. In
August 2001, 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, Sutton became a wholly owned subsidiary of Ikon. 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.
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, SDS
(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 offered trade routing and level II software and data for online
investors including individuals, hedge funds and money managers, and provided
brokerage firms with the necessary tools to offer financial products via the
internet. Through its European subsidiary, the Company was 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 required it to have a relationship with a securities
broker-dealer as well as a clearing organization to clear trades.
On July 2, 2002, SDS, the Company's wholly-owned subsidiary in the Czech
Republic, filed for bankruptcy protection because it was unable to meet its
obligations and the Company was unable to provide the necessary funding. In
addition, Sutton, the Company's principal subsidiary, substantially terminated
its work force in an effort to conserve cash. As a result, portions of the
Company's assets are subject to the bankruptcy. Also in July 2002, the Company
discontinued all operations and began depleting its cash reserves and
liquidating its assets which will leave the Company with liabilities, but no
assets. The Company is now exploring strategic alternatives, including a sale or
merger.
The issues above and the Company's working capital deficiency raise substantial
doubt about its ability to continue as a going concern.
9
SUTTON TRADING SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
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 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.
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.
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.
Sale of Licensing Rights
- ------------------------
On September 24, 2002, the Company and Sutton entered into an agreement (the
"Agreement") with Tiburon Management Limited ("Tiburon"), a 16% shareholder,
pursuant to which Tiburon was granted perpetual and exclusive licensing rights
to GlobalDAT and all the rights, title and interest to certain hardware in
exchange for Tiburon using its best efforts to complete the development,
commercialization, and marketing of GlobalDAT (the "System Completion
Activities"), $15,000 in fixed assets, and a sliding percentage of any income
generated by Tiburon from the sale or licensing of GlobalDAT. The Company
entered into the Agreement because it lacks the resources to complete the System
Completion Activities, and Tiburon has the resources and is willing to perform
the System Completion Activities. All proceeds realized by the Company and
Sutton from the Agreement will be used for operating expenses and the
satisfaction of existing liabilities.
NOTE 2 - SUBSEQUENT EVENTS
Change of Directors
- -------------------
On November 1, 2002, the Company's board of directors was expanded to
six members with the addition of Andrew J. Kacic, John W. Shaffer, and Raymond
J. Bills. Additionally, Andrew J. Kacic replaced Jonathan Siegel as the Chairman
of the Board. On November 4, 2002, the board of directors accepted the
resignation of Jonathan Siegel, Gregory Frank, and Vincent Montagna as
directors, resulting in a three-man board consisting of Andrew J. Kacic, John W.
Shaffer, and Raymond J. Bills.
11
Item 2 Management's Description and Analysis or Plan of
Operation.
Overview
- --------
The Company commenced operations in May 1999, initially focusing on
providing direct access software developed by others to retail clients to effect
securities transactions online. In November 1999, the Company transitioned to
become an application service provider (ASP) of its proprietary platform,
GlobalDAT (TM). Through its Sutton Online, Inc. ("Sutton") subsidiary, the
Company provided 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.
The Company offered two principal software 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. The Company
offered 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. The Company's wholly owned subsidiary, Sutton Data Services, s.r.o.
("SDS") was a Prague based software developer that created and maintained the
GlobalDAT (TM) platform and was further engaged in providing specialized custom
solutions for B2B clients.
Revenues were comprised of transaction fees, data fees and software
licensing fees that were primarily derived from domestic and international
brokerage firms, banks and financial institutions. The Company also entered into
interconnectivity agreements, introducing broker dealer agreements, and
technical support agreements. All of such agreements were for an initial period
of one year, with automatic renewal of one additional year. Transaction fees and
technical support fees were billed to the customer on a monthly basis based on
volume.
Under various service agreements, the Company provided technology
support services, including systems administration, internal network support,
and support and procurement for clearance and settlement services. In addition,
certain clients of the Company provided online access to their customers through
use of the Company's electronic trading platform for which the Company received
fees.
In July 2002, in light of the current economic environment, management
concluded that it was unable to raise sufficient capital to continue the
operations of Sutton, its principal operating company, and therefore
substantially terminated all of Sutton's operations and employees in an effort
to conserve cash.
On September 24, 2002, the Company and Sutton entered into an
agreement (the "Agreement") with Tiburon Management Limited ("Tiburon"), a 16%
shareholder, pursuant to which Tiburon was granted perpetual and exclusive
licensing rights to GlobalDAT and all the rights, title and interest to certain
hardware in exchange for Tiburon using its best efforts to complete the
development, commercialization, and marketing of GlobalDAT (the "System
Completion Activities"), $15,000 in fixed assets, and a sliding percentage of
any income generated by Tiburon from the sale or licensing of GlobalDAT. The
Company entered into the Agreement because it lacks the resources to complete
the System Completion Activities, and Tiburon has the resources and is willing
to perform the System Completion Activities. All proceeds realized by the
Company and Sutton from the Agreement will be used for operating expenses and
the satisfaction of existing liabilities.
As of June 30, 2002, the Company had written down the value of
GlobalDAT to zero due to the unfinished state of GlobalDAT and the lack of
resources to finish the development and marketing of GlobalDAT.
12
As of the date of this report, Tiburon owns approximately 16% of the
Company's issued and outstanding shares of common stock and is the sole holder
of Sutton's preferred stock.
Also parties to the Agreement are SDS and Radek Hulan, its former Chief
Executive Officer, both of which have not yet executed the Agreement.
Nevertheless, the Agreement, by its terms, is binding with respect to the
promises and agreements affecting the Company, Sutton, and Tiburon.
As a result of the foregoing, a substantial portion of the Company's
assets, including its proprietary trading software, is subject to the
bankruptcy. The Company has discontinued all operations and begun depleting its
cash reserves and liquidating its assets which will leave the Company with
liabilities, but no assets. The Company now intends to seek to enter into a
business combination with one or more as yet unidentified privately held
businesses.
Results of Operations
- ---------------------
During the three months ended September 30, 2002, the Company had
revenue of $3,397 and incurred a net loss of $73,082. Expenses for this period
were related primarily to salary expense for final compensation due at the
beginning of the quarter as well as for general and administrative expenses
incurred.
Prior to July, 2002, the operations of Sutton and the Company's other
subsidiaries constituted substantially all of the Company's operations. In view
of the filing of a bankruptcy petition by SDS and the Company's decision to
terminate Sutton's operations, management believes that revenue comparisons with
the prior periods are not relevant.
Liquidity and Capital Resources
- -------------------------------
At September 30, 2002, the Company had $7,351 in cash, and had trade
accounts payable in the amount of $1,089,857. The Company is negotiating with
its vendors to reduce the balances on these accounts.
As of September 30, 2002, the Company's principal sources of liquidity
consisted of cash of approximately $7,351. The Company has no commitments for
any capital expenditure and foresees none. However, the Company will incur
routine fees and expenses incident to its reporting duties as a public company
and maintenance of its insurance coverage, and it will incur fees and expenses
in the event it makes or attempts to make an acquisition. The Company expects no
significant operating costs other than insurance expenses and professional fees
payable to attorneys and accountants.
The Company is seeking to enter into a business combination with one or
more as yet unidentified privately held businesses. The Company does not
anticipate that funding will be necessary in order to complete a proposed
combination, except possibly for fees and costs of the Company's professional
advisers. Accordingly, there are no plans to raise capital to finance any
business combination, nor does management believe that any combination candidate
will expect cash from the Company. The Company hopes to require the candidate
companies to deposit with the Company an advance that the Company can use to
defray professional fees and costs and travel, lodging and other due diligence
costs of management. Otherwise, management would have to advance such costs out
of their own pockets, and there is no assurance that they will advance such
costs.
Management intends to raise capital from both existing and new
shareholders and to use the proceeds to pay for routine expenses, such as making
required filings with the SEC and office rent and related expenses. There can be
no assurance that the Company will be able to find sources of financing on terms
13
acceptable to the Company, if at all. If the Company does not find the sources
to finance such activities, it may be unable to timely file the reports required
under the Securities Exchange Act of 1934, as amended. This could subject the
Company to fines and penalties and make it less desirable to a potential
combination candidate. This would make it difficult for the Company to pursue
its plans to acquire additional businesses.
Item 3 Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
------------------------------------------------
Within the 90 days prior to the date of this report, Sutton Trading
Solutions, Inc. ("the Company") carried out an evaluation, under the
supervision and with the participation of the Company's management,
including the Company's Chief Executive and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information
required to be included in the Company's periodic SEC filings relating
to the Company (including its consolidated subsidiaries).
(b) Changes in Internal Controls.
----------------------------
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these internal
controls subsequent to the date of our most recent evaluation.
14
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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.
Dated: November 8, 2002 By: /s/ JONATHAN SIEGEL
-------------------------------
Jonathan Siegel
Chief Executive Officer
15
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C 1350, AS ADOPTED, AND
THE REQUIREMENTS OF SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jonathan Siegel, Chief Executive Officer of Sutton Trading
Solutions, Inc. (the "Company") do hereby certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the
Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of, and for, the period presented in this quarterly report.
4. The Company's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Company's internal controls; and
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6. The Company's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ JONATHAN SIEGEL
------------------------------
Jonathan Siegel
Chief Executive Officer
November 8, 2002
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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C 1350, AS ADOPTED, AND
THE REQUIREMENTS OF SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Leigh Bickel, Chief Financial Officer of Sutton Trading Solutions,
Inc. (the "Company") do hereby certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the
Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Company as of, and for, the period presented in this quarterly report.
4. The Company's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Company's internal controls; and
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6. The Company's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ LEIGH BICKELL
-------------------------------
Leigh Bickell
Chief Financial Officer
November 8, 2002
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