UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)




þ           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2011




o           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: 000-52618





SOUTHERN TRUST SECURITIES HOLDING CORP.


(Exact name of registrant as specified in its charter)




Florida

651001593(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)145 Almeria Ave., Coral Gables, Florida

33134(Address of principal executive offices)

(Zip Code)




(305) 446-4800


(Registrant’s telephone area, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þNo  o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of Òlarge accelerated filer,Ó Òaccelerated filerÓ and Òsmaller reporting companyÓ in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer  ̈
Accelerated filer  ̈Non-accelerated filer  ̈
Smaller reporting company þ





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  þ




State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:





The registrant had 14,333,378 shares of common stock issued and outstanding on March 31, 2011.





Introductory Note:  The Registrant qualifies as a “smaller reporting company” and has elected to comply with the requirements applicable to smaller reporting companies set forth in Regulation S-K and Form 10-Q.














INDEX




Item 1.
Consolidated Interim Financial Statements
3Consolidated Statements of Financial Condition as of March 31, 2011 and December 31, 2010
3Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
4Consolidated Statements of Changes in Stockholders’ Equity (Deficit) and Comprehensive Income (Loss)
5Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
6Notes to Consolidated Interim Financial Statements
7Item 2.
Management’s Discussion and Analysis
28Item 3.
Quantitative and Qualitative Disclosures About Market Risk
33Item 4.
Controls and Procedures
33Part IIItem 1.
Legal Proceedings
34Item 1A.
Risk Factors
36Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds
36Item 3.
Default Upon Senior Securities
36Item 4.
Submission of Matters to a Vote
36Item 5.
Other Information
36Item 6.
Exhibits
36Signature Page
37





2
 
 PART I - FINANCIAL INFORMATION
 ITEM 1. FINANCIAL STATEMENTS
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 March 31,


December 31,2011


2010(Unaudited)ASSETSCash and cash equivalents

$
187,065


$
281,878Securities owned at fair value, including restricted securities


935,757



968,161Due from clearing broker


922,665



529,773Commissions receivable


155,479



90,348Investment in AR Growth


22,370



22,370Investment in Nexo Emprendimientos, S.A. (see Note 18)


1,250,000



1,250,000Other assets


31,503



20,931Property and equipment,net


1,597,172



1,612,986Total assets

$
5,102,011


$
4,776,448LIABILITIES AND STOCKHOLDERS' EQUITYLiabilitiesAccounts payable and accrued expenses

$
317,436


$
244,475Payable to customers


1,074,020



782,640Obligations under capital lease


5,156



6,509Notes payable


743,272



757,188Total liabilities


2,139,884



1,790,812Commitments and contingenciesStockholders' equitySeries C 8% convertible preferred stock, no par value, 2.5 million shares authorized,520,000 issued and outstanding


5,200,000



5,200,000Common stock, no par value, 100 million shares authorized; 14,333,378 sharesissued and outstanding at March 31, 2011 and December 31, 2010, respectively


9,002,985



9,002,986Additional paid-in-capital


1,584,965



1,536,991Accumulated deficit


(12,938,252
)


(12,854,535
)Accumulated other comprehensive income (loss)


341



(11,002
)Total Southern Trust Securities Holding Corp. and Subsidiaries stockholders' equity


2,850,040



2,874,440Noncontrolling interest


112,087



111,196Total stockholders' equity


2,962,127



2,985,636Total Liabilities and Stockholders' Equity

$
5,102,011


$
4,776,448
  3
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months


Three MonthsEnded


EndedMarch 31,


March 31,2011


2010(Unaudited)


(Unaudited)RevenuesTrading income

$
364,803


$
368,266Commissions


380,336



280,642Investment banking fees


3,704



-Managed account fees


19,715



15,129Interest and dividend income


9,946



11,101Other miscellaneous income


-



27,746778,504



702,884ExpensesCommissions and clearing fees


433,420



338,307Employee compensation and benefits


186,821



168,380Occupancy


16,803



14,086Communications and market data


30,880



33,142Professional fees


117,215



64,224Travel and entertainment


8,688



(2,852
)Depreciation


15,813



18,796Interest expense


13,980



18,475Other operational expenses


37,709



35,288861,330



687,846Net income (loss)


(82,826
)


15,038Net income attributable to noncontrolling interest


891



102Net income (loss) attributable to Southern Trust Securities Holding Corp.and Subsidiares


(83,717
)


15,140Net income (loss) applicable to common stockholders

$
(83,717
)

$
15,140Weighted average common shares outstandingBasic and diluted


14,333,378



14,333,378Income (loss) per common shareBasic and diluted

$
(0.01
)

$
0.00
  4
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
  AccumulatedAdditional





Other


TotalPreferred Stock


Common Stock


Paid-In


Accumulated


Comprehensive


Stockholders'


Noncontrolling


TotalShares


Amount


Shares


Amount


Capital


Deficit


Income (loss)


Equity


Interest


EquityBalances, January 1, 2010


520,000


$
5,200,000



14,333,378


$
9,002,986


$
1,357,612


$
(12,608,316
)

$
2,918


$
2,955,200


$
104,320


$
3,059,520Stock-based compensation


















179,379











179,379







179,379Comprehensive loss:Net loss






















(246,219
)






(246,219
)


6,876



(239,343
)Foreign currencycurrency adjustment


























(13,920
)


(13,920
)






(13,920
)Total comprehensive loss






























(260,139
)


6,876



(253,263
)Balances, December 31, 2010


520,000


$
5,200,000



14,333,378


$
9,002,986


$
1,536,991


$
(12,854,535
)

$
(11,002
)

$
2,874,440


$
111,196


$
2,985,636Stock-based compensation


















47,974











47,974







47,974Comprehensive loss:Net loss






















(83,717
)






(83,717
)


891



(82,826
)Foreign currencycurrency adjustment


























11,343



11,343







11,343Total comprehensive loss






























(72,374
)


891



(71,483
)Balance, March 31, 2011


520,000


$
5,200,000



14,333,378


$
9,002,986


$
1,584,965


$
(12,938,252
)

$
341


$
2,850,040


$
112,087


$
2,962,127
 5
 
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months


Three MonthsEnded


EndedMarch 31,


March 31,2011


2010(unaudited)


(unaudited)Cash flows from operating activitiesNet income (loss)

$
(82,826
)

$
15,038Adjustments to reconcile net (loss) to net cash provided by(used in) operating activities:Stock-based compensation


47,974



48,609Depreciation and amortization


15,813



18,796Changes in operating assets and liabilities:Securities owned


32,404



366,849Due from clearing broker


(392,892
)


(370,545
)Commissions receivable


(65,131
)


(7,188
)Other assets


(10,572
)


(14,305
)Accounts payable and accrued expenses


72,961



29,160Payable to custormers


291,382



413,305Net cash provided by (used in) operating activities


(90,887
)


499,719Cash flows from financing activitiesPrincipal payments on notes payable and capital lease obligations


(15,269
)


(330,739
)Net cash flows used in financing activities


(15,269
)


(330,739
)Effect of foreign exchange rate changeson cash and cash equivalents


11,343



(2,927
)Net increase (decrease) in cash and cash equivalents


(94,813
)


166,053Cash and cash equivalents,beginning of period


281,878



130,631Cash and cash equivalents,end of period

$
187,065


$
296,684Supplementary disclosure of cash flow information:Cash paid during the periods for interest

$
13,980


$
88,258
  6
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
Basis of Presentation
  
  2.
Nature of operations
 
 Southern Trust Securities Holding Corp. (the "Company”) owns Southern Trust Securities, Inc. ("STS"), Southern Trust Metals, Inc. (“STM”), Southern Trust Securities Asset Management, Inc. ("STSAM"), and Loreley Overseas Corporation (“LOR”). Additionally, on October 23, 2006, the Company formed Kiernan Investment Corp. (“KIC”) as an international business company in Belize.  KIC has had very limited operations since inception.
 
 The Company contributed $105,653 in cash to form a new company, IPWM, España S.A. ("IPWM Spain") under a partnership agreement with a Swiss Financial Group, International Private Wealth Management, SA (“IPWM, SA”), in exchange for a 50.01% interest and control of the newly created company.  During July 2008, IPWM Spain commenced operations and opened offices in the cities of Barcelona, Spain, San Sebastian, Spain and Marbella, Spain.  IPWM Spain had limited operations for the years ended December 31, 2010 and 2009.
 
 The Company is a Florida corporation and was organized on January 25, 2000.  STS, a Florida corporation, was organized on June 10, 1999 and is registered as an introducing broker/dealer with the Securities and Exchange Commission (“SEC”).  STS is a member of the Financial Industry Regulatory Authority (“FINRA”) and National Futures Association (“NFA”). STS operates as an introducing broker clearing customer trades on a fully disclosed basis through a clearing firm.  Under this basis, it forwards all customers transactions to another broker who carries all customers’ accounts and maintains and preserves books and records.  Pershing, LLC currently performs the transaction clearing functions and related services for STS.   STSAM, a Florida corporation formed on November 22, 2005, is a fee-based investment advisory company which offers its services to retail customers. STM, a Florida corporation formed on October 29, 2009, to capitalize on investor interest in the trading of precious metals such as gold, silver, platinum, and palladium.  LOR, a British Virgin Islands corporation, was formed on May 19, 2004, and acts as an international intermediary for STM’s international trading transactions; the corporation had been inactive until 2010.
 
 3.
Liquidity
 
 The Company reported a net loss applicable to common shareholders of approximately $84,000 for the three month period ended March 31, 2011 and net income applicable to common shareholders of approximately $15,000 for the same period in 2010. For the three month period ended March 31, 2011 cash flows used by operations was approximately $91,000, compared to cash flows provided by operations of approximately $499,000 for the same period in 2010. The Company has not attained a level of revenues sufficient to support recurring expenses.
 
 Should the Company revenues decline from their current levels the Company will need to seek alternative sources of funding to continue its operations.
 
 4.
Summary of significant accounting policies
  Basis of Presentation and Principles of Consolidation
  The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
 
 The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, STS, STM, STSAM, LOR, and KIC.  IPWM Spain’s assets and liabilities are consolidated with those of the Company and the outside investor’s 49.99% interest in IPWM Spain is included in the accompanying consolidated financial statements as a noncontrolling interest.  All intercompany balances and transactions have been eliminated in consolidation.
 
 7
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 4.
Summary of significant accounting policies (continued)
 
 Cash and Cash Equivalents
 
 The Company considers short-term interest bearing investments with initial maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash in banks, free credit on investment accounts and money market accounts.
 
 Securities Owned
 
 All securities owned are valued at market and unrealized gains and losses are reflected in revenues.
 
 Property and Equipment
 
 Property and equipment is stated at cost less accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Repairs and maintenance are expensed as incurred while betterments and improvements are capitalized.
 
 The Company provides for depreciation and amortization over the following estimated useful lives:
 
 Building and improvements             40 years
 Office equipment                                   5 years
 Furniture and fixtures                       10 years
 
 Long-Lived Assets
 
 In accordance with Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.  During December 2009, the Company took a impairment charge on their building in the amount of $800,000. There was no impairment charges during the quarter ended March 31, 2011.
 
 Revenue and Expense Recognition from Securities Transactions
 
 The Company records all securities transactions, including commission revenue and related expenses, on a trade-date basis.
 
 Investment Banking Fees
 
 Investment banking fees include fees, net of syndication expenses, arising from securities offerings in which the Company acts as an underwriter or agent.  Investment banking revenues also include fees earned in providing financial advisory services.  These revenues are recorded in accordance with the terms of the investment banking agreements.
 
 8
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 4.
Summary of significant accounting policies (continued)
 
 Managed Account Fees
  Managed account fees are primarily earned based on a percentage of assets under management.  Fees are computed and due at specified intervals, generally quarterly and recorded when earned.
  Income Taxes
 
 The Company files a consolidated income tax return with its subsidiaries.  The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes”,which requires accounting for deferred income taxes under the asset and liability method.  Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.
 
 The determination of the Company’s provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.  Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions.  The benefits of uncertain tax positions are recorded in the Company’s financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities.  When facts and circumstances change, the Company reassesses these probabilities and records any changes in the financial statements as appropriate.
  In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.  De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce stockholders equity.  This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.  Management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof. Generally, the tax filings are no longer subject to income tax examinations by major taxing authorities for years before 2008. Any potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, state and local tax laws.  The Company's management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
 
 Interest and Penalty Recognition on Unrecognized Tax Benefits
 
 The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest expense or penalties have been recognized as of and for the period ended March 31, 2011.
 
 9
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4.
Summary of significant accounting policies (continued)
 
 Foreign Currency Adjustments
 
 The financial position and results of operations of the Company’s foreign subsidiary is measured using the foreign subsidiary’s local currency as the functional currency in accordance with FASB ASC Topic 830, “Foreign Currency Matters.” Revenues and expenses of such subsidiary have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange as of the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity.  Foreign currency translation adjustments resulted in gains of $11,343 and losses of $13,004 for the three month periods ended March 31, 2011 and 2010, respectively.
 
 Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
 
 Comprehensive Income (Loss)
 
 The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components.  FASB ASC Topic 220 requires the Company’s change in foreign currency translation adjustments to be included in other comprehensive loss, and is reflected as a separate component of stockholders’ equity.
  Fair Value of Financial Instruments
  The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying consolidated statements of financial condition at December 31, 2010 and 2009.
  Loss Per Common Share
  The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted loss per common share incorporates the dilutive effect of common stock equivalents on an average basis during the period.  The calculation of diluted net loss per share excludes 4,500 and 26,000 warrants and 2,080,000 shares of common stock issuable upon the conversion of the Series C 8% convertible preferred stock as of March 31, 2011 and 2010, respectively, since their effect is anti-dilutive.
 
 Investment
 
 The Company classifies its common stock investment in AR Growth Finance Corp. (“AR Growth”) as available-for-sale in accordance with FASB ASC Topic 320, “Investments-Debt and Equity securities.” Available-for-sale investments are carried on the consolidated statements of financial condition at their fair value with the current period adjustments to the carrying value recorded in accumulated other comprehensive income (loss).
 
 10
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4.
Summary of significant accounting policies (continued)
 
 Stock-Based Compensation
 
 The Company complies with FASB ASC Topic 718 “Compensation – Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions).  That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period).  No compensation costs are recognized for equity instruments for which employees do not render the requisite service.  The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).  If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.  Based on stock options and stock awards that vested during the quarter ended March 31, 2011 and 2010, the Company recorded approximately $47,974 and $48,609, respectively, as compensation expense under FASB ASC 718.
 
 Use of Estimates
 
 The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures.  Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 Valuation of Investments in Securities at Fair Value—Definition and Hierarchy
 
 FASB ASC Topic 820 “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles in the United States and requires expanded disclosures regarding fair value measurements.  ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
 
 In determining fair value, the Company uses various valuation approaches.  In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations, as follows:
 
 11
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4.
Summary of significant accounting policies (continued)
 
 Valuation of Investments in Securities at Fair Value – Definition and Hierarchy (continued)
 
 Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.  Valuation adjustments and block discounts are not applied to Level 1 securities.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
  Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
  Level 3 -Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
  The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.
  Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.
  Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.  The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation.  In periods of market dislocation, the observability of prices and inputs may be reduced for many securities.  This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.
 
 Valuation Techniques
 
 The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the year.  At March 31, 2011, all of the Company’s investments classified as securities owned on the consolidated statements of financial condition are classified as Level 1 investments on the fair value hierarchy table in Note 5.
 
 12
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4.
Summary of significant accounting policies (continued)
 
 Government Bonds
 
 The fair value of sovereign government bonds is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs that include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issuer, maturity and seniority. At March 31, 2011 and 2010 all government bonds are categorized as level 1.
 
 Certificate of Deposits
 
 The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.
 
 Derivative Contracts
 
 The Company records its derivative activities at fair value. Gains and losses from derivative contracts are included in trading income in the consolidated statement of operations.  Derivative contracts include future and option contracts related to foreign currencies, government bonds and other securities.
 
 The fair value of the derivate contacts traded by the Company is generally based on quoted prices in active markets on national exchanges. The derivative contracts, such as options and futures, which are listed on a national securities exchange or reported on the NASDAQ national market, are generally categorized in Level 1 of the fair value hierarchy.
 
 Offsetting of Amounts Related to Certain Contracts
 
 The Company has elected to offset fair value amounts recognized for cash collateral receivables and payables against fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting arrangement. At March 31, 2011 and 2010, the Company offset cash collateral receivables of $7,512 and $160,072, respectively against its net derivative positions.
 
 Recently Adopted Accounting Pronouncements
 
 In January 2010, the FASB issued Accounting Standards Update 2010-06,“Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements” (ASU 2010-06), to require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements.  The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The additional disclosure requirements are effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010.  The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company's consolidated financial statements.
 
 13
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  4.
Summary of significant accounting policies (continued)
 
 Recently Adopted Accounting Pronouncements (continued)
  In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades ,” which addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU No. 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements.
  In December 2010, FASB issued ASC ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) — Intangibles — Goodwill and Other.” ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2, if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The amendments to this update are effective for us in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to our beginning retained earnings. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements.
  14
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  5.
Fair value measurements
  The Company's assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with GAAP guidance for fair value measurement.  See Note 3 for a discussion of the Company's policies regarding this hierarchy.  The Company’s financial assets and liabilities measured at fair value on a recurring basis include those securities classified as securities owned on the consolidated statements of financial condition.
 
 The following table presents information about the Company’s assets and liabilities measured at fair value as of March 31, 2011 and December 31, 2010:
  Quoted Pricesin Active


SignificantMarkets


Other


Significant





Balancefor Identical


Observable


Unobservable


Collateral


as ofAssets


Inputs


Inputs


Held


March 31(Level 1)


(Level 2)


(Level 3)


at Broker


2011AssetsSecurities owned, at fair valueMoney market

$
405,647


$
-


$
-


$
-


$
405,647Corporate bonds


320,680















320,680Options and futures


-











7,512



7,512Equity securities


201,918















201,918+$
928,245


$
-


$
-


$
7,512


$
935,757Investment in AR Growthcommon stock

$
-


$
-


$
22,370


$
-


$
22,370
 15
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 5.
Fair value measurements (continued)
 
 Markets


Other


Significant





Balancefor Identical


Observable


Unobservable


Collateral


as ofAssets


Inputs


Inputs


Held


December 31,(Level 1)


(Level 2)


(Level 3)


at Broker


2010AssetsSecurities owned, at fair value:Money market

$
706,156


$
-


$
-


$
-


$
706,156Corporate bonds


180,803















180,803Options and futures


3,139











44,223



47,362Equity securities


33,840















33,840$
923,938


$
-


$
-


$
44,223


$
968,161Investment in AR Growthcommon stock

$
-


$
-


$
22,370


$
-


$
22,370
 During the year ended December 31, 2010, the Company recognized an impairment loss on its investment in AR Growth based on the excess of the carrying value over the fair value of the investment.  The Company estimated the fair value of the investment to be approximately $ 23,000 based on an analysis of its ownership of outstanding shares, trading volume, and trading prices of A/R Growth.  The fair value measurement of the investment in A/R Growth is categorized as a Level 3 in the fair value hierarchy.
  6.
Derivative contracts
 
 In the normal course of business, the Company utilizes derivative contracts in connection with its proprietary trading activities.  Investments in derivative contracts are subject to additional risks that can result in a loss of all or part of an investment.  The Company’s derivative activities and exposure to derivative contracts are classified by the following primary underlying risks: interest rate, credit, foreign currency exchange rate, commodity price, and equity price risks.  In addition to its primary underlying risks, the Company is also subject to additional counterparty risk due to the potential inability of  its counterparties to meet the terms of their contracts.
 
 Options
 
 The Company is subject to equity price risk in the normal course of pursuing its investment objectives.  Option contracts give the Company the right, but not the obligation, to buy or sell within a limited time, a financial instrument, commodity or currency at a contracted price that may also be settled in cash, based on differentials between specified indices or prices.
 
 16
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  6.
Derivative contracts (continued)
 
 The Company is exposed to counterparty risk from the potential that a seller of an option contract does not sell or purchase the underlying asset as agreed under the terms of the option contract.  The maximum risk of loss from counterparty risk to the Company is the fair value of the contracts and the premiums paid to purchase its open option contracts.  The Company considers the credit risk of the intermediary counterparty to its option transactions in evaluating potential credit risk.
 
 Futures Contracts
 
 The Company is subject to equity price risk in the normal course of pursuing its investment objectives. The Company may use futures contracts to gain exposure to, or hedge against, changes in the value of equities. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.   At March 31, 2011, the Company held no futures contracts.
 
 7.
Property and equipment
 
 Property and equipment consisted of the following at March 31, 2011:
 
 Building and improvements

$
1,075,942Land


725,000Office equipment


135,010Captialized leases


17,5431,953,495Less:  accumulated depreciation


(356,322
)$
1,597,173
 Depreciation expense was $15,813 and $18,796 for the three month periods ended March 31, 2011 and 2010, respectively.
 
 17
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  8.
Notes payable
 
 Notes payable consisted of the following:
  March 31,2011Mortgage payable to a bank, secured by the building, monthly payments of $9,207, including interest at 7.28% per annum, due July 20, 2020.


743,272$
743,272Maturities of notes payable are approximately asfollows at March 31:2012


42,0002013


61,0002014


65,0002015


70,0002016


76,000Thereafer


429,000$
743,000
  18
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
Income taxes
 
 At March 31, 2011, the Company had approximately $7.4 million of net operating losses (“NOL”) carry-forwards for federal and state income purposes.  These losses are available for future years and expire through 2031.  Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.
 
 The deferred tax asset is summarized as follows:
  March 31,


December 31,2011


2010Deferred tax asset:Net operating loss carryforwards

$
2,796,000


$
2,777,000Other temporary differences


955,000



958,000Deferred tax assets


3,751,000



3,735,000Less:  Valuation allowance


(3,751,000
)


(3,735,000
)Net deferred tax asset

$
-


$
-
 A reconciliation of income tax expense computed at the U.S. federal, state, and local statutory rates and the Company’s effective tax rate is as follows:
 
 March 31,


December 31,2011


2010Statutory federal income tax expense


(34
) %


(34
) %State and local income tax


(4
)


(4
)(net of federal benefits)Other temporary differences


8



8Valuation allowance


30



30-
%


-
%
 The Company has taken a 100% valuation allowance against the other timing differences and the deferred asset attributable to the NOL carry-forwards of $3.751 million and $3.735 million at March 31, 2011 and December 31, 2010, respectively,  due to the uncertainty of realizing the future tax benefits.  The increase in valuation allowance of $16,000 is primarily attributable to the Company’s net operating loss during the three month period  ended March 31, 2011.
 
 19
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  9.
Income taxes (continued)
 
 The Company files a consolidated income tax return with its subsidiaries.  Income taxes are charged by the Company based on the amount of income taxes the subsidiaries would have paid had they filed their own income tax returns.  In accordance with FASB ASC Topic 740, “Accounting for Income Taxes,” allocation of the consolidated income tax expense is necessary when separate financial statements are prepared for the affiliates.  As a result, the Company uses a method that allocates current and deferred taxes to members of the consolidated group by applying the liability method to each member as if it were a separate taxpayer.
 
 10.
Common stock
 
 The Company is authorized to issue 100 million shares of common stock, no par value and 10 million shares of preferred stock of which 2.5 million shares have been designated as Series C 8% convertible preferred stock, no par value.
 
 11.
Preferred stock
 
 No Series C preferred stock was sold during 2011 or 2010.
 
 12.
Stock options and warrants
 
 The Company accounts for its stock option awards under FASB ASC Topic 718 “Compensation—Stock compensation.” The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for each grant for the period ended March 31, 2011: risk free interest rate between 2.25% and 4.65%, no dividend yield, expected lives of ten years and volatility between 129.73% and 185.76%. Options vest ratably between one and ten years and are excerciable over ten years. For the three month periods ended March 31, 2011 and 2010, the Company recognized approximately $48,000 and $49,000, respectively, of stock-based compensation expense related to the issuance of options.
  Options Outstanding





Options ExercisableNumber


Weighted





NumberOutstanding


Average


Weighted


Exercisable


Weightedat


Remaining


Average


at


AverageExercise


March 31,


Contractual


Exercise


March 31,


ExercisePrice


2011


Life


Price


2011


Price$
0.25



4,250,000



9.5


$
0.25



292,220


$
0.25$
0.50



200,000



5.8



0.50



200,000



0.50$
0.75



100,000



7.7



0.75



45,000



0.75$
1.00



400,000



6



1.00



400,000



1.00$
1.50



60,000



7.6



1.50



40,500



1.505,010,000






$
0.34



977,720


$
0.68
 20
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  12.
Stock options and warrants (continued)
 
 The following is a summary of all option activity through March 31, 2011:
 
 WeightedAverageNumber of


Weighted


Remaining


AggregateShares


Average


Term


InstrinsicOutstanding


Price


(in years)


ValueOptions outstanding at December 31, 2010


5,010,000


$
0.88



7.6


$
-Granted in 2011


-



-Cancelled in 2011


-



-Options outstanding at March 31, 2011

$
5,010,000



0.34



7.1


$
-Exercisable at December 31, 2010


795,039


$
0.77



7.6


$
-Excercisable at March 31, 2011


977,720


$
0.68



7.3


$
-
 
 The total compensation cost not yet recognized of approximately $1,019,600 (for non-vested awards) has a weighted average period of 3.3 years over which the compensation expense is expected to be recognized.
 
 On January 4, 2007, the Company granted its chief executive officer 4,500,000 shares, in accordance with the executive’s employment agreement, reduced to 3,500,000 shares pursuant to a stock waiver agreement entered into on November 18, 2009 (see Note 16). The issuances of the shares were subject to a forfeiture period which ended in July 2009, at which point the shares would vest over a three year period. Since January 2007, the Company has been recognizing stock compensation expense over the service period of the employment contract of 5 1⁄2 years.  For the four month period ended November 4, 2009, 500,000 shares of the 3,500,000 share grant vested; these shares were issued in December 2009.  On August 4, 2010, the chief executive officer waived his right, title, and interest to vest in the remaining 3,000,000 shares of restricted common stock.
 
 During 2010, the Board of Directors granted 3,350,000 options to its chief executive officer with a strike price of $0.25, vesting equally over ten years, 300,000 options to its president, with a strike price of $0.25, vesting equally over two years, 300,000 options each to two financial executives with a strike price of $0.25, vesting equally over two years and five years, respectively.
 
 21
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  12.
Stock options and warrants (continued)
 
 For the three month period ended March 31, 2011 and the year ended December 31, 2010, warrant activity was as follows:
 Exercise Price Per Share

Warrants

Expiring

Balance

January 1,

2010


Warrants

Issued


Exercised

2010


Expired

2010


Balance

December 31,

2010


Warrants

Issued


Exercised

2011


Expired

2011


Balance

March 31,

2011$
2.16

May 29, 2010


15,500



-



-



15,500



-



-



-







-$
2.16

August 17, 2010


1,000



-



-



1,000



-



-



-







-$
2.16

October 29, 2010


5,000



-



-



5,000



-



-



-







-$
1.25

April 11, 2011


500



-



-



-



500



-



-



-



500$
1.25

May 30, 2011


4,000



-



-



-



4,000



-



-



-



4,000Totals


26,000



-



-



21,500



4,500



-



-



-



4,500
 
 All warrants outstanding at March 31, 2011 and December 31, 2010 are exercisable.
 
 13.
Employee benefit plan
 
 The Company has established a retirement and savings plan for the benefit of employees who have at least one hour of service and have attained the age of 21 years.  Under the provisions of the plan, participants may contribute up to 25 percent of their compensation.  The Company has the option of matching a percentage of employee contributions. The Company did not make any contributions to the plan in 2011 and 2010.
  14.
Net capital requirement
 
 STS is a member of FINRA and is subject to the SEC Uniform Net Capital Rule 15c3-1.  This Rule requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn or dividends paid if the resulting net capital ratio would exceed 10 to 1.  STS is also subject to the Commodity Futures Trading Commission’s minimum financial requirements which require that it maintains net capital, as defined for securities brokers and dealers, equal to or in excess of the greater of $45,000 or the amount of net capital required by the SEC Rule 15c3-1.  At March 31, 2011, STS’s net capital was approximately $705,226, which was approximately $605,226in excess of its minimum requirement of $100,000.
 
 15.
Exemption from Rule 15c3-3
 
 STS is exempt from the SEC Rule 15c3-3 pursuant to the exemptive provision under sub-paragraph (k)(2)(ii) and, therefore, is not required to maintain a "Special Reserve Bank Account for the Exclusive Benefit of Customers."
 
 22
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 16.
Concentration of risk
 
 Off-balance Sheet Risk
 
 Pursuant to a clearance agreement, STS introduces all of its securities transactions to a clearing broker on a fully-disclosed basis.  All of the customers' money balances and long and short security positions are carried on the books of the clearing broker.  In accordance with the clearance agreement, STS has agreed to indemnify the clearing broker for losses, if any, which the clearing broker may sustain from carrying securities transactions introduced by STS.  In accordance with industry practice and regulatory requirements, STS and the clearing broker monitor collateral on the customers' accounts. In addition, the receivable from clearing broker is pursuant to the clearance agreement.
 
 In the normal course of business, STS’s customer activities involve the execution, settlement and financing of various customer securities transactions.  These activities may expose STS to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and STS has to purchase or sell the financial instrument underlying the contract at a loss.
 
 Credit Risk
 
 The Company maintains its cash in financial institutions, which at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash.
  17.
Commitments and contingencies
 
 Legal Claims
 
 In the ordinary course of business, incidental to the Company’s operations, the Company retains outside counsel to address claims with which the Company is involved. As of May 16, 2011, the Company was not aware of any legal proceedings, which management has determined to be material to its business operations; however, the Company has been named in the following three actions which it is vigorously defending and which actions, based on management's assessment in coordination with outside litigation counsel, the Company believes to be frivolous and without merit:
 
 Salvatore Frieri, individually and as beneficiary of the Robert J. Escobio and Salvador Frieri-Gallo Trust, Plaintiff v. Robert Escobio, individually and as trustee of the Robert J. Escobio and Salvador Frieri-Gallo Trust, Southern Trust Securities Holding Corporation and Southern Trust Securities, Inc f/k/a Capital Investment Services, Inc., Defendants, in the Circuit Court of the Eleventh Judicial Circuit In and For Miami-Dade County, Florida, Case No. 08-07586 CA 08. The initial complaint in this action was filed on February 12, 2008. An amended complaint
 
 23
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
Commitments and contingencies (continued)
 
 Legal Claims (continued)
 
 was filed on October 14, 2008. The amended complaint attempts to plead various causes of action related to the purchase and sale by the Salvador Frieri-Gallo Trust of STSHC’s stock in a private placement in 2005. The plaintiff seeks rescission of the transaction. Management does not believe there is any merit to plaintiff’s claims and the case is in an early stage.
 
 In November 2008, the STS initiated legal action against two individuals and their related company. One of the individuals named in the suit is also an individual who has brought legal action against STS, as discussed in the preceding paragraph. STS’s actions seek to recover compensation owed to it for work performed in connection with extensive financial and investment advice work, and services provided in preparation of a bid for Defendants regarding the restructuring, financing, investing, and acquisition of an interest in Aerovias Nacionales de Colombia S.A. Avianca (“Avianca S.A.”) and its subsidiaries (“Avianca”) in connection with Avianca’s bankruptcy reorganization under Chapter 11 of the U.S. Bankruptcy Code. After serving one of the individuals and the related company, STS moved for and obtained defaults against these two Defendants on September 17, 2009.  These two Defendants moved to set aside the defaults against them, which the Court set aside on November 2, 2009. On December 11, 2009, these two Defendants filed a Motion to Dismiss based on alleged failure to join an indispensable party, the ACDAC (Pilot Association).  We do not believe that motion has any merit.  We have served process on the second individual defendant. Based on information that is now available, STS claims the Defendants owe it approximately $8.35 million dollars plus prejudgment interest from on or about January 2005. In the opinion of outside counsel, it is too early to predict the ultimate recovery from Defendants.
 
 On December 7, 2010, STS filed a FINRA arbitration against Joseph Meuse, Rosewood Securities, LLC, BP Capital, LLC, and China Values Technology, Inc.  The FINRA filing was amended on January 18, 2011, before FINRA commenced serving the Respondents.  STS seeks to recover compensation it was entitled to receive for acting as placement agent under an agreement involving an offering of securities in a reverse merger into a publicly traded company, Respondent China Valves, which closed on May 18, 2009. The Agreement provided that STS would receive 23,490 warrant shares of China Valves, but it only received 5,739 warrant shares.  Thus, STS has sued the Respondents to recover the additional 17,751 warrant shares that it should have received on May 18, 2009, their valued, lost profits, and lost opportunity costs caused by the failure to timely deliver the shares as required. The Respondents, in response to STS’s pre-filing demands for payment, each blamed the other for the claimed failures to timely deliver the missing warrant shares.
 
 On April 7, 2011, the Company entered into a Settlement Agreement (“Agreement”) with BP Capital, LLC, for which Joseph Meuse as managing member (“BP Capital”) and Joseph Muse (“Meuse”) an individual.  The Agreement provides that Meuse will make a payment to STS in the amount of $125,000, in full settlement with Meuse and BP Capital.  The payment will be made by Meuse to STS in five (5) installments, with the first payment of $25,000 due on the date of the signing of the Agreement and four successive payments of $25,000 due thirty (30) days following each prior payment until the full payment has been made.
 
 24
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
Commitments and contingencies (continued)
 
 Legal Claims (continued)
 
 On or about December 28, 2010, plaintiffs attempted to serve process on STSHC by serving STS, with an Amended Complaint filed in the United States Federal District Court for the Southern District Court of New York.  The trust of the Amended Complaint seems to be that Plaintiffs invested about $12.5 million in a company named Aamaxen Transport Group, Inc. (“AAXT”), pursuant to a Securities Purchase Agreement, dated April 14, 2008, in exchange for AAXT’s Series A Convertible Preferred Stock.  AAXT, a publicly traded company, shares are listed on the OTC Bulletin Board.  AAXT, a Delaware Company, has its principal place of business in Shanghai, China.  AAXT was to ultimately invest in and own a significant beneficial interest in Shanghai Atrip Medical Technology, Co., Ltd. (“SMT”), another Chinese company.  Plaintiffs claim the transaction did not take place as agreed and that the Chinese principals in certain of the entities involved continued to maintain control over some entities, when they should not have and AAXT and other Plaintiffs’ invested funds were ultimately embezzled.  The investors sued those allegedly involved in the embezzlement, the attorneys involved in the transactions, and those who allegedly provided investment banking advice.  The Amended Complaint includes STSHC along with certain entities controlled by Joseph Meuse and used to provide investment, business, and structuring advice under the names Belmont Partners, LLC (“Belmont”) and Rosewood Securities, LLC (“Rosewood”).  The Amended Complaint defines Belmont to include Belmont Partners, Rosewood, or Meuse.  STSHC had nothing to do with this matter.  STS, which was not named a defendant, had a branch office agreement, whereby Rosewood operated as a branch office of STS managed by Meuse during part of the period involved.  As determined so far, STS had no involvement in the transaction and whose only possible connection the parties was through the Rosewood branch office agreement, which was terminated in December 2009. STSHC retained New York counsel to represent it in this case.  Counsel received an order from the Court extending the date for STSHC to respond to the Amended Complaint until March 11, 2011.  STSHC responded to the Amended Complaint as required and filed its motion to dismiss.  On March 18, 2011 the court issued an order requiring that opposing affidavits to motions to dismiss be filed by May 16, 2011.
 
 Based on what is known, management does not believe that STSHC had any involvement whatsoever and is not a proper defendant, and it also does not believe STS had any involvement, other than the possibility that the Rosewood branch office having some as yet unknown involvement without STS’s knowledge or participation. At this point, little is known about the facts, since the case was only recently filed against STSHC.
 
 Employment Agreements
 
 On January 4, 2007, the Company entered into employment agreements with several of its key executives.  The agreements are for two to three-year duration and renew automatically for one year unless either party provides notice of non-renewal 30 days prior to the anniversary date of the agreement or the agreement is earlier terminated in accordance with its terms.  Two of the agreements are for two-year duration with total compensation of $247,000 per year. The third agreement is for three-year duration with total compensation of $150,000 per year.
 
 As part of the agreements, the Company granted 4,500,000 shares of common stock vesting over five years to one of the executives, reduced to 3,500,000 shares pursuant to a stock waiver agreement entered into on November 18, 2009; on August 4, 2010, the executive waived his right, title, and interest to vest the remaining 3,000,000 shares, the balance after 500,000 were vested and issued in December 2009. Also, as part of the employment agreements, the Company  granted 922,389 shares vesting equally over eighteen months to another executive, and 200,000 options to the third executive exercisable on December 31, 2007 and for a period of ten years.
 
 25
 
 SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  17.
Commitments and contingencies (continued)
 
 Employment agreements (continued)
 
 One of the key executive’s agreements provides for a lump-sum payment of $5 million and the repurchase of all shares based on their fair market value, if his employment is terminated as a result of a change of control.  Should the executive’s employment be terminated for any other reason, the Company would have to pay him $2 million and repurchase all of his shares based on their fair market value.  Lastly, another agreement provides for a lump-sum payment of $1 million to one of the executives if his employment is terminated due to change of control.
 
 18.
Investment in AR Growth Finance Corp. and Nexo Emprendimientos S.A.
 
 During the first quarter of 2007, the Company entered into an agreement to work in concert with two Argentine companies, Inversora Castellanos, S.A. (“ICSA”), a company comprised of executives from SanCor, the largest dairy cooperative in Argentina, and Administración de Carteras S.A. (“ACSA”), whereas we purchased a controlling interest in AR Growth Finance Corp. (“AR Growth”). The common stock of AR Growth trades on the Pink Sheets under the symbol “ARGW.PK.” The Company, together with ICSA and ACSA, intend to implement an acquisition plan to acquire finance related companies in Argentina through AR Growth. The Company previously accounted for its preferred stock investment in AR Growth, as discussed below, under the cost method of accounting.
 
 In November 2007, the Company invested $1 million for 100,000 shares of the Series A 8% convertible preferred stock (“Series A ARGW”) of AR Growth. The Series A ARGW provides for cumulative dividends at the rate of 8% per year, payable quarterly, in cash or shares of AR Growth’s common stock at AR Growth’s election. Each share of Series A ARGW shall be convertible into 3.9 shares of AR Growth’s common stock at any time after six (6) months from date of issuance of the preferred stock and prior to notice of redemption at the option of the holder, subject to adjustment for customary anti-dilution events (Conversion Rate). Subject to certain restrictions, the Series A ARGW shall automatically convert into shares of AR Growth’s common stock upon any of the following events: (i) the sale by AR Growth of all, or substantially all, of its assets; (ii) the consummation of a merger or a consolidation; or (iii) the sale or exchange of all, or substantially all, of the outstanding shares of AR Growth’s common stock.
 
 On February 25, 2008, the Company invested an additional $1.5 million for 150,000 shares of Series A ARGW. Simultaneously on that date, AR Growth acquired ProBenefit, S.A. (“ProBenefit”), a privately owned Argentine based holding company comprised of pension, insurance and annuity companies as well as a consumer credit card company, through the following transactions: A) AR Growth acquired the originally issued shares of ProBenefit representing a 37.76% ownership interest for an aggregate purchase price of $7.5 million dollars, of which $2.5 million was paid in cash and $5.0 million (plus interest) shall be paid before February 18, 2010 through the issuance of an 8% Senior Promissory Note by AR Growth to ProBenefit and B) on the same date, AR Growth acquired a 57.34% ownership interest in ProBenefit through the issuance of 11,521,055 shares of common stock of AR Growth and a $12.0 million 8% Junior Subordinated Convertible Debenture due December 15, 2010 to SFN Santafesina de Negocios, S.A., an Argentine company created to consolidate existing ProBenefit investors
 
 Following all of these transactions, the Company has a 4.3% ownership interest in the common stock of AR Growth and 250,000 non-voting shares of Series A 8% Convertible Preferred Stock of AR Growth convertible into common at 3.9:1. Robert Escobio is the CEO and a director of STSHC and also the President and a director of AR Growth, and Kevin Fitzgerald is the President and a director of STSHC and also the CEO and a director of AR Growth.
 
 26
  SOUTHERN TRUST SECURITIES HOLDING CORP. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  18.
Investment in AR Growth Finance Corp. and Nexo Emprendimientos S.A. (continued)
 
 The Company determined that the business of ProBenefit, AR Growth’s primary operating entity, has been adversely affected by recent law changes in Argentina. During October 2008, the Argentinean government proposed a law to nationalize approximately $26 billion in private pensions, stating that the current pension system had failed. In December 2008, the government’s proposed law was passed and the government took control of the country’s pension assets. While ProBenefit still has the insurance, annuity and consumer credit card businesses, the takeover of the pension business had a detrimental effect on ProBenefit’s operations and earnings.  Further, the Argentinean government has indicated that it will compensate those companies affected by the takeover of their pension business, however the amount of the compensation, if any, and the timing and form of such compensation has yet to be determined by the Argentinean government.
 
 As a result of the changes in the operations of ProBenefit, the Company recorded an other-than-temporary impairment charge of $1,250,000 against its preferred stock investment in AR Growth of $2,500,000 in December 2008. The preferred stock was the Company’s only investment carried under the cost method. The Company has also reserved the dividends receivable for the full year 2009 and the fourth quarter ended December 31, 2008.
 
 Any future recovery relative to the value in preferred stock will not be recognized until realized as the impairment has effectively reduced the cost of the preferred stock to $1,250,000. Additionally, future charges may be required pending further deterioration in ProBenefit’s operations, lack of compensation from the Argentinean government and the changes resulting from the restructure of the original transaction, as summarized below.
 
 On August 4, 2009, the Company restructured its investment in AR Growth. In summary, the Company exchanged its $2.5 million Preferred Stock investment in AR Growth for a 22% common stock interest in Nexo Emprendimientos S.A. (“Nexo”). Nexo is a fast growing consumer credit card company based in Sunchales, Argentina.
 
 ProBenefit S.A., a financial services holding corporation (“ProBenefit”), the Company and AR Growth will be the major shareholders of Nexo. As part of the terms of the restructuring, the Company has a put option on the shares of Nexo it now owns whereby ProBenefit will be required to buy back from the Company its Nexo shares at the request of the Company at any time either (i) commencing one year from the date of the agreement and for a period of two years thereafter; or (ii) upon a change of control of Nexo by any person other than the Company. The payment under the put option will commence in September 2012 and continue quarterly for 10 quarters and provides for interest at 8% per annum. Should the Company exercise the put option for 100% of its Nexo shares, ProBenefit will be obligated to pay the Company $2.5 million plus accrued interest.
 
 The Company accounts for its investment in Nexo under the cost method of accounting.
 27
 
 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
 
 The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain “forward-looking statements” including statements about our beliefs and expectations. There are many risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements.
 All forward-looking statements are based on information available to us on the date of this filing, and we assume no obligation to update such statements. The following discussion should be read in conjunction with the consolidated financial statements and the related notes included in this Quarterly Report on Form 10-Q.
 
 Overview
  We were formed as a Florida corporation on January 14, 1998. We are the holding company for Southern Trust Securities, Inc. (“STS”), which is registered as an introducing broker-dealer with the United States Securities Exchange Commission (“SEC”) and is a member of, or subject to regulations of, the SEC, the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (“NFA”), the Commodities and Futures Trading Commission (“CFTC”), Securities Investor Protection Corporation (“SIPC”) and the Municipal Securities Rulemaking Board (“MSRB”). We are also the holding company: (i) for Southern Trust Securities Asset Management, Inc. (“STSAM”) a fee-based investment advisory service registered with the State of Florida, which offers its services to retail customers and (ii) Southern Trust Metals, a trader of primarily gold, silver and palladium.
  Our principal business is the business of STS. We offer clients access to all major domestic and international securities and options exchanges, as well as trading in fixed income products, corporate, government, agencies, municipals, and emerging market debt.  We also offer fixed and variable annuities and life insurance. We currently offer hundreds of domestic and international mutual funds, as well as retirement plans. We manage portfolios for individuals, pension funds, retirement plans, foundations, trusts and corporations. Our corporate services facilitate restricted stock dispositions and employee stock options exercises.  Our offshore services give clients access to foreign trusts and corporations, which they can use to structure their financial planning.
 
 We provide traditional as well as innovative securities transaction structures.  Our focus is on merger and acquisition services, private placements convertible into publicly-traded shares, and private placements bridging to public offerings through reverse mergers into publicly-traded shell corporations.
 
 Southern Trust Metals, Inc. (STM) was formed to capitalize on the investor interest in the trading of precious metals such as gold, silver, platinum, and palladium.    STM is a separate subsidiary of STSHC and separately managed.  STM will work with its own clients to generate new business through the innovative trading of metals.
 
 28
  Critical Accounting Policies and Estimates
  Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the valuation of securities owned and deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. We believe the that the significant accounting policies summarized in footnote three of the unaudited financial statements filed as part of this quarterly report are critical accounting policies, which affect our judgments and estimates used in the preparation of our consolidated financial statements.
  Results of Operations for the Three Months Ended March 31, 2011 and 2010
 
 The following table sets forth a summary of financial highlights at and for the three months ended March  31:
  2011


2010


% Change


ChangeStatement of Operations Data:

(unaudited)


(unaudited)Revenues

$
778,504


$
702,884



11
%

$
75,620Expenses


861,330



687,846



25
%


173,483Net loss (income) applicable to common stock holders


(83,717
)


15,140



(653
%)

$
98,857Loss per common share


(0.01
)


(0.00
)
 
 For the three months ended March 31, 2011, we experienced a net loss of $83,717 as compared to a net gain of $15,140 for the three months ended March 31, 2010. The reason for the net loss is primarily attributable to increased expenses related to the payment of commissions and clearing fees and professional fees.
  Revenues
  Our trading income for the three months ended March 31, 2011, decreased slightly to $364,803 from $386,266 for the three months ended March 31, 2010. The decrease in commissions and clearing fees is mainly attributable to an increase in both the volume of transactions and number of customers trading in fixed income products.
  Our commissions and clearing fees for the three months ended March 31, 2011 increased approximately $100,000 from $280,642 recognized for the three months ended March 31, 2010 to $380,336. We were able to acquire new customers who were interested in investing in fixed income products and we have recognized income from our metals trading subsidiary.  These results are not indicative of how we will do for the rest of 2011, and thus our ability to increase our trading revenues will depend mostly on the future economic conditions and our ability to generate more customer accounts.
  29
  We had no material investment banking revenue in the first quarter of either 2011 or 2010. Investment banking fees are generally determined as a percentage of the size of the deal or contract and are recognized when the transaction is done and closed.  Market conditions for private securities transactions have been weak.  We remain committed to this aspect of our business as a full service boutique broker/dealer.
  Managed account fees increased $4,586 to $19,715 for the three months ended March 31, 2011 from $15,129 for the three months ended March 31, 2010.  The main reason for the increase is related to a increase in activity in these managed accounts.
  Our interest and dividend income decreased $1,155 to $9,946 for the three months ended March 31, 2011 when compared to $11,101 for the same period in 2010.  This decrease is mainly attributable to an decrease in our cash equivalents and investments.
  In the fourth quarter of 2009, we began offering trading services through our subsidiary, STM, for investors with an interest in trading in precious metals. During the fourth quarter of 2009, which was the first quarter of operations for STM, we reported gross revenue of approximately $29,000. For the year ended December 31, 2010, we reported gross revenues of approximately $530,000, and for the three month period ended March 31, 2011, we reported gross revenues of approximately $156,000. This revenue growth is primarily attributable to the significant increase in new accounts combined with the overall growth of investors’ interest in trading in precious metals.
  Expenses
  Commissions and clearing fees expenses incurred during the three months ended March 31, 2011 increased $95,113 to $433,420 as compared to $338,307 the three months ended March 31, 2010. Commissions and clearing fees expenses increased due to the increase in revenues, which included revenues from our precious metals trading company that began trading operations during the fourth quarter of 2009, and higher clearing fees due to higher transactional volumes. Commissions paid to registered representatives represent 56% and 40% of total compensable revenues for the three months ended March 31, 2011 and 2010, respectively.  The percentage of commissions paid to the registered representatives is generally aligned to commission compensation paid throughout the brokerage industry. Clearing fees paid for the three months ended March 31, 2011 and 2010 were $39,000 and $2,000, respectively.
  Total employee compensation and benefits increased by $18,441 to $186,821 for the three months ended March 31, 2011 as compared to $168,380 for the three months ended March 31, 2010, primarily due to the an increase in equity compensation amortization. Employee compensation and benefits expenses include the amortization of equity compensation expenses related to options given to certain key employees. Based on stock options awards that vested during the three month periods ended March 31, 2011 and 2010, we recorded approximately $48,000 and $49,000, respectively, as additional compensation expense. The vesting period for these equity compensation awards range.
  30
  As part of the employment agreements entered with several of our key executives on January 4, 2007, one executive was granted 4,500,000 shares of common stock vesting equally on a monthly basis over three year but was later amended in June 2007 to vest over five years, prospectively. In November 2009, the executive entered into a Stock Waiver Agreement with respect to shares that would have otherwise vested in December 2009 through August 2010, giving the executive the right to waive his right to such shares and have such shares be thus canceled.  The executive waived his right to have 375,000 shares vest during the three months ended March 31, 2010. For the three-month periods ended March 31, 2010, we recognized $43,899, respectively, of stock-based compensation expense related to the issuance of the shares.  In August 2010, the executive waived his right to all additional restricted shares. In October 2011, he was granted 3,350,000 options for shares of common stock, none of which vest in the first year of grant.
  Occupancy costs increased by $2,717 to $16,803 for the three months ended March 31, 2011, up from $14,086 for the three months ended March 31, 2010. Major expenses included under occupancy costs are property taxes, utilities and common repair and maintenance of our office building.
  Communications and market data expenses represent mostly charges on our terminals used to monitor and analyze real-time financial market data movements, telephone expenses, licenses and registration expenses associated with our broker-dealer operations. Communications and market data expenses decreased $2,262 to $30,880 for the three months ended March 31, 2011, from $33,142 incurred in the three months ended March 31, 2010.
  Professional fees increased $52,991 for the three months ended March 31, 2011 to $117,215 as compared to $64,224 the three months ended March 31, 2010, mainly due to legal expenses incurred related to the legal matters incidental to our retail brokerage services business.  As of March 31, 2011, there are no material legal disputes that may have an adverse impact on our financial statements.
  Our travel and entertainment expenses increased to $8,688 for the three months ended March 31, 2011 as compared to a credit on our travel accounts that made this a negative line-up in the amount of $2,852 for the three months ended March 31, 2010.  We have reduced our travel to reduce our expenses, however, some travel is critical to our business generation and customer satisfaction.
  Our other operational expenses include miscellaneous expenses and insurance premiums. Other operational expenses increased $2,421 to $37,709 for the three months ended March 31, 2011 from $35,288 incurred for the same time period in 2010. The increase of is mostly attributable to expenses related to maintenance and insurance premiums.
  We did not pay any dividends to our preferred stockholders for the three months ended March 31, 2011 or 2011 due to a suspension in the dividend payment on the non-cumulative Series C preferred stock outstanding.
  31
  Liquidity and Capital Resources
  As of March 31, 2011, liquid assets consisted primarily of cash and cash equivalents of approximately $187,065 and securities owned of approximately $935,757 for a total of $, which is $127,217 lower than the approximately $1,250,039 in liquid assets as of December 31, 2010. Historically, we have financed our business primarily through cash generated by our brokerage operations, as well as proceeds from our private placement of preferred stock and issuance of common stock.
  Cash and cash equivalents decreased approximately $94,813 to $ 187,065 at March 31, 2011 as compared to $281,878 at December 31, 2010. Cash used in our operating activities for the three months ended March 31, 2011 was approximately $90,887, which primarily consists of $392,892 related to a payable associated with our metals trading subsidiary. No cash was used in investing activities this period. Cash used in our financing activities was approximately $15,269, which consisted mainly of our debt service payments made on our notes payable and capital lease obligations. Additionally, we had no payment of interest on our non-cumulative Series C preferred stock as dividend payments were suspended during the first quarter of 2010.
  STS, as a broker-dealer, is subject to Rule15c3-1 of the Securities Exchange Act of 1934, which specifies uniform minimum net capital requirements, as defined, for their registrants. As of March 31 2011, STS had regulatory net capital of approximately $705,226, which exceeded the required amount by approximately $605,226.
  In response to the current economic environment, we have implemented changes to our capital management practices to ensure we will be able to continue to meet our obligations.  Specifically certain employee salaries and payout percentages were reduced in July 2009 and continue to be reduced to match current business levels and recent employee resignations will not be immediately filled. We have also undertaken the task of reviewing the other general expenses incurred with the objective cost reductions.
  Since we have primarily financed our operations through cash flows generated by our brokerage operations and proceeds from private placements of preferred stock, we are currently exploring an additional offering of preferred stock. There can be no assurance that we will be able to complete this offering on terms acceptable to us, if at all.
  The following is a table summarizing our significant commitments as of March 31, 2011, consisting of debt payments related to our notes payable and employment agreements:
 
 Year ending March 31

Total


Notes Payable2012

$
42,000


$
42,0002013


61,000



61,0002014


65,000



65,0002015


70,000



70,0002016


76,000



76,000Thereafter


429,000



429,000Total Commitments

$
743,000


$
743,000
 
 32
 Off-Balance Sheet Arrangements
 We were not a party to any off-balance sheet arrangements during the period ended March 31, 2011, except for the one identified in “Clearing Arrangements” above.  In particular, we do not have any interest in so-called limited purpose entities, which include special purpose entities and structured finance entities.
 
 ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not applicable.
 
 ITEM 4.    CONTROLS AND PROCEDURES.
 
 As of the end of the period covered by this quarterly report on Form 10-Q, Robert Escobio who is both our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation,
 he identified a material weakness in its disclosure controls namely, that the Company lacked appropriate resources in the accounting and finance department, including a lack of personnel that are appropriately qualified in the areas of U.S. GAAP and SEC reporting. While this material weakness did not have an effect on our reported results or any related disclosures, it nevertheless constitutes a deficiency in our controls and led our Chief Executive Officer and Chief Financial Officer to conclude that our disclosure controls and procedures continue to not be effective at the reasonable assurance level as of March 31, 2011. Despite this deficiency, management believes that there are no material inaccuracies or omissions of fact in this quarterly report. Due to our small size and limited resources it is difficult for us to attract qualified personnel. As soon as finances allow, we will add resources to our corporate and finance department to remediate this deficiency. The material weakness will not be considered remediated until the applicable remedial procedures are tested and management has concluded that the procedures are operating effectively. Based on its evaluation, the Company identified a weakness in its disclosure controls namely, that the Company lacked appropriate resources in the accounting and finance department, including a lack of personnel that are appropriately qualified in the areas of U.S. GAAP and SEC reporting.
 
 Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 
 In addition, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15 or Rule 15d-15 under the Securities Act of 1934, as amended) during the quarter ended March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 33
  Part II
 
 ITEM 1.       LEGAL PROCEEDINGS.
 
 In the ordinary course of business, incidental to our operations, we retain outside counsel to address claims with which we are involved. As of March 31, 2011, we are not aware of any legal proceedings, which management has determined to be material to our business operations; however, we have been named in the following three actions which we are vigorously defending and which actions, based on management's assessment in coordination with outside litigation counsel, we believe to be without merit:
 
 Salvatore Frieri, individually and as beneficiary of the Robert J. Escobio and Salvador Frieri-Gallo Trust, Plaintiff v. Robert Escobio, individually and as trustee of the Robert J. Escobio and Salvador Frieri-Gallo Trust, Southern Trust Securities Holding Corporation and Capital Investment Services, Inc., Defendants”, in the Circuit Court of the Eleventh Judicial Circuit In and For Miami-Dade County, Florida, Case No. 08-07586 CA 08. The initial complaint in this action was filed on February 12, 2008. An amended complaint was filed on October 14, 2008. The amended complaint attempts to plead various causes of action related to the purchase and sale by the Salvador Frieri-Gallo Trust of our stock in a private placement in 2005. The plaintiff seeks rescission of the transaction. We do not believe there is any merit to plaintiff’s claims and the case is in an early stage. Based on events to date, management believes the case may likely be dismissed just as a prior case based on the same facts brought by the plaintiff several years ago.
  SOUTHERN TRUST SECURITIES, INC., f/k/a CAPITAL INVESTMENT SERVICES, INC., a Florida corporation v. MARKWOOD INVESTMENTS, LTD., a British Virgin Islands company, SALVADOR VICENTE FRIERI-GALLO and ARTURO RAFAEL FRIERI-GALLO in the Circuit Court of Miami-Dade County, Florida, Case No. 08-72353 CA 15.  In November 2008, STS initiated this legal action seeking to recover compensation owed to it for work performed in connection with extensive financial and investment advice work, and services provided in preparation of a bid for Defendants regarding the restructuring, financing, investing, and acquisition of an interest in Aerovias Nacionales de Colombia S.A. Avianca (“Avianca S.A.”) and its subsidiaries (“Avianca”) in connection with Avianca’s bankruptcy reorganization under Chapter 11 of the U.S. Bankruptcy Code. After serving one of the individuals and the related company, STS moved for and obtained defaults against these two Defendants on September 17, 2009.  These two Defendants moved to set aside the defaults against them, which the Court set aside on November 2, 2009. On December 11, 2009, these two Defendants filed a Motion to Dismiss based on alleged failure to join an indispensable party, the ACDAC (Pilot Association).  We do not believe that motion has any merit.  We have now served process on the second individual Defendant. Based on information that is now available, STS claims the Defendants owe it approximately $8.35 million dollars plus prejudgment interest from on or about January 2005. In the opinion of outside counsel, it is too early to predict the ultimate recovery from Defendants.
  34
  On December 7, 2010, STS filed a FINRA arbitration against Joseph Meuse, Rosewood Securities, LLC, BP Capital, LLC, and China Values Technology, Inc.  The FINRA filing was amended on January 18, 2011, before FINRA commenced serving the Respondents.  STS seeks to recover compensation it was entitled to receive for acting as placement agent under an agreement involving an offering of securities in a reverse merger into a publicly traded company, Respondent China Valves, which closed on May 18, 2009. The Agreement provided that STS would receive 23,490 warrant shares of China Valves, but it only received 5,739 warrant shares.  Thus, STS has sued the Respondents to recover the additional 17,751 warrant shares that it should have received on May 18, 2009, their valued, lost profits, and lost opportunity costs caused by the failure to timely deliver the shares as required. The Respondents, in response to STS’s pre-filing demands for payment, each blamed the other for the claimed failures to timely deliver the missing warrant shares.
 
 On April 7, 2011, the Company entered into a Settlement Agreement (“Agreement”) with BP Capital, LLC, for which Joseph Meuse as managing member (“BP Capital”) and Joseph Muse (“Meuse”) an individual.  The Agreement provides that Meuse will make a payment to STS in the amount of $125,000, in full settlement with Meuse and BP Capital.  The payment will be made by Meuse to STS in five (5) installments, with the first payment of $25,000 due on the date of the signing of the Agreement and four successive payments of $25,000 due thirty (30) days following each prior payment until the full payment has been made.
 
 On or about December 28, 2010, plaintiffs attempted to serve process on STSCH by serving STS, with an Amended Complaint filed in the United States Federal District Court for the Southern District Court of New York.  The trust of the Amended Complaint seems to be that Plaintiffs invested about $12.5 million in a company named Aamaxen Transport Group, Inc. (“AAXT”), pursuant to a Securities Purchase Agreement, dated April 14, 2008, in exchange for AAXT’s Series A Convertible Preferred Stock.  AAXT, a publicly traded company, shares are listed on the OTC Bulletin Board.  AAXT, a Delaware Company, has its principal place of business in Shanghai, China.  AAXT was to ultimately invest in and own a significant beneficial interest in Shanghai Atrip Medical Technology, Co., Ltd. (“SMT”), another Chinese company.  Plaintiffs claim the transaction did not take place as agreed and that the Chinese principals in certain of the entities involved continued to maintain control over some entities, when they should not have and AAXT and other Plaintiffs’ invested funds were ultimately embezzled.  The investors sued those allegedly involved in the embezzlement, the attorneys involved in the transactions, and those who allegedly provided investment banking advice.  The Amended Complaint includes STSHC along with certain entities controlled by Joseph Meuse and used to provide investment, business, and structuring advice under the names Belmont Partners, LLC (“Belmont”) and Rosewood Securities, LLC (“Rosewood”).  The Amended Complaint defines Belmont to include Belmont Partners, Rosewood, or Meuse.  STSHC had nothing to do with this matter.  STS, which was not named a defendant, had a branch office agreement, whereby Rosewood operated as a branch office of STS managed by Meuse during part of the period involved.  As determined so far, STS had no involvement in the transaction and whose only possible connection the parties was through the Rosewood branch office agreement, which was terminated in December 2009. STSHC retained New York counsel to represent it in this case.  Counsel received an order from the Court extending the date for STSHC to respond to the Amended Complaint until March 11, 2011.  STSHC responded to the Amended Complaint as required and filed its motion to dismiss.  On March 18, 2011 the court issued an order requiring that opposing affidavits to motions to dismiss be filed by May 16, 2011.
 
 Based on what is known, management does not believe that STSHC had any involvement whatsoever and is not a proper defendant, and it also does not believe STS had any involvement, other than the possibility that the Rosewood branch office having some as yet unknown involvement without STS’s knowledge or participation. At this point, little is known about the facts, since the case was only recently filed against STSHC.
 
 35
 
 ITEM 1A.    RISK FACTORS
 
 Not applicable.
 
 ITEM 2.       UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
 
 None.
 
 ITEM 3.       DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 ITEM 5.       OTHER INFORMATION
 
 None.
 
 ITEM 6.       EXHIBITS
 
 31                  Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer
 
 32                 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
  36
 
 
 SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.







SOUTHERN TRUST SECURITIES HOLDING CORP.Date: May 16, 2011
By:
/s/ RobertEscobioRobert EscobioChief Executive Officer and Chief Financial Officer(Principal Executive and Accounting Officer)





37