U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to _________________
Commission file number 333-1182
THE ASHTON TECHNOLOGY GROUP, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Indicated in Its Charter)
Delaware 22-6650372
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1900 Market Street, Suite 701
Philadelphia, PA 19103
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(Address of Principal Executive Offices)
(215) 751-1900
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of common stock, as of September 30, 1997:
7,562,500
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC.
INDEX - FORM 10-QSB
September 30, 1997
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
and March 31, 1997 and Proforma Consolidated Balance
Sheet as of September 30, 1997..........................................
Consolidated Statements of Operations -
For the Three and Six Months Ended
September 30, 1997 and 1996.............................................
Consolidated Statements of Cash Flows-
For the Six Months Ended September 30, 1997 and 1996....................
Notes to Unaudited Consolidated Financial Statements....................
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................
Part II- Other Information
Item 1. Legal Proceedings.......................................................
Items 2 through 4 have been omitted since the items are either inapplicable or
the answer is negative.
Item 5. Other Information.......................................................
Item 6. Exhibits and Reports on Form 8-K..............................
Signatures......................................................................
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 1997 and March 31, 1997 and Proforma
Consolidated Balance Sheet as of September 30, 1997
ASSETS
<TABLE>
<CAPTION>
Proforma
September 30,
1997
(Unaudited)
September 30, 1997 March 31, 1997 See Note (5)
------------------ -------------- ------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 503,998 $ 60,841 $ 2,423,789
Contracts receivable, net of allowance for 1,169,884 1,483,163 42,500
doubtful accounts
Note receivables - - 49,583
Prepayments, reimbursements and other 543,822 98,903 402,494
current assets
Total Current Assets 2,217,684 1,642,907 2,918,366
Property and equipment net 929,853 1,041,449 708,316
Note receivables - - 545,417
Private placement costs 374,546 - 78,030
Development costs 320,790 - 320,790
Goodwill, net 554,251 575,581 -
Other assets 81,854 106,693 62,535
Total Assets $ 4,478,978 $ 3,366,630 $ 4,633,454
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable and accrued expenses $ 1,933,366 $ 1,937,752 $ 1,505,862
Billings in excess of costs 3,573 52,722 -
--------- --------- ---------
Total current liabilities 1,936,939 1,990,474 1,505,862
Long Term Debt 3,013,000 13,000 638,000
--------- ------ -------
Total liabilities 4,949,939 2,003,474 2,143,862
--------- --------- ---------
Minority interest 321,966 300,279 -
--------- --------- ---------
Commitments and contingencies
Stockholders' Equity (Deficiency):
Preferred stock - $.01 par value - - 3,995
Common stock - $.01 par value 75,625 75,625 75,625
Additional paid-n capital 10,582,197 10,482,197 14,556,756
Accumulated deficit (11,450,749) (9,494,945) (12,146,784)
----------- ---------- -----------
Total stockholders' equity (deficiency) (792,927) 1,062,877 2,489,592
----------- ----------- -----------
Total Liabilities and Stockholders' $ 4,478,978 $ 3,366,630 $ 4,633,454
============= ============= =============
Equity (Deficiency)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended September 30,1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30
----------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 1,500,856 $ 1,016,675 $ 2,835,057 $ 2,282,015
------------ ------------ ----------- -----------
Costs and Expenses:
Cost of Revenues 1,084,747 616,496 2,189,663 1,528,695
Development Costs 166,762 1,594,667 203,675 1,974,944
Selling, general and administrative 1,058,928 966,586 1,920,827 1,636,351
expenses
Depreciation and amortization 7,045 120,384 243,954 240,768
--------- --------- --------- ---------
Total costs and expenses 2,437,482 3,298,133 4,558,119 5,380,758
========= ========= ========= =========
Loss from operations (936,627) (2,281,458) (1,723,062) (3,098,743)
Other costs and revenues:
Interest income 6,269 92,017 26,218 98,760
Interest expense (62,866) - (113,245) -
Minority interest in earnings of (10,994) (49,362) (21,687) (81,068)
subsidiary
Private placement costs (55,000) - (110,002) -
--------- ----------- ----------- -----------
Loss before provision for income taxes (1,059,218) (2,238,803) (1,941,778) (3,081,051)
========== ========== ========== ==========
Provision for income taxes - - 14,026 71,500
Net loss $ (1,059,218) $ (2,238,803) $ (1,955,804) $ (3,152,551)
============== ============ ============ ============
Net loss per common share $ (.14) $ (.31) $ (.26) $ (.44)
============= ============ =========== ===========
Weighted average number of common shares
outstanding $ 7,562,500 $ 7,601,400 $ 7,562,500 $ 7,189,316
============== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
The Ashton Technology Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (1,955,804) $ (3,152,551)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities, net of acquired
business in 1996:
Depreciation and amortization 390,046 207,280
Increase in minority interest of subsidiary 21,687 -
Changes in operating assets and liabilities
(Increase) Decrease in contracts receivables, net 313,299 (8,872)
(Increase) Decrease in prepayments and other (444,919) (258,603)
(Decrease) Increase in accounts payable and accrued (4,386) (654,154)
expenses
(Decrease) Increase in billings in excess of costs (49,149) 95,619
------------ -----------
Net cash used in operating activities (1,729,226) (3,771,281)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (79,290) (844,416)
Cash paid for acquisition of CSI(R), net of cash acquired - (506,812)
Development costs (373,390) -
Increase in minority interest - 81,068
--------- -----------
Net cash used in investing activities (452,680) (1,270,160)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs for private placement (474,937) -
Issuance costs for initial public offering - (282,001)
Proceeds from initial public offering - 10,394,709
Proceeds from private placement 3,100,000 -
Proceeds from notes payable - 250,000
Payment of notes payable - (2,101,341)
----------
Net cash provided by financing activities 2,625,063 8,261,367
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 443,157 3,219,926
Cash and cash equivalents, beginning of period 60,841 31,021
--------- ------
Cash and cash equivalents, end of period $ 503,996 $ 3,250,947
========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements for the six
months ended September 30, 1997 include the accounts of The Ashton Technology
Group, Inc. ("Ashton") and its subsidiaries, Universal Trading Technologies
Corporation ("UTTC"), Computer Science Innovations, Inc. ("CSI(R)") and Gomez
Advisors, Inc. ("Gomez" and, together with Ashton, UTTC and CSI(R), the
"Company"). The financial statements for the year ended March 31, 1997 do not
include Gomez, which was formed by Ashton as a wholly-owned subsidiary on May
21, 1997.
The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial statements and in accordance with the
instructions for Form 10-QSB. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying - unaudited consolidated financial statements have been prepared on
the same basis as the audited statements and include all adjustments, consisting
only of normal recurring adjustments, which are necessary for a fair statement
of the results of the interim periods presented. These financial statements
should be read in conjunction with the footnotes contained in the Company's
10-KSB for the fiscal year ended March 31, 1997.
The preparation of interim financial statements, in conformity with
generally accepted accounting principles, also requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities; the disclosure of contingent assets and liabilities at the date of
the interim statements; and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. PREPAYMENTS, REIMBURSEMENTS AND OTHER CURRENT ASSETS
Included in prepayments, reimbursements and other current assets are
litigation costs of $402,494 for which the Company is seeking reimbursement from
its insurance carrier.
3. PRIVATE PLACEMENTS AND EXCHANGE OFFER
Commencing September 18, 1997, Ashton has been engaged in two private
placements of $5,000,000 of convertible preferred stock and an offer to the
holders of $3,000,000 principal amount of promissory notes of Ashton's
subsidiary, Universal Trading Technologies Corporation ("UTTC"), to exchange an
equivalent principal amount of Ashton preferred stock. The securities offered
have not been and will not be registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
Ashton is offering (the "Series A Offering") to sell up to 250,000 shares
(the "Series A Shares"), with an aggregate liquidation preference of $2,500,000,
of its Series A Convertible PIK Preferred Stock (the "Series A Preferred
Stock"), solely to accredited investors ("Accredited Investors") within the
meaning of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). The Series A Shares are being offered in units having a
minimum aggregate liquidation preference and purchase price of $100,000 (10,000
Series A Shares). The Series A Shares are being offered for a period of 60 days
beginning on September 18, 1997, subject to one or more extensions for up to an
aggregate of an additional 60 days. Closings have occurred, and will continue to
occur, promptly following each receipt by Ashton of subscription agreements,
together with the subscription price for the shares therefor subscribed. At any
time after February 15, 1998, each holder of Series A Preferred Shares will have
the right to convert each Series A Share into: (i) ten shares of the Common
Stock, par value $0.01 per share, of Ashton (the "Ashton Common Stock"); and
(ii) one two-year warrant to purchase three shares of the Common Stock, par
value $0.01 per share, of UTTC (the "UTTC Common Stock"), with an exercise price
of $0.75 per share, subject to adjustment (the "Warrant").
Ashton is offering to sell (the "Series B Offering for New Investors" and,
together with the Series A Offering, the "New Investor Offerings") up to 250,000
shares (the "New Investor Series B Shares"), with an aggregate liquidation
preference of $2,500,000, of its Series B Convertible Preferred Stock (the
"Series B Preferred Stock" and, together with the Series A Preferred Stock, the
"Preferred Stock"), solely to Accredited Investors. The New Investor Series B
Shares are being offered in units having a minimum aggregate liquidation
preference and purchase price of $50,000 (5,000 New Investor Series B Shares).
The New Investor Series B Shares are being offered for a period of 90 days
commencing September 18, 1997, subject to one or more extensions for up to an
aggregate of an additional 90 days. Closings have occurred, and will continue to
occur, promptly following each receipt by Ashton of subscription agreements,
together with the subscription price for the shares therefor subscribed. At any
time after June 30, 1998, each holder of Series B Preferred Stock will have the
right to convert each share of Series B Preferred Stock into: (i) six shares of
Ashton Common Stock; and (ii) one two-year Warrant to purchase two shares of
UTTC Common Stock, with an exercise price of $0.75 per share, subject to
adjustment (a "Series B Warrant"; and all such warrants taken together with all
of the Series A Warrants, the "Warrants," and individually, a "Warrant").
Ashton has been offering to exchange (the "Exchange Offer" and, together
with the New Investor Offerings, the "Offerings") up to 300,000 shares of its
Series B Preferred Stock (the "Exchange Offer Series B Shares"; together with
the New Investor Series B Shares, the "Series B Shares"; the Series B Shares,
together with the Series A Shares, the "Shares"; and, the Shares together with
the Ashton Common Stock, the Warrants and the UTTC Common Stock, the
"Securities"), with an aggregate liquidation preference of $3,000,000, for a
like principal amount of 9% Subordinated Non-Convertible Promissory Notes (the
"Non-Convertible Notes") and 9% Subordinated Convertible Promissory Notes (the
"Convertible Notes" and, together with the Non-Convertible Notes, the "Notes")
of UTTC in units (the "Units") consisting of $42,500 principal amount of
Non-Convertible Notes and $7,500 in principal amount of Convertible Notes. In
order to participate in the Exchange Offer, holders of Notes have been and will
be required to tender all Units of which they are the holders. Notwithstanding
the foregoing, if a holder owns only 1/2 Unit, such holder may tender such 1/2
Unit. The Exchange Offer commenced on September 18, 1997, and will terminate at
5:00 p.m., Philadelphia time, on January 15th 1998, subject to extension.
As of November 12, 1997, Ashton has received executed subscriptions for 19
units of Series A Preferred Stock for a total of $1,900,000 and 2 units of
Series B Preferred Stock for a total of $100,000. Also, as of November 12, 1997,
Ashton has received fully executed exchange agreements from UTTC noteholders to
exchange $2,375,000 of UTTC Convertible Notes and Non-Convertible Notes for 47.5
units of Ashton Series B Preferred Stock.
4. SALE OF CSI(R)
On November 6, 1997, Ashton sold its subsidiary, Computer Science
Innovations, Inc. ("CSI(R)"), to George H. Milligan and Susanne L. Cavadeus, as
Trustees of the Trust Created by The Computer Science Innovations, Inc.
Leveraged ESOP, for $1,723,000, payable as follows: (1) repayment of $500,000
loan plus interest of $28,875, (2) $600,000 in cash, and (3) a five-year 8 1/4%
note for $594,125.
5. PROFORMA CONSOLIDATED BALANCE SHEET
The unaudited Proforma Balance Sheet presents the results of the sale of
CSI(R) and the Offerings as if the above described transactions (as of November
12, 1997) had occurred on September 30, 1997.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-QSB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: general
economic and business conditions; industry trends; competition; material costs;
ability to develop markets; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in government regulation and other factors referenced in this
Form 10-QSB. Such forward-looking statements speak only as of the date of this
Form 10-QSB. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIX MONTHS OF FISCAL 1998 COMPARED TO SIX MONTHS OF FISCAL 1997.
On a consolidated basis, the Company had revenues of $2,835,057 for the six
months ended September 30, 1997 compared to revenues of $2,282,015 for the six
months ended September 30, 1996. For fiscal 1997, all of the Company's revenues
and the related "cost of revenues" were generated by CSI(R) and, for fiscal
1998, all but $80,000 of revenues were generated by CSI(R).
During the six months ended September 30, 1997, the Company incurred a net
loss of $1,955,804 as compared to the net loss of $3,152,551 for the six months
ended September 30, 1996.
Development Costs and Expenses
During the six months ended September 30, 1997, the Company incurred
$524,465 of development costs of which $203,675 was expensed and $320,790 was
capitalized. For the six months ended September 30, 1996, the Company incurred
development costs of $1,974,944 which was expensed.
On April 8, 1997, the Company announced that UTTC had completed development
of its UTS(TM) VWAP(TM) trading system. Under generally accepted accounting
principles, the Company expenses development costs until the system is ready for
commercial use and thereafter capitalizes any additional development costs.
Although the UTS(TM) VWAP(TM) trading system has been operationally ready since
April of 1997, trading on the system can not begin until the Securities and
Exchange Commission ("SEC") approves Rule 237 proposed by the Philadelphia Stock
Exchange ("PHLX"). An amendment to the proposed rule, reflecting enhancements
made to the system since the SEC first published the proposed rule in the
Federal Register on September 4, 1996, was submitted by the PHLX to the SEC on
October 27, 1997. Management expects that the SEC will choose to re-publish the
proposed rule and amendments in the Federal Register, in which case the
notification period will be a minimum of 35 days and a maximum of 90 days after
publication.
Until the SEC approves the PHLX proposed Rule 237, the UTS(TM) VWAP(TM)
trading system will not be introduced at the PHLX and the UTS(TM) VWAP(TM) will
not generate any revenue. Failure of the UTS(TM) VWAP(TM) trading system to
generate revenues for UTTC could have an adverse effect on the financial
position of the Company. There can be no assurance that the SEC will ever
approve the rule change or that such approval will occur shortly.
Capital Equipment
During the six months ended September 30, 1997, the Company spent $79,290
for the acquisition of equipment, as compared to $844,416 for the six months
ended September 30, 1996.
Selling, General and Administrative Expenses
During the six months ended September 30, 1997, the Company incurred
$1,920,827 of Selling, General and Administrative ("SG&A") expenses, as compared
to $1,636,351 for the six months ended September 30, 1996. On a per company
basis, SG&A costs were $1,057,009 for Ashton. $329.190 for UTTC, $343,797 for
CSI and $190,831 for Gomez.
Liquidity
At September 30, 1997, the Company had cash and cash equivalents of
$503,998. See also Note (5) "Proforma Consolidated Balance Sheet" to the
Unaudited Consolidated Financial Statements above. There can be no assurance
that the Company's actual cash requirements will not exceed its anticipated cash
requirements or that additional cash requirements or additional financing will
not be required.
Subsequent Events
On November 6, 1997, Ashton sold its subsidiary, CSI(R), to George H.
Milligan and Susanne L. Cavadeus, as Trustees of the Trust Created by The
Computer Science Innovations, Inc. Leveraged ESOP, for $1,723,000, payable as
follows: (1) repayment of $500,000 loan plus interest of $28,875, (2) $600,000
in cash, and (3) a five-year 8 1/4% note for $594,125.
As of November 12, 1997, Ashton has received executed subscriptions for 19
units of Series A Preferred Stock for a total of $1,900,000 and 2 units of
Series B Preferred Stock for a total of $100,000. Also, as of November 12, 1997,
Ashton has received fully executed exchange agreements from UTTC noteholders to
exchange $2,375,000 of UTTC Convertible Notes and Non-Convertible Notes for 47.5
units of Ashton Series B Preferred Stock.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 29, 1997, David N. Rosensaft ("Mr. Rosensaft") and Ashton, UTTC,
The Dover Group, Inc., and Fredric W. Rittereiser (collectively, the
"Defendants") entered into a Settlement Agreement of certain claims, pursuant to
which: (i) Mr. Rosensaft dismissed with prejudice his Ninth, Eleventh, Twelfth
and Thirteenth Claims for Relief which had related to Ashton's failure to cause
First United Equities Corporation ("First United") to return to Mr. Rosensaft
200,000 shares of Ashton Common Stock held in escrow by First United (Ninth
Claim for Relief) and to Ashton's refusal to approve the transfer of Mr.
Rosensaft's shares of Ashton Common Stock (Eleventh, Twelfth and Thirteenth
Claims for Relief); (ii) the 200,000 shares of Ashton Common Stock held in
escrow by First United were returned to Mr. Rosensaft; and (iii) Ashton and UTTC
dismissed with prejudice their First and Second Counterclaims, which had related
to Mr. Rosensaft's acquisition of 1,100,000 shares of Ashton Common Stock and
333,333 shares of UTTC Common Stock.
(Items 2 through 4 have been omitted since the items are either inapplicable or
the answer is negative)
ITEM 5. OTHER INFORMATION
See "Liquidity" and "Subsequent Events" in Item 2 of Part I above.
As of September 18, 1997, Ashton and UTTC entered into an agreement,
pursuant to which contemporaneously with the Offerings, Ashton is receiving
shares of UTTC Common Stock from UTTC in exchange for cash contributions,
obligations assumed and certain other consideration, in each case at a value of
$0.50 per share of UTTC Common Stock. Such contributions, obligations and
consideration include: (i) $1.5 million in payments made and services rendered
to or on behalf of UTTC by Ashton in connection with the development of the ATED
system, for which Ashton will receive 3 million shares; (ii) up to $2,385,417
million of obligations of UTTC guaranteed by Ashton for which Ashton will
receive the applicable number of shares of UTTC Common Stock (up to 4,770,834)
upon the advance by Ashton under its guarantees and for which Ashton will
receive a commitment fee of 143,125 shares of UTTC Common Stock; (iii) up to $3
million in connection with the purchase by Ashton of Notes in the Exchange Offer
for which Ashton will receive up to 6 million shares of UTTC Common Stock; and
(iv) up to $2,500,000 from the proceeds of the Series B Offering for New
Investors (inclusive of allocated estimated offering expenses of $325,000) for
which Ashton will receive up to 5 million shares of UTTC Common Stock.
On September 11, 1997, the Board of Directors of Ashton authorized for
issuance options to purchase 6,000,000 shares of the Ashton Common Stock,
subject to the approval of the stockholders of Ashton, at the next annual
meeting, of an amendment to the Certificate of Incorporation of Ashton, as
amended, increasing the number of authorized shares of Ashton Common Stock from
20,000,000 to 40,000,000 and the number of authorized shares of preferred stock
from 1,000,000 to 2,000,000. Such options may be issued to directors, officers,
employees and certain other contributors to the value of Ashton and will have an
exercise price equal to $1.875 per share (the closing price on NASDAQ SmallCap
on September 10, 1997) and certain other terms to be determined. On September
11, the Board of Directors of UTTC approved, and over a majority in interest of
the stockholders of UTTC consented in writing to, an amendment to the
Certificate of Incorporation of UTTC, as amended, increasing the number of
authorized shares of UTTC Common Stock from 20,000,000 to 40,000,000 and the
number of authorized shares of preferred stock of UTTC from 1,000,000 to
2,000,000. In addition, on September 11, 1997, the Board of Directors of UTTC
authorized for issuance warrants to purchase 6,000,000 shares of the UTTC Common
Stock. Such warrants may be issued to directors, officers, employees and certain
other contributors to the value of UTTC and will have an exercise price equal to
$1.00 per share. Such warrants will be not be exercisable until the earlier of a
sale of UTTC, an initial public offering of UTTC or two years from the date of
issuance of such Warrants (the "Trigger Date"), and, following the Trigger Date,
will be exercisable for a period of two years.
On September 15, 1997, NASDAQ advised Ashton that Ashton's capital and
surplus (stockholders' equity) as of June 30, 1997 was less than the $1,000,000
required for continued listing, and, unless Ashton met this requirement, its
securities would be delisted from NASDAQ SmallCap. Ashton requested an extension
to meet this requirement, which request was denied. In response, Ashton filed a
formal request for a hearing to review the denial of its extension request.
Pursuant to NASDAQ policy, Ashton's securities will remain listed pending the
decision of the hearing panel. The hearing was held on November 6, 1997, and a
decision is pending. It is Ashton's belief that on a proforma basis Ashton is in
compliance with NASDAQ requirements for continued listing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 10 - Stock Issuance Agreement, dated as of September 18, 1997,
between The Ashton Technology Group, Inc. and Universal Trading
Technology Corporation.
Exhibit 11 - Earnings Per Share Computation.
Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K
November 6 - Sale of CSI(R)
November 12- Private Placement
<PAGE>
3
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE ASHTON TECHNOLOGY GROUP, INC.
BY: /s/ Robert A. Eprile
----------------------
Name: Robert A. Eprile
Title: Chairman of the Board
Dated: As of November 14, 1997
<PAGE>
EXHIBIT INDEX
Page
Exhibit 10
Stock Issuance Agreement........................................................
Exhibit 11
Earnings Per Share Computation..................................................
Exhibit 27
Financial Data Schedule.........................................................
STOCK ISSUANCE AGREEMENT
STOCK ISSUANCE AGREEMENT ("Agreement"), dated as of September 18, 1997,
between The Ashton Technology Group, Inc. ("Ashton") and its subsidiary,
Universal Trading Technologies Corporation ("UTTC").
RECITALS
A. Ashton is offering, pursuant to its Confidential Private Placement
Memorandum and Confidential Exchange Offer Memorandum, each dated September 18,
1997 (collectively, the "Memorandum"), in private placements and in exchange, up
to 250,000 shares of its Series A Convertible PIK Preferred Stock (the "Series A
Preferred") and 550,000 shares of its Series B Convertible Preferred Stock (the
"Series B Preferred"; together with the Series A Preferred, the "Ashton
Preferred").
B. Up to 300,000 shares of the Series B Preferred (having a liquidation
preference of up to $3,000,000) are to be issued in connection with the exchange
offer (the "Exchange Offer") described in the Memorandum for a like principal
amount of UTTC's 9% Subordinated Non-Convertible Promissory Notes and 9%
Subordinated Convertible Promissory Notes (collectively, the "Notes"). From the
sale of the remaining 250,000 shares of Series B Preferred (the "Series B
Offering for New Investors"), Ashton will contribute the aggregate net proceeds
to the capital of UTTC. In addition, Ashton has made, and will make, certain
advances to (or otherwise provide services for) or on behalf of UTTC, as further
described herein.
C. Each share of Ashton Preferred is, by its terms, convertible into (i)
shares of the Common Stock, par value $0.01 per share, of Ashton; and (ii) one
Warrant ("UTTC Warrant") to purchase two shares of the Common Stock, par value
$0.01 per share (the "UTTC Common Stock"), of UTTC with an exercise price of
$0.75 per share, in each case subject to adjustment as provided in the
Certificates of Designation for each series of the Ashton Preferred
(collectively, the "Ashton Certificate of Designation").
NOW THEREFORE, in consideration of the premises hereof and other good and
valid consideration set forth herein, the receipt and sufficiency of which is
acknowledged, and the mutual terms, conditions and other agreements set forth
herein, the parties hereto agree as follows:
I. Certain Contributions by Ashton. Ashton has made, or will make, certain
contributions to or for the benefit of UTTC, including, without limitation, the
following (collectively, the "Contributions"):
A. Ashton has made payments and rendered services to or on behalf of
UTTC with an aggregate value equal to $1.5 million in connection with the
development of certain UTTC products (the "Existing Development Advances");
B. Ashton has agreed to guarantee up to $2,385,417 of UTTC's
obligations (the "Guaranteed Obligations");
C. in connection with the Exchange Offer, Ashton will acquire Notes
(up to $3,000,000 in principal amount) tendered for exchange and contribute
such Notes to UTTC (the "Contributed Notes"); and
D. Ashton will contribute the net proceeds of the Series B Offering
for New Investors (estimated to be a maximum of $2,500,000 inclusive of
allocated estimated offering expenses of $325,000) to the capital of UTTC
(the "Contributed Proceeds").
II. Issuance of UTTC Common in Exchange for Contributions. In exchange for
the Contributions, UTTC will issue to Ashton shares of UTTC Common Stock as
follows:
A. for the Existing Development Advances, UTTC will issue to Ashton 3
million shares of UTTC Common Stock;
B. for the Guaranteed Obligations, UTTC will issue to Ashton (i)
143,125 shares of UTTC Common Stock as a fee for Ashton undertaking the
Guaranteed Obligations, and (ii) upon payment by Ashton of any such
Guaranteed Obligations from time to time, such number of shares of UTTC
Common Stock, which would, when multiplied by $0.50 per share, result in an
amount equal to each such payment by Ashton (up to a maximum of 4,770,834
shares) (such shares will be issued quarterly, commencing January 1. 1998
upon presentation of evidence to UTTC of payment of the applicable
Guarantee Obligation);
C. for the Contributed Notes, UTTC will issue such number of shares of
UTTC Common Stock which would, when multiplied by $0.50 per share, result
in an amount equal to the aggregate principal amount of the Contributed
Notes plus any interest paid by Ashton thereon (up to a maximum of
6,000,000 shares); and
D. for the Contributed Proceeds, UTTC will issue such number of shares
of UTTC Common Stock which, when multiplied by $0.50 per share, would equal
the proceeds of the Series B Offering for New Investors actually
contributed to UTTC by Ashton (inclusive of allocated offering expenses)
(up to a maximum of 5,000,000 shares).
III. Issuance of UTTC Warrants and UTTC Common. As additional consideration
for Ashton undertaking the Exchange Offer and the Series B Offering for New
Investors, in recognition of the additional cost to Ashton in pursuing such
offerings, and to support the ability of Ashton to place such securities, UTTC
agrees to: (i) issue UTTC Warrants to holders of Ashton Preferred upon
conversion of Ashton Preferred, in such number and manner as may be provided in
the Ashton Certificate of Designation; and (ii) issue shares of UTTC Common
Stock to holders of UTTC Warrants issuable to holders of Ashton Preferred upon
conversion of the Ashton Preferred, in such number and manner as may be provided
in the Ashton Certificate of Designation and the Warrant Certificate for the
UTTC Warrants, as applicable.
IV. Agreement to Reserve for Issuance UTTC Common Stock. In order to
implement the foregoing, UTTC will reserve for issuance such number of shares of
UTTC Common Stock as may be required to fulfill the obligations of UTTC provided
in Sections 2 and 3.
V. Further Assurances. Each party hereto agrees to take all reasonable
action as may be necessary or advisable to fulfill its obligations hereunder and
to give the other party hereto and the holders of Ashton Preferred and UTTC
Warrants the benefits contemplated hereby.
VI. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Fredric W. Rittereiser
------------------------------
Name: Fredric W. Rittereiser
Title: President & CEO
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
By: /s/ Robert A. Eprile
--------------------------------
Name: Robert A. Eprile
Title: Chief Executive Officer
EXHIBIT 11
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- -------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 7,562,500 7,562,500 7,562,500 7,150,416
Dilutive effect of common equivalent shares (a) - 38,900 - 38,900
--------- --------- --------- ---------
Weighted average shares outstanding 7,562,500 7,601,400 7,562.500 7,189,316
========= ========= ========= =========
Net Loss $ (1,059,218) $(2,238,803) $ (1,955,804) $ (3,152,551)
Fully diluted earnings per share $ (.14) $ (.31) $ (.26) $ (.44)
</TABLE>
(a) Calculates the dilutive effect of outstanding stock options based upon the
"Treasury Stock Method".
(b) As fully diluted earning per share and primary earnings per share are
equal, only fully diluted earnings per share will be disclosed in the Form
10-QSB.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 503,998
<SECURITIES> 0
<RECEIVABLES> 1,232,364
<ALLOWANCES> 62,500
<INVENTORY> 0
<CURRENT-ASSETS> 2,217,684
<PP&E> 1,876,484
<DEPRECIATION> 946,631
<TOTAL-ASSETS> 4,478,978
<CURRENT-LIABILITIES> 1,936,939
<BONDS> 3,013,000
0
0
<COMMON> 75,625
<OTHER-SE> (868,552)
<TOTAL-LIABILITY-AND-EQUITY> 4,478,978
<SALES> 2,835,057
<TOTAL-REVENUES> 2,835,057
<CGS> 2,189,663
<TOTAL-COSTS> 2,189,663
<OTHER-EXPENSES> 2,500,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,245
<INCOME-PRETAX> (1,941,778)
<INCOME-TAX> 14,026
<INCOME-CONTINUING> (1,955,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,955,804)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
