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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended Commission File Number
JUNE 30, 1998 1-11747
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THE ASHTON TECHNOLOGY GROUP, INC.
---------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-6650372
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(State of Incorporation) (I.R.S. Employer Identification Number)
1900 MARKET STREET, SUITE 701, PHILADELPHIA, PA 19103
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(Address of principal executive offices)
Issuer's telephone number, including area code: 215-751-1900
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(Former name, former address and former fiscal year if changed since last
report)
Number of shares of common stock outstanding on June 30, 1998: 8,477,913
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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 (of 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
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THE ASHTON TECHNOLOGY GROUP, INC.
INDEX - FORM 10-QSB
June 30, 1998
Part I - Financial Information Page
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Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 and March
31, 1998.............................................. 4
Consolidated Statement of Operations -
For the Three Months Ended June 30, 1998 and 1997...... 5
Consolidated Statement of Cash Flows -
For the Three Months Ended June 30, 1998 and 1997...... 6
Notes to Unaudited Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 11
Part II - Other Information
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Item 1. Legal Proceedings.................................... 12
ITEM 2 Changes in Securities and Use of Proceeds............ 13
(Item 3 has been omitted since the item is either
inapplicable or the answer is negative)
Item 4. Matters Submitted to Shareholders for Vote........... 13
ITEM 5 Other Information.................................... 13
ITEM 6 Exhibits and Reports on Form 8-K..................... 13
SIGNATURES.................................................... 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND MARCH 31, 1998
ASSETS JUNE 30, 1998 MARCH 31, 1998
(UNAUDITED) (AUDITED)
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<S> <C> <C>
Current Assets:
Cash And cash equivalents $1,097,620 $ 815,680
Accounts Receivable 155,233 130.843
Stock Subscriptions receivable 1,890,000 245,000
Prepayments and other current assets 88,487 --
Current portion of note receivable 105,049 103,619
-------------- --------------
Total Current Assets 3,336,389 1,295,142
Property and equipment, net 949,928 849,799
Investment in E.com International Inc. 105,000 105,000
Note receivable, net of current portion 431,670 458,040
Note receivable - Dover Group, Inc. 380,000 --
Computer software development costs 238,384 224,686
Other assets 59,077 65,353
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TOTAL ASSETS $5,500,448 $2,998,020
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 342,532 $ 1,736,447
Note Payable 25,000 25,000
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Total current liabilities 367,532 1,761,447
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Stockholders' Equity.
Preferred stock - Series A 2,500,000 2,500,000
Preferred stock - Series B 5,875,000 3,188,875
Preferred stock - Series C -- 550,000
Preferred stock - Series D 3,150,000 --
Preferred stock - Series E 2,000,000 --
Common stock - $.01 par value 84,779 81,436
Additional paid-in capital 17,882,386 15,730,870
Deferred consulting expense (293,750) (438,281)
Accumulated deficit (26,065,499) (20,376,327)
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Total stockholders' equity 5,132,916 1,236,573
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,500,448 $ 2,998,020
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) (UNAUDITED)*
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<S> <C> <C>
Revenues 443,562 $1,334,202
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Costs and expenses:
Cost of revenues -- 1,104,916
Computer software development costs 47,677 36,913
Selling, general and administrative expenses 2,151,763 861,899
Depreciation & Amortization 92,776 116,909
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Total costs and expenses 2,292,216 2,120,637
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Loss from operations (1,848,654) (786,435)
Other costs and revenues:
Interest income 35,468 19,949
Interest expense -- (50,379)
Private placement costs -- (55,002)
Minority interest in earnings of subsidiary -- (10,693)
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Loss before provision for income taxes (1,813,186) (882,560)
Provision for income taxes -- 38,966
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Net loss (1,813,186) $ (921,526)
============= =============
Net loss per common share $ (.72) $ (.12)
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Weighted average number of common shares outstanding 8,422,261 7,562,500
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
UNAUDITED UNAUDITED
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,813,186) $ (921,526)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 140,453 182,604
Common stock issued in connection with consulting services 78,750 --
Increase in minority interest of subsidiary -- 10,693
Deferred consulting costs 144,531 --
Changes in operating asset and liabilities
Increase in accounts receivable (24,390) --
Decrease in contracts receivable, net -- 282,331
Decrease in other assets 6,276 27,593
Increase in prepayments and note receivable (468,487) (43,435)
Increase in billing in excess of costs & estimated earnings -- 33,264
Decrease in accounts payable and accrued expenses (1,393,915) (633,337)
Net cash used in operating activities (3,329,968) (1,061,813)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (192,629) (61,873)
Cash received from note receivable 24,940 --
Computer software development costs (61,375) (257,640)
Net cash used in investing activities (229,064) (319,513)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance costs for private placement -- (403,345)
Issuance costs for sale of preferred stock (710,000) --
Proceeds from sale of preferred stock 4,550,972 --
Proceeds from private placement -- 3,000,000
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Net cash provided by financing activities 3,840,972 2,596,655
---------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 281,940 1,215,329
Cash and cash equivalents, beginning of period 815,680 60,841
---------------- ---------------
Cash and cash equivalents, end of period $ 1,097,620 $ 1,276,170
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------------
The accompanying unaudited consolidated financial statements for the three
months ended June 30, 1998 include the accounts of The Ashton Technology Group,
Inc. ("ATG(TM)" or the "Company") and its subsidiaries, Universal Trading
Technologies Corporation ("UTTC(TM)"), Gomez Advisors, Inc. ("GA"), and
Electronic Market Center, Inc. ("EMC"). Also included is REB Securities,
Inc. ("REB"), a broker-dealer whose registration statement with the Securities
and Exchange Commission ("SEC" or "Commission") is pending, a wholly owned
subsidiary of UTTC(TM). All subsidiaries are wholly owned by ATG(TM) except
UTTC(TM), of which the company owns approximately 96% of the common stock. The
financial statements for the year ended March 31, 1998 do not include eMC(TM),
or REB Securities, which were formed by ATG(TM) in June and April 1998
respectively.
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, 1998.
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. PROCEEDS FROM SALE OF SERIES A and SERIES B CONVERTIBLE PREFERRED STOCK
----------------------------------------------------------------------
On September 18, 1997, the Company commenced a private offering and exchange
offer pursuant to which it offered to certain investors (i) up to 250,000 shares
of its Series A Convertible PIK Preferred Stock (with a liquidation preference
of $10.00 per share) ( the "Series A Preferred"); (ii) up to 250,000 shares of
its Series B Convertible Preferred Stock (with a liquidation preference of
$10.00 per share) (the "Series B Preferred"); and (iii) the opportunity to
exchange (the "Exchange Offer") up to 300,000 shares of its Series B Preferred
for up to $3,000,000 of convertible and non-convertible notes issued by UTTC(TM)
(the "UTTC(TM) Notes"). The Series A Preferred pays cumulative dividends semi-
annually at an annual rate of $0.50 per shares and is payable in cash or
additional shares of Series A Preferred until February 15, 2000. At any time
after February 15, 1998, each holder of shares of Series A Preferred has the
right to convert each share of Series A Preferred into: (i) ten shares of Common
Stock; and (ii) one two-year warrant to purchase three shares of the common
stock, par value $0.01 per share, of UTTC(TM) (the "UTTC(TM) Common Stock"),
with an exercise price of $0.75 per share, subject to adjustment. The Series B
Preferred pays cumulative dividends semi-annually at an annual rate of $0.90 per
share. At any time after June 30, 1998, each holder of shares of Series B
Preferred has the right to convert each share of Series B Preferred into: (i)
six shares of Common Stock; and (ii) one two-year warrant to purchase two shares
of UTTC(TM) Common Stock, with an exercise price of $0.75 per share, subject to
adjustment.
The Company sold all 250,000 shares of its Series A Preferred at $10.00 per
share and realized gross proceeds of $2,500,000. The Series A Preferred
offering closed on January 15, 1998. The Company closed the Exchange Offer
transaction after receiving the tender of $2,975,000 of the UTTC(TM) Notes for
which the Company issued 297,500 shares of Series B Preferred Stock. The Company
extended its private offering to institutional and accredited investors of
Series B Preferred until May 15, 1998. As of March 31, 1998, the Company had
received signed Subscription Agreements for 587,500 shares of the Series B
Preferred offered. The Series B transaction closed on May 6, 1998 after being
oversubscribed by 40,000 shares of Series B Preferred. The Company realized
gross proceeds of $2,900,000. The Company incurred transaction costs in
connection with the issuance of the Series A Preferred, the Series B Exchange
Offer and the Series B Preferred, as well as the issuance of the Series C
Preferred described below, in the aggregate amount of approximately $1,600,000.
3. PROCEEDS FROM SALE OF SERIES C PREFERRED STOCK
----------------------------------------------
On January 27, 1998, the Company completed the sale of 100,000 shares of the
Series C Convertible Preferred Stock to a group of foreign investors (the
"Series C Investors"), with a liquidation preference of $10.00 per share (the
"Series C Preferred"), for an aggregate purchase price of $1,000,000. Holders
of the Series C Shares have the right to convert each share of Series C
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Preferred into one share of Common Stock at a conversion price equal to the
following: (i) if the Market Price (as hereinafter defined) on the Conversion
Date (as hereinafter defined) is less than $1.8774, the conversion price is
equal to the lesser of 75% of the Market Price at the Conversion Date or
$1.2516; and (ii) if the Market Price at the Conversion Date is equal to or
greater than $1.8774, the conversion price is equal to $1.2516 plus 50% of the
difference between the Market Price at the Conversion Date and $1.8774. The
"Market Price" means the average of the closing bid price per share of the
Common Stock over the five consecutive trading days ending on the trading day
immediately preceding the date the holder elects to convert the Series C
Preferred (the "Conversion Date"). In addition, the Series C Investors received
warrants exercisable into an aggregate of 100,000 shares of Common Stock at an
exercise price of 105% of the Market Price for a period of 5 years.
As of March 31, 1998, 50,000 shares of the Series C Shares were converted into
281,071 shares of ATG(TM) Common Stock. Between March 31 and April 21, 1998,
the remainder of the shares Series C Preferred were converted into 314,342
shares of Common Stock. The fees paid for the Series C Shares were as follows:
5,000 Series C Shares, $50,000, and a warrant to purchase 100,000 shares of
Common Stock at 105% of Market Price to Settondown Capital International Ltd.
(the "Placement Agent"). In addition, the Company paid $50,000 and on July 15,
1998, granted an option to purchase 100,000 shares of Common Stock at $1.875 per
share and an option to purchase 100,000 shares of UTTC(TM) Common Stock at $1.00
per share to Adirondack Capital L.L.C., whose Managing Director is a director of
the Company, for services in structuring the offering.
4. PROCEEDS FROM SALE OF SERIES D and E CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------
On April 3, 1998 (the "Subscription Date"), the Company entered into a Private
Equity Line of Credit Agreement (the "Private Equity Agreement") with a group of
accredited investors (the "Private Equity Investors") which provides for an
aggregate commitment of $18,000,000 to the Company. On the Subscription Date,
the Private Equity Investors purchased three shares of Series D Convertible
Preferred Stock (the "Series D Preferred") with a liquidation preference of
$1,000,000 per share for an aggregate purchase price of $3,000,000 and the
Company agreed to promptly file a registration statement with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, registering
shares of Common Stock issuable in connection with the transactions,
contemplated by the Private Equity Agreement (the "Registration Statement"). The
Company filed this registration statement with the Commission on June 29, 1998
and it became effective on August 13, 1998. The Agreement provides that within
five days after the filing of the Registration Statement and subject to the
satisfaction of certain other conditions, the Private Equity Investors will
purchase two shares of Series E Convertible Preferred Stock (the "Series E
Preferred") with a liquidation preference of $1,000,000 per share for an
aggregate purchase price of $2,000,000. The Private Equity Investors purchased
such shares of Series E Preferred on July 15, 1998. See Subsequent Events.
Following the purchase of the Series E Preferred and subject to the satisfaction
of certain other conditions, the Company may from time to time put (each, a
"Put") to the Private Equity Investors shares of the Common Stock for an
aggregate Put price of $13,000,000. The Put price per share is an amount equal
to 85% of the average of the lowest bid prices of such Common Stock over the
seven day period beginning three days before and ending three days after the
Company gives notice of a Put.
Under the terms of the Private Equity Agreement, the Company agreed to hold
$1,000,000 of the proceeds received on the Subscription Date in cash or
government securities until the Company (i) receives shareholder approval for
the issuance of 20% or more of its Common Stock in connection with the
transactions contemplated by the Agreement (the "Required Approval") or (ii) is
able to increase its issued and outstanding Common Stock by at least 4,000,000
shares via the conversion of Convertible Preferred Stock (other than Common
Stock to be issued in connection with the Private Equity Agreement). If neither
of these events has occurred within 90 days after the Subscription Date, the
Company must return the $1,000,000 plus a 10% premium, to the Private Equity
Investors. On May 29, 1998, the Company held a Special Meeting of its
stockholders at which time the stockholders approved the increase in the
Company's Common Stock to 60,000,000 shares and its Preferred Stock to 3,000,000
shares, thus removing the Company's obligation to hold the $1,000,000 cited
above.
The Private Equity Investors are not obligated to purchase the Series E
Preferred or any Put shares unless, among other things, (i) the Company has
received the Required Approval, (ii) the Registration Statement is filed (the
Registration Statement must be effective in order for the Private Equity
Investors to be obligated to purchase the Put shares), (iii) the Company is
listed and its Common Stock is trading on a national exchange or quotation
system, (iv) the closing bid price of the Common stock on the day immediately
preceding such purchase is at least $1.50 per share, and (v) the Common Stock
has traded at an average volume of at least 25,000 shares a day for the thirty
trading days preceding such purchase. Based upon the Company's satisfaction of
these conditions, on June 29, 1998, the Private Equity Investors became
obligated to buy the Series E Preferred which resulted in $1,890,000 net
proceeds received by the Company on July 15, 1998. See Subsequent Events.
The Series D Preferred may not be converted into Common Stock until the earlier
of (i) 60 days following the Subscription Date or (ii) the date the Registration
Statement has been filed. The conversion price of the Series D Preferred is an
amount equal to 75% of the average closing bid price per share over the five
days preceding the conversion date (the "Market Price"). The conversion price
of the Series E Preferred is 80% of the Market Price. Each of the Series D
Preferred and Series E Preferred (i)
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ranks pari passu with the other authorized Preferred Stock of the Company and
(ii) is entitled to a cumulative dividend of 8% per annum on its respective
liquidation preference.
On the Subscription Date, the Private Equity Investors received warrants (each,
a "Warrant") to purchase up to an aggregate of 250,000 shares of Common Stock
and received additional Warrants to purchase up to an aggregate of 100,000 of
such shares on July 15, 1998. The Warrants are exercisable for five years at an
exercise price of 120% of the average closing bid price of the Common Stock over
the five trading days preceding the Subscription Date.
On the Subscription Date, the Company paid the Placement Agent, a fee of (i)
$150,000, (ii) 0.15 shares of Series D Preferred, (iii) a Warrant, on the same
terms as the Warrants issued to the Private Equity Investors, to purchase up to
190,000 shares of Common Stock and (iv) 20,000 shares of Common Stock and (v)
attorney fees of $30,000. In addition, the Company paid an amount equal to 5%
of the proceeds of such purchase and an option to purchase 500,000 shares of
Common Stock at $1.875 per share and an option to purchase 500,000 shares of
UTTC(TM) common stock at $1.00 per share to Adirondack Capital L.L.C., the
Managing Director of which is a director of the Company. On the completion of
each Put by the Company pursuant to the Series E Agreement, the Company has
agreed to pay the Placement Agent and Adirondack Capital L.L.C. each, an amount
equal to 5% of the proceeds of each such Put.
5. NOTE RECEIVABLE - THE DOVER GROUP, INC.
---------------------------------------
On May 1, 1997, David N. Rosensaft commenced an action in the U.S. District
Court for the Southern District of New York captioned Rosensaft v. The Ashton
Technology Group, Inc., et al, No. 97 Civ. 3138 ("the Rosensaft lawsuit"). On
March 4, 1998, the U.S. District Court entered an order awarding damages against
The Dover Group, Inc. ("Dover") and Mr. Fredric W. Rittereiser, a director and
officer of the Company, in the amount of $1.2 million. Mr. Rittereiser is the
sole shareholder, director, and officer of Dover. Dover and Mr. Rittereiser
offered to settle the litigation for, among other things, a cash payment of $1.2
million. On April 7, 1998, the Company's Board of Directors, after due
deliberation, concluded that the Company and its UTTC(TM) subsidiary derived
mutual benefit from the Rosensaft settlement by Dover and Mr. Rittereiser. The
Board resolved to fund one-third of the $1.2 million settlement amount.
Separately, UTTC(TM) agreed to fund one-third of the Rosensaft settlement
amount. On April 8, 1998, the Company loaned $380,000 to Dover and Mr.
Rittereiser at an annual rate of 9%, payable semi-annually, for thirty months.
In exchange for the loan to satisfy the Rosensaft settlement, Dover pledged
300,000 shares of the Company's Common Stock under its control and entered into
a Promissory Note with the Company.
6. LOSS PER COMMON SHARE
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<TABLE>
<S> <C>
Net loss ($1,813,186)
Dividends in arrears on preferred stock/1/ ( 385,793)
Recognition of beneficial conversion feature (3,875,984)
of preferred stock/2/
Net loss available to common stockholders ($6,074,963)
Net loss per common share $ (.72)
==================
</TABLE>
1 This number consists of $32,427 in dividends paid. The remaining $353,366
represents the accumulated dividends for the Convertible Preferred Stock due and
payable August 15, 1998.
2 The "Recognition of Beneficial Conversion Feature of Preferred Stock"
reflects the position of the Financial Accounting Standards Board Emerging
Issues Task Force Topic D-60 ("Topic D-60"). Topic D-60 addresses the position
of the accounting staff of the Securities and Exchange Commission regarding
conversion features of convertible preferred stock and convertible debt
securities that are "in the money" upon issuance, i.e. the conversion price is
below the market price for the common stock. According to Topic D-60, an issuer
of an equity security containing such a "beneficial conversion feature" must
allocate to additional paid-in capital an amount equal to the intrinsic value of
such conversion feature. The discount resulting from the allocation of proceeds
to the "beneficial conversion feature" is analogous to a dividend and should be
recognized as a return to the preferred shareholders over the minimum period in
which the preferred shareholders can realize that return. The net effect of
Topic D-60 causes an increase in the Net Loss Available to Common Shareholders
in computing net loss per common share. There is no impact on the Company's net
loss, cash flows, or stockholders, equity.
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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 (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") 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: dependence on arrangements with self-regulatory
organizations; dependence on proprietary technology; technological changes and
costs of technology; industry trends; competition; 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; general economic and business conditions; and other
factors referenced in this form 10-QSB. Such forward-looking statements speak
only as of the date of this form 10-QSB. For discussion of the factors that
might cause performance of the Registrant to differ with actual results, see
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations. 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1999 COMPARED TO FIRST QUARTER OF FISCAL 1998.
----------------------------------------------------------------------
On a consolidated basis, the Company had revenues of $443,562 for the quarter
ended June 30, 1998 compared to revenues of $1,334,202 for the quarter ended
June 30, 1997. All of the Company's revenues, and the related "cost of revenues"
for the quarter ended June 30, 1997 were generated by Computer Science
Innovations, Inc. ("CSI(R)"). The Company sold this subsidiary in the third
quarter of last fiscal year ended March 31, 1998. All of the Company's revenues
for the quarter ended June 30, 1998 were generated by GA.
During the three months ended June 30, 1998, the Company incurred a net loss of
$1,813,186 as compared to the three months ended June 30, 1997, in which the
Company incurred a net loss of $921,526. Of this $1,813,186 loss, approximately
$250,000 are one-time expenses associated with the preparation of a Proxy
Statement for the Company's special stockholders' meeting on May 29, 1998 and
the Registration Statement on Form S-3, as amended, which the Company was
required to file with the Securities and Exchange Commission in connection with
its financings. The remainder of the increase in the loss is attributable to
larger payroll costs due to increasing staff at GA and UTTC(TM) to build an
organization capable of launching the Company's products; office expenses
increased for the new space required by GA in Concord, MA, and the UTTC(TM) New
York office space.
Cost of Revenues
The cost of revenues for the three months ended June 30, 1997 were attributable
solely to CSI(R). Since the sale of CSI(R) in November 1997, all revenues have
been generated by consulting or other services and, as a result, the cost of
such revenues are reflected as Selling, General and Administrative expenses. See
Selling, General, and Admistrative Expenses, below.
Computer Software Development Costs
During the three months ended June 30, 1998, the Company incurred $61,375 of
computer software development costs of which $10,229 was expensed and included
in "selling, general and administrative expenses" and $51,146 which was
capitalized. For the three months ended June 30, 1997, the Company incurred
$257,640 of development costs of which $21,500 was expensed and $236,140 was
capitalized. Of this amount, approximately $75,000 was paid to CSI(R) for
its subcontract work on the Company's volume weighted average price trading
system (the "VTS System").
In addition to the development costs on the VTS System, the Company is also
developing additional systems which are being expensed as costs are incurred.
These expenses amounted to $122,749 for the quarter ended June 30, 1998, which,
together with the capitalized and expensed development costs referred to in the
above paragraph are approximately the same as those development costs incurred
by the Company during the same period in the last fiscal year.
Capital Equipment
During the three months ended June 30, 1998, the Company spent $192,629 for the
acquisition of equipment, as compared to $61,873 for the three months ended June
30, 1997. The increase in capital expenditures during this fiscal quarter are
attributable to updating the communications interface from the WorldCom,
Inc./CompuServe Network Services, Inc. communications network to the VTS System
and purchasing production equipment for the VTS System.
Selling, General, and Administrative Expenses
During the three months ended June 30, 1998, the Company incurred $2,151,763 of
Selling, General and Administrative (SG&A) expenses, as compared to $861,899 for
the three months ended June 30, 1997. On a per company basis, SG&A costs were
$1,100,132 for Ashton, $642,595 for UTTC(TM) and $409,036 for Gomez. The
increase in SG&A is attributable to larger payroll costs due to increasing staff
at GA and UTTC to build an organization capable of launching our products;
office expenses increased for the new space required by GA in Concord, MA, and
the UTTC New York office space.
Liquidity
At June 30, 1998, the Company had cash and cash equivalents of $1,097,620, plus
a subscription receivable of $1,890,000 which was converted to cash on July 15,
1998 (see Note 4 to the Notes to Unaudited Consolidated Financial Statements and
Subsequent Events).
Based upon the Company's current plan of operations, it is anticipated that the
net proceeds from the private placement of Series D Preferred completed in April
1998 and the Series E Preferred together with the "Put Rights" (when and if
exercised), will provide sufficient working capital for at least the next 18
months. The Company may need additional financing in the future if (i) the
Company experiences unexpected costs, (ii) there is a further delay in the
introduction of the Company's Universal Trading System, (iii) the Company fails
to develop successfully the market for its products, (iv) other opportunities
arise which require significant investment, or (v) if the net proceeds from the
Series D Preferred and Series E Preferred private placements prove to be
insufficient for the Company's continued operations. In addition, the Company
may require additional financing to complete any acquisition it may undertake.
If
-11-
<PAGE>
financing is required, such financing may be raised through additional equity
offerings, joint ventures or other collaborative relationships, borrowings and
other sources. There can be no assurance that additional financing will be
available or, if it is available, that it will be available on acceptable terms.
If additional funds are raised through the issuance of additional equity
securities, the percentage ownership of the then current stockholders of the
Company may be reduced and such equity securities may have rights, preferences
or privileges senior to those of the holders of Common Stock.
Subsequent Events
On July 13, 1998, Arthur J. Bacci agreed to join the Company as senior vice
president and chief financial officer. Mr. Bacci will replace Robert A. Eprile
as Chief Financial Officer. Mr. Bacci was most recently a management consultant
with KPMG Peat Marwick and Price Waterhouse. See Exhibit 10.
On July 15, 1998, the Private Equity Investors completed the purchase of two
shares of Series E Convertible Preferred Stock (the "Series E Preferred") with a
liquidation preference of $1,000,000 per share for an aggregate purchase price
of $2,000,000. On the Subscription Date the Private Equity Investors received
warrants (each, a "Warrant") to purchase up to an aggregate of 100,000 shares of
Common Stock. The Warrants are exercisable for five years at an exercise price
of 120% of average closing bid price of the Common stock over the five trading
days preceding the Subscription Date. The Company paid the placement agent (i)
$100,000 (5% of the proceeds), (ii) 0.1 shares of Series E Preferred, and (iii)
a Warrant to purchase up to 60,000 shares of the Common Stock. In addition, an
amount equal to 5% of the proceeds of such purchase will be paid to Adirondack
Capital L.L.C., whose Managing Director is a director of the Company.
Pursuant to the Company's plan to grant options on 6,000,000 shares of Common
Stock at $1.875 per share, which as adopted by the Board of Directors at its
meeting on September 11, 1997, the Board authorized the Company to issue to its
officers, directors, employees and to other contributors to the value of the
Company in July 1998, options to purchase 4,760,000 shares of the Company's
Common Stock. Of these, 3,987,500 were granted to executive officers and
directors of the Company. The options granted to executive officers and
directors of the Company will fully vest on July 15, 1999 and will expire on
July 15, 2003.
Year 2000 Compliance
The Company has assessed the potential impact of what is commonly referred to as
the "Year 2000" issue, concerning the inability of certain information systems
and automated equipment to recognize properly and process dates containing the
Year 2000 and beyond. If not corrected, these systems and equipment could fail
or create erroneous results. The Company has determined that none of its systems
and equipment present Year 2000 issues. Regardless of the Year 2000 compliance
of the Company's systems and equipment, there can be no assurance that the
Company will not be adversely affected by the failure of others to become Year
2000 compliant. The potential liabilities and costs associated with Year 2000
compliance cannot be estimated with certainty at this time. Because of the
uncertainties regarding others, there can be no assurance that the Year 2000
issue will not have a material financial impact in any future period. The
Company is currently assessing the Year 2000 risks associated with third parties
with which the Company has material relationships. The Company is also currently
assessing whether a Year 2000 contingency plan should be developed, and the
timetable for doing so if necessary.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Alliant Techsystems, Inc. ("Alliant") with whom the Company has a contract for
the production of certain ATED Encryption Devices, has demanded payment of
approximately $292,000 under the contract, which the Company is contesting. On
October 22, 1997, ATG(TM) filed a Compliant against Alliant in the Court of
Common Pleas, County of Philadelphia, Pennsylvania for damages and failure of
Alliant to perform its obligations under its contract with ATG(TM). On December
15, 1997, Alliant filed its Answer and Counterclaims seeking damages in an
amount "in excess of $50,000". Both sides have conducted extensive discovery.
Since the filing of the original lawsuit on October 22, 1997, ATG(TM)
encountered warranty related problems while testing the ATED Encryption Device.
Alliant has failed to address the reported problems. As a result, ATG(TM) has
filed a second Complaint against Alliant for breach of warranty. The second
action was commenced on July 20, 1998 and seeks damages in excess of $50,000.
(See also Note 5 to the Notes to Unaudited Consolidated Financial Statements).
-12-
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As further described in Notes 2, 3 and 4 of the Company's Unaudited Consolidated
Financial Statements, the Company has sold five series of Convertible Preferred
Stock, and warrants connected thereto, to accredited investors pursuant to
Regulation D and Regulation S under the Securities Act during the last four
fiscal quarters.
(Item 3 has been omitted since the item is either inapplicable or the answer is
negative)
ITEM 4. MATTERS SUBMITTED TO SHAREHOLDERS FOR VOTE
On May 29, 1998, the Company held a Special Meeting of its stockholders at which
time the stockholders approved the increase in the Company's Common Stock to
60,000,000 shares and its Preferred Stock to 3,000,000 shares.
ITEM 5. OTHER INFORMATION
Electronic Market Center, Inc.
On June 4, 1998, the Company formed EMC as a wholly owned subsidiary, that is
expected to operate and market the Company's to be developed distributed open
finance system ("open finance"), the electronic market center ("eMC(TM)"). The
Company intends to design eMC(TM) for interactive market access by member users
and to provide a global electronic distribution channel for all types of
financial products and services. Although the Company has designed the
specifications for the eMC(TM), there can be no assurance that the Company will
be able to finance the development or to actually develop such finance system.
ATG(TM) International, Inc.
On July 2, 1998, the Company formed a wholly owned subsidiary, ATG(TM)
International, Inc. The international markets represent potentially significant
growth for the application of ATG(TM)'s technology and skills to the development
of proprietary online transaction systems for global financial markets. In
November 1997, the Company entered into a strategic initiative with Tianjin New
Hong Chen Technology & Trading Company to introduce its online trading
technology and systems to the financial markets in China.
(See also "Subsequent Events" in Item 2 of Part I above.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 10 - Employment Agreement with Arthur J. Bacci.
Exhibit 11 - Earnings per share computation.
Exhibit 27 - Financial Data Schedule
(B) Reports on Form 8-K
May 29, 1998 - Results of Voting at Special Meeting of Stockholders
EXHIBIT INDEX
Page
----
Exhibit 10
- ----------
Employment Agreement with Arthur J. Bacci............ II-1
Exhibit 11
- ----------
Earnings per share computation....................... II-7
Exhibit 27
- ----------
Financial Data Schedule.............................. II-8
-13-
<PAGE>
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.
---------------------------------
(Registrant)
Date: August 14, 1998 By: /s/ John A. Blohm
---------------------------- ------------------------------
John A. Blohm
Executive Vice President
Secretary and Treasurer
-14-
<PAGE>
Exhibit 10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, effective as of July 13, 1998, is by and
between The Ashton Technology Group, Inc., a Delaware corporation (the
"Company"), and Arthur J. Bacci ("Employee").
WHEREAS, the Company wishes to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and promises contained herein, the parties agree as follows:
1. Employment. The Company shall employ Employee as Senior Vice
----------
President and Chief Financial Officer of the Company, and Employee hereby
accepts such employment and agrees to perform such duties and undertake such
responsibilities as are reasonably assigned to him from time to time by the
Chief Executive Officer of the Company.
2. Full-time Best Efforts. Employee shall devote substantially all
----------------------
of his professional time and attention to the performance of his obligations
under this Agreement, and will at all times faithfully, industriously and to the
best of his ability, experience and talent, perform all of his obligations
hereunder, consistent with his past practice prior to entering into this
Agreement. In addition to the other restrictions provided herein, Employee
shall not accept employment with or consult with any other company during the
term hereof.
3. Term of Employment. Employee's term of employment shall begin on
------------------
the effective date of this Agreement and shall continue for a period of three
(3) years from such date.
4. Compensation. During the term of this Agreement, the Company
------------
shall pay Employee an annual base salary of $150,000, and will be eligible to
participate in any bonus plan established for executives of the Company.
5. Benefits and Incentive Compensation.
-----------------------------------
(a) Employee shall be entitled to receive all benefits (such as
medical, dental, disability and life insurance, participation in the Company's
non-contributory 401(k) plan, paid vacation, and retirement plan coverage) as
are generally available from time to time to similarly situated employees of the
Company and the portion of such benefits paid by Employee shall be consistent
with the portion of such benefits paid by such similarly situated employees of
the Company. The Company will also pay to Employee a lump sum of $68,000 for
expenses incurred in connection with relocating to Philadelphia, Pennsylvania.
(b) Upon execution of this Agreement, Employee shall be granted (i) a
five-year option to purchase 150,000 shares of the Company's common stock at the
market price on the effective date of this Agreement, (ii) a five-year warrant
to purchase 250,000 shares of common stock in the Company's subsidiary,
Universal Trading Technologies Corporation
II-1
<PAGE>
("UTTC"), at a price of $1.00 per share, (iii) a five-year option to purchase
50,000 shares in the Company's subsidiary, Gomez Advisors, Inc. ("GA"), at a
price of $2.00 per share, (iv) a five-year option to purchase 100,000 shares of
the Company's subsidiary, Electronic Market Center, Inc. ("eMC"), at a price to
be determined, and (v) a five-year option to purchase 100,000 shares of the
Company's subsidiary, ATG International, Inc. ("International"), at a price to
be determined. The option package described above will vest ratably over the
term of this Agreement. It is understood that the shares underlying these
options and warrants will not initially be registered under the Securities Act
of 1933, as amended (the "Act"). However, the Company agrees that in the case of
the shares underlying the option to purchase the Company's common stock, the
Company will endeavor to register the underlying shares at such time that other
shares underlying management or consultants' options are registered pursuant to
Form S-8 or any other appropriate registration statement. In the case of the
UTTC warrant and GA, eMC and International options described above, it is
understood and agreed that, in the event that UTTC, GA, eMC or International
registers shares under the Act, then the Company will endeavor to include the
share s underlying the warrants or options, as the case may be, in such
registration statement, subject to customary underwriters' cutbacks and
restrictions.
6. Termination.
-----------
(a) The Company may terminate this Agreement at any time with or
without "cause" (as hereinafter defined) effective immediately upon thirty (30)
days written notice to Employee. If applicable, such notice shall specify that
a termination is being made for cause, and shall state the basis therefor. In
such event, Employee shall accrue no additional rights or benefits pursuant to
the terms of this Agreement from the date of such termination. For purposes of
this Agreement, termination for "cause" shall be defined as termination because
of: (i) his conviction of a felony involving moral turpitude, provided that
such conviction would at the time have a material adverse effect on the Company
or Employee's ability to carry out his duties hereunder, in the reasonable
opinion of the Board of Directors of the Company, (ii) gross and willful
misconduct by Employee which is deemed, by the Company's Board of Directors, to
be materially injurious to the Company, (iii) a finding of gross dishonesty of
the Employee by the Board of Directors, (iv) willful malfeasance or gross
negligence, or failure to act involving material non-feasance, provided that in
the case of such gross negligence or material non-feasance it would at the time
have a material adverse effect on the Company in the reasonable opinion of the
Board of Directors of the Company, (v) insubordination or refusal to perform
assigned duties, or (vi) Employee's material breach of his obligations contained
in Section 8.
(b) Except as otherwise specifically provided herein, this
Agreement shall terminate immediately upon the death of Employee or if Employee
is unable to perform his duties hereunder by reason of illness, injury or
incapacity for ninety (90) consecutive days (during which time Employee shall
continue to be compensated as provided herein). In either such event, Employee
or his personal representative, beneficiaries or heirs shall be entitled to
receive any benefits provided under any benefit or similar plan or policy
adopted by the Company and applicable to Employee, but Employee shall accrue no
additional rights or benefits pursuant to the terms of this Agreement from the
date of such termination.
7. Termination Benefits. If Employee's employment shall be
--------------------
terminated by the Company during the term of this Agreement for any reason other
than for cause or upon the
II-2
<PAGE>
death or disability of Employee then the Company shall pay Employee a
termination benefit as follows:
(a) (i) Employee will be paid in an aggregate amount equal to six
(6) months salary and (ii) current benefits will continue for the remainder of
the term of this Agreement. Payments shall commence upon termination and be made
at the same rate using the same payment schedule as in effect immediately prior
to such termination.
(b) The Company shall continue to provide medical, dental and
life insurance coverage to Employee at the same levels of coverage as in effect
immediately prior to such date for a period of six (6) months.
8. Confidentiality and Non-Competition.
-----------------------------------
(a) During the course of his employment, Employee will be working
with and will have unlimited access to the most sensitive confidential
information and trade secrets of the Company and its subsidiaries (each, a
"Subsidiary"). Employee shall not, while employed by the Company or any
Subsidiary, or at any time thereafter, without the prior written consent of the
Company, disclose any trade secrets or confidential information of the Company
or any Subsidiary (including but not limited to pricing information, customer
lists, supplier information, internal business procedures, management
information systems and techniques, market studies, expansion plans and similar
non-public information relating to the internal operations, business policies or
practices of the Company or any Subsidiary) to any third party, or use or permit
the use of any such trade secrets or confidential information in any way to
compete (directly or indirectly) with the Company or any Subsidiary or in any
other manner adverse to the Company or any Subsidiary, unless (i) such
information becomes known to the public generally through no fault of Employee
or (ii) disclosure of such information is required by law or the order of any
governmental authority. Employee further covenants and agrees that, at all times
during the term hereof and at all times thereafter, Employee will hold all of
the trade secrets and confidential information in secrecy as trustee or
custodian for the Company or any Subsidiary for the exclusive benefit of the
Company or such Subsidiary, as the case may be, and will faithfully do
everything in his power to assist the Company or such Subsidiary, as the case
may be, in holding in secrecy the foregoing. The trade secrets and confidential
information of the Company or any Subsidiary relate to the conduct of the
Company's or such Subsidiary's business, as the case may be, are of independent
economic value to the Company or such Subsidiary, as the case may be, because
they are not generally known and are the subject of efforts by the Company or
such Subsidiary, as the case may be, to maintain their secrecy. Employee
acknowledges that the right to maintain the secrecy of the trade secrets and
confidential information of the Company or any Subsidiary constitutes a
proprietary right which the Company or such Subsidiary, as the case may be, is
entitled to protect and that the disclosure, or improper use of the trade
secrets or the confidential information of the Company or any Subsidiary by
Employee will cause irreparable harm to the Company or such Subsidiary, as the
case may be. Upon request from the Company, Employee shall promptly return all
records, notes, data, memoranda and other information and documents, and copies
thereof, which contain or may contain any such trade secrets or confidential
information, and shall confirm in writing to the Company that all such materials
have been returned.
II-3
<PAGE>
(b) While employed by the Company or any Subsidiary, and for a
period of nine (9) months following the later of (i) termination of Employee's
employment with the Company or (ii) the final payment to Employee of termination
benefits pursuant to Section 7 hereof or any continuation of salary or other
remuneration arrangement with the Company, Employee shall not: (A) own any
interest in, accept employment with, serve as an advisor, consultant, officer,
director, agent or in any similar capacity to, or accept compensation (in any
form) from, any person, firm or entity (including any new business started by
Employee alone or with others) engaged in any Competitive Business (as
hereinafter defined); (B) contact or solicit any manufacturer, vendor, customer,
supplier or other business relation of the Company or any Subsidiary for the
purpose of causing such party to cease, reduce or alter the nature, amount or
terms of business conducted with the Company or any Subsidiary, as the case may
be, or to engage in any business relationship which might materially harm the
Company or any Subsidiary; or (C) contact or solicit any employees of the
Company or any Subsidiary (directly or indirectly) for the purpose of causing,
inviting or encouraging any such employee to alter or terminate his or her
employment relationship with the Company or any Subsidiary, as the case may be.
Notwithstanding anything herein to the contrary, Employee shall be entitled to
own as a passive investor less than 2% of the capital stock of a company without
being in violation of this paragraph (b).
(c) For purposes of this Section 8, a "Competitive Business"
means any business in which the Company or any of its subsidiaries is engaged at
the time of termination.
(d) It is understood and agreed by the parties hereto that each
of the provisions of this Section 8 is independent of and severable from the
others and the invalidity of this Section 8 or any provision hereof shall not
affect the validity or hinder the enforceability of the remaining provisions of
this Agreement. The parties expressly agree and declare that the time limitation
and geographic scope set forth in this Section 8 are reasonable and are properly
required for the adequate protection of the business of the Company and its
Subsidiaries. If any court shall determine that the duration or geographical
scope of any restriction contained in this Section 8 is unenforceable, it is the
intention of the parties that the provisions set forth herein shall not be
terminated but shall be deemed restricted, amended, or reformed to the extent
necessary to render it valid and enforceable, provided that such restriction,
amendment or reformation shall only be applicable to the enforcement of the
provisions hereof within the jurisdiction of the court which made such
determination.
(e) Employee acknowledges and agrees that the provisions of this
Section 8 are a reasonable and necessary protection of the immediate and
substantial interests of the Company and its Subsidiaries, that any violation of
these restrictions would cause substantial injury to the Company or its
Subsidiaries, and that the Company would not have entered into this Agreement
with Employee without the additional consideration offered by Employee in
binding himself to the provisions of this Section 8. In the event of a breach
or threatened breach by Employee of any provision of this Section 8, the Company
shall be entitled to apply to any court of competent jurisdiction for a
temporary or permanent injunction restraining Employee from such breach or
threatened breach; provided, however, that nothing herein contained shall be
construed to preclude the Company from pursuing any other available remedy for
such breach or threatened breach in addition to, or in lieu of, such injunctive
relief.
II-4
<PAGE>
9. Inventions, Patents and Intellectual Property. Employee agrees
---------------------------------------------
that all reasonably patentable inventions, innovations or improvements in the
Company's or any Subsidiary's intellectual property, products or method of
conducting its business (including catalogs and new contributions, improvements,
ideas and discoveries, whether patentable or not) conceived or made by him while
he is employed by the Company or such Subsidiary, as the case may be, belong to
the Company or such Subsidiary, as the case may be, but may be used by Employee
at any time without compensation to the Company or such Subsidiary, as the case
may be, during the term of this Agreement. Employee will promptly disclose such
inventions, innovations or improvements to the officers of the Company or such
Subsidiary, as the case may be.
10. Arbitration. In the event of any dispute between Employee and
-----------
the Company or any of the Subsidiaries under or related to the terms of this
Agreement, the parties hereto agree to submit such dispute to final and binding
arbitration in Philadelphia, Pennsylvania pursuant to the Commercial Arbitration
Rules of the American Arbitration Association. The decision of the arbitrator
shall be final and binding on both parties, provided, however, that in arriving
at a decision, the arbitrator shall be instructed to find in favor of one party
or the other, and shall not in rendering his decision fashion a compromise or
otherwise order an outcome which is different than that proposed by one of the
parties. Such arbitration proceedings shall be completed not later than ninety
(90) days following submission, except and only to the extent that such delay is
attributable to the unavoidable delay of the arbitrator. The prevailing party
in such arbitration shall be entitled to recover all reasonable costs incurred
in connection therewith, including reasonable attorneys' fees, provided that, in
the event that Employee is the prevailing party, the Company will also pay
reasonable travel and lodging costs incurred by Employee in connection with such
arbitration.
11. Miscellaneous.
-------------
(a) For purposes of this Agreement, notices and other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered in person or by first class United States
mail, properly addressed, postage prepaid. Notices to the Company shall be given
to the Company's Secretary, addressed to the Company's corporate headquarters.
Notices to Employee shall be addressed to Employee's most recent address as set
forth in the personnel records of the Company. Either party shall be entitled to
change the address at which notice is to be given by providing notice to the
other party of such change in the manner provided herein.
(b) This Agreement sets forth the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all prior agreements,
whether written or oral. This Agreement may be amended only by a writing signed
by both parties hereto.
(c) This Agreement shall be binding upon, and inure to the
benefit of the parties, their respective heirs, successors, personal
representatives and assigns.
(d) No waiver of any provision of this Agreement shall be valid
until it is in writing and signed by the person or party against whom it is
charged.
II-5
<PAGE>
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable provision were omitted.
(f) This Agreement shall be subject to and governed by the laws
of the Commonwealth of Pennsylvania.
EXECUTED as of the date first set forth above.
EMPLOYEE THE ASHTON TECHNOLOGY GROUP, INC.
/s/ Arthur J. Bacci /s/ Fredric W. Rittereiser
- ------------------- ------------------------------------
Arthur J. Bacci By: Fredric W. Rittereiser
---------------------------------
Title: President & CEO
------------------------------
II-6
<PAGE>
Exhibit 11
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
June 30, March 31,
1998 1998
---------------- -----------------
<S> <C> <C>
Net loss ($1,813,186) ($ 8,674,902)
Dividends in arrears on preferred stock ( 385,793) ( 107,749)
Recognition of beneficial conversion ( 3,875,984) ( 2,206,480)
feature of preferred stock
Net loss available to common shareholders ($6,074,963) ($10,989,131)
================ =================
Weighted-average common shares used in
computing net loss per common share 8,422,261 7,519,555
================ =================
Net loss per common share $(.72) $(1.46)
================ =================
</TABLE>
II-7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,097,620
<SECURITIES> 0
<RECEIVABLES> 155,233
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,336,389
<PP&E> 949,928
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,550,448
<CURRENT-LIABILITIES> 367,532
<BONDS> 0
0
13,525,000
<COMMON> 84,779
<OTHER-SE> 5,132,916
<TOTAL-LIABILITY-AND-EQUITY> 5,500,448
<SALES> 443,562
<TOTAL-REVENUES> 443,562
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,292,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,813,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,813,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,813,186)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
