<PAGE>
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
SEPTEMBER 30, 1998 1-11747
------------------ -------
THE ASHTON TECHNOLOGY GROUP, INC.
---------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-6650372
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification Number)
1900 MARKET STREET, SUITE 701, PHILADELPHIA, PA 19103
-----------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: 215-751-1900
------------
(Former name, former address and former fiscal year if changed since last
report)
Number of shares of common stock outstanding on September 30, 1998: 9,884,316
---------
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 No __
--
<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC.
INDEX - FORM 10-QSB
SEPTEMBER 30, 1998
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<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1998 and March 31, 1998. 4
Consolidated Statements of Operations -
For the Three and Six Months Ended September 30, 1998 and 1997...... 5
Consolidated Statements of Cash Flows -
For the Six Months Ended September 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............................................... 14
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS................................................... 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE..................................... 19
ITEM 5. OTHER INFORMATION................................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 20
SIGNATURES.................................................................. 24
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
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.
ITEM 1. FINANCIAL STATEMENTS
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THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND MARCH 31, 1998
(UNAUDITED)
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<CAPTION>
SEPTEMBER 30, 1998 MARCH 31, 1998
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(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................... $ 1,197,548 $ 815,680
Accounts receivable and prepayments.......................................... 313,938 130,843
Current portion of notes receivable........................................... 107,227 103,619
Stock subscriptions receivable............................................... --- 245,000
------------- ---------------
Total current assets.................................................... 1,618,713 1,295,142
Notes receivable, net of current portion..................................... 784,033 458,040
Property and equipment, net.................................................. 1,047,568 849,799
Investment in E.Com International, Inc....................................... 105,000 105,000
Capitalized software development costs....................................... 190,707 224,686
Other assets................................................................. 58,897 65,353
------------- ---------------
TOTAL ASSETS....................................................... $ 3,804,918 $ 2,998,020
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses........................................ $ 219,117 $ 1,736,447
Notes payable................................................................ 25,000 25,000
Other liabilities............................................................ 9,000 ---
-------------- ---------------
Total current liabilities............................................... 253,117 1,761,447
STOCKHOLDERS' EQUITY:
Preferred stock - Series A - par value: $10; shares authorized:
3,000,000; shares issued and outstanding; 251,968 and 250,000............... 2,519,688 2,500,000
Preferred stock - Series B - par value: $10; shares authorized:
590,000; shares issued and outstanding; 587,500 and 460,000................. 5,875,000 3,188,875
Preferred stock - Series C - par value: $10; shares authorized:
590,000; shares issued and outstanding; none and 55,000..................... --- 550,000
Preferred stock - Series D - par value: $1,000,000; shares
authorized: 10; shares issued and outstanding; 2.349 and none............... 2,348,950 ---
Preferred stock - Series E - par value: $1,000,000; shares
authorized: 10; shares issued and outstanding; 2.1 and none................. 2,100,000 ---
Common stock - par value: $.01; shares authorized: 60,000,000;
shares issued and outstanding; 9,884,316 and 8,143,571..................... 98,843 81,436
Additional paid-in capital................................................... 25,623,959 15,730,870
Deferred consulting expense.................................................. (149,219) (438,281)
Accumulated deficit.......................................................... (34,865,420) (20,376,327)
-------------- ---------------
Total stockholders' equity................................................... 3,551,801 1,236,573
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................... $ 3,804,918 $ 2,998,020
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
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Revenues............................................ $ 208,390 $ 1,500,855 $ 651,952 $ 2,835,057
----------- ----------- ----------- -----------
Costs and expenses:
Cost of revenues................................... --- 1,084,747 --- 2,189,663
Amortization of software development costs......... 47,677 53,900 95,354 98,200
Depreciation and amortization...................... 93,853 127,045 186,629 243,954
Noncash compensatory charges....................... 4,626,136 --- 4,626,136 ---
Selling, general and administrative................ 2,710,420 1,171,730 4,862,183 2,026,302
----------- ----------- ----------- -----------
Total costs and expenses....................... 7,478,086 2,437,482 9,770,302 4,558,119
----------- ----------- ----------- -----------
Loss from operations................................ (7,269,696) (936,627) (9,118,350) (1,723,062)
Other expenses:
Net interest income (expense)...................... 39,973 (56,597) 75,441 (87,027)
Private placement costs............................ --- (55,000) --- (110,002)
----------- ----------- ----------- -----------
Total other income (expenses).................. 39,973 (111,597) 75,441 (197,029)
----------- ----------- ----------- -----------
Loss before provision for income taxes and minority
interest in earnings of subsidiary................. (7,229,723) (1,048,224) (9,042,909) (1,920,091)
Provision for income taxes.......................... --- --- --- (14,026)
----------- ----------- ----------- -----------
Loss before minority interest in earnings of
subsidiary......................................... (7,229,723) (1,048,224) (9,042,909) (1,934,117)
Minority interest in earnings of subsidiary......... --- (10,994) --- (21,687)
----------- ----------- ----------- -----------
Net loss............................................ $(7,229,723) $(1,059,218) $(9,042,909) $(1,955,804)
=========== =========== =========== ===========
Net loss per share.................................. $ (.80) $ (.14) $ (1.03) $ (.26)
Dividends attributed to preferred stock............. 362,699 -- 362,699 --
----------- ----------- ----------- -----------
Net loss applicable to common stock................. $(7,592,422) $(1,059,218) $(9,405,608) $(1,955,804)
=========== =========== =========== ===========
Net loss applicable per common share................ $ (.99) $ (.14) $ (1.68) $ (.26)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding........................................ 9,034,175 7,562,500 8,760,604 7,562,500
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
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SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (9,042,909) $ (1,955,804)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization.................................. 281,983 342,154
Increase in minority interest in subsidiary.................... --- 21,687
Noncash compensatory charge for common stock options........... 4,626,136 ---
Deferred consulting costs...................................... 289,062 ---
Changes in operating asset and liabilities
(Increase) in receivables and prepayments...................... (183,095) (131,620)
(Increase) in notes receivable................................. (380,000) ---
Decrease in stock subscription receivable...................... 245,000 ---
Decrease in other assets....................................... 6,456 ---
(Decrease) in accounts payable and accrued expenses............ (1,517,330) (4,386)
Increase (Decrease) in other liabilities....................... 9,000 (49,149)
------------ ------------
Net cash used in operating activities........................ (5,665,697) (1,777,118)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets....................................... (382,769) (79,290)
Cash received from notes receivable............................ 50,399 ---
Capitalized software development costs......................... (61,375) (320,790)
------------ ------------
Net cash used in investing activities........................ (393,745) (400,080)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid in cash......................... (319,062) ---
Issuance costs for notes payable --- (379,645)
Issuance costs for preferred stock............................. (864,628) ---
Issuance costs for common stock................................ (150,000) ---
Proceeds from issuance of notes payable --- 3,000,000
Proceeds from issuance of preferred stock...................... 6,275,000 ---
Proceeds from issuance of common stock......................... 1,500,000 ---
------------ ------------
Net cash provided by financing activities.................... 6,441,310 2,620,355
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 381,868 443,157
Cash and cash equivalents, beginning of period................... 815,680 60,841
------------ ------------
Cash and cash equivalents, end of period......................... $ 1,197,548 $ 503,998
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
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 and six months ended September 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"), ATG(TM) International ("International") and electronic Market Center,
Inc. ("EMC"). As of September 30, 1998, all subsidiaries are wholly owned by
ATG(TM) except UTTC(TM), of which the Company owns approximately 96% of the
common stock. Also included is REB Securities, Inc. ("REB"), a wholly-owned
subsidiary of UTTC(TM). The financial statements for the year ended March 31,
1998 do not include International, EMC, or REB, which were formed by ATG(TM) in
July, June and April 1998, respectively. All significant intercompany accounts
and transactions have been eliminated.
The accompanying unaudited consolidated statements of operations for the three
months and six months ended September 30, 1997, respectively, and the
accompanying unaudited consolidated statements of cash flows for the six months
ended September 30, 1997 include the results of Computer Science Innovations,
Inc. ("CSI(R)"). CSI(R) was a subsidiary of the Company. CSI(R) was incorporated
in Florida in March 1983 and specialized in utilizing computer technologies and
sophisticated mathematical techniques to address complex information retrieval
and management problems. During the year ended March 31, 1998, CSI(R) was the
primary revenue provider for the Company. On November 6, 1997, ATG(TM) sold
CSI(R) to George H. Milligan and Susanne L. Cavadeas, as Trustees of the Trust
Created by The Computer Science Innovations, Inc. Leveraged ESOP, for
$1,723,000, payable as follows: (1) forgiveness of a $500,000 loan plus
interest of $28,875, (2) $600,000 in cash, and (3) a five year 8 1/4% note of
$594,125. The Company recognized an accounting loss on the sale of $385,930;
however, on a cash basis, the Company realized a gain on the sale of $101,992.
In addition, the Company received cash in the amount of approximately $340,000
due to a Tax Allocation Agreement.
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 Statements of Operations for the six months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1999.
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. ACCOUNTS RECEIVABLE AND PREPAYMENTS
------------------------------------
Accounts receivable and prepayments are primarily attributable to GA and consist
of billed receivables arising from recognized revenues. Revenues include GA
advisory service fees and advertising income.
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<PAGE>
3. CERTAIN TRANSACTIONS
--------------------
The Company and Raymond T. Tate ("Tate"), formerly Chairman of the Board,
entered into a consulting agreement, dated October 22, 1996 (the "Consulting
Agreement"). Under the terms of the Consulting Agreement, the Company retained
Tate to act as a consultant to CSI(R) for the period from October 22, 1996 to
December 31, 1998. As compensation for such services, the Company agreed to pay
Raymond Tate Associates and Tate $120,000 per annum and certain other expenses.
The total cost of the consulting Agreement was charged to operations during the
year ended March 31, 1997 and was included in corporate restructuring costs.
Tate also agreed not to compete with the Company in the Financial Services
Industry (as such term is defined in the Consulting Agreement) during the term
of the Consulting Agreement. For the six months ended September 30, 1998, the
Company paid Raymond Tate Associates and Tate $63,000.
On May 1, 1997, David N. Rosensaft ("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 January 14, 1998, the Company entered into an agreement with The
Dover Group, Inc. ("Dover") and Fredric W. Rittereiser (a director of the
Company), whereby Dover and Mr. Rittereiser agreed to reimburse $413,980 in
legal costs associated with the Rosensaft lawsuit to the Company to the extent
such costs were not covered by the Company's directors' and officers' liability
insurance carrier. Dover and Mr. Rittereiser pledged 333,334 shares of UTTC(TM)
stock as collateral in support of their agreement to pay the legal costs. The
Company has submitted a claim to its insurance carrier in the full amount of
such legal costs. To date, the Company and its insurance carrier have not
reached agreement as to whether the legal costs are covered by the directors'
and officers' liability insurance policy. On March 4, 1998, the U.S. District
Court entered an order awarding damages against Dover and Mr. Rittereiser, 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 ("Common Stock")
under its control and entered into a Promissory Note with the Company.
On November 4, 1997, Ashton sold CSI(R) to a trust created by the Computer
Science Innovations Inc. leveraged ESOP for $1,723,000. The Company received
$600,000 in cash, a $594,125 five-year 8 1/4% note and the forgiveness of
$528,875 due to CSI(R), which included $28,875 of accrued interest. Based on
rates of return currently available to the Company for investments with similar
terms and maturities, the fair value of the note receivable approximates the
carrying amount. As of September 30, 1998, the outstanding balance of the note
is $511,260.
Since 1996, the Company has utilized Dover for various services including
advising the Company on its acquisitions of UTTC(TM) and CSI(R) and
consulting services related to the Company's financings and product development
efforts. Mr. Rittereiser, the Company's President and Chief Executive Officer,
is the Chairman of Dover. For the six months ended September 30, 1998, the
Company paid consulting fees to Dover amounting to $90,000.
During 1998, the Company retained Richard Butler (or Kilkenny Consulting, an
entity controlled by Richard Butler), a member of the Company's board of
directors, to provide strategic marketing services. For the six months ended
September 30, 1998, the Company paid consulting fees to Richard Butler and
Kilkenny Consulting amounting to $45,000.
During 1997, the Company retained Adirondack Capital, L.L.C. to provide
investment banking and financial advisory services. K. Ivan F. Gothner, a member
of the Company's board of directors, is a Managing Director of Adirondack
Capital, L.L.C. For the six months ended September 30, 1998, the Company paid
consulting fees and reimbursed expenses to Adirondack Capital, L.L.C. amounting
to $72,950. Additionally, the Company paid to Adirondack Capital, L.L.C. an
amount equal to 5% of the proceeds from the sale of the Series C Preferred, the
Series D Preferred, and the Series E Preferred and an option to purchase 600,000
shares of Common Stock at $1,875 per share and an option to purchase 600,000
shares of UTTC(TM) common stock at $1.00 per share. (See "Notes to Unaudited
Financial Statements - Shareholders' Equity").
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4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment are carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (generally
three to five years).
5. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
--------------------------------------
The Company capitalizes internally generated software development costs in
compliance with SFAS No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed. The Company capitalizes software development
costs where technological feasibility of the product has been established. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgement by management. Capitalized software development costs related to the
VWAP/TM/trading system ("VTS") amounted to $61,375 and $320,790 for the six
months ended September 30, 1998 and 1997, respectively.
Capitalization of computer software cost is discontinued when the computer
software product is available to be sold, leased or otherwise, marketed.
Amortization begins when the product is available for release to customers. The
Company is amortizing capitalized software costs related to the VTS system using
the straight-line method over the estimated economic useful life, the average
life of which is estimated at two years.
6. INVESTMENT IN E.COM INTERNATIONAL, INC.
---------------------------------------
In November 1997, the Company entered into a strategic relationship with E.Com
International, Inc. ("E.Com") to support its goal of providing remote wireless
access to its family of online transaction systems. Under this relationship, the
Company is the exclusive distributor of E.Com's products for the professional
financial services market. E.Com develops and markets integrated wireless mobile
computing devices, which provide user access to the Internet, corporate
networks, and remote databases. As the exclusive distributor of E.Com products
to the professional financial services market ATG(TM) will be able to offer its
proprietary online transaction products and the Company's VTS(TM) system. The
Company has purchased 35,000 shares of E.Com common stock and warrants to
purchase E.Com common stock at $3.00 per share in a private placement.
7. SHAREHOLDERS' EQUITY
--------------------
On April 3, 1998 (the "Subscription Date"), the Company entered into a Private
Equity Line of Credit Agreement (the "Private Equity Agreement" or "Agreement")
with a group of accredited investors (the "Private Equity Investors") which
provided 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 ("SEC" or "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 provided that the Private Equity Investors would be obligated to
purchase 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.
In addition, 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 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.
The Series D Preferred could not be converted into Common Stock until the
earlier of (i) 60 days following the Subscription Date or (ii) the date the
Registration Statement had 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) ranks pari passu with the
other authorized Preferred Stock of the
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Company and (ii) is entitled to a cumulative dividend of 8% per annum on its
respective liquidation preference. Between August 20, 1998 and August 21, 1998,
.825 shares of the Series D Preferred were converted into 429,522 shares of
Common Stock.
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.
The Private Equity Investors are not obligated to purchase any Put shares
unless, among other things, (i) the Registration Statement is effective, (ii)
the Company is listed and its Common Stock is trading on a national exchange or
quotation system, (iii) the closing bid price of the Common stock on the day
immediately preceding such purchase is at least $1.50 per share, and (iv) 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.
On September 1, 1998, the Company entered into an agreement with the Private
Equity Investors to amend the Private Equity Line of Credit. The Amendment
clarifies that each of the Private Equity Investors may not beneficially own
more than 4.99 percent of the Company's Common Stock at one time, including
Common Stock underlying convertible securities that would be deemed to be
beneficially owned pursuant to section 13(d) of the Securities Exchange Act of
1934 and Rule 13d-3 promulgated thereunder. (See "Exhibit Item 6(B) - Reports on
Form 8K").
On August 20, 1998 and on September 22, 1998, the Company placed a Put to the
Private Equity Investors in the amount of $750,000, each. On August 31, 1998,
the Company issued 376,471 shares of Common Stock to the Private Equity
Investors in connection with the August 20, 1998 Put. On September 29, 1998, the
Company issued 570,410 shares of Common Stock to the Private Equity Investors in
connection with the September 22, 1998 Put.
On the Subscription Date, the Company paid Settondown Capital International Ltd.
(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, (iv)
20,000 shares of Common Stock and (v) attorney fees of $30,000. On July 15,
1998, the Company paid the Placement Agent, $100,000 and 0.1 shares of Series E
Preferred and a Warrant to purchase up to 60,000 shares of Common Stock, on the
same terms as the Warrant issued on the Subscription Date.
On the completion of each Put by the Company pursuant to the Private Equity
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.
(See "Notes to Unaudited Financial Statements - Certain Transactions").
8. EMPLOYEE STOCK OPTION PLAN
--------------------------
Stock options are granted to officers, directors, employees and others who
provide services to the Company at the discretion of the board of directors.
During the quarter ended September 30, 1998, the Company issued options to
purchase 4,760,000 shares of the Company's common stock to officers, directors
and employees of the Company pursuant to the Company's plan to grant 6,000,000
shares of common stock at $1.875. Additional 225,000 options were issued to
consultants and other professionals who provided services to the Company. A
summary of the status of Company's employee stock options as of September 30,
1998 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------------------------------------
<S> <C> <C>
Outstanding at beginning of year...... 450,000 $ 6.28
Granted during period................. 4,760,000 1.875
---------------------------------------
Outstanding at end of period.......... 5,210,000 $ 2.26
---------------------------------------
</TABLE>
-10-
<PAGE>
The following table summarizes information about stock options outstanding and
exercisable at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER -AVERAGE
RANGE OF EXERCISE OUTSTANDING AND REMAINING EXERCISE
PRICE EXERCISABLE CONTRACTUAL LIFE PRICE
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
$4.00-14.25 270,000 7.5 years $ 6.28
</TABLE>
The Company's assumptions used to calculate the fair values of options issued
were (i) risk-free interest rate of 5.6%, (ii) expected life of five years,
(iii) expected volatility of 20%, and (iv) expected dividends of zero.
In addition, as of September 30, 1998, the Company had reserved 7,045,000
options to purchase shares of GA's common stock for issuance to directors,
officers and employees at GA and ATG(TM) in connection with employment
agreements or as incentives for attracting employees to GA and the Company. A
summary of the status of GA's employee stock options as of September 30, 1998 is
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------------------------------------
<S> <C> <C>
Outstanding at beginning of period...... --- $ ---
Granted during period................... 6,935,000 .44
---------------------------------------
Outstanding at end of period............ 6,935,000 $ .44
---------------------------------------
</TABLE>
The following table summarizes information about GA stock options outstanding
and exercisable at September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
RANGE OF EXERCISE OUTSTANDING AND REMAINING EXERCISE
PRICE EXERCISABLE CONTRACTUAL LIFE PRICE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
$.01-1.00 4,000,000 6.25 years $ .26
- ------------------------------------------------------------------------------------
</TABLE>
The Company's assumptions used to calculate the fair values of options issued
were (i) risk-free interest rate of 5%, (ii) expected life of 6.25 years, (iii)
expected volatility of 20%, and (iv) expected dividends of zero.
In 1997, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has elected to apply APB Opinion No. 25 and related
interpretations in accounting for stock options issued to employees and has
adopted the disclosure-only provisions of SFAS No. 123. During the period ended
September 30, 1998, the Company recognized a noncash compensation charge of
$4,367,809 to reflect the excess of the fair value of the GA options granted
over the exercise price of the GA options granted. The Company also recognized a
noncash compensatory charge of $258,327 for non-employee options issued to
consultants and professional advisors. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at the grant
date as prescribed by SFAS No. 123, net loss per share would have been adjusted
to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
-------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
30, 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss........ $(9,042,909) $(1,955,804) $(10,884,303) $(1,955,804)
Loss per share.. $ (1.03) $ (.26) $ (1.24) $ (.26)
</TABLE>
-11-
<PAGE>
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
-------------------------------------
Accounts payable and accrued expenses consist entirely of accrued professional
fees and other expenses.
10. NOTES PAYABLE
-------------
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"). One holder of UTTC(TM) convertible and non-convertible
notes totaling $25,000 did not exchange notes for the Series B Preferred.
11. COMPUTATION OF PER SHARE INFORMATION
------------------------------------
Basic loss per share is computed by dividing net loss attributed to common stock
by the weighted average common share outstanding for the period. Basic loss per
share for the six months ended September 30, 1998 and 1997 are calculated as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
1998 1997
-------------------------------
<S> <C> <C>
Net loss........................................... $ (9,042,909) $(1,955,804)
Dividends paid on preferred stock.................. (362,699) ---
Dividends in arrears on preferred stock/1/......... (213,960) ---
Recognition of beneficial conversion feature
of preferred stock/2/.............................. (5,083,484) ---
-------------------------------
Net loss available to common stockholders.......... $(14,703,052) $(1,955,804)
===============================
Net loss per common share.......................... $ (1.68) $ (.26)
===============================
</TABLE>
12. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior year's amounts to conform to
the current year's presentation.
________________________________________________________________________________
/1/ This number represents the accumulated but unpaid dividends for the Series
A Preferred, Series B Preferred, Series D Preferred and Series E Preferred
through September 30, 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 Stockholders
in computing net loss per common share. There is no impact on the Company's net
loss, cash flows or stockholders' equity.
-12-
<PAGE>
13. RECENTLY ADOPTED ACCOUNTING STANDARDS
-------------------------------------
In 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share. The adoption of this statement does not change net
loss per common share for the periods ended September 30, 1998 and 1997. Net
loss per common share is computed using the weighted-average number of shares
outstanding.
In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. In February 1998, the FASB
issued SFAS No. 132; Employer's Disclosures about Pensions and Other
Postretirement Benefits. SFAS No. 130 establishes new standards for reporting
and displaying comprehensive income and its components. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. SFAS No. 132
revises employer's disclosures about pensions and other postretirement benefit
plans. Adoption of these statements had no significant impact on the Company's
consolidated financial position, results of operations or cash flows.
-13-
<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.
- ----------------------------------------------------------------
OVERVIEW
The Company is engaged in the development and commercialization of online
transaction systems for participants in the U.S. and international financial
markets. The Company was founded in 1994 to take advantage of commercial
opportunities through the application of advanced telecommunication and
computing technologies to the area of electronic commerce ("e-commerce"). The
Company is currently organized as a parent company which has four subsidiaries:
(1) Universal Trading Technologies Corporation ("UTTC"(TM)), (2) Gomez Advisors,
Inc. ("GA"), (3) Electronic Market Center, Inc. ("EMC"), and (4) ATG (TM)
International, Inc ("International"). As of September 30, 1998, all
subsidiaries are wholly-owned, except for UTTC(TM), of which the Company owns
approximately 96% of the common stock. REB Securities Inc. ("REB") is a
wholly-owned subsidiary of UTTC(TM).
For the six months ended September 30, 1998, GA generated all of the Company's
revenues. The Company continues to work with the Philadelphia Stock Exchange
("PHLX") while the PHLX seeks regulatory approval to operate the VTS(TM) system.
At the same time, the Company is exploring other options to operate the
VTS(TM) system and to pursue other means of generating revenue. The Company
intends to continue to increase its investments in research and development,
sales and marketing and related infrastructure. Such increases will be dependent
upon factors including, but not limited to, operation of the VTS(TM) system,
success in hiring the appropriate personnel, market acceptance of the Company's
products, and developement of a revenue stream from the Company's products. Due
to the anticipated increases in the Company's operating expenses, the Company's
operating results are materially and adversely affected while revenue is not
generated from the Company's products. The Company's limited operating history
and dependence upon the operation of its VTS (TM) system makes the prediction of
future operating results difficult. Although the Company has undertaken several
initiatives to activate its VTS (TM) system and develop additional sources of
revenue, there can be no assurance that the Company's products will become
operational or the Company will obtain profitability.
At September 30, 1998, the Company's consolidated total assets were $3,804,918
compared to $2,998,020 at March 31, 1998. Current assets totaled $1,618,713
compared to current liabilities of $253,117.
Stockholders' equity at September 30, 1998 increased to $3,551,801 from
$1,236,573 at March 31, 1998 due primarily to the issuance of $1,275,000 of the
Series B Preferred, $3,150,000 of the Series D Preferred, $2,100,000 of the
Series E Preferred and the issuance of 946,881 shares of Common Stock for
$1,500,000. Preferred stock dividends of $362,699 for the six months ended
September 30, 1998 represent cash dividends of $319,062 and stock dividends
comprised of 1,968.75 shares of Series A Preferred and .02395 shares of Series D
Preferred.
RESULTS OF OPERATIONS
The results of the periods ended September 30, 1998 are not comparable to the
same periods ended September 30, 1997 primarily as a result of the sale of the
Company's CSI(R) subsidiary in November 1997, which had been the Company's
primary source of revenue during the fiscal year ended March 31, 1998.
During the quarter ended September 30, 1998, the Company incurred a net loss of
$7,229,723 as compared to a net loss of $1,059,218 for the same quarter the year
before. Net loss for the six months ended September 30, 1998 was $9,042,909
compared to $1,955,804 for the same period the previous year. Excluding
CSI(R), the net loss for the six months ended September 30, 1997 would have
been $2,084,743.
-14-
<PAGE>
On a consolidated basis, the Company's revenue for the quarter ended September
30, 1998 totaled $208,390 compared to $1,500,855 for the same quarter of 1997.
For the six months ended September 30, 1998, the Company had revenues of
$651,952 compared to revenues of $2,835,057 for the same six months of 1997.
For the three months and six months ended September 30, 1998, GA generated
virtually all of the Company's revenue. Excluding CSI(R), revenue for the
three months and six months ended September 30, 1997 would have amounted to
$80,000, respectively.
Almost all of GA's revenue for the period from Inception (May 22, 1997) to
September 30, 1997 was generated from advisory engagements with clients seeking
to improve the quality of their Internet service offerings. For the six months
ended September 30, 1998, GA's consulting revenue increased by $571,952 compared
to the same period last year. During 1998, GA began to generate revenue from
the sale of research products and by offering advertisements on its webpage. GA
anticipates, on a forward-looking basis, that the acceptance of its internally
developed Scorecard and the proprietary research and analysis underlying its
news and editorial website ("Gomezwire") will enable GA to increase revenue by
expanding its advisory services, attracting advertising from e-commerce vendors
and by introducing other e-commerce segments on its Scorecard.
On April 8, 1997, the Company announced that UTTC(TM) had completed development
of its VTS(TM) system. Although the VTS(TM) system has been operational since
April of 1997, trading on the system as a faclity of the PHLX can not begin
until the SEC approves Rule 237 as proposed by the 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. The Company is continuing
to work with the PHLX to obtain approval for the initial deployment of the
VTS(TM) system. Until the SEC approves the PHLX proposed Rule 237, the VTS(TM)
system will not be introduced at the PHLX and the VTS(TM) system will not
generate any revenue operating as a facility of the PHLX. There can be no
assurance that the SEC will ever approve the PHLX's proposed rule change or when
such approval will occur.
The Company is exploring alternative options, other than the PHLX, for
implementation and operation of the VTS(TM) system, which would not require
SEC approval of Rule 237 as proposed by the PHLX. On April 16, 1998, the SEC
proposed new rules and rule amendments that, if adopted, will permit ATSs to
choose whether to register as national securities exchanges, or to register as
broker-dealers which must comply with additional requirements depending on their
activities and trading volume. Additionally, the SEC proposed to exclude from
rule filing requirements certain pilot trading systems to be launched by
national securities exchanges and self-regulatory organizations collectively,
("SROs"). The latter regulation, if and when adopted, may allow the Company to
introduce its products, regardless of whether the PHLX rule proposal is approved
by the SEC. Anticipating adoption of these new regulations, the Company
continues to explore the best structure for launching its electronic trading
product and products under development, e.g. through an existing SRO facility,
as a broker-dealer, or as a new and independent registered exchange.
In order to pursue launching the VTS(TM) system through a broker-dealer, the
Company formed REB in April 1998. On June 18, 1998, REB's Registration Statement
with the SEC was approved. During the quarter ended September 30, 1998, REB
negotiated a letter of understanding with a major clearing firm to provide
clearing services to REB. On September 24, 1998, REB filed applications with the
National Association of Securities Dealers ("NASD") and with the PHLX to operate
as a registered broker-dealer providing execution services for institutional
investors using the VTS(TM) system regardless of the outcome of the PHLX's
proposed rule. (See "Subsequent Events").
During the three months and the six months ended September 30, 1998, the Company
incurred total costs and expenses of $7,478,086 and $9,770,302, respectively,
compared to $2,437,482 and $4,558,119 for the same periods ended September 30,
1997. Excluding CSI(R), total costs and expenses for the three months and six
months ended September 30, 1997 would have been $2,291,137 and $4,164,936,
respectively.
During the three months and six months ended September 30, 1998, the Company
capitalized system development costs related to the VTS(TM) system totaling
$61,375, respectively, compared to $21,500 and $320,790 for the same periods
last year. The Company believes the VTS(TM) system is available and ready to be
marketed and has therefore ceased capitalization of computer software costs
related to the VTS(TM) system.
-15-
<PAGE>
During the period ended September 30, 1998, the Company entered into employment
agreements with Julio Gomez, John Robb and Alexander Stein (See "Part II, Item
5. Other Information). Pursuant to the employment agreements, an aggregate of
3,000,000 Founders Options were granted to Messrs. Gomez, Robb and Stein at an
exercise price of $.01 per share. The Founders Options are fully vested and
exercisable. In addition, 1,400,000 options with an exercise price $.01 were
granted to directors of the Company and to officers and directors of ATG(TM),
which will vest and become exercisable one year after the completion of the
issuance of a private placement memorandum (See "Subsequent Events"). Pursuant
to APB Opinion No. 25, Accounting for Stock Issued to Employees, the Company
recognized a noncash compensation charge of $4,367,809 to reflect the excess of
the fair value of the GA options granted over the exercise price of the GA
options granted. The Company also incurred a noncash charge of $258,327 related
to the issuance of non-employee stock options to consultants and professional
advisors. The charges do not materially affect the balance sheet as the
reduction in shareholders' equity is offset by an increase in additional paid-in
capital.
Selling, general and administrative expenses ("SG&A"), excluding the noncash
compensatory charge, totaled $2,710,420 and $4,862,183 for the three months and
six months ended September 30, 1998, respectively, as compared to $1,171,730 and
$2,026,302 for the same periods of 1997. Excluding CSI(R), SG&A for the three
months and six months ended September 30, 1997 were $937,276 and $1,577,030,
respectively.
For the six months ended September 30, 1998, GA's SG&A totaled $1,022,312 or 21%
of the Company's total SG&A. GA's SG&A increased by $904,422 from the period
from Inception (May 22, 1997) to September 30, 1997 due primarily to the full
six months of operation, growth in staff, leasing of office facilities and other
expenses incurred in building GA's infrastructure. The remaining increase of
$2,380,731 in the Company's SG&A for the six months ended September 30, 1998
relative to the same period last year (excluding CSI(R)) is primarily a result
of an 110% growth in staff and increases in consulting and professional fees.
The Company continues to invest in the enhancement, marketing and deployment of
the VTS(TM) system as well as pursuing opportunities to deploy the Company's
trading systems in the Asian and Canadian markets. The Company's efforts are
focused on (i) enhancements to the VTS(TM)system, (ii) development of the
eMC(TM), and (iii) development of the electronic Options Exchange System
("eOX(TM)"), an electronic crossing network for derivative products. The
Company also continues to refine the design requirements and evaluate market
acceptance of the electronic Auction System ("eAS(TM)") and the electronic
Public Limit Order Book ("ePLOB(TM)").
The Company believes, on a forward-looking basis, that expenses will increase
for 1998 as a whole, when compared to 1997. The Company believes that
significant spending related to the enhancement, development and marketing of
its products is required to remain competitive and establish the necessary
trading volumes once the systems are implemented.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's principal source of liquidity consisted of
cash and cash equivalents of $1,197,548. On April 3, 1998, the Company entered
into the Private Equity Agreement with the Private Equity Investors, which
provided for an aggregate commitment of $18,000,000 to the Company, subject to
the satisfaction of certain conditions (See "Notes to Unaudited Consolidated
Financial Statements - Shareholders' Equity"). As of September 30, 1998, the
Company has drawn $6,500,000 of the total $18,000,000. The Company believes, on
a forward-looking basis, that its cash, cash equivalents and cash flow from
operations will not be sufficient to meet the presently anticipated cash
requirements. Therefore, the Company anticipates placing additional Puts to the
Private Equity Investors. Based upon the Company's current plan of operations,
it is anticipated that the remaining amount available under the Private Equity
Agreement will provide sufficient working capital for at least the next 12
months.
The Company's future capital requirements will depend on many factors, including
the timing for launch of the VTS(TM) system, market acceptance of the Company's
products, the timing and extent of spending to support new product development
efforts and the timing of introduction of new products and enhancements to
existing products. The Company may need additional financing in the future if
(i) the Company experiences unexpected costs, (ii) there are further delays in
the introduction of the VTS(TM) system, (iii) the Company fails to develop
successfully the market for its products, or (iv) other opportunities arise
which requires significant investment. The Company may require additional
financing to fund development of its products. If such financing is required,
such financing may be raised through
-16-
<PAGE>
additional equity offerings, joint ventures or other collaborative
relationships, borrowings and other sources. There can be no assurance that
additional equity or debt financing, if required, will be available on
acceptable terms or at all.
YEAR 2000 COMPUTER COMPLIANCE
The Company has assessed the potential impact of what is commonly referred to as
the "Year 2000" or "Y2K" issue, concerning the inability of certain information
systems and automated equipment to properly recognize and process dates
containing the Year 2000 and beyond. If not corrected, these systems and
equipment could fail or create erroneous results. The Company is subject to the
potential impact of the Y2K issue due to the nature of financial information and
the potential impacts which may arise from software, hardware, and equipment
both within the Company's direct control and outside of the Company's control.
The Company views its Y2K risks as arising from three primary sources: (i)
internal software, hardware and equipment utilized in the operations of the
Company; (ii) applications the Company has developed or is developing for use by
its customers; and (iii) third parties with which the Company has material
relationships.
The Company has determined that none of its critical internal systems and
equipment presents Y2K issues. The Company is continuously acquiring and
replacing both hardware and software and is obtaining Y2K compliance
certifications with such purchases. The Company's systems interface
electronically and operationally with software, hardware and equipment outside
of the Company's control. The Company also contracts with third parties for such
services as telecommunications. These third party vendors with whom the Company
has material agreements are large publicly traded organizations. The Company is
reviewing the publicly available Y2K disclosures of these vendors; however there
can be no assurance that the Company will not be adversely affected by the
failure of these third parties to become Y2K compliant.
The Company has also determined that none of the applications it has developed
for use by its customers present Y2K issues. The Company is in the process of
obtaining an independent certification of its VTS(TM) system's Y2K readiness.
In addition, the Company's customers cannot enter or export non-Y2K compliant
dates into the VTS(TM) system and all VTS(TM) business partners interact with
the VTS(TM) system via Y2K compliant interfaces.
Since the Company's VTS(TM) system has not been activated, the potential
liabilities and costs associated with the Y2K compliance issue cannot be
estimated with certainty at this time. The potential costs, including any
potential loss of revenue, would be dependent upon several factors including,
but not limited to, the volume transacted through the Company's products, the
Y2K readiness of customers utilizing the Company's products and the
concentration of volume among the Company's customers. Because of these
uncertainties regarding others, there can be no assurance that the Y2K issue
will not have a material financial impact in any future period. Based upon
these factors, the Company has no Y2K contingency plan.
SUBSEQUENT EVENTS
On October 20, 1998, REB was admitted to membership on the PHLX subject to
acquisition of a seat on the PHLX stock exchange. ATG(TM) intends to deploy the
VTS(TM) system through REB.
-17-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Alliant Techsystems, Inc. ("Alliant") with whom the Company had 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 ("PA") for damages and
failure of Alliant to perform its obligations under its contract with ATG(TM).
Since the filing of the oringinal 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.
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. On October 1, 1998, Alliant filed a motion for summary judgement in
this action and ATG(TM) is responding to this motion.
The Company believes that the above matter will not have a material adverse
effect upon the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As further described in the notes to the Company's unaudited consolidated
financial statements, the Company has sold five series of Convertible Preferred
Stock, and warrants connected thereto, pursuant to Regulation D and Regulation S
under the Securities Act to accredited investors during the last four fiscal
quarters and has exercised Puts under the terms of the Private Equity Agreement.
-18-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
On August 24, 1998, the Annual Meeting of Shareholders was held in Philadelphia,
PA. At the meeting, the following individuals were nominated and elected to
serve as officers and directors of the Company until the next annual meeting of
shareholders or until their successors have been duly elected and qualified:
Fredric W. Rittereiser Robert A. Eprile
John A. Blohm Richard Butler
K. Ivan F. Gothner William W. Uchimoto
Fred S. Weingard
In addition, shareholders approved and ratified the appointment of Goldstein,
Golub, Kessler L.L.P. as independent auditors.
ITEM 5. OTHER INFORMATION
See "Subsequent Events" in Item 2 of Part I above.
On July 2, 1998, the Company formed a wholly owned subsidiary ATG(TM)
International, Inc. The international markets represents 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.
On August 4, 1998, the Company and GA entered into Employment Agreements with
Julio Gomez, Dr. Alexander Stein and John Robb. Mr. Gomez has served as
President and Chief Executive Officer and as a Director of GA since its
inception in May 1997. Prior to the founding of GA, Mr. Gomez was a Senior
Analyst in the Money and Technology Strategies Practice at Forrester Research.
Dr. Stein has served as Vice President, Advisory Services of GA since July 1997.
Prior to joining GA, Dr. Stein was a Vice President of D.E. Shaw and Co. and co-
founded Far Sight Financial Services.
Mr. Robb has served as Vice President, Infrastructure and Research of GA since
July 1997. Prior to joining GA, Mr. Robb served as a Senior Internet Technology
Analyst for Forrester Research.
On July 22, 1998, Dr. Mark Turner entered into an agreement to join the Company
as Vice President of Systems and Advanced Technologies responsible for leading
the development of the Company's eOX(TM). Prior to joining the Company, Dr.
Turner was a consultant to the PHLX where he contributed to the design,
development and delivery of key systems to the PHLX's foreign currency and
equity options trading floor as well as in the design and deployment of the
PHLX's electronic options book. Prior to the PHLX, Dr. Turner provided
consulting services to J.P. Morgan on numerous matters including re-engineering
the firm's system for calculating and disseminating the J.P. Morgan Global Bond
Index. Dr. Turner also designed large message-based multiprocessors for
Burroughs Corp. during the 1970's.
On September 26, 1998, Scott A. von Kleeck entered into an agreement to join the
Company as Vice President of Systems and Advanced Technologies reponsible for
leading the development of the Company's eMC(TM). Mr. von Kleeck was most
recently Chief Architect and Chief Technologist at The Vanguard Group, Inc.
Before joining The Vanguard Group, Mr. von Kleeck was responsible for leading
Unix Operating System strategic product planning and definition at Novell and
Hewlett Packard; software development at Univel and Unix Systems Laboratories;
and served as technical scientist at AT&T Bell Laboratories.
See Exhibit 10.5
-19-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 10.1 - Employment Agreement with Julio Gomez.
Exhibit 10.2 - Employment Agreements with Dr. Alexander Stein.
Exhibit 10.3 - Employment Agreement with John Robb.
Exhibit 10.4 - Employment Agreement with Dr. Mark Turner.
Exhibit 10.5 - Employment Agreement with Scott von Kleeck.
Exhibit 11 - Earnings per share computation.
Exhibit 27 - Financial Data Schedule.
(B) Reports on Form 8K
September 1, 1998 - Amendment to the Private Equity Line of Credit
agreement dated as of April 2, 1998.
-20-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Ashton Technology Group, Inc.
---------------------------------
(Registrant)
Date: November 12, 1998
By:
/s/ Arthur J. Bacci
----------------------------------
Arthur J. Bacci
Senior Vice President, Chief Financial
Officer and Treasurer
-21-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXHIBIT 10.1
- ------------
Employment Agreement with Julio Gomez............................ II-1
EXHIBIT 10.2
- ------------
Employment Agreement with Dr. Alexander Stein.................... II-1
EXHIBIT 10.3
- ------------
Employment Agreement with John Robb.............................. II-1
EXHIBIT 10.4
- ------------
Employment Agreement with Dr. Mark Turner........................ II-1
EXHIBIT 10.5
- ------------
Employment Agreement with Scott von Kleeck....................... II-1
EXHIBIT 11
- ----------
Earnings per share computation................................... 22
EXHIBIT 27
- ----------
Financial Data Schedule.......................................... 23
</TABLE>
<PAGE>
August 4, 1998
Exhibit 10.1
Mr. Julio Gomez
51 Seven Star Lane
Concord, MA 01742
Dear Mr. Gomez:
This letter agreement ("Agreement") sets forth the terms of your agreement
with The Ashton Technology Group ("Ashton") regarding your employment with Gomez
Advisors, Inc. ("Gomez Advisors" or the "Company"), a newly formed and wholly
owned subsidiary of Ashton.
1. Position/Responsibilities. You will be employed as President and Chief
-------------------------
Executive Officer ("CEO") of the Company. Your responsibilities are set forth
on Exhibit A attached hereto.
2. Gomez Advisors. Gomez Advisors will be engaged in the provision of
--------------
strategic advice to financial services companies concerning the business
potential of the Internet as a tool for use in marketing and the interactive
distribution of financial products. Gomez Advisors will provide a range of
services including strategy development, marketing, product and interface
design, and implementation planning. You as President and CEO of the Company
will use your best efforts to cause the Company to fulfill the foregoing
objectives.
3. Term. The term of your employment hereunder (the "Term") commenced on
----
May 15, 1997 and shall continue until May 15, 2000 unless terminated earlier by
you or by the Company as provided below.
4. Base Salary and Benefits. From the date hereof through and including
------------------------
August 31, 1997, you shall be paid a salary of $10,000 per month. From September
1, 1997 through the end of the Term, you, in your own discretion using your
business judgment, will be entitled to increase your monthly salary to a maximum
of $15,000 per month. You will be entitled to the standard benefits as in effect
from time to time for Ashton executives commensurate with your position, a
current schedule of which benefits is attached hereto as Exhibit B. You will be
entitled to twenty days of vacation annually in addition to official Company
holidays.
5. Gomez Advisors Board of Directors. The board of directors of Gomez
---------------------------------
Advisors (the "GA Board") will consist of three members, which members initially
shall be you, K. Ivan F. Gothner ("Gothner") and Fredric Rittereiser
("Rittereiser"). Should Rittereiser cease to serve on the GA Board, Ashton shall
appoint a successor subject to your express consent. Your
<PAGE>
2
position on the Board shall cease automatically at such point you are no longer
an officer or employee of Gomez Advisors. Ashton shall appoint John M. Robb or
Alexander Stein to be your successor on the GA Board so long as such appointee
is still an officer or employee of Gomez Advisors. Ashton can remove you from
the GA Board only for cause.
6. Funding of Gomez Advisors Operations. Ashton will provide the funds
------------------------------------
necessary to finance the operations of Gomez Advisors in an aggregate amount up
to $1,500,000 (such amount, the "Commitment"). Ashton will provide the
Commitment (or any portion thereof) upon written request therefor by the GA
Board.
7. Sale of Gomez Advisors. In the event that the Company intends to
----------------------
sell all or substantially all of the business, assets, stock or other evidence
of beneficial ownership of Gomez Advisors (a "GA Sale"), the Company shall
provide you written notice (the "Offer Notice") of the material terms and
conditions (including the anticipated closing date) of the proposed GA Sale. You
shall have the right to be the purchaser in the proposed GA Sale to the same
extent and on the same terms and conditions as set forth in the Offer Notice by
providing the Company with written notice of your intent to do so within ten
days of your receipt of the Offer Notice. Your failure to timely respond shall
constitute an irrevocable waiver of your right to be the purchaser in the
proposed GA Sale. If you do choose to be the purchaser in the proposed GA Sale,
such GA Sale must be consummated by the later of (i) sixty (60) days from the
date of your notice to the Company of your intention to purchase and (ii) the
anticipated closing date of the proposed GA Sale described in the Offer Notice.
8. Change in Executive Management. If after May 15, 2000 there is a
------------------------------
change in the executive management of Ashton such that Rittereiser is no longer
chief executive of Ashton, you will retain the right to utilize the name "Gomez"
as a corporate name for business purposes. Until such time, you hereby
relinquish to the Company the right to utilize the name "Gomez Advisors" as a
corporate name for business purposes.
9. Expense Reimbursements. The Company will reimburse you for
----------------------
all reasonable business expenses you incur in fulfilling your responsibilities
hereunder upon submission of adequate documentation for such expenses and
subject to Ashton policies.
10. Termination/Severance Pay. Either you or Ashton shall
-------------------------
have the right to terminate your employment at any time with or without cause by
giving written notice to that effect. The termination of employment shall be
effective on the prospective date specified in such notice (the "Effective
Termination Date").
(i) If Ashton terminates your employment without cause or if you terminate
your employment for "good reason," subject to the last sentence of this
paragraph, Gomez Advisors will pay you as severance pay for a period beginning
on the Effective Termination Date and ending six months from such date (the
"Severance Period") your then current monthly salary (the "Salary"). The Salary
will be paid on Gomez Advisor's normal payroll cycle during the Severance
Period, provided, that if you become employed elsewhere during the Severance
Period the amounts otherwise payable to you under this Section 10(i) shall be
reduced by the total amount of any compensation you receive from such employment
during the Severance Period.
<PAGE>
3
For purposes of the severance pay offset provisions of this Section, the terms
"employed" and "employment" shall mean the providing of any services for
compensation whether as a full-time or part-time employee or as a consultant or
otherwise. In consideration of the severance pay herein provided you agree to
deliver to Gomez Advisors on or promptly following the Effective Termination
Date a Separation and Release in the form used by Gomez Advisors at that time,
subject to your agreement of the terms and conditions set forth therein,
provided, that in the event you do not deliver the Separation and Release in the
form then used by Gomez Advisors your right to receive the severance pay herein
provided shall terminate. For purposes of this Agreement, "good reason" shall
mean Ashton's failure to perform in a timely manner its material obligations
under this Agreement, and shall not mean your removal from your then current
position with Gomez Advisors with your express written consent or in connection
with any termination of your employment by Ashton or Gomez Advisors as the
result of your disability or "for cause."
(ii) Ashton shall have the right to terminate your employment for cause by
giving you written notice to that effect. The termination of employment shall be
effective on the date specified in such notice for that purpose. "Cause" means
(1) your failure to perform in a timely manner your material obligations under
this Agreement; (2) commission by you of a willful act of dishonesty in the
course of your duties with Gomez Advisors; (3) engagement by you in negligence
or conduct injurious to Ashton, Gomez Advisors or their affiliates; (4) your
failure to comply with a written instruction from the GA Board within your
mandate as set forth herein; (5) your conviction of a crime of moral turpitude
or of a felony; or (6) your chronic alcoholism or drug abuse. If you are
terminated for cause, Gomez Advisors will pay your unpaid Salary through the
effective date of the termination.
11. Death. If you die during your employment hereunder, this Agreement
-----
shall terminate upon the date of your death. Thereafter, Gomez Advisors shall
pay to the personal representative of your estate your unpaid Salary through the
date of death. Your estate shall also receive the benefit of any options and
warrants that are vested at the time of your death.
12. Options. You are hereby granted a five-year option to purchase
-------
150,000 shares of Common Stock of Ashton at an exercise price per share equal to
the closing market price of Common Stock of Ashton on September 2, 1997 (the
"Ashton Option"). The Ashton Option shall vest 33% on May 15, 1998, an
additional 33% on May 15, 1999 and the final 34% on May 15, 2000. In the event
of a change of ownership control in Ashton prior to May 15, 2000, all unvested
portions of the Ashton Option shall immediately and automatically vest. You are
also hereby granted a warrant to purchase 250,000 shares of Common Stock of
Universal Trading Technologies Corporation ("UTTC"), a subsidiary of Ashton, at
an exercise price of $1.00 per share (the "UTTC Warrant"). You may exercise the
UTTC Warrant at any time during the five-year period commencing on the earlier
of (a) September 30, 1999, (b) UTTC's first sale of Common Stock to the public
pursuant to a registration statement under the Securities Act of 1933, as
amended, which as been declared effective by the Securities and Exchange
Commission, other than a registration statement on Form S-8 or any similar form,
or (c) a sale of all or substantially all of the assets of UTTC.
<PAGE>
4
You are hereby granted "Founders" options to purchase 1,500,000 shares of
Common Stock of Gomez Advisors at an exercise price per share of $0.01/share.
The Founders options are fully vested, may be exercised at any time, and will
expire on December 31, 2004. You are also hereby eligible to receive "Incentive"
options to purchase up to an additional 1,000,000 shares of Common Stock of
Gomez Advisors at an exercise price per share of $1.00/share and expire on
December 31, 2004. The Incentive options shall be granted to you as follows: an
option to purchase 500,000 shares shall be granted immediately to you and an
option to purchase an additional 500,000 shares shall be granted to you on July
15, 1999; the date the registration statement for an initial public offering of
Gomez Advisors' Common Stock is declared effective; or a change of ownership
control of Gomez Advisors, whichever occurs first. Once granted by the Board,
Incentive options are fully vested, but may not be exercised by you until one
year from their grant, or a change in the ownership control of Gomez Advisors,
whichever occurs first.
13. Exclusivity. In return for the compensation payments set forth in
-----------
this agreement, you agree to devote substantially all of your professional time
and energies to Gomez Advisors.
14. Confidentiality. In the course of your performance of your duties at
---------------
Gomez Advisors, each of Ashton and Gomez Advisors will divulge to you certain of
its respective proprietary information, including, but not limited to,
information and data relating to or concerned with its business, finances and
other affairs. You agree that you will not divulge such proprietary information
to anyone at any time whether or not you are in the employ of Ashton and/or
Gomez Advisors, except as may otherwise be required in connection with the
business and affairs of Ashton or Gomez Advisors, as the case may be. You agree
to use your reasonable efforts to prevent such disclosure by others.
15. Assignment of Rights. You agree that any inventions, developments,
--------------------
discoveries, improvements, processes, methods, compositions, concepts, ideas or
inventions (whether or not patentable, or copyrightable or constituting trade
secrets or proprietary information) conceived, made, created, developed or
reduced to practice by you, alone or with others, during the Term and applicable
to the type of businesses engaged in by or any prospective activity of Ashton
and Gomez Advisors during such period (collectively, the "Intellectual
Property") shall be the sole and exclusive property of Gomez Advisors. By your
signature below you hereby assign all of your right, title and interest in the
Intellectual Property to Gomez Advisors and agree to execute and deliver all
documents requested by Gomez Advisors (including, without limitation,
applications for domestic or foreign patents, copyrights, or other proprietary
rights) to protect the respective rights of Gomez Advisors thereto. All
copyrightable works that you create during the Term shall be deemed "works made
for hire".
16. Non-competition. You further agree that during your employment with
---------------
Gomez Advisors and for nine months after the termination of such employment for
any reason, you will not at any time engage in or participate as an officer,
employee, director, agent, consultant, representative, stockholder, investor or
partner, or have any financial interest, in any business which "competes" with
Ashton or any of its subsidiaries (other than Gomez Advisors) or successors.
For the purposes hereof, a "competing" business shall mean any business which
directly or potentially competes with any of the businesses of Ashton as such
businesses shall
<PAGE>
5
exist during your employment with Gomez Advisors, for example, the development
and commercialization of networked transaction systems for participants in the
financial markets of the type engaged in or contemplated by Ashton or Gomez
Advisors at the time of termination of your employment. For the avoidance of
doubt, a "competing" business shall not mean any business which directly or
potentially competes with the business of Gomez Advisors, which is providing
strategic advice to financial services companies regarding the Internet or the
interactive distribution of financial products. Ownership by you of publicly
traded stock of any corporation conducting any "competing" business shall not be
deemed a violation of this Section 16 provided you do not own more than one
percent (1%) of the stock of any such corporation.
Additionally, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly:
(a) solicit or entice away from the Company or Ashton (i) the employment or
other services of any executive employee of Ashton or Gomez Advisors or (ii) the
business of either (A) any customer of Gomez Advisors to whom you rendered
services during the nine month period prior to your termination of employment (a
"Specific Customer"), or (B) any person or entity whose business you solicited
by multiple personal contacts during the nine month period prior to your
termination (a "Specific Contact"), or
(b) participate in any activity for any Specific Customer or Specific
Contact which is the same as or substantially similar to those activities which
you performed for such Specific Customer or proposed to perform for such
Specific Contact, unless to do so would not have a material adverse effect on
the business conducted between Gomez Advisors and such Specific Customer or
Specific Contact.
Further, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly, hire any executive
employee of Ashton or Gomez Advisors.
17. Arbitration. Disputes arising under or in any respect in connection
-----------
with this Agreement, including in respect of the execution, delivery or
performance hereof (but excluding disputes as to the compliance by the
arbitrators under the provisions of this Section applicable to them), shall be
arbitrated in New York City in accordance with the Commercial Arbitration Rules
of the American Arbitration Association by three arbitrators, one selected by
each party hereto and the third selected by the two so selected (or, in the
absence of agreement, the third arbitrator shall be selected by the President of
the Association of the Bar of The City of New York at the time sitting), and
with all decisions of the arbitrators requiring the affirmative vote of at least
two of the arbitrators. Any judgment on any award rendered by the arbitrators in
accordance with such rules may be entered in any court of competent
jurisdiction. The parties intend to confer on the arbitrators the authority to
resolve disputes between the parties in respect of this Agreement and agree that
no decision by the arbitrators shall have the effect of amending this Agreement
in any respect. The costs of any such arbitration, including expenses (and legal
fees) of the other party thereto, shall be borne by the party which is the
losing party in the arbitration or, if the arbitrators' decision is unclear in
that regard, as the arbitrators shall determine in accordance with the purpose
of this provision to achieve the rules that arbitrations be commenced hereunder
in circumstances of actual disputes and not frivolously or for
<PAGE>
6
harassment purposes. The parties hereto agree that any proceedings pursuant to
this Section 17 shall be kept strictly confidential and shall not be disclosed
to any third party except pursuant to court order.
18. Miscellaneous. Together with the attached exhibits, this letter
-------------
agreement constitutes the entire understanding of the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, written or oral, among the parties with respect to such subject
manner. This Agreement is governed by the substantive laws of the State of New
York. This Agreement may be amended only in writing signed by both parties
hereto. This Agreement shall inure to the benefit of Ashton and any successor of
Ashton by reorganization, merger, consolidation or liquidation, or any assignee
or transferee of all or substantially all of the business or assets of Ashton or
of any division or line of business of Ashton with which you are at any time
associated. No provision of this Agreement shall be for the benefit of or
enforceable by any third party. Nothing in this Agreement, expressed or implied,
is intended to or shall be construed to confer upon or to give any persons or
party other than the parties hereto any rights, remedies or claims under or by
reason of this Agreement.
Duplicate originals of this agreement are being provided to you. Please
sign below to evidence your agreement to the foregoing, and return one original
for our records.
Sincerely,
By:_____________________
Fredric W. Rittereiser
President and Chief Executive Officer
The Ashton Technology Group, Inc.
ACCEPTED AND AGREED
- -------------------------
Julio Gomez
- -------------------------
Date
<PAGE>
EXHIBIT A
RESPONSIBILITIES OF THE PRESIDENT AND CEO
-----------------------------------------
All of the following responsibilities are subject to the direction and approval
of Gomez Advisors' board of directors.
. Supervise Gomez Advisors employees, agents, representatives, etc., including,
subject to authority of Gomez Advisors' board of directors, authority over
hiring and firing.
. Exercise authority over day-to-day operations of Gomez Advisors.
. Prepare business plans ("Business Plans") of Gomez Advisors, including
budgets and forecasts of revenue and income, and amendments thereto, which
Business Plan shall be submitted to the Gomez Advisors board of directors for
approval.
. Be responsible and accountable for the implementation and execution of the
Business Plans.
. Report to the Gomez Advisors and Ashton boards of directors on the business
and financial condition, and significant aspects of the business operations,
of Gomez Advisors.
Notwithstanding the foregoing, the President of Gomez Advisors shall not be
authorized or otherwise vested with the power to do or cause to be done any of
the following without the express written consent of a majority of the Gomez
Advisors board of director:
. change the line of business of Gomez Advisors
. create any subsidiaries of Gomez Advisors
. incur indebtedness of Gomez Advisors, including without limitation
obligations for money borrowed or evidenced by notes or other instruments,
obligations under leases required to be accounted for as capital leases under
generally accepted accounting principles, the amount available to be drawn
under letters of credit under which Gomez Advisors is the account party, and
guarantees of any of the foregoing.
. make loans to or guarantee the obligations of any third party.
. enter into or amend any contract, agreement, commitment, arrangement or
transaction (i) in which Gomez Advisors purports to bind any affiliate of
Gomez Advisors without the express written consent of the party to be bound
or (ii) not provided for in the business plan approved by the Gomez Advisors
board of directors.
<PAGE>
Exhibit 10.2
August 4, 1998
Dr. Alexander Stein
89 Robinson Road
Boxborough, MA 01719
Dear Dr. Stein:
This letter agreement ("Agreement") sets forth the terms of your employment
with Gomez Advisors, Inc. ("Gomez Advisors" or the "Company"), a newly formed
and wholly owned subsidiary of Ashton Technology Group, Inc. ("Ashton").
1. Position/Responsibilities. You will be employed as a Principal of the
-------------------------
Company. Your responsibilities will be as set forth by the President and CEO of
the Company.
2. Gomez Advisors. Gomez Advisors will be engaged in the provision of
--------------
strategic advice to financial services companies concerning the business
potential of the Internet as a tool for use in marketing and the interactive
distribution of financial products. Gomez Advisors will provide a range of
services including strategy development, marketing, product and interface
design, and implementation planning. You as a Principal of the Company will use
your best efforts to cause the Company to fulfill the foregoing objectives.
3. Term. The term of your employment hereunder (the "Term") commenced on
----
July 1, 1997 and shall continue until July 1, 2000 unless terminated earlier by
you or by the Company as provided below.
4. Base Salary and Benefits. From the date hereof you shall be paid
------------------------
a salary of $10,000 per month. At any time during the term of this Agreement,
your salary may be increased to a maximum of $15,000 per month at the discretion
of Mr. Julio Gomez based upon his own business judgment. You will be entitled to
the standard benefits as in effect from time to time for Gomez Advisors
executives commensurate with your position, a current schedule of which benefits
is attached hereto as Exhibit A. You will be entitled to twenty days of vacation
annually in addition to official Company holidays.
5. Expense Reimbursements. The Company will reimburse you for all
----------------------
reasonable business expenses you incur in fulfilling your responsibilities
hereunder upon submission of adequate documentation for such expenses and
subject to Company policies.
6. Termination/Severance Pay. Either you or the Company shall have
-------------------------
the right to terminate your employment at any time with or without cause by
giving written notice to that
<PAGE>
2
effect. The termination of employment shall be effective on the prospective date
specified in such notice (the "Effective Termination Date").
(i) If the Company terminates your employment without cause or if you
terminate your employment for "good reason," subject to the last sentence of
this paragraph, the Company will pay you as severance pay for a period beginning
on the Effective Termination Date and ending six months from such date (the
"Severance Period") your then current monthly salary (the "Salary"). The Salary
will be paid on the Company's normal payroll cycle during the Severance Period,
provided, that if you become employed elsewhere during the Severance Period the
amounts otherwise payable to you under this Section 6 (i) shall be reduced by
the total amount of any compensation you receive from such employment during the
Severance Period. For purposes of the severance pay offset provisions of this
Section, the terms "employed" and "employment" shall mean the providing of any
services for compensation whether as a full-time or part-time employee or as a
consultant or otherwise. In consideration of the severance pay herein provided
you agree to deliver to the Company on or promptly following the Effective
Termination Date a Separation and Release in the form used by the Company at
that time, subject to your agreement of the terms and conditions set forth
therein, provided, that in the event you do not deliver the Separation and
Release in the form then used by the Company your right to receive the severance
pay herein provided shall terminate. For purposes of this Agreement, "good
reason" shall mean Gomez Advisors' failure to perform in a timely manner its
material obligations under the Agreement, and shall not mean your removal from
your then current position with Gomez Advisors with your express written consent
or in connection with any termination of your employment by Gomez Advisors as
the result of your disability or "for cause."
(ii) The Company shall have the right to terminate your employment for
cause by giving you written notice to that effect. The termination of employment
shall be effective on the date specified in such notice for that purpose.
"Cause" means (1) your failure to perform in a timely manner your material
obligations under this Agreement; (2) commission by you of a willful act of
dishonesty in the course of your duties with Gomez Advisors; (3) engagement by
you in negligence or conduct injurious to Gomez Advisors or its affiliates; (4)
your failure to comply with a written instruction from the Gomez Advisors Board
within your mandate as set forth herein; (5) your conviction of a crime of moral
turpitude or of a felony; or (6) your chronic alcoholism or drug abuse. If you
are terminated for cause, the Company will pay your unpaid Salary through the
effective date of the termination.
7. Death. If you die during your employment hereunder, this Agreement
-----
shall terminate upon the date of your death. Thereafter, the Company shall pay
to the personal representative of your estate your unpaid Salary through the
date of death. Your estate shall also receive the benefit of any options that
are vested at the time of your death.
8. Options. You are hereby granted a five-year option to purchase 75,000
-------
shares of Common Stock of Ashton at an exercise price per share equal to the
closing market price of Common Stock of Ashton on September 2, 1997 (the "Ashton
Option"). The Ashton Option shall vest 33% on May 15, 1998, an additional 33%
on May 15, 1999 and the final 34% on May 15, 2000. In the event of a change of
ownership control in Ashton prior to May 15, 2000, all
<PAGE>
3
unvested portions of the Ashton Option shall immediately and automatically vest.
You are also hereby granted a warrant to purchase 125,000 shares of Common Stock
of Universal Trading Technologies Corporation ("UTTC"), a subsidiary of Ashton,
at an exercise price of $1.00 per share (the "UTTC Warrant"). You may exercise
the UTTC Warrant at any time during the five-year period commencing on the
earlier of (a) September 30, 1999, (b) UTTC's first sale of Common Stock to the
public pursuant to a registration statement under the Securities Act of 1933, as
amended, which as been declared effective by the Securities and Exchange
Commission, other than a registration statement on Form S-8 or any similar form,
or (c) a sale of all or substantially all of the assets of UTTC.
You are hereby granted "Founders'" options to purchase 750,000 shares of
Common Stock of Gomez Advisors at an exercise price per share of $0.01/share.
The Founders options are fully vested, may be exercised at any time, and will
expire on December 31, 2004. You are also hereby eligible to receive "Incentive"
options to purchase up to an additional 500,000 shares of Common Stock of Gomez
Advisors at an exercise price per share of $1.00/share and expire on December
31, 2004. The Incentive options shall be granted to you as follows: an option to
purchase 250,000 shares shall be granted immediately to you, and an option to
purchase an additional 250,000 shares shall be granted to you on July 15, 1999;
the date the registration statement for an initial public offering of Gomez
Advisors' Common Stock is declared effective; or a change in ownership control
of Gomez Advisors, whichever occurs first. Once granted by the Board, Incentive
options are fully vested, but may not be exercised by you until one year from
their grant or a change in ownership control of Gomez Advisors, whichever occurs
first.
9. Exclusivity. In return for the compensation payments set forth in this
-----------
agreement, you agree to devote substantially all of your professional time and
energies to Gomez Advisors.
10. Confidentiality. In the course of your performance of your duties
---------------
at Gomez Advisors, each of Ashton and Gomez Advisors will divulge to you certain
of its respective proprietary information, including, but not limited to,
information and data relating to or concerned with its business, finances and
other affairs. You agree that you will not divulge such proprietary information
to anyone at any time whether or not you are in the employ of Ashton and/or
Gomez Advisors, except as may otherwise be required in connection with the
business and affairs of Ashton or Gomez Advisors, as the case may be. You agree
to use your reasonable efforts to prevent such disclosure by others.
11. Assignment of Rights. You agree that any inventions, developments,
--------------------
discoveries, improvements, processes, methods, compositions, concepts, ideas or
inventions (whether or not patentable, or copyrightable or constituting trade
secrets or proprietary information) conceived, made, created, developed or
reduced to practice by you, alone or with others, during the Term and applicable
to the type of businesses engaged in by or any prospective activity of Ashton
and Gomez Advisors during such period (collectively, the "Intellectual
Property") shall be the sole and exclusive property of Gomez Advisors. By your
signature below you hereby assign all of your right, title and interest in the
Intellectual Property to Gomez Advisors and agree to execute and deliver all
documents requested by Gomez Advisors (including, without limitation,
applications for domestic or foreign patents, copyrights, or other proprietary
rights) to protect the
<PAGE>
4
respective rights of Gomez Advisors thereto. All copyrightable works that you
create during the Term shall be deemed "works made for hire."
12. Non-competition. You further agree that during your employment
---------------
with Gomez Advisors and for nine months after the termination of such employment
for any reason, you will not at any time engage in or participate as an officer,
employee, director, agent, consultant, representative, stockholder, investor or
partner, or have any financial interest, in any business which "competes" with
Ashton or any of its subsidiaries (other than Gomez Advisors) or successors. For
the purposes hereof, a "competing" business shall mean any business which
directly or potentially competes with any of the businesses of Ashton as such
business shall exist during your employment with Gomez Advisors, for example,
the development and commercialization of networked transaction systems for
participants in the financial markets of the type engaged in or contemplated by
Ashton or Gomez Advisors at the time of termination of your employment. For the
avoidance of doubt, a "competing" business shall not mean any business which
directly or potentially competes with the business of Gomez Advisors, which is
providing strategic advice to financial services companies regarding the
Internet or the interactive distribution of financial products. Ownership by you
of publicly traded stock of any corporation conducting any "competing" business
shall not be deemed a violation of this Section 12 provided you do not own more
than one percent (1%) of the stock of any such corporation.
Additionally, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly:
(a) solicit or entice away from the Company or Ashton (i) the employment or
other services of any executive employee of Ashton or Gomez Advisors or (ii) the
business of either (A) any customer of Gomez Advisors to whom you rendered
services during the nine month period prior to your termination of employment (a
"Specific Customer"), or (B) any person or entity whose business you solicited
by multiple personal contacts during the nine month period prior to your
termination (a "Specific Contact"), or
(b) participate in any activity for any Specific Customer or Specific
Contact which is the same as or substantially similar to those activities which
you performed for such Specific Customer or proposed to perform for such
Specific Contact, unless to do so would not have a material adverse effect on
the business conducted between Gomez Advisors and such Specific Customer or
Specific Contact.
Further, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly, hire any executive
employee of Ashton or Gomez Advisors.
13. Arbitration. Disputes arising under or in any respect in connection
-----------
with this Agreement, including in respect of the execution, delivery or
performance hereof (but excluding disputes as to the compliance by the
arbitrators under the provisions of this Section applicable to them), shall be
arbitrated in New York City in accordance with the Commercial Arbitration Rules
of the American Arbitration Association by three arbitrators, one selected by
each party hereto and the third selected by the two so selected (or, in the
absence of agreement, the third arbitrator shall be selected by the President of
the Association of the Bar of The City of New
<PAGE>
5
York at the time sitting), and with all decisions of the arbitrators requiring
the affirmative vote of at least two of the arbitrators. Any judgment on any
award rendered by the arbitrators in accordance with such rules may be entered
in any court of competent jurisdiction. The parties intend to confer on the
arbitrators the authority to resolve disputes between the parties in respect of
this Agreement and agree that no decision by the arbitrators shall have the
effect of amending this Agreement in any respect. The costs of any such
arbitration, including expenses (and legal fees) of the other party thereto,
shall be borne by the party which is the losing party in the arbitration or, if
the arbitrators' decision is unclear in that regard, as the arbitrators shall
determine in accordance with the purpose of this provision to achieve the rules
that arbitrations be commenced hereunder in circumstances of actual disputes and
not frivolously or for harassment purposes. The parties hereto agree that any
proceedings pursuant to this Section 13 shall be kept strictly confidential and
shall not be disclosed to any third party except pursuant to court order.
14. Miscellaneous. Together with the attached exhibits, this letter
-------------
agreement constitutes the entire understanding of the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, written or oral, among the parties with respect to such subject
manner. This Agreement is governed by the substantive laws of the State of New
York. This Agreement may be amended only in writing signed by both parties
hereto. This Agreement shall inure to the benefit of Gomez Advisors and any
successor of Gomez Advisors by reorganization, merger, consolidation or
liquidation, or any assignee or transferee of all or substantially all of the
business or assets of Gomez Advisors or of any division or line of business of
Gomez Advisors with which you are at any time associated. No provision of this
Agreement shall be for the benefit of or enforceable by any third party. Nothing
in this Agreement, expressed or implied, is intended to or shall be construed to
confer upon or to give any persons or party other than the parties hereto any
rights, remedies or claims under or by reason of this Agreement.
Duplicate originals of this agreement are being provided to you. Please
sign below to evidence your agreement to the foregoing, and return one original
for our records.
Sincerely,
By:_________________ By:_____________________
Julio Gomez Fredric W. Rittereiser
President and Chief Executive Officer President and Chief Executive Officer
Gomez Advisors, Inc. Ashton Technology Group, Inc.
ACCEPTED AND AGREED
- -------------------------
Alexander Stein
- -------------------------
Date
<PAGE>
Exhibit 10.3
August 4, 1998
Mr. John M. Robb
26 Hosmer Street
Acton, MA 01720
Dear Mr. Robb:
This letter agreement ("Agreement") sets forth the terms of your employment
with Gomez Advisors, Inc. ("Gomez Advisors" or the "Company"), a newly formed
and wholly owned subsidiary of Ashton Technology Group, Inc. ("Ashton").
1. Position/Responsibilities. You will be employed as a Principal of the
-------------------------
Company. Your responsibilities will be as set forth by the President and CEO of
the Company.
2. Gomez Advisors. Gomez Advisors will be engaged in the provision of
--------------
strategic advice to financial services companies concerning the business
potential of the Internet as a tool for use in marketing and the interactive
distribution of financial products. Gomez Advisors will provide a range of
services including strategy development, marketing, product and interface
design, and implementation planning. You as a Principal of the Company will use
your best efforts to cause the Company to fulfill the foregoing objectives.
3. Term. The term of your employment hereunder (the "Term") commenced on
----
July 1, 1997 and shall continue until July 1, 2000 unless terminated earlier by
you or by the Company as provided below.
4. Base Salary and Benefits. From the date hereof you shall be paid a
------------------------
salary of $10,000 per month. At any time during the term of this Agreement, your
salary may be increased to a maximum of $15,000 per month at the discretion of
Mr. Julio Gomez based upon his own business judgment. You will be entitled to
the standard benefits as in effect from time to time for Ashton executives
commensurate with your position, a current schedule of which benefits is
attached hereto as Exhibit A. You will be entitled to twenty days of vacation
annually in addition to official Company holidays.
5. Expense Reimbursements. The Company will reimburse you for all
----------------------
reasonable business expenses you incur in fulfilling your responsibilities
hereunder upon submission of adequate documentation for such expenses and
subject to Company policies.
<PAGE>
2
6. Termination/Severance Pay. Either you or the Company shall have the
-------------------------
right to terminate your employment at any time with or without cause by giving
written notice to that effect. The termination of employment shall be effective
on the prospective date specified in such notice (the "Effective Termination
Date").
(i) If the Company terminates your employment without cause or if you
terminate your employment for "good reason," subject to the last sentence of
this paragraph, the Company will pay you as severance pay for a period beginning
on the Effective Termination Date and ending six months from such date (the
"Severance Period") your then current monthly salary (the "Salary"). The Salary
will be paid on the Company's normal payroll cycle during the Severance Period,
provided, that if you become employed elsewhere during the Severance Period the
amounts otherwise payable to you under this Section 11(i) shall be reduced by
the total amount of any compensation you receive from such employment during the
Severance Period. For purposes of the severance pay offset provisions of this
Section, the terms "employed" and "employment" shall mean the providing of any
services for compensation whether as a full-time or part-time employee or as a
consultant or otherwise. In consideration of the severance pay herein provided
you agree to deliver to the Company on or promptly following the Effective
Termination Date a Separation and Release in the form used by the Company at
that time, subject to your agreement of the terms and conditions set forth
therein, provided, that in the event you do not deliver the Separation and
Release in the form then used by the Company your right to receive the severance
pay herein provided shall terminate.
For purposes of this Agreement, "good reason" shall mean your removal from
your then current position with Gomez Advisors except (1) with your express
written consent or (2) in connection with any termination of your employment by
Gomez Advisors as the result of your disability or "for cause."
(ii) The Company shall have the right to terminate your employment for
cause by giving you written notice to that effect. The termination of employment
shall be effective on the date specified in such notice for that purpose.
"Cause" means (1) your failure to perform in a timely manner your material
obligations under this Agreement; (2) commission by you of a willful act of
dishonesty in the course of your duties with Gomez Advisors; (3) engagement by
you in negligence or conduct injurious to Gomez Advisors or their affiliates;
(4) your failure to comply with a written instruction from the Gomez Advisors
Board within your mandate as set forth herein; (5) your conviction of a crime of
moral turpitude or of a felony; or (6) your chronic alcoholism or drug abuse. If
you are terminated for cause, the Company will pay your unpaid Salary through
the effective date of the termination.
7. Death. If you die during your employment hereunder, this Agreement
-----
shall terminate upon the date of your death. Thereafter, the Company shall pay
to the personal representative of your estate your unpaid Salary through the
date of death.
8. Options. You are hereby granted a five-year option to purchase 75,000
-------
shares of Common Stock of Ashton at an exercise price per share equal to the
closing market price of Common Stock of Ashton on September 2, 1997 (the "Ashton
Option"). The Ashton Option shall vest 33% on May 15, 1998, an additional 33% on
May 15, 1999 and the final 34% on May
<PAGE>
3
15, 2000. In the event of a change of ownership control in Ashton prior to May
15, 2000, all unvested portions of the Ashton Option shall immediately and
automatically vest. You are also hereby granted a warrant to purchase 125,000
shares of Common Stock of Universal Trading Technologies Corporation ("UTTC"), a
subsidiary of Ashton, at an exercise price of $1.00 per share (the "UTTC
Warrant"). You may exercise the UTTC Warrant at any time during the five-year
period commencing on the earlier of (a) September 30, 1999, (b) UTTC's first
sale of Common Stock to the public pursuant to a registration statement under
the Securities Act of 1933, as amended, which as been declared effective by the
Securities and Exchange Commission, other than a registration statement on Form
S-8 or any similar form, or (c) a sale of all or substantially all of the assets
of UTTC.
You are hereby granted "Founders'" options to purchase 750,000 shares of
Common Stock of Gomez Advisors at an exercise price per share of $0.01/share.
The Founders options are fully vested, may be exercised at any time, and will
expire on December 31, 2004. You are also hereby eligible to receive
"Incentive" options to purchase up to an additional 500,000 shares of Common
Stock of Gomez Advisors at an exercise price per share of $1.00/share and expire
on December 31, 2004. The Incentive options shall be granted to you as follows:
an option to purchase 250,000 shares shall be granted immediately to you, and an
option to purchase an additional 250,000 shares shall be granted to you on July
15, 1999; the date the registration statement for an initial public offering of
Gomez Advisors' Common Stock is declared effective; or a change in ownership
control of Gomez Advisors, whichever occurs first. Once granted by the Board,
Incentive options are fully vested, but may not be exercised by you until one
year from their grant or a change in ownership control of Gomez Advisors,
whichever occurs first.
9. Exclusivity. In return for the compensation payments set forth in
-----------
this agreement, you agree to devote substantially all of your professional time
and energies to Gomez Advisors.
10. Confidentiality. In the course of your performance of your duties at
---------------
Ashton and Gomez Advisors, each of Ashton and Gomez Advisors will divulge to you
certain of its respective proprietary information, including, but not limited
to, information and data relating to or concerned with its business, finances
and other affairs. You agree that you will not divulge such proprietary
information to anyone at any time whether or not you are in the employ of Ashton
and/or Gomez Advisors, except as may otherwise be required in connection with
the business and affairs of Ashton or Gomez Advisors, as the case may be. You
agree to use your reasonable efforts to prevent such disclosure by others.
11. Assignment of Rights. You agree that any inventions, developments,
--------------------
discoveries, improvements, processes, methods, compositions, concepts, ideas or
inventions (whether or not patentable, or copyrightable or constituting trade
secrets or proprietary information) conceived, made, created, developed or
reduced to practice by you, alone or with others, during the Term and applicable
to the type of businesses engaged in by or any prospective activity of Ashton
and Gomez Advisors during such period (collectively, the "Intellectual
Property") shall be the sole and exclusive property of Gomez Advisors. By your
signature below you hereby assign all of your right, title and interest in the
Intellectual Property to Gomez Advisors and agree to execute and deliver all
documents requested Gomez Advisors (including, without limitation, applications
for domestic or foreign patents, copyrights, or other proprietary rights) to
protect the respective
<PAGE>
4
rights of Gomez Advisors thereto. All copyrightable works that you create during
the Term shall be deemed "works made for hire".
12. Non-competition. You further agree that during your employment with
---------------
Gomez Advisors and for nine months after the termination of such employment for
any reason, you will not at any time engage in or participate as an officer,
employee, director, agent, consultant, representative, stockholder, investor or
partner, or have any financial interest, in any business which "competes" with
Ashton or any of its subsidiaries (other than Gomez Advisors) or successors. For
the purposes hereof, a "competing" business shall mean any business which
directly or potentially competes with any of the businesses of Ashton as such
business shall exist during your employment with Gomez Advisors, for example,
the development and commercialization of networked transaction systems for
participants in the financial markets of the type engaged in or contemplated by
Ashton or Gomez Advisors at the time of termination of your employment. For the
avoidance of doubt, a "competing" business shall not mean any business which
directly or potentially competes with the business of Gomez Advisors, which is
providing strategic advice to financial services companies regarding the
Internet or the interactive distribution of financial products. Ownership by you
of publicly traded stock of any corporation conducting any "competing" business
shall not be deemed a violation of this Section 12 provided you do not own more
than one percent (1%) of the stock of any such corporation.
Additionally, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly:
(a) solicit or entice away from the Company or Ashton (i) the employment or
other services of any executive employee of Ashton or Gomez Advisors or (ii) the
business of either (A) any customer of Gomez Advisors to whom you rendered
services during the nine month period prior to your termination of employment (a
"Specific Customer"), or (B) any person or entity whose business you solicited
by multiple personal contacts during the nine-month period prior to your
termination (a "Specific Contact"), or
(b) participate in any activity for any Specific Customer or Specific
Contact which is the same as or substantially similar to those activities which
you performed for such Specific Customer or proposed to perform for such
Specific Contact, unless to do so would not have a material adverse effect on
the business conducted between Gomez Advisors and such Specific Customer or
Specific Contact.
Further, for a period of nine months after the termination of your
employment hereunder you will not, directly or indirectly, hire any executive
employee of Ashton or Gomez Advisors.
13. Arbitration. Disputes arising under or in any respect in connection
-----------
with this Agreement, including in respect of the execution, delivery or
performance hereof (but excluding disputes as to the compliance by the
arbitrators under the provisions of this Section applicable to them), shall be
arbitrated in New York City in accordance with the Commercial Arbitration Rules
of the American Arbitration Association by three arbitrators, one selected by
each party hereto and the third selected by the two so selected (or, in the
absence of agreement, the third arbitrator shall be selected by the President of
the Association of the Bar of The City of New
<PAGE>
5
York at the time sitting), and with all decisions of the arbitrators requiring
the affirmative vote of at least two of the arbitrators. Any judgment on any
award rendered by the arbitrators in accordance with such rules may be entered
in any court of competent jurisdiction. The parties intend to confer on the
arbitrators the authority to resolve disputes between the parties in respect of
this Agreement and agree that no decision by the arbitrators shall have the
effect of amending this Agreement in any respect. The costs of any such
arbitration, including expenses (and legal fees) of the other party thereto,
shall be borne by the party which is the losing party in the arbitration or, if
the arbitrators' decision is unclear in that regard, as the arbitrators shall
determine in accordance with the purpose of this provision to achieve the rules
that arbitrations be commenced hereunder in circumstances of actual disputes and
not frivolously or for harassment purposes. The parties hereto agree that any
proceedings pursuant to this Section 13 shall be kept strictly confidential and
shall not be disclosed to any third party except pursuant to court order.
14. Miscellaneous. Together with the attached exhibits, this letter
-------------
agreement constitutes the entire understanding of the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, written or oral, among the parties with respect to such subject
manner. This Agreement is governed by the substantive laws of the State of New
York. This Agreement may be amended only in writing signed by both parties
hereto. This Agreement shall inure to the benefit of Gomez Advisors and any
successor of Gomez Advisors by reorganization, merger, consolidation or
liquidation, or any assignee or transferee of all or substantially all of the
business or assets of Gomez Advisors or of any division or line of business of
Gomez Advisors with which you are at any time associated. No provision of this
Agreement shall be for the benefit of or enforceable by any third party. Nothing
in this Agreement, expressed or implied, is intended to or shall be construed to
confer upon or to give any persons or party other than the parties hereto any
rights, remedies or claims under or by reason of this Agreement.
Duplicate originals of this agreement are being provided to you. Please
sign below to evidence your agreement to the foregoing, and return one original
for our records.
Sincerely,
By:_________________ By:_____________________
Julio Gomez Fredric W. Rittereiser
President and Chief Executive Officer President and Chief Executive Officer
Gomez Advisors, Inc. The Ashton Technology Group, Inc.
ACCEPTED AND AGREED
- -------------------------
John M. Robb
- -------------------------
Date
<PAGE>
Exhibit 10.4
MEMORANDUM OF UNDERSTANDING
BETWEEN
THE ASHTON TECHNOLOGY GROUP, INC.
AND
MARK TURNER
1. The Ashton Technology Group, Inc, ("ATG(TM)") wishes to engage Dr. Mark
Turner ("Turner") as Vice President of Advanced Analytics.
2. In consideration for his services to ATG(TM), Turner will be paid a cash
salary of $110,000 per annum.
In further consideration of his services to ATG(TM), Turner will be granted: (i)
a 5 year option to purchase 100,000 shares of ATG(TM) common stock at the last
sale price of the common stock on July 27, 1998, and (ii) a 5 year option to
purchase 100,000 shares of common stock in ATG(TM)'s subsidiary, Universal
Trading Technologies Corporation ("UTTC"), at a price of $1.00 per share.
The option package described above will vest so that Turner receives 20% of the
referenced options upon completion of his first year of employment with ATG,
another 20% of the granted total upon completion of his second year, and the
remaining 60% upon the completion of his third year of employment.
It is understood that the shares underlying these options will not initially be
registered, however, ATG(TM) agrees that in the case of the shares underlying
the ATG(TM) option, ATG(TM) 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.
3. Turner's employment with ATG(TM) will commence on July 27, 1998, but Turner
is not expected to be present in ATG(TM)'s offices until August 3, 1998.
4. Turner will be eligible to participate in ATG(TM)'s fully paid health
insurance plan and in ATG(TM)'s non-contributory 401(k).
<PAGE>
Exhibit 10.5
23 September 1998
Mr. Scott A. von Kleeck
385 Jenissa Drive
West Chester, PA. 19382
Dear Scott:
The technical/management staff and I enjoyed meeting with you over the last
several weeks and we believe that you can be a valued member of our Systems and
Advanced Technologies Group. Ashton Technology Group (ATG(TM)) is pleased to
extend to you an employment offer as a Vice President of Advanced Systems
reporting directly to me at our Philadelphia, PA office. You shall be initially
responsible for leading the development of our electronic Market Center
(eMC(TM)); however, you shall also be required to support all of ATG's on-going
and future system development projects, including but not limited to: VTS(TM),
eOX(TM), eAS(TM), and ePLOB(TM). The position shall involve coordination and/or
leadership roles with customers, business/technical partners, investors,
management, technical peers and subordinates, subcontractors/consultants, and
ATG's family of subsidiaries. There may be some travel associated with the
aforementioned coordination roles.
Your starting salary will be $150,000 annually. Your start date will be
determined after you resign from your current position; however it shall be
within 4 weeks of the date of this employment offer. Your report date to the
Philadelphia office shall be one week after your start date. You will be paid
bi-weekly. A sign-on bonus of $10,000 will be sent directly to you after ATG
receives an original copy of your signed approval of this employment offer. A
full refund of this bonus is required if you voluntarily resign within six
months of your start date and a 50% refund is required if you voluntarily resign
between six months and 1 year of your start date.
In further consideration of your services to ATG(TM), you will be granted:
(i) a 5 year option to purchase 100,000 shares of ATG(TM) common stock at the
last sale price of the common stock on your official start date, (ii) a 5 year
option to purchase 100,000 shares of common stock in ATG(TM)'s subsidiary,
Universal Trading Technologies Corporation ("UTTC(TM)"), at a price of $1.00 per
share, and (iii) a 5 year option to purchase 100,000 shares of common stock in
ATG(TM)'s subsidiary, electronic market Center Corporation, Inc. at a price to
be determined. This price will be the same as that offered to the rest of the
ATG management team.
The option package described above will vest so that you receive: (i) 20%
of the referenced options upon completion of your first year of employment with
ATG, (ii)
(1 of 3)
<PAGE>
another 20% of the granted total upon completion of your second year, and (iii)
the remaining 60% upon the completion of your third year of employment. All of
the options subject to vesting contain language that states that in the event
the company be sold or taken over, all options would become fully vested (100%)
at that time.
(2 of 3)
<PAGE>
It is understood that the shares underlying these options will not
initially be registered, however, ATG(TM) agrees that in the case of the shares
underlying the ATG(TM) option, ATG(TM) 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.
This offer is contingent upon your signing of the standard ATG employment
terms & conditions agreement.
In addition to a base salary, ATG offers all regular full-time employees
standard benefits of sick leave, holidays, and vacation. ATG offers a health
insurance package to its regular full-time employees (delivered) and a 401(k)
deferred savings plan (delivered). Unless you have any urgent questions, these
benefits will be explained to you in full detail upon your arrival.
Your principal place of employment under this letter agreement shall be at
ATG's offices located in Philadelphia, Pennsylvania. Upon acceptance of our
offer, please sign and return one of the two originals of this letter to ATG. If
you have any questions, please do not hesitate to contact me at work (215 988-
3400) or at home at (215-654-5222).
Sincerely,
Fred S. Weingard
Executive Vice President
Acknowledgment and agreement of offer:
- -----------------------------------
FULL NAME & DATE
(3 of 3)
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- -----------------------
SEPT. 30, 1998 SEPT. 30, 1997 SEPT. 30, 1998 SEPT. 30, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss................................... $ (7,229,723) $ (1,059,218) $ (9,042,909) $ (1,955,804)
Dividends paid on preferred stock.......... (362,699) --- (362,699) ---
Dividends in arrears on preferred stock.... (159,685) --- (213,960) ---
Recognition of beneficial conversion
feature of preferred stock................ (1,207,500) --- (5,083,484) ---
------------------------------------------------------------------------------
Net loss available to common stockholders.. $ (8,959,607) $ (1,059,218) $ (14,703,052) $ (1,955,804)
==============================================================================
Weighted average common share outstanding.. 9,034,175 7,562,500 8,760,604 7,562,500
Dilutive effect of common equivalent
shares/(a)/.............................. --- --- --- ---
------------------------------------------------------------------------------
Weighted average common share outstanding.. 9,034,175 7,562,500 8,760,604 7,562,500
==============================================================================
Net loss per common share /(b)/............ $ (.99) $ (.14) $ (1.68) $ (.26)
- ------------------------------------------- ==============================================================================
</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>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> JUL-01-1998 APR-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,197,548 1,197,548
<SECURITIES> 0 0
<RECEIVABLES> 313,938 313,938
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,618,713 1,618,713
<PP&E> 1,719,093 1,719,093
<DEPRECIATION> (671,525) (671,525)
<TOTAL-ASSETS> 3,804,918 3,804,918
<CURRENT-LIABILITIES> 253,117 253,117
<BONDS> 0 0
0 0
12,843,638 12,843,638
<COMMON> 98,843 98,843
<OTHER-SE> (9,390,680) (9,390,680)
<TOTAL-LIABILITY-AND-EQUITY> 3,804,918 3,804,918
<SALES> 208,390 651,952
<TOTAL-REVENUES> 208,390 651,952
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,478,086 9,770,302
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (7,229,723) (9,042,909)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,229,723) (9,042,909)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,229,723) (9,042,909)
<EPS-PRIMARY> (.99) (1.68)
<EPS-DILUTED> (.99) (1.68)
</TABLE>
