We will need additional financing "Risks Related to Our Company We have a limited operating history and a large accumulated deficit
We have never realized any operating profit and have generated a significant accumulated deficit as a result of our reported losses. We were founded in 1994 as a development stage company with no operating history. Other than revenues from a subsidiary which we sold in November 1997, our only source of meaningful revenue has been GA, which was formed on May 22, 1997. Due to a financial restructuring of GA in January 1999, and a private placement of GA's securities in April 1999, our equity interest in GA has decreased from 100% to approximately 50.4% assuming conversion of GA's preferred stock. Our revenue for the fiscal year ended March 31, 1999 was $1.4 million.
We will need additional financing
In connection with the private placement of our Series F Preferred and Stock Purchase Warrant completed in August 1999 with RGC International, we have obtained proceeds of $20 million, which should provide sufficient working
capital for the next four fiscal quarters.
Our current plans for full-scale development of NextExchange and eMC will require funding in excess of the $20 million obtained from the sale of the Series F Preferred and the Stock Purchase Warrant. Such additional financing
may not be available on attractive terms or at all. Such financing may take the form of redemption of our publicly traded warrants, spin-offs, joint ventures, equity offerings or other collaborative relationships, which may require us to share ownership and revenue. These financing strategies could impose operating restrictions on us or be dilutive to holders of our common stock. This projection is a forward-looking statement and our actual methods of financing would differ materially from those anticipated.
Future conversion of our preferred stock may result in dilution. We have two classes of preferred stock outstanding, Series B and Series F preferred Stock. The conversion of these classes of our preferred stock may result in substantial dilution to the percentage ownership of current stockholders. The conversion formula for the Series B Preferred Stock is fixed. The conversion formula for the Series F Preferred is not fixed, and will fluctuate with the market price of our common stock.
The shares of common stock underlying the Series B Preferred are not registered and may be sold only if registered under the Securities Act or sold in accordance with an exemption from registration, such as Rule 144. However,
holders of 67% of the Series B Preferred are entitled to demand registration of
the shares of
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common stock underlying their convertible preferred shares on one occasion after
February 18, 1998. To date, such holders have not demanded registration of the
common stock.
The Shares of common stock underlying the Series F Preferred, as well as the
shares of common stock underlying the Stock Purchase Warrant, are being
registered by means of this registration statement.
We do not expect to pay common stock dividends
We have not paid or declared any cash dividends upon our common stock since
our inception. We do not presently intend to pay cash dividends on our common
stock. Our Board of Directors has discretion to pay cash dividends on our
common stock and on our Series B Preferred Stock. While there are no
contractual limitations on our ability to pay cash dividends on our common
stock, based on our present financial status and contemplated future financial
requirements, we do not anticipate declaring any cash dividends on the common
stock. In determining whether to pay dividends, the Board of Directors
considers many factors, including our earnings, capital requirements and
financial condition. The effect of our election not to pay dividends will help
ensure that all of our resources will be reinvested in the Company. However,
you will not receive payment of any dividends in the foreseeable future and the
return on your investment may be lower than anticipated.
Risks Related to Our Management
We depend on key employees
Our future success depends upon the continued service of certain of our
executive officers and key technology personnel. If we lost the services of one
or more of our key employees it could have a material adverse effect on our
business. In particular, the services of Fredric W. Rittereiser, Fred
S.Weingard, Arthur J. Bacci, and William W. Uchimoto, would be difficult to
replace. Our subsidiary, GA, is dependent upon the services of Julio Gomez, Dr.
Alexander Stein and John Robb. We have entered into multi-year employment
agreements with Messrs. Weingard, Bacci, Gomez, Stein, Robb and certain other
officers. We have obtained "key-man" life insurance on each of these
individuals. We further believe our future success will depend upon our ability
to attract and retain additional highly skilled technical, managerial, sales and
marketing personnel. Competition for such personnel in the information
technology development industry is intense. If we are unable to attract and
retain such personnel, it could have a material adverse effect on our business,
operating results, and consolidated financial operations.
Our directors and officers may be able to exert control
Because our Certificate of Incorporation provides no cumulative voting rights,
our directors and officers, acting together, are in a position to exert
significant influence on the election of the members of the Board of Directors
of Ashton and each of its subsidiaries and on most corporate actions, as well as
any actions requiring the approval of stockholders, such as mergers and
acquisitions. Our directors and officers beneficially own approximately 3.5% of
the outstanding shares of our common stock. In addition, directors and officers
have been granted options to purchase our common stock, many of which vested on
July 15, 1999. Should all these options be exercised and converted into common
stock, the directors and officers would own 18.9% of the outstanding shares of
common stock.
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Risks Related to Our Products
Government regulation impacts many of our business strategies
UTTC, REB, Croix and NextExchange are subject to various regulations of the
SEC, certain states, the PHLX, and other self-regulatory organizations such as
the NASD, which are charged with protecting the interests of the investing
public and the integrity of the securities markets. The regulatory areas
governed by each of these regulatory bodies are subject to change and the timing
of any changes could impact our ability to launch new products.
Any failure to comply with the rules or regulations established by the SEC,
NASD, PHLX, self-regulatory entities or the states may also subject us to
suspension or penalties that could have a material adverse effect on our
business, operating results, and consolidated financial operations.
Our revenues will be subject to trading volume and could fluctuate
significantly
Our future revenues from UTTC will depend on the volume of securities traded
on our systems. Variations in transaction volume could result in significant
volatility in operating results. National and international economic and
political conditions and broad trends may affect securities trading volumes.
Acceptance of our products by financial market participants is necessary to
generate sufficient trading volumes. Any one or all of these factors could
result in lower share volumes offered through VTS and could adversely impact our
results of operations once VTS becomes fully operational.
We will be dependent on the continued growth of the market for VTS
The success of VTS is heavily dependent upon the acceptance of the product by
institutional investors. Failure to obtain such acceptance could result in
lower volumes and a lack of liquidity on VTS. Market and customer acceptance of
VTS will depend upon, among other things, VTS's operational performance. In
addition, VTS's institutional customers may discontinue use of VTS at any time.
While we continue to solicit customers to use VTS, there can be no assurance
that we will attract a sufficient number of customers to VTS.
We may be exposed to risks of software "bugs," errors and malfunctions
Complex software such as ours often contains undetected errors, defects or
imperfections (often referred to as "bugs"). Despite rigorous testing, the
software used in our products could still be subject to various risks associated
with systems errors, malfunctions and employee errors. These bugs could result
in service interruptions. In addition, because our products often work with
software developed by others, including customers, bugs in others' software
could damage the marketability and reputation of our products. Given the
competitive environment for electronic equity trading execution, investors could
elect to use our competitors' products on a temporary or permanent basis to
complete their trades. Prolonged service interruptions resulting from natural
disasters could also result in decreased trading volumes and the loss of
customers.
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We may be exposed to year 2000 risks
Computer systems and/or software products used by many companies may need to
be upgraded to comply with the problems associated with the year 2000. Many
currently installed computer systems and software products are designed to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates.
We believe none of the applications we have developed or the critical internal
systems and equipment used by us present Y2K issues. However, our systems
interact electronically and operationally with software, hardware and equipment
outside of our control. We also depend on third parties for services such as
telecommunications. We are currently evaluating the public disclosures made by
our key vendors. However, we are not independently verifying the Y2K compliance
of these vendors. If a substantial number of our vendors are not Y2K compliant,
this could adversely affect our business and results of operations. Y2K
compliance issues could also cause a significant number of companies, including
our potential customers, to experience problems that impact us.
We cannot assure you that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If it should come to our attention
that certain of our services or systems need modification, or certain of our
third-party hardware and software is not year 2000 compliant, then we will seek
modifications to our services, systems and hardware and software on a timely
basis. This year 2000 risk disclosure is a forward looking statement. There can
be no assurance that we will be able to modify our services, systems, hardware
and software on a timely basis, if at all.
We may be exposed to risks of intellectual property infringement
We regard our products and the research and development that went into
developing them as our property. Unauthorized third parties could copy or
reverse engineer certain portions of our products or obtain or use information
that we regard as proprietary. Nondisclosure and other contractual arrangements
used to protect our proprietary rights could be breached and we may not have
adequate remedies for any breach. We cannot be sure the actions we have
undertaken or are contemplating will be adequate to deter misappropriation of
proprietary information or enable us to detect unauthorized use of proprietary
information. If faced with these situations we may not be able to afford the
high cost required to enforce intellectual property rights or we may not have
adequate remedies for any breach.
In addition, our trade secrets could become known to or be independently
developed by our competitors. While our competitive position may be adversely
affected by the unauthorized use of our proprietary information, we believe the
ability to protect fully our intellectual property is less significant to our
success than other factors, such as the knowledge, ability and experience of our
employees and our ongoing product development and customer support activities.
We rely primarily on a combination of trademark and trade secret protection,
employee and third party confidentiality and non-disclosure agreements, license
agreements, and other intellectual property protection methods to protect these
property rights. However, we do not currently hold any material patents in nor
have we filed for copyright pr |
