8K is out, summary here
edgar-online.com
We believe that without generating any revenues from our operations, the $10,000,000 gross proceeds we received upon closing of the transactions contemplated by the Purchase Agreement with Innovations is sufficient to fund our operations for the next 12 months. There can be no assurance, however, that we will not need additional financing within the next twelve months and we will not be able
to operate longer than twelve months without increased operating revenues and/or additional financing.
YOU WILL SUFFER DILUTION IN THE FUTURE UPON ISSUANCE OF OUR COMMON STOCK
In connection with our closing under the Purchase Agreement, we issued to Innovations a senior secured convertible note in the principal amount of $2,727,273. The principal amount of the senior secured note will be convertible into 52,870,757 shares of Ashton common stock.
We also have recently granted HK Weaver Group Limited an option to purchase up to 2 million shares of our common stock, and warrants to purchase 9 million shares of our common stock to RGC International Investors, LDC. The future public sale of our common stock by Innovations and other
stockholders that may control large blocks of our common stock, and the conversion of our derivative securities and public sale of the common stock underlying these derivative securities, could dilute our common stock and depress its market value. These factors could also make it more difficult for us to raise funds through future offerings of common stock.
THE RISK OF DILUTION MAY CAUSE THIRD PARTIES TO ENGAGE IN SHORT SALES OF OUR COMMON STOCK
By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock. The perceived risk of dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the stock price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage third parties to engage in short sales of our common stock. These factors could also make it more difficult for us to raise funds at an acceptable or stable stock price through future offerings of common stock.
WE MAY BE SUBJECT TO CLAIMS THAT COULD SERIOUSLY HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION
We may be subject to claims as a result of one or more of the matters described below. Any of these matters could give rise to claims or litigation that could subject us to liability for damages. We have limited liquidity and financial resources to satisfy any such claims. Moreover, any lawsuits, regardless of their merits, could be time-consuming, require us to incur significant legal expenses and divert management time and attention.
o Following the sale of shares of our common stock by certain selling stockholders pursuant to an effective registration statement, we became aware that the financial statements included in the registration statement did not satisfy the requirements of Regulation S-X. Because the registration statement incorporated by reference our Annual Report on Form 10-K for the year ended March 31, 2000, rather than for the year ended March 31, 2001, as it should have, the registration statement did not meet the applicable form requirements of a registration statement on Form S-2. Thus, claims may be made that the prospectus did not meet the requirements of, and that the sale of the shares was not properly registered pursuant to, the Securities Act of 1933. If such claims are upheld, then the sale of the shares of common stock by these selling stockholders may have constituted a violation of the Securities Act of 1933. In this case, the purchasers of the common stock from the selling stockholders could have the right, for a period of one year from the dates of their respective purchases, to recover (i) the purchase price paid for their shares, plus interest, upon tender of their shares to us or (ii) their losses measured by the difference (plus interest) between their respective purchase prices and either the value of their shares at the time they sue us or, if they have sold their shares at a loss, the sale
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price of their shares. Alternatively, the purchasers of the common stock could have a right to seek redress from the selling stockholders, in which case we may have third party liability to the selling stockholders. We believe that these refunds or damages could total up to approximately $2.1 million, plus interest, in the event the purchasers of the shares suffer a total loss of their investment during this period and seek refunds or damages.
o On April 26, 2002, we received a draft complaint from counsel to two shareholders of Universal Trading Technologies Corporation, or UTTC, one of our subsidiaries, that named as defendants Ashton, UTTC, Innovations and specified present and former directors of UTTC. The draft complaint purports to assert claims arising, among other things, from purported pledges by Ashton of UTTC's intellectual property and the creation of joint ventures that are claimed to have used UTTC's intellectual property, allegedly without compensation to UTTC or its shareholders. Among other claims, the draft complaint also purports to state claims for breach of fiduciary duty arising out of offers, which were not accepted, to acquire the shares of UTTC from these shareholders at a price that was allegedly too low. To our knowledge, the draft complaint has not yet been filed.
o Our publicly traded Warrants expired on May 2, 2002. Under the Warrant Agreement dated as of May 7, 1996 between Ashton and North American Transfer Co., as Warrant Agent, Ashton was required to notify the Warrant Agent and the registered holders of the Warrants of specified adjustments to the exercise price of the Warrants and shares deliverable upon exercise of the Warrants. We failed to provide the Warrant Agent or the registered holders of the Warrants with required notices of adjustments to the exercise price that resulted from multiple issuances or deemed issuances of shares of common stock below the then current market price (as defined in the Warrant Agreement).
o On May 20, 2002, Finova filed a motion to add Ashton as a defendant in the case Finova Capital Corporation v. OptiMark Technologies, Inc., OptiMark, Inc and OptiMark Holdings, Inc., Docket No.: HUD-L-3884-01, Superior Court of New Jersey--Hudson County. Finova asserts claims arising out of an equipment lease agreement pursuant to which Finova alleges that OptiMark Technologies, Inc (now known as OptiMark US Equities, Inc.) agreed to lease certain equipment from Finova. Finova has made claims in unspecified amounts exceeding $6 million (plus interest, late charges, litigation costs and expenses) for, among other things, fraudulent conveyance of certain assets comprised, at least in part, of the intellectual property and non-cash assets acquired by Ashton from Innovations pursuant to the Purchase Agreement. We cannot predict whether Finova will be successful in its motion to add Ashton as a defendant, nor can we predict the outcome of the litigation at this time. Pursuant to an indemnification agreement OptiMark US Equities, Inc. will indemnify Ashton from any claims relating to the alleged fraudulent conveyance. If Ashton becomes a defendant in this litigation, is found liable for damages and OptiMark US Equities, Inc. is unable to fulfill its obligations under the indemnification agreement, then such litigation could have a material adverse impact on our financial condition and results of operations.
Our principal stockholder, OptiMark Innovations Inc., owns 608,707,567 shares of our common stock and has rights to acquire an additional 52,870,757 upon conversion of a note. Innovations' holdings represent approximately 80% of our outstanding capital stock and the right to acquire another 7% of our outstanding common stock pursuant to the convertible note. As a result of Innovations' ownership interest in Ashton, Innovations is able to elect all of our directors and otherwise control our operations.
WE WILL BE DEPENDENT ON NEW AND EXISTING TRANSACTION PRODUCTS TO GENERATE REVENUES
Our future revenues will depend primarily on the volume of securities traded on our systems and generated by our transaction-related products. The success of these systems and products is heavily dependent upon their acceptance by broker-dealers, institutional investors and other market participants. Failure to obtain such acceptance could result in lower volumes and a lack of liquidity in these systems and products. While we continue to solicit customers to use our systems and products, there can be no assurance that we will attract a sufficient number of such customers.
We may receive a substantial portion of our order flow through electronic communications gateways, including a variety of computer-to-computer interfaces and the Internet. Our electronic brokerage services involve alternative forms of order execution. Accordingly, substantial marketing, sales efforts and strategic relationships may be necessary to educate and acquire prospective customers regarding our electronic brokerage services and products. There can be no assurance that our marketing, sales efforts and strategic initiatives will be successful in educating and attracting new customers.
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. In addition, our trade secrets could become known to or be independently developed by our competitors. 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 have not received any patent awards, nor have we filed for federal copyright protection relating to current product lines.
Our products compete with other electronic trading systems, including Instinet Corporation's crossing network, Investment Technology Group Inc.'s POSIT system, Bloomberg, L.P.'s Bloomberg Professional and Bloomberg Tradebook, Liquidnet, and other companies that develop proprietary electronic trading systems. Our electronic trade execution services also compete with services offered by leading brokerage firms offering various forms of volume-weighted average price trade execution. We also compete with various national, regional and foreign securities exchanges for trade execution services.
Many of our competitors have substantially greater financial, research, development, sales, marketing and other resources than we do and many of their products have substantial operating histories. While we believe our products offer certain competitive advantages, our ability to maintain these advantages will require continued investment in the development of our products, and additional marketing and customer support activities. We may not have sufficient resources to continue to make this investment, while our competitors may continue to devote significantly more resources to competing services. Nor can we be sure our products will adequately address all the competitive criteria in a manner that results in a competitive advantage. |
