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 quarterly period ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to
Commission File Number : 0-26336
________________________New Paradigm Software Corp.___________________
(Exact name of Registrant as specified in its charter)
_______New York__________ ________________13-3725764
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
630 Third Avenue
____________________New York, New York 10017__________________________
(Address of principal executive offices)
(212) 557-0933
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
________Class_______ _Outstanding as of February 12, 1998
Common Stock, par value $.01 per share 2,451,729
Transitional Small Business Format (Check one): Yes___ No __X
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Financial statements are included herein following Part II, Item 6.
These statements are unaudited, but reflect all adjustments that, in
the opinion of management, are necessary to provide a fair statement
of the results for the periods covered. All such adjustments are of a
normal recurring nature except where stated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
New Paradigm Software Corp. (the "Company") is engaged in the
Internet business through its wholly owned subsidiary New Paradigm
Inter-Link, Inc. ("NPIL"). NPIL began operations in December 1995, and
provides Internet services to corporations and other organizations.
Clients include Novartis, the National Multiple Sclerosis Society and
the Association of the Bar of the City of New York. The Company
intends to further develop this business by launching new products and
services connected with the Internet. There is no assurance that the
Company will be able to develop or acquire such products and services
or that if it does they will be acceptable to the market. The
Internet is a relatively new and rapidly expanding market. The
Gartner Group (a leading industry analyst) estimates that by 2001, 60%
of the US workforce will have a justifiable business need for Internet
access. By the same date, they estimate that more than 8 million
households will access the Internet using ISDN lines (digital
telephone lines offered by principal telephone companies suitable for
accessing the Internet) and a further 3 million homes will access the
Internet using cable modems. World-wide Internet use is currently
estimated at 40 million users. With potential access to such numbers,
many corporations are seeking to ensure that they have a presence on
the Internet. Such a presence is established through a collection of
text, graphics and small programs known as a "Web site", maintained on
a computer known as a Web server, and viewed by users from all over
the world who are connected to the Internet through the use of a Web
browser, such as Netscape Navigator(R) or Microsoft Explorer(R). The
Company seeks to assist companies in creating an Internet presence and
to exploit other business opportunities which may arise in servicing
the Internet community.
NPIL provides organizations with the ability to utilize the Company's
expertise to create a Web site. This expertise includes assembling an
appropriate team of independent design consultants and, if necessary,
programmers; designing the site from both technical and aesthetic
perspectives, implementing the design, and then providing Web server
hosting services away from a customer's own internal network to ensure
security. NPIL specializes in providing custom facilities to enable
a customer's presence on the Internet to be constantly evolving and
interesting without adding to the customer's existing workload. For
example, the site for the Association of the Bar of the City of New
York is remotely updated by association staff. A small software
program ("applet") created by NPIL staff in Java - a common computer
programming language for the Internet - allows customers to utilize
information in the format in which it was created under existing word
processor programs such as Microsoft Word to automatically update
their Web site from their own offices. No translations or transitions
are required - the customer's staff member simply uses the common "cut
and paste" technique utilized within many programs to move the
required document into the NPIL applet. A typical site brings in
initial revenues of approximately $20,000 - $30,000 on completion with
continuing revenues for maintenance and changes throughout the year
which are expected to amount to $1,000- $3,000 per annum. The Company
has created 7 Web sites for customers of this service to date.
Examples of Web sites created by New Paradigm include:
o Novartis - site for its "Program" product: www.programpet.com
o Association of the Bar of the City of New York: www.abcny.org
o Nuway Corporation: Corporate Website, for moistmates product:
www.nuwaycorp.com
o Smolin Lupin, accountants: corporate Website:
www.cpasmolinlupin.com
o Novartis - site for its "Sentinel" product: www.petprotect.com
o New Paradigm: corporate Website: www.newparadigm.com
o Proballfan: NFL football site for atrticles written by fans:
www.proballfan.com
o National Multiple Sclerosis Society www.nmss.org
Until April 1, 1997, through its wholly owned subsidiary, New Paradigm
Commerce, Inc. ("NPC") (formerly New Paradigm Golden Link, Inc.), the
Company operated a service bureau business providing electronic data
interchange ("EDI") services (the conveying of business documents
electronically). As of April 1, 1997, the Company sold its EDI
business to Custom Information Systems Corp. of New York ("CIS") for
$6,000 and a note receivable monthly over three years with a face
value of $355,000 and a present value of approximately $300,000.
On July 23, 1997 the Company sold the rights to its COPERNICUS(R)
software product and certain related assets to VIE Systems Inc., a
Delaware corporation ("VIE") for $2,050,000 in cash and a 5% royalty
on future COPERNICUS related license fees payable commencing after the
first 12 months. Subject to VIE's approval, the Company will have the
right to enter into OEM agreements with VIE on commercially reasonable
terms, to incorporate COPERNICUS within future products which the
Company may develop or acquire.
The Company's revenues and profitability may vary significantly both
in the case of consecutive quarters and in the case of a quarter
compared to the corresponding quarter of the preceding year. Such
variations may result from, among other factors, timing of new product
and service introductions by the Company and its competitors, changes
in levels of the Company's operating expenditures, the size and timing
of customer orders, revenue received from the royalty from VIE, if
any, as well as consulting, increased competition, reduced prices, the
effect of currency exchange rate fluctuations, delays in the
development of new services or products, the costs associated with the
introduction of new products and services and the general state of
national and global economies. As a result of such factors, the
Company's revenues and profitability for any particular quarter are
not necessarily indicative of any future results. Fluctuations in
quarterly results may also result in volatility in the price of the
Company's securities.
The Company will need additional financing prior to May 1998 and
thereafter if demand for the Company's services is sufficiently great
to require expansion at a faster rate than anticipated or if the
extent of service and customer support that the Company is required to
provide are greater than expected or other opportunities such as
acquisitions arise which require significant investment, or if
revenues are significantly lower than expected. Additionally, the
Company may require significant additional financing to complete any
acquisition. If financing is required, such financing may be raised
through additional equity offerings, including offerings of preferred
stock, joint ventures or other collaborative relationships, borrowings
and other sources. There can be no assurance that additional financing
will be available or, if it is available, that it will be available on
acceptable terms. If adequate funds are not available to satisfy
either short or long-term capital requirements, the Company may be
required to limit its operations significantly and may be unable to
carry out its plan of operation.
The Company intends to seek to raise additional capital by the
issuance of its equity securities. However, there can be no assurances
that any such financing will be available or, if it is available, that
it will be available on acceptable terms. If additional funds are
raised through the issuance of equity securities, the percentage
ownership of the then current shareholders of the Company will be
reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Common Stock. Unless
the market price of the Company's Common Stock increases significantly
over its market price on February 12, 1998 additional issuances of
equity security could cause significant dilution to purchasers of
Common Stock in the Company's Initial Public Offering.
Comparison of fiscal quarters
1. Changes in Financial Condition
On October 15,1997, pursuant to Section 4(d) of the Restated
Certificate of Incorporation of the Company, the Company agreed to
create a Series D Convertible Preferred Stock, $0.01 par value (the
"Series D Preferred"). The Company further agreed to issue to several
of the employees of and a consultant to NPIL an aggregate of 50 shares
of Series D Redeemable Preferred stock, with the following principal
terms:
o The Series D Preferred has no right to vote on any matter
requiring the vote of the holders of the Common Stock. Holders of
Series D Preferred shall have the right to vote on any further
issue of Series D Preferred recommended by the Board of Directors
of the Company.
o The Series D Preferred is not entitled to any dividends or
other distributions on the Common Stock.
o Upon dissolution of the Company the holder of each share of
Series D Preferred is entitled to the same proportion of the
outstanding shares of Common Stock of NPIL as such shares of Series
D Preferred of the holder shall represent of the then total
outstanding shares of Series D Preferred.
o At any time following December 31, 1998 the holders of the
Series D Preferred may convert all of the Series D Preferred into
shares of the Company's Common Stock using the following formula
N=((V-$200,000)/(Dx2))/P where N is the number of shares of the
Company's Common Stock acquired by the holder, V is the value of
NPIL on the conversion date, D is the number of shares of Series D
Preferred issued and outstanding on the conversion date and P is
the value of the Common Stock of the Company, all as calculated
pursuant to the terms of the Amended Certificate of Incorporation.
500,000 shares of Common Stock of the Company have been reserved
for such a conversion.
o Should no conversion by the holders of the Series D Preferred
occur by December 31, 2000, the Company may redeem all of the
shares of the Series D Preferred for $1.00 per share.
o Upon termination of a holder's employment with the Company, the
Series D Preferred shall be converted pursuant to the above-stated
formula, except that in the event that the holder voluntarily
terminates employment or is terminated for cause, the Series D
Preferred shall be redeemable by the Company for $1.00 per share.
On October 15,1997 Mr. Mark Blundell was granted 450,000 options under
the Executive Stock Option Plan at an exercise price of $0.16 per
share (the market price on the date of issue), exercisable as follows:
150,000 immediately; 150,000 if the average closing stock price of the
Common Stock exceeds 50 cents for 20 consecutive business days, and
150,000 if the average closing stock price of the Common Stock exceeds
$1.00 for 20 consecutive business days.
On October 15, 1997, Mr. Matthew Fludgate, Secretary and Vice
President of the Company was granted 50,000 options under the
Executive Stock Option Plan at an exercise price of $0.16 per share
(the market price on the date of issue).
On October 15, 1997, Mr. Michael Taylor and Mr. Daniel Gordon,
external Directors of the Company, were each granted 50,000 options to
purchase shares of Common Stock at an exercise price of $0.16 per
share (the market price on the date of issue).
Following the sale of COPERNICUS to VIE Systems Inc., which
represented a transfer of substantially all the assets of the Company,
Mr. Blundell, the Company's President and Chief Executive Officer,
gave formal written notice of his intention to exercise the
termination rights under his employment contract. These termination
rights provided for the payment to Mr. Blundell of an amount not less
than $414,000. As the Company was not in a position to make such a
payment without seriously depleting the Company's limited cash
reserves, the compensation committee negotiated with Mr. Blundell to
produce the following settlement, which was entered into on November
13, 1997.
o Mr. Blundell waived his entitlement to any payment for termination
benefits arising out of the VIE transaction and entered into new
three year employment contracts with the Company and its Delaware
subsidiary, New Paradigm Acquisition I Co., Inc ("NPAC") which
provide the same aggregate base salary and a reduced termination
benefit of 24 months compensation in the event that his termination
right is triggered again. Mr. Blundell has waived $50,000 of base
salary for fiscal 1998 and until the Company reports a consolidated
pre-tax profit of not less than $75,000.
o In view of the fact the Company is contemplating a number of
acquisitions of companies with revenues in excess of $2.5 million,
the new contract provides that Mr. Blundell will not be entitled to
receive a bonus of $50,000 in the event that the Company's gross
revenues reach $2.5 million as provided in his previous contract.
o In addition the change of control clause, which gives Mr. Blundell
certain termination rights has been amended to apply only in the
event that 40% of the Company were to be acquired rather than 25%,
as provided under his previous contract.
o In order to retain Mr. Blundell's services in seeking acquisitions
NPAC entered into an employment agreement (as mentioned above) and a
loan agreement providing for a loan to Mr. Blundell of $114,000 at
an interest rate of 6%. The loan will be repaid by applying to its
outstanding balance, 60% of (i) any future termination payment to
Mr. Blundell; (ii) any bonus or incentive payments; and (iii) any
sales of Common Stock of New Paradigm directly or beneficially owned
by Mr. Blundell, including any Stock acquired through the exercise
of options.
The Company has an outstanding balance of $461,999 with its former
corporate counsel. The Company has questioned the amount of this
balance with such counsel. While no settlement has been reached, the
Company believes this liability will be settled for approximately
$100,000. While there can be no assurance of any settlement, the
Company has elected to reflect this amount in the its financial
statements.
2. Results of Operations
The Company's revenue from continuing operations increased 99% from
$28,382 for the quarter ended December 31, 1996 to $56,350 for the
quarter ended December 31, 1997 due to the timing of customer
requirements for the Company's services. The Company's revenue from
continuing operations increased 128% from $45,894 for the nine months
ending December 31, 1996 to $104,747 for the nine months ending
December 31, 1997 due to the increase in customers and activity of
NPIL.
The Company's operating expenses fell 32% from $368,106 to $249,727
for the quarter ended December 31, 1997 compared to the quarter ended
December 31, 1996 and 37% from $1,243,182 for the nine months ending
December 31, 1996 to $772,000 for the nine months ending December 31,
1997. The decrease was primarily due to a decrease in the number of
administrative staff needed to support the operations of the business
following the sale of the discontinued operations.
The components of the operating expenses are as follows:
General and administrative costs decreased 19% from $262,857 for the
quarter ending December 31, 1996 to $212,578 for the quarter ending
December 31, 1997 and 32% from $811,762 for the nine months ending
December 31, 1996 to $546,092 for the nine months ending December 31,
1997. This was primarily due to a decrease in support staff and a
corresponding decrease in related supplies and services used.
Professional fees decreased 93% from $31,669 for the quarter ending
December 31, 1996 to $2,216 for the quarter ending December 31, 1997.
The lower professional fees for the quarter ended December 31, 1997
were due to a credit realized by the Company upon settlement with the
attorneys it used for immigration matters and less expensive rates
paid to the Company's new corporate counsel. The Company's
professional fees decreased 50% from $140,570 for the nine months
ending December 31, 1996 to $69,962 for the nine months ending
December 31, 1997. The reduced professional fees for the nine months
ended December 31, 1997 were due to the lower level of activity
following the sale of the discontinued operations
Marketing costs decreased 86% from $10,237 for the quarter ended
December 31, 1996 to $1,404 for the quarter ended December 31, 1997
and 94% from $119,839 for the nine months ending December 31, 1996 to
$7,241 for the nine months ending December 31, 1997. The decreases
were due to the Company's decision to terminate its relationship with
its public relations firm and the reduced marketing activity following
the sale of the discontinued operations.
Occupancy costs fell 64% from $40,173 for the quarter ending December
31, 1996 to $14,494 for the quarter ending December 31, 1997. This is
due to the Company moving its New York offices on August 15, 1997 to a
smaller facility. The occupancy costs decreased 8% from $110,706 to
$101,010 for the nine months ending December 31, 1997 over the same
period in 1996. This was due to an increase in the Company's rent for
its New York offices for the first five months in the fiscal year.
The Company currently requires its overseas customers to pay in US
dollars and the vast majority of its expenses are in US dollars. The
Company does not presently engage in any hedging activities with
respect to foreign currency exchange rate risks.
This 10-QSB contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially
from those projected as a result of certain risks and uncertainties,
including but not limited to those described in the Company's Post-
Effective Amendment No. 2 on form S-3 to the Registration Statement on
Form SB-2 (registration no. 33-92988NY). Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company does not undertake any
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on December 31, 1997.
(c) The following items were voted upon at the Annual Meeting of
Shareholders and the votes cast were as follows:
1) Each of the following, representing all of the nominees of the
management of the Company, was elected a director of the Company
by the following vote:
<TABLE>
<S> <C> <C>
FOR WITHHOLD AUTHORITY
Daniel Gordon 1,436,399 92,576
Mark Blundell 1,436,399 92,576
Mort Chalek 1,436,399 92,576
Michael Taylor 1,436,399 92,576
</TABLE>
All of the nominated directors were therefore elected by the
Shareholders.
2) Proposal to adopt a, amendment to the By-Laws of the Company to
eliminate the applicability of New York Business Corporation Law
Section 912 an anti-takeover provision restricting the Company's
ability to engage in a business combination with an interested
shareholder of the Company, received the following vote:
FOR AGAINST ABSTAIN
194,400 77,496 17,403
The adoption of Item 2 required the affirmative vote of the
holders (excluding interested shareholders and their affiliates
and associates) of a majority of the outstanding voting stock
of the Company excluding the voting stock of interested shareholders
and their affiliates and associates. Accordingly, Item 2 had to be
approved by the affirmative vote of a majority of shares of
Common Stock excluding shares held by Robert S. Trump, Midland
Associates, Lancer Holdings, Mark Blundell and John Brann. The
preceeding conditions were not met and Item 2 was not adopted by
the Shareholders.
3. Ratification of the appointment of BDO Seidman, LLP as the
independent certified public accountants for the fiscal year
ending March 31, 1998 received the following vote:
FOR AGAINST ABSTAIN
1,481,129 31,846 16,000
The preceeding item was therefore adopted by the Shareholders.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this quarterly report on
Form 10-QSB:
Exhibit 11. Statement re: computation of per share earnings
(losses).
(b) The following reports have been filed on Form 8-K since November
14, 1997:
None.
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31 December 31
1997 1997
(unaudited)
Assets
Current:
Cash and cash equivalents $ 328,168 $ 342,363
Accounts receivable 50,612 55,326
Other receivables and prepayments 32,487 20,096
--------- -----------
Total current assets 411,267 417,785
Property and equipment, less
accumulated depreciation and
amortization 168,920 129,059
Investment in restricted common stock
at market value (Note 2) 14,759 -
Assets held for sale 691,491 0
Notes Receivable 0 371,293
Other assets, less accumulated
amortization 71,266 1,449
--------- -----------
Total Assets $ 1,357,703 $ 919,586
Liabilities and Shareholders' Equity
Current:
Accounts payable and accrued
expenses(Note 3) $ 806,690 $ 184,430
Loan payable 550,000 0
Deferred rent payable 71,127 0
--------- -----------
Total current liabilities 1,427,817 184,430
Redeemable Series C Preferred Stock
authorized and outstanding - 800,000
at redemption value 200,000 0
Shareholders' equity:
Common stock, $.01 par value - shares
authorized 50,000,000;
issued and outstanding 2,451,729
and 2,451,729 24,517 24,517
Preferred Stock, $.01 par value - shares
authorized 10,000,000;
Series D shares authorized, 100;
50 issued and outstanding (Note 4) - 3
Additional paid-in capital 9,150,209 9,150,209
Unrealized loss on investment in
restricted common stock (Note 2) (335,241) -
Capital Deficit (9,109,599) (8,439,573)
--------- -----------
Total shareholders' equity (270,114) 735,156
--------- -----------
Total Liabilities and Shareholders'
Equity $ 1,357,703 $ 919,586
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C> <C>
Three months Three months Nine months Nine months
ended ended ended ended
December December December December
31, 1996 31, 1997 31, 1996 31, 1997
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Consulting and web design 28,382 56,350 45,894 104,747
--------- ------- ------- -------
28,382 56,350 45,894 104,747
--------- ------- ------- -------
Expenses:
General and administrative 262,857 212,578 811,762 546,092
Professional fees 31,669 2,216 140,570 69,962
Marketing 10,237 1,404 119,839 7,241
Occupancy 40,173 14,494 110,706 101,010
Depreciation and
amortization 23,170 19,035 60,305 47,695
--------- ------- ------- -------
368,106 249,727 1,243,182 772,000
--------- ------- ------- -------
Loss from operations (339,724) (193,377) (1,197,287) (667,253)
Other income (expense):
Interest income 789 11,235 25,482 23,108
--------- ------- ------- -------
789 11,235 25,482 23,108
Net loss from continuing
operations (338,935) (182,142) (1,171,804) (644,145)
Net loss from discontinued
operations (208,547) (28,158) (1,064,781) (90,712)
Net loss from sale of
Camelot Stock (Note 2) - (341,574) - (341,574)
Gain from sale of
EDI division - - - 200,998
Gain from sale of COPERNICUS - - - 1,183,456
Gain from reduction of
liability (Note 3) - 361,999 - 361,999
--------- ------- ------- -------
Net income (loss) (547,482) (184,433) (2,236,585) 670,023
========= ======= ======= =======
Net loss per share from
continuing operations $ (.14) $ (.07) $ (.48) $ (.26)
Net loss per share from
discontinued operations (.09) (.01) (.43) (.04)
Net loss per share from
sale of Camelot Stock - (.15) - (.15)
Income per share from sale
of EDI division - - - .08
Income per share from sale of
COPERNICUS - - - .48
Income per share from reduction
of liability - .15 - .15
--------- ------- ------- -------
Net income (loss) per share (.22) (.08) (.91) .27
========= ======= ======= =======
Weighted average common
shares outstanding 2,451,729 2,451,729 2,451,729 2,451,729
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
<TABLE>
<S> <C> <C>
Nine months Nine months
ended ended
December December
31, 1996 31, 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ (2,236,586) $ 670,023
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization 172,306 86,514
Gain on sale of assets - (1,384,455)
Issuance of Common Stock for
services 50 5
Changes in assets and liabilities:
Decrease (Increase) in:
Accounts receivable (72,524) (4,714)
Other receivables and
prepayments (11,398) 12,391
Other assets - 69,817
Increase (decrease) in:
Accounts payable and accrued
expenses 451,731 (622,260)
Deferred revenue 51,125 -
Deferred rent - (71,127)
---------- -----------
Total adjustments 591,290 (1,913,829)
---------- -----------
Net cash used in operating
activities (1,645,296) (1,243,806)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (51,304) (12,280)
COPERNICUS development costs (238,413) -
Loss from Camelot Stock - 341,574
Patents, trademarks and organization
costs (54,799) -
---------- -----------
Net cash used in investing
activities: (344,516) 329,294
Cash flows from financing activities:
Notes Receivable - (371,293)
Redemption of Series C Preferred
Stock - (200,000)
Proceeds from disposal of assets - 2,050,000
Repayment of debt - (550,000)
---------- -----------
Net cash from financing activities - 928,707
---------- -----------
Net increase (decrease) in cash and
cash equivalents (1,989,812) 14,195
---------- -----------
Cash and cash equivalents,
beginning of period 2,017,472 328,168
---------- -----------
Cash and cash equivalents, end of
period $ 27,660 $ 342,363
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
Note 1 -
The accompanying financial statements should be read in conjunction
with the Company's financial statements for the fiscal year ended
March 31, 1997 and the quarters ended June 30, 1997 and September 30,
1997 together with the accompanying notes included in the Company's
10-KSB for the fiscal year ended March 31, 1997 and the Company's 10-
QSBs for the quarters ended June 30, 1997 and September 30, 1997. In
the opinion of management, the interim statements reflect all
adjustments which are necessary for a fair statement of the results of
the interim periods presented. The interim results are not necessarily
indicative of the results for the full year.
Note 2 -
As of April 1, 1997 the Company owned 67,470 shares of Camelot
Corporation's ("Camelot") restricted common stock acquired in
connection with its sale of the Netphone(R) software package, which were
originally valued at $350,000. On April 1, 1997, the market value of
the Camelot Stock had decreased to $14,759 resulting in an unrealized
loss of $335,241 which was reflected in shareholders' equity. In
November 1997 these shares were sold in a Rule 144 transaction for
$8,426. This transaction realized a loss of $341,574.
Note 3 -
The Company has an outstanding balance of $461,999 with its former
corporate counsel. The Company has questioned the amount of this
balance with such counsel and believes this liability will be settled
for an amount of approximately $100,000. While there can be no
assurance of any settlement, the Company has decided to reflect this
amount in the Company's financial statements..
Note 4 -
On October 15,1997, pursuant to Section 4(d) of the Restated
Certificate of Incorporation of the Company, the Company agreed to
create a Series D Convertible Preferred Stock, $0.01 par value (the
"Series D Preferred"). The Company further agreed to issue to several
of the employees of and a consultant to NPIL an aggregate of 50 shares
of Series D Redeemable Preferred stock, with the following principal
terms:
o The Series D Preferred has no right to vote on any matter
requiring the vote of the holders of the Common Stock. Holders of
Series D Preferred shall have the right to vote on any further
issue of Series D Preferred recommended by the Board of Directors
of the Company.
o The Series D Preferred is not entitled to any dividends or
other distribution on the Common Stock.
o Upon dissolution of the Company the holder of each share of
Series D Preferred is entitled to the same proportion of the
outstanding shares of Common Stock of NPIL as such shares of Series
D Preferred of the holder shall represent of the then total
outstanding shares of Series D Preferred.
o At any time following December 31, 1998 the holders of the
Series D Preferred may convert all of the Series D Preferred into
shares of the Company's Common Stock using the following formula
N=((V-$200,000)/(Dx2))/P where N is the number of shares of the
Company's Common Stock acquired by the holder, V is the value of
NPIL on the conversion date, D is the number of shares of Series D
Preferred issued and outstanding on the conversion date and P is
the value of the Common Stock of the Company, all as calculated
pursuant to the terms of the Amended Certificate of Incorporation.
500,000 shares of Common Stock of the Company have been reserved
for such a conversion.
o Should no conversion by the holders of the Series D Preferred
occur by December 31, 2000, the Company may redeem all of the
shares of the Series D Preferred for $1.00 per share.
o Upon termination of the holder's employment with the Company, the
Series D Preferred shall be converted pursuant to the above-stated
formula, except that in the event that the holder voluntarily
terminates employment or is terminated for cause, the Series D
Preferred shall be redeemable by the Company for $1.00 per share.
Note 5 -
On October 15,1997 Mr. Mark Blundell was granted 450,000 options under
the Executive Stock Option Plan at an exercise price of $0.16 per
share (the market price on the date of issue), exercisable as follows:
150,000 immediately; 150,000 if the average closing stock price of the
Common Stock exceeds 50 cents for 20 consecutive business days, and
150,000 if the average closing stock price of the Common Stock exceeds
$1.00 for 20 consecutive business days.
On October 15, 1997, Mr. Matthew Fludgate, Secretary and Vice
President of the Company was granted 50,000 options under the
Executive Stock Option Plan at an exercise price of $0.16 per share
(the market price on the date of issue).
On October 15, 1997, Mr. Michael Taylor and Mr. Daniel Gordon,
external Directors of the Company, were each granted 50,000 options to
purchase shares of Common Stock at an exercise price of $0.16 per
share (the market price on the date of issue).
Following the sale of Copernicus to VIE Systems Inc., which
represented a transfer of substantially all the assets of the Company,
Mr. Blundell, the Company's President and Chief Executive Officer,
gave formal written notice of his intention to exercise the
termination rights under his employment contract. These termination
rights provided for the payment to Mr. Blundell of an amount not less
than $414,000. As the Company is not in a position to make such a
payment without seriously depleting the Company's limited cash
reserves, the compensation committee negotiated with Mr. Blundell to
produce the following settlement, which was entered into on November
13, 1997.
o Mr. Blundell waived his entitlement to any payment for termination
benefits arising out of the VIE transaction and entered into new
three year employment contracts with the Company and its Delaware
subsidiary, New Paradigm Acquisition I Co., Inc ("NPAC") which
provide the same aggregate base salary which provide a reduced
termination benefit of 24 months compensation in the event that his
termination right is triggered again. Mr. Blundell has waived
$50,000 of base salary for fiscal 1998 and until the Company reports
a consolidated pre-tax profit of not less than $75,000.
o In view of the fact the Company is contemplating a number of
acquisitions of companies with revenues in excess of $2.5 million,
the new contract provides that Mr. Blundell will not be entitled to
receive a bonus of $50,000 in the event that the Company's gross
revenues reach $2.5 million as provided in his previous contract.
o In addition the change of control clause, which gives Mr. Blundell
certain termination rights has been amended to apply only in the
event that 40% of the Company were to be acquired rather than 25%, as
provided in his previous contract.
o In order to retain Mr. Blundell's services in seeking acquisitions,
NPAC entered into an employment agreement (as mentioned above) and a
loan agreement providing for a loan to Mr. Blundell of $114,000 at
an interest rate of 6%. The loan will be repaid by applying to its
outstanding balance 60% of (i) any future termination payment to Mr.
Blundell; (ii) any bonus or incentive payments; and (iii) any sales
of Common Stock of New Paradigm directly or beneficially owned by
Mr. Blundell, including any Stock acquired through the exercise of
options.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: February 17, 1998 /s/ Mark Blundell________________________
Mark Blundell
President & Chief Financial Officer
Date: February 17, 1998 /s/ Matthew Fludgate_____________________
Matthew Fludgate
Vice President and Secretary
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Weighted Average # of shares
Description
---------------------------------------------------------------------
10/1/97 (beginning of Quarter) 2,451,729
12/31/97 (end of Quarter) 2,451,729
----------
Weighted Average 2,451,729
__________
Net Profit 670,023
__________
Loss/share 0.27
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-30-1997
<CASH> 342,363
<SECURITIES> 0
<RECEIVABLES> 55,326
<ALLOWANCES> 0
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<CURRENT-ASSETS> 417,785
<PP&E> 129,059
<DEPRECIATION> 19,095
<TOTAL-ASSETS> 919,586
<CURRENT-LIABILITIES> 184,430
<BONDS> 0
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<COMMON> 24,517
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 919,586
<SALES> 0
<TOTAL-REVENUES> 56,350
<CGS> 0
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<OTHER-EXPENSES> 249,727
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (182,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (182,142)
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<EXTRAORDINARY> 20,425
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