SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1998
_ Transition report under 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.
(Name of Small Business Issuer in Its Charter)
NEW YORK 13-3725764
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
733 Third Avenue, New York, NY 10017
(Address of Principal Executive Offices) (zip code)
(212) 557-0933
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
(Title of Class)
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
Redeemable Warrants
(Title of Class)
Check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes ___X___ No ______
Check if disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained within this form, and
no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
any amendment to this form 10-KSB _
State the issuer's revenues for its most recent fiscal year. $195,451
The aggregate market value of Common Stock held by non-
affiliates of the Registrant based on the closing sale price
on the Nasdaq Bulletin Board on June 15, 1998 was $1,335,060
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13,
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
Court.
Yes___________No__________Not Applicable__X__
APPLICABLE ONLY TO CORPORATE REGISTRANTS
At June 28, 1997 there were an aggregate of 2,701,729 shares
of Common Stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one)
Yes _______ No ___X___
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Description of Business 4
2. Description of Property 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of 15
Security Holders
PART II
5. Market for Registrant's Common 16
Equity and Related Stockholder
Matters
6. Management's Discussion and 16
Analysis of Financial Condition and
Results of Operations
7. Financial Statements 22
8. Changes in and Disagreements with 22
Accountants On Accounting and
Financial Disclosure
PART III
9. Directors, Executive Officers, 23
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act
10.Executive Compensation 24
11.Security Ownership of Certain 28
Beneficial Owners and Management
12.Certain Relationships and Related 31
Transactions
PART IV
13.Exhibits and Reports on Form 8-K 34
PART I
Item 1. Description of Business
General
New Paradigm Software Corp. (the "Company") was organized
in July 1993 and commenced operations in November 1993. The
Company completed its initial public offering in August 1995.
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. NPIL
provides organizations with the ability to utilize the
Company's expertise to devise strategies for the Internet,
and, where appropriate, to create Web sites. 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 providing Web server hosting services
independently from a customer's own internal network to
ensure security.
The Company intends to market its Internet capabilities
through the strategic relationships which advertising
agencies have with their clients both by acquiring and by
forming business alliances with selected advertising agencies.
As of April 1, 1998, the Company acquired certain assets and
assumed certain liabilities of Kapelus & Cipriano, Inc.,
("K&C") a Westchester-based full-service advertising
agency, through its wholly owned subsidiary New Paradigm
Acquisition I Co. Inc. ("NPAC"). NPAC was then renamed
SKC Advertising, Inc. ("SKC"). The Company intends to
further develop this business by launching new products and
services connected with the Internet.
On March 8, 1998 NPIL entered into a "joint venture" with
three New York advertising agencies: Biederman, Kelly &
Shaffer Inc., Advertising; Emmerling Post Advertising Inc.,
and Warren Kremer/CMP Advertising Inc. A new corporation
"Future Paradigm Inc." was formed to provide Website
creation, Internet and e-commerce applications, Internet
hosting, and Internet media buying services. The three
agencies intend to direct their Internet-related business to
Future Paradigm and have an equity interest therein. NPIL
owns 51% of Future Paradigm. Future Paradigm is currently
(as of June 1998) undertaking Internet assignments for
clients of these agencies including Lands Endr, Cadillacr
and New York University.
Until May 9, 1997, the Company was primarily engaged in the
development, marketing, licensing and support of its
COPERNICUS software product. As of May 9, 1997, as approved
and confirmed by a shareholders meeting on July 23, 1997,
the Company sold rights to COPERNICUS, New Paradigm
Architecture and certain related assets to VIE Systems,
Inc., a Delaware corporation ("VIE") (the "Purchase
Agreement"), for $2,050,000 in cash and a 5% royalty on
future COPERNICUS related license fees accruing after the
first 12 months. Subject to VIE's approval, the Company will
have the right to enter into Original Equipment Manufacturer
agreements with VIE on commercially reasonable terms and to
incorporate COPERNICUS into future products which the
Company may develop or acquire.
Until April 1, 1997, the Company operated a service bureau
business providing electronic data interchange ("EDI")
services (the conveying of business documents
electronically), through its wholly owned subsidiary, New
Paradigm Commerce, Inc. ("NPC") (formerly New Paradigm
Golden Link, Inc.). 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 promissory note receivable
monthly over three years with a face value of $355,000 and a
present value of approximately $300,000.
On March 3, 1997 the Company's Common Stock and Redeemable
Warrants were delisted from the Nasdaq SmallCap market on
the grounds that the Company failed to meet the $2 million
in total assets requirement for continued listing. The
Common Stock is now trading on the Nasdaq Bulletin Board.
"Penny stock" rules now apply to the Company's stock.
On October 9, 1995 the Company acquired from Electric Magic
Company the Netphone product, which permits users of
Macintosh computers to conduct worldwide long distance
telephone conversations over the Internet. The Company
subsequently sold these assets to the Camelot Corporation
("Camelot") for a package of stock and cash comparable to
the acquisition price paid by the Company and an agreement
to pay the Company a royalty for each unit sold by Camelot
in the future. This allows the Company to benefit from any
success Netphone may experience from the wider distribution
of the product through Camelot's existing retail marketing
channels. To date the Company has received no significant
revenue from this royalty arrangement and there can be no
assurance that any such significant revenues will arise.
Internet
Through its wholly owned subsidiary NPIL, the Company
provides Internet services to corporations and other
organizations. Customers include Novartis, National Multiple
Sclerosis Society and the Association of the Bar of the City
of New York. The Company intends to develop this business
by working with advertising agencies with appropriate
strategic relationships with relevant clients. In addition,
the Company intends to launch 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. 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
telecommunications companies suitable for accessing the
Internet) and a further 3 million homes will access the
Internet using cable modems. Worldwide 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 or Microsoft Explorer. The Company seeks to
assist companies with creating that Internet presence and
to exploit other business opportunities, which may arise in
servicing the Internet community.
Internet - Website services
NPIL provides organizations with the ability to utilize the
Company's expertise in creating 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 independently 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 their 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 currently brings in initial revenues of
approximately $20,000 - $30,000 on completion with
continuing revenues for maintenance and changes throughout
the year of approximately $1,000- $3,000. The Company
believes that the growing complexity and sophistication of
Web sites will lead to a significant increase in these per-
site fees. The Company has created more than 20 Web sites
for customers of this service to date. Revenues in fiscal
1998 were approximately $195,000, from 10 such sites.
Examples of Web sites created by New Paradigm include:
Novartis - site for its "Program" product: www.programpet.com
Association of the Bar of the City of New York: www.abcny.org
Nuway Corporation: corporate Website: www.nuwaycorp.com
Smolin Lupin, accountants: corporate Website:
www.cpasmolinlupin.com
Novartis - site for its "Sentinel" product: www.petprotect.com
Josephthal & Co - corporate Website: www.josephthal.com
National Multiple Sclerosis Society - general website:
www.nmss.org
Proballfan: NFL football site written by fans: www.proballfan.com
Website services - marketing and distribution
The Company is marketing its services through a combination
direct contact with prospective clients and indirect sales.
One staff member is engaged full time in direct sales
activity, which accounts for approximately the entire
current customer list of NPIL. Indirect sales, which are
expected to account for a growing proportion of Internet
related revenues in fiscal 1999, are secured primarily
through advertising agencies working on integrated media
campaigns who subcontract the Internet portion to Future
Paradigm. In addition, the Company believes that certain
clients of any advertising agencies that it may acquire are
likely prospects for the Company's Internet related services.
Internet - Other products
The Company is also involved in research and development for
other products and services that can be effectively launched
and marketed through the Internet. The nature of the
Internet is that the time from the formation of a concept to
market can be very short. The Company is currently working
on three such Internet products. These products are:
(i) Internet Trademark and Supermark (internettm.com
and supermark.com) for the registration of trade names
and famous trade names on line. These sites have not
yet been launched and there is no assurance that any
such launch will be successful. The Company is
reviewing the likely potential for such a business, and
the costs of its launch before proceeding. These sites
are owned 50% by NPIL and 50% by the three intellectual
property attorneys who assisted in the concept and
development and of the sites.
(ii) BuyBanner: Allows the immediate conclusion of
transactions from a banner without leaving the site on
which the advertising banner is displayed. The
software for this product is proprietary and owned by
NPIL. However, the Company believes that other
companies have developed similar products. The first
online implementation of this product began in June
1998 with banner advertisements for Lands' End. There
has been insufficient time to assess the commercial
viability of this product.
(iii) The Full Page Banner: the Company has devised a
method of allowing a text advertisement to be
downloaded and displayed while the originally requested
graphic page is being downloaded onto the Internet
User's computer. The Company is researching the
possibility of patenting this product. To date no
commercial feasibility tests have been conducted.
There can be no assurance that the Company will be able to
complete the development work needed or that it will be able
to finance the launch of these products, or that if they are
launched, such products will achieve any degree of market
penetration or commercial success.
Research and Development
From its inception until their sale, the Company focused its
internal development efforts on COPERNICUS and the New
Paradigm Architecture. In addition, the Company has employed
independent consultants to perform certain development
functions. Research and development expenses relating to
COPERNICUS, which include salaries and other employee costs
of the Company's product development personnel for the
fiscal year ended March 31, 1997, was $276,746. There were
no research and development expenses for the fiscal year
ended March 31, 1998. The development costs of COPERNICUS
had been accounted for in accordance with Statement of
Accounting Standards ("FASB") No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased or otherwise
marketed".
Research and development are vital to the Company's efforts
to remain competitive in the Internet business. The
technology in that marketplace is evolving at a very rapid
pace, and new techniques and technology must constantly be
evaluated and, where appropriate, learned. The Company
currently has two staff members involved in Research and
Development, and is seeking to recruit one more. The
Company is presently significantly dependent on the services
of Mr. Ali Faraji in this area. There can be no assurance
that he will remain employed by the Company. There can also
be no assurance that additional engineers can be recruited
or if any of the current Research and Development staff
terminate their services with NPIL that they can be replaced
at a cost acceptable to the Company.
Competition
The Internet marketplace, while rapidly expanding, is
intensively competitive. There are thousands of companies
competing for the Web-site creation and hosting business.
These range from college or even high-school students
working at low cost from their home, to the largest
providers of telecommunications services such as AT&T or
MCI. The Company will seek to compete by offering high
quality service at reasonable cost and by differentiating
itself with innovative products and services. Many of the
Company's competitors have much greater resources and name
recognition than the Company. There can be no assurance
that the Company will succeed in competing effectively in
this marketplace, or that if it does succeed in winning
business that it will be able to continue to do so.
Intellectual Property Rights
The intellectual property rights to COPERNICUS and New
Paradigm Architecture were sold.
The Company does not believe that any of the software that
it has developed to date in the Internet field is patentable
with the possible exception of The Full Page Banner. As of
June 1998, the Company is researching the patentability of
this product.
The Company relies upon a combination of trade secret,
nondisclosure and other contractual arrangements, and
patent, copyright and trademark laws to protect its rights
to intellectual property. The Company generally enters into
confidentiality agreements with its employees, consultants,
distributors, value-added resellers and potential customers
and limits access to and distribution of proprietary
information to licensed users. There can be no assurance
that the steps taken by the Company will be adequate to
deter misappropriation of proprietary information, that the
Company will be able to detect unauthorized use of
proprietary information or that the Company can afford the
high cost required to enforce its intellectual property
rights. Further, no assurance can be given that
nondisclosure and other contractual arrangements to protect
the Company's proprietary rights will not be breached, that
the Company will have adequate remedies for any breach or
that trade secrets will not otherwise become known to or be
independently developed by competitors. The failure or
inability of the Company to protect proprietary information
could have a material adverse effect on the Company's
business, operating results and financial condition.
Employees
As of June 15, 1998, the Company and its subsidiaries
employed 10 employees. None of the Company's employees is
represented by a labor union or is subject to a collective
bargaining agreement. The Company believes that its employee
relations are satisfactory. The number of the employees
increased to 10 when the Company purchased certain assets
from K&C (see General) and employed 6 former staff of K&C.
In addition the Company employs several consultants in
Internet programming and multi-media graphic arts on part
time or short-term contracts.
Item 2. Description of Property
The Company's corporate headquarters is located on the 15th
floor of 630 Third Avenue, New York, New York, 10017 (the
"Premises"). The Premises are leased until April 2001 at a
cost of approximately $7,000 per month.
Item 3. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
(a) Market Information.
The Registrant's Common Stock and Redeemable Warrants are
quoted on the Nasdaq Bulletin Board.
The following table sets forth, for the periods indicated,
the high and low closing prices for the Common Stock and
Redeemable Warrants as reported by the NASDAQ SmallCap
Market through March 31, 1998 and afterwards as reported on
the Nasdaq Bulletin Board:
<TABLE>
<S> <C> <C>
Common Stock Redeemable Warrants
1997 Fiscal Quarters High Low High Low
First Quarter $6.00 $1.875 $1.375 $0.375
Second Quarter 3.00 1.125 0.875 0.25
Third Quarter 3.125 1.00 0.75 0.25
Fourth Quarter 1.813 0.50 0.25 0.063
1998 Fiscal Quarter
First Quarter 1.375 0.375 0.03 0.003
Second Quarter 0.875 0.25 0.003 0.003
Third Quarter 0.75 0.25 0.003 0.003
Fourth Quarter 0.25 0.053 0.003 0.003
</TABLE>
The foregoing prices and quotations reflect inter-dealer
prices without retail mark-up, markdown or commissions. The
foregoing quotations may not represent actual transactions.
(b) Approximate Number of Holders of Equity.
The number of record holders of the Common Stock was
approximately 81 and the number of record holders of
Redeemable Warrants was 46 as of March 31, 1998.
(c) Frequency and Amount of Dividends.
To date, the Company has not paid any cash dividends. The
Company does not anticipate paying any dividends in the
foreseeable future. The Company intends to retain any future
earnings to finance the growth and development of its
business. Any future determination as to the payment of
dividends will be at the discretion of the Board of
Directors of the Company and will depend on the Company's
operating results, financial condition, capital requirements
and such other factors as the Board of Directors may deem
relevant.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The selected financial data of the Company presented below
for, and as of the end of, the fiscal years ended March 31,
1997 and 1998 have been derived from the financial
statements of the Company, which have been audited by BDO
Seidman LLP, independent certified public accountants. The
Company was incorporated in July 1993 and commenced
operations in November 1993. The data set forth below should
be read in conjunction with the Company's financial
statements and related notes thereto included elsewhere
herein. The Company sold its major business - COPERNICUS.
As a result the statements of operations for the fiscal
years ended March 31, 1998 and 1997 and the Balance Sheet as
at March 31, 1998 have been prepared to reflect continuing
operations. The Loss for discontinued operations is shown
in Note 14 to the financial statements.
Statement of Operations Data and Balance Sheet Data
Statement of Operations Data
Year Ended Year Ended
March 31,1998 March 31,1997
-------------- --------------
Revenues $195,461 $64,976
Expenses 1,140,518 1,627,163
----------- ------------
Loss from operations (945,057) (1,562,187)
Other income (net) 36,103 25,099
Gain from reduction of liability 361,999 -
Realized loss on sale of investment (340,930) -
----------- ------------
Loss from continuing operations (887,885) (1,537,088)
Loss from discontinued operations (90,712) (1,438,319)
Gain on sale of assets from
discontinuedoperations 1,396,737 -
---------- ------------
Net income (loss) $418,140 $(2,975,407)
Basic and diluted per share data:
Net loss from continuing operations $(0.36) $(0.63)
Net loss from discontinued operations (0.04) (0.58)
Gain on sale of asset 0.57 -
--------- ----------
Net income (loss) per common share (1) $0.17 $(1.21)
Weighted average common shares
outstanding (1) 2,451,729 2,449,428
Balance Sheet Data
March 31,1998
-------------
Total assets $761,668
Total current assets 375,020
Total liabilities 278,401
Long-term debt 0
Current liabilities 278,351
Deficit (8,691,459)
Total Shareholders' Equity $483,267
(1) See Notes to Financial Statements for an explanation of the
determination of the number of shares and share equivalents
used in computing share amounts.
Overview
During the fiscal year ended March 31, 1998, the Company
sold its major business - COPERNICUS. As a result the
statements of operations for the fiscal years ended March
31, 1998 and 1997 and the Balance Sheet as of March 31, 1998
have been prepared to reflect continuing operations. The
Loss for discontinued operations is shown in Note 14 to the
financial statements. The discussion and analysis that
follows therefore considers separately the continuing and
discontinued operations.
In its continuing operations the Company had a net loss of
$887,885 for the year ended March 31, 1998 and net losses of
$1,537,088 for the year ended March 31, 1997. The Company's
revenues from continuing operations for the fiscal years
ended March 31, 1997 and 1998 were $64,976 and $195,461
respectively. The Company's subsidiary, NPIL had 3
customers for its Web site creation and maintenance services
as at March 31, 1997 and 10 as at March 31, 1998.
In its discontinued operations the Company had net losses of
$90,712 for the year ended March 31, 1998 and $1,438,319 for
the year ended March 31, 1997. The Company's revenues from
discontinued operations for the fiscal years ended March 31,
1998 and 1997 were $51,512 and $622,898, respectively.
These revenues were primarily due to the licensing of
COPERNICUS in 1998. In 1997, $380,671 was derived from
COPERNICUS licensing and royalties.
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, lengthy development time for the
Company's products and services, timing of new product and
service introductions by the Company and its competitors,
changes in levels of the Company's operating expenditures,
including the Company's expenditures on research and
development, the size and timing of customer orders, the
amount and timing of initial fees for creating Web sites,
royalty payments and license fees by licensees, as well as
consulting, training and maintenance fees, increased
competition, reduced prices, the effect of currency exchange
rate fluctuations, delays in the development of new products
and services, the costs associated with the introduction of
new products and services and the general state of national
and global economies. The Company expects to derive
substantially all of its revenues from initial fees for
creating Web sites, and consulting, training, service and
maintenance fees. Accordingly, the Company's revenues will
vary with the demand for its products and services. 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.
Results of Operations
Revenues. Revenues from continuing operations during the
fiscal year ended March 31, 1998 increased from $64,976 to
$195,461 as NPIL made its first sales during fiscal 1997.
These revenues primarily consisted of revenue from the
initial fees for the creation of Web sites.
Expenses. The Company's expenses primarily comprise
salaries and related employee costs, professional fees,
marketing expenses, general and administrative expenses,
occupancy expenses and depreciation and amortization.
Expenses relating to continuing operations during the fiscal
year ended March 31, 1998 decreased by $486,645 (30%) over
The fiscalm year ended March 31, 1997.
The Company had an outstanding liability of
$461,999 payable to its former corporate
counsel. The Company has disputed the
amount of this balance with such counsel
and estimates the liability will be settled
for an amount of approximately $100,000,
which is included in accounts payable and
accrued expenses at March 31, 1998. Accordingly,
the Company has recorded the a gain of $361,999 from
the reduction of this liability in the
statement of operations for the year ended
March 31, 1998.
For the continuing operations, employee costs decreased by
9% to $574,172 in the fiscal year ended March 31, 1998,
compared to $630,616 in the fiscal year ended March 31,
1997. This was due to the general reduction in staff members
while the Company reorganized for greater emphasis on its
Internet business.
The Company did not recognize any research and development
expenses for continuing operations in the fiscal years ended
March 31, 1997 and 1998.
Professional fees relating to continuing operations
decreased by 56% to $106,796 in the fiscal year ended March
31, 1998 compared to $244,731 in the period ended March 31,
1997. The decrease is primarily due to the fact that there
were greater legal costs in the preparation of SEC filings
in fiscal 1997 than in 1998.
Marketing expenses relating to continuing operations
decreased by 50% to $81,736 in the fiscal year ended March
31, 1998 compared to $164,238 in the fiscal year ended March
31, 1997. This is principally due to the narrowing focus of
the operations of the Company providing Internet services.
General and administrative expense relating to continuing
operations decreased by 33% to $227,930 in the fiscal year
ended March 31, 1998, compared to $340,744 in the fiscal
year ended March 31, 1997. This was primarily due to a
decrease in the average number of staff employed by the
Company in the year ended March 31, 1998, compared to the
previous year.
Occupancy costs decreased by 58% to $81,971 in the fiscal
year ended March 31, 1998, compared to $197,230 in the
fiscal year ended March 31, 1997. This was due to the
termination of the Company's prior lease (approximately
$23,000 per month) and the signing of a new lease of
approximately $7,000 per month.
Depreciation and amortization expenses relating to
continuing operations increased by 37% to $67,913 in the
fiscal year ended March 31, 1998, compared to $49,604 in the
fiscal year ended March 31, 1997. Depreciation and
amortization increased because of an increase in fixed
assets relating to continuing operations from March 31, 1997
to March 31, 1998.
In March 1998, the Company entered into a lease in respect
of approximately 2,500 square feet of space at 630 Third
Avenue, New York, New York, 10017 to be the Company's
principal place of business. Payments under this lease that
runs until February 28, 2001 are expected to total $245,000
of which $84,000 are due in fiscal 1999, $84,000 in fiscal
2000 and $77,000 in fiscal 2001. The Company has made no
other material capital commitments.
The Company's net operating loss carry forwards and deferred
tax asset account are approximately as follows:
<TABLE>
<S> <C> <C> <C>
Period or Year Net operating Net Deferred
ended March 31, Year of expiration loss carryforward tax asset
- ---------------------------------------------------------------------------
1994 2009 $157,000 $ -
1995 2010 1,954,000 -
1996 2011 3,542,000 -
1997 2012 2,958,000 -
--------- ---------
$8,611,000 $ -
</TABLE>
The tax benefit of these losses (approximately $3,900,000 at
March 31, 1998) is subject to limitations due to
the change in control for income tax purposes resulting from
the Company's IPO in August 1995. The tax benefit of these
losses has been fully reserved by a valuation allowance of
the same amount due to the uncertainty of its realization.
Foreign Exchange. The Company currently has no exposure to
foreign currency exchange rate fluctuations. In the future
the Company may seek to minimize its exposure to foreign
currency exchange rate fluctuations by requesting that its
customers located outside of the United States enter into
contracts denominated in United States dollars or by
entering into transactions to attempt to hedge some of the
risks of foreign currency exchange rate fluctuations.
Liquidity and Capital Resources
The Company has financed its operations to date primarily
through public and private sales of its debt and equity
securities. The Company has raised a total of approximately
$10.6 million from these activities. On March 19, 1997 the
Company borrowed $550,000 from Level 8 Systems, Inc. by
means of a loan secured by COPERNICUS and related assets.
Level 8 Systems, Inc. agreed to make this advance as part of
negotiations in which it sought to acquire COPERNICUS and
related assets from the Company. On June 27 1997, the
Company received from VIE a loan of $50,000 secured on all
the assets of the Company and an advance of $13,500 against
royalties under the VIE License.
Of the $2,050,000 received at the closing of the sale of
Copernicus, the Company utilized $200,000 to redeem the
Series C Redeemable Preferred Stock, $650,000 to repay the
Secured Loan from Level 8 Systems, Inc. and approximately
$300,000 as immediate payments to be made towards accounts
payable and in settlement of employee termination payments.
A further $63,500 was used to repay the June 27, 1997
advance from VIE. This left a balance of approximately
$836,500 available for working capital.
Accounts payable and accrued expenses decreased to $248,351
at March 31, 1998 from $806,690 at March 31, 1997. Such
decrease in accounts payable and accrued expenses is
primarily due to the inability of the Company to pay its
creditors in a timely manner at March 31, 1997. As a result
of the sale of COPERNICUS the Company was able to repay a
majority of these creditors. In addition, the Company reduced
the amount owed to its corporate consel by $361,999.
At March 31, 1998, the Company had working capital of
approximately $97,000.
The Company will need additional financing prior to March
1999 and thereafter if demand for the Company's products is
sufficiently great to require expansion at a faster rate
than anticipated, or if research and development
expenditures or the extent of service and customer support
that the Company is required to provide are greater than
expected or other opportunities 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, 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. See Note 1 to the Company's financial
statements and "Report of Independent Certified Public
Accountants on Audited Financial Statements."
Plan of Operation
During the fiscal year ending March 31, 1999, the Company
intends to continue to acquire advertising agencies with
strategic relationships with appropriate clients that can be
acquired for prices which the Company believes are
acceptable. The Company further intends to develop its
Internet business, both by bringing in new customers for its
web-site services business and by launching new Internet
related products (see "Internet - other products"). The
Internet marketplace, while expanding rapidly is intensely
competitive. Through March 31, 1998, the Company's NPIL
subsidiary had revenues of $195,461.
Item 7. Financial Statements and Supplementary Data
Financial statements are included herein on page and are filed
as part of this report.
The Year 2000 issue refers to the potential harm from
computer programs that identify date by the last two
digits. As such, date, after January 1, 2000 could be
misidentified, and such programs could fail. The Company
has examined its computer based systems and believes that
the Year 2000 problem is not present in such systems.
However, the Company is dependent upon computer systems
operated by third parties, such as LEC's, AT&T, AOL and
other vendors. If those systemswere to malfunction due
to the year 2000 problem, the Company's services could
fail, as well. Such failure could have a material adverse
effect upon the Company's business, resultsof operation
and financial condition. The Company is inquiring of such
third parties to determine the effect, if any, of the
Year 2000 problem on the systems upon which the Company
is dependent, and to obtain appropriate assurances that no
such problem exists.
Item 8. Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers Promoters and Control
Persons;
Compliance with Section 16(a) of the Exchange Act
There are currently five members of the Company's Board of
Directors. The Company's By-Laws authorizes the Board of
Directors to fix the number of directors. The By-Laws also
authorizes the Board of Directors to fill any vacancy on the
Board of Directors.
The Company agreed that Mr. Robert S. Trump, an investor and
the purchaser of the Company's Series C Redeemable Preferred
Stock in a private placement in March, 1997 may nominate for
election one person to serve on the Board of Directors. Mr.
Trump has orally advised the Company that he does not
currently intend to nominate anyone to serve on the Board of
Directors.
The following table sets forth the names, ages and
positions with the
Company of the Company's directors, executive officers and
key employees:
Name Age Position
Mark Blundell 40 Chief Executive Officer,
President, Chief Financial
Officer, and Director
Milton Kapelus 61 President, SKC Advertising,
Inc.
Rocco Cipriano 45 Executive Vice President,
SKC Advertising, Inc.,
and Director
Daniel A. Gordon 59 Chairman of the Board of
Directors
Michael Taylor 56 Secretary and Director
Morton Chalek 74 Director
Matthew Fludgate 25 Secretary and Vice President
Administration (resigned May 9, 1998)
Mark Blundell is the Chief Executive Officer, President,
Chief Financial Officer and a director of the Company and
has served in these capacities since the Company's
inception. From October 1991 until December 1993, Mr.
Blundell was initially the Chief Executive Officer of MTI's
European subsidiary and then the Chief Operating Officer and
Chief Financial Officer of MTI in New York. He was also a
director of MTI from December 1993 to March 1994. From May
1988 to October 1991, Mr. Blundell was the Chief Executive
Officer of London Fox, the futures and options exchange,
where he introduced the first international electronic
trading system. He is also a director and President of
Lancer, a company initially formed to hold the intellectual
property rights relating to the New Paradigm Architecture
and which currently conducts no business. Lancer is a
principal shareholder of the Company. Mr. Blundell received
an M.A. in Politics, Philosophy and Economics from Pembroke
College, Oxford.
Milton Kapelus served as President of K&C in Harrison New
York from 1992 until 1998. Upon the Company's acquisition
of certain assets of K&C as of April 1, 1998 he was
appointed President of SKC. He has worked in the
advertising industry since 1967. He holds a BA from Rhodes
University, South Africa.
Rocco Cipriano was appointed to the board on June 2, 1998.
He has served as Executive Vice President - Creative, for
Kaplan and Cipriano Advertising Inc. ("K&C") in Harrison, NY
since 1992. Upon the Company's acquisition of certain
assets of K&C as of April 1, 1998 he was appointed Executive
Vice President, Creative of SKC. He holds a Professional
Degree in Communications from Parsons School of Design, New
York.
Daniel A. Gordon, an attorney, has been a director and
Chairman of the Board of Directors of the Company since
November 1993. He has been a principal with Corporate Growth
Services since 1992. Corporate Growth Services provides
consulting support services to businesses in the early
stages of development. From 1989 to 1992, Mr. Gordon served
as President of COIN Banking Systems, Inc., which had been
the banking systems division of COIN Financial Systems Inc.
Mr. Gordon had served as Chairman and Chief Executive
Officer of COIN Financial Systems Inc. from 1984 to 1989. He
received a B.A. in English from Dartmouth College and an
L.L.B. from George Washington University.
Michael Taylor has been a director of the Company since
April 26, 1996 and was appointed Secretary in May 1998.
Since December 3, 1996 he has been a Senior Vice President
of Gilford Securities. Prior to that he was a Managing
Director of Investment Banking at Laidlaw Equities from
March 1996. He was Associate Director of Investment Banking
for Josephthal Lyon & Ross from June 1989 to March 1996.
From early 1980 until joining Josephthal, he was President
of Mostel & Taylor Securities, Inc., a NASD-member
investment banking and brokerage firm. He has been involved
in the securities industry since 1966, when he joined Lehman
Brothers as an analyst. He has been a director of NDE
Environmental, Inc. since July 1992. He is also Chairman of
the Board of Jennifer Muller/The Works, a contemporary dance
company. He attended Amherst College and Columbia
University.
Morton Chalek was elected to the board on December 31, 1997.
He is the President of a consulting firm, Promotion Designs,
Ltd. He was the chairman and Chief Executive Officer of
Chalek & Dreyer Advertising Agency, from 1960 to 1980. From
1980 until 1985 he served as the Executive Vice President of
Administration for HBM/Cremer, a company which merged with
Chalek & Dreyer. Mr. Chalek was also Chairman of Ruder/Finn
& Chalek and teaches a course in advertising agency
administration at New York University.
Matthew Fludgate was Secretary and Vice President of
Administration for the Company since May 9, 1997 until his
resignation on May 9, 1998. Prior to this he was the
Business Manager for the Company since November 1993. From
June 1993 through October 1993 Mr. Fludgate was an Executive
Assistant at Management Technologies, Inc. Mr. Fludgate
received a B.S. in Business Economics from the State
University of New York at Oneonta.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
Section 16(a) of the Securities Exchange Act of 1934
("Section 16(a)") requires the Company's directors,
executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file
with the Securities and Exchange Commission reports on Forms
3, 4 and 5 concerning their ownership of the Common Stock
and other equity securities of the Company.
Based solely on the Company's review of copies of such
reports and other representations, including that no other
reports were required, the Company believes that all its
officers, directors and greater than ten percent beneficial
owners complied with all filing requirements applicable to
them with respect to transactions during the fiscal year
ended March 31, 1998, except as follows:
Name Not Reported
-------------------------------------
Mark Blundell 1
Daniel Gordon 1
Michael Taylor 1
Morton Chalek 1
Item 10. Executive Compensation
The following table sets forth information concerning the
compensation of the Company's chief executive officer and
each of the other executive officers (the "Named
Officers") for services rendered in all capacities to the
Company. The Company has only four executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long Term Compensation
Name and Principal Position Fiscal Year Salary Bonus Other Securities Restricted All Other
Ended Annual underlying Stock Compensation
March 31, Compensation options Awards
Mark Blundell - Chief Exec- 1996 $150,000 $20,000 $57,000(1) 38,666 $0 $1,100(2)
utive Officer, Chief Finan- 1997 $150,000 $0 $57,000(1) 149,999 $0 $1,100(2)
cial Officer & President 1998 $150,000 $0 $57,000(1) 450,000 $0 $1,100(2)
</TABLE>
No other Executive or employee received total annual salary
and bonus in excess of $100,000.
(1) Reflects a non-accountable expense allowance of $4,000
per month and a car allowance of $750 per month.
(2) Reflects the insurance premium paid by the Company for
term life insurance.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1998
The following table sets forth all grants of stock options
made during the fiscal year ended March 31, 1998 pursuant to
the Company's Stock Option Plan to the Named Officers:
Individual Grants
<TABLE>
<S> <C> <C> <C> <C>
Name Number of % of Total Average Expiration
Securities Options Granted Exercise or Date
Underlying to Employees in Base Price
Options Fiscal Year Per Share
Granted Ended March 31,
1997 (a)
Mark Blundell 450,000 90% $0.16 November 2000
Matthew Fludgate 15,000 10% $0.16 November 2000
All Shareholders N/A N/A N/A N/A
All Optionees (a) 500,000 N/A $0.16 November 2000
</TABLE>
(a) Based on the closing price of New Paradigm
Software Corp. Common Stock on March 31, 1998 of
$0.31 as reported on NASDAQ Bulletin Board.
Compensation for Directors
The directors of the Company currently receive a retainer of
$1,000 per quarter and a fee of $1,000 for each meeting of
the Board of Directors that they attend. They are also
reimbursed by the Company for their direct costs for
attending meetings. On December 8, 1993, Mr. Gordon and
three former directors were each granted, as remuneration
for service on the Board of Directors, an option
("Directors' Options") to acquire, at a price of $5.00 per
unit, 10,000 units, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common
Stock at an exercise price of $6.00 per share ("1993
Warrant"). These options will expire on November 1, 1998.
On April 26, 1995 Messrs. Blundell, Gordon and three former
directors were granted options under the Company's Stock
Option Plan to purchase 5,333 shares of Common Stock each at
an exercise price of $4.50 per share. These options became
exercisable on April 26, 1996 and expire on April 26, 2005.
On November 30, 1995 Mr. Gordon and two former directors
were each granted options under the Company's Stock Option
Plan to purchase 10,000 shares of Common Stock at an
exercise price of $5.125 per share. Mr. Blundell was granted
options under the Company's Stock Option Plan to purchase
20,000 shares of Common Stock at the same exercise price.
These options become exercisable on November 30, 1996 and
expire on November 30, 2000. On April 24, 1996, Mr. Taylor
was granted options under the Company's Stock Option Plan to
purchase 10,000 shares of Common Stock at an exercise price
of $5.125 per share. These options become exercisable on
April 24, 1997 and expire on April 24, 2001. On October 15,
1997, Messrs. Taylor and Gordon 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). As of January 1, 1998, Mr. Chalek was granted
50,000 options to purchase shares of Common Stock at an
exercise price of $0.25 per share (the market price on the
date of issue).
Employment Contracts
The Company and the Delaware subsidiary, New Paradigm
Acquisition I Co Inc. ("NPAC") has entered into a new
employment contracts with Mr. Blundell.
Mr. Blundells previous employment contract contained the
following principal features:
Term: Five years with a remaining term of approximately two
years (1994-1999); Base Salary: $200,000 per annum (Mr.
Blundell waived $50,000 per annum of this Base Salary (which
is not being accrued) until such time as the Company would
otherwise be able to report a pre-tax annual profit in
excess of $75,000);
Allowances: Mr. Blundell received a non-accountable expense
allowance of $4,000 per month and a car allowance of $750
per month.
Common Stock Award: Mr. Blundell received 26,667 shares of
Common Stock. If the Company achieved at least $2.5 million
in sales in any period of twelve consecutive months, Mr.
Blundell would have been paid a bonus of $50,000. Mr.
Blundell's employment contracts provided that if such bonus
target was achieved and such bonus paid, he and the Company
would negotiate a new bonus arrangement. Mr. Blundell was
entitled to receive a death benefit of $1,000,000 payable to
a beneficiary named by him. The Company obtained a life
insurance policy to fund this benefit. Mr. Blundell's
employment agreement would have renewed automatically from
year to year unless Mr. Blundell or the Company gave notice
of termination to the other on or before May 1 of any year
beginning in 1999. In the event that the Company terminated
the contract other than for cause, or in the event of a
change of control or a sale of substantially all the assets
of the Company, Mr Blundell was entitled to receive a
payment equivalent to two year's benefits under the
contract.
Following the sale of Copernicus to VIE Systems Inc., which
represented a transfer of substantially all of 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 right 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:
Mr. Blundell waived his entitlement to any payment in
respect of the VIE transaction and entered into new three
year employment contracts with the Company at the same
aggregate base salary and a reduced termination benefit of
24 months compensation in the event that his termination
right is triggered again by subsequent events. 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.
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 the bonus of $50,000 in the event that the Company's gross
revenues reach $2.5 million provided in his previous contract.
In addition the change of control clause, which gives Mr.
Blundell certain termination rights was amended to apply
only in the event that 40% of the Company were to be
acquired rather than 25% as previously provided. 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 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.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The following table indicates the beneficial ownership of
the Company's Common Stock as of May 1, 1998, by (1) each of
the directors, (2) each of the executive officers of the
Company, (3) all directors, and executive officers of the
Company as a group and (4) each person or entity which
beneficially owned in excess of five percent of the Common
Stock, based upon information supplied by each of the
directors, nominees, executive officers and five percent
beneficial owners:
Common Stock
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 670,665(b) 199,999(c) 870,664 27%
John Brann 219,332(d) 199,999(c) 419,331 16%
Matthew Fludgate 75,508(e) 0 75,508 3%
Daniel Gordon 45,333(f) 0 45,333 1%
Lancer Holdings 199,999(g) 0 199,999 8%
Midland Associates 619,999(h) 0 619,999 24%
Michael Taylor 20,000(i) 0 20,000 (j)
Morton Chalek 10,000(k) 0 10,000 (j)
Robert Trump 350,000(l) 619,999(m) 969,999 34%
All Directors and
Executive
Officers of the
Company as a
group (a total of
5 persons) 745,998(n) 199,999(m) 945,997 29%
</TABLE>
(a)The shares of Common Stock beneficially owned by each
person or by all directors and executive officers as a
group, and the shares included in the total number of
shares of Common Stock outstanding used to determine
the percentage of shares of Common Stock beneficially
owned by each person and such group, have been adjusted
in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934 to reflect the ownership of shares
issuable upon exercise of outstanding options, warrants
or other common stock equivalents which are exercisable
within 60 days. As provided in such Rule, such shares
issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial
ownership but not any other holder's beneficial
ownership.
(b)Consists of (i) 26,667 shares of Common Stock, (ii)
5,333 shares of Common Stock issuable upon exercise of
warrants issued in a 1994 private placement of the
Company's securities (the "1994 Warrants"), (iii)
38,666 shares of Common Stock issuable upon exercise of
options granted under the Company's Stock option Plan
("SOP") that are currently exercisable, (iv) up to
599,999 shares of Common Stock underlying stock options
granted under the Executive Stock Option Plan.
(c)Represents the holdings of Lancer Holdings of which
Mr. Blundell and Mr. Brann are each 33% owners and
directors and officers. Consists of 166,666 shares of
Common Stock and 33,333 shares of Common Stock issuable
upon exercise of warrants held by Lancer (the "MBA
Warrants").
(d)Consists of (i) 26,667 shares of Common Stock, (ii)
4,000 shares of Common Stock issuable upon exercise of
1994 Warrants, (iii) 38,666 shares of Common Stock
issuable upon exercise of options granted under the SOP
that are currently exercisable and (iv) up to 149,999
shares of Common Stock underlying stock options granted
under the Executive Stock Option Plan.
(e)Consists of (i) 534 shares of Common Stock, (ii) 1,307
shares of Common Stock issuable upon exercise of 1994
Warrants, (iii) 23,667 shares of Common Stock issuable
upon the exercise of options granted under the SOP and
(iv) 50,000 shares of Common Stock underlying stock
options granted under the Executive Stock Option Plan.
(f)Consists of (i) 10,000 shares of Common Stock and
10,000 shares of Common Stock underlying 1993 Warrants
issuable upon exercise of Directors' Options granted in
1993 to non-employee directors of the Company and (ii)
25,333 shares of Common Stock issuable upon exercise of
options granted under the SOP.
(g)Consists of 166,666 shares of Common Stock and 33,333
shares of Common Stock issuable upon exercise of the
MBA warrants held by Lancer Holdings.
(h)Consists of 439,999 shares of Common Stock and 180,000
shares of Common Stock issuable upon exercise of
warrants. These securities were previously owned by
Management Technologies, Inc. ("MTI") and transferred
to Midland Associates in satisfaction of a loan to MTI
by Midland Associates.
(i)Consists of 20,000 shares of Common Stock issuable
upon exercise of options granted under the SOP.
(j)Less than 1%.
(k)Consists of 10,000 shares of Common Stock issuable
upon exercise of options granted under the SOP
(l)Consists of (i) 200,000 shares of Common Stock
issuable upon exercise of 1994 Warrants (ii) 150,000
shares of Common Stock issuable upon exercise of
warrants having an exercise price of $2.00 per share
issued by the Company in connection with a loan by Mr.
Trump that was subsequently cancelled as partial
consideration for issuance of the Series C Redeemable
Preferred Stock (the "Trump Warrants").
(m)Represents the holdings of Midland Associates.
Consists of the securities listed in note (h) above.
(n)Consists of all of the securities in notes (b)-(f)
above.
(o)Consists of the securities in note (g) above.
(p)Consists of 10,000 shares of Common Stock issuable
upon exercise of options granted under the SOP.
The following table indicates the beneficial ownership of
the Company's Preferred Stock as of May 1, 1998, by (1) each
of the directors, (2) each of the executive officers of the
Company, (3) all directors, and executive officers of the
Company as a group and (4) each person or entity which
beneficially owned in excess of five percent of the
Preferred Stock, based upon information supplied by each of
the directors, nominees, executive officers and five percent
beneficial owners:
Series D Redeemable Preferred Stock (a)
<TABLE>
<S> <C> <C> <C> <C>
Name of Beneficial Owner(a) Right to Right to Total Number Percent of
Sole Voting Shared Voting of Shares Common Stock
and Investment and Investment Beneficially Beneficially
Power Power Owned Owned
Mark Blundell 0 0 0 0%
John Brann 0 0 0 0%
Matthew Fludgate 0 0 0 0%
Daniel Gordon 0 0 0 0%
Lancer Holdings 0 0 0 0%
Midland Associates 0 0 0 0%
Michael Taylor 0 0 0 0%
Morton Chalek 0 0 0 0%
Robert Trump 0 0 0 0%
Ali Faraji 25 0 25 50%
Gary Towning 10 0 10 20%
Victor Gourgue 10 0 10 20%
Pierre Dumaresq 5 0 5 10%
All Directors and
Executive
Officers of the
Company as a group 0 0 0 0%
</TABLE>
(a) The only preferred stock outstanding as at March 31,
1998 was the Series D Redeemable Preferred Stock. 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. The Series D
Preferred is not entitled to any dividends or other
distributions on the Common Stock. 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. 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. 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. 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.
(b) The shares of Preferred Stock beneficially owned by
each person or by all directors and executive officers as a
group, and the shares included in the total number of shares
of Preferred Stock outstanding used to determine the
percentage of shares of Preferred Stock beneficially owned
by each person and such group, have been adjusted in
accordance with Rule 13d-3 under the Securities Exchange Act
of 1934 to reflect the ownership of shares issuable upon
exercise of outstanding options, warrants or other preferred
stock equivalents which are exercisable within 60 days. As
provided in such Rule, such shares issuable to any holder
are deemed outstanding for the purpose of calculating such
holder's beneficial ownership but not any other holder's
beneficial ownership.
Item 12. Certain Relationships and Related Transactions
General
The following is a discussion of certain transactions
entered into by the Company with officers, directors,
security holders and affiliates thereof. The Company
believes that the terms of these transactions were no less
favorable to the Company than would have been obtained from
a non-affiliated third party for similar transactions at the
time of entering into such transactions.
The Company has adopted a policy whereby any future
transactions, including loans, between the Company and its
directors, officers, principal shareholders and other
affiliates, will be on terms no less favorable to the
Company than could be obtained from unaffiliated third
persons on an arm's-length basis at the time that the
transaction was entered into and will be reviewed and
approved by a majority of the Company's directors, including
a majority of the Company's independent disinterested
directors.
Other Transactions
On September 1, 1995 the Company entered into a consulting
contract with Corporate Growth Services, a corporation owned
by Mr. Gordon, Chairman of the Board of Directors. Corporate
Growth Services provides small development stage companies
with management consulting. Under the terms of the contract
Corporate Growth Services receives a consulting fee of
$2,000 per month over and above any fees Mr. Gordon receives
for attending meetings of the Board of Directors. In the
fiscal year ended March 31, 1997 Corporate Growth Services
received $24,000 in such fees and in the fiscal year ended
March 31, 1998, $24,000.
Loan from Mr. Robert Trump
In early January 1997, in order to continue operating, the
Company solicited a $150,000 loan from Mr. Robert Trump that
was received on January 16, 1997. The principal terms of
this loan were as follows:
Advance: $150,000.
Term: 6 months (to expire July 14th, 1997).
Interest Rate: To be paid in warrants, see below.
Warrants: 150,000 three-year warrants with an exercise price
of $2.00 per share, in lieu of interest.
Other terms: The 180,000 Midland Warrants, held by Midland
Associates, an affiliate of Mr. Trump, were amended
as follows:
The expiration date was changed from August 11, 1998
to January 16, 2002 and the exercise price reduced
from $3.75 to $2.00 per share.
Series C Redeemable Preferred Stock
On March 13, 1997, Mr. Robert Trump agreed to advance the
Company a further $50,000 which the Company urgently
required in order to continue its operations and meet its
payroll obligations. The earlier $150,000 advance and the
March 13, 1997 $50,000 advance were combined into $200,000
to be used to subscribe for 800,000 shares of Series C
Redeemable Preferred Stock, $0.01 par value, with the
following principal terms:
Each Series C Redeemable Preferred Share has four (4)
votes on any matter to be put to a vote of the Company's
shareholders.
The Series C Redeemable Preferred Stock can be redeemed at
the Company's option at any time upon payment of $200,000.
The Series C Redeemable Preferred Stock can be redeemed at
the holder's option following any investment in the Company
or a sale of any of the Company's assets where the proceeds
are $2,000,000 or more. The Series C Redeemable Preferred
Stock will have preference in the event of any liquidation
of the Company to the extent of $200,000.
The Series C Redeemable Preferred Stock was redeemed by the
Company from the proceeds of the sale of COPERNICUS.
PART IV
Item 13.
A Exhibits
3.1
Restated Certificate of Incorporation of the Company, as
amended by a Certificate of Amendment dated August 14,
1995 and as corrected by a Certificate of Corrections
dated August 24, 1995 (incorporated by reference to
Exhibit 2 to Form 10-QSB for the Quarterly Period ended
June 30, 1995 "the June 1995 Form 10-QSB"))
3.1.1
Certificate of Designation establishing Series C
Redeemable Preferred Stock
3.2
By-laws of the Company (incorporated by reference to
Exhibit 3.2 to Amendment No. 1 to the Registration
Statement on Form SB-2 (File No. 33-92988NY (the
"Registration Statement")).
3.3
Certificate of Amendment of Certificate of Incorporation
establishing Series D Preferred Stock date January 22, 1998
4.1
Form of Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company
(incorporated by reference to Exhibit 4 to the June 1995
Form 10-QSB)
4.2
Form of Representative's Warrant Agreement (incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to the
Registration Statement).
4.3
Form of 1993 Warrant (incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to the Registration
Statement).
4.4
Letter dated December 8, 1993 from the Company to
Barrington J. Fludgate granting Directors Options to
purchase shares of Common Stock and 1993 Warrants.
Substantially identical grants were made to Anthony J.
Cataldo, Daniel A. Gordon and Jeff Kahn (incorporated by
reference to Exhibit 4.4 Amendment to No. 1 to the
Registration Statement).
4.5
Form of 1994 Warrant (incorporated by reference to
Exhibit 4.5 to Amendment No. 1 to the Registration
Statement).
4.6
Form of 1995 Warrant (incorporated by reference to
Exhibit 4.6 to Amendment No. 1 to the Registration
Statement).
4.7
Form of Lancer Warrant. (Incorporated by reference to
Exhibit 4.7 to the Registration Statement).
4.8
Form of Financial Advisory and Investment Banking
Agreement with the Representative (incorporated by
reference to Exhibit 4.8 to Amendment No. 3 to the
Registration Statement).
4.9
Form of Midland Warrant (incorporated by reference to
Exhibit 4.9 to the Registration Statement).
4.10
Form of Agreement between the Company and Josephthal
Lyon & Ross incorporated regarding termination of
certain warrants (incorporated by reference to Exhibit
4.10 to Amendment No. 2 to the Registration Statement).
4.11
Option Agreement dated October 9, 1995 between the
Company and the Electric Magic Company (incorporated
herein by reference to Exhibit 4.11 to Form 10-QSB for
the Quarterly Period ended September 30, 1995 (the
"September 1995 Form 10-QSB")).
4.12
Warrant issued to Omotsu Holdings Limited (incorporated
by reference to Exhibit 4.12 to the September 1995 Form
10-QSB).
10.1.1
Blundell Employment Contract as amended (incorporated by
reference to Exhibit 10.1.1 to the Registration
Statement).
10.1.2
Brann Employment Contract as amended (incorporated by
reference to Exhibit 10.1.2 to the Registration
Statement).
10.1.3
Caltabiano Employment Contract as amended (incorporated
by reference to Exhibit 10.1.3 to the Registration
Statement).
10.2
MBA Rights Purchase Agreement dated March 22, 1995
(incorporated by reference to Exhibit 10.2 to the
Registration Statement).
10.2.3
Blundell Employment Contracts with NPSC and NPAC and
Loan Agreement dated November 13, 1997.
10.3
Voting Trust Agreement (incorporated by reference to
Exhibit 10.3 to Amendment No. 1 to the Registration
Statement).
10.4
MTI Settlement Agreement dated as of May 26, 1995
(incorporated by reference to Exhibit 10.4 to the
Registration Statement).
10.5.1
Paxcell, Inc. Distribution Agreement dated March 31,
1994 (incorporated by reference to Exhibit 10.5.1 to the
Registration Statement).
10.5.2
Rivergate Systems, Inc. Distribution Agreement dated
June 23, 1994 (incorporated by reference to Exhibit
10.5.2 to the Registration Statement).
10.5.3
New Venture Technologies Distribution Agreement dated
January 11, 1995 (incorporated by reference to Exhibit
10.5.3 to Amendment No. 1 to the Registration
Statement).
10.5.4
Agreement establishing Future Paradigm, Inc.
(incorporated by reference to exhibit 10.5.4
of Form 8K filed March 13, 1998).
10.6.1
Financial Performance Corporation Value-Added Reseller
Agreement dated April 29, 1994 (incorporated by
reference to Exhibit 10.6.1 to the Registration
Statement).
10.6.2
Benson Software Systems, Inc. Value-Added Reseller
Agreement dated October 25, 1994 (incorporated by
reference to Exhibit 10.6.2 to the Registration
Statement).
10.6.3
Praxis Value-Added Reseller Agreement dated January 9,
1995 (incorporated by reference to Exhibit 10.6.3 to the
Registration Statement).
10.7
Novell Inc. Co-Marketing Letter Agreement dated December
2, 1994 (incorporated by reference to Exhibit 10.7 to
the Registration Statement).
10.8
Publicitas Letter Agreement dated January 31, 1995
(incorporated by reference to Exhibit 10.8 to the
Registration Statement).
10.9
Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.9 to the Registration
Statement).
10.10
Accounts Receivable Purchase and Sale Agreement between
the Company and MTB Bank (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Registration
Statement).
10.11
Software License Agreement dated May 31, 1995 between
the Company and Marriott International, Inc.
(incorporated by reference to Exhibit 10.11 to Amendment
No. 1 to the Registration Statement).
10.13
Marriott Acceptance Certificate, dated June 8, 1995
(incorporated by reference to Exhibit 10.13 to Amendment
No. 2 to the Registration Statement).
10.14
Agreement dated October 9, 1995 between the Company and
Electric Magic Company (incorporated by reference to
Exhibit 10.14 to the September 1995 Form 10-QSB).
10.15
Agreement dated October 31, 1995 between the Company and
Camelot Corporation (incorporated by reference to
Exhibit 10.15 to the September 1995 Form 10-QSB).
10.16
Note issued by the Company to Mr. Robert Trump dated
January 15, 1997 (incorporated by reference to Form 8-K
filed January 16, 1997).
10.18
Lease dated October 31, 1997 between the Company and
GoAmerica Tours, Inc. (incorporated by reference to
Exhibit 10.18 to the December 31, 1996 Form 10-QSB).
10.19
Agreement dated as of April 1, 1997 between the Company
and Custom Information Systems, Inc. (incorporated by
reference to Form 8-K filed May 2, 1997)
10.20
Letter Agreement dated March 19, 1997 between the
Company and Level 8 Systems, Inc.
10.21
Agreements dated as of May 9, 1997 between the Company
and VIE Systems, Inc. (incorporated by reference to Form
8K filed May 16, 1997)
10.22
Agreement dated December 18, 1996 between the Company
and International Business Machines, Inc. ("IBM")
(incorporated by reference to Exhibit 10.22 to the March
31, 1997 Form 10-KSB/A).
11
Statement re: computation of per share earnings (losses)
24
Power of Attorney.
99
Financial data schedule
B. Reports on Form 8-K
The following reports have been filed on Form 8-K since
February 15, 1997.
1) March 17, 1997 New Paradigm Software Corp. Reports
Desisting from NASDAQ SmallCap Market
2) March 19, 1997 New Paradigm Software Corp. Reports
Financing - Preferred Stock Issue
3) April 17, 1997 New Paradigm Software Corp. Reports
Sale of EDI Business for $300,000
4) May 9, 1997 Mr. John Brann Resigns as Director and
Corporate Secretary of the Company
5) May 23, 1997 New Paradigm Software Corp. Announces
Sale of COPERNICUS
6) July 18, 1997 New Paradigm Announces Adjournment of
Stockholders' Meeting
7) March 13, 1998 New Paradigm Announces formation of
Future Paradigm Inc.
8) April 28, 1998 New Paradigm Announces Acquisition of
Certain Assets from Kapelus & Cipriano, Inc.
9) June 5, 1998 New Paradigm Reports Appointment of
Rocco Cipriano as Director
10) June 12, 1998 New Paradigm Reports the Audited
Financial Statements of Kapelus & Cipriano, Inc.
together with pro forma results.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: June 29, 1998 _/s/ Mark Blundell________________
Mark Blundell
President & Chief Executive
Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Mark Blundell
Mark Blundell Chief Executive Officer and
President (principal executive
officer, principal financial
officer and principal
accounting officer) and Director June 29, 1998
/s/Daniel A. Gordon
Daniel A. Gordon Chairman of the Board of Directors June 29, 1998
/s/ Morton Chalek
Morton Chalek Director June 29, 1998
/s/ Rocco Cipriano
Rocco Cipriano Director June 29, 1998
/s/ Michael Taylor
Michael Taylor Secretary and Director June 29, 1998
<PAGE>
AUDITED FINANCIAL STATEMENTS
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998 AND 1997
Report of independent certified public accountants F-2
Consolidated financial statements:
Balance sheet F-3
Statements of operations F-4
Statements of shareholders' equity (capital deficit) F-5
Statements of cash flows F-6
Notes to consolidated financial statements F-7- F-32
Report of Independent Certified Public Accountants
New Paradigm Software Corp.
and Subsidiaries
New York, New York
We have audited the accompanying consolidated balance sheet
of New Paradigm Software Corp. and Subsidiaries as of
March 31, 1998, and the related consolidated statements of
operations, shareholders' equity (capital deficit), and cash
flows for each of the two years in the period ended March 31,
1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
Except as discussed in the following paragraph, we conducted
our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
At March 31, 1998, the Company had an outstanding liability
of approximately $462,000 to its former corporate counsel.
As discussed in Note 3, the Company has disputed the amount
with such counsel and estimates the liability will be settled
for approximately $100,000. Accordingly, the Company recorded
a gain from the liability reduction of approximately $362,000 in
its statement of operations for the year ended March 31,
1998. We have not been able to confirm this liability with
the former corporate counsel and have not been able to apply
other procedures to satisfy ourselves as to the amount of the
ultimate settlement.
In our opinion, except for the effects of such adjustments, if
any, as might have been determined to be necessary relating to
the settlement of the liability to the Companys former counsel
the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New
Paradigm Software Corp. and Subsidiaries at March 31, 1998, and
the results of their operations and their cash flows for each of
the two years in the period ended March 31, 1998, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As disclosed in Note 1, the Company has incurred
significant operating losses since its inception, has an
accumulated deficit and as discussed in Note 13, the Company
disposed of its COPERNICUS and EDI businesses. These
conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 1. These
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
New York, New York
June 26, 1998
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<S> <C>
March 31, 1998
--------------
Assets
Current:
Cash and cash equivalents $202,030
Restricted cash (Note 9) 9,065
Accounts receivable (Note 12) 45,993
Notes receivable, current portion (Note 13(b)) 105,432
Other receivables and prepayments 12,500
---------
Total current assets 375,020
Property and equipment, less accumulated depreciation
and amortization (Note 2) 127,506
Note receivable from Officer/Shareholder (Note 6(b)) 117,135
Note receivable, long-term (Note 13 (b)) 142,007 $761,668
--------
$761,668
========
Liabilities and Shareholders' Equity
Current:
Loan payable (Note 4) $30,000
Accounts payable and accrued expenses (Note 3) 248,351
-------
Total current liabilities 278,351
-------
Commitments and contingencies (Note 6)
Redeemable Series D preferred stock - authorized and
outstanding - 50 shares, at redemption value (Note 7 (a)) 50
-------
Shareholders' Equity (Notes 7 and 9):
Preferred stock, $.01 par value - shares
authorized 10,000,000:
Series A shares authorized-1,000,000; none issued
and outstanding -
Series B shares authorized 2,000,000; none issued
and outstanding -
Series C shares authorized 800,000; none issued
and outstanding -
Common stock, $.01 par value - shares authorized
50,000,000; issued and outstanding 2,451,729 24,517
Additional paid-in capital 9,150,209
Deficit (8,691,459)
----------
Total Shareholders' equity 483,267
----------
$761,668
==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1998 March 31, 1997
-------------- --------------
Revenues:
Consulting (Note 12) $195,461 $64,976
Expenses:
Employee costs 574,172 630,616
General and administrative (Note 11(a)) 227,930 340,744
Professional fees 106,796 244,731
Marketing (Note 11(b)) 81,736 164,238
Occupancy 81,971 197,230
Depreciation and amortization 67,913 49,604
--------- ----------
1,140,518 1,627,163
--------- ----------
Loss from operations (945,057) (1,562,187)
--------- ----------
Other income (expense):
Interest income 38,203 25,099
Interest expense (2,100) -
Gain from reduction of liability (Note 3) 361,999 -
Realized loss on sale of investment in
restricted common stock (Note 9) (340,930) -
-------- -------
57,172 25,099
-------- -------
Loss from continuing operations (887,885) (1,537,088)
Loss from discontinued operations (Note 13) (90,712) (1,438,319)
Gain on sale of assets of discontinued
operations (Note 13) 1,396,737 -
--------- ----------
Net income (loss) $418,140 $(2,975,407)
========= ===========
Basic and diluted per share data
Loss from continuing operations $(0.36) $(0.63)
Loss share from discontinued operations (0.04) (0.58)
Gain on sale of assets 0.57 -
====== ======
Net income (loss) per Common share $0.17 ($1.21)
====== ======
Basic and diluted weighted average common
shares Outstanding 2,451,729 2,449,428
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Capital Deficit)
Years ended March 31, 1998 and 1997 (Note 7)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Additional Unrealized Total
Series A, B, C Common Stock Paid in Capital on investment Deficit Shareholders
and D in restricted equity (capital
Shares Par Value Shares Par Value stock deficit)
- --------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 - $- 2,446,729 $24,467 $9,150,209 $(164,457) $(6,134,192) $2,876,027
Issuance of Series C
redeemable preferred
stock in March 1997
(Note 7(a)) 800,000 8,000 - - 192,000 - - 200,000
Reclassification of
Series C redeemable
preferred stock (800,000) (8,000) - - (192,000) - - (200,000)
Issuance of Common Stock
to terminated employee - - 5,000 50 - - - 50
Unrealized loss on
investment in restricted
stock (Note 9) - - - - - (170,784) - (170,784)
Net (loss) for the year - - - - - - (2,975,407) (2,975,407)
- -------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 - - 2,451,729 24,517 9,150,209 (335,241) (9,109,599) (270,114)
Issuance of Series D
Preferred Stock in
November 1997 (Note 7(a)) 50 1 - - 49 - - 50
Reclassifaction of Series
D redeemable preferred
stock (50) (1) - - (49) - - (50)
Sale of Restricted Stock - - - - - 335,241 - 335,241
Net income for the year - - - - - - 418,140 418,140
- ------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 - - 2,451,729 $24,517 $9,150,209 $- $(8,691,459) $483,267
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows (Note 8)
<TABLE>
<S> <C> <C>
Year ended Year ended
March 31, 1998 March 31, 1997
Cash flows from operating activities:
Net Income (loss) $418,140 $(2,975,407)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 86,055 230,880
Gain on sale of assets (1,396,737) -
Gain from reduction of liability (361,999) -
Loss on sale of investment in restricted
common stock 340,930 -
Deferred rent payable (71,127) 71,127
Issuance of Common Stock to terminated
employee - 50
Issuance of Series D redeemable preferred
stock to employees pursuant to a
restricted grant 50 -
Noncash interest expense 2,100 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 4,619 (22,116)
Receivable from related party - 50,000
Other receivables and prepayments 19,946 76,073
Other assets 71,266 (61,281)
Increase (decrease) in:
Accounts payable and accrued expenses (196,340) 589,748
Deferred revenue - 27,500
Total adjustments (1,501,237) 961,981
Net cash used in operating activities (1,083,097) (2,013,426)
Cash flows from investing activities:
Purchases of property and equipment (24,654) (57,747)
COPERNICUS development costs (8,334) (276,746)
Sale of Copernicus and EDI businesses 2,056,000 -
Fees paid in connection with sale of
Copernicus and EDI businesses (285,361) -
Loan to officer/shareholder (114,000) -
Principal receipts on note receivable 62,373 -
Patents, trademarks and organization costs - (91,385)
Net cash provided by (used in)
investing activities: 1,686,024 (425,878)
Cash flows from financing activities:
Proceeds from sale of Redeemable Preferred
Class C stock - 200,000
Acquisition of Series C redeemable preferred
stock (200,000) -
Proceeds from note payable 30,000 550,000
Repayment of debt (550,000) -
Net cash provided by (used in) financing
activities (720,000) 750,000
Net decrease in cash and cash equivalents (117,073) (1,689,304)
Cash and cash equivalents, beginning of period 328,168 2,017,472
Cash and cash equivalents, end of period $211,095 $328,168
</TABLE>
See accompanying notes to consolidated financial statements
1. Organization and Summary of Accounting Policies
Organization and Business
New Paradigm Software Corp. (the "Company")
a New York corporation, was founded in July
1993 and commenced operations on
November 1, 1993. The Company through its
wholly owned subsidiary, New Paradigm
Inter-Link, Inc. ("NPIL"), is engaged in
the research and development of commercial
applications for the Internet.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared on the basis
that the Company will continue as a going
concern, which contemplates the realization
of assets and the satisfaction of
liabilities in the normal course of
business. The Company has incurred
significant operating losses since inception and has
an accumulated deficit at March 31, 1998.
As discussed in Note 13, the Company
disposed of its COPERNICUS and EDI
businesses. General and administrative
expenses, employee costs, professional fees
and occupancy expenses from continuing
operations will be incurred which, in the
absence of significant income from new
operations, will produce continuing net
losses and an increase in accumulated
deficit annually. Although there can be no
assurance of its success, management
intends to continue to develop its Internet
business (through its subsidiary NPIL) and
also intends to seek acquisitions of or
other business combinations with other
businesses in related fields. Subsequent
to the year-end the Company acquired the
advertising business of Kapelus and
Cipriano, Inc. (see Note 14) and is
currently negotiating with another
advertising agency for a possible merger or
acquisition. The consolidated financial
statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its
wholly owned subsidiaries, NPIL and New
Paradigm Acquisition I Co., Inc. ("NPAC").
All material intercompany accounts and
transactions are eliminated.
Cash Equivalents
Cash equivalents are comprised of highly
liquid debt instruments with original
maturities of three months or less,
principally money market accounts.
Property, Equipment and Depreciation
Property and equipment are stated at cost.
Depreciation is computed using accelerated
methods, which approximate the straight
line method, over the estimated useful
lives of the assets, ranging from 5-7 years
for financial and tax reporting purposes.
Revenue Recognition
Revenue from Internet products is
recognized upon delivery to the customer.
The Company's contracts with its customers
provide for payment to be made on specified
schedules which may differ from the timing
of recognition of revenue. Customer
advances are recorded as cash payments
received in advance of delivery.
Maintenance fees are recognized
proportionately over the term of the
maintenance agreement. Customer service
fees represent fees charged to customers
for installation, configuration and
modification of standard software to
customer specifications. Revenue is
recorded as work is performed under the
relevant arrangement.
Use of Estimates
The preparation of the financial statements
in conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of cash and cash
equivalents, accounts receivable, other
receivables, loans, accounts payable and
redeemable preferred stock approximate fair
value because of the short maturity of
these items.
Stock-Based Compensation
In October 1995, the Financial Accounting
Standards Board ("FASB"), issued Statement
of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation"
("SFAS No. 123"). SFAS No. 123 requires
entities which have arrangements under
which employees receive shares of stock or
other equity instruments of the employer or
the employer incurs liabilities to
employees in amounts based upon the price
of its stock to either record the fair
value of the arrangements or disclose the
pro forma effects of the fair value of the
arrangements. The Company adopted the
disclosure method of SFAS No. 123. The
adoption of this method did not affect the
Company's financial position, operating
results or cash flows.
Income Taxes
Income taxes are computed in accordance
with the provisions of Statement of
Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No.
109"), which requires, among other things,
a liability approach to calculating
deferred income taxes. SFAS No. 109
requires a company to recognize deferred
tax liabilities and assets for the expected
future tax consequences of temporary
differences between the carrying amounts of
assets and liabilities for financial
reporting purposes and the amounts used for
income tax purposes. Deferred tax assets
must be reduced by a valuation allowance to
amounts expected to be realized.
Net Income Per Share
During 1997, the FASB issued SFAS No. 128
("SFAS No. 128"), "Earnings per Share",
which provides for the calculation of
"basic" and "diluted" earnings per share.
This statement is effective for financial
statements issued for periods ending after
December 15, 1997. Basic earnings per
share includes no dilution and is computed
by dividing income available to common
shareholders by the weighted average number
of common shares outstanding for the
period. Diluted earnings per share
reflect, in periods in which they have a
dilutive effect, the effect of common
shares issuable upon the exercise of stock
options. As required by this statement,
all periods presented have been restated to
comply with the provisions of SFAS No. 128.
The computation of basic and diluted net
income per share is based on the weighted
average number of common shares outstanding
during the period. Common stock options
and warrants outstanding during the period
were anti-dilutive and have not been
reflected in the diluted net income per
share calculation.
Recent Accounting Standards
1n June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS
No. 130") which establishes standards for
reporting and display of comprehensive
income, its components and accumulated
balances. Comprehensive income is defined
to include all changes in equity except
those resulting from investments by owners
and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all
items that are required to be recognized
under current accounting standards as
components of comprehensive income be
reported in a financial statement that is
displayed with the same prominence as other
financial statements.
SFAS No. 130 is effective for financial
statements for periods beginning after
December 15, 1997 and requires comparative
information for earlier years to be
restated. Because of the recent issuance
of this standard, management has been
unable to fully evaluate the impact, if
any, the standard may have on future
financial statement disclosures. Results
of operations and financial position,
and disclosure will be unaffected by
implementation of this standard.
In June 1997, the FASB issued SFAS No.
131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS
No. 131"), which supersedes SFAS No. 14,
"Financial Reporting for Segments of a
Business Enterprise". SFAS No. 131
establishes standards for the way that
public companies report information about
operating segments in annual financial
statements and requires reporting of
selected information about operating
segments in interim financial statements
issued to the public. It also establishes
standards for customers. SFAS No. 131
defines operating segments as components of
a company about which separate financial
information is available that is evaluated
regularly by the chief operating decision
maker in deciding how to allocate resources
and in assessing performance.
SFAS No. 131 is effective for financial
statements for periods beginning after
December 15, 1997 and requires comparative
information for earlier years to be
restated. Because of the recent issuance
of this standard, management has been
unable to fully evaluate the impact, if
any, the standard may have on future
financial statement disclosures. Results
of operations and financial position,
however, will be unaffected by
implementation of this standard.
2. Property and Equipment
Property and equipment consists of the
following:
March 31, 1998
Computer equipment $ 239,332
Software 29,132
Furniture and fixtures 81,043
Telephone system 37,262
386,769
Less: Accumulated depreciation
and amortization 259,263
$127,506
3. Accounts payable/Gain from Reduction
of Liability
The Company had an outstanding liability of
$461,999 payable to its former corporate
counsel. The Company has disputed the
amount of this balance with such counsel
and estimates the liability will be settled
for an amount of approximately $100,000,
which is included in accounts payable and
accrued expenses at March 31, 1998. Accordingly,
the Company has recorded the a gain of $361,999 from
the reduction of this liability in the
statement of operations for the year ended
March 31, 1998.
4. Loan Payable
The Company received a loan from a former
officer, Mr. John Brann (see Note 6(b)), in
the amount of $30,000 pursuant to his
termination agreement. The loan will be
repaid by 50% of any and all royalties due
to the Company up to $40,000 pursuant to
the terms of the Copernicus Sale Agreement
(see Note 13) or the Company may prepay the
loan at any time plus interest at 8% per
annum.
5. Income Taxes
The Company's net operating loss
carryforwards and deferred tax asset
account are approximately as follows:
<TABLE>
<S> <C> <C>
Period or Year Net operating
ended March 31, Year of expiration loss carryforward
- ---------------------------------------------------------
1994 2009 $157,000
1995 2010 1,954,000
1996 2011 3,542,000
1997 2012 2,958,000
$8,611,000
</TABLE>
The tax benefit of these losses
(approximately $3,900,000 at March 31,
1998) is subject to limitations due to the
change in control for income tax purposes
resulting from the Company's Initial
PublicOffering ("IPO") in August 1995.
The tax benefit of these losses has been
fully reserved by a valuation allowance of
the same amount due to the uncertainty of
its realization.
6. Commitments and Contingencies
(a) Leases
The Company leases sales and office
space under an operating lease which
commenced on March 1, 1998 and expires
February 28, 2001.
The future minimum rental payments under
this sublease agreement are
approximately as follows:
Year ending March 31,
1999 $84,000
2000 84,000
2001 77,000
$245,000
Rent expense for the years ended
March 31, 1998 and 1997 amounted to
approximately $66,000, and $195,000
respectively.
(b) Employment Agreements
(i)Following the sale of Copernicus to VIE
Systems Inc. (see Note 13), which
represented a transfer of substantially
all the assets of the Company, 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 payment to this officer 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 the officer to produce
the following settlement, which was
entered into on November 13, 1997:
The officer 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, NPAC, at
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. The officer 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.
The Company is contemplating a number
of acquisitions of companies with
revenues in excess of $2.5 million,
the new contract provides that the
officer will not be entitled to
receive the bonus of $50,000 in the
event that the Company's gross
revenues reach $2.5 million provided
in his previous contract.
In addition the change of control
clause, which gives the officer
certain termination rights would be
amended to apply only in the event
that 40% of the Company were to be
acquired rather than 25% as at
present.
In order to retain this officer'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 the officer;
(ii) any bonus or incentive payments;
and (iii) any sales of Common Stock
of New Paradigm directly or
beneficially owned by this officer,
including any Stock acquired through
the exercise of options.
(ii) On May 13, 1997 the Company entered into
an agreement with John Brann, the former
Secretary/Treasurer and Vice President
of the Company, to terminate his
employment with the Company (the
"Termination Agreement") pursuant to an
employment agreement dated June 14,
1993, as amended. Termination of Mr.
Brann's employment was a condition of
the sale of the Copernicus asset to VIE
Systems, Inc. ("VIE") (see Notes 4 and
13). As consideration for the
termination under the termination
Agreement, the Company paid Mr. Brann a
total of $50,000.
(c) License Agreement
In August 1993, the Company entered into
a licensing agreement with Lancer
Holdings, Inc. ("Lancer") (formerly
known as Mark Blundell & Associates), of
which Mark Blundell, the President and
Chief Executive Officer and a director,
and John Brann, a consultant and former
director and executive officer of the
Company are controlling shareholders. On
October 27, 1993, 133,333 shares of
common stock were issued to Lancer and
valued at Lancer's basis (nominal value)
and recorded at the par value of the
shares issued. Lancer was the owner of
certain intellectual property rights
including rights relating to certain
computer software and documentation (the
"Lancer rights"). The agreement granted
the Company the exclusive worldwide
license to sublicense the COPERNICUS
software in return for royalty payments
to the licensor.
In March 1995, the Company acquired the
Lancer rights for 33,333 shares of
common stock and 33,333 noncallable,
transferable warrants to purchase shares
of common stock, subject to adjustment
under certain circumstances. The common
stock was valued at Lancer's basis
(nominal value) and recorded at the par
value of the shares issued. Such
warrants will expire five years after
their issue date. These warrants include
a cashless exercise provision which
allows Lancer to surrender warrants in
payment for the exercise thereof.
(d) Joint Venture
In January 1998, through its wholly
owned subsidiary, NPIL, the Company
entered into a joint venture with three
New York advertising agencies to provide
Website creation, Internet and
electronic commerce applications,
Internet hosting and Internet media
buying services. The joint venture
resulted in the formation of a new
corporation, Future Paradigm, Inc.
("FPI"). The three advertising agencies
plan to direct their Internet related
business to FPI and have an equity
interest therein. The Company owns 51%
of FPI.
7. Shareholders Equity
(a) Preferred Stock
The Company's Certificate of
Incorporation authorizes issuance of
10,000,000 shares of preferred stock. In
September 1994, the Board of Directors
subdivided the preferred stock to create
a Series A preferred stock with
1,000,000 shares authorized. On
October 24, 1994, 105,000 shares of
Series A convertible preferred stock
("A Preferred"), each convertible into
one share of common stock, were issued
in connection with the October 1994
private placement. On April 18, 1995,
the common shareholders and the A
Preferred shareholders approved a
1-for-3.75 reverse stock split of the
common stock and the A Preferred. As a
result of this reverse stock split, the
outstanding shares of A Preferred were
reduced to 28,000. Upon completion of
the IPO, these shares of A Preferred
were converted into shares of common
stock on a one-for-one basis and all of
the shares of A Preferred were retired
and restored to the status of authorized
but unissued shares of Preferred Stock.
In February 1995, the Board of Directors
subdivided the preferred stock to create
a Series B preferred stock with
2,000,000 shares authorized. On
March 23, 1995, 1,212,500 shares of
Series B preferred stock ("B Preferred
"), par value $.01 per share, were
issued. On April 13, 1995, an additional
100,000 shares of Series B Preferred
were issued. The shares of B Preferred
were convertible into a number of shares
of common stock equal to the number of
shares of B Preferred to be converted
multiplied by $1.00 divided by the price
at which common stock is sold by the
Company in an IPO. Upon completion of
the IPO, these shares of B Preferred
were converted into shares of common
stock on a 1-for-3.75 basis and all of
the shares of B Preferred were retired
and restored to the status of authorized
but unissued shares of preferred stock.
In March 1997 the Board of Directors
subdivided the preferred stock to create
a Series C redeemable preferred stock
("C Preferred"), $0.01 par value, with
800,000 shares authorized with the
following principal terms:
Each C Preferred share has four votes
on any matter to be put to the vote
of the Company's Shareholders.
The C Preferred Stock can be redeemed
at the Company's option at any time
upon payment of $200,000.
The C Preferred Stock can be redeemed
at the holder's option following any
investment in the Company or a sale
of any of the Company's assets where
the proceeds are $2,000,000 or more.
The C Preferred Stock will have
preference in the event of any
liquidation to the extent of
$200,000.
On January 15, 1997 a shareholder loaned
the Company $150,000 in exchange for a
six-month non interest bearing note. In
consideration for the note and interest
thereon the shareholder was to be paid
150,000 three-year warrants with an
exercise price of $2.00 per share and a
change in the Midland Warrants (see (b)
below). The 180,000 Midland warrants,
held by Midland Associates, an affiliate
of the shareholder were amended as
follows: the expiration date was
changed from August 11 1988 to January
16, 2002 and the exercise price reduced
from $3.75 to $2.00 per share.
On March 15 1997, this shareholder
advanced the Company an additional
$50,000 and surrendered the $150,000
note which he held. The combined
$200,000 was used to subscribe for the
Series C Preferred Redeemable shares
described above.
On July 23, 1997, the Company redeemed
its 800,000 Series C Redeemable
Preferred Stock for $200,000 pursuant to
the sale of the Copernicus asset (see
Note 13) in accordance with the terms
described above.
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 Preferred, with the
following principal terms:
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.
The Series D Preferred is not
entitled to any dividends or other
distributions on the Common Stock.
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.
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.
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.
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.
(b) Warrants
At March 31, 1998, the Company had
outstanding warrants as follows:
<TABLE>
<S> <C> <C> <C>
Number of Exercise Price Expiration Date
common shares per share
issuable
March 31, 1997
--------------------------------------------------
October 1994 private
placement 310,668 $3.75 October 1999
March 1995 private placement 149,720 $7.58 August 11, 2000(i)
March 1995 private placement 14,400 $4.88 March 2000 (ii)
March 1995 software rights
acquisition 33,333 $5.63 March 2000
April 1995 private placement 12,348 $7.58 August 11, 2000(i)
May 1995 settlement
agreement with MTI ("Midland
Warrants") 180,000 $2.00 January 16, 2002(ii)
August 1995 initial public
offering Redeemable Warrants 1,234,000 $7.58 August 11, 2000
August 1995 representative
warrants 123,480 $7.58 August 11, 2000
August 1995 Redeemable
Warrants issuable upon
exercise of representative's
warrants 123,480 $7.58 August 11, 2000(iii)
September 1995 exercise of
underwriters' overallotment
option for Redeemable
Warrants 185,220 $7.58 August 11, 2000
October 1995 Electric Magic
Options 50,000 $6.00 October 9, 1998
October 1995 Omotsu Warrants 80,000 $7.80 August 11, 2000
January 1997 Shareholder
warrants 150,000 $2.00 January 16, 2002
</TABLE>
(i) Effective upon completion of the
Company's initial public offering
("IPO"), these warrants were exchanged
by the holders for Redeemable Warrants
exercisable for an equal number of
shares and the warrants will expire
upon the fifth anniversary of the IPO.
(ii) These warrants were exercisable at
$.75 per warrant for an additional
14,400 warrants with an exercise price
of $11.25 per share. Prior to the IPO,
they were surrendered by the holder for
cancellation.
(iii) The representative's warrants
require payment of an exercise price of
$.12 per Redeemable Warrant issuable
upon exercise of the representative's
warrants.
(c) Stock Option Plan
The Company adopted a stock option plan
(the "Option Plan"), effective April 8,
1994, which was approved by the
shareholders on September 3, 1994. The
Option Plan provides for the grant of
options to qualified employees
(including officers and directors) of
the Company to purchase up to an
aggregate of 266,667 shares of common
stock. The Option Plan is administered
by a committee (the "Committee")
appointed by the Board of Directors.
The Committee may, from time to time,
grant options under the Option Plan to
such key employees as the Committee may
determine, provided, however, that the
Committee may not grant incentive stock
options ("Incentive Options") to any
key employee who is not in the regular
full-time employment of the Company.
Options granted under the Option Plan
may or may not be "incentive stock
options" as defined in the Internal
Revenue Code, depending upon the terms
established by the Committee at the
time of grant. The exercise price shall
not be less than the fair market value
of the Company's common stock as of the
date of the grant (110% of the fair
market value if the grant is an
Incentive Option to an employee who
owns more than 10% of the total
combined voting power of all classes of
stock of the Company). Options granted
under the Option Plan are subject to a
maximum term of 10 years.
In April 1995, options to purchase
99,466 shares of common stock at an
exercise price of $4.50 per share were
granted and became exercisable in April
1996.
In November 1995, options to purchase
124,400 shares of common stock at an
exercise price of $5.125 per share were
granted. Such options vested and became
exercisable on November 30, 1996.
In October 1997, the Company granted
450,000 options to its Chief Executive
Officer, under the Executive Stock
Option Plan, at an exercise price of
$0.16 per share (the market price on
the date of grant), 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, 150,000
if the average closing stock price of
the common stock exceeds $1.00 for 20
consecutive business days. The Company
will record compensation expense upon
the exercise of the remaining 300,000
options in the amount at the difference
between the stock price at such time and
the exercise price of $0.16
In October 1997, the Company granted to
its Secretary and Vice President 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 grant). Subsequent to the
year-end, this officer terminated his
employment with the Company.
(d) Directors' Stock Options
One current and three former directors
have received options to purchase
10,000 units, each at an exercise price
of $5 per unit, each unit consisting of
one share of common stock and a warrant
to purchase one share of common stock
at an exercise price of $6 per share.
The options are outstanding and
exercisable at March 31, 1998.
In November 1995, the Company issued to
each of its outside directors options
to purchase 10,000 shares of common
stock at an exercise price of $5.125
per share exercisable on or after
November 30, 1996. These options expire
on November 30, 2000.
In April 1996, the Company issued to a
current director options to purchase
10,000 shares of common stock at an
exercise price of $5.125 per share
exercisable on or after April 24, 1997.
In October 1997, two directors were
each granted 50,000 options to purchase
shares of common stock at an exercise
price of $.16 per share (the market
price on the date of grant).
As of January 1, 1998, one director was
granted 50,000 options to purchase
shares of common stock at an exercise
price of $.25 per share (the market
price on the date of grant)
Year ended
March 31, 1998 1997
Net Income
(loss):
As reported $418,140 $(2,975,407)
Pro Forma 349,285 (3,214,225)
Basic and diluted
earnings per share:
As reported $0.17 $(1.21)
Pro Forma 0.14 (1.31)
The following tables contain information on
the employee, executive and director
stock options for the two-year period ended
March 31, 1998:
Option Exercise Price Weighted Average
Shares Range per Share Exercise Price
Outstanding,
March 31, 1996 283,866 $4.50 to $6.00 $5.04
Granted 345,999 1.25 to 5.13 1.54
Exercised - - -
Canceled - - -
Outstanding,
March 31, 1997 529,865 1.25 to 6.00 3.10
Granted 665,000 0.16 to 0,25 0.16
Exercised - - -
Canceled (326,866) 1.25 to 4.50 3.47
Outstanding,
March 31, 1998 967,999 $0.16 to $6.00 $1.96
Option Exercise Price Weighted Average
Shares Range per Share Exercise Price
Exercisable at
year ended
March 31:
1997 439,866 $1.25 to $6.00 $3.89
1998 602,999 0.16 to 6.00 1.49
Weighted Average
Fair Value
Options
granted in:
1997 $0.55
1998 0.09
The following table summarizes information about stock
options outstanding at March 31, 1998:
Range of Exercise Prices
<TABLE>
<S> <C> <C> <C>
$.16-0.25 $1.25-1.63 $4.50-6.00
Outstanding options:
Number outstanding at
March 31, 1998 665,000 190,999 112,000
Weighted average
remaining contractual
life (years) 4.33 3.67 1.79
Weighted average
exercise price $0.16 $1.33 $5.35
Exercisable options:
Number outstanding at
March 31, 1998 300,000 190,999 112,000
Weighted average
exercise price $0.16 $1.33 $5.35
</TABLE>
SFAS No. 123 requires the Company to
provide pro forma information regarding
net loss and loss per share as if
compensation cost for the Company's
stock option plans had been determined
in accordance with the fair value based
method prescribed in SFAS No. 123
The Company estimates the fair value of
each stock option at the grant date by
using the Black-Scholes option-pricing
model with the following weighted
average assumptions used for grants
during the years ended March 31, 1998
and 1997, respectively; no dividends
paid for all years; expected volatility
of 46.5% in 1998 and 35% in 1997;
weighted average risk-free interest
rates of 5.94% and 6.23% respectively;
and expected lives of 4.2 to 4.1 years,
respectively.
Under the accounting provisions of
SFAS No. 123, the Company's net income
(loss) and earnings (loss) per share
would have been reduced to the pro
forma amounts indicated above.
(e) Stock Options Issued in Connection with
the Acquisition of Netphoner
Pursuant to the terms of the
acquisition agreement for Netphoner,
with Electric Magic Co. on October 9,
1995 (see Note 9), the Company issued
to Electric Magic options to purchase
50,000 shares of common stock at an
exercise price of $6.00 per share,
expiring in October 1998. In addition,
the Company issued to a third party
(Omotsu Holdings Limited), in
consideration of its surrender of
rights to acquire Netphoner, warrants
to buy 80,000 shares of common stock at
an exercise price of $7.80 per share
expiring August 11, 2000. (See Note 9.)
8. Supplemental Disclosures of
Cash Flow Information
Year ended March 31,
1998 1997
Cash paid during the
period for:
Interest $19,000 $-
Income taxes $- $-
Supplemental disclosures of noncash investing
activities:
From the sale of its EDI business, in Fiscal 1998
the Company received a note in the amount of $309,812.
9. Loss on Sale of Investment in
Restricted Common Stock
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
Netphoner 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 resulted in a loss of $340,930.
The proceeds of this sale are restricted as
to withdrawal and usage and aggregated
$9,065 at March 31, 1998.
10. Employee Benefit Plan
Effective February 15, 1996, the Company
implemented a 401(k) profit sharing plan
covering substantially all employees.
Contributions to the plan are at the
discretion of the Board of Directors. The
Board did not elect to make a contribution
for the years ended March 31, 1998 or 1997.
11. Related Party Transactions
(a) During the years ended March 31, 1998
and 1997, the Company incurred fees of
approximately $24,000 to a consulting
firm owned by the Company's Chairman of
the Board of Directors.
(b) During the year ended March 31, 1997,
the Company incurred marketing fees of
approximately $82,000 to a firm where a
former Company director is employed.
(c) During the year ended March 31, 1998,
the Company incurred consulting fees of
approximately $11,000 to a current
director for consulting work in the
advertising field. In addition, this
director is entitled to a 5% finders'
fee for any acquisitions of advertising
agencies which he introduces to the Company.
12. Major Customers
Revenues from three major customers for the
year ended March 31, 1998 accounted for
approximately 66% of the Company's total
revenues. Receivables due from these
customers at March 31, 1998 were
approximately $46,000.
Revenues from one major customer for the
year ended March 31, 1997 accounted for
approximately 37% of the Company's total
revenues. There were no receivables due
from this customer at March 31, 1997
13. Gain on Sale of Assets/Discontinued
Operations
(a) Sale of COPERNICUS
On July 23, 1997, the Company sold the
rights to its Copernicus 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 twelve 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 has appointed VIE as
its exclusive agent for the operation of
all aspects of the Copernicus related
business.
b) Sale of EDI business
Until April 1, 1997, through its wholly
owned subsidiary, New Paradigm Commerce
("NPC") (formerly New Paradigm Golden
Link), 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. The
balance of this note at March 31, 1998 was
$247,439
c) Discontinued Operations
The dispositions of the businesses
disclosed in (a) and (b) above have been
presented as discontinued operations and
the balance sheet at March 31, 1998 and
statements of operations for the two years
then ended have been restated to conform to
this presentation. The gain on disposal of
such businesses which aggregated $1,396,737
was included in the statement of operations
for the year ended March 31, 1998.
Financial results of the businesses
included as discontinued operations are as
follows:
Operating Data for COPERNICUS and EDI combined:
<TABLE>
<S> <C> <C>
Year ended March Year ended March
31, 1998 31, 1997
Software fees, royalties and licensing fees $51,512 $380,671
Consulting, maintenance and other fees - 242,227
51,512 622,898
Expenses:
Employee costs 35,217 1,047,606
General and administrative 81,223 265,087
Professional fees - 223,213
Marketing - 323,725
Occupancy - 20,310
Depreciation and amortization 25,784 181,276
142,224 2,061,217
Net Loss from discontinued operations $(90,712) $(1,438,319)
</TABLE>
14. Subsequent Events
Subsequent to March 31, 1998, the Company
through its wholly-owned subsidiary NPAC,
entered into an agreement to purchase
certain assets subject to certain
liabilities related to the advertising
business of Kapelus & Cipriano, Inc.
trading as Schoen, Kapelus & Cipriano,
("SKC") in a business combination accounted
for as a purchase. The purchase price for
this acquisition was 250,000 shares of the
Company's common stock delivered at
closing, plus a payout over each of the
next three years in common stock of one-
third of the net book value of assets less
related liabilities acquired at closing.
In addition, subject to a buyout
agreement, the Company will be paying to
the principals of SKC in each of the next
three years an amount equal to 16.667% of
the net revenue of SKC (as defined in the
buyout agreement) commencing on the closing
date and ending on the third anniversary of
the closing date, less one sixth of the net
liabilities (as defined in the closing
agreement). Such buyout payment shall be
made at 8.334% of the net revenue of SKC
less one sixth of the net liabilities paid
in cash and 8.333% of the net revenue of
SKC paid in shares of the Company's common
stock.
AGREEMENT made this 18th day of October 1997 by and between NEW
PARADIGM SOFTWARE CORPORATION, a New York Corporation, having its
principal place of business located at 630 Third Avenue, New York, NY 10017
(hereinafter referred to as "COMPANY") and MARK A. BLUNDELL residing at 31
Nichols Road, Armonk, NY 10504 (hereinafter referred to as "EXECUTIVE").
WITNESSETH
WHEREAS, the COMPANY is a public reporting company engaged in the
development and marketing of Internet products and services, and
WHEREAS, the EXECUTIVE is Chief Executive Officer and a Director, and
WHEREAS, in the opinion of the Board of Directors of COMPANY, the success
of the business operations of COMPANY is contingent upon the performance
of the EXECUTIVE and in order to ensure and provide for the terms and
conditions of EXECUTIVE's employment:
WHEREAS, pursuant to Section 13 of the EXECUTIVE's agreement with the
COMPANY dated July 14, 1993 ("Agreement"), upon the transfer of
substantially all of the COMPANY's assets, the COMPANY shall accept the
EXECUTIVE's resignation and shall pay the EXECUTIVE certain termination
benefits being not less than $414,000 in cash pursuant to paragraph 13 of
such contract and certain other benefits (referred to collectively herein
as "Termination Benefits");
WHEREAS, the sale by the Company of the Copernicus Products and its
related assets to VIE Systems, Inc. on July 23, 1997 constituted a
transfer of substantially all of the COMPANY's assets;
WHEREAS, the COMPANY is not in a position to pay the Termination Benefits
to EXECUTIVE;
WHEREAS, in the interest of the COMPANY, the EXECUTIVE has agreed to
forego the Termination Benefits in return for (i) a loan from the COMPANY
in the amount of One Hundred Fourteen Thousand U.S. Dollars
($114,000.00 US) at an interest rate of six percent (6%) per annum,
subject to setoff for bonuses, future termination payments and stock
sales of the EXECUTIVE;
WHEREAS, the Board of Directors believes it is in the best interest of the
COMPANY to enter into this Employment Agreement with the EXECUTIVE;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS
AND CONDITIONS HEREAFTER SET FORTH, THE PARTIES AGREE AS
FOLLOWS:
FIRST All prior understandings and/or agreements between the parties are
hereby deemed superseded and incorporated into the provisions of this
Agreement.
SECOND The COMPANY does hereby employ, engage and hire the EXECUTIVE
as Chief Executive Officer of the COMPANY for a period of three years from the
date hereof and such period shall be automatically extended by one year on the
third and each subsequent anniversary of the date hereof unless 90 days
advance written notice is given by COMPANY to EXECUTIVE or by EXECUTIVE to
COMPANY.
THIRD The EXECUTIVE agrees that he will at all times faithfully, industriously
and to the best of his ability, experience and talent, perform all of the
duties that may be required of and from him pursuant to the expressed and
implicit terms hereof.
FOURTH (a) The COMPANY shall pay the EXECUTIVE a minimum base salary of
$200,000 per year ("Minimum Base Salary") in equal semi-monthly installments.
During the term of this Agreement, EXECUTIVE's base salary shall be reviewed
at least annually; the first such review shall be no later than September 30,
1998. Such review shall be conducted by the Board of Directors of the
COMPANY, or a committee designated by the Board of Directors, and such Board
or committee may increase, but not decrease said salary.
(b) Additionally, EXECUTIVE shall be further entitled to an expense allowance
of $4,000 per month. EXECUTIVE further understands and recognizes that he will
be responsible for tax on this amount unless he keeps and maintains adequate
records of expenses and allowances.
(c) In addition to the foregoing, the COMPANY shall loan the EXECUTIVE One
Hundred Fourteen Thousand U.S. Dollars ($114,000.00 US) on the terms set out in
Exhibit A, to be repaid by the COMPANY offsetting the EXECUTIVE's bonuses,
termination payments and stock sales against the amounts due under such Note.
FIFTH The COMPANY shall pay or reimburse EXECUTIVE for all reasonable
travel and other business expenses incurred by EXECUTIVE in performing his
obligations under this Employment Agreement. The COMPANY further agrees to
furnish EXECUTIVE with a private office and such other assistance and
accommodations as shall be suitable to the character of EXECUTIVE's
position with the COMPANY and adequate for the performance of his duties
hereunder.
SIXTH EXECUTIVE shall receive the use of a company car or a $750.00 per month
allowance to be applied by EXECUTIVE as the EXECUTIVE deems appropriate.
SEVENTH COMPANY has granted EXECUTIVE options to purchase shares of the
COMPANY's Common Stock at the dates and amounts as shown in Exhibit B.
EIGHTH EXECUTIVE expressly agrees that he will not during the term hereof, be
interested directly or indirectly in any form fashion or manner, as a partner,
officer, director, stockholder, advisor or executive in any other business
similar to the business of COMPANY unless agreed to by COMPANY. Nothing herein
contained, shall however, limit the rights of the EXECUTIVE to own up to 5% of
the capital stock or other securities of any corporation whose stock or
securities are publicly owned or regularly traded on a public exchange or in
the over-the-counter market. This paragraph 8, is not intended to restrict
EXECUTIVE from profits or revenues resulting from any publications, lectures,
tours, or consulting which EXECUTIVE undertakes in his own time or with
permission from the COMPANY, provided that such work does not conflict
with the interests of the COMPANY.
NINTH EXECUTIVE hereby agrees to be bound by the non-disclosure agreement, a
copy of which is annexed hereto and made a part of hereof and marked
Exhibit "C".
TENTH The payments provided for elsewhere in this Employment Agreement are
in addition to any benefits to which EXECUTIVE may be, or may become entitled
under any group hospitalization, health, dental care, or sick-leave plan, life
or other insurance or death benefit plan, travel or accident insurance, auto
allowance or auto lease plan, or executive contingent compensation plan,
including, without limitation, capital accumulation and termination pay
programs, restricted or stock purchase plan, stock option plan, retirement
income or pension plan, or other present or future group executive benefit
plan or program of the COMPANY for which key executives are or shall become
eligible, and EXECUTIVE shall be eligible to receive during the period of
his employment under this Employment Agreement, all benefits and emoluments for
which key executives are eligible under every such plan or program to the
extent permissible taking to account the relative position of the EXECUTIVE
under the general terms and provisions of such plans or programs and in
accordance with the provisions thereof.
ELEVENTH (a) In the event of the disability (as hereinafter defined) of
EXECUTIVE, the COMPANY shall, continue to pay EXECUTIVE the monthly
compensation provided in Section 4 hereof during the period of his disability;
provided however, that, in the event the EXECUTIVE is disabled for a
continuous period exceeding twelve (12) calendar months, the COMPANY may, at
its election, terminate this Employment Agreement, in which event EXECUTIVE
shall be entitled to receive the benefits described in paragraph 12(c) and
12(d).
As used in this Employment Agreement, the term "disability" shall mean the
inability of EXECUTIVE to perform all or substantially all of his duties under
this Employment Agreement as determined by an independent physician selected
with the approval of the COMPANY and the EXECUTIVE.
(b) During the period EXECUTIVE shall be entitled to receive payments under
paragraph 4, 5, and 6 above, to the extent that he is physically and mentally
able to do so, he shall furnish information and assistance to the COMPANY and
comply with the provisions of Paragraph 9 hereof.
(c) In the event of the death of EXECUTIVE either during his disability or
otherwise during the term of this Agreement, the COMPANY shall pay, or cause
to be paid, to EXECUTIVE's designated beneficiary or beneficiaries or legal
representative a death benefit of $1,000,000.00 Such death benefit may be
payable in one lump cash sum or installments, as determined by the COMPANY,
taking into account any request of EXECUTIVE and his beneficiary or
beneficiaries. The COMPANY may purchase one or more term or other life or
similar insurance policies in amounts to provide for its obligations under
this Paragraph 11(c), and if no adverse tax consequences would result to
EXECUTIVE and his designated beneficiary or beneficiaries, the ownership of
said policy or policies shall be transferred to EXECUTIVE, such transfer to
constitute, to the extent of such transfer, compliance with the COMPANY's
obligations under this Paragraph 11(c).
TWELFTH (a) The EXECUTIVE's employment shall not be terminated without
good cause shown. Dismissal for cause is limited to material, willful and
intentional misconduct on the part of the EXECUTIVE. Under no circumstances
shall EXECUTIVE be terminated if EXECUTIVE reasonably claims that an act is
a breach of his fiduciary responsibilities.
(b) Upon the occurrence of any event described in clauses (i) - (v) below,
EXECUTIVE shall have the right to elect to terminate his employment under this
Employment Agreement by resignation upon not less than ten (10) days prior
written notice, given within a reasonable period of time not to exceed, except
in the case of a continuing breach, ninety (90) days after the event giving
rises to said right to elect. The events are as follows: (i) the COMPANY's
failure to elect or re-elect or to appoint or re-appoint EXECUTIVE to the
offices of President, Chief Executive Officer and Director (including the
giving of notice pursuant to paragraph 2 hereof); or (ii) material change by
the COMPANY in the EXECUTIVE's functions, duties or responsibilities which
change would cause EXECUTIVE's position with the COMPANY to become less
responsible or important and any such material change shall be deemed a
continuing breach of this Employment Agreement; (iii) liquidation, dissolution,
consolidation, acquisition or merger of the COMPANY or transfer of all or
substantially all of its assets; (iv) if the COMPANY requires EXECUTIVE to
work at a facility outside Manhattan or Westchester County, New York, except
by mutual agreement; or (v) other breach of this Employment Agreement by the
COMPANY.
(c) Upon the occurrence of any event of resignation as in 12(b), the COMPANY
shall pay the EXECUTIVE immediately, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate as the case may be, as
severance pay or liquidated damages, or both, for the period described below
a sum equal to the total of the highest monthly rate of salary paid to
EXECUTIVE at any time under this Agreement, the Expense Allowance set out in
Paragraph 4 hereof and the Car Allowance set out in Paragraph 7 hereof. Such
payments shall be calculated for a period of twenty-four months.
(d) Upon the occurrence of an event of resignation as in 12(b), any unvested
shares under the Executive Stock Option Plan provided by COMPANY pursuant to
Exhibit "B" (or any other incentive plan) will become fully vested.
THIRTEENTH In the event of a merger, acquisition or consolidation of the
COMPANY with any corporation or a change in the control of the COMPANY, the
EXECUTIVE may at any time, but no later than ninety (90) days after
consummation of such merger, acquisition, consolidation or change of control,
elect to have his employment relationship with the COMPANY terminated, in
which event EXECUTIVE shall be entitled to receive the benefits described in
Paragraphs 10, 12(c) and 12(d). For purposes of this paragraph, "change of
control" shall be deemed to have occurred, without limitation, if and when
(i) any person (as that term is used in Sections 13(d) and 14(d) (2) of the
Securities and Exchange Act of 1934), other than a person who at the time of
execution of this Agreement is a shareholder of the COMPANY, is or becomes a
beneficial owner, directly or indirectly, of securities of the COMPANY
representing forty (40%) percent or more of the combined voting power of the
COMPANY's then outstanding securities; or (ii) there shall occur a sale of
all, or a substantial part, of the assets of the COMPANY. Notwithstanding
anything in the foregoing to the contrary, no change in the control of the
COMPANY shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction which results in the EXECUTIVE, or a group of
persons which includes the EXECUTIVE, acquiring, directly or indirectly, more
than forty (40%) percent of the combined voting power of the COMPANY's
outstanding securities.
FOURTEENTH In the event of termination without cause (as herein defined) of
the EXECUTIVE during the Employment Period, the EXECUTIVE may elect, within
ninety (90) days after such termination, to be paid immediately a lump sum
severance allowance, in an amount equivalent to the total of his Minimum Base
Salary payments, the Expense Allowance and the Car Allowance for the remainder
of the contract or 24 calendar months, which ever is the greater, together
with a reasonable estimate of any bonus or incentive payments which would have
been paid to EXECUTIVE in this period.
FIFTEENTH It is expressly agreed that COMPANY may apply a proportion of any
termination payment under paragraphs 12, 13 or 14 hereof to the repayment of
the loan which the COMPANY has extended to EXECUTIVE on the terms set out in
Exhibit A.
SIXTEENTH This Employment Agreement contains the total and entire agreement
between the parties and shall as of the effective date hereof, supersede any
and all other agreements between the parties. The parties acknowledge and
agree that neither of them has made any representations that are not
specifically set forth herein and each of the parties hereto acknowledge that
he or it has relied upon his or its own judgment in entering the same.
SEVENTEENTH The parties hereto do further agree that no waiver or modification
of this Employment Agreement or of any covenant, condition or limitation herein
contained, shall be valid, unless in writing and duly executed by the party to
be charged therewith and that no evidence of any proceedings or litigation
between either or the parties arising out of or affecting this agreement or the
rights or obligations of any party hereunder shall be valid and binding unless
such waiver or modification is in writing, duly executed, and the parties
further agree that the provisions of this paragraph may not be waived except as
herein set forth.
EIGHTEENTH The parties hereto agree that it is their intention and covenant
that this Employment Agreement and the performance hereunder shall be construed
in accordance with and under the laws of the State of New York and that the
terms hereof may be enforced in any court of competent jurisdiction in any
action for specific performance which may be instituted under this Employment
Agreement.
NINETEENTH The parties agree that in the event of any dispute arising out of
this Employment Agreement, they will submit to the jurisdiction of the New York
Supreme Court, New York County.
TWENTIETH All notices required or permitted to be given by either party
hereunder shall be in writing and sent by facsimile or mailed by registered
mail, return receipt requested or equivalentto the other party addressed as
follows:
If to COMPANY: The Compensation Committee
New Paradigm Software Corp.
630 Third Avenue
New York, NY 10017 or as amended by COMPANY in written
notice to EXECUTIVE.
If to EXECUTIVE: Mark Blundell
31 Nichols Road
Armonk, NY 10504 or as amended by EXECUTIVE in written
notice to COMPANY.
Any notice mailed as provided above shall be deemed completed on the date of
receipt.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the
day, month and year first above written.
NEW PARADIGM SOFTWARE CORPORATION
__________________________________
BY:
__________________________________
MARK A. BLUNDELL
31 Nichols Road
Armonk
New York
10504
October 16, 1997
TO: BOARD OF NEW PARADIGM SOFTWARE CORPORATION
Dear Sirs:
Re: Waiver of part of base salary
I hereby agree that I will waive $50,000 per annum of base salary until such
time as the company first reports a pre tax profit for a fiscal year which,
but for this payment would have exceeded $75,000. At that time, the $50,000
for that year will become immediately due and payable and henceforth regular
payments will take place at the full rate.
Very truly yours,
Mark Blundell
EXHIBIT C
CONFIDENTIALITY COVENANT AND NON-COMPETE
The Undersigned, MARK A. BLUNDELL ("EXECUTIVE"), hereby covenants,
warrants and agrees that in consideration of NEW PARADIGM SOFTWARE CORP.
("COMPANY") entering into a contract of employment by and between the
undersigned and COMPANY that all information, processes, plans, customer lists,
methods of operation and other related information, which information is
material to the business of the COMPANY, will be held strictly confidential
and only utilized during the course of employment at the COMPANY. The
undersigned further is aware that the COMPANY is relying on the within
representation in permitting and allowing the undersigning access to
information and that said information is considered proprietary and the
property of the COMPANY with the further understanding and agreement that in no
event will said proprietary information be utilized except with the express
written consent of the COMPANY.
During the course of EXECUTIVE's employment except in furtherance of his
duties under the terms and conditions of this contract, the EXECUTIVE
further specifically agrees he will not at any time, in any fashion, form
or manner, either directly or indirectly, divulge, disclose or communicate
to any person, firm, or corporation, in any matter, whatsoever, any
information of any kind, nature or description concerning any material
matters affecting or relating to the business of the COMPANY, including
without limiting the generality of the foregoing, any of its customers,
its manner of operations, its plans, processes, programs, or other data of
any kind, nature or description without regard to whether any or all of
the foregoing matter shall be deemed confidential, material or important,
that the parties hereto stipulating that as between them the same are
important, material, confidential and gravely affect the effective and
successful conduct of the business of the COMPANY and its good will and
that any breach of the terms of this paragraph is a material breach
thereof, except where the EXECUTIVE shall be acting on behalf of the
COMPANY.
EXECUTIVE specifically understands and agrees that the knowledge of
customer activities, information and related matters concerning COMPANY
and its customers are proprietary and are deemed the property of COMPANY
and that prior to the termination of the within agreement and for a
period of one year thereafter, EXECUTIVE understands and agrees that
said proprietary information shall not be utilized by EXECUTIVE in
connection with the COMPANY's existing customers without COMPANY's
consent. In addition thereto, EXECUTIVE recognizes and agrees that
should there be any violation of the within covenant that EXECUTIVE
consents to the jurisdiction of the New York State Supreme Court,
New York County, for any action requesting injunctive relief and damages
insofar as COMPANY is concerned should EXECUTIVE violate any part of the
within covenant.
EXECUTIVE further understands and agrees that COMPANY in entering into the
within agreement is relying upon EXECUTIVE's representation and warranty
that all trade secret and other proprietary information of COMPANY will be
kept strictly confidential by EXECUTIVE and not utilized by EXECUTIVE in
any manner whatsoever other than on COMPANY's behalf and during the course
of EXECUTIVE's employment with COMPANY.
____________________
Mark Blundell
Exhibit 11
Weighted Average Share Calculations
Common Stock at 4/1/1997 2,451,729
Common Stock at 3/31/1998 2,451,729
Weighted Avg 2,451,729
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 211,095
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<PP&E> 386,769
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<COMMON> 24,517
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<TOTAL-LIABILITY-AND-EQUITY> 761,668
<SALES> 195,461
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<TOTAL-COSTS> 1,140,518
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