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, 1999
_ 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. $2,749,327
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
November 5, 1999 was $3,349,922
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 November 5, 1999 there were an aggregate of 3,806,729 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 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of 7
Security Holders
PART II
5. Market for Registrant's Common 7
Equity and Related Stockholder
Matters
6. Management's Discussion and 8
Analysis of Financial Condition and
Results of Operations
7. Financial Statements 11
8. Changes in and Disagreements with 11
Accountants On Accounting and
Financial Disclosure
PART III
9. Directors, Executive Officers, 11
Promoters and Control Persons;
Compliance with Section 16(a) of
the Exchange Act
10.Executive Compensation 13
11.Security Ownership of Certain 15
Beneficial Owners and Management
12.Certain Relationships and Related 17
Transactions
PART IV
13.Exhibits and Reports on Form 8-K 18
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"). The Company intends to
continue to market its Internet capabilities by acquiring and by forming
alliances with selected advertising agencies who have established strategic
relationships with their clients. NPIL began operations in December 1995,
and provides Internet services to corporations and other organizations.
Advertising agencies that arepartners of NPIL include; SKC Advertising ( a
fully owned subsidiary of the Company) Biderman Kelly Krimstein & Partners,
Moscato Marsh, Earle Palmer Brown New York and Solay Keller Advertising.
Clients include Novartis, Motorola, New York University, Parent time 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 to create Internet applications including 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 providing
Web server hosting services independently from a customer's own internal
network to ensure security.
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.
and continue to grow the underlying advertising business. SKC has been
successful in adding new clients in the past tweve months. Management
believes this is due to the added Internet services it can now offer to SKC
clients. SKC clients include; the Scottish Tourist Board, Island
Destinations, Long Bay Beach, Peter Deilmann EuropAmerica Cruises, Kemwel
Holiday Autos and The Castle at Tarrytown. Since the end of fiscal 1999,
SKC have added Travel Lodge and Icelandair to its client base.
During fiscal 1999 the Company discontinued the operations of Future
Paradigm Inc. which was established as a joint venture. The Company
decided that it was more was cost effective to act as a subcontractor
that as a partner.
Until May 9, 1997, the Company was primarily engaged in the development,
marketing, licensing and support of COPERNICUS a software product. As of
May 9, 1997, the Company sold rights to COPERNICUS 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.
Until April 1, 1997, the Company operated a service bureau business
providing electronic data interchange services, through its wholly owned
subsidiary, New Paradigm Commerce, Inc. ("NPC"). As of April 1, 1997,
the Company sold this 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. In September 1998, the Company accepted
a payment of $142,000 from CIS as full payment for the outstandind balance.
This resulted in a loss of $60,139 to the Company.
Internet
Through NPIL, the Company provides Internet services to corporations and other
organizations. The Company intends to develop this business by working with
advertising agencies with appropriate strategic relationships with their
clients. Clients include Novartis, Motorola, New York University, Parent Time
and the Association of the Bar of the City of New York. 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 users are currently estimated at 40 million. 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. Typical revenues
for building web sites has increased from $20,000 - $30,000 to approximately
$60,000 - $100,000 with continuing revenues for maintenance and changes. The
Company has created more than 20 Web sites for customers of this service to
date.
Examples of web sites created by New Paradigm include:
Novartis - for its "Program" product: www.programpet.com
Association of the Bar of the City of New York: www.abcny.org
NewYork University for its School of Continuing Studies: www.scps.nyu.edu
Novartis - for its "Sentinel" product: www.petprotect.com
Josephthal & Co - corporate Website: www.josephthal.com
Novartis - site for its "Clomicalm" product: www.clomicalm.com
Website services - marketing and distribution
The Company is marketing its services primarily through indirect sales to
advertising agencies. One staff member is engaged full time in direct activity.
The sales through advertising agencies result from an integrated media campaign
where the Internet portion is subcontracted to NPIL. In addition, the Company
believes that clients of any advertising agencies that it may acquire in the
future 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.
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
Research and development expenses, which include salaries and other employee
costs of the Company's product development personnel for the fiscal year ended
March 31, 1999, was $20,000. The development costs have 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 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 November 5, 1999, the Company and its subsidiaries employed 18 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 Company also employs consultants in Internet
programming and multi-media graphic arts on part time and 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. SKC occupies
premises at 550 Mamaroneck Avenue, New York. These premises are leased until
June 2002 at a cost of approximately $6,000 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, 1999 and afterwards as reported
on the Nasdaq Bulletin Board:
<TABLE>
<S> <C> <C>
Common Stock Redeemable Warrants
1998 Fiscal Quarters High Low High Low
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 0.063 0.003 0.003
1999 Fiscal Quarter
First Quarter 1.50 0.25 0.00 0.00
Second Quarter 0.50 0.28 0.00 0.00
Third Quarter 0.25 0.06 0.00 0.00
Fourth Quarter 2.0625 0.125 0.00 0.00
</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 74 and the
number of record holders of Redeemable Warrants was 46 as of March 31, 1999.
(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 year ended March 31, 1999 has been derived from the
financial statements of the Company, which have been audited by Goldstein and
Morris, CPA's, PC. The Statement of Operations Data presented below for the
end of the fiscal year ended March 31, 1998 has been derived from the
financial statements of the Company, which have been audited by BDO Seidman
LLP, independent certified public accountants (whose report contained an
explanatory paragraph regarding the Company's ability to continue as a going
concern). 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 in
April 1997. As a result the statements of operations for the fiscal year
ended March 31, 1998 has 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 $2,749,372 $195,461
Cost of revenue 1,741,183 -
-------------- ------------
Gross profit 1,008,189 195,461
Expenses 1,552,292 1,140,518
------------- ------------
Loss from operations (544,103) (945,057)
Other income (net) 5,767 36,103
Gain from reduction of liability 26,000 361,999
Realized loss on sale of investment - (340,930)
----------- -----------
Loss from continuing operations (512,336) (887,885)
Loss from discontinued operations (60,139) (90,712)
Gain on sale of assets from
discontinuedoperations - 1,396,737
----------- ----------
Net income (loss) $(572,475) $418,140
Basic and diluted per share data:
Net loss from continuing operations $(0.19) $(0.36)
Net loss from discontinued operations (0.02) (0.04)
Gain on sale of asset - 0.57
--------- ---------
Net income (loss) per common share (1) $(0.21) $0.17
Weighted average common shares
outstanding (1) 2,901,729 2,451,729
Balance Sheet Data
March 31,1999
-------------
Total assets $1,386,549
Total current assets 910,469
Total liabilities 1,376,708
Long-term debt 0
Current liabilities 1,376,708
Deficit (9,263,935)
Total Shareholders' Equity $9,791
(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 year ended March 31, 1998 has 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 $512,336 for the
year ended March 31, 1999 and net losses of $887,885 for the year ended
March 31, 1998. The Company's revenues from continuing operations for the
fiscal years ended March 31, 1999 and 1998 were $2,749,372 and $195,461
respectively. The Company's subsidiary, NPIL had 10 customers for its Web
site creation and maintenance services as at March 31, 1998 and 20 as at
March 31, 1999.
In its discontinued operations the Company had net losses of $60,139 for the
year ended March 31, 1999 and $90,712 for the year ended March 31, 1998. The
Company's revenues from discontinued operations for the fiscal years ended
March 31, 1999 and 1998 were $0 and $51,512 respectively.
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, 1999 increased from $195,461 to $2,749,372 due to the acquisition of
SKC and the increase in revenues generated by NPIL.
Cost of Revenue. The cost of revenue for fiscal year ended March 31, 1999 was
$1,741,183, these costs were directly associated with the advertising business
of SKC.
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, 1999 increased by $411,774 (36%) over the fiscal year ended
March 31, 1998, due to the acquisition of SKC.
For the continuing operations, employee costs increased by 29% to $740,852
in the fiscal year ended March 31, 1999, compared to $574,172 in the fiscal
year ended March 31, 1998. This was due to the acquisition of staff from SKC.
Selling, general and administrative expenses relating to continuing operations
increased by 45% to $723,508 in the fiscal year ended March 31, 1999 compared
to $498,433 in the fiscal year ended March 31, 1998. This is principally due
to the operations of SKC.
Depreciation and amortization expenses were at $87,932 in the fiscal year ended
March 31, 1999, compared to $67,913 in the fiscal year ended March 31, 1998.
In April 1999, the Company entered into a lease in respect of approximately
5,000 square feet of space at 550 Mamaroneck Avenue, New York, 10517.
Payments under this lease that runs until June, 2002 are expected to total
$234,000 of which $72,000 are due in fiscal years 2000, 2001 and 2002 and
$18,000 in fiscal 2002. 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>
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
1999 2014 572,000
---------
$9,183,000
</TABLE>
The tax benefit of these losses (approximately $4,200,000 at March 31, 1999)
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.
Accounts payable and accrued expenses increased to $924,516 at March 31, 1999
from $248,351 at March 31, 1998. Such increase in accounts payable and accrued
expenses is primarily due to the acquisition of SKC.
The Company incurred $20,000 of research and development expenses for the
fiscal year ended March 31, 1999.
At March 31, 1999, the Company had negative working capital of approximately
$466,000.
The Company will need additional financing prior to March 2000 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, 2000, the Company intends to continue
to acquire advertising agencies 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.
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.
Item 7. Financial Statements and Supplementary Data
Financial statements are included herein following Part IV, Item 13, and are
filed as part of this report.
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 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 41 Chief Executive Officer,
President, Chief Financial
Officer, and Director
Milton Kapelus 62 President, SKC Advertising, Inc.
Rocco Cipriano 47 Executive Vice President,
SKC Advertising, Inc., and Director
Daniel A. Gordon 60 Chairman of the Board of Directors
Michael Taylor 57 Secretary and Director
Morton Chalek 75 Director (resigned October 1, 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 of Lancer, a company 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 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 and resigned
October 1, 1998. 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.
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, 1999
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- 1997 $150,000 $0 $57,000(1) 149,999 $0 $1,100(2)
utive Officer, Chief Finan- 1998 $150,000 $0 $57,000(1) 450,000 $0 $1,100(2)
cial Officer & President 1999 $130,000 $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, 1999
The following table sets forth all grants of stock options made during the
fiscal year ended March 31, 1999 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,
1999
Daniel Gordon 50,000 50% $0.25 January 2009
Michael Taylor 50,000 50% $0.25 January 2009
All Shareholders N/A N/A N/A N/A
All Optionees 100,000 N/A $0.25 January 2000
</TABLE>
AGGREGATE OPTIO EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999 AND YEAR END
OPTION VALUES
The following table sets forth information with respect to stock options
exercised by each of the named officers made during the fiscal year ended
March 31, 1999, and the number and value of unexercised options as of that
date:
<TABLE>
< C> <C> <C> <C> <C> <C>
Name Shares Realizable Excercisable Unexercisable Excercisable Unexercisable
Acquired Value
on Exercise
Mark Blundell 0 $0 338,665 300,000 $50,800 $45,000
</TABLE>
(a) Based on the closing price of New Paradigm Software Corp. Common
Stock on March 31, 1999 of $0.15 as reported on NASDAQ Bulletin Board.
Compensation for Directors
The directors of the Company currently receive no fees. They are reimbursed by
the Company for their direct costs for attending meetings. 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). In January 1999 Messrs. Taylor and
Gordon were each 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 has entered into an employment contracts with Mr. Blundell.
The employment contract contains 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 has 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.
Mr. Blundell is 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.
Mr. Blundell's also entered into an employment agreement with NPAC 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 April 1, 1999, 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 23%
John Brann 30,667(d) 199,999(c) 230,666 8%
Daniel Gordon 85,333(e) 0 85,333 3%
Milton Kapelus 100,000 0 100,000 3%
Rocco Cipriano 100,000 0 100,000 3%
Lancer Holdings 199,999(f) 0 199,999 7%
Midland Associates 619,999(g) 0 619,999 19%
Michael Taylor 70,000(h) 0 70,000 2%
Morton Chalek 50,000(i) 0 50,000 2%
Robert Trump 350,000(j) 619,999(k) 969,999 28%
All Directors and
Executive Officers of
the Company as a group
(a total of 5 persons) 875,998(l) 199,999(c) 1,075,997 27%
</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.
(d)Consists of (i) 26,667 shares of Common Stock and (ii) 4,000 shares of
Common Stock issuable upon exercise of 1994 Warrants.
(e)Consists of 85,333 shares of Common Stock issuable upon exercise of options
granted under the SOP.
(f)Consists of 166,666 shares of Common Stock and 33,333 shares of Common
Stock issuable upon exercise of the warrants held by Lancer Holdings.
(g)Consists of 439,999 shares of Common Stock and 180,000 shares of Common
Stock issuable upon exercise of warrants.
(h)Consists of 70,000 shares of Common Stock issuable upon exercise of options
granted under the SOP.
(i)Consists of 50,000 shares of Common Stock issuable upon exercise of options
granted under the SOP
(j)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.
(k)Represents the holdings of Midland Associates. Consists of the securities
listed in note (g) above.
(l)Consists of all of the securities in notes (b), (e), (f), (h), and (i)
above.
The following table indicates the beneficial ownership of the Company's
Preferred Stock as of April 1, 1999, 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%
Daniel Gordon 0 0 0 0%
Milton Kapelus 0 0 0 0%
Rocco Cipriano 0 0 0 0%
Michael Taylor 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
ofthe 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.
In a letter dated March 31, 1999, all the owners of the Series D Prefferred
Stock elected to covert their entire holdings into an aggregate of 850,000
shares of the Company's Common Stock to be effective April 1999.
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 Transaction 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, 1998 Corporate
Growth Services received $24,000 in such fees and in the fiscal year ended
March 31, 1999, Mr. Gordon received no fees.
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
June 1999 - Advising change in auditors from BDO Seidman, LLP to Goldstein
and Morris CPA's PC.
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: November 9, 1999 _/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 November 9, 1999
/s/Daniel A. Gordon
Daniel A. Gordon Chairman of the Board of Directors November 9, 1999
/s/ Rocco Cipriano
Rocco Cipriano Director November 9, 1999
/s/ Milton Kapelus
Milton Kapelus Director November 9, 1999
/s/ Michael Taylor
Michael Taylor Secretary and Director November 9, 1999
<PAGE>
AUDITED FINANCIAL STATEMENTS
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999 AND 1998
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-23
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, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the period ended March 31, 1999. 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.
The consolidated financial statements of New Paradigm Software Corp. and
Subsidiaries as of March 31, 1998 were audited by other auditors whose opinion
dated June 26, 1998, on those statements were qualified because of a departure
from generally accepted accounting principles as described in Note 4.
Additionally, the consolidated financial statements as of March 31, 1998,
audited by other auditors included an explanatory paragraph that described the
doubt of the Company's ability to continue as a going concern due to incurring
significant operating losses, accumulated deficit, and disposition of certain
businesses as discussed in Notes 1 and 14 to the financial statements.
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.
Because of the inadequacy of accounting records with regard to approximately
$130,000 of accrued media sales, we were unable to form an opinion regarding
this receivable in the accompanying balance sheet at March 31, 1999, or the
amount included in revenue for the year ended March 31, 1999.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary relating to the accrued media sales and
related revenue, 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, 1999, and the results of
their operations and their cash flows for the period ended March 31, 1999, 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. 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.
Goldstein & Morris CPA's PC
New York, New York
November 11, 1999
NEW PARADIGM SOFTWARE CORP. and SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<S> <C>
March 31, 1999
--------------
Assets
Current:
Cash and cash equivalents $339,526
Accounts receivable 533,904
Prepaid expenses and other current assets 37,039
---------
Total current assets 910,469
Property and equipment, less accumulated depreciation
and amortization (Note 3) 134,830
Note receivable from Officer/Shareholder (Note 7(b)) 123,975
Goodwill (net of amortization) (Note 2) 196,275
Security deposit 21,000
--------
$1,386,549
========
Liabilities and Shareholders' Equity
Current:
Notes payable (Note 5) $80,000
Accounts payable and accrued expenses 924,516
Deferred revenue 372,516
-------
Total current liabilities 1,376,708
-------
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 2,901,729 29,017
Additional paid-in capital 9,244,709
Deficit (9,263,935)
----------
Total Shareholders' equity 9,791
----------
$1,386,549
==========
</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, 1999 March 31, 1998
-------------- --------------
Revenues:
Revenues $2,749,372 $195,461
Cost of revenues 1,741,183 -
--------- -------
Gross profit 1,008,189 195,461
--------- -------
Operating Expenses:
Salaries and employee benefits 740,852 574,172
Selling and general and administrative 723,508 498,433
Depreciation and amortization 67,932 67,913
--------- ----------
1,552,292 1,140,518
--------- ----------
Loss from operations (544,103) (945,057)
--------- ----------
Other income (expense):
Interest income 7,794 38,203
Interest expense (2,027) (2,100)
Gain from reduction of liability (Note 3) 26,000 361,999
Realized loss on sale of investment in
restricted common stock (Note 9) - (340,930)
-------- -------
31,767 57,172
-------- -------
Loss from continuing operations (512,336) (887,885)
Loss from discontinued operations (Note 13) (60,139) (90,712)
Gain on sale of assets of discontinued
operations (Note 13) - 1,396,737
--------- ----------
Net income (loss) $(572,475) $418,140
========= ===========
Basic and diluted per share data
Loss from continuing operations $(0.19) $(0.36)
Loss share from discontinued operations (0.02) (0.04)
Gain on sale of assets - 0.57
====== ======
Net income (loss) per Common share $(0.21) $0.17
====== ======
Basic and diluted weighted average common
shares Outstanding 2,718,396 2,451,729
========= =========
</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, 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
Issuance of common stock
for acquisition - - 250,000 2,500 72,500 - - 75,000
Issuance of common stock for
settlement of note payable - - 200,000 2,000 22,000 - - 24,000
Net loss for the year - - - - - - (572,476) (572,476)
- -------------------------------------------------------------------------------------------------------------------
Balance, March 31,1999 - $ - 2,901,729 $29,017 $9,244,709 - $(9,263,935) $ 9,791
==================================================================================================================
</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, 1999 March 31, 1998
-------------- --------------
Cash flows from operating activities:
Net Income (loss) $(572,476) $418,140
-------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 87,932 86,055
Provision for bad debt 20,000 -
Gain on sale of assets - (1,396,737)
Gain from reduction of liability (26,000) (361,999)
Loss on sale of investment in restricted
Loss from discontinued operation 60,139 -
common stock - 340,930
Deferred rent payable - (71,127)
Issuance of Series D redeemable preferred
stock to employees pursuant to a
restricted grant - 50
Noncash interest expense 2,027 2,100
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (307,353) 4,619
Notes receivable from officer/shareholder (6,840) -
Prepaid expense and other current assets (5,619) 19,946
Other assets (21,000) 71,266
Increase (decrease) in:
Accounts payable and accrued expenses 316,637 (196,340)
Deferred revenue 372,192 -
----------- -----------
Net cash used in operating activities (80,361) (1,083,097)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (63,278) (24,654)
COPERNICUS development costs - (8,334)
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 187,300 62,373
Cash acquired upon acquisition 84,770 -
--------- ---------
Net cash provided by (used in)
financing activities: 208,792 1,686,024
--------- ---------
Cash flows from financing activities:
Acquisition of Series C redeemable preferred
stock - (200,000)
Proceeds from note payable - 30,000
Repayment of debt - (550,000)
--------- -------
Net cash provided by (used in) financing
activities - (720,000)
--------- -------
Net increase (decrease) in cash and cash equivalents 128,431 (117,073)
Cash and cash equivalents, beginning of period 211,095 328,168
-------- ---------
Cash and cash equivalents, end of period $339,528 $211,095
-------- ---------
</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, SKC, Inc. ("SKC"), is an
advertising agency, and New Paradigm Inter-Link, Inc. ("NPIL"), is engaged
in the advertising and communications business. In addition, 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, 1999. As discussed
in Note 14, 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, NPIL and SKC. 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.
Goodwill
The Company 's goodwill arose from the purchase of assets less the assumption
of liabilities of SKC Inc. Goodwill is amotized over a fifteen year period
utilizing the straight-line method.
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.
Advertising revenues are derived from commissions for placement of
advertisement in various media and from fees for staffing and for production
of advertisements and marketing projects. Revenue ios generally recognized
when billed. Billings are primarily rendered upon presentation date for media,
when staff is used, when costs are incurred or printed production is complete.
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
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective in the year
2000 but is not expected to affect the Company.
2. Acquisition
On April 1, 1998 the Company purchased certain assets subject to certain
liabilities related to the advertising of Kapelus & Cipriano Inc., trading
as Schoen, Kapelus & Cipriano, ("SKC") for 250,000 common shares valued at
$75,000. The business combination was accounted for as a purchase, and,
accordingly, SKC's results are included in the consolidated financial
statement since the date of acquisition. The purchase price, which was
financed through the issuance of common stock, has been allocated to the
assets of SKC based upon their respective fair market values. The liabilities
assumed less the excess of the assets acquired is approximately $210,000
(Goodwill), and is being amortized over 15 years.
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 payments 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 revenues of
SKC paid in shares of the Company's common stock.
In connection with the SKC purchase, the assets acquired and liabilities
assumed are as follows:
Tangible assets acquired at fair value $325,000
Goodwill 210,000
Liabilities assumed at fair value (410,000)
---------
Total purchase price $ 75,000
The following pro forma consolidated results of operations have been prepared
as if the acquisition of SKC had occurred as of the beginning of fiscal 1998:
March 31, 1999 March 31, 1998
(Audited) (Unaudited)
Net sales $2,750,000 $3,027,000)
Net loss from continuing operations (512,000) (980,000)
Net loss per share from continuing operations (0.19) (0.40)
The pro forma consolidated results do not purport to be indicative of the
results that would have occured had the acquisition been in effect for the
periods presented, nor do they purport to be indicative of the results that
will be obtained in the future.
3. Property and Equipment
Property and equipment consists of the following as of March 31, 1999:
Computer equipment $ 263,694
Software 77,876
Furniture and fixtures 91,843
Telephone system 37,262
-------
470,675
Less: Accumulated depreciation
and amortization 335,845
--------
$134,830
--------
4. 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 a gain of
$361,999 from the reduction of this liability in its statement of operations
for the year ended March 31, 1998. The Company settled this liability for
$74,000 recording a gain of $26,000 for the year ended march 31, 1999.
5. Notes Payable
Notes payable as of March 31, 1999 are as follows:
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 14) or the Company may prepay the loan at any time plus
interest at 8% per annum. $30,000
Note payable to former corporate counsel pursuant to settlement
agreement. The note matures in June 2007 and requires monthly
principal payments of $500 plus interest of 8% per annum. 50,000
-------
$80,000
6. Income Taxes
The Company's net operating loss carryforwards
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
1999 2014 572,000
----------
$9,183,000
----------
</TABLE>
The tax benefit of these losses (approximately $4,200,000 at March 31, 1999)
is subject to limitations due to the change in control for income tax purposes
resulting from the Company's Initial Public Offering ("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.
7. Commitments and Contingencies
(a) Leases
The Company leases sales and office space under an operating leases which
expire on February 28, 2001 and May 31, 2002.
The future minimum rental payments under this sublease agreement are
approximately as follows:
Year ending March 31,
---------------------
2000 $155,000
2000 148,000
2001 73,000
--------
$376,000
--------
Rent expense for the years ended March 31, 1999 and 1998 amounted to
approximately $163,000, and $66,000 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 5 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. During fiscal 1999 the Company ceased to operate FPI and acted as a
subcontractor to the advertising agencies.
8. 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 14) 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.
subsequent to the end of fiscal 1999
the holders of all Series D Preferred
Stock converted into 850,000 shares of
the Company's Common Stock.
(b) Warrants
At March 31, 1999, the Company had outstanding warrants as follows:
<TABLE>
<S> <C> <C> <C>
Number of Exercise Price Expiration Date
common shares per share
issuable
--------------------------------------------------
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
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).
In January 1, 1999 two directors were each granted 50,000 options to purchase
shares of common stock at an exercise price of $.25 per share. These options
expire on December 31,2009.
The following tables contain information on the employee, executive and
director stock options for the two-year period ended March 31, 1999:
Option Exercise Price Weighted Average
Shares Range per Share Exercise Price
- ---------------------------------------------------------------
Outstanding,
March 31, 1997 629,865 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
Granted 316,000 0.25 to 0.34 0.31
Exercised - - -
Canceled (307,999) 0.16 to 6.00 1.82
- ---------------------------------------------------------------
Outstanding
March 31, 1999 976,000 $0.16 to $5.125 $0.52
- ----------------------------------------------------------------
Option Exercise Price Weighted Average
Shares Range per Share Exercise Price
- ---------------------------------------------------------------
Exercisable at
year ended
March 31:
1998 602,999 0.16 to 6.00 1.49
1999 714,000 0.16 to 5.125 0.64
Weighted Average
Fair Value
----------------
Options
granted in:
1998 $0.09
1999 0.26
The following table summarizes information about stock options outstanding
at March 31, 1999:
Range of Exercise Prices
<TABLE>
<S> <C> <C> <C>
$.16-0.25 $0.34-0.50 $5.125
- -----------------------------------------------------------
Outstanding options:
Number outstanding at
March 31, 1999 710,000 206,000 60,000
Weighted average
remaining contractual
life (years) 3.33 10.0 6.72
Weighted average
exercise price $0.18 $0.34 $5.125
Exercisable options:
Number outstanding at
March 31, 1999 452,500 201,500 60,000
Weighted average
exercise price $0.14 $0.17 $5.13
- -----------------------------------------------------------
</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
45.8% in 1999 and 45.5% in 1998; weighted average risk-free interest rates of
5.20% and 5.94.23% respectively; and expected lives of 9.8 to 4.2 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.
Year ended March 31,
1999 1998
---------------------------------
Net Income (loss):
As reported $(572,475) $418,140
Pro forma (624,205) 349,285
Basic and diluted earnings per share:
As reported $(0.21) $0.17
Pro forma (0.23) 0.14
9. 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:
Year ended April 31, 1999
- -------------------------
On April 1, 1998 the Company issued 250,000 shares of Common stock
valued at $75,000 for the acquisition of business assets valued at
$325,000 and assumed liabilities in the amount of $460,000.
The Compan issued 200,000 shares of common stock valued at $24,000
in reduction of a note payable.
Year ended April 31, 1999
- -------------------------
From the sale of its EDI business, in Fiscal 1998 the Company received
a note in the amount of $309,812.
10. 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.
11. 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, 1999 or 1998.
12. Related Party Transactions
(a) During the year ended March 31, 1998, the Company incurred consulting
fees ofapproximately $24,000 to a consulting firm owned by the Company's
Chairman of the Board of Directors. No fees were incurred during the year
ended March 31, 1999
(b) During the year ended March 31, 1998, the Company incurred consulting
fees ofapproximately $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. No fees were incurred during the year ended March 31,1999.
13. Major Customers
Revenues from one major customers for the year ended March 31, 1999 accounted
for approximately 20% of the Company's total revenues. The total accounts
receivable from this customer at March 31, 1999 amounted to 19% of the total
accounts receivable balance.
Revenues from one major customer for the year ended March 31, 1998 accounted
for approximately 37% of the Company's total revenues. There was no receivables
due from this customer at March 31, 1998.
14. 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. During the year ended March 31,
1999, the Company accepted $187,300 and took a $60,139 loss.
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, 1999
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, 1999 31, 1998
- ---------------------------------------------------------------------------
Software fees, royalties and licensing fees - $51,512
------- --------
Expenses:
Employee costs - 35,217
General and administrative - 81,223
Settlement of note 60,139 -
Depreciation and amortization - 25,784
------- ---------
$60,139 $142,224
--------- -----------
Net Loss from discontinued operations $(60,139) $(90,712)
--------- -----------
</TABLE>
15. Subsequent Events
Subsequent to March 31, 1999, the Company through its wholly owned subsidiary
NPACCII, entered into an agreement to purchase certain assets subject to
certain liabilities related to the advertising business of Sutton & Partners,
Inc. ("SP") in a business combination accounted for as a purchase. The
purchase price for this acquisition was 50,000 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
liabilies acquired at closing.
In addition, subject to a buy out agreement, the Company will be paying to the
principals of SP in each of the next three years an amount equal to 25% of the
net revenue of SP (as defined in the buy out agreement) commencing on the
closing date and ending on the third anniversary of the closing date, less one
third of the net liabilies (as defined in the buy out agreement). Such buy out
payment shall be made at 12.5% of the net revenue of SP paid in shares of the
Company's Common stock.
In April 1999 the Redeemable Series D Preferred Stock was converted in
accordance with its terms into 850,000 shares of Common Stock.
Exhibit 11
Weighted Average Share Calculations
Common Stock at 4/1/1998 2,451,729
Common Stock at 3/31/199 2,901,729
Weighted Avg 2,718,396
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-1-1998
<PERIOD-END> MAR-31-1999
<CASH> 339,526
<SECURITIES> 0
<RECEIVABLES> 533,904
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 910,469
<PP&E> 470,675
<DEPRECIATION> 335,845
<TOTAL-ASSETS> 1,386,549
<CURRENT-LIABILITIES> 1,376,708
<BONDS> 0
50
0
<COMMON> 29,017
<OTHER-SE> (19,227)
<TOTAL-LIABILITY-AND-EQUITY> 1,386,549
<SALES> 2,749,372
<TOTAL-REVENUES> 2,749,372
<CGS> 1,741,183
<TOTAL-COSTS> 1,741,183
<OTHER-EXPENSES> 1,552,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,027
<INCOME-PRETAX> (512,336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (512,336)
<DISCONTINUED> (60,139)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572,475)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
