SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Fiscal Year Ended March 31, 2000
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
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New Paradigm Software Corp.
(Name of Small Business Issuer in Its Charter)
NEW YORK 13-3725764
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
630 Third Avenue, New York, NY 10017
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(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 ______ 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. $6,208,792
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The aggregate market value of Common Stock held by non-affiliates of the
Registrant based on the closing sale price on the Nasdaq Bulletin Board on June
28, 2000 was $2,505,101
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____X______Not Applicable
-
APPLICABLE ONLY TO CORPORATE REGISTRANTS
At June 27, 2000 there were an aggregate of 4,624,297 shares of Common Stock of
the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one)
Yes _______ No ______
<TABLE>
<CAPTION>
PART I
ITEM PAGE
<C> <S> <C>
1 Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 16
6. Management's Discussion and Analysis of Financial Condition and Results of Operations
7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8 Changes in and Disagreements with Accountants On Accounting and Financial Disclosure 22
PART III
9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act . 23
10 Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11 Security Ownership of Certain Beneficial Owners and Management 28
12. Certain Relationships and Related Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PART IV
13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE>
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 following businesses:
- Internet research and development of commercial applications through its
wholly owned subsidiary New Paradigm Inter-Link, Inc. ("NPIL"). NPIL began
operations in December 1995, and provides Internet services to corporations and
other organizations.
- Advertising through its wholly owned subsidiary New Paradigm Advertising,
Inc. ("NAP"). NAP began operation in April 1998 by acquiring certain assets and
assuming certain liabilities of (1) Kapelus & Cipriano, Inc. a
Westchester, NY-based full-service advertising agency trading as Schoen,
Kapelus & Cipriano ("SKC") and (2) Sutton & Partners, Inc. ("S&P"), a
Greenwich, Connecticut based advertising agency. The S&P transaction took place
on July 1, 1999.
- Public relations through its wholly owned subsidiary GMG Public Relations,
Inc. ("GMG"). GMG began operation in January 2000 by acquiring certain assets
and assuming certain liabilities of a company then named GMG Public Relations,
Inc. The Company acquired the right to re-name its own subsidiary GMG Public
Relations, Inc. in this transaction.
The Company intends to continue to market its Internet capabilities by acquiring
and by forming alliances with selected advertising agencies and other marketing
communications businesses that have established strategic relationships with
their clients. Advertising agencies that are partners with the Company include
the following:
- Biderman Kelly Krimstein & Partners
- Moscato Marsh
- Earle Palmer Brown New York
- Solay Keller Advertising
Clients of the Company through these partnerships include
- Novartis Animal Health (USA)
- Motorola
- New York University School for Continuing and Professional Studies
- ParentTime (a Time Inc. subsidiary)
- 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 Web sites. This expertise includes: assembling an appropriate team of
independent design consultants and, if necessary, programmers; designing the
site from both technical and aesthetic perspectives; implementing the design;
and providing Web server hosting services independently from a customer's own
internal network to ensure security.
The Company intends to further develop this business by launching new products
and services connected with the Internet, and to continue to grow the underlying
advertising business. NPA has been successful in adding new clients in the past
twelve months. Management believes this is due to the added Internet component
it can now offer to potential NPA clients. NPA clients include:
- Travelodge
- Scottish Tourist Board
- Beth Abraham Health Services
- Island Destinations
- Long Bay Beach
- Peter Deilmann EuropAmerica Cruises
- Focus Vision
- Kemwel Holiday Autos
- The Castle at Tarrytown.
The Company intends to develop its business by leveraging its ability to provide
Internet expertise and applications to creatively meet the needs of its
advertising and public relations clients, and by supplying public relations
and advertising service to its Internet and advertising clients. Already some
GMG clients, such as Beth Abraham Health Services, have begun to use NPA and
NPIL for advertising and Internet services.
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. In addition to the clients mentioned above, NPIL directly provides
Internet related services to:
- Guinness Bass Import Company
- National Multiple Sclerosis Society
- 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 use is currently estimated at 40 million users. With potential access
to such numbers, many corporations are seeking to ensure that they have a
presence on the Internet. Such a presence is established through a collection
of text, graphics and small programs known as a "Web site" maintained on a
computer known as a Web server and viewed by users from all over the world who
are connected to the Internet through the use of a Web browser such as Netscape
Navigator (R) or Microsoft Explorer (R). The Company seeks to assist companies
with creating that Internet presence and also 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 away from a customer's own
internal network to ensure security. NPIL specializes in providing custom
facilities to enable a customer's presence on the Internet to be constantly
evolving and interesting without adding to their existing workload. For
example, association staff remotely updates the site for the Association of the
Bar of the City of New York. 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 site revenues have increased from approximately
$20,000 - $30,000 on completion 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.
Web sites created by the Company include:
- Novartis - site for its "Sentinel" product: www.petprotect.com
- Association of the Bar of the City of New York: www.abcny.org
- New York University: site for its School of Continuing and Professional
Studies: www.scps.nyu.edu
- The Castle at Tarrytown: www.thecastleattarrytown.com
---------------
- Josephthal & Co - corporate Website: www.josephthal.com
------------------
- Novatis - for its "Clomicalm" product: www.clomicalm.com
- Bass - supporting its comedy program: www.basslaugh.com
WEBSITE SERVICES - MARKETING AND DISTRIBUTION
The Company is marketing its services primarily through indirect sales through
advertising agencies. Two members of staff are engaged full time in the sales
activity. The indirect sales are primarily through advertising agencies working
on integrated media campaigns that subcontract the Internet portion to NPIL. In
addition the Company believes that certain clients of any further advertising
agencies which it may acquire are likely prospects for the Company's Internet
related services.
INTERNET - OTHER PRODUCTS
The Company is 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 market is that the time to market from the formation
of a concept 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 that 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, amounted to $75,000 in the
fiscal year ended March 31, 2000. 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 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 engineers can be recruited at
a cost acceptable to the Company to supplement current Research and Development
staff, or to replace staff leaving employment with the Company.
COMPETITION
The Internet marketplace, while rapidly expanding, is intensively competitive.
There are hundreds or 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 strategic advice and 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 June 27, 2000, the Company and its subsidiaries employed 27 employees.
None of the Company's employees is represented by a labour union or is subject
to a collective bargaining agreement. The Company believes that its employee
relations are satisfactory. In addition the Company employs several consultants
in Internet programming, media planning, graphic arts and multi-media graphic
arts on part time or short-term contracts.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and NPIL are 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. NAP
and GMG occupy premises at 550 Mamaroneck Avenue, Harrison, New
York. These premises are leased until June 2002 at a cost of approximately
$6,000 per month.
ITEM 3. LEGAL PROCEEDINGS
The Company filed suit against New Era of Networks, Inc, ("Neon") and Vie
Systems, Inc. ("Vie") in the United States District Court for the Southern
District of New York, claiming more than $1,000,000 in damages, $10,000,000 in
punitive damages and the rescision of the sale of certain intellectual property
rights and patents to Vie on the Copernicus(R) product. The Company claims that
substantial royalty payments are due. Neon filed a motion to dismiss the claim
for punitive damages and the claim for rescision. The Court has not ruled on
such motions for dismissal and discovery is proceeding on the claims which were
not challenged by the motion to dismiss. Management believes that its claims
have substantial merit but that proceedings may take considerable time.
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
OTC 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 OTC Bulletin Board:
<TABLE>
<CAPTION>
Common Stock
<S> <C> <C> <C> <C>
Fiscal Quarters First Quarter Second Quarter Third Quarter Fourth Quarter
1999 -High. . . $ 1.5 0.50 0.25 2.0625
1999 -Low . . . $ 0.25 0.28 0.06 0.125
2000 -High. . . $ 2.25 2.46875 1.3135 3.3125
2000 -Low . . . $ 1.25 1.21875 0.5 0.0625
Redeemable Warrants
<S> <C> <C> <C> <C>
Fiscal Quarters First Quarter Second Quarter Third Quarter Fourth Quarter
1999 -High $0.00 0.00 0.00 0.00
1999 -Low $0.00 0.00 0.00 0.00
2000 -High $0.00 0.00 0.00 0.00
2000 -Low $0.00 0.00 0.00 0.00
</TABLE>
The foregoing prices and quotations reflect inter-dealer prices without retail
mark-up, mark-down 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 94 and the
number of record holders of Redeemable Warrants was 46 as of March 31, 2000.
(C) FREQUENCY AND AMOUNT OF DIVIDENDS.
To date, the Company has not paid any cash dividends. The Company does not
anticipate paying any dividends in the foreseeable future. The Company intends
to retain any future earnings to finance the growth and development of its
business. Any future determination as to the payment of dividends will be at the
discretion of the Board of Directors of the Company and will depend on the
Company's operating results, financial condition, capital requirements and such
other factors as the Board of Directors may deem relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The selected financial data of the Company presented below for, and as of the
end of, the fiscal years ended March 31, 1999 and 2000 have been derived from
the financial statements of the Company, which have been audited by Goldstein
and Morris, CPA's, PC, independent certified public accountants. The Company was
incorporated in July 1993 and commenced operations in November 1993. The data
set forth below should be read in conjunction with the Company's financial
statements and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA AND BALANCE SHEET DATA
Statement of Operations Data
Year Ended March 31, 2000 Year Ended March 31, 1999
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<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,208,792 $ 2,749,372
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,545,693 1,741,183
--------------------------- ---------------------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 1,663,099 1,008,189
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,095,883 1,552,292
Income (loss) from operations. . . . . . . . . . . . . . . . . (432,784) (544,103)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 4,208 5,767
Gain from reduction of liability . . . . . . . . . . . . . . . - 26,000
Loss from continued operations . . . . . . . . . . . . . . . . (428,576) (512,336)
Loss from discontinued operations. . . . . . . . . . . . . . . (60,139)
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ (428,576) $ (572,475)
--------------------------- ---------------------------
Basic and diluted per share data:
Net income (loss) per common share from continuing operations. $ (0.11) $ (0.19)
Net Loss per common share from discontinued operations . . . . - (0.02)
Net income (loss) per common share (1) . . . . . . . . . . . . $ (0.11) $ (0.21)
Weighted average common shares outstanding (1) . . . . . . . . 3,832,074 2,718,396
Balance Sheet Data
March 31, 2000 . . . . . . . March 31, 1999
-------------------------------------------------------------- ---------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,198,927 $ 1,386,549
Total current assets . . . . . . . . . . . . . . . . . . . . . 1,464,451 910,469
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 2,207,233 1,376,708
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . - -
Current liabilities. . . . . . . . . . . . . . . . . . . . . . 2,207,233 1,376,708
Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,692,511) (9,263,935)
Total Shareholders' Equity (Deficiency). . . . . . . . . . . . $ (8,306) $ 9,971
</TABLE>
(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
The Company had a net loss from continuing operation of $428,576 for the year
ended March 31, 2000 and a net loss of $572,475 for the year ended March 31,
1999. The Company's revenues from continuing operations for the fiscal years
ended March 31, 2000 and 1999 were $6,208,792, and $2,749,372, respectively.
The Company added considerably to its customer base in fiscal 2000, adding
clients for advertising, Internet and public relations services. This resulted
in a significant increase in revenues. The Company had net losses from
discontinued operations of $60,139 for the year ended March 31, 1999. There was
no discontinued operation in the year ended March 31, 2000.
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, the timing of the purchasing of advertising media on behalf
of clients, 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 advertising fees, media commissions, public relations fees,
initial fees for creating Web sites, 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
The Company is re-stating the first three quarters of the fiscal year ended
March 31, 2000 as a result of certain adjustments materially affecting the
quarters ended June 30, September 30 and December 31, 1999. The following table
summarizes the unaudited re-stated results of the Company for these
quarters:
<TABLE>
<CAPTION>
3 months ended 3 months ended 3 months ended 3 months ended
6/30/1999 9/30/1999 12/31/1999 3/31/2000
restatement restatement restatement
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 1,126,044 $ 1,195,201 $ 1,615,496 $2,322,051
Gross Profit . . . . . . . . . . . 358,874 391,078 413,788 $ 549,359
Total expense. . . . . . . . . . . 454,429 555,519 589,672 546,263
Profit (loss) from operations. . . (95,555) (164,442) (175,883) 3,096
Total other income (expense) . . . (3,516) (4,163) (5,771) 17,658
Net profit (loss) from continuing
operations. . . . . . . . . . . ($99,071) ($168,605) ($181,654) $ 20,754
Earnings Per Share (.03) (.04) (.05) .01
</TABLE>
The following table summarizes the results as previously reported for the
quarters ended June 30, September 30, and December 31, 1999:
<TABLE>
<CAPTION>
3 months ended 3 months ended 3 months ended
6/30/1999 9/30/1999 12/31/1999
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 1,126,964 $ 1,102,719 $ 1,642,428
Gross Profit . . . . . . . . . . . 440,801 316,545 571,980
Total expense. . . . . . . . . . . 474,718 373,806 583,453
Profit (loss) from operations. . . (33,917) (57,261) (11,473)
Total other income (expense) . . . (1,233) 711 (1,545)
Net profit (loss) from continuing
operations. . . . . . . . . . . ($34,444) ($56,550) ($13,018)
Earnings Per Share (.01) (.02) (.00)
</TABLE>
Revenues. Revenues from continuing operations increased by 126% from $2,749,372
in the fiscal year ended March 31, 1999 to $6,208,792 in the fiscal year ended
March 31, 2000. This increase primarily results from the Company's success in
securing new accounts and increasing business with existing accounts by offering
Internet expertise to service advertising and public relations clients, and by
offering advertising and public relations services to Internet clients.
Expenses. The Company's expenses primarily comprise salaries and related
employee costs, non-capitalized research and development costs, professional
fees, marketing expenses, general and administrative expenses, occupancy
expenses and depreciation and amortization.
Expenses relating to continuing operations rose by 35% from $1,552,292 in the
fiscal year ended March 31, 1999 to $2,095,883 in the fiscal year ended March
31, 2000. This increase is primarily due to increase in staff necessary to
service increased sales.
General and administrative expense relating to continuing operations increased
by 5% from $723,508 in the fiscal year ended March 31, 1999 to $761,140 in the
fiscal year ended March 31, 2000. Compared to the 126% increase in sales, this
small increase in general and administrative expenses is a result of the
Company's successful efforts to efficiently integrate acquired business while
containing cost.
Depreciation and amortization expenses relating to continuing operations
increased by 10% from $87,932 in the fiscal year ended March 31, 1999 to $96,885
in the fiscal year ended March 31, 2000. Depreciation and amortization
increased because of an increase in fixed assets and goodwill relating to
continuing operations from March 31, 1999 to March 31, 2000.
In March 1998, the Company entered into a lease in respect of approximately
2,500 square feet of space at 630 Third Avenue, New York, New York, 10017 to be
the Company's principal place of business. Payments under this lease, which
runs until February 28, 2001, are expected to total $245,000 of which $84,000 is
due in fiscal 1999, $84,000 in fiscal 2000 and $77,000 in fiscal 2001. The
Company has made no other material capital commitments.
The Company's net operating loss carry forwards are approximately as follows:
<TABLE>
<CAPTION>
Period or Year ended March 31, Year of expiration Net Operating Loss Carryforward
------------------- -------------------------------
<S> <C> <C>
1994. . . . . . . . . . . . . . 2009 157,000
1995. . . . . . . . . . . . . . 2010 1,954,000
1996. . . . . . . . . . . . . . 2011 3,542,000
1997. . . . . . . . . . . . . . 2012 2,958,000
1999. . . . . . . . . . . . . . 2014 572,000
2000. . . . . . . . . . . . . . 2015 480,000
9,663,000
=============================== =================== ===========================
</TABLE>
The tax benefit of these losses (approximately $4,400,000) at March 31, 2000
is subject to significant limitations in the event of a change in ownership
interest. 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
At March 31, 2000, the Company had current assets of $1,464,451 and current
liabilities of $2,207,233, resulting in a working capital deficiency of
$742,782. The Company has been able to finance this deficit through cash flow
management, and in the most recent quarter was generating cash. In addition the
Company may seek to raise additional financing through the sale of equity to
improve its working capital position.
Additionally, the Company may need additional financing 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. The Company may also
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
The Company's plans for the fiscal year ending March 31, 2001 are as follows:
- Acquire marketing communications companies where businesses with strategic
relationships with appropriate clients can be acquired for prices which the
Company believes are acceptable
- 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
- Grow its existing advertising business in part by offering high expertise
Internet product and services to deliver advertising services.
- Grow its public relations business in part by using Internet expertise to
deliver services.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are included herein following Part IV, Item 13.
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 authorize the Board of Directors to fix the number of
authorized directors. The By-Laws also authorize 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:
<TABLE>
<CAPTION>
Name Age Position
--- -------------------------------------------------------------------------
<S> <C> <C>
Mark Blundell. . 42 Chief Executive Officer, President, Chief Financial Officer, and Director
--- -------------------------------------------------------------------------
Rocco Cipriano . 48 Executive Vice President, New Paradigm Advertising, Inc., and Director
--- -------------------------------------------------------------------------
Daniel A. Gordon 55 Chairman of the Board of Directors
--- -------------------------------------------------------------------------
Michael Taylor . 58 Secretary and Director
---------------- --- -------------------------------------------------------------------------
</TABLE>
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 Management Technology Inc.'s ("MTI")
European subsidiary and then the Chief Operating Officer and Chief Financial
Officer of MTI in New York. He was also a director of MTI from December 1993 to
March 1994. From May 1988 to October 1991, Mr. Blundell was the Chief Executive
Officer of London Fox, the futures and options exchange, where he introduced the
first international electronic trading system. He is also a director and
President of Lancer, a company initially formed to hold the intellectual
property rights relating to the New Paradigm Architecture and which currently
conducts no business. Lancer is a 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 NPA. 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 1992Upon the
Company's acquisition of certain assets of K&C as of April 1, 1998 he was
appointed Executive Vice President, Creative of NPA. 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 is also Chairman of the Board of Jennifer
Muller/The Works, a contemporary dance company. He attended Amherst
College and Columbia 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 written
representations 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, 2000.
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>
<CAPTION>
Annual Compensation
Long-Term Compensation
Name and Principal Position Mark Blundell - Chief Executive & President
Fiscal Year Ended March 31, 1998 1999 2000
<S> <C> <C> <C>
Salary . . . . . . . . . . . . $ 150,000 $ 150,000 $ 150,000
Bonus. . . . . . . . . . . . . $ 0 $ 0 $ 0
Other Annual Compensation (1). $ 57,000 $ 57,000 $ ,000
Securities underlying options. 450,000 0 150,000
Restricted Stock Awards. . . . $ 0 $ 0 $ 0
All Other Compensation (2) . . $ 1,100 $ 1,100 $ 65,100
</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 and the cashless exercise of options to purchase 397,000 shares of
Common Stock
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 2000
The following table sets forth all grants of stock options made during the
fiscal year ended March 31, 2000 pursuant to the Company's Stock Option Plan to
the Named Officers:
Individual Grants:
Mark A. Blundell: Option to purchase 100,000 shares of Common Stock at
$2.1875 per share granted under the Executive Stock Option Plan, vesting on
March 22, 2001 and expiring on March 22, 2005.
Alizera Faraji: Option to purchase 75,000 shares of Common Stock at
$2.1875 per share granted under the Executive Stock Option Plan, vesting on
March 22, 2001 and expiring on March 22, 2005.
Michael Taylor: Option to purchase 20,000 shares of Common Stock at
$2.1875 per share granted under the Executive Stock Option Plan, vesting on
March 22, 2001 and expiring on March 22, 2005.
Daniel Gordon: Option to purchase 20,000 shares of Common Stock at
$2.1875 per share granted under the Executive Stock Option Plan, vesting on
March 22, 2001 and expiring on March 22, 2005.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 2000 AND YEAR-END
OPTION VALUES
The following table sets forth information with respect to options exercised by
each of the Named Officers during the fiscal year ended March 31, 2000 and the
number and value of unexercised options as of March 31, 2000:
Number of Securities Underlying Unexercised Options at March 31, 2000 and Value
Of Unexercised In-the-Money Options at March 31, 2000(a)
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Options at March 31, 2000
---------------------------------------------------------------------
Name Shares Acquired on Exercise
------------- ---------------------------------------------------------------------
<S> <C>
Mark Blundell 427,600
Value of Unexercised In-the-Money Options at March 31, 2000(a)
---------------------------------------------------------------
Name Value Realized Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------- ----------- ------------- ----
<S> <C> <C> <C> <C> <C>
Mark Blundell $ 60,000 287,555 100,000 $ 0 $ 0
</TABLE>
(a) Based on the closing price of New Paradigm Software Corp. Common Stock
on March 31, 2000 of $0.31 as reported on NASDAQ Bulletin Board.
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with Mr. Blundell.
The employment contract contains the following principal features.
Mr. Blundell: 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 receives a non-accountable expense
allowance of $4,000 per month and a car allowance of $750 per month. Common
Stock Award: Mr. Blundell received 26,667 shares of Common Stock. If the Company
achieves at least $2.5 million in sales in any period of twelve consecutive
months, Mr. Blundell will be paid a bonus of $50,000. Mr. Blundell's employment
contract provides that if such bonus target is achieved and such bonus paid, he
and the Company will negotiate a new bonus arrangement. Mr. Blundell is entitled
to receive a death benefit of $1,000,000 payable to a beneficiary named by him.
The Company has obtained a life insurance policy to fund this benefit. Mr.
Blundell's employment agreement will renew automatically from year to year
unless Mr. Blundell or the Company gives notice of termination to the other on
or before May 1 of any year beginning in 1999. In the event that the Company
terminates 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 is
entitled to receive a payment equivalent to two year's benefits under the
contract.
Following the sale of Copernicus to VIE Systems Inc., Mr. Blundell, the
Company's President and Chief Executive Officer, gave formal written notice of
his intention to exercise the termination right under his employment contract
since this represented a transfer of substantially all the assets of the
Company. These termination rights provided for the payment to Mr. Blundell of
an amount not less than $414,000. As the Company was not in a position to make
such a payment without seriously depleting the Company's limited cash reserves,
the compensation committee negotiated with Mr. Blundell to produce the following
settlement, which was entered into on November 13, 1997.
Mr. Blundell waived his entitlement to any payment in respect of the VIE
transaction and entered into new three year employment contracts with the
Company and its Delaware subsidiary, New Paradigm Acquisition I Co., Inc.
("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 by subsequent events. Mr. Blundell has waived $50,000 of base
salary for fiscal 1998 and until the Company reports a consolidated pre-tax
profit of not less than $75,000. In view of the fact the Company is
contemplating a number of acquisitions of companies with revenues in excess of
$2.5 million, the new contract provides that Mr. Blundell will not be entitled
to receive the bonus of $50,000 in the event that the Company's gross revenues
reach $2.5 million provided in his previous contract.
In addition the change of control clause, which gives Mr. Blundell certain
termination rights 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
Mr. Blundell's services in seeking acquisitions NPAC entered into an employment
agreement (as mentioned above) and a loan agreement providing for a loan to Mr.
Blundell of $114,000 at an interest rate of 6%. The loan will be repaid by
applying 60% of (i) any future termination payment to Mr. Blundell; (ii) any
bonus or incentive payments; and (iii) any sales of Common Stock of New Paradigm
directly or beneficially owned by Mr. Blundell, including any Stock acquired
through the exercise of options.
The directors of the Company currently receive no fees. They are reimbursed by
the Company for their direct costs for attending meetings. On December 8, 1993,
Mr. Gordon and three former directors were each granted, as remuneration for
service on the Board of Directors, an option ("Directors' Options") to acquire,
at a price of $5.00 per unit, 10,000 units, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common Stock at an
exercise price of $6.00 per share ("1993 Warrant"). These options expireD on
November 1, 1998. On April 26, 1995 Messrs. Blundell, Gordon and three former
directors were granted options under the Company's Stock Option Plan to purchase
5,333 shares of Common Stock each at an exercise price of $4.50 per share. These
options became exercisable on April 26, 1996 and expire on April 26, 2005. On
November 30, 1995 Mr. Gordon and two former directors were each granted options
under the Company's Stock Option Plan to purchase 10,000 shares of Common Stock
at an exercise price of $5.125 per share. Mr. Blundell was granted options under
the Company's Stock Option Plan to purchase 20,000 shares of Common Stock at the
same exercise price. These options become exercisable on November 30, 1996 and
expire on November 30, 2000. On April 24, 1996, Mr. Taylor was granted options
under the Company's Stock Option Plan to purchase 10,000 shares of Common Stock
at an exercise price of $5.125 per share. These options become exercisable on
April 24, 1997 and expire on April 24, 2001. On October 15, 1997, Messrs. Taylor
and Gordon were each granted 50,000 options to purchase shares of Common Stock
at an exercise price of $0.16 per share (the market price on the date of issue).
As of January 1, 1998, Mr. Chalek was granted 50,000 options to purchase shares
of Common Stock at an exercise price of $0.25 per share (the market price on the
date of issue).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the beneficial ownership of the Company's Common
Stock as of March 31, 2000, 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:
<TABLE>
<CAPTION>
COMMON STOCK
Total Number Percent of
Right to Sole Right to Shared Shares Common Stock
Name of Beneficial Voting and Voting and Beneficially Beneficially
Owner(a) Investment Power Investment Power Owned Owned
<S> <C> <C> <C> <C>
Mark Blundell. . . . . . . . . 653,765(b) 199,999(c) 853,764 18%
John Brann . . . . . . . . . . 219,332(d) 199,999(c) 419,331 9%
Matthew Fludgate . . . . . . . 75,508(e) 0 25,508 (j)
Daniel Gordon. . . . . . . . . 45,333(f) 0 45,333 (j)%
Lancer Holdings. . . . . . . . 157,199(g) 0 157,166 3%
Midland Associates . . . . . . 619,999(h) 0 619,999 13%
Michael Taylor . . . . . . . . 20,000(i) 0 20,000 (j)
Morton Chalek. . . . . . . . . 10,000(k) 0 10,000 (j)
Robert Trump . . . . . . . . . 350,000(l) 619,999(m) 969,999 21%
Rocco Cipriano . . . . . . . . 169,000(n) 269,000(o) 6%
Ali Faraji . . . . . . . . . . 442,666(p) 518,666(q) 11%
All Directors and Executive
Officers of the Company as a
group (a total of 4 persons). 888,098 199,999(s) 1,188,097 26%
</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) 459,767 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 149,999
shares of Common Stock underlying stock options granted under the Executive
Stock Option Plan.
(c) Represents the holdings of Lancer Holdings of which Mr. Blundell and Mr.
Brann are each 33% owners and directors and officers. Consists of 166,666 shares
of Common Stock and 33,333 shares of Common Stock issuable upon exercise of
warrants held by Lancer (the "MBA Warrants").
(d) Consists of (i) 26,667 shares of Common Stock, (ii) 4,000 shares of
Common Stock issuable upon exercise of 1994 Warrants, (iii) 38,666 shares of
Common Stock issuable upon exercise of options granted under the SOP that are
currently exercisable and (iv) up to 149,999 shares of Common Stock underlying
stock options granted under the Executive Stock Option Plan.
(e) Consists of (i) 534 shares of Common Stock, (ii) 1,307 shares of
Common Stock issuable upon exercise of 1994 Warrants, (iii) 23,667 shares of
Common Stock issuable upon the exercise of options granted under the SOP and
(iv) 50,000 shares of Common Stock underlying stock options granted under the
Executive Stock Option Plan.
(f) Consists of (i) 10,000 shares of Common Stock and 10,000 shares of
Common Stock underlying 1993 Warrants issuable upon exercise of Directors'
Options granted in 1993 to non-employee directors of the Company and (ii) 25,333
shares of Common Stock issuable upon exercise of options granted under the SOP.
(g) Consists of 157,166 shares of Common Stock.
(h) Consists of 439,999 shares of Common Stock and 180,000 shares of Common
Stock issuable upon exercise of warrants. These securities were previously owned
by Management Technologies, Inc. ("MTI") and transferred to Midland Associates
in satisfaction of a loan to MTI by Midland Associates.
(i) Consists of 20,000 shares of Common Stock issuable upon exercise of
options granted under the SOP.
(j) Less than 1%.
(k) Consists of 10,000 shares of Common Stock issuable upon exercise of
options granted under the SOP
(l) Consists of (i) 200,000 shares of Common Stock issuable upon exercise of
1994 Warrants (ii) 150,000 shares of Common Stock issuable upon exercise of
warrants having an exercise price of $2.00 per share issued by the Company in
connection with a loan by Mr. Trump that was subsequently cancelled as partial
consideration for issuance of the Series C Redeemable Preferred Stock (the
"Trump Warrants").
(m) Represents the holdings of Midland Associates. Consists of the
securities listed in note h above.
(n) Represents 169,000 shares of Common Stock.
(o) Represents (1) 169,000 shares of Common Stock and (2) 100,000 shares of
Common Stock issuable upon exercise of options.
(p) Represents 442,666 shares of Common Stock.
(q) Represents (1) 442,666 shares of Common Stock and (2) 76,000 shares of
Common Stock issuable upon exercise of options.
There was no Preferred Stock issued and outstanding as of March 31, 2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
The following is a discussion of certain transactions entered into by the
Company with officers, directors, security holders and affiliates thereof. The
Company believes that the terms of these transactions were no less favorable to
the Company than would have been obtained from a non-affiliated third party for
similar transactions at the time of entering into such transactions.
The Company has adopted a policy whereby any future transactions, including
loans, between the Company and its directors, officers, principal shareholders
and other affiliates, will be on terms no less favorable to the Company than
could be obtained from unaffiliated third persons on an arm's-length basis at
the time that the transaction was entered into and will be reviewed and approved
by a majority of the Company's directors, including a majority of the Company's
independent disinterested directors.
OTHER TRANSACTIONS
On September 1, 1995 the Company entered into a consulting contract with
Corporate Growth Services, a corporation owned by Mr. Gordon, Chairman of the
Board of Directors. Corporate Growth Services provides small development stage
companies with management consulting. Under the terms of the contract Corporate
Growth Services receives a consulting fee of $2,000 per month over and above any
fees Mr. Gordon receives for attending meetings of the Board of Directors. In
view of the Company's financial position Corporate Growth Services has agreed to
waive these fees until further notice. 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, $0
LOAN FROM MR. ROBERT TRUMP
In early January 1997, in order to continue operating, the Company solicited a
$150,000 loan from Mr. Robert Trump, which was received on January 16, 1997.
The principal terms of this loan were as follows:
Advance: $150,000.
Term: 6 months (to expire July 14th, 1997).
Interest Rate: To be paid in warrants, see below.
Warrants: 150,000 three-year warrants with an exercise price of $2.00 per
share, in lieu of interest.
Other terms: The 180,000 Midland Warrants, held by Midland Associates, an
affiliate of Mr. Trump, were amended as follows: The expiration
date was changed from August 11, 1998 to January 16, 2002 and
the exercise price reduced from $3.75 to $2.00 per share. The
exercise price on 25,000 of the Midland warrants was reduced to $1.00. Midland
exercised these warrants to acquire 25,000 shares of common stock in September
of 1999.
SERIES C REDEEMABLE PREFERRED STOCK
On March 13, 1997, Mr. Robert Trump agreed to advance the Company a further
$50,000 which the Company urgently required in order to continue its operations
and meet its payroll obligations. The earlier $150,000 advance and the March
13, 1997 $50,000 advance were combined into $200,000 to be used to subscribe for
800,000 shares of Series C Redeemable Preferred Stock, $0.01 par value, with the
following principal terms:
Each Series C Redeemable Preferred Share has four (4) votes on any matter to be
put to a vote of the Company's shareholders.
The Series C Redeemable Preferred Stock can be redeemed at the Company's option
at any time upon payment of $200,000.
The Series C Redeemable Preferred Stock can be redeemed at the holder's option
following any investment in the Company or a sale of any of the Company's assets
where the proceeds are $2,000,000 or more. The Series C Redeemable Preferred
Stock will have preference in the event of any liquidation of the Company to the
extent of $200,000.
The Series C Redeemable Preferred Stock was redeemed by the Company from the
proceeds of the sale of COPERNICUS.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
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")).
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).
10.3 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).
10.6.1 Financial Performance Corporation Value-Added Reseller Agreement
dated April 29, 1994 (incorporated by reference to Exhibit 10.6.1 to the
Registration Statement).
10.6.2 Benson Software Systems, Inc. Value-Added Reseller Agreement dated
October 25, 1994 (incorporated by reference to Exhibit 10.6.2 to the
Registration Statement).
10.6.3 Praxis Value-Added Reseller Agreement dated January 9, 1995
(incorporated by reference to Exhibit 10.6.3 to the Registration Statement).
10.7 Novell Inc. Co-Marketing Letter Agreement dated December 2, 1994
(incorporated by reference to Exhibit 10.7 to the Registration Statement).
10.8 Publicitas Letter Agreement dated January 31, 1995 (incorporated by
reference to Exhibit 10.8 to the Registration Statement).
10.9 Stock Option Plan of the Company (incorporated by reference to Exhibit
10.9 to the Registration Statement).
10.10 Accounts Receivable Purchase and Sale Agreement between the Company
and MTB Bank (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to
the Registration Statement).
10.11 Software License Agreement dated May 31, 1995 between the Company and
Marriott International, Inc. (incorporated by reference to Exhibit 10.11 to
Amendment No. 1 to the Registration Statement).
10.13 Marriott Acceptance Certificate, dated June 8, 1995 (incorporated by
reference to Exhibit 10.13 to Amendment No. 2 to the Registration Statement).
10.14 Agreement dated October 9, 1995 between the Company and Electric Magic
Company (incorporated by reference to Exhibit 10.14 to the September 1995 Form
10-QSB).
10.15 Agreement dated October 31, 1995 between the Company and Camelot
Corporation (incorporated by reference to Exhibit 10.15 to the September 1995
Form 10-QSB).
10.16 Note issued by the Company to Mr. Robert Trump dated January 15, 1997
(incorporated by reference to Form 8-K filed January 16, 1997).
10.18 Lease dated October 31, 1997 between the Company and GoAmerica Tours,
Inc. (incorporated by reference to Exhibit 10.18 to the December 31, 1996 Form
10-QSB).
10.19 Agreement dated as of April 1, 1997 between the Company and Custom
Information Systems, Inc. (incorporated by reference to Form 8-K filed May 2,
1997)
10.20 Letter Agreement dated March 19, 1997 between the Company and Level 8
Systems, Inc.
10.21 Agreements dated as of May 9, 1997 between the Company and VIE
Systems, Inc. (incorporated by reference to Form 8K filed May 16, 1997)
10.22 Agreement dated December 18, 1996 between the Company and
International Business Machines, Inc. ("IBM") (incorporated by reference to
Exhibit 10.22 to the March 31, 1997 Form 10-KSB/A).
11 Statement re: computation of per share earnings (losses)
24 Power of Attorney.
99 Financial data schedule
B. Reports on Form 8-K
The following reports have been filed on Form 8-K during the quarter ended
March 31, 2000:
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: June 29, 2000 /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.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
----------------------------------------------------------------------------------------------------------------------------
/s/Mark Blundell
-------------------
Mark Blundell Chief Executive Officer and President (principal executive officer, June 29, 2000
principal financial officer and principal accounting officer)
-----------------------------------------------------------------------------------------------------------------------------------
/s/Daniel A. Gordon
Daniel A. Gordo Chairman of the Board of Directors. . . . . . . . . . . . . . . . . . . . . . June 29, 2000
-----------------------------------------------------------------------------------------------------------------------------------
/s/Rocco Cipriano
Rocco Cipriano. . . . . . Director June 29, 2000
-----------------------------------------------------------------------------------------------------------------------------------
/s/ Michael Taylor
Michael Taylor Secretary and Director June 29, 2000
</TABLE>
24
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000 AND 1999
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' 1
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet . . . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . . 3
Statements of Shareholders' Deficiency. . . . . 4
Statements of Cash Flows. . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . 6 - 19
</TABLE>
INDEPENDENT AUDITORS' REPORT
----------------------------
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, 2000, and the related
consolidated statements of operations, shareholders' deficiency and cash flows
for the years ended March 31, 2000 and 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.
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.
In our opinion 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, 2000, and the results of their
operations and their cash flows for the years ended March 31, 2000 and 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 and has an
accumulated deficit. The conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
maters are described in Note 1. These consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Goldstein & Morris
Goldstein & Morris
June 22, 2000
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
ASSETS
------
Current assets
<S> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 288,467
Accounts receivable less allowance for doubtful accounts . . . . . 1,157,808
Prepaid expenses and other current assets. . . . . . . . . . . . . 18,176
------------
Total current assets . . . . . . . . . . . . . . 1,464,451
Property and equipment, net of accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,933
Note receivable from Officer/Shareholder. . . . . . . . . . . . . . . 131,414
Goodwill, net of amortization . . . . . . . . . . . . . . . . . . . . 403,129
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
------------
$ 2,198,927
============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
---------------------------------------------------------------------
Current liabilities
Accounts payable and accrued expenses . . . . . . . . . . . . . . $ 1,748,914
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . 363,319
------------
Total current liabilities. . . . . . . . . . . . 2,207,233
------------
Shareholders' Deficiency
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 4,624,297 . . . . . . . . . . . . . . 46,243
Additional paid-in capital. . . . . . . . . . . . . . . . . . . 9,637,962
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (9,692,511)
------------
Total Shareholders' deficiency. . . . . . . . . . . (8,306)
------------
$ 2,198,927
============
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
-2-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . $6,208,792 $2,749,372
Cost of Revenues. . . . . . . . . . . . . . . . . . . . . . . 4,545,693 1,741,183
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 1,663,099 1,008,189
----------- -----------
Operating expenses
Salaries and employee benefits . . . . . . . . . . . . . . 1,237,858 740,852
Selling, general and administrative. . . . . . . . . . . . 761,140 723,508
Depreciation and amortization. . . . . . . . . . . . . . . 96,885 87,932
----------- -----------
2,095,883 1,552,292
----------- -----------
Loss from operations. . . . . . . . . . . . . . . . . . . . . (432,784) (544,103)
----------- -----------
Other income (expense)
Interest income. . . . . . . . . . . . . . . . . . . . . . 9,119 7,794
Interest expense . . . . . . . . . . . . . . . . . . . . . (4,911) (2,027)
Gain from reduction of liability . . . . . . . . . . . . . - 26,000
----------- -----------
4,208 31,767
----------- -----------
Loss from continuing operations . . . . . . . . . . . . . . . (428,576) (512,336)
Loss from discontinued operations . . . . . . . . . . . . . . - (60,139)
----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (428,576) $ (572,475)
=========== ===========
Basic and diluted per share data
Loss from continuing operations. . . . . . . . . . . . . . $ (0.11) $ (0.19)
Loss share from discontinued operations. . . . . . . . . . - (0.02)
----------- -----------
Net income (loss) per common share . . . . . . . . . . . . $ (0.11) $ (0.21)
=========== ===========
Basic and diluted weighted average common shares
outstanding. . . . . . . . . . . . . . . . . . . . . . . 3,832,074 2,718,396
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
-3-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED MARCH 31, 2000 AND 1999
Sharegolders'
Additional Accumulated Equity
Shares Par Value Paid-In Deficit (Deficiency)
----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 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
Conversion of Preferred D Stock to Common. . . . . . . . . . 850,000 8,500 (8,500) - -
Issuance of common stock for acquisition . . . . . . . . . . 159,286 1,593 117,914 - 119,507
Issuance of common stock for cash. . . . . . . . . . . . . . 225,000 2,250 122,750 - 125,000
Issuance of common stock upon exercise
of stock options . . . . . . . . . . . . . . . . . . . . . 427,600 4,276 64,140 - 68,416
Issuance of common stock for services
rendered. . . . . . . . . . . . . . . . . . . . . . . . . 60,682 607 96,949 - 97,556
Net loss for the year. . . . . . . . . . . . . . . . . . . . - - - (428,576) (428,576)
----------- ------------ ----------- ------------ -------------
Balance, March 31, 2000. . . . . . . . . . . . . . . . . . . $ 4,624,297 $ 46,243 $9,637,962 $(9,692,511) $ (8,306)
=========== ============ =========== ============ =============
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
-4-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
<S> <C> <C>
Cash flows from operating activities: 2000 1999
---------- ----------
Net loss $(428,576) $(572,475)
Adjustments to reconcile to net cash used in operating
activities:
Depreciation and amortization 96,885 87,932
Provision for bad debts 25,000 20,000
Gain from reduction of liability - (26,000)
Loss from discontinued operation - 60,139
Non cash compensation 161,172 -
Noncash interest expense - 2,027
Noncash revenue (30,000)
Increases (decreases) in cash flows used in operating activities
resulting from changes in:
Accounts receivable (623,904) (307,353)
Note receivable from officer/shareholder (7,439) (6,840)
Prepaid expenses and other current assets 18,863 (5,619)
Other assets - (21,000)
Accounts payable and accrued expenses 727,341 316,638
Deferred revenue (8,873) 372,192
---------- ----------
Net cash used in operating activities (69,531) (80,361)
---------- ----------
Cash flows from investment activities:
Acquisition of property and equipment (111,522) (63,278)
Principal receipts on note receivable - 187,300
Cash acquired upon acquisition 9,994 84,770
---------- ----------
Net cash provided by (used in) investing activities (101,528) 208,792
---------- ----------
Cash flows from financing activities:
Issuance of common stock 125,000 -
Repayment of debt (5,000) -
---------- ----------
Net cash provided by financing activities 120,000 -
---------- ----------
Net increase (decrease) in cash and cash equivalents (51,059) 128,431
Cash and cash equivalents, beginning of year 339,526 211,095
---------- ----------
Cash and cash equivalents, end of year $288,467 $339,526
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO 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 trades
through its wholly owned operating subsidiaries, New Paradigm Advertising, Inc.
("NPA") formerly SKC Advertising, Inc., an advertising agency, GMG Public
Relations, Inc. ("GMG"), a public relations firm, and New Paradigm Inter-Link,
Inc. ("NPIL") a research and development firm in the business of creating
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, 2000. As discussed in
Note 12 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
and advertising business and also intends to seek acquisitions of other business
and pursue combinations with other businesses in related fields. The
consolidated financial statements do not include any adjustments that might
result fro the outcome of this uncertainty.
Principles of Consolidation
-----------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, NPIL, NPA and GMG. All material intercompany
accounts and transactions are eliminated.
Cash and 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 net assets, see Note 2.
Goodwill is amortized over a fifteen-year period utilizing the straight-line
method.
Concentrations of Credit Risk
--------------------------------
The Company's cash balances, which are maintained in various banks are insured
up to $100,000 for each bank by the Federal Deposit Insurance Corporation. The
balances at times, may exceed these limits.
-6-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
----------------------------------------------------------------
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
specific 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 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
advertisements in various media and from fees for staffing and for production of
advertisements and marketing projects. Revenue is 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 completed.
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
-------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB No. 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has elected the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
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.
-7-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES (continued)
----------------------------------------------------------------
Net Income (Loss) Per Common Share
---------------------------------------
Net income (loss) per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
shares that would have been outstanding if potentially dilutive common shares
had been issued.
2. ACQUISITIONS
------------
On April 1, 1998 the Company through its wholly owned subsidiary NPA purchased
certain assets and assumed certain liabilities related to the advertising
business 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 statements 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 value of the assumed liabilities exceeds the value of the acquired
assets by approximately $210,000.Accordingly, $210,000 was recognized as
goodwill and is being amortized over 15 years.
In addition, pursuant to the buyout agreement, the Company will be paying to the
principals of SKC in each of the next three years an amount equal to 16.667% of
the net revenue of SKC (as defined in the buyout agreement) commencing on the
closing date and ending on the third anniversary of the closing date, less one
sixth of the net liabilities (as defined in the closing agreement). Such buyout
payment shall be made at 8.334% of the net revenue of SKC less one sixth of the
net liabilities paid in cash and 8.333% of the net revenue of SKC paid in shares
of the Company's common stock.
On July 1, 1999 the Company through its wholly owned subsidiary NPA purchased
certain assets and assumed certain liabilities related to the advertising
business of Sutton and Partners, Inc. ("S&P") for 50,000 common shares valued at
$75,000. The business combination was accounted for as a purchase and,
accordingly, Sutton and Partners, Inc. results are included in the consolidated
financial statements since the date of acquisition. The purchase price, which
was financed through the issuance of common stock, has been allocated to the
assets of S&P, based upon their respective fair market values. The value of the
assumed liabilities exceeds the value of the acquired assets by approximately
$152,000.Accordingly, $152,000 was recognized as goodwill and is being amortized
over 15 years.
In addition, pursuant to the buyout agreement, the Company will be paying to the
principals of S&P in each of the next three years an amount equal to 25% of the
net revenue of S&P (as defined in the buyout agreement) commencing on June 30,
2000 and ending on the third anniversary of the closing date, less one third of
the net liabilities (as defined in the closing agreement). Such buyout payment
shall be made at 12.5% of the net revenue of S&P less one third of the net
liabilities paid in cash and 12.5% of the net revenue of S&P paid in shares of
the Company's common stock.
-8-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. ACQUISITIONS (continued)
------------------------
On January 1, 2000 the Company through a wholly owned subsidiary purchased
certain assets related to the public relations business, including the right to
the seller's name, of GMG Public Relations, Inc. ("GMG") for 20,000 common
shares valued at $14,000. The business combination was accounted for as a
purchase and, accordingly, GMG's results are included in the consolidated
financial statements since the date of acquisition. The purchase price, which
was financed through the issuance of common stock, has been allocated to the
assets of GMG, based upon their respective fair market values.
In addition, pursuant to the buyout agreement, the Company will be paying,
to the principal of GMG in each of the next three years, an amount equal to
33.33% of the asset value in shares of the Company's common stock commencing on
September 30, 2000 and ending on September 30, 2002.
Additionally in each of the three years commencing on December 31, 2000 and
ending on December 31, 2002 (as defined in the buyout agreement) the Company
will pay one third of the cash acquired and on December 31, 2002 16.66% of the
net revenue of GMG in cash and the Company will pay 33.33% of the net
revenue of GMG, except for December 31, 2002 when only 16.66% shall be paid,
in the Company's common stock.
In connection with the S&P and GMG purchases, the assets acquired and
liabilities assumed are as follows:
<TABLE>
<CAPTION>
GMG S&P
------- ---------
<S> <C> <C>
Tangible assets acquired at fair value $14,000 $ 15,000
Goodwill . . . . . . . . . . . . . . . - 152,000
Liabilities assumed at fair value. . . - (92,000)
------- ---------
Total purchase price . . . . $14,000 $ 75,000
======= =========
</TABLE>
The following pro forma consolidated results of operations have been prepared as
if the acquisition of S&P and GMG had occurred as of the beginning of fiscal
1999:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
<S> <C> <C>
(Unaudited) (Unaudited)
---------------- ----------------
Net sales . . . . . . . . . . . . . . . . . . $ 6,430,000 $ 3,326,000
Net loss from continuing operations . . . . . (412,000) (557,000)
Net loss per share from continuing operations (0.11) (0.20)
</TABLE>
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisition been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
-9-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. PROPERTY AND EQUIPMENT
------------------------
Property and equipment consists of the following as of March 31, 2000:
<TABLE>
<CAPTION>
Computer equipment $284,214
<S> <C>
Software. . . . . . . . . . . . . . . . . . . . 154,329
Furniture and fixtures. . . . . . . . . . . . . 148,887
--------
587,430
Less: Accumulated depreciation and amortization 408,497
--------
$178,933
========
</TABLE>
4. 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 the 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
--------------
<TABLE>
<CAPTION>
Notes payable as of March 31, 2000 are as follows:
Notes payable to officers. The notes are due on demand
and are interest free. $46,000
<S> <C>
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 at
8% per annum.. . . . . . . . . . . . . . . . . . . . . . . . 49,000
-------
$95,000
=======
</TABLE>
-10-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES
-------------
At March 31, 2000, the Company had net operating loss carry forwards of
approximately $9,663,000, which expire in various years through 2015, available
to offset future taxable income. Certain provisions of the tax law may limit
the net operating loss carryforwards available for use in any given year in the
event of a significant change in ownership interest. At March 31, 2000 the
Company had a deferred tax asset amounting to approximately $4,400,000. The
deferred tax asset consists primarily of net operating loss carryforwards and
has been fully offset by a valuation allowance of the same amount.
7. COMMITMENTS AND CONTINGENCIES
-------------------------------
Leases
------
The company leases sales and office space under operating leases, which expire
on February 28, 2001 and March 31, 2002.
The future minimum rental payments under these lease agreements are
approximately as follows:
<TABLE>
<CAPTION>
Year ending March 31,
----------------------
<S> <C>
2001 . . . . . . . . . $148,000
2002 . . . . . . . . . 73,000
--------
221,000
======================
</TABLE>
Rent expense for the years ended March 31, 2000 and 1999 amounted to
approximately $170,000 and $163,000 respectively.
-11-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------
Employment Agreements
----------------------
Following the sale of Copernicus to VIE Systems Inc. (See Note 12), 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 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.
- 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 $114,0000 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.
On April 1, 1998, the Company entered into employment agreements each with Mr.
Cipriano and Mr. Kapelus for a term of three years ending March 31, 2001. Under
the agreement, their annual base salary is $75,000 with a monthly expense
allowance of $667. The employment agreements further provide for annual
incentive bonuses of $15,000 if the Company's net revenues meet certain levels,
and a bonus equal to 10% of net revenues exceeding a specific amount, as defined
in the agreement.
In consideration for executing this agreement, Mr. Cipriano and Mr. Kapelus each
received options to purchase 100,000 shares of the Company's common stock at an
exercise price of $.34 per share.
In the event of termination, other than for cause, Mr. Cipriano and Mr. Kapelus
shall receive the balance due under their contract in a lump sum and an estimate
of their bonuses.
On July 1, 1999, the Company entered into employment agreements each with Mr.
Katcher and Mr. Longmire for a term of three years ending June 30, 2002. Under
the agreement, their annual base salary is $50,000 with a monthly expense
allowance of $4,000. The employment agreements further provide for annual
incentive bonuses not to exceed $35,000 if the Company's net revenues meet
certain levels, as defined in the agreement.
In consideration for executing this agreement, Mr. Katcher and Mr. Longmire each
received options to purchase 25,000 shares of the Company's common stock at
an exercise price of $1.65 per share.
In the event of termination, other than for cause, Mr. Katcher and Mr. Longmire
are entitled to $100,000 per annum and to an estimated bonus for the remaining
period of their employment agreements.
-12-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. COMMITMENTS AND CONTINGENCIES (continued)
--------------------------------------------
Employment Agreements (continued)
-----------------------------------
On January 1, 2000, the Company entered into an employment agreement with Ms.
Risa Hoag for a term of three years ending December 31, 2002. Under this
agreement, Ms. Hoag's annual base salary is $80,000. The employment agreement
further provides for annual incentive bonuses of $35,000 if the Company's net
revenues meet certain levels, as defined in the agreement and 10% of GMG's net
profits, as defined in the agreement.
In consideration for executing this agreement, Ms. Hoag received options to
purchase 50,000 shares of the Company's common stock at an exercise price of
$.63 per share.
In the event of termination other than for cause Ms. Hoag is entitled, for the
remaining period of her contract, a sum equal to her base salary and an estimate
of her bonuses.
8. SHAREHOLDERS EQUITY
--------------------
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.
-13-
<PAGE>
------
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS EQUITY
--------------------
Preferred Stock (continued)
-----------------------------
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
warrants outstanding). 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 12) 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 several of the employees of and a consultant to
NPIL an aggregate of 50 shares of Series D Preferred.
In April 1999, the Series D Preferred Stock was converted into 850,000 shares of
Common Stock in accordance with its terms.
-14-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS EQUITY (continued)
---------------------------------
Warrants
--------
At March 31, 2000, the Company had outstanding warrants as follows:
<TABLE>
<CAPTION>
Number of
Common Exercise
Shares Price
<S> <C> <C> <C>
Warrants issued in connection with: . . . . . . Issuable Per Share Expiration Date
----------------------------------------------- --------- --------------- --------------------
March 1995 private placement. . . . . . . . . . 149,720 7.58 August 11, 2000 (l)
April 1995 private placement. . . . . . . . . . 12,348 7.58 August 11, 2000 (l)
May 1995 settlement Agreement with MTI
("Midland Warrants"). . . . . . . . . . . . . . 180,000 2.00 January 16, 2002(ii)
August 1995 initial public offering redeemable
1,234,000
warrants
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 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.
During the year ended March 31, 2000 no warrants were issued or exercised
and 358,401 expired.
-15-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS EQUITY (continued)
---------------------------------
Stock Option Plan
-------------------
The Company adopted a stock option plan (the "Option Plan"), effective April 8,
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 January 1999, two directors were each granted 40,000 options to purchase
shares of common stock at an exercise price of $.25 per share. These options
expire on December 31, 2009.
In March 2000, the Company granted to its Chief Executive Officer 100,000
options to purchase shares of Common Stock at an exercise price of $2.19 per
share.
The following tables contain information on the stock options for the two-year
period ended March 31, 2000:
<TABLE>
<CAPTION>
Option
Exercise Price Weighted Average
Shares
---------
range per share exercise price
---------------- ----------------
<S> <C> <C> <C>
Outstanding, March 31, 1998 967,999 $ .16 - $6.00 $1.96
Granted . . . . . . . . . . 316,000 .25 - .34 .31
Exercised . . . . . . . . . - - -
Canceled. . . . . . . . . . (307,999) .16 - 6.00 1.82
---------------- ---------------- -----
Outstanding, March 31, 1999 976,000 .16 - 5.13 .52
Granted . . . . . . . . . . 265,000 .75 - 2.19 2.00
Exercised*. . . . . . . . . (450,000) .16 - .25 .16
Canceled. . . . . . . . . . - - -
---------------- ---------------- -----
Outstanding, March 31, 2000 791,000 $ .16 - $5.13 $1.22
================ ================ =====
</TABLE>
* Exercised by Chief Executive Officer in January and March 2000. The fair
market value for
420,000 shares and 30,000 shares was $3.00 and $1.31 per share, respectively.
-16-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS EQUITY (continued)
---------------------------------
Stock Option Plan (continued)
--------------------------------
<TABLE>
<CAPTION>
Option
Exercise Price Weighted Average
Shares
---------
range per share exercise price
------------------ ---------------
Exercisable at year ended March 31:
<S> <C> <C> <C>
1999 . . . . . . . . . . . . 714,000 $ .16 - $5.13 $.64
2000 . . . . . . . . . . . . 438,000 .16 - 5.13 .94
Weighted Average
Options granted in: . . . . . . . . Fair value
------------------
1999. . . . . . . . . . . . . $ .26
2000. . . . . . . . . . . . . 2.01
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Range of exercise prices 16 - $.25 $.34- $.75 $2.19 $5.13
---------------------------------------------
Outstanding options:
<S> <C> <C> <C> <C>
Number outstanding at March 31, 2000. . 260,000 241,000 230,000 60,000
Weighted average remaining contractual
life (years). . . . . . . . . . . . . . 2.33 9.00 10.00 5.72
Weighted average exercise price . . . . $ .22 $ .40 $ 2.19 $ 5.13
Exercisable options:
Number outstanding at March 31, 2000. . 155,000 203,000 - 60,000
Weighted average exercise price . . . . $ .11 $ .34 - $ 5.13
</TABLE>
SFAS No. 123 requires the Company to provide pro forma information regarding net
income (loss) and earnings (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, 2000 and 1999,
respectively; no dividends paid for all years; expected volatility of 45.80% in
2000 and in 1999; weighted average risk-free interest rates of 5.20% and 5.94%
respectively; and expected lives of 9.82 to 4.2 years, respectively.
-17-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS EQUITY (continued)
---------------------------------
Stock Option Plan (continued)
-------------------------------
Applying SFAS No. 123 would result in pro forma net income (loss) and earnings
(loss) per share amounts, as follows:
Year ended March 31,
--------------------------------
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net Income (loss):
As reported. . . . . . . . . . . . . . . . . $(428,576) $(572,475)
Pro Forma. . . . . . . . . . . . . . . . . (493,272) (624,205)
Basic and diluted earnings (loss) per share:
As reported. . . . . . . . . . . . . . . . $ (.11) $ (.21)
Pro Forma. . . . . . . . . . . . . . . . . (.13) (.23)
</TABLE>
9. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
------------------------------------------------------
Year ended March 31,
---------------------------
<TABLE>
<CAPTION>
2000 1999
-------- --------
Cash paid during the period for:
<S> <C> <C>
Interest . . . . . . . . . . $4,911 $-
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
---------------------------------------------------------------------------
Year ended March 31, 2000
-----------------------------
The Company issued:
70,000 shares of common stock valued at $89,000 for the acquisition of
business assets
valued at $19,000 and assumed liabilities in the amount of $92,000.
89,286 additional shares of common stock valued at $30,500 and a $50,000
note payable as additional consideration for the SKC acquisition.
850,000 shares of common stock valued at $8,500 in conversion of Series D
Preferred.
Year ended March 31, 1999
-----------------------------
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 the liabilities in the
amount of $460,000.
200,000 shares of common stock valued at $24,000 in reduction of a note payable.
-18-
<PAGE>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. EMPLOYMENT 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, 2000 or 1999.
11. MAJOR CUSTOMERS
----------------
Revenues from four major customers for the year ended March 31, 2000 accounted
for approximately 61% of the Company's total revenues. The total accounts
receivable from these customers at March 31, 2000 amounted to 70% of the total
accounts receivable balance.
Revenues from one major customer for the year ended March 31, 1999 accounted for
approximately 20% of the Company's total revenues. The total accounts
receivable due from this customer at March 31, 1999 amounted to 19% of the total
accounts receivable balance.
12. DISCONTINUED OPERATIONS
------------------------
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, which was reported as
loss from discontinued operations at March 31, 1999.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
------------------------------------------
The Company has re-stated its results for the quarters ended June 30,September
30 and December 31, 1999 due to adjustments recorded for the year ended March
31, 2000 which pertain to these quarters. The restated and originally
reported quarterly results are as follows:
<TABLE>
<CAPTION>
3 months ended 3 months ended 3 months ended 3 months ended
6/30/1999 9/30/1999 12/31/1999 3/31/2000
restatement restatement restatement
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 1,126,044 $ 1,195,201 $ 1,615,496 $2,322,051
Gross Profit . . . . . . . . . . . 358,874 391,078 413,788 $ 549,359
Total expense. . . . . . . . . . . 454,429 555,519 589,672 546,263
Profit (loss) from operations. . . (95,555) (164,442) (175,883) 3,096
Total other income (expense) . . . (3,516) (4,163) (5,771) 17,658
Net profit (loss) from continuing
operations. . . . . . . . . . . ($99,071) ($168,605) ($181,654) $ 20,754
Earnings Per Share (.03) (.04) (.05) .01
</TABLE>
The following table summarizes the results as previously reported for the
quarters ended June 30, September 30, and December 31, 1999:
<TABLE>
<CAPTION>
3 months ended 3 months ended 3 months ended
6/30/1999 9/30/1999 12/31/1999
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . $ 1,126,964 $ 1,102,719 $ 1,642,428
Gross Profit . . . . . . . . . . . 440,801 316,545 571,980
Total expense. . . . . . . . . . . 474,718 373,806 583,453
Profit (loss) from operations. . . (33,917) (57,261) (11,473)
Total other income (expense) . . . (1,233) 711 (1,545)
Net profit (loss) from continuing
operations. . . . . . . . . . . ($34,444) ($56,550) ($13,018)
Earnings Per Share (.01) (.02) (.00)
</TABLE>
