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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-26124
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PARADIGM TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0140882
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(State of Incorporation) (I.R.S. Employer Identification No.)
71 VISTA MONTANA, SAN JOSE, CALIFORNIA 95134
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(Address of principal executive offices) (Zip code)
(408) 954-0500
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Registrant's telephone number, including area code
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 requirements for at least the past 90 days.
Yes X No
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Indicate by check mark whether the registrant (1) has filed all 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 X No
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The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding as of September 30, 1996 was 7,188,538.
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TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Operations 3
Condensed Balance Sheets 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 11-13
Liquidity and Capital Resources 13-15
Other Factors That May Affect Future
Operating Results 15-20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 3. Defaults Upon Senior Securities 21
Item 6. Exhibits and Reports on Form 8-K 22
Signature 22
Exhibit 10.1 1994 Stock Option Plan
Exhibit 11.1 Computation of Net Income (Loss) Per Share
Exhibit 27 Financial Data Schedule
Page 2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PARADIGM TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales, net $ 5,191 $ 14,003 $ 20,120 $ 36,917
Cost of goods sold 8,501 8,328 29,770 22,156
--------- -------- -------- --------
Gross profit (loss) (3,310) 5,675 (9,650) 14,761
--------- -------- -------- --------
Operating expenses:
Research and development 1,657 1,263 4,596 3,367
Selling, general, and
administrative 2,523 2,049 6,781 5,934
Write-off of in-process
technology acquired -- -- 3,841 --
--------- -------- -------- --------
Total operating expenses 4,180 3,312 15,218 9,301
--------- -------- -------- --------
Operating income (loss) (7,490) 2,363 (24,868) 5,460
Interest expense 305 326 910 1,106
Other income, net (515) (295) (918) (330)
--------- -------- -------- --------
Income (loss) before provision for
income taxes (7,280) 2,332 (24,860) 4,684
Provision (benefit) for income -- 792 (1,125) 1,219
taxes
--------- -------- -------- --------
Net income (loss) $ (7,280) $ 1,540 $ (23,735) $ 3,465
========= ======== ========= ========
Net income (loss) per share $ (1.01) $ 0.21 $ (3.33) $ 0.58
========= ======== ========= ========
Weighted average shares
outstanding 7,184 7,242 7,133 5,984
========= ======== ========= ========
See accompanying notes to condensed financial statements.
</TABLE>
Page 3
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<TABLE>
PARADIGM TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(unaudited)
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
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<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 871 $ 4,015
Short-term investments -- 17,198
Accounts receivable, net 3,836 10,424
Inventory 4,185 5,702
Other current assets 3,128 1,883
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Total current assets 12,020 39,222
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Property and equipment, net 26,567 17,331
Other assets 281 179
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$38,868 $56,732
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LIABILITIES AND STOCKHOLDERS'EQUITY:
Current Liabilities:
Line of credit $ 2,100 $ --
Current portion of long-term debt 9,887 3,287
Accounts payable and accrued liabilities 7,300 9,311
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Total current liabilities 19,287 12,598
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Long-term debt, net of current portion 129 4,349
Deferred rent 423 436
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Total liabilities 19,839 17,383
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Stockholders' Equity:
Common stock 36,293 32,878
Retained earnings (deficit) (17,264) 6,471
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Total stockholders' equity 19,029 39,349
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$38,868 $56,732
======= =======
See accompanying notes to condensed financial statements.
</TABLE>
Page 4
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<TABLE>
PARADIGM TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (23,735) $ 3,465
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 4,395 3,885
Write-off of in-process technology acquired 3,841 --
Gain of sale of fixed assets (532) --
Changes in operating assets and liabilities:
Accounts receivable 6,588 (1,627)
Inventory 1,517 1,108
Other assets (916) (647)
Accounts payable and accrued liabilities (2,670) 3,979
Prepetition liabilities paid (34) (977)
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Net cash provided by (used in) operating activities
before reorganization items paid (11,546) 9,186
Reorganization items paid -- (189)
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Net cash provided by (used in) operating activities (11,546) 8,997
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Cash flows used in investing activities:
Purchases of capital equipment (13,310) (9,984)
Sale of fixed assets 549 --
Purchases of short-term investments (2,672) (16,704)
Sale of short-term investments 19,870 --
Acquisition of New Logic net of cash acquired (723) --
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Net cash provided by (used in) investing activities 3,714 (26,688)
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Cash flows from financing activities :
Line of credit increase (decrease) 2,100 (4,623)
Payments on capital leases -- (7,747)
Issuance of notes payable 11,339 9,300
Principal payments on notes payable (9,494) (1,089)
Issuance of common stock 743 31,736
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Net cash provided by financing activities 4,688 27,577
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Net increase (decrease) in cash and cash equivalents (3,144) 9,886
Cash and cash equivalents:
Beginning of period 4,015 135
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End of period $ 871 $ 10,021
=========== ==========
Supplemental cash flow information:
Interest paid $ 797 $ 1,115
=========== ==========
Income taxes paid $ 1,067 $ --
========== ==========
See accompanying notes to condensed financial statements.
</TABLE>
Page 5
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PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: Basis of Presentation
The financial statements have been prepared by Paradigm Technology, Inc.
("Paradigm" or the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited interim condensed financial
statements included herein have been prepared on the same basis as the December
31, 1995 audited financial statements, contained in the Company's Annual Report
to Stockholders, and include all adjustments, consisting of only normal
recurring adjustments, necessary to fairly state the information set forth
therein. Results for the three and nine month periods ended September 30, 1996,
are not necessarily indicative of the results to be expected for the entire
year.
The preparation of the interim condensed financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the interim
condensed consolidated financial statements and the reported amounts of revenue
and expenses during the report period. Actual results could differ from
estimates.
Share information for all periods has been retroactively adjusted to reflect a
1-for-2 reverse stock split approved in May 1995 and effected in conjunction
with the Company's reincorporation in Delaware effective June 22, 1995.
The Company markets high speed high density Static Random Access Memory ("SRAM")
products for uses in telecommunication devices, workstations and high
performance PCs to OEMs and distributors in the United States, Europe and the
Far East.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. During the latter part of 1995, and the first nine months of 1996, the
market for certain SRAM devices experienced an excess supply relative to demand
which resulted in a significant downward trend in prices.
The selling prices that the Company is able to command for its products are
highly dependent on industry-wide production capacity and demand. In this
regard, the Company did experience rapid erosion in product pricing during the
first nine months of 1996 which was not within the control of the Company. The
Company could continue to experience a downward trend in pricing which could
adversely affect the Company's operating results.
Page 6
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PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
This report on Form 10-Q for the quarter ended September 30, 1996 should be read
in conjunction with the audited financial statements as of December 31, 1995,
and the notes thereto included in the Company's Annual Report to Stockholders
for the year ended December 31, 1995.
NOTE 2: Net Income (Loss) Per Share
Net loss per share for the three months ended September 30, 1996 is computed
using the weighted average number of common shares outstanding. Common stock
equivalents are excluded as their effect is anti-dilutive. Net income per share
is computed using the weighted average number of shares of common stock and
common stock equivalents outstanding. Common stock equivalent shares consist of
convertible preferred stock (using the if-converted method), stock options and
warrants. Pursuant to the requirements of the Securities and Exchange
Commission, common stock equivalent shares relating to stock options and
warrants issued during the twelve months prior to the Company's initial public
offering are included in the computations for periods presented through the
initial public offering, whether they are anti-dilutive or not. The Company
completed its initial public offering of 2,300,000 common shares on July 5, 1995
and shares issued are included in the weighted average computation only from the
date of issuance. Accordingly, these shares result in a greater amount of
average shares in 1996 compared to 1995.
NOTE 3: New Logic Corporation Acquisition
In June 1996, the Company acquired, through a stock purchase and merger
transaction, New Logic Corporation ("New Logic"), a company which develops and
manufactures logic designs with large memory arrays. In exchange for its
purchase of the New Logic capital stock, the Company issued 314,394 shares of
the Company's common stock, with a market value of approximately $2.7 million,
and approximately $825,000 in cash. The fair value of New Logic Corporation's
tangible net assets at the date of acquisition was a deficit of $373,000.
Approximately $3.8 million of the purchase price over the fair market value of
the net tangible assets was allocated to in-process technology which because of
the uncertainty as to realization, the Company wrote off in the quarter ended
June 30, 1996. Approximately $250,000 was allocated to other intangibles and
will be amortized over a two year period.
Page 7
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<TABLE>
PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 4: Balance Sheet Detail
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Inventory (in thousands):
Raw materials $ 411 $ 633
Work in process 2,923 4,307
Finished goods 851 762
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$ 4,185 $ 5,702
+====== +======
Property and equipment (in thousands):
Machinery and equipment $32,141 $21,315
Leasehold improvements 5,757 3,622
Furniture and fixtures 639 264
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38,537 25,201
Less accumulated depreciation (11,970) (7,870)
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$26,567 $17,331
======= =======
</TABLE>
NOTE 5: Litigation
On August 12, 1996, a securities class action lawsuit was filed in Santa Clara
Superior Court against the Company and certain of its officers and directors
(the "Paradigm Defendants"). The class alleged by plaintiffs consists of
purchasers of the Company's common stock from November 20, 1995 to March 22,
1996, inclusive. The complaint alleges negligent misrepresentation, fraud and
deceit, breach of fiduciary duty, and violations of certain provisions of the
California Corporate Securities Law and Civil Code. The plaintiffs seek an
unspecified amount of compensatory and punitive damages. Plaintiffs allege,
among other things, that the Paradigm Defendants wrongfully represented that the
Company would have protection against adverse market conditions in the
semiconductor market based on the Company's focus on high speed, high
performance semiconductor products. The Paradigm Defendants intend to
vigorously defend the action. On September 30, 1996, the Paradigm Defendants
filed a demurrer seeking to have plaintiffs' entire complaint dismissed with
prejudice. The court has scheduled a hearing on the demurrer for December 3,
1996. No other motions have been filed with the court by plaintiffs or
defendants, and no discovery has yet been conducted.
Page 8
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PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 6: Subsequent Event
On November 8, 1996, the Company entered into a definitive Asset Purchase
Agreement to sell its wafer fabrication facility to an unnamed company (the
"Buyer") for an approximate aggregate compensation of $20,000,000, consisting of
approximately $6,665,000 in cash, $7,535,000 in debt assumption and $5,800,000
in promissory notes (the "Fab Divestiture"). The Asset Purchase Agreement will
terminate if the Fab Divestiture has not closed on or before November 30, 1996.
In addition to the above described consideration, the Asset Purchase Agreement
provides for, among other things, the Buyer to enter into a Wafer Manufacturing
Agreement with the Company whereby the Buyer will supply a quantity of wafers to
the Company over a specified period of time. Consummation of the Asset Purchase
Agreement is subject to a number of conditions, including approval of the board
of directors of each party, and no assurance can be given that the Fab
Divestiture will occur. If the Fab Divestiture is consummated, Paradigm will
have additional working capital and greatly reduced fixed manufacturing
expenses.
NOTE 7: Income Taxes
The Company's effective tax rate was 34.0% for the quarter ended June 30, 1995.
The company's overall tax rate benefited from the use of net operating loss
carryforwards. No provision was recorded for the first quarter of 1995 because
the company incurred a net operating loss for tax purposes. During the three and
nine month periods ended September 30, 1996 the Company recorded a loss for tax
purposes. The Company recorded a tax benefit of $(1.1) million for the nine
month period ended September 30, 1996 as a result of not providing a valuation
allowance against the net operating loss generated due to the existence of
carryback potential against previously paid taxes. At September 30, 1996, the
Company had net operating loss carryforwards of approximately $4.6 million
available to offset future regular and alternative minimum taxable income. The
Company's net operating loss carryforwards expire through 2011, if not utilized.
NOTE 8: Line of Credit and Debt Agreements
The Company has a line of credit with Bank of the West with a borrowing limit of
$10.0 million, secured by the Company's accounts receivable (the "Bank of the
West Loan"). As of September 30, 1996, a total of $2.1 million was outstanding
under the Bank of the West Loan. At September 30, 1996 the Company was not in
compliance with covenants requiring a minimum quick ratio of 1.75 to one, a
ratio of total liabilities to tangible net worth of less than 1.00 to 1.00,
minimum tangible net worth requirements and quarterly profitability
requirements. In November 1996 the Company replaced the Bank of the West line of
credit with a line of credit with Greyrock Business Credit with a borrowing
limit of $6,000,000. Borrowings under this new line of credit with Greyrock
Business Credit are limited to up to 80% of eligible receivables and interest is
at the greater of LIBOR plus 5.25% or 9%.
The Company has a line of credit for equipment purchases from the CIT Group. The
aggregate principal amount of all loans under this commitment may not exceed
$15.0 million and the commitment expires on December 30, 1996. As of September
30, 1996, the Company's
Page 9
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PARADIGM TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
outstanding indebtedness under this line of credit was approximately $9.6
million. All borrowings under this commitment are secured by the equipment
purchased. At September 30, 1996, the Company was not in compliance with
covenants requiring a minimum level of tangible net worth and a requirement for
net income, as adjusted per the agreement, to exceed the current portion of debt
by a ratio of 1.50 to one for the four most recent quarters. At September 30,
1996 the Company has not received a waiver of these covenants from the CIT Group
and has therefore classified all CIT Group debt as a current liability.
Page 10
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PART I. Financial Information
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
When used in this Form 10-Q, the words "estimate," "project," "intend," "expect"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially, including factors relating to the impact of
competitive products and pricing, the timely development and market acceptance
of new products and upgrades to existing products, availability and cost of
products from Paradigm's suppliers and market conditions in the PC industry. For
discussion of certain such risk factors, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Other Factors That
May Affect Future Operating Results." Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release updates or
revisions to these statements.
Results of Operations
Sales
The Company's net sales for the three and nine month periods ended September 30,
1996 decreased 63% and 45%, respectively, from the corresponding periods in
fiscal year 1995. The Company has continued to experience a significant downward
trend in pricing that began in late 1995 in addition to lower volumes of units
shipped when compared to 1995. The reduced selling prices of the Company's
products and reduced unit shipments are both principally a result of the
significant excess supply of SRAM devices relative to demand that the SRAM
market has been experiencing since late 1995.
The SRAM business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity, and accelerated erosion of average selling
prices. During the latter part of 1995 and first nine months of 1996, the market
for SRAM devices experienced an excess supply relative to demand which resulted
in a significant downward trend in prices.
The selling prices that the Company is able to command for its products are
highly dependent on industry-wide production capacity and demand. In this
regard, the Company did experience rapid erosion in product pricing during the
first nine months of 1996 which was not within the control of the Company. The
Company could continue to experience a downward trend in pricing which could
adversely affect the Company's operating results.
Gross Profit
Gross profit has decreased from $5.7 million and $14.8 million for the three and
nine month periods ended September 30, 1995, respectively, to losses of $3.3
million and $9.7 million for the comparable periods in fiscal 1996. The decrease
in gross profit resulted principally from industry-wide pricing pressures
experienced by the Company in the March, June and September 1996
Page 11
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quarters caused by an oversupply in the worldwide SRAM marketplace. These
pricing pressures directly impacted profits as average selling prices of the
Company's products declined during the three quarters ended September 30, 1996
when compared to the three quarters ended September 30, 1995. In addition, in
the quarter ended June 30, 1996 the Company provided $5.8 million to write down
the value of inventory on hand to reflect reduced product demand and current
industry pricing trends.
Gross profit for future periods may be affected by an agreement between the
Company and Atmel Corporation ("Atmel"), pursuant to which Atmel has agreed to
sell to the Company, at predetermined prices, a committed quantity of sub-micron
wafers for five years, beginning in 1996, and by an agreement between the
Company and NKK pursuant to which NKK has agreed to supply the Company with a
significant quantity of 1M SRAMs of Paradigm's design each month for a three
year period. The Company is not obligated to make any purchases under the
agreements with Atmel and NKK. To the extent that market prices for 1M SRAM
sub-micron wafers are higher than the prices payable to Atmel or NKK under these
agreements, the Company's gross profit would tend to be higher than if the
Company were to purchase sub-micron wafers or 1M SRAMs at market prices. Current
market prices are lower than the prices payable to Atmel. The Company's
conversion of its internal fabrication facility from five-inch to six-inch wafer
manufacturing was completed during 1996 and has caused temporary declines in
output and reductions in yield.
Research and Development
Research and development expenses increased to $1.7 million and $4.6 million in
the three and nine month periods ended September 30, 1996 from $1.3 million and
$3.4 million in the corresponding periods in fiscal 1995. As a percentage of
revenues these expenses have increased to 32% and 23%, respectively, in the
three and nine month periods ended September 30, 1996 from 9% in each of the
comparable periods in 1995. Increased expenses result primarily from increased
headcount required to support the Company's co-development activities with
Atmel, new product introductions and other development activities. The Company
expects research and development expenses in absolute dollars to increase
through at least the end of 1996. In addition, research and development expenses
increased in the three and nine month periods ended September 30, 1996 as a
result of the Company's acquisition of New Logic Corporation in June 1996.
Research and development expenses, as a percentage of revenue, have also
increased as a result of the decline in revenue in the 1996 periods compared to
the 1995 periods.
Selling, General and Administrative
Selling, general and administrative expenses were $2.5 million and $6.8 million
in the three and nine month periods ended September 30, 1996, respectively,
compared to $2.0 million and $5.9 million in the comparable periods in 1995.
These expenses are expected to increase in the future in absolute dollars, as
the Company increases its sales and marketing staff.
Page 12
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Interest Expense
Interest expense of $.3 million and $.9 million for the three and nine month
periods ended September 30, 1996 compares to $.3 million and $1.1 million in the
corresponding periods in fiscal 1995. This decrease in interest expense for the
nine month period in 1996 reflects repayment of certain outstanding debt by the
Company from the proceeds of its initial public offering which was subsequently
replaced during the March and June 1996 quarters by new debt at lower interest
rates. See "Liquidity and Capital Resources."
Other Income, Net
For the three and nine month periods ended September 30, 1996, other income,
net, reflects interest income earned on the investment of the net proceeds to
the Company from its initial public offering. In addition, the September 1996
quarter includes a gain on the sale of fixed assets of $.5 million.
Taxes
The Company's effective tax rate was 34.0% for the quarter ended June 30, 1995.
The Company's overall tax rate benefited from the use of net operating loss
carryforwards. No provision was recorded for the first quarter of 1995 because
the Company incurred a net operating loss for tax purposes. During the three and
nine month periods ended September 30, 1996 the Company recorded a loss for tax
purposes. The Company recorded a tax benefit of $(1.1) million for the nine
month period ended September 30, 1996 as a result of not providing a valuation
allowance against the net operating loss generated due to the existence of
carryback potential against previously paid taxes. At September 30, 1996, the
Company had net operating loss carryforwards of approximately $4.6 million
available to offset future regular and alternative minimum taxable income. The
Company's net operating loss carryforwards expire through 2011, if not utilized.
Liquidity and Capital Resources
The Company's operating, investing and financing activities used $3.1 million of
cash in the nine months ended September 30, 1996 compared to generating $9.9
million of cash in the comparable period in 1995. Operating activities used
$11.5 million in cash in 1996 versus the generation of $9.0 million of cash in
1995. This change of $20.5 million is primarily due to the loss of $23.7 million
in the 1996 period compared to net income of $3.5 million in the 1995 period.
The 1996 loss is partially offset by the write-off of in-process technology of
$3.8 million associated with the Company's purchase of New Logic Corporation in
June 1996. In addition, the decrease in accounts receivable in the 1996 period
provided $8.2 million more cash than in 1995. The 1996 reduction in accounts
receivable reflects the decrease of $8.8 million in net sales for the quarter
ended September 30, 1996 compared to the third quarter of 1995. Accounts payable
and accrued liabilities used $6.6 million more cash in 1996 than in 1995 due
primarily to the cost of equipment purchased in the Company's conversion from
five to six inch wafers.
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Investing activities provided $3.7 million in 1996 compared to the use of $26.7
million in 1995. Capital equipment purchases increased from $10.0 million in the
1995 period to $13.3 million in the 1996 period as the Company continued its
conversion from 5-inch wafers to 6-inch wafers in the Company's wafer
fabrication facilities. In addition, the 1996 period included the sale of $17.2
million in short-term investments compared to the purchase of $16.7 million in
short-term investments in the 1995 period.
Financing activities provided $4.7 million in the 1996 period compared to $27.6
million in the 1995 period. Borrowing under the Company's line of credit
provided $2.1 million in the 1996 period compared to a use of $4.6 million in
the 1995 period. The issuance of notes payable resulted in an increase of $2.0
million of cash provided in 1996 compared to 1995 as the issuance of notes
payable increased to $11.3 in the 1996 period from $9.3 million in the 1995
period. The increase in notes payable in the 1996 period resulted from
borrowings by the Company under its line of credit for equipment purchases with
the CIT Group to acquire capital equipment required for the Company's 5-inch to
6-inch wafer conversion and test floor expansion. The 1996 and 1995 periods
reflected capital lease or note payable payments of approximately $9.5 million
and $8.8 million, respectively, as the Company retired debt by replacing it with
new borrowings at lower interest rates.
In February, 1996 the Company replaced an existing line of credit with Greyrock
Business Credit with a new line of credit from Bank of the West with a borrowing
limit of $10.0 million. Borrowings are limited to 80% of eligible receivables
and interest is at prime. The line of credit is secured by the Company's
accounts receivable and will continue until all obligations to Bank of the West
have been satisfied. On February 27, 1996 the Company borrowed $5.6 million
under the line of credit to pay off the outstanding balance of the Greyrock term
notes. At September 30, 1996 the Company was not in compliance with covenants
requiring a minimum quick ratio of 1.75 to 1.0, a ratio of total liabilities to
tangible net worth of less than 1.00 to 1.00, minimum tangible net worth
requirements and quarterly profitability requirements. In November 1996 the
Company replaced the Bank of the West line of credit with a line of credit with
Greyrock Business Credit with a borrowing limit of $6,000,000. Borrowings under
this new line of credit with Greyrock Business Credit are limited to up to 80%
of eligible receivables and interest is at the greater of LIBOR plus 5.25% or
9%.
In addition, in February 1996, the Company obtained a line of credit for
equipment purchases from the CIT Group. The aggregate principal amount of all
loans under this commitment may not exceed $15.0 million and the commitment
expires on December 30, 1996. Borrowings under this line of credit bear interest
at the U.S. Treasury rate for two year maturities plus 2.96% and are limited to
80% of the cost of eligible equipment. As of September 30, 1996, the Company's
outstanding indebtedness under this line of credit was approximately $9.6
million. All borrowings under this commitment are secured by the equipment
purchased. At September 30, 1996, the Company was not in compliance with
covenants requiring a minimum level of tangible net worth and a requirement for
net income, as adjusted per the agreement, to exceed the current portion of debt
by a ratio of 1.50 to 1.0 for the four most recent quarters. At September 30,
1996 the Company has not received a waiver of these covenants from the CIT Group
and has therefore classified all CIT Group debt as a current liability.
As of November 13, 1996, cash flow from operations and other existing sources of
liquidity are not expected to be sufficient to meet the Company's projected
working capital and other cash
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requirements through the end of 1996. The Company is currently seeking
additional liquidity through the sale of its wafer fabrication facility in San
Jose, California. No assurance can be given that such sale (which is subject to
a number of conditions) will be consummated. See "Subsequent Events." If such
sale is not consummated, the Company will be forced to pursue other sources of
liquidity, including asset sales, equity financings, debt financings, bank
financing, or other sources of liquidity. If the Company is unsuccessful in
pursuing short-term liquidity, it will have to consider other options, including
significant cost reductions, discontinuance of certain operations, debt
restructuring, or protection from creditors pursuant to applicable laws. No
assurances can be given that the Company will be successful in pursuing such
sources of liquidity.
Subsequent Events
On November 8, 1996, the Company entered into a definitive Asset Purchase
Agreement to sell its wafer fabrication facility to an unnamed company (the
"Buyer") for an approximate aggregate compensation of $20,000,000, consisting of
approximately $6,665,000 in cash, $7,535,000 in debt assumption and $5,800,000
in promissory notes (the "Fab Divestiture"). The Asset Purchase Agreement will
terminate if the Fab Divestiture has not closed on or before November 30, 1996.
In addition to the above described consideration, the Asset Purchase Agreement
provides for, among other things, the Buyer to enter into a Wafer Manufacturing
Agreement with the Company whereby the Buyer will supply a quantity of wafers to
the Company over a specified period of time. Consummation of the Asset Purchase
Agreement is subject to a number of conditions, including approval of the board
of directors of each party, and no assurance can be given that the Fab
Divestiture will occur. If the Fab Divestiture is consummated, Paradigm will
have additional working capital and greatly reduced fixed manufacturing
expenses.
Other Factors That May Affect Future Operating Results
The market for the Company's products is characterized by rapidly changing
technology, short product life cycles, cyclical oversupply and rapid price
erosion. Average selling prices for many of the Company's products have
generally decreased over the products' life cycles in the past and are expected
to decrease in the future. Accordingly, the Company's future success will
depend, in part, on its ability to offset expected price erosion through
manufacturing cost savings, yield improvements and developing and introducing on
a timely basis new products and enhanced versions of its existing products which
incorporate advanced features and command higher prices. If the Company is
unable to design, develop and introduce competitive products or to develop new
or modified designs and processes on a timely basis, the Company's operating
results will be materially adversely affected.
The Company's recent operations have consumed substantial amounts of cash. As of
November 13, 1996, cash flow from operations and other existing sources of
liquidity are not expected to be sufficient to meet the Company's projected
working capital and other cash requirements through the end of 1996. Moreover,
the Company is not currently in compliance with the covenants of its principal
loan agreements. See Item 3, "Defaults Upon Senior Securities". The Company is
currently seeking additional liquidity through the sale of its wafer fabrication
facility in San Jose, California. No assurance can be given that such sale
(which is subject to a number of conditions) will be consummated. See
"Subsequent Events". If such sale is not consummated, the Company will be forced
to pursue other sources of liquidity, including asset sales, equity financings,
debt
Page 15
<PAGE>
financings, bank financing, or other sources of liquidity. If the Company is
unsuccessful in pursuing short-term liquidity, it will have to consider other
options, including significant cost reductions, discontinuance of certain
operations, debt restructurings, or protection from creditors pursuant to
applicable laws. No assurances can be given that the Company will be successful
in pursuing such sources of liquidity.
The manufacture and assembly of integrated circuits, particularly Paradigm's
high speed, high density SRAMs, involve highly complex processes. The number of
functional commercial quality devices produced from each processed silicon wafer
depends upon a wide variety of factors, including the level of contaminants in
the manufacturing environment, impurities in the silicon, chemicals, and other
materials used, and the performance of equipment and personnel. Paradigm has in
the past experienced reductions in yields with its 256K, 1M and 4M products as a
result of various factors. Susceptibility to yield problems generally increases
as the density of the SRAM product increases. The Company's San Jose facility is
its sole internal wafer fabrication facility and as a result is also vulnerable
to future interruptions caused by natural disasters such as earthquakes, power
and other utilities outages (which have occurred previously), fires and other
interruptions. There can be no assurance that the Company, or any third-party
foundry used by the Company, will not experience manufacturing problems
including low yields of its products and business interruptions, in the future,
and such problems could have a material adverse effect on the Company.
To maintain competitive manufacturing yields and product performance, the
Company must obtain from its vendors, in a timely manner, sufficient quantities
of acceptable materials at budgeted prices. From time to time, vendors have
extended lead times or limited supply to the Company because of capacity
constraints. A limited number of vendors supply certain critical raw materials
used in the Company's wafer fabrication facility, and the Company has
occasionally rejected materials from those vendors that did not meet its
specifications, resulting in temporary declines in output or yield. Only a few
vendors supply certain ceramic semiconductor packages used to assemble some of
the Company's products, and those vendors require long lead times to fill
orders. The Company relies on two outside vendors to provide ion implant
services that the Company requires as part of its manufacturing process. These
service providers are the only two significant ion implant service providers
available locally to the Company. Any interruption in the availability or
quality of services from these providers would materially adversely affect the
Company. In addition, the subcontracting of ion implant services involves the
removal of wafers from the Company's manufacturing facility during the
manufacturing process for transport to the facilities of the ion implant service
providers. The process of transfer of the wafer from one facility to another
involves the risks of breakage of wafers and contamination from impurities. The
Company would be adversely affected if it were unable to obtain sufficient
quantities of raw materials and other supplies or services in a timely manner,
if those materials, supplies or services were not of acceptable quality, or if
there were significant increases in the costs of raw materials.
The semiconductor industry is intensely competitive and is characterized by
rapidly changing technology, short product life cycles, cyclical oversupply, and
rapid price erosion. The Company competes with large domestic and international
semiconductor companies, most of which have substantially greater financial,
technical, marketing, distribution and other resources than the Company. The
ability of the Company to compete successfully depends on elements outside its
control, including the rate at which customers incorporate the Company's
products into their systems, the success of such customers in selling those
systems, the Company's protection of its
Page 16
<PAGE>
intellectual property, the number, nature and success of its competitors and
their product introductions, and general market and economic conditions. In
addition, the Company's success will depend in large part on its ability to
develop and introduce in a timely manner products that compete effectively on
the basis of product features (including speed, density, die size and
packaging), availability, quality, reliability and price, together with other
factors including the availability of sufficient manufacturing capacity and the
adequacy of production yields. There is no assurance that the Company will be
able to compete successfully in the future.
The Company's future success will be heavily dependent upon its ability to
attract and retain qualified technical, managerial, marketing and financial
personnel. The Company experienced a high degree of turnover in personnel,
including at the senior and middle management levels, during and subsequent to
the Reorganization. The competition for such personnel is intense and includes
companies with substantially greater financial and other resources to offer such
personnel. There can be no assurance that the Company will be able to attract
and retain the necessary personnel, or successfully manage its expansion, and
any failure to do so could have a material adverse effect on the Company.
The Company has experienced significant quarterly fluctuations in operating
results and anticipates that these fluctuations will continue. These
fluctuations have been caused by a number of factors, including changes in
manufacturing yields, changes in the mix of products sold, the timing of new
product introductions by the Company or its competitors, cancellation or delays
of purchases of the Company's products, the gain or loss of significant
customers, the cyclical nature of the semiconductor industry, consequent
fluctuations in customer demand for the Company's devices and the products into
which they are incorporated, and competitive pressures on prices. A decline in
demand in the markets served by the Company, lack of success in developing new
markets or new products, or increased research and development expenses relating
to new product introductions could have a material adverse effect on the
Company. Moreover, because the Company sets spending levels in advance of each
quarter based, in part, on expectations of product orders and shipping
requirements during that quarter, a shortfall in revenue in any particular
quarter as compared to the Company's plan could have a material adverse effect
on the Company. During the first nine months of 1996, the market for certain
SRAM devices experienced a significant excess supply relative to demand which
resulted in a significant downward trend in prices. The Company could continue
to experience a downward trend in pricing which could adversely affect the
Company's operating results. The Company's ability to maintain or increase
revenues in light of the current downward trend in product prices will be highly
dependent upon its ability to increase unit sales volumes of existing products
and to introduce and sell new products in quantities sufficient to compensate
for the anticipated declines in average selling prices of existing products.
Declining average selling prices will also adversely affect the Company's gross
margins unless the Company is able to reduce its costs per unit to offset such
declines. There can be no assurance that the Company will be able to increase
unit sales volumes, introduce and sell new products, or reduce its costs per
unit.
The semiconductor industry is highly cyclical and has been subject to
significant economic downturns at various times, characterized by diminished
product demand, production overcapacity and accelerated erosion of average
selling prices. During the first nine months of 1996, the market for certain
SRAM devices experienced an excess supply relative to demand which resulted in a
significant downward trend in prices. The Company could continue to experience a
downward trend in pricing which could adversely affect the Company's operating
margins. The selling prices
Page 17
<PAGE>
that the Company is able to command for its products are highly dependent on
industry-wide production capacity and demand, and as a consequence the Company
could experience rapid erosion in product pricing which is not within the
controls of the Company and which could adversely effect the Company's operating
results. The Company expects that additional SRAM production capacity will
become increasingly available in the foreseeable future, and such additional
capacity may adversely affect the Company's margins and competitive position. In
addition, the Company may experience period-to-period fluctuations in operating
results because of general semiconductor industry conditions, overall economic
conditions, or other factors. The Company's business is also subject to the
risks associated with the imposition of legislation and regulations relating to
the import or export of semiconductor products.
The Company intends to continue to pursue patent, trade secret, and mask work
protection for its semiconductor process technologies and designs. To that end,
the Company has obtained certain patents and patent licenses and intends to
continue to seek patents on its inventions and manufacturing processes, as
appropriate. The process of seeking patent protection can be long and expensive,
and there is no assurance that patents will be issued from currently pending or
future applications or that, if patents are issued, they will be of sufficient
scope or strength to provide meaningful protection or any commercial advantage
to the Company. In particular, there can be no assurance that any patents held
by the Company will not be challenged, invalidated, or circumvented, or that the
rights granted thereunder will provide competitive advantage to the Company. The
Company also relies on trade secret protection for its technology, in part
through confidentiality agreements with its employees, consultants and third
parties. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known to or independently
developed by others. In addition, the laws of certain territories in which the
Company's products are or may be developed, manufactured, or sold may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
There has been substantial litigation regarding patent and other intellectual
property rights in the semiconductor industry. In the future, litigation may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company, or to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. The Company has from time to time received,
and may in the future receive, communications alleging possible infringement of
patents or other intellectual property rights of others. Any such litigation
could result in substantial cost to and diversion of effort by the Company,
which could have a material adverse effect on the Company. Further, adverse
determinations in such litigation could result in the Company's loss of
proprietary rights, subject the Company to significant liabilities to third
parties, require the Company to seek licenses from third parties, or prevent the
Company from manufacturing or selling its products, any of which could have a
material adverse effect on the Company.
The Company has received a letter from Integrated Device Technology, Inc.
("IDT") asserting that Paradigm's products that incorporate a "burst mode"
synchronous exchange into a single integrated SRAM chip infringe IDT's patent
number 5,126,975 which was issued on June 30, 1992. The Company's products using
this feature represented approximately 22% of the Company's sales for the year
ended December 31, 1995 and 15% for the nine months ended September 30 1996. If
IDT initiates litigation against Paradigm based on such patent, it will likely
seek substantial damages
Page 18
<PAGE>
and injunctive relief to prevent the Company from continuing to ship those of
its products which IDT asserts infringe such patent. Under the patent laws, in
certain circumstances, damage awards may be tripled. The Company intends to
vigorously defend any such claim that may be prosecuted by IDT and, based on
facts presently known, believes that it is not liable under the IDT patent. The
Company expects that such patent claim will be vigorously prosecuted by IDT. No
assurance can be given that the Company will be successful in the defense of any
such claims. Even if Paradigm is successful in such defense, it may incur
substantial legal fees and other expenses related to this claim. If unsuccessful
in the defense of any such claims, the Company's business and operating results
would be materially adversely affected.
On August 12, 1996, a securities class action lawsuit was filed in Santa Clara
Superior Court against the Company and certain of its officers and directors
(the "Paradigm Defendants"). The class alleged by plaintiffs consists of
purchasers of the Company's common stock from November 20, 1995 to March 22,
1996, inclusive. The complaint alleges negligent misrepresentation, fraud and
deceit, breach of fiduciary duty, and violations of certain provisions of the
California Corporate Securities Law and Civil Code. The plaintiffs seek an
unspecified amount of compensatory and punitive damages. Plaintiffs allege,
among other things, that the Paradigm Defendants wrongfully represented that the
Company would have protection against adverse market conditions in the
semiconductor market based on the Company's focus on high speed, high
performance semiconductor products. The Paradigm Defendants intend to vigorously
defend the action. On September 30, 1996, the Paradigm Defendants filed a
demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice.
The court has scheduled a hearing on the demurrer for December 3, 1996. No other
motions have been filed with the court by plaintiffs or defendants, and no
discovery has yet been conducted. There can be no assurance that the Company
will be successful in such defense. Even if Paradigm is unsuccessful in such
defense, it may incur substantial legal fees and other expenses related to this
claim. If unsuccessful in the defense of any such claims, the Company's business
and operating results would be materially adversely affected.
The Company is subject to a variety of federal, state, and local governmental
laws and regulations related to air and water quality and to the use, storage,
discharge, and disposal of toxic, volatile, or otherwise hazardous chemicals
used in its manufacturing process. Such laws and regulations have required or,
from time to time, could require the Company to acquire costly equipment or to
incur other significant expenses to comply with such laws and regulations. The
Company evaluates its compliance with environmental laws and regulations on an
ongoing basis and endeavors to maintain such compliance, including correcting
actual or potential noncompliance as soon as practicable after discovery of such
noncompliance. Nevertheless, failure by the Company to comply with present or
future environmental laws and regulations could result in fines being imposed on
the Company, suspension of production, or a cessation of operations. In
addition, any failure by the Company to control the use of, or adequately
restrict the discharge of, hazardous substances could subject it to future
liabilities.
The trading price of the Company's Common Stock is subject to wide fluctuations
in response to variations in operating results of the Company and other
semiconductor companies, actual or anticipated announcements of technical
innovations or new products by the Company or its competitors, general
conditions in the semiconductor industry and the worldwide economy, and other
events or factors. In addition, the stock market has in the past experienced
extreme price and
Page 19
<PAGE>
volume fluctuations, particularly affecting the market prices for many high
technology companies, and these fluctuations have often been unrelated to the
operating performance of the specific companies. These market fluctuations may
adversely affect the market price of the Company's Common Stock.
Certain provisions of the Company's Certificate of Incorporation and Bylaws and
of Delaware law could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. Such provisions could diminish
the opportunities for a stockholder to participate in tender offers, including
tender offers at a price above the then current market value of the Common
Stock. Such provisions may also inhibit fluctuations in the market price of the
Common Stock that could result from takeover attempts. In addition, the Board of
Directors, without further stockholder approval, may issue Preferred Stock that
could have the effect of delaying or preventing a change in control of the
Company. The issuance of Preferred Stock could also adversely affect the voting
power of the holders of Common Stock, including the loss of voting control to
others.
In addition, incorporated by reference herein, are the following risk factors
set forth in Part I, Factors That May Affect Future Results, in the Company's
Form 10-K for the year ended December 31, 1995: "Current and Impending Capacity
Constraints and Risks of Proposed Expansion"; "Product and Customer
Concentration"; "International Trade" and "Future Capital Needs."
Page 20
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 12, 1996, a securities class action lawsuit was filed in Santa Clara
Superior Court against the Company and certain of its officers and directors
(the "Paradigm Defendants"). The class alleged by plaintiffs consists of
purchasers of the Company's common stock from November 20, 1995 to March 22,
1996, inclusive. The complaint alleges negligent misrepresentation, fraud and
deceit, breach of fiduciary duty, and violations of certain provisions of the
California Corporate Securities Law and Civil Code. The plaintiffs seek an
unspecified amount of compensatory and punitive damages. Plaintiffs allege,
among other things, that the Paradigm Defendants wrongfully represented that the
Company would have protection against adverse market conditions in the
semiconductor market based on the Company's focus on high speed, high
performance semiconductor products. The Paradigm Defendants intend to vigorously
defend the action. On September 30, 1996, the Paradigm Defendants filed a
demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice.
The court has scheduled a hearing on the demurrer for December 3, 1996. No other
motions have been filed with the court by plaintiffs or defendants, and no
discovery has yet been conducted.
Item 3. Defaults Upon Senior Securities.
The Company has a line of credit with Bank of the West with a borrowing limit of
$10.0 million, secured by the Company's accounts receivable (the "Bank of the
West Loan"). As of September 30, a total of $2.1 million was outstanding under
the Bank of the West Loan. At September 30, 1996 the Company was not in
compliance with covenants requiring a minimum quick ratio of 1.75 to one, a
ratio of total liabilities to tangible net worth of less than 1.00 to 1.00,
minimum tangible net worth requirements and quarterly profitability
requirements. In November 1996 the Company replaced the Bank of the West line of
credit with a line of credit with Greyrock Business Credit with a borrowing
limit of $6,000,000. Borrowings under this new line of credit with Greyrock
Business Credit are limited to up to 80% of eligible receivables and interest is
at the greater of LIBOR plus 5.25% or 9%.
The Company has a line of credit for equipment purchases from the CIT Group. The
aggregate principal amount of all loans under this commitment may not exceed
$15.0 million and the commitment expires on December 30, 1996. As of September
30, 1996, the Company's outstanding indebtedness under this line of credit was
approximately $9.6 million. All borrowings under this commitment are secured by
the equipment purchased. At September 30, 1996, the Company was not in
compliance with covenants requiring a minimum level of tangible net worth and a
requirement for net income, as adjusted per the agreement, to exceed the current
portion of debt by a ratio of 1.50 to one for the four most recent quarters. At
September 30, 1996 the Company has not received a waiver of these covenants from
the CIT Group and has therefore classified all CIT Group debt as a current
liability.
Page 21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1994 Stock Option Plan
11.1 Computation of net income (loss) per share
(see Note 2 of Notes to Condensed Financial Statements)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARADIGM TECHNOLOGY, INC.
/s/ Robert C. McClelland
Date: November 11, 1996 ---------------------------------------
Robert C. McClelland
Vice President Finance
(Principal Financial and Accounting
Officer)
Page 22
<PAGE>
PARADIGM TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
(Amended and Restated Effective as of May 2, 1996)
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. ESTABLISHMENT AND PURPOSE.............................1
SECTION 2. DEFINITIONS...........................................1
(a) Board of Directors....................................1
(b) Change in Control.....................................1
(c) Code..................................................2
(d) Committee.............................................2
(e) Company...............................................2
(f) Employee..............................................2
(g) Exchange Act..........................................2
(h) Exercise Price........................................2
(i) Fair Market Value.....................................2
(j) ISO...................................................2
(k) Nonstatutory Option...................................2
(l) Option................................................3
(m) Optionee..............................................3
(n) Outside Director......................................3
(o) Plan..................................................3
(p) Service...............................................3
(q) Share.................................................3
(r) Stock.................................................3
(s) Stock Option Agreement................................3
(t) Subsidiary............................................3
(u) Total and Permanent Disability........................3
SECTION 3. ADMINISTRATION........................................3
(a) Committee Procedures..................................3
(b) Committee Responsibilities............................3
SECTION 4. ELIGIBILITY...........................................5
(a) General Rule..........................................5
(b) Outside Directors.....................................5
(c) Limitation On Grants..................................6
(d) Ten-Percent Shareholders..............................6
(e) Attribution Rules.....................................6
(f) Outstanding Stock.....................................6
SECTION 5. STOCK SUBJECT TO PLAN.................................6
(a) Basic Limitation......................................6
(b) Additional Shares.....................................7
-i-
<PAGE>
SECTION 6. TERMS AND CONDITIONS OF OPTIONS........................7
(a) Stock Option Agreement.................................7
(b) Number of Shares.......................................7
(c) Exercise Price.........................................7
(d) Withholding Taxes......................................7
(e) Exercisability and Term................................7
(f) Nontransferability.....................................7
(g) Exercise of Options Upon Termination of Service........8
(h) No Rights as a Stockholder.............................8
(i) Modification, Extension and Renewal of Options.........8
(j) Restrictions on Transfer of Shares.....................8
SECTION 7. PAYMENT FOR SHARES.....................................8
(a) General Rule...........................................8
(b) Surrender of Stock.....................................8
(c) Cashless Exercise......................................8
SECTION 8. ADJUSTMENT OF SHARES...................................9
(a) General................................................9
(b) Reorganizations........................................9
(c) Reservation of Rights..................................9
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS......................9
SECTION 10. NO EMPLOYMENT RIGHTS..................................10
SECTION 11. DURATION AND AMENDMENTS...............................10
(a) Term of the Plan......................................10
(b) Right to Amend or Terminate the Plan..................10
(c) Effect of Amendment or Termination....................10
SECTION 12. EXECUTION.............................................11
-ii-
<PAGE>
PARADIGM TECHNOLOGY, INC.
1994 STOCK OPTION PLAN
(Amended and Restated Effective as of May 2, 1996)
SECTION 1. ESTABLISHMENT AND PURPOSE.
-------------------------
The Plan was established in 1994 to offer selected employees and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, by purchasing Shares of the Company's
Common Stock. The Plan provides for the grant of Options to purchase Shares.
Options granted under the Plan may include Nonstatutory Options as well as ISOs
intended to qualify under Code section 422.
The Plan is being amended and restated to add an additional 300,000 shares
for the grant of options to employees who are not subject to Section 16 of the
Exchange Act with respect to transactions in the Company's securities.
SECTION 2. DEFINITIONS.
-----------
(a) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.
(b) "Change in Control" means the occurrence of either of the following
-----------------
events:
(i) A change in the composition of the Board of Directors, as a result
of which fewer than one-half of the incumbent directors are directors who
either:
(A) Had been directors of the Company 24 months prior to such
change; or
(B) Were elected, or nominated for election, to the Board of
Directors with the affirmative votes of at least a majority of the
directors who had been directors of the Company 24 months prior to
such change and who were still in office at the time of the election
or nomination; or
(ii) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at elections
of directors (the "Base Capital Stock"); except that any change in the
relative beneficial ownership of the Company's securities by any person
resulting solely from a reduction in the
-1-
<PAGE>
aggregate number of outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of the
Company. For purposes of this Subsection (ii), the term "person" shall not
include an employee benefit plan maintained by the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean the committee designated by the Board of
---------
Directors, which is authorized to administer the Plan under Section 3 hereof.
The Committee shall have membership composition which enables the Plan to
qualify under Rule 16b-3 with regard to the grant of Options or other rights
under the Plan to persons who are subject to Section 16 of the Exchange Act.
(e) "Company" shall mean Paradigm Technology, Inc., a Delaware corporation.
-------
(f) "Employee" shall mean (i) any individual who is a common-law employee
--------
of the Company or of a Subsidiary, (ii) a member of the Board of Directors and
(iii) an independent contractor or advisor who performs services for the Company
or a Subsidiary. Service as a member of the Board of Directors or as an
independent contractor or advisor shall be considered employment for all
purposes of the Plan except the second sentence of Section 4(a).
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(h) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(i) "Fair Market Value" shall mean (i) the closing price of a Share on the
-----------------
principal exchange which the Shares are trading, on the first trading day
immediately preceding the date on which the Fair Market Value is determined, or
(ii) if the Shares are not traded on an exchange but are quoted on the Nasdaq
National Market or a successor quotation system, the closing price on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the Shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a Share, as determined by the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(j) "ISO" shall mean an employee incentive stock option described in Code
---
section 422.
(k) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(l) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.
(m) "Optionee" shall mean an individual who holds an Option.
--------
-2-
<PAGE>
(n) "Outside Director" shall mean a member of the Board of Directors who is
----------------
not a common-law employee of the Company or of a Subsidiary.
(o) "Plan" shall mean this Paradigm Technology, Inc. 1994 Stock Plan, as
----
amended from time to time.
(p) "Service" shall mean service as an Employee.
-------
(q) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 8 (if applicable).
(r) "Stock" shall mean the Common Stock of the Company.
-----
(s) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his Option.
(t) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(u) "Total and Permanent Disability" shall mean that the Optionee is unable
------------------------------
to work. Total and Permanent Disability shall be determined by the Company in
accordance with its Long Term Disability Plan.
SECTION 3. ADMINISTRATION.
--------------
(a) Committee Procedures. The Board of Directors shall designate one of the
--------------------
members of the Committee as chairman. The Committee may hold meetings at such
times and places as it shall determine. The acts of a majority of the Committee
members present at meetings at which a quorum exists, or acts reduced to or
approved in writing by all Committee members, shall be valid acts of the
Committee.
(b) Committee Responsibilities. Subject to the provisions of the Plan, the
--------------------------
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
-3-
<PAGE>
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, the vesting or duration of the
Option (including accelerating the vesting of the Option), to determine
whether such Option is to be classified as an ISO or as a Nonstatutory
Option, and to specify the provisions of the Stock Option Agreement
relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to
applicable legal restrictions and to the consent of the Optionee who
entered into such agreement;
(ix) To prescribe the consideration for the grant of each Option under
the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in the
event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted in
replacement of other grants under an incentive or other compensation plan
of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable for the
administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options under the Plan to
persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Optionees and all persons deriving their rights from an Optionee. No member
of the Committee shall be liable for any action that he has taken or has failed
to take in good faith with respect to the Plan or any Option to acquire Shares
under the Plan.
-4-
<PAGE>
SECTION 4. ELIGIBILITY.
-----------
(a) General Rule. Only Employees shall be eligible for designation as
------------
Optionees by the Committee. In addition, only individuals who are employed as
common-law employees by the Company or a Subsidiary shall be eligible for the
grant of ISOs.
(b) Outside Directors. Any other provision of the Plan notwithstanding, the
-----------------
participation of Outside Directors in the Plan shall be subject to the following
restrictions:
(i) Outside Directors shall only be eligible for the grant of
Nonstatutory Options as described in this Section 4(b).
(ii) Upon the conclusion of each regular annual meeting of the
Company's shareholders following the initial public offering, each Outside
Director who will continue serving as a member of the Board thereafter
shall receive a Nonstatutory Option to purchase 3,125 Shares (subject to
adjustment under Section 8). All such Nonstatutory Options shall vest and
become exercisable at the rate of 25% upon each one-year anniversary of the
date the option is granted to the Outside Director.
(iii) Each Outside Director who is appointed an Outside Director
following the initial public offering shall automatically be granted a
Nonstatutory Option to purchase 12,500 Shares (subject to adjustment under
Section 8) as a result of their appointment as an Outside Director. Upon
the conclusion of each regular annual meeting of the Company's shareholders
following the annual meeting at which they were appointed, each Outside
Director who will continue serving as a member of the Board thereafter
shall receive a Nonstatutory Option to purchase 3,125 Shares (subject to
adjustment under Section 8). All such Nonstatutory Options shall vest and
become exercisable at the rate of 25% upon each one-year anniversary of the
date the option is granted to the Outside Director.
(iv) All Nonstatutory Options granted to an Outside Director under
this Section 4(b) shall also become exercisable in full in the event of (A)
the termination of such Outside Director's service because of death or
Total and Permanent Disability or (B) a Change in Control of the Company.
(v) Subject to (ii) above, the Exercise Price of all Nonstatutory
Options granted to an Outside Director under this Section 4(b) shall be
equal to 100% of the Fair Market Value of a Share on the date of grant,
payable in one of the forms described in Sections 7(a), (b) and (c).
(vi) All Nonstatutory Options granted to an Outside Director under
this Section 4(b) shall terminate on the earliest of (A) the 10th
anniversary of the date of grant of such Nonstatutory Options, (B) the date
90 days after the termination of such Outside Director's service for any
reason other than death,
-5-
<PAGE>
Total and Permanent Disability or voluntary retirement as an Outside
Director at or after the age of 60, or (C) the date 12 months after the
termination of such Outside Director's service because of death, Total and
Permanent Disability or voluntary retirement as an Outside Director at or
after the age of 60.
(c) Limitation On Grants. No Employee shall be granted Options to purchase
--------------------
Shares during any fiscal year covering in excess 200,000 Shares.
(d) Ten-Percent Shareholders. An Employee who owns more than 10 percent of
------------------------
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless such grant satisfies the requirements of Code section 422(c)(5).
(e) Attribution Rules. For purposes of Subsection (d) above, in determining
-----------------
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries.
(f) Outstanding Stock. For purposes of Subsection (d) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
---------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized but
----------------
unissued Shares or treasury Shares. The aggregate number of Shares which may be
issued under the Plan upon exercise of Options shall not exceed 1,300,000 Shares
provided, however, the 300,000 shares added by this restatement may not be
granted to employees who are subject to Section 16 of the Exchange Act at the
time of grant. The Company shall reserve an additional 150,000 Shares
exclusively for grants of Options to Outside Directors described in Section
4(b). On each January 1 for the remaining term of the Plan, the aggregate number
of Shares which may be issued under the Plan to individuals other than Outside
Directors shall be increased by a number of Shares equal to 3.0 percent of the
total number of Shares of the Common Stock of the Company outstanding at the end
of the most recently concluded calendar year. Any Shares that have been reserved
but not issued as Shares or Options during any calendar year shall remain
available for grant during any subsequent calendar year. Notwithstanding the
foregoing, no more than 2,000,000 Shares shall be available for the grant of
ISOs for the remaining term of the Plan. The aggregate number of Shares which
may be issued under the Plan shall at all times be subject to adjustment
pursuant to Section 8. The number of Shares which are subject to Options
outstanding at any time under the Plan shall not exceed the number of Shares
which then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
-6-
<PAGE>
(b) Additional Shares. In the event that any outstanding Option for any
-----------------
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall be
----------------------
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
----------------
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
--------------
Price. The Exercise Price of an ISO shall not be less than 100 percent of the
Fair Market Value of a Share on the date of grant, except as otherwise provided
in Section 4(d). Subject to the preceding sentence, the Exercise Price under any
Option shall be determined by the Committee at its sole discretion. The Exercise
Price shall be payable in one of the forms described in Sections 7(a), (b) and
(c).
(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Stock Option Agreement shall specify the
-----------------------
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The term shall
not exceed 10 years from the date of grant, except as otherwise provided in
Section 4(d). Subject to the preceding three sentences, the Committee at its
sole discretion shall determine when all or any installment of an Option is to
become exercisable and when an Option is to expire.
(f) Nontransferability. During an Optionee's lifetime, his Option(s) shall
------------------
be exercisable only by him and shall not be transferable, unless the Option
agreement otherwise provides. In the event of an Optionee's death, his Option(s)
shall not be transferable other than by will, beneficiary designation or by the
laws of descent and distribution.
(g) Exercise of Options Upon Termination of Service. Each Stock Option
-----------------------------------------------
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option
-7-
<PAGE>
following termination of the Optionee's Service with the Company and its
Subsidiaries, and the right to exercise the Option of any executors or
administrators of the Optionee's estate or any person who has acquired such
Option(s) directly from the Optionee by beneficiary designation, bequest or
inheritance. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of Service.
(h) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made, except as provided in Section 8.
(i) Modification, Extension and Renewal of Options. Within the limitations
----------------------------------------------
of the Plan, the Committee may cancel, modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair his rights or increase his
obligations under such Option.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.
SECTION 7. PAYMENT FOR SHARES.
------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such options are exercised, except as provided in Subsections (b) and
(c) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or his representative for more than the maximum number of
months required by the Committee and which are surrendered to the Company in
good form for transfer. Such Shares shall be valued at their Fair Market Value
on the date when the new Shares are purchased under the Plan.
(c) Cashless Exercise. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.
-8-
<PAGE>
SECTION 8. ADJUSTMENT OF SHARES.
--------------------
(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares covered by each outstanding
Option or (iii) the Exercise Price under each outstanding Option.
(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is a surviving corporation);
provided, however, that if assumption or continuation of the outstanding Options
is not provided by such agreement then the Committee shall have the option of
offering the payment of a cash settlement equal to the difference between the
amount to be paid for one Share under such agreement and the Exercise Price, in
all cases without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 8, an
---------------------
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any dividend or any other increase
or decrease in the number of shares of stock of any class. Any issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject to
an Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS.
---------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.
-9-
<PAGE>
SECTION 10. NO EMPLOYMENT RIGHTS.
--------------------
No provision of the Plan, nor any Option granted under the Plan, shall be
construed to give any person any right to become, to be treated as, or to remain
an Employee. The Company and its Subsidiaries reserve the right to terminate any
person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
-----------------------
(a) Term of the Plan. The amended and restated Plan, as set forth herein,
----------------
shall become effective as of the date first set forth above, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve this amended and restated Plan within 12 months of its adoption by
the Board of Directors, the Plan as in effect prior to this amendment and
restatement shall continue in effect, and any additional Option grants shall be
deemed made pursuant to the terms of the Plan as in effect prior to this
amendment and restatement. The Plan shall terminate automatically 10 years after
its original adoption by the Board of Directors and may be terminated on any
earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend
------------------------------------
the Plan at any time and from time to time except that the provisions of Section
4(b) relating to the amount, price and timing of the Option grants to Outside
Directors shall not be amended more than once in any six-month period after the
Plan becomes effective, except as may be required by the Code or ERISA. Rights
and obligations under any Option granted before amendment of the Plan shall not
be materially altered, or impaired adversely, by such amendment, except with
consent of the person to whom the Option was granted. An amendment of the Plan
shall be subject to the approval of the Company's stockholders only to the
extent required by applicable laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
-10-
<PAGE>
SECTION 12. EXECUTION.
---------
To record the adoption of the amended and restated Plan by the Board of
Directors effective as of the date first set forth above, the Company has caused
its authorized officer to execute the same.
PARADIGM TECHNOLOGY, INC.
By /S/ Robert C. McClelland
------------------------------------
Its CFO/V.R. Finance 5/2/96
-11-
<PAGE>
EXHIBIT 11.1
<TABLE>
PARADIGM TECHNOLOGY, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
(in thousands, except net income per share)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ($7,280) $ 1,540 ($23,735) $3,465
------- -------- -------- ------
Weighted average shares outstanding:
Common Stock 7,184 6,485 6,933 2,847
Convertible Preferred Stock -- -- -- 2,133
Common Stock issuable upon exercise of
options and warrants (2) -- 757 200 1,004
------- -------- -------- ------
Weighted average common shares and
equivalents 7,184 7,242 7,133 5,984
======= ======= ======== ======
Net income (loss) per share ($1.01) $ 0.21 ($3.33) $0.58
======= ======= ======== ======
(1) This Exhibit should be read with Note 2 of Notes to Condensed Financial
Statements.
(2) Stock options and warrants granted subsequent to May 1994, and prior to
the completion of the Company's initial public offering ("IPO") of common
stock, have been included in the calculation of common and common
equivalents shares as if they were outstanding for all periods prior to
the Company's IPO of 2,300,000 shares of common stock which closed on
July 5, 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 871
<SECURITIES> 0
<RECEIVABLES> 3,836
<ALLOWANCES> 1,260
<INVENTORY> 4,185
<CURRENT-ASSETS> 12,020
<PP&E> 38,537
<DEPRECIATION> 11,970
<TOTAL-ASSETS> 38,868
<CURRENT-LIABILITIES> 19,287
<BONDS> 10,016
0
0
<COMMON> 71
<OTHER-SE> 36,222
<TOTAL-LIABILITY-AND-EQUITY> 38,868
<SALES> 5,191
<TOTAL-REVENUES> 5,191
<CGS> 8,501
<TOTAL-COSTS> 8,501
<OTHER-EXPENSES> 4,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 305
<INCOME-PRETAX> (7,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,280)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,280)
<EPS-PRIMARY> ($1.01)
<EPS-DILUTED> ($1.01)
</TABLE>
