-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OL4Xvc5YSkRMSh6sq3/cTPrp5UJH70O+CJk8QNCJc76NmYJwvaB+pfZM2yx03U90 1usIv/ocQjixnMMD8kMePw== 0000950005-97-000928.txt : 19971117 0000950005-97-000928.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950005-97-000928 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARADIGM TECHNOLOGY INC /DE/ CENTRAL INDEX KEY: 0000945699 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770140882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26124 FILM NUMBER: 97717580 BUSINESS ADDRESS: STREET 1: 694 TASMAN DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089540500 MAIL ADDRESS: STREET 1: 71 VISTA MONTANA CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 FORM 10-Q 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, 1997, or |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ____________ Commission file number 0-26124 PARADIGM TECHNOLOGY, INC. ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 77-0140882 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 694 TASMAN DRIVE, MILPITAS, CALIFORNIA 95035 -------------------------------------- ----- (Address of principal executive offices) (Zip code) (408) 954-0500 -------------- (Registrant's telephone number, including area code) -------------------------------------- (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 the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 |_| The number of shares of the Registrant's Common Stock, $.01 par value, outstanding as of October 3, 1997 was 10,100,069. TABLE OF CONTENTS Page Part I. Financial Information 3 Item 1. Financial Statements 3 Condensed Statements of Operations 3 Condensed Balance Sheets 4 Condensed Statements of Cash Flows 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Results of Operations 15 Liquidity and Capital Resources 17 Factors That May Affect Future Results 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Part II. Other Information 29 Item 1. Legal Proceedings 29 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 6. Exhibits and Reports on Form 8-K 32 Signature 33 Exhibit 11.1 Computation of Net Income (Loss) Per Share Exhibit 27.1 Financial Data Schedule Page 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements PARADIGM TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (unaudited)
Quarter Ended Nine Months Ended ---------------------------------- --------------------- Sept. 30, Sept. 30, June 30, Sept. 30, Sept. 30, 1997 1996 1997 1997 1996 ---------- ---------- ---------- ---------- --------- Sales, net $ 3,609 $ 5,191 $ 3,466 $ 10,647 $ 20,120 Cost of goods sold 3,960 8,501 3,046 10,320 29,770 -------- -------- -------- -------- -------- Gross profit (loss) (351) (3,310) 420 327 (9,650) -------- -------- -------- -------- -------- Operating expenses: Research and development 1,091 1,657 777 3,051 4,596 Selling, general and administrative 1,330 2,523 1,190 4,145 6,781 Acquisition related non-recurring charges -- -- -- -- 3,841 -------- -------- -------- -------- -------- Total operating expenses 2,421 4,180 1,967 7,196 15,218 -------- -------- -------- -------- -------- Operating income (loss) (2,772) (7,490) (1,547) (6,869) (24,868) Interest expense 67 305 74 183 910 Other (income) expense, net 193 (515) (536) (313) (918) -------- -------- -------- -------- -------- Income (loss) before taxes (3,032) (7,280) (1,085) (6,739) (24,860) Provision (benefit) for income taxes -- -- -- -- (1,125) -------- -------- -------- -------- -------- Net income (loss) ($ 3,032) ($ 7,280) ($ 1,085) ($ 6,739) ($23,735) ======== ======== ======== ======== ======== Accretion on Convertible Preferred Stock ($ 432) -- ($ 347) ($ 1,167) -- -------- -------- -------- -------- -------- Net income (loss) available to Common Stockholders ($ 3,464) ($ 7,280) ($ 1,432) ($ 7,906) ($23,735) ======== ======== ======== ======== ======== Net income (loss) per share ($ 0.39) ($ 1.01) ($ 0.19) ($ 1.00) ($ 3.33) ======== ======== ======== ======== ======== Weighted average shares outstanding 8,843 7,184 7,624 7,899 7,133 ======== ======== ======== ======== ======== See accompanying notes to condensed financial statements.
Page 3 PARADIGM TECHNOLOGY, INC. CONDENSED BALANCE SHEET (In Thousands) (unaudited)
At At September 30, December 31, 1997 1996 ------------- --------------- Assets: Cash and Short-term Investments $ 863 $ 587 Accounts Receivable, net 3,573 2,937 Inventory 2,371 2,472 Other Current Assets 620 4,918 -------- -------- Total Current Assets 7,427 10,914 Property and Equipment, net 4,247 6,638 Other Assets 119 190 -------- -------- Total Assets $ 11,793 $ 17,742 ======== ======== Liabilities, Convertible Preferred Stock and Stockholders' Equity Line of Credit $ 2,527 $ 2,015 Current Portion, Long-term Debt 169 282 Accounts Payable and Accrued Liabilities 5,010 9,009 -------- -------- Total Current Liabilities 7,706 11,306 Long-term Debt 26 92 Deferred Rent 22 -- -------- -------- Total Liabilities 7,754 11,398 -------- -------- Convertible Preferred Stock 2,750 -- Common Stock 39,149 36,298 Accumulated Deficit (37,860) (29,954) -------- -------- Total Stockholders' Equity 4,039 6,344 -------- -------- Total Liabilities, Convertible Preferred Stock and Stockholders' Equity $ 11,793 $ 17,742 ======== ======== See accompanying notes to condensed financial statements.
Page 4 PARADIGM TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Nine Months Ended --------------------------------------- September 30, September 30, 1997 1996 ------------ ------------- Cash flows from operating activities: Net income (loss) $ (6,739) $(23,735) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 1,624 4,395 Loss (Gain) on disposition of fixed assets 808 (532) Write-off of in-process technology required -- 3,841 Changes in operating assets and liabilities: Accounts receivable (636) 6,588 Inventory 101 1,517 Other assets 4,213 (916) Accounts payable, accrued liabilities and other (3,983) (2,670) Prepetition liabilities paid -- (34) -------- -------- Net cash provided by (used in) operating activities (4,612) (11,546) -------- -------- Cash flows used in investing activities: Purchases of capital equipment (261) (13,310) Sale of fixed assets 376 549 Purchases of short-term investments -- (2,672) Sale of short-term investments -- 19,870 Acquisition of NewLogic net of cash acquired -- (723) -------- -------- Net cash provided by (used in) investing activities: 115 3,714 -------- -------- Cash flows from financing activities: Line of credit increase (decrease) 512 2,100 Payments on capital leases (38) -- Issuance of notes payable -- 11,339 Principal payments on notes payable (135) (9,494) Issuance of Common Stock 684 743 Issuance of Convertible Preferred Stock 3,750 -- -------- -------- Net cash provided by financing activities 4,773 4,688 -------- -------- Net increase (decrease) in cash and cash equivalents 276 (3,144) Cash and cash equivalents: Beginning of period 587 4,015 -------- -------- End of period $ 863 $ 871 -------- -------- Supplemental cash flow information: Interest paid $ 183 $ 797 ======== ======== Income taxes paid $ -- $ 1,067 ======== ======== Supplemental disclosure of non cash items: Issuance of warrant in connection with sale of Convertible Preferred Stock $ 67 $ -- ======== ======== Accretion on Convertible Preferred Stock $ 1,167 $ -- ======== ======== See accompanying notes to condensed financial statements.
Page 5 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) NOTE 1: Basis of Presentation The unaudited condensed financial statements have been prepared by Paradigm Technology, Inc. ("Paradigm" or the "Company"), pursuant to the rules and regulations of the Securities and Exchange Commission (the "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, 1996 audited financial statements, contained in the Company's Current Report on Form 8-K, dated August 21, 1997 and filed with the Commission on August 22, 1997 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, 1997, 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. The Company markets high speed high density Static Random Access Memory ("SRAM") products for uses in telecommunication devices, workstations and high performance personal computers to original equipment manufacturers 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 continuing into 1996 and the first nine months of 1997, 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 in 1996 and during the first nine months of 1997 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 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) The Company's recent operating results have consumed substantial amounts of cash and have generated an aggregate net loss for the period from January 1, 1997 through September 30, 1997 of $6,700,000. During this period, the Company has continued to experience a downward trend in product pricing which has contributed to the poor operating results. The Company expects to incur a net loss for quarter ended December 31, 1997. In January 1997, the Company completed the private placement of 5% Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock") for net proceeds of approximately $1,880,000 and in July 1997, the Company completed the private placement of 5% Series B Convertible Redeemable Preferred Stock (the "Series B Preferred Stock") for net proceeds of approximately $1,870,000. Due to the low price of the Company's Common Stock during the period prior to conversion, the number of shares of Series A Preferred Stock converted was significantly less than anticipated (and, therefore, the number of common shares issued upon conversion was significantly greater than anticipated). Without obtaining stockholder approval to allow the Company to issue additional shares of Common Stock upon conversion of the remaining outstanding shares of Series A Preferred Stock, the Company would have been required to redeem such shares for cash in the amount of approximately $1.2 million, which would have caused an adverse effect on the Company's liquidity. The stockholders approved a proposal that allows for full conversion of the Series A Preferred Stock. Should continued product pricing pressures or delayed acceptance of the Company's new products continue to adversely affect the Company's operating results, the Company will have to pursue alternative financing opportunities. Management has taken several steps to help ensure that adequate cash resources will continue to be available to the Company. Among these steps are further planned reductions in operating expenses and the proposed sale of additional equity securities. If additional equity securities are issued, substantial dilution to existing stockholders could occur. No assurances can be given that such steps will be sufficient or that additional financing will be available on attractive terms or at all. As a result of these circumstances, the Company's independent accountants' reissued report on the Company's December 31, 1996 financial statements includes an explanatory paragraph indicating that these matters raise a substantial doubt about the Company's ability to continue as a going concern. On September 26, 1997, at a Special Meeting of Stockholders (the "Stockholders' Meeting"), the stockholders approved: (1) the elimination of the restriction of the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock; (2) the elimination of the restriction of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock; and (3) a proposed transaction or series of transactions to sell up to 5,000,000 shares of Common Stock or Preferred Stock (convertible into Common Stock), and to grant rights to elect a majority of the directors of the Company, which might result in the issuance of more than 20% of the Company's outstanding Common Stock and a change in control of the Company. Page 7 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) As a result of the Stockholders' Meeting, the Series A Preferred Stock and Series B Preferred Stock can now be fully converted into Common Stock. As of October 3, 1997, the holders of the Series A Preferred Stock have converted 103 shares of the Series A Preferred Stock and 97 shares remain unconverted. This report on Form 10-Q for the quarter ended September 30, 1997 should be read in conjunction with the audited financial statements as of December 31, 1996, and the notes thereto included in the Company's Current Report on Form 8-K, dated August 21, 1997 and filed with the Commission on August 22, 1997. NOTE 2: Net Income (Loss) Per Share Net income (loss) per share was calculated based on net income (loss) available to Common Stockholders. For the quarter ended September 30, 1997, the net loss per share was computed as net loss of $3.0 million and $0.4 million of accretion on the Convertible Preferred Stock divided by the weighted average Common shares outstanding. For the nine month period ended September 30, 1997, the net loss per share was computed as net loss of $6.7 million and $1.2 million of accretion on the Convertible Preferred Stock divided by the weighted average Common shares outstanding. Common Stock equivalents for these periods are excluded as their effect is anti-dilutive. NOTE 3: NewLogic Corporation Acquisition In June 1996, the Company acquired, through a stock purchase and merger transaction, NewLogic Corporation ("NewLogic"), a company which develops and manufactures logic designs with large memory arrays. In exchange for its purchase of the NewLogic 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 NewLogic's net tangible 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 September 30, 1996. Approximately $250,000 was allocated to other intangibles. In early 1997, the Company believed that it was in Paradigm's best interest to shut down the NewLogic operation and focus on Paradigm's core SRAM products and markets. As a result, the Company wrote off unamortized intangibles of approximately $156,000 in the quarter ended March 31, 1997. Page 8 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) NOTE 4: Balance Sheet Detail
Sept. 30, Dec. 31. 1997 1996 ---------- ---------- Inventory (in thousands): Raw materials $ 0 $ 16 Work in process 1,415 1,778 Finished goods 956 678 ---------- ---------- $ 2,371 $ 2,472 ========== ========== Property and equipment (in thousands): Machinery and equipment $ 6,549 $ 9,488 Leasehold improvements 279 0 Furniture and fixtures 149 19 ---------- ---------- 6,977 9,507 Less accumulated depreciation (2,730) (2,869) ---------- ---------- $ 4,247 $ 6,638 ========== ==========
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") and PaineWebber, Inc. 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. On September 30, 1996, the Paradigm Defendants filed a demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice. On December 12, 1996, the Court sustained the demurrer as to all of the causes of action against Michael Gulett and as to all causes of actions except for violation of certain provisions of the California Corporate Securities Law, against the remaining Paradigm Defendants. The Court, however, granted plaintiffs leave to amend the complaint to attempt to cure the defects which caused the Court to sustain the demurrer. Plaintiffs failed to amend within the allotted time. On January 8, 1997, the Paradigm Defendants filed an answer to the complaint denying any liability for the acts and damages alleged by the plaintiffs. Plaintiffs have since served the Paradigm Defendants with discovery requests for production of documents and interrogatories, Page 9 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) to which the Paradigm Defendants have responded. Plaintiffs have also subpoenaed documents from various third parties. The Paradigm Defendants have served the plaintiffs with an initial set of discovery requests, to which Plaintiffs have responded. The Paradigm defendants also took the depositions of the named Plaintiffs on April 9, 1997. Following a hearing on Plaintiffs' motion for class certification on May 20, 1997, the Court has three times reset the motion for hearing. Most recently, after hearing additional argument on September 18, 1997, the Court again deferred ruling and continued the matter to February 5, 1998. There can be no assurance that the Company will be successful in such defense. On February 21, 1997, an additional purported class action lawsuit was filed in Santa Clara County Superior Court against the Company and certain of its officers and directors, with causes of action and factual allegations essentially identical to those of the August 12, 1996 class action lawsuit, except that Plaintiff was a stockholder who held the Company's stock during the relevant period. This second class action is asserted against the same Paradigm Defendants, PaineWebber, Inc. and Smith Barney. The Paradigm Defendants authorized counsel to acknowledge service which occurred on April 9, 1997. Prior to the hearing on the Paradigm Defendants' demurrer to the initial complaint, Plaintiffs amended their complaint to incorporate factual allegations derived from the May 19, 1997 lawsuit described below. The Paradigm Defendants filed a demurrer to the amended complaint, which was heard on September 9, 1997. On September 10, 1997, the Court issued an order sustaining the Paradigm Defendants' demurrer as to all causes of action without leave to amend. A judgment in favor of the Paradigm Defendants dismissing the entire complaint was entered by the Court on September 23, 1997. Plaintiffs have since filed an appeal. There can be no assurances that the Company will be successful in the defense of the appeal. On May 19, 1997, several former employees of the Company filed an action in Santa Clara County Superior Court. The complaint names as defendants the Company, Michael Gulett, Richard Veldhouse, Dennis McDonald and Chiang Lam. Plaintiffs filed with the complaint a notice that they consider their case related legally and factually to the August 12, 1996 class action lawsuit described above. The complaint alleges fraud, breach of fiduciary duty and violations of certain provisions of the California Corporate Securities Law and Civil Code. Plaintiffs allege that they purchased the Company's stock at allegedly inflated prices and were damaged thereby. The Plaintiffs seek an unspecified amount of compensatory, rescissory and/or punitive damages. Defendants responded to the complaint on September 12, 1997 by filing a demurrer as to all causes of action. A hearing on the demurrer is set for November 18, 1997. Plaintiffs have served the Company and two of the individual defendants with requests for production of documents, to which the Company and the individual defendants have responded. There can be no assurance that the Company will be successful in such defense. The Company is involved in various other litigation and potential claims. Due to the inherent uncertainty of litigation, management is not able to reasonably estimate losses that may be Page 10 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) incurred in relation to this litigation. However, based on the facts presently known, management believes that the resolution of these matters will not have a material adverse impact on the results of operations or the financial position of the Company. NOTE 6: Sale of Wafer Fabrication Facility The Company recorded a loss of $4.6 million in the quarter ended December 31, 1996 as a result of the sale of its wafer fabrication facility (the "Fab"). This charge included the excess of the net book value of leasehold improvements, wafer fabrication equipment, fabrication work in process inventory and other assets sold to Orbit Semiconductor Inc. ("Orbit") over the proceeds received from Orbit, an accrual for professional fees incurred to complete the transaction, a reserve for an adverse purchase commitment related to the wafer manufacturing agreement and accruals for other estimated costs to be incurred. Orbit paid to the Company aggregate consideration of $20 million consisting of $6.7 million in cash, assumption of $7.5 million of indebtedness associated with and secured by the Fab, and promissory notes in the principal amounts of $4.8 million and $1.0 million. The Company also executed a short-term sublease with Orbit pursuant to which it occupied office space at its principal offices not associated with the Fab. The Company has since relocated its headquarters to 694 Tasman Drive, Milpitas, California. The $4.8 million promissory note was issued in connection with a Wafer Supply Agreement (the "Agreement") that required Orbit to supply Paradigm with approximately 9,750 of certain fabricated wafers through May 1997 at $500 per wafer purchased by Paradigm. Per terms of the Agreement, if the Company did not purchase the wafers by the end of May 1997, the Company would forfeit any remaining amount owed under the promissory note. At September 28, 1997, the Company has completed its obligations under this Agreement. In July 1997, the Company negotiated an accelerated payment on the $1.0 million promissory note held in escrow. As part of the agreement, the Company allowed Orbit to retain $250,000 for repairs on equipment purchased as part of the Fab sale and certain additional amounts for other matters. As of July 31, 1997, the note has been fully paid. NOTE 7: Sale of Preferred Stock On January 23, 1997, Paradigm sold a total of 200 shares of Series A Preferred Stock in a private placement to Vintage Products, Inc. at a price of $10,000 per share, for total proceeds (net of payments to third parties) of approximately $1,880,000. The Series A Preferred Stock includes cumulative dividends at 5% per annum. The Series A Preferred Stock also includes an embedded discount which was accreted from the issuance date through April 23, 1997, the date upon which the Series A Preferred Stock became convertible. The accretion of the embedded discount and Page 11 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) the cumulative dividends is a charge to retained earnings and a credit to the Convertible Preferred Stock. Also in connection with the sale of the Series A Preferred Stock the Company issued warrants to purchase 150,000 shares of its Common Stock for $4.125 per share. The warrant is exercisable until January 22, 2000. The Company valued these warrants at $67,000 using the Black/Scholes model. The Series A Preferred Stock is convertible at the option of the holder into the number of fully paid and nonassessable shares of Common Stock as is determined by dividing (A) the sum of (1) $10,000 plus (2) the amount of all accrued but unpaid or accumulated dividends on the shares of Series A Preferred Stock being converted by (B) the Conversion Price in effect at the time of conversion. The "Conversion Price" will be equal to the lower of (i) $2.25 or (ii) eighty-two percent (82%) of the average closing bid price of a share of Common Stock as quoted on the Nasdaq National Market (or quoted on such other national or regional securities exchange or automated quotations system upon which the Common Stock is listed and principally traded) over the five (5) consecutive trading days immediately preceding the date of notice of conversion of the Series A Preferred Stock. As of October 3, 1997, the holders of the Series A Preferred Stock have converted 103 shares of the Series A Preferred Stock into 1,439,620 shares of the Company's Common Stock. The Common Stock issuable upon conversion of the Series A Preferred Stock has been registered on Form S-3. On July 22, 1997, Paradigm sold a total of 200 shares of Series B Preferred Stock in a private placement to Lyford Ltd. at a price of $10,000 per share, for total proceeds (net of payments to third parties) of approximately $1,870,000. The Series B Preferred Stock includes cumulative dividends at 5% per annum. The Series B Preferred Stock also includes an embedded discount which will be accreted from the issuance date through September 10, 1997, the date upon which the Series B Preferred Stock became convertible. The accretion of the embedded discount and the cumulative dividends will be a charge to retained earnings and a credit to the Series B Preferred Stock. The Series B Preferred Stock is convertible at the option of the holder into the number of fully paid and non-assessable shares of Common Stock as is determined by dividing (A) the sum of (1) $10,000 plus (2) the amount of all accrued but unpaid or accumulated dividends on the shares of Series B Preferred Stock being converted by (B) the Conversion Price in effect at the time of conversion. The "Conversion Price" will be equal to the lower of (i) $1.375 or (ii) eighty-two percent (82%) of the average closing bid price of a share of Common Stock as quoted on the Nasdaq National Market (or quoted on such other national or regional securities exchange or automated quotations system upon which the Common Stock is listed and principally traded) over the five (5) consecutive trading days immediately preceding the date of notice of conversion of the Series B Preferred Stock. As of October 3, 1997, the holders of the Series B Preferred Stock have converted 74 shares of the Series B Preferred Stock into 898,376 shares of the Company's Common Stock. The Common Stock issuable upon conversion of the Series B Preferred Stock had been registered on Form S-3. Page 12 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) NOTE 8: Subsequent Event In October 1997, the Company renewed its line of credit with Greyrock Business Credit. The borrowing limit is limited to the lesser of $5,000,000 or the sum of (a) 80% of the amount of eligible receivables owing from original equipment manufacturers; plus (b) 70% of the amount of eligible receivables owing from distributors. Interest is at the greater of LIBOR plus 5.25% or 9%. The Company elected to have the line of credit mature on February 28, 1998, however, the line of credit will automatically be extended until October 31, 1998 unless one party gives written notice to the other not later than January 31, 1998 that such party elects to terminate the agreement effective on February 28, 1998. The loan agreement also provides for an automatic and continuous renewal for successive additional terms of one year each, unless one party gives written notice to the other, not less than sixty (60) days prior to the next maturity date, that such party elects to terminate the agreement effective on the next maturity date. This line of credit is secured by the Company's trade receivables, inventory, equipment and general intangibles. As of September 28, 1997, the Company's outstanding indebtedness under this line of credit was approximately $2.5 million. NOTE 9: Recent Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128. "Earnings per Share" ("SFAS 128"). The Company is required to adopt SFAS 128 in the second quarter of fiscal 1998 and will restate at that time earnings per share data for prior periods to conform with SFAS 128. The statement redefines earnings per share under generally accepted accounting principles. Under the new standard, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. The adoption of SFAS 128 would not have a material impact on the Company's earnings per share for the three and nine month periods ended September 30, 1997 and 1996. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement is effective for the Company's fiscal year ending December 31, 1999. The statement establishes presentation and disclosure requirements for reporting comprehensive income. Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. The Company plans to adopt the disclosure requirements and report comprehensive income as part of the Consolidated Statements of Stockholders' Equity as required under SFAS 130, and expects there to be no material impact on the Company's financial position and results of operations as a result of the adoption of this new accounting standard. Page 13 PARADIGM TECHNOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises the required information regarding the reporting of operating segments. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company will adopt SFAS 131 beginning in fiscal 1999 and does not expect such adoption to have a material effect on the consolidated financial statements. Page 14 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--Factors That May Affect Future 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, 1997 decreased 30% and 47%, respectively, from the corresponding periods in fiscal year 1996. 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 1996. 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, continuing into 1996 and 1997, 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 1997 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 losses have decreased from $3.3 million and $9.6 million for the respective three and nine month periods ended September 30, 1996, to a loss of $351,000 and profit of $327,000 for the corresponding periods in fiscal 1997. The increase in gross profit resulted principally from a write down of inventory values to current market prices in 1996. However, the gross loss for the three month period ended September 30, 1997 includes an inventory write down of approximately $650,000 due to lower market prices. The Company continues to experience Page 15 industry-wide pricing pressures 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 quarter and nine month period ended September 30, 1997 when compared to the comparable periods in 1996. The Company's future needs for wafers will need to be supplied by third parties. Constraints or delays in the supply of the Company's products, whether because of capacity constraints, unexpected disruptions at the current or future foundries or assembly houses, delays in obtaining additional production at the existing foundry or in obtaining production from new foundries, shortages of raw materials, or other reasons, could result in the loss of customers and other material adverse effects on the Company's operating results, including effects that may result should the Company be forced to purchase products from higher cost foundries or pay expediting charges to obtain additional supply. Research and Development Research and development expenses decreased to $1.1 million and $3.1 million in the respective three and nine month periods ended September 30, 1997 from $1.7 million and $4.6 million in the corresponding periods in fiscal 1996. As a percentage of revenues, these expenses have decreased to 30% and increased to 29% in the respective three and nine month periods ended September 30, 1997 from 32% and 23% in the corresponding periods in fiscal 1996. The Company expects research and development expenses in absolute dollars to decrease through at least the end of 1997 due to the shutdown of NewLogic and other cost cutting measures being implemented by the Company. Selling, General and Administrative Selling, general and administrative expenses were $1.3 million and $4.1 million in the respective three and nine month periods ended September 30, 1997 compared to $2.5 million and $6.8 million in the corresponding periods in fiscal 1996. These expenses are expected to decline in the future as the Company continues implementation of its cost cutting measures. Interest Expense Interest expense of $67,000 and $183,000 for the respective three and nine month periods ended September 30, 1997 compared to $305,000 and $910,000 in the corresponding periods in fiscal 1996. This decrease in interest expense for the three and nine month periods in 1997 reflects repayment of certain outstanding debt by the Company from the proceeds of its sale of the wafer fabrication operations. See also "Liquidity and Capital Resources." Other (Income) Expense, Net For the three and nine month periods ended September 30, 1997, Other (Income) Expense, Net reflects gain on sale of equipment, recoveries of previous write-offs and write-off of goodwill associated with the acquisition of NewLogic. Page 16 Taxes The Company provides for income taxes during interim reporting periods based upon an estimated annual tax rate. During the three and nine month periods ended September 30, 1997, the Company recorded a loss for tax purposes. The Company has net operating loss carryforwards to offset future regular and alternative minimum taxable income. The Company's net operating loss carryforwards expire in 2011, if not utilized. Liquidity and Capital Resources The Company's operating, investing and financing activities generated $0.3 million in cash in the nine month period ended September 30, 1997 compared to using $3.1 million of cash in the corresponding period in fiscal 1996. Operating activities used $4.6 million in cash in 1997 compared to a use of $11.5 million of cash in 1996. This increase of $6.9 million is primarily due to savings generated from the sale of the wafer fabrication operations in November 1996 and additional reductions in operating expenses. Investing activities consumed $0.1 million in the 1997 period compared to $3.7 million in the 1996 period. Capital equipment purchases decreased from $13.3 million in the 1996 period to $0.3 million in the 1997 period as a result of the sale of the wafer fabrication operations. Financing activities provided $4.8 million in the 1997 period compared to $4.7 million in the 1996 period. So far in 1997, the Company has raised approximately $3.8 million through the issuance of Convertible Preferred Stock (see Note 7 of Notes to Condensed Financial Statements), and converted approximately $0.7 million of trade payables into equity. Borrowing under the Company's line of credit decreased by $1.6 million in the 1997 period compared to the 1996 period. The decrease in borrowing is due to lower revenue in the 1997 period compared to the 1996 period. 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 were limited to 80% of eligible receivables and interest is at prime. The line of credit was secured by the Company's accounts receivable. 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. In addition to the Bank of the West line of credit, the Company obtained a line of credit for equipment purchases from the CIT Group. The aggregate principal amount of all loans under this commitment could not exceed $15.0 million and the commitment expired on December 31, 1996. Borrowings under this line of credit bore interest at the U.S. Treasury rate for two year maturities plus 2.96% and were limited to 80% of the cost of eligible equipment. All borrowings under this commitment were secured by the equipment purchased. 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 Page 17 this new line of credit with Greyrock Business Credit were limited to up to 80% of eligible receivables and interest is at the greater of LIBOR plus 5.25% or 9%. In October 1997, the Company renewed the line of credit with Greyrock Business Credit with a borrowing limit of $5,000,000. See Note 8 of Notes to Condensed Financial Statements. At September 28, 1997, the outstanding balance under this line of credit was approximately $2.5 million. In November 1996, the Company sold its wafer fabrication operations to Orbit. Orbit assumed $7.5 million of outstanding borrowings with the CIT Group that were secured by wafer fabrication equipment that was purchased. The Company used approximately $2.2 million of the cash proceeds from the sale of the wafer fabrication facility to pay off the remaining CIT Group borrowings. The Company's recent operating results have consumed substantial amounts of cash and have generated an aggregate net loss for the period from January 1, 1997 through September 30, 1997 of $6,700,000. During this period, the Company has continued to experience a downward trend in product pricing which has contributed to the poor operating results. The Company expects to incur a net loss for quarter ended December 31, 1997. In January 1997, the Company completed the private placement of Series A Preferred Stock for net proceeds of approximately $1,880,000 and in July 1997, the Company completed the private placement of Series B Preferred Stock (the "Series B Preferred Stock") for net proceeds of approximately $1,870,000. See Note 7 of Notes to Condensed Financial Statements. Due to the low price of the Company's Common Stock during the period prior to conversion, the number of shares of Series A Preferred Stock converted was significantly less than anticipated (and, therefore, the number of common shares issued upon conversion was significantly greater than anticipated). Without obtaining stockholder approval to allow the Company to issue additional shares of Common Stock upon conversion of the remaining outstanding shares of Series A Preferred Stock, the Company would have been required to redeem such shares for cash in the amount of approximately $1.2 million, which would have caused an adverse effect on the Company's liquidity. Should continued product pricing pressures or delayed acceptance of the Company's new products continue to adversely affect the Company's operating results, the Company will have to pursue alternative financing opportunities. Management has taken several steps to help ensure that adequate cash resources will continue to be available to the Company. Among these steps are further planned reductions in operating expenses and the proposed sale of additional equity securities. If additional equity secrities are issued, substantial dilution to existing stockholders could occur. No assurances can be given that such steps will be sufficient or that additional financing will be available on attractive terms or at all. As a result of these circumstances, the Company's independent accountants' reissued report on the Company's December 31, 1996 financial statements includes an explanatory paragraph indicating that these matters raise a substantial doubt about the Company's ability to continue as a going concern. On September 26, 1997, at a Stockholders Meeting, the stockholders approved: (1) the elimination of the restriction of the number of shares of Common Stock issuable upon conversion Page 18 of the Series A Preferred Stock; (2) the elimination of the restriction of the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock; and (3) a proposed transaction or Series of transactions to sell up to 5,000,000 shares of Common Stock or Preferred Stock (convertible into Common Stock), and to grant rights to elect a majority of the directors of the Company, which might result in the issuance of more than 20% of the Company's outstanding Common Stock and a change in control of the Company. As a result of the Stockholders' Meeting, the Series A Preferred Stock and Series B Preferred Stock can now be fully converted into Common Stock. Factors That May Affect Future Results The operations and business prospects of the Company are subject to certain qualifications based on potential business risks faced by the Company. This Form 10-Q should be reviewed in light of the potential effects of events that may occur as outlined in the following risk factors. Readers of this report should consider carefully the following risk factors in addition to the other information presented in this Form 10-Q. Uncertainty of Future Profitability; Need for Additional Funds. The Company's recent operating results have consumed substantial amounts of cash. The Company believes that cash flow from operations and other existing and potential sources of liquidity, such as the sale of additional equity securities, sale of assets and equipment financing, will be sufficient to meet its projected working capital and other cash requirements through at least the remainder of 1997. However, there can be no assurance that the Company will not need additional capital and if so, that such capital can be successfully obtained on terms acceptable to the Company or at all. The sale or issuance of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. There can be no assurance that additional financing, if required, will be available when needed or, if available, will be on terms acceptable to the Company. Also, during the period from May 9, 1997 through July 7, 1997, the Company converted into Common Stock the maximum number of shares of Series A Preferred Stock allowed without obtaining stockholder approval for the issuance of additional shares of Common Stock upon conversion of the Series A Preferred Stock. The number of preferred shares converted was significantly less than anticipated (and, therefore, the number of common shares issued upon conversion was significantly greater than anticipated) due to the low price of the Company's Common Stock during the period just prior to conversion. On September 26, 1997, the Company obtained stockholder approval to allow for the full conversion of the Series A Preferred Stock. Should product pricing pressures or delayed acceptance of the Company's new products continue to adversely affect the Company's operating results, the Company will have to pursue alternative financing opportunities. Management has taken several steps to help ensure that adequate cash resources will continue to be available to the Company. Among these steps are further planned reductions in operating expenses and the proposed sale of additional equity securities. On September 26, 1997, stockholders approved a proposed transaction or series of transactions to sell up to 5,000,000 shares of the Company's Common Stock or Preferred Stock (convertible into Common Stock). Any such sale of securities could have a substantial dilutive effect on existing stockholders. Page 19 Continuing Losses and Doubtful Ability to Continue as a Going Concern. As a result of the Company's recent operating results consuming substantial amounts of cash, and the fact that prior to obtaining stockholder approval, the Company may have been required to redeem the Series A Preferred Stock, the Company's independent accountants' reissued report on the Company's December 31, 1996 financial statements includes an explanatory paragraph indicating that these matters raise a substantial doubt about the Company's ability to continue as a going concern. The Company is seeking to raise additional equity. However, there can be no assurance that the Company's efforts will be successful. Dilution of Common Stock. The issuance of additional shares of Common Stock upon conversion of the Series A Preferred Stock and Series B Preferred Stock (collectively, the "Preferred Stock") will have a dilutive effect on the Common Stock outstanding prior to such issuances. There can be no assurance that the Company's Common Stock will not be diluted as a result of conversion of the Preferred Stock. Additionally, the issuance of the Company's Common Stock in lieu of payment of certain trade payables will have a dilutive effect on holders of the Company's Common Stock. Fluctuations in Quarterly Results. 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 by contracted manufacturers, 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 and the 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 shipments 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. Beginning in late 1995 and continuing into 1996 and 1997, the market for certain SRAM devices experienced a significant excess supply relative to demand, which resulted in a significant downward trend in prices. The market for the Company's products 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. Risks Relating to Low-Priced Stocks. Prior to August 22, 1997, the Company's Common Stock was listed on the Nasdaq National Market (the "NNM"). For continued listing on the Page 20 NNM, however, the Company was required to maintain (1) $4,000,000 in net tangible assets because it has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years, (2) a $2,000,000 market value of the public float, (3) $1,000,000 in total capital and surplus, (4) a minimum bid price of $1.00 per share and (5) two market-makers. As of June 30, 1997, the Company was not in compliance with items (1) and (4) above. On July 15, 1997, The Nasdaq Stock Market ("Nasdaq") staff notified the Company of a bid price deficiency and provided a ninety-day grace period within which to regain compliance with this requirement. On August 8, 1997, Nasdaq, based on a review of the Company's trading history from July 8 to the present, indicated that the Company had regained compliance with the minimum closing bid price requirement of $1.00. On August 20, 1997, Nasdaq informed the Company that due to its failure to comply with the terms of the qualifications exception granted to the Company, the Company's Common Stock would be removed from the NNM and listed on The Nasdaq SmallCap Market (the "NSCM") effective August 22, 1997, pursuant to a waiver to the initial inclusion bid price requirement. The Company is in the process of appealing this decision. On August 22, 1997, the Company announced that effective August 22, 1997, the Company's Common Stock, formerly listed on the NNM, would be listed on the NSCM, pursuant to a waiver to the initial inclusion bid price requirement. The Company's continued listing on the NSCM is contingent upon the Company meeting certain conditions. In order to continue to be listed on the NSCM, however, the Company must maintain net tangible assets of $2,000,000 and a $1,000,000 market value of the public float. In addition, continued inclusion on the NSCM requires two market-makers and a minimum bid price of $1.00 per share. If the Company fails to meet these maintenance criteria, it may result in the delisting of the Company's securities from Nasdaq, and trading, if any, and the Company's securities would thereafter be conducted in the non-Nasdaq over-the-counter market. If the Company's securities are delisted, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. In addition, if the Common Stock were to become delisted from trading on Nasdaq and the trading price of the Common Stock were to remain below $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). See "--Risks Relating to Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity for the Company's Securities." Dependence on New Products and Technologies. 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 develop and introduce on a timely basis new products and enhanced versions of its existing products which incorporate advanced features and command higher prices. The success of new product introductions and enhancements to existing products depends on several factors, including the Company's ability to develop and implement new product designs, achievement of acceptable Page 21 production yields, and market acceptance of customers' end products. In the past, the Company has experienced delays in the development of certain new and enhanced products. Based upon the increasing complexity of both modified versions of existing products and planned new products, such delays could occur again in the future. Further, the cost of development can be significant and is difficult to forecast. In addition, there can be no assurance that any new or enhanced products will achieve or maintain market acceptance. If the Company is unable to design, develop and introduce competitive products or to develop new or modified designs on a timely basis, the Company's operating results will be materially adversely affected. Dependence on Foundries and Other Third Parties. On November 15, 1996, the Company sold its Fab to Orbit. Following the sale of the Fab, the Company and Orbit entered into a Wafer Manufacturing Agreement (the "Agreement"). Under the Agreement, Orbit contracted to supply a quantity of wafers to the Company over a specified period of time to offset Orbit's payment obligations against the two promissory notes delivered in connection with the sale. As of September 28, 1997, the Company completed its contractual obligations to purchase wafers under the first note. In July 1997, the Company negotiated a payment of the second promissory note. As part of the agreement, the Company allowed Orbit to retain a portion of the note amount for repairs on equipment purchased as part of the sale of the Fab and for other matters. As of July 31, 1997, the second note has been fully paid. The Company is also in the process of seeking wafer supply from other offshore foundries, and anticipates that it will conduct business with other foundries by delivering written purchase orders specifying the particular product ordered, quantity, price, delivery date and shipping terms and, therefore, such foundries will not be obligated to supply products to the Company for any specific period, in any specific quantity or at any specified price, except as may be provided in a particular purchase order. Reliance on outside foundries involves several risks, including constraints or delays in timely delivery of the Company's products, reduced control over delivery schedules, quality assurance, potential costs and loss of production due to seismic activity, weather conditions and other factors. To the extent a foundry terminates its relationship with the Company, or should the Company's supply from a foundry be interrupted or terminated for any other reason, the Company may not have a sufficient amount of time to replace the supply of products manufactured by the foundry. Should the Company be unable to obtain a sufficient supply of products to enable it to meet demand, it could be required to allocate available supply of its products among its customers. Until recently, there has been a worldwide shortage of advanced process technology foundry capacity and there can be no assurance that the Company will obtain sufficient foundry capacity to meet customer demand in the future, particularly if that demand should increase. The Company is continuously evaluating potential new sources of supply. However, the qualification process and the production ramp-up for additional foundries could take longer than anticipated, and there can be no assurance that such sources will be able or willing to satisfy the Company's requirements on a timely basis or at acceptable quality or per unit prices. Constraints or delays in the supply of the Company's products, whether because of capacity constraints, unexpected disruptions at the current or future foundries or assembly houses, delays in obtaining additional production at the existing foundry or in obtaining production from new foundries, shortages of raw materials, or other reasons, could result in the loss of customers Page 22 and other material adverse effects on the Company's operating results, including effects that may result should the Company be forced to purchase products from higher cost foundries or pay expediting charges to obtain additional supply. Semiconductor Industry; SRAM Market. 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 1996 and so far in 1997, the market for certain SRAM devices experienced an excess supply relative to demand which resulted in a significant downward trend in prices. The Company expects to continue to experience a downward trend in pricing which could adversely affect the Company's operating margins. The selling prices 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 control 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. 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") and PaineWebber, Inc. 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. On September 30, 1996, the Paradigm Defendants filed a demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice. On December 12, 1996, the Court sustained the demurrer as to all of the causes of action against Michael Gulett and as to all causes of actions except for violation of certain provisions of the California Corporate Securities Law, against the remaining Paradigm Defendants. The Court, however, granted plaintiffs leave to amend the complaint to attempt to cure the defects which caused the Court to sustain the demurrer. Plaintiffs failed to amend within the allotted time. On January 8, 1997, the Paradigm Defendants filed an answer to the complaint denying any liability for the acts and damages alleged by the plaintiffs. Plaintiffs have since served the Paradigm Defendants with discovery requests for production of documents and interrogatories, to which the Paradigm Defendants have responded. Plaintiffs have also subpoenaed documents from various third parties. The Paradigm Defendants have served the plaintiffs with an initial set of discovery requests, to which Plaintiffs have responded. The Paradigm defendants also took the depositions of the named Plaintiffs on April 9, 1997. Following a hearing on Plaintiffs' motion for class certification on May 20, 1997, the Court has Page 23 three times reset the motion for hearing. Most recently, after hearing additional argument on September 18, 1997, the Court again deferred ruling and continued the matter to February 5, 1998. There can be no assurance that the Company will be successful in such defense. 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 claim, the Company's business, operating results and cash flows could be materially adversely affected. On February 21, 1997, an additional purported class action lawsuit was filed in Santa Clara County Superior Court against the Company and certain of its officers and directors, with causes of action and factual allegations essentially identical to those of the August 12, 1996 class action lawsuit, except that Plaintiff was a stockholder who held the Company's Stock during the relevant period. This second class action is asserted against the same Paradigm Defendants, PaineWebber, Inc. and Smith Barney. The Paradigm Defendants authorized counsel to acknowledge service which occurred on April 9, 1997. Prior to the hearing on the Paradigm Defendants' demurrer to the initial complaint, Plaintiffs amended their complaint to incorporate factual allegations derived from the May 19, 1997 lawsuit described below. The Paradigm Defendants filed a demurrer to the amended complaint, which was heard on September 9, 1997. On September 10, 1997, the Court issued an order sustaining the Paradigm Defendants' demurrer as to all causes of action without leave to amend. A judgment in favor of the Paradigm Defendants dismissing the entire complaint was entered by the Court on September 23, 1997. Plaintiffs have since filed an appeal. There can be no assurances that the Company will be successful in the defense of the appeal. Even if Paradigm is successful in such defense of the appeal, it may incur substantial legal fees and other expenses related to this appeal. If unsuccessful in the defense of any such appeal, the Company's business, operating results and cash flows could be materially adversely affected. On May 19, 1997, several former employees of the Company filed an action in Santa Clara County Superior Court. The complaint names as defendants the Company, Michael Gullet, Richard Veldhouse, Dennis McDonald and Chiang Lam. Plaintiffs filed with the complaint a notice that they consider their case related legally and factually to the August 12, 1996 class action lawsuit. The complaint alleges fraud, breach of fiduciary duty and violations of certain provisions of the California Corporate Securities Law and Civil Code. Plaintiffs allege that they purchased the Company's stock at allegedly inflated prices and were damaged thereby. The Plaintiffs seek an unspecified amount of compensatory, rescissory and/or punitive damages. Defendants responded to the complaint on September 12, 1997 by filing a demurrer as to all causes of action. A hearing on the demurrer is set for November 18, 1997. Plaintiffs have served the Company and two of the individual defendants with requests for production of documents, to which the Company and the individual defendants have responded. There can be no assurance that the Company will be successful in such defense. 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 claim, the Company's business, operating results and cash flows could be materially adversely affected. The Company is involved in various other litigation and potential claims. Due to the inherent uncertainty of litigation, management is not able to reasonably estimate losses that may be incurred in relation to this litigation. However, based on the facts presently known, management Page 24 believes that the resolution of these matters will not have a material adverse impact on the results of operations or the financial position of the Company. Product and Customer Concentration; Dependence on Telecommunications and Computer Industries. Currently, substantially all of the Company's sales are derived from the sale of SRAM products. Substantially all of the Company's products are incorporated into telecommunications and computer-related products. The telecommunications and computer industries have recently experienced strong unit sales growth, which has increased demand for integrated circuits, including the memory products offered by the Company. However, these industries have from time to time experienced cyclical, depressed business conditions. Such industry downturns have historically resulted in reduced product demand and declining average selling prices. The Company's business and operating results could be materially and adversely affected by a downturn in the telecommunications or computer industries in the future. Competition. 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 Company's principal competitors in the high performance SRAM market include Motorola and Micron Technology. Other competitors in the SRAM market include Alliance Semiconductor, Cypress Semiconductor, Integrated Device Technology, Integrated Silicon Solution, Samsung and numerous other large and emerging semiconductor companies. In addition, other manufacturers can be expected to enter the high speed, high density SRAM market. 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 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, introduce, and manufacture 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. Strategic Relationships; Potential Competition. The Company, pursuant to certain licenses of its technology, has entered into strategic relationships with NKK Corporation ("NKK") and Atmel Corporation ("Atmel"). The Company has had a long-standing business relationship with NKK which began in October 1992. The Company, NKK and affiliates of NKK entered into several equity and debt transactions which provided start-up and development funding to the Company. Given the long-standing relationship, the Company and NKK entered into three technology license and development agreements which provide for NKK to supply the Company a specified number of 1M SRAMs for three years. These Agreements provided funding to the Company. Page 25 The Company's business relationship with Atmel began in April 1995 when pursuant to certain agreements, Atmel purchased a substantial number of shares of the Company's capital stock from the Company, certain stockholders of the Company who had been unsecured creditors of the Company as of the Reorganization and from the Company's equipment lessors. Atmel also acquired certain warrants to purchase shares of the Company's Common Stock. In 1995, the Company and Atmel entered into a five-year License and Manufacturing Agreement pursuant to which Atmel would provide the capacity to manufacture wafers at its wafer manufacturing facility. The Company entered into such an agreement with Atmel because Atmel provided the Company with significant wafer manufacturing capacity when such capacity was in short supply. The Company previously licensed the design and process technology for substantially all of its products at such time, including certain of its 256K, 1M and 4M products, to NKK as a source of revenue. The Company has not licensed any of its current products to NKK. In the future, the Company may compete with NKK with respect to all of such products in certain Pacific Rim countries, North America and Europe and, as to certain of its 256K and 1M products, in the rest of the world. In 1995, NKK commenced production of products using the Company's design and process technologies, and therefore may become a more significant competitor of the Company. Any such competition with NKK could adversely affect the Company. Paradigm has also licensed to Atmel the right to produce certain of its SRAM products which provided significant wafer manufacturing capacity. As a result, the Company is likely to compete with Atmel with respect to such products. Because Atmel has greater resources than the Company and has foundry capacity, any such competition could adversely affect the Company. To the extent that the Company enters into similar arrangements with other companies, it may compete with such companies as well. Dependence on Patents, Licenses and Intellectual Property; Potential Litigation. 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 Page 26 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. International Operations. A significant portion of the Company's sales is attributable to sales outside the United States, primarily in Asia and Europe, and the Company expects that international sales will continue to represent a significant portion of its sales. In addition, the Company expects that a significant portion of its products will be manufactured by independent third parties in Asia. Therefore, the Company is subject to the risks of conducting business internationally, and both manufacturing and sales of the Company's products may be adversely affected by political and economic conditions abroad. Protectionist trade legislation in either the United States or foreign countries, such as a change in the current tariff structures, export compliance laws, or other trade policies, could adversely affect the Company's ability to have products manufactured or sell products in foreign markets. The Company cannot predict whether quotas, duties, taxes, or other charges or restrictions will be imposed by the United States, Hong Kong, Japan, Taiwan, or other countries upon the importation or exportation of the Company's products in the future, or what effect any such actions would have on its relationship with NKK or other manufacturing sources, or its general business, financial condition and results of operations. In addition, there can be no assurance that the Company will not be adversely affected by currency fluctuations in the future. The prices for the Company's products are denominated in dollars. Accordingly, any increase in the value of the dollar as compared to currencies in the Company's principal overseas markets would increase the foreign currency-denominated sales prices of the Company's products, which may negatively affect the Company's sales in those markets. The Company has not entered into any agreements or instruments to hedge the risk of foreign currency fluctuations. Currency fluctuations in the future may also increase the manufacturing costs of the Company's products. Although the Company has not to date experienced any material adverse effect on its operations as a result of such international risks, there can be no assurance that such factors will not adversely impact the Company's general business, financial condition and results of operations. Employees. 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 has experienced a high degree of turnover in personnel, including at the senior and middle management levels. The competition for such personnel is intense and includes companies with substantially greater financial and other resources to offer such personnel. Recently, the Company has had to significantly reduce its work staff. There can be no assurance that the Company will be able to attract and retain the necessary personnel, and any failure to do so could have a material adverse effect on the Company. Page 27 Potential Volatility of Stock Price. 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. The Company's stock traded from a high of $37.25 in August 1995 to a low of $0.68 in June 1997. In addition, the stock market has in the past experienced extreme price and 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. Antitakeover Effect of Certain Charter Provisions. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Pursuant to the General Instructions to Rule 305 of Regulation S-K, the quantitative and qualitative disclosures called for by this Item 3 and by Rule 305 of Regulation S-K are inapplicable to the Company at this time. Page 28 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") and PaineWebber, Inc. 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. On September 30, 1996, the Paradigm Defendants filed a demurrer seeking to have plaintiffs' entire complaint dismissed with prejudice. On December 12, 1996, the Court sustained the demurrer as to all of the causes of action against Michael Gulett and as to all causes of actions except for violation of certain provisions of the California Corporate Securities Law, against the remaining Paradigm Defendants. The Court, however, granted plaintiffs leave to amend the complaint to attempt to cure the defects which caused the Court to sustain the demurrer. Plaintiffs failed to amend within the allotted time. On January 8, 1997, the Paradigm Defendants filed an answer to the complaint denying any liability for the acts and damages alleged by the plaintiffs. Plaintiffs have since served the Paradigm Defendants with discovery requests for production of documents and interrogatories, to which the Paradigm Defendants have responded. Plaintiffs have also subpoenaed documents from various third parties. The Paradigm Defendants have served the plaintiffs with an initial set of discovery requests, to which Plaintiffs have responded. The Paradigm defendants also took the depositions of the named Plaintiffs on April 9, 1997. Following a hearing on Plaintiffs' motion for class certification on May 20, 1997, the Court has three times reset the motion for hearing. Most recently, after hearing additional argument on September 18, 1997, the Court again deferred ruling and continued the matter to February 5, 1998. There can be no assurance that the Company will be successful in such defense. On February 21, 1997, an additional purported class action lawsuit was filed in Santa Clara County Superior Court against the Company and certain of its officers and directors, with causes of action and factual allegations essentially identical to those of the August 12, 1996 class action lawsuit, except that Plaintiff was a stockholder who held the Company's Stock during the relevant period. This second class action is asserted against the same Paradigm Defendants, PaineWebber, Inc. and Smith Barney. The Paradigm Defendants authorized counsel to acknowledge service which occurred on April 9, 1997. Prior to the hearing on the Paradigm Defendants' demurrer to the initial complaint, Plaintiffs amended their complaint to incorporate factual allegations derived from the May 19, 1997 lawsuit described below. The Paradigm Defendants filed a demurrer to the amended complaint, which was heard on September 9, 1997. On September 10, 1997, the Court issued an order sustaining the Paradigm Defendants' demurrer as to all causes of action without leave to amend. A judgment in favor of the Paradigm Defendants dismissing the entire complaint was entered by the Court on September 23, 1997. Page 29 Plaintiffs have since filed an appeal. There can be no assurances that the Company will be successful in the defense of the appeal. On May 19, 1997, several former employees of the Company filed an action in Santa Clara County Superior Court. The complaint names as defendants the Company, Michael Gullet, Richard Veldhouse, Dennis McDonald and Chiang Lam. Plaintiffs filed with the complaint a notice that they consider their case related legally and factually to the August 12, 1996 class action lawsuit. The complaint alleges fraud, breach of fiduciary duty and violations of certain provisions of the California Corporate Securities Law and Civil Code. Plaintiffs allege that they purchased the Company's stock at allegedly inflated prices and were damaged thereby. The Plaintiffs seek an unspecified amount of compensatory, rescissory and/or punitive damages. Defendants responded to the complaint on September 12, 1997 by filing a demurrer as to all causes of action. A hearing on the demurrer is set for November 18, 1997. Plaintiffs have served the Company and two of the individual defendants with requests for production of documents, to which the Company and the individual defendants have responded. There can be no assurance that the Company will be successful in such defense. The Company is involved in various other litigation and potential claims. Due to the inherent uncertainty of litigation, management is not able to reasonably estimate losses that may be incurred in relation to this litigation. However, based on the facts presently known, management believes that the resolution of these matters will not have a material adverse impact on the results of operations or the financial position of the Company. Other than as set forth above, there are no material pending legal proceedings against the Company or as to which any of its property is the subject. Item 4. Submission of Matters to a Vote of Security Holders. Annual Meeting -------------- At the Annual Meeting of Stockholders on June 25, 1997, the holders of 4,559,531 shares of Common Stock, representing 62.9% of the outstanding shares of Common Stock, adopted the following proposals by the following margins indicated: (1) The election of the following three candidates for Director, to serve until the next Annual Meeting of Stockholders: Nominee In Favor Withheld ------- --------- -------- George J. Collins 4,339,589 219,942 Michael Gulett 4,337,958 221,573 James L. Kochman 4,341,489 218,042 Page 30 (2) The ratification of Price Waterhouse LLP as the Company's independent auditors for the 1997 fiscal year: Voted For Voted Against Abstained --------- ------------- --------- 4,482,109 55,323 22,099 Special Meeting of Stockholders ------------------------------- At the Special Meeting of Stockholders held on September 19, 1997 and reconvened on September 26, 1997, the holders of 4,441,680 shares of Common Stock adopted the following proposals by the following margins indicated: (1) The elimination of the restriction on the number of shares of Common Stock issuable upon conversion of the Company's 5% Series A Convertible Redeemable Preferred Stock: For: 3,956,267 Against: 400,880 Abstain: 84,533 (2) The elimination of the restriction on the number of shares of Common Stock issuable upon conversion of the Company's 5% Series B Convertible Redeemable Preferred Stock: For: 3,921,317 Against: 433,430 Abstain: 86,933 (3) A proposed transaction or series of transactions to sell up to 5,000,000 shares of Common Stock and to grant rights to elect a majority of the directors of the Company, which might result in the issuance of more than 20% of the Company's outstanding Common Stock and a change in control of the Company: For: 3,059,198 Against: 1,294,051 Abstain: 88,431 Page 31 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 11.1 Computation of net income (loss) per share (see Note 2 of Notes to Condensed Financial Statements) 27.1 Financial Data Schedule (b) Reports on Form 8-K A Current Report on Form 8-K was filed with the Securities and Exchange Commission on July 30, 1997. The report announced the private placement of a total of 200 shares of the Registrant's 5% Series B Convertible Redeemable Preferred Stock to Lyford Ltd. at a price of $10,000 per share, for a total proceeds (net of payments to third parties) of approximately $1.9 million. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 22, 1997. The Form 8-K contained updated financial statements and a reissued report by the Company's independent accountants. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 26, 1997. The report announced that the Company issued a press release announcing that the Company's Common Stock was transferred to the Nasdaq SmallCap Market effective on August 22, 1997. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on October 7, 1997. The report announced the results of the stockholders vote at the Special Meeting of Stockholders held on September 19, 1997 and reconvened on September 26, 1997. Items 2, 3 and 5 are not applicable and have been omitted. Page 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARADIGM TECHNOLOGY, INC. Date: November 13, 1997 /s/ David G. Campbell -------------------------- David G. Campbell Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Page 33 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 PARADIGM TECHNOLOGY, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (1) (in thousands, except net income per share)
Three Months Ended Nine Months Ended ----------------------- ----------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1997 1996 1997 1996 --------- --------- --------- --------- Net income (loss) from operations $ (3,032) $ (7,280) $ (6,739) $(23,735) Accretion on Convertible Preferred Stock (432) -- (1,167) -- -------- -------- -------- -------- Net income (loss) available to Common Stockholders $ (3,464) $ (7,280) $ (7,906) $(23,735) ======== ======== ======== ======== Weighted average shares outstanding: Common Stock 8,843 7,184 7,899 6,933 Common Stock issuable upon exercise of options and 0 0 0 200 warrants -------- -------- -------- -------- Weighted average common shares and equivalents 8,843 7,184 7,899 7,133 ========= ========= ========= ======== Net income (loss) per share ($0.39) ($1.01) ($1.00) ($3.33) ========= ========= ========= ======== (1) This Exhibit should be read in conjunction with Note 2 of Notes to Condensed Financial Statements.
Page 34 EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1997 SEP-30-1997 863 0 5,297 1,724 2,371 7,427 6,977 2,730 11,793 7,706 195 0 2,750 39,149 0 11,793 10,647 10,647 10,320 10,320 7,196 (31) 183 (6,739) 0 0 0 0 0 (6,739) (1.00) (1.00)
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