SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to
Commission File Number : 0-26336
_________________New Paradigm Software Corp._________________
(Exact name of Registrant as specified in its charter)
___________New York____________ _____________13-3725764____________
(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
335 Madison Avenue
_____________New York, New York, 10017______________
(Address of principal executive offices)
_________(212) 557-0933________
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during
the past 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 ___
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
_________________Class________________ _Outstanding as of November 11, 1996_
Common Stock, par value $.01 per share 2,451,822
Transitional Small Business Format (Check one): Yes___ No _X_
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Financial statements are included herein following Part II, Item
6. These statements are unaudited, but reflect all adjustments
that, in the opinion of management, are necessary to provide a
fair statement of the results for the periods covered. All such
adjustments are of a normal recurring nature except where stated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
New Paradigm Software Corp. (the "Company") is engaged in the
development, marketing, licensing and support of its COPERNICUS(TM)
software for large-scale computer users. Most large organizations
have many different computer systems. The need to pass
information among those often incompatible systems is growing
rapidly. Passing information among disparate computer systems is
called "systems integration." COPERNICUS automates systems
integration by converting data entered into or generated by one
program or system into the form needed by another program or
system. The Company believes that its customers can achieve
systems integration using COPERNICUS in a more timely and cost
effective way than the traditional approach of writing custom
software on a case-by-case basis. An application for a United
States patent on COPERNICUS is pending.
The company has established two subsidiaries, New Paradigm
Commerce, Inc. ("NPC") (formerly New Paradigm Golden Link), which
provides electronic data interchange ("EDI") services (the
conveying of business documents electronically), and New Paradigm
Inter-Link, Inc.("NPIL"), which was created to provide Internet
services to corporations.
The Company's revenues consist of license fees for the Company's
COPERNICUS software, maintenance fees and COPERNICUS pilot
project fees. The Company's NPC subsidiary charges fees primarily
on a regular monthly or per transaction basis. NPIL charges both
initial fees on a project basis and continuing monthly maintenance fees.
The Company's revenues and profitability may vary significantly
both in the case of consecutive quarters and in the case of a
quarter compared to the corresponding quarter of the preceding
year. Such variations may result from, among other factors,
lengthy pilot testing for COPERNICUS and any other New Paradigm
application that the Company might develop, timing of new product
and service introductions by the Company and its competitors,
changes in levels of the Company's operating expenditures,
including the Company's expenditures on research and development,
the size and timing of customer orders, the amount and timing of
royalty payments and license fees by licensees, as well as
consulting, training and maintenance fees, increased competition,
reduced prices, the effect of currency exchange rate
fluctuations, delays in the development of new products, the
costs associated with the introduction of new products and the
general state of national and global economies. The Company
expects to derive substantially all of its revenues from
royalties and license fees, and consulting, training and
maintenance fees. Accordingly, the Company's revenues will vary
with the demand for its products and services. In addition, the
Company expects that it typically will require significant
advance payments from customers upon establishing a new licensing
arrangement. The New Paradigm Commerce subsidiary's current
customers are principally involved in selling goods to the retail
industry. All changes that could affect the retail industry would
strongly affect this subsidiary's revenues. Accordingly, the
timing of receipt of payments and the recognition of revenues in
a given period could result in significant periodic fluctuations
in liquidity and financial results. As a result of such factors,
the Company's revenues and profitability for any particular
quarter are not necessarily indicative of any future results.
Fluctuations in quarterly results may also result in volatility
in the price of the CompanyOs securities.
Based on the Company's current plan of operations it is
anticipated that the remaining net proceeds from the IPO and the
Company's expected operating revenues will provide sufficient
working capital until late 1996. The Company will need additional
financing prior to late 1996.
The Company is currently seeking capital from several sources and is
discussing several proposals with investment banking firms to raise
approximately $2-3 million of additional capital by the issuance of
further equity securities and or debt in order to finance the Company
through the end of the fiscal year ending March 31, 1997. However,
there can be no assurances that any such financing will be available
or, if it is available, that it will be available on acceptable terms.
Unless the market price of the Comapany's Common Stock increases
significantly over its market price on November 14, 1996, additional
issuances of equity securities would cause significant dilution to
purchasers of Common Stock in the IPO. If adequate funds are not
available to satisfy either short- or long-term capital requirements,
the Company may be required to limit its operations significantly and
may be unable to carry out its plan of operation.
Should financing through additional issuances of securities not become
available in a timely manner, and the Company's cash flow from operations
does not imporve significantly, the Company has considered several options
to decrease its operating expenses. The Company would request waivers
of portions of higher paid employees' salaries. The Company has reduced its
staff from 34 in March 31, 1996 to 27 as of November 14, 1996. The Company
does not intend to replace these staff until additional capital has been
raised or a stronger cash flow achieved. This and any further reduction in
personnel could significantly lengthen the time required to produce new
versions of COPERNICUS and any new products and could lengthen the sales
cycle for COPERNICUS. Furthermore there is a significant training time
required for new employees to reach full performance should the Company
require new hiring to refill these positions. The Company also intends
to increase the average time of its vendor payables from approximately
30 days to at least 60 days.
Comparison of fiscal quarters
1. Changes in Financial Condition
As of July 1, 1995 the Company recognized the technological
feasibility of its COPERNICUS product. According to FASB# 86 the
Company is therefore required to capitalize its COPERNICUS
development costs incurred since that date.
2. Results of Operations
The Company's revenue increased 245% from $82,386 for the
quarter ended September 30, 1995 to $285,009 for the quarter
ended September 30, 1996 and 138% from $154,338 for the six
months ending September 30, 1995 to $367,951 for the six months
ending September 30, 1996 due to increased maintenance fees,
increased initial license fees for COPERNICUS and the increase in
customers and activity of both NPC and NPIL.
The Company's operating expenses rose 21% from $851,997 to
$1,033,149 for the quarter ended September 30, 1996 compared to
the quarter ended September 30, 1995 and 39% from $1,499,556 for
the six months ending September 30, 1995 to $2,081,748 for the
six months ending September 30, 1996. The increase was primarily
due to an increase in the number of employees.
The components of the operating expenses are as follows:
General and administrative costs increased 18% from $475,959 for
the quarter ending September 30, 1995 to $563,803 for the quarter
ending September 30, 1996 and 66% from $682,737 for the six
months ending September 30, 1995 to $1,133,105 for the six months
ending September 30, 1996. This was primarily due to an increase
in staff. There were 18 employees on September 30, 1995 and 32 on
September 30, 1996.
Professional fees increased 4% from $142,919 for the quarter
ending September 30, 1995 to $148,387 for the quarter ending
September 30, 1996. The higher professional fees for the quarter
ended September 30, 1995 were due to legal fees incurred in
preparation for its initial public offering ("IPO"). The Company's
professional fees remained near the level of the quarter ended
September 30, 1995 due to its preparation and filing of a
post-effective amendment registration statement in respect of the
Redeemable Warrants issued in its IPO and other securities.
The Company's Professional fees decreased 23% from
$294,188 for the six months ending September 30, 1995 to $226,117
for the six months ending September 30, 1996. The higher
professional fees for the six months ended September 30, 1995
were due to legal fees incurred in preparation for its IPO.
Marketing costs rose 22% from $184,618 for the quarter ended
September 30, 1995 to $225,179 for the quarter ended September
30, 1996 and 80% from $297,632 for the six months ending
September 30, 1995 to $536,412 for the six months ending
September 30, 1996. This was primarily due to the increase in
personnel in the sales and marketing area, costs relating to an
advertising campaign in trade magazines and an increase in the
amount of marketing materials being produced and distributed. In
September the Company decided to reduce its direct marketing
efforts. The Company subsequently reduced its sales staff from 7
to 3 employees by September 30, 1996.
Research and development costs in respect of COPERNICUS are capitalized
and no longer expensed by the Company. According to FASB# 86,
"Accounting for Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed", the Company believes it is now required to
capitalize its COPERNICUS research and development expenses.
Capitalized software expenses consist principally of salaries and
certain other expenses related to development and modifications
of COPERNICUS. Amortization of capitalized software costs is provided
at the greater of the ratio of current product revenue to the
total of current and anticipated product revenue or on a straight-
line basis over the estimated economic life of the software,
which is not more than five years. $51,500 was capitalized during
the quarter ended September 30, 1995 and $82,500 was capitalized
during the quarter ended September 30, 1996.
Occupancy costs rose 50% from $25,878 for the quarter ending
September 30, 1995 to $38,740 for the quarter ending
September 30, 1996. This is due to the increase in the space
required because of the increase in the number of staff. The
occupancy costs have decreased 13% from $91,589 to $80,013 for
the six months ending September 30, 1995 over the same period in
1994. This was due to the Company securing a lease with more
favorable terms for its New York offices.
The Company currently requires its overseas customers to
pay in US dollars and the vast majority of its expenses are in US
dollars. The Company does not presently engage in any hedging
activities with respect to foreign currency exchange rate risks.
This 10-QSB contains statement statements relating to future results
of the Company (including certain projections and business trends)
that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and
uncertainties, including but not limited to those described in the
Company's Post-Effective Amendment No. 2 on Form S-3 to the Registration
Statement on Form SB-2 (registration no. 33-92988NY). Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company does not undertake
any obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurence of unanticipated events.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this quarterly report on Form 10-QSB:
Exhibit 11. Statement re: computation of per share earnings (losses).
(b) The following reports have been filed on Form 8-K since May 15, 1995:
None
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Balance Sheets
March 31 September 30
1996 1996
(unaudited)
_____________ _____________
Assets
Current:
Cash and cash equivalents $ 2,017,472 $ 354,927
Accounts receivable 108,063 121,340
Receivable from related party 50,000 50,000
Other receivables and prepayments 108,560 78,215
_____________ _____________
Total current assets 2,284,095 604,482
Property and equipment, less accumulated
depreciation and amortization 352,964 333,411
Investment in restricted common stock at 185,543 105,422
market value (Note 2)
Other assets, less accumulated amortization 291,266 464,616
_____________ _____________
$ 3,113,868 $ 1,507,931
_____________ _____________
Liabilities and Shareholders' Equity
Current:
Accounts payable and accrued expenses $ 220,341 $ 344,328
Deferred revenue 17,500 56,750
_____________ _____________
Total current liabilities 237,841 401,078
_____________ _____________
Total liabilities 237,841 401,078
_____________ _____________
Shareholders' equity:
Common stock, $.01 par value - shares
authorized 50,000,000; issued and
outstanding 2,451,729 and 2,446,729 24,467 24,467
Additional paid-in capital 9,150,209 9,150,209
Unrealized loss on investment in
restricted common stock (Note 2) (164,457) (244,578)
Deficit accumulated during the
development stage (6,134,192) (7,823,293)
_____________ _____________
2,876,027 1,106,853
_____________ _____________
Total shareholders' equity 3,113,868 1,507,931
_____________ _____________
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended Three months ended Six months ended Six months ended
September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996
(unaudited) (unaudited) (unaudited) (unaudited)
__________________ __________________ __________________ __________________
<S> <C> <C> <C> <C>
Revenues:
Software licensing fees $ 73,872 $ 180,000 $ 108,872 $ 180,000
Consulting, maintenance
and other fees 8,514 105,009 45,466 187,951
__________________ __________________ __________________ __________________
82,386 285,009 154,338 367,951
__________________ __________________ __________________ __________________
Expenses:
General and administrative 475,959 563,803 682,737 1,133,105
Professional fees 142,919 148,387 294,188 226,117
Marketing 184,618 225,179 297,632 536,412
Research and development - - 94,600 -
Occupancy 25,878 38,740 91,589 80,013
Depreciation and amortization 22,623 57,040 38,810 106,101
__________________ __________________ __________________ __________________
851,997 1,033,149 1,499,556 2,081,748
__________________ __________________ __________________ __________________
Loss from operations (769,611) (748,140) (1,345,218) (1,713,797)
Other income (expense):
Interest income 26,199 7,614 31,134 24,693
Interest expense (18,202) - (63,724) -
Amortization of debt discount
and deferred financing costs (119,507) - (375,545) -
__________________ __________________ __________________ __________________
(111,510) 7,614 (408,135) 24,693
__________________ __________________ __________________ __________________
Net loss $ (881,121) $ (740,526) $ (1,753,353) $ (1,689,104)
__________________ __________________ __________________ __________________
Net loss per share $ (.63) $ (.30) $ (1.25) $ (.69)
__________________ __________________ __________________ __________________
Weighted average common shares
outstanding 1,400,111 2,446,729 1,400,111 2,446,729
__________________ __________________ __________________ __________________
See accompanying notes to consolidated financial statements
</TABLE>
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended Three months ended Six months ended Six months ended
September 30, 1995 September 30, 1996 September 30, 1995 September 30, 1996
(unaudited) (unaudited) (unaudited) (unaudited)
__________________ __________________ __________________ __________________
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net Loss $ (881,121) $ (740,526) $ (1,753,353) $ (1,689,104)
__________________ __________________ __________________ __________________
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 22,623 57,040 38,810 106,101
Amortization of debt discount
and deferred financing costs 119,507 - 375,545 -
Issuance of common stock for
services - 50 - 50
Noncash interest expense 15,660 - 61,182 -
Changes in assets and liabilities:
Increase in:
Accounts receivable 11,469 46,256 (128,822) (13,277)
Other receivables and
prepayments (16,554) 70,429 (16,554) 30,345
Increase (decrease) in:
Accounts payable and accrued (455,259) 96,435 198,414 123,987
Deferred revenue (7,500) (15,625) 64,942 39,250
__________________ __________________ __________________ __________________
Total adjustments (310,054) 254,585 593,517 286,456
__________________ __________________ __________________ __________________
Net cash (used in) operating
activities (1,191,175) (485,941) (1,159,836) (1,402,647)
__________________ __________________ __________________ __________________
Cash flows from investing activities:
Purchases of property and equipment (92,955) (23,301) (145,243) (42,598)
COPERNICUS development costs 51,500 (81,250) 51,500 (162,500)
Patents, trademarks and
organization costs - (2,499) (3,271) (54,799)
__________________ __________________ __________________ __________________
Net cash used in investing
activities: (144,455) (107,050) (200,014) (259,897)
__________________ __________________ __________________ __________________
Cash flows from financing activities:
Proceeds from issuance of securites 8,072,013 - 8,072,013 -
Repayment of debt (1,713,531) - (1,713,531) -
Proceeds from private placements - - 89,000 -
Borrowings from shareholder (139,860) - (67,951) -
Bank Loan (100,000) - - -
Registration and financing costs (236,484) - (793,514) -
__________________ __________________ ___________________ _________________
Net cash used in financing
activities 5,882,138 - 5,586,017 -
__________________ __________________ ___________________ _________________
Net increase (decrease) in cash
and cash equivalents 4,546,509 (592,991) 4,226,168 (1,662,545)
Cash and cash equivalents,
beginning of period 73,952 947,918 394,293 2,017,472
__________________ __________________ ___________________ _________________
Cash and cash equivalents,
end of period $ 4,620,461 $ 354,927 $ 4,620,461 $ 354,927
__________________ __________________ ___________________ _________________
See accompanying notes to consolidated financial statements
</TABLE>
Note 1 -
The accompanying financial statements should be read in conjunction with
the Company's financial statements for the fiscal year ended March 31, 1996,
together with the accompanying notes included in the Company's 10-KSB for the
fiscal year ended March 31, 1996 and the Company's June 30, 1996 10-QSB.
In the opinion of management, the interim statements reflect all adjustments
which are necessary for a fair statement of the results of the interim
periods presented. The interim results are not necessarily indicative of
the results for the full year.
Note 2 -
The Company owns 67,470 shares of Camelot Corporation's ("Camelot") restricted
common stock acquired in connection with its sale of the Netphone software
package which were originally valued at $350,000. On September 30, 1996,
the market value of Camelot stock had decreased to $105,442 resulting in an
unrealized loss of $244,578 which has been reflected in shareholders' equity.
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.
NEW PARADIGM SOFTWARE CORP.
(Registrant)
Date: November 14, 1996 _/s/ Mark Blundell_________________
Mark Blundell
President & Chief Financial Officer
Date: November 14, 1996 _/s/ John Brann____________________
John Brann
Vice President of Technology
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Weighted Average # of shares
Description
---------------------------------------------------------------------
4/1/96 (beginning of Quarter) 2,446,729
6/30/96 (end of Quarter) 2,446,729
----------
Weighted Average 2,446,729
__________
Net Loss (740,526)
__________
Loss/share (0.30)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 354,927
<SECURITIES> 105,422
<RECEIVABLES> 171,340
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 604,482
<PP&E> 333,411
<DEPRECIATION> 57,040
<TOTAL-ASSETS> 1,507,931
<CURRENT-LIABILITIES> 401,078
<BONDS> 0
0
0
<COMMON> 24,517
<OTHER-SE> 1,082,336
<TOTAL-LIABILITY-AND-EQUITY> 1,507,931
<SALES> 0
<TOTAL-REVENUES> 285,009
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,033,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (740,526)
<INCOME-TAX> 0
<INCOME-CONTINUING> (740,526)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (740,526)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
