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 June 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 : 0-26336
_______________________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. Employer Identification No.)
incorporation or organization)
733 Third 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 August 12, 1997
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
Internet business through its wholly owned subsidiary New Paradigm
Inter-Link, Inc. ("NPIL"). NPIL began operations in December 1995, and
provides Internet services to corporations and other organizations.
Customers include Novartis and the Association of the Bar of the City
of New York. The Company intends to further develop this business by
launching new products and services connected with the Internet. There
is no assurance that the Company will be able to develop or acquire
such products and services or that if it does they will be acceptable
to the market. The Internet is a relatively new and rapidly expanding
market. Gartner Group ( a leading industry analyst) estimates that by
2001, 60% of the US workforce will have a justifiable business need
for Internet access. By the same date, they estimate that more than 8
million households will access the Internet using ISDN lines (digital
telephone lines offered by principal telephone companies suitable for
accessing the Internet) and a further 3 million homes will access the
Internet using cable modems. World-wide Internet use is currently
estimated at 40 million users. With potential access to such numbers,
many corporations are seeking to ensure that they have a presence on
the Internet. Such a presence is established through a collection of
text, graphics and small programs known as a "Web site" maintained on
a computer known as a Web server and viewed by users from all over the
world who are connected to the Internet through the use of a Web
browser such as Netscape Navigator(R) or Microsoft Explorer(R). The
Company seeks to assist companies with creating that Internet presence
and also to exploit other business opportunities which may arise in
servicing the Internet community.
NPIL provides organizations with the ability to utilize the Company's
expertise in creating a Web site. This expertise includes assembling
an appropriate team of independent design consultants and, if
necessary, programmers; designing the site from both technical and
aesthetic perspectives, implementing the design, and then providing
Web server hosting services away from a customer's own internal
network to ensure security. NPIL specializes in providing custom
facilities to enable a customer's presence on the Internet to be
constantly evolving and interesting without adding to their existing
workload. For example, the site for the Association of the Bar of the
City of New York is remotely updated by association staff. A small
software program ("applet") created by NPIL staff in Java - the most
common computer programming language for the Internet today - allows
customers to utilize information in the format in which it was created
under existing word processor programs such as Microsoft Word to
automatically update their Web site from their own offices. No
translations or transitions are required - the customer's staff member
simply uses the common "cut and paste" technique utilized within many
programs to move the required document into the NPIL applet. A
typical site brings in initial revenues of approximately $20,000 -
$30,000 on completion with continuing revenues for maintenance and
changes throughout the year which are expected to amount to $1,000-
$3,000 per annum. The Company has created 5 Web sites for customers
of this service to date.
Examples of Web sites created by New Paradigm include:
o Novartis - site for its "Program" product: www.programpet.com
o Association of the Bar of the City of New York: www.abcny.org
o Nuway Corporation: Corporate Website, site for moistmates
product: www.nuwaycorp.com
o Smolin Lupin, accountants: corporate Website: www.cpasmolinlupin.com
o Novartis - site for its "Sentinel" product: www.petprotect.com
o New Paradigm: corporate Website: www.newparadigm.com
o Proballfan: NFL football site written by fans: www.proballfan.com
Until April 1, 1997, through its wholly owned subsidiary, New Paradigm
Commerce ("NPC") (formerly New Paradigm Golden Link), the Company
operated a service bureau business providing electronic data
interchange ("EDI") services (the conveying of business documents
electronically). As of April 1, 1997, the Company sold its EDI
business to Custom Information Systems Corp. of New York ("CIS") for
$6,000 and a note receivable monthly over three years with a face
value of $355,000 and a present value of approximately $300,000.
On May 9, 1997 the Company entered into an agreement to sell, subject
to shareholder approval, the rights to COPERNICUS and certain related
assets to VIE Systems Inc., a Delaware corporation ("VIE") for
$2,050,000 in cash and a 5% royalty on future COPERNICUS related
license fees payable commencing after the first 12 months. Subject to
VIE's approval, the Company will have the right to enter into OEM
agreements with VIE on commercially reasonable terms, to incorporate
COPERNICUS within future products which the Company may develop or
acquire. The sale of this asset was approved by the Company's
shareholders on July 23, 1997 and the transfer of the asset occurred
on the same date.
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, timing of new product
and service introductions by the Company and its competitors, changes
in levels of the Company's operating expenditures, the size and timing
of customer orders, revenue received from the royalty from VIE, as
well as consulting, and training, increased competition, reduced
prices, the effect of currency exchange rate fluctuations, delays in
the development of new services or products, the costs associated with
the introduction of new products and services and the general state of
national and global economies. 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
Securities.
The Company will need additional financing prior to March 1998 and
thereafter if demand for the Company's products or services is
sufficiently great to require expansion at a faster rate than
anticipated, or if research and development expenditures or the extent
of service and customer support that the Company is required to
provide are greater than expected or other opportunities arise which
require significant investment, or if revenues are significantly lower
than expected. Additionally, the Company may require significant
additional financing to complete any acquisition. If financing is
required, such financing may be raised through additional equity
offerings, including offerings of preferred stock, joint ventures or
other collaborative relationships, borrowings and other sources. There
can be no assurance that additional financing will be available or, if
it is available, that it will be available on acceptable terms. If
adequate funds are not available to satisfy either short or long-term
capital requirements, the Company may be required to limit its
operations significantly and may be unable to carry out its plan of
operation.
The Company intends to seek to raise additional capital by the
issuance of further equity securities. Preliminary negotiations are
currently underway with investment bankers to this end. 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. If
additional funds are raised through the issuance of equity securities,
the percentage ownership of the then current shareholders of the
Company will be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of the Common
Stock. Unless the market price of the Company's Common Stock increases
significantly over its market price on August 11, 1997 additional
issuances of equity security could cause significant dilution to
purchasers of Common Stock in the IPO.
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 was therefore required to capitalize its COPERNICUS
development costs incurred since that date.
On July 23, 1997 the Company sold VIE the rights to COPERNICUS and
certain related assets for $2,050,000 in cash and a 5% royalty on
future COPERNICUS related license fees payable commencing after the
first 12 months. Subject to VIE's approval, the Company will have the
right to enter into OEM agreements with VIE on commercially reasonable
terms, to incorporate COPERNICUS within future products which the
Company may develop or acquire.
On July 23, 1997 the Company repaid its loan to Level 8 Systems, Inc.
This loan, bore interest at 10% per annum and was collateralized by
the COPERNICUS product and related assets. The principal amount of
this loan was $550,000. A break-up fee of $100,000 and interest
totaling $18,986 was paid to Level 8 Systems, Inc. A further $15,000
fee was paid to Level 8 Systems, Inc. to extend the maturity date of
the loan which matured on July 17, 1997.
On July 23, 1997 the Company redeemed its 800,000 Series C redeemable
preferred stock ("C Preferred"), $0.01 par value issued to Mr. Robert
Trump for $200,000.
2. Results of Operations
The Company's revenue from its continuing operations increased 4,087%
from $775 for the quarter ended June 30, 1996 to $32,450 for the
quarter ended June 30, 1997 due to the increase in customers and
activity of NPIL.
The Company's operating expenses fell 58% from $516,047 to $215,975
for the quarter ended June 30, 1997 compared to the quarter ended
December 31, 1996. This was primarily due to the decrease in the
average number of employees that the Company employed and a decrease
in the expenses required to support the employees that were employed
in the discontinued operations.
The components of the operating expenses are as follows:
General and administrative costs decreased 64% from $321,312 for the
quarter ending June 30, 1996 to $114,106 for the quarter ending June
30, 1997. This was due to cost cutting measures implemented by the
Company primarily the decrease in the average number of employees that
the Company employed and a decrease in the expenses required to
support the employees that were employed in the discontinued
operations.
Professional fees decreased 64% from $77,730 for the quarter ending
June 30, 1996 to $28,077 for the quarter ending June 30, 1997. The
lower professional fees for the quarter ended June 30, 1997 were due
to the Company no longer being required to prepare license agreements
for customers. The Company has deferred $97,709 in legal fees as an
asset on its balance sheet. This represents legal fees incurred
specifically for the sale of the COPERNICUS asset which took place on
July 23, 1997and has been deferred as a cost of this transaction.
Marketing costs fell 96% from $57,737 for the quarter ended June 30,
1996 to $2,447 for the quarter ended June 30, 1997. The decrease is
primarily due to the Company reducing its market activities including
terminating its relationship with its public relations firm on
December 31, 1996.
Occupancy costs rose 42% from $41,273 for the quarter ending June 30,
1996 to $58,667 for the quarter ending June 30, 1997. This was due to
an increase in rent on the Company's 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 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 occurrence 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 June 29,
1997:
1) July 18, 1996 - New Paradigm Adjourns Shareholder Meeting.
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Balance Sheets
<TABLE>
<S> <C> <C> <C>
March 31 June 30 June 30
1997 1997 1997 Pro-Forma
(unaudited) (unaudited)
(Note 5)
Assets
Current:
Cash and cash equivalents $ 328,168 $ 72,026 $1,239,040
Accounts receivable 50,612 32,719 32,719
Other receivables and
prepayments 32,487 0 0
------- -------- ----------
Total current assets 411,267 104,745 1,270,759
Property and equipment,
less accumulated depreciation
and amortization 168,920 151,184 151,184
Investment in restricted
common stock at market
value (Note 2) 14,759 14,759 14,759
Assets held for sale (Note 3) 691,491 581,750 0
Note Receivable (Note 3(a)) 0 294,812 294,812
Other assets, less accumulated
amortization (Note 4) 71,266 167,854 70,145
------- -------- ----------
$1,357,703 $1,315,104 $1,801,659
Liabilities and
Shareholders' Equity
Current:
Accounts payable and
accrued expenses $ 806,690 $ 705,720 $ 705,720
Loan payable (Note 3(b)) 550,000 613,500 0
Deferred rent payable 71,127 66,078 66,078
------- -------- ----------
Total current liabilities 1,427,817 1,385,298 771,798
Redeemable Series C Preferred
Stock authorized and
outstanding - 800,000 at
redemption value 200,000 200,000 0
Shareholders' equity:
Common stock, $.01 par value
- shares authorized 50,000,000;
issued and outstanding 2,451,729
and 2,451,729 24,517 24,517 24,517
Additional paid-in capital 9,150,209 9,150,209 9,150,209
Unrealized loss on
investment in restricted
common stock (Note 2) (335,241) (335,241) (335,241)
Capital Deficit (9,109,599) (9,109,680) (7,809,625)
------- -------- ----------
Total shareholders' equity (270,114) (270,194) 1,029,860
------- -------- ----------
$1,357,703 $1,315,104 $1,801,659
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C>
Three months Three months Three months
ended ended ended
June 30, 1996 June 30, 1997 June 30, 1997
(unaudited) (unaudited) (unaudited)
Pro Forma (Note 5)
Revenues:
Consulting and web
design $ 775 $ 32,450 $ 32,450
------- -------- ----------
775 32,450 32,450
Expenses:
General and administrative 321,312 114,106 114,106
Professional fees 77,730 28,077 28,077
Marketing 57,737 2,447 2,447
Occupancy 41,273 58,667 58,667
Depreciation and amortization 17,995 12,678 12,678
------- -------- ----------
516,047 215,975 215,975
------- -------- ----------
Loss from operations (515,272) (183,525) (183,525)
Other income (expense):
Interest income 17,079 - -
------- -------- ----------
17,079 - -
Net loss from
continuing operations $ (498,193) $ (183,525) $ (183,525)
Net loss from
discontinued operations $ (450,386) $ (17,554) $ (17,554)
Gain from sale of
EDI division (Note 3(a)) - 200,998 200,998
Gain from sale of
COPERNICUS (Note 5) - - 1,300,055
------- -------- ----------
Net loss $ (948,579) $ (81) $1,300,136
Net loss per share from
continuing operations $ (.20) $ (.07) $ (.07)
Net loss per share from
discontinued operations (.19) (.01) (.01)
Profit per share from
sale of EDI division - .08 .08
Profit per share from sale
of COPERNICUS - .08 .53
------- -------- ----------
Net loss per share $ (.39) $ (0.00) $ .53
Weighted average common
shares outstanding 2,446,729 2,451,729 2,451,729
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
<TABLE>
<S> <C> <C>
Three months Three months
ended ended
June 30, 1996 June 30, 1997
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(948,579) $ (81)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 49,061 42,317
Changes in assets and liabilities:
Increase in:
Accounts receivable (59,533) 17,893
Gain on sale of assets (200,999)
Other assets (40,083) 96,588
Increase (decrease) in:
Accounts payable
and accrued expenses 27,552 (100,970)
Deferred rent 54,875 5,049
Total adjustments 31,872 (140,122)
---------- -----------
Net cash provided by (used in)
operating activities (916,706) (140,203)
Cash flows from investing activities:
Purchases of property and equipment (19,297)
COPERNICUS development costs (81,250)
Sale of EDI Assets 115,373
Patents, trademarks and
organization costs (52,300)
---------- -----------
Net cash used in investing
activities: (152,847) 115,373
Cash flows from financing activities:
Note Receivable from sale of EDI (294,812)
Increase in Note Payable 63,500
---------- -----------
Net cash used in financing
activities - (231,312)
Net increase (decrease) in cash
and cash equivalents (1,069,554) (254,142)
---------- -----------
Cash and cash equivalents,
beginning of period 2,017,472 328,168
---------- -----------
Cash and cash equivalents,
end of period $ 947,918 $ 72,026
</TABLE>
See accompanying notes to consolidated financial statements
Note 1 -
The accompanying financial statements should be read in conjunction
with the Company's financial statements for the fiscal year ended
March 31, 1997, together with the accompanying notes included in the
Company's 10-KSB for the fiscal year ended March 31, 1996. 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(TM) software package, which were originally valued at $350,000.
On June 30, 1997, the market value of Camelot stock had decreased to
$14,759 resulting in an unrealized loss of $335,241 which has been
reflected in shareholders' equity. The unrealized loss for the quarter
ended June 30, 1997 was $0.
Note 3 -
(a) EDI Sale -Until April 1, 1997, through its wholly owned
subsidiary, New Paradigm Commerce ("NPC") (formerly New Paradigm
Golden Link), the Company operated a service bureau business providing
electronic data interchange ("EDI") services (the conveying of
business documents electronically). As of April 1, 1997, the Company
sold its EDI business to Custom Information Systems Corp. of New York
("CIS") for $6,000 and a note receivable monthly over three years with
a face value of $355,000 and a present value of approximately
$300,000.
(b) COPERNICUS Sale - As of May 9, 1997 the Company entered into an
agreement to sell, subject to shareholder approval, the rights to
COPERNICUS and certain related assets to VIE Systems Inc., a Delaware
corporation ("VIE") for $2,050,000 in cash and a 5% royalty on future
COPERNICUS related license fees payable commencing after the first 12
months. Subject to VIE's approval, the Company will have the right to
enter into OEM agreements with VIE on commercially reasonable terms,
to incorporate COPERNICUS within future products which the Company may
develop or acquire. The sale of this asset was approved by the
Company's shareholders on July 23, 1997 and the transfer of the asset
occurred on the same date.
Note 4 -
Included in the assets held for sale is $97,900 of legal expenses
directly related to the sale of COPERNICUS. This will be offset when
the Company recognizes the gain on the sale of this asset.
Note 5 -
The Pro Formas include (a) the sale of the COPERNICUS software on July
23, 1997 for $2,050,000 in cash, (b) redemption of the C Preferred on
July 23, 1997 for $200,000 and (c) Repayment of the Level 8 Systems,
Inc. note on July 23, 1997 for $683,986 including fees and interest.
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: August 14, 1997 /s/ Mark Blundell________________________
Mark Blundell
President & Chief Financial Officer
Date: August 14, 1997 /s/ Matthew Fludgate_____________________
Matthew Fludgate
Vice President and Secretary
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Weighted Average # of shares
Description
---------------------------------------------------------------------
10/1/96 (beginning of Quarter) 2,451,729
12/31/96 (end of Quarter) 2,451,729
----------
Weighted Average 2,451,729
__________
Net Loss (81)
__________
Loss/share (0.00)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 72,026
<SECURITIES> 14,759
<RECEIVABLES> 32,719
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,745
<PP&E> 151,184
<DEPRECIATION> 12,678
<TOTAL-ASSETS> 1,315,104
<CURRENT-LIABILITIES> 705,720
<BONDS> 0
0
0
<COMMON> 24,517
<OTHER-SE> (270,194)
<TOTAL-LIABILITY-AND-EQUITY> 1,315,104
<SALES> 0
<TOTAL-REVENUES> 32,450
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 215,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (81)
<INCOME-TAX> 0
<INCOME-CONTINUING> (81)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
