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, 1998
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)
630 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)
Former address: 733 Third Avenue, New York, NY 10017
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 5, 1998
Common Stock, par value $.01 per share 2,701,729
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 Operation
Change of Name
In keeping with its new business objectives described below management
intends to propose that the Company change its name to New Paradigm
Strategic Communications at the next stockholders meeting.
Acquisition of Advertising Agencies
The Company's primary objective is to utilize (1) its experience and
expertise on advising clients on internet strategy and constructing
internet applications, including websites, and (2) its status as a
public company to acquire small to medium sized advertising agencies.
Management believes that such agencies have a need to offer internet
strategy and services to their clients as a part of an integrated
communications strategy.
By combining a number of agencies in the New York area, the Company
believes economies can be made by centralize certain administration
and support functions. Together with the ability to offer additional
services (such as internet services) to agency clients management
believes, that the profitability of these agencies can be improved.
In addition, the Company hopes that agencies which are part of a larger
agency group offering a wider range of expertise and a greater depth of
talent will be able to secure bigger accounts, which are expected to be
more profitable.
Although the company has acquired one such agency and is conducting
preliminary discussions with several others, there can be no assurance
that any suitable agencies can be found willing to be acquired on terms
acceptable to the Company.
Internet Business - NPIL
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. Clients include Novartis, the National Multiple Sclerosis
Society and the Association of the Bar of the City of New York. NPIL
provides organizations with the ability to utilize the Company's expertise
to devise strategies for the Internet, and, where appropriate, to create
Web sites. This expertise includes: assembling an appropriate team of
independent design consultants and, if necessary, programmers; designing
the site from both technical and aesthetic perspectives; implementing the
design; and providing Web server hosting services independently from a
customer's own internal network to ensure security.
In the past six months the initial revenues contracted for a typical site
have risen from $20,000 - $30,000 on completion, to $60,000- $80,000 with
continuing revenues for maintenance and changes throughout the year
increasing from approximately $1,000 - $3,000 to $8,000 - 12,000.
Examples of Web sites created by New Paradigm include:
. Novartis - site for its "Program" product: www.programpet.com
. Association of the Bar of the City of New York: www.abcny.org
. Nuway Corporation: corporate Website: www.nuwaycorp.com
. Smolin Lupin, accountants: corporate Website: www.cpasmolinlupin.com
. Novartis - site for its "Sentinel" product: www.petprotect.com
. Josephthal & Co - corporate Website: www.josephthal.com
. National Multiple Sclerosis Society - general website: www.nmss.org
Internet Business - Future Paradigm
The Company intends to market its Internet capabilities through the
strategic relationships which advertising agencies have with their clients
both by acquiring and by forming business alliances with selected
advertising agencies. To this end the company established Future Paradigm
Inc. and entered into agreements with three Advertising Agencies to sell
each of them 15% of Future Paradigm. Each of the agencies then agreed to
bring the internet business of their clients to Future Paradigm where
possible. Over the period until September 30, 1998, all of the business
brought to Future Paradigm was originated by one of the three agencies,
Biederman, Kelly, & Schaffer, Inc. (BKS) Consequently, the other two
agencies agreed to withdraw from Future Paradigm. Through Future Paradigm
the Company has undertaken or is undertaking internet-related projects for
the following clients: Cadillac Corp. (AGeneral Motors Corp. Subsidiary)
, Lands' End, New York University School of Continuing Education, and
Parenttime ( ATime, Inc Subsidiary).
Advertising - SKC Advertising, Inc.
On April 1, 1998, the Company acquired certain assets and assumed certain
liabilities of Kapelus & Cipriano, Inc., ("K&C") a Westchester-based
full-service advertising agency, through its wholly owned subsidiary New
Paradigm Acquisition I Co. Inc. ("NPAC"). NPAC was then renamed SKC
Advertising, Inc. ("SKC"). Prominent clients of SKC Advertising, Inc.
include Kemwal Holiday Autos, The Castle at Tarrytown, The Carlton Hotel,
New York, and Tarrytowns Banks, SSB. Since the end of the September
Quarter, SKC was also awarded the account of the Scottish Tourist Board.
During the second quarter the Company achieved its first sale of
internet-related services to an SKC clients. The company intend to pursue
other clients for additional business in future.
General
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to
accurately process information that may be date sensitive. Any of the
Company's programs that recognize a date using "00" as the year 1900
rather than the year 2000 could result in errors or system failures.
The Company utilizes a number of computers across its entire operation.
The Company has not completed its assessment, but currently believes
that cost of addressing this issue will not have a material adverse
impact on the Company's financial position. In common with many internet
based businesses, the Company is reliant to a significant extent on the
ability of the Windows NT operating system from Microsoft and the
internet infrastructure to deal with the Year 2000 issue. However, the
third parties upon which the Company relies are unable to address this
issue in a timely manner, it could result in a material financial risk
to the Company.
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 client acceptance of completed work,
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 1999 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.
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 14, 1998 additional issuance of equity security
could cause significant dilution to purchasers of Common Stock.
Comparison of fiscal quarters
1. Changes in Financial Condition
As of April 1, 1998, the Company acquired certain assets and assumed
certain liabilities of Kapelus & Cipriano, Inc., ("K&C") a Westchester-
based full-service advertising agency, through its wholly owned
subsidiary SKC. 250,000 common shares were issued to the former owners of
K&C.
The acquisition of assets generated goodwill of $160,403 which is being
written-off over 15 years. The acquistion also included prepayments from
customer ($120,000) of SKC which are included as a liability, as work is
performed these prepayments will be included as revenue.
In September 1998, the Company received a proposal from Customer
Information Systems Inc. ("CIS") that CIS make a discounted early
payment to the Company in place of amounts due to the Company under a
note issued to the Company in April 1997 as partial payment for the
acquisition by CIS of the Company's EDI division. The payment of
approximately $142,000 resulted in the realization of a loss of $60,139.
In view of CIS's relatively poor financial results and the Company's
urgent need for cash, the Company agreed to accept the payment.
2. Results of Operations
Six Months Ended September 30, 1998
The Company's revenue from its continuing operations increased 2,316%
from $48,397 for the six months ended September 30, 1997 to $1,160,883
for the six months ended September 30, 1998 due to the increase in
customers and activity of SKC and the increase in internet related
business.
The Company's operating expenses increased 46% from $522,273 to $761,713
for the six months ended September 30, 1998 compared to the six months
ended September 30, 1997. This was primarily due to the increase in the
average number of employees that the Company employed through SKC.
The components of the operating expenses are as follows:
General and administrative costs increased 89% from $333,514 for the
six months ending September 30, 1997 to $629,540 for the six months
ending June 30, 1998. This was mainly due to the increase in staff
from the addition of SKC.
Professional fees decreased 58% from $67,746 for the six months ending
September 30, 1997 to $28,875 for the six months ending September 30,
1998. The lower professional fees for the six months ended
September 30, 1998 were due to reduced legal activity by the Company.
Marketing costs decrease marginally from $5,837 for the six months
ended September 30, 1997 to $4,060 for the six months ended
September 30, 1998.
Occupancy costs decreased by 9% from $86,516 for the six months ending
September 30, 1997 to $78,938 for the six months ending
September 30, 1998. This was due to a major decrease in rent on the
Company's New York offices which was partially offset by additional
premises for SKC.
Quarter Ended September 30, 1998
The Company's revenue from its continuing operations increased 4,132%
from $15,947 for the quarter ended September 30, 1997 to $672,559 for
the quarter ended September 30, 1998 due to the increase in customers
and activity of SKC and the increase in internet related business.
The Company's operating expenses increased 20% from $306,298 to $377,789
for the quarter ended September 30, 1998 compared to the quarter ended
September 31, 1997. This was primarily due to the increase in the
average number of employees that the Company employed as a result of the
addition of SKC.
The components of the operating expenses are as follows:
General and administrative costs increased 43% from $219,408 for the
quarter ending September 30, 1997 to $314,593 for the quarter ending
September 30, 1998. This was mainly due to the increase in staff from
the addition of SKC.
Professional fees decreased 80% from $39,669 for the quarter ending
September 30, 1997 to $7,925 for the quarter ending September 30, 1998.
The lower professional fees for the quarter ended September 30, 1998
were due to reduced legal activity by the Company.
Marketing costs decrease from $3,390 for the quarter ended
September 30, 1997 to $865 for the quarter ended September 30, 1998.
Occupancy costs increased by 43% from $27,849 for the quarter ending
September 30, 1997 to $39,922 for the quarter ending September 30, 1998.
This was due to the additional premises for SKC.
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
August 14, 1998:
None
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31, 1998 September 30, 1998
-------------- ------------------
Assets (unaudited)
Current:
Cash and cash equivalents $202,030 $ 43,838
Restricted cash 9,065 -
Accounts receivable 45,993 445,577
Notes receivable, current portion 105,432 -
Other receivables and prepayments 12,500 154,056
--------- ---------
Total current assets 375,020 643,571
Property and equipment, less accumulated depreciation
and amortization 127,506 112,883
Goodwill - 155,055
Note receivable from Officer/Shareholder 117,135 120,555
Note receivable, long-term 142,007 -
-------- ----------
$761,668 $1,032,064
======== ==========
Liabilities and Shareholders' Equity
Current:
Loan payable $ 30,000 $ 58,849
Accounts payable and accrued expenses 248,351 704,955
Prepayments - 120,000
------- ---------
Total current liabilities 278,351 884,804
------- ---------
Commitments and contingencies
Redeemable Series D preferred stock - authorized and
outstanding - 50 shares, at redemption value 50 50
------- ---------
Shareholders' Equity :
Preferred stock, $.01 par value - shares
authorized 10,000,000:
Series A shares authorized-1,000,000; none issued
and outstanding - -
Series B shares authorized 2,000,000; none issued
and outstanding - -
Series C shares authorized 800,000; none issued
and outstanding - -
Common stock, $.01 par value - shares authorized
50,000,000; issued and outstanding 2,451,729
and 2,701,729 24,517 27,017
Additional paid-in capital 9,150,209 9,197,711
Deficit (8,691,459) (9,076,518)
---------- -----------
Total Shareholders' equity 483,267 148,210
---------- -----------
$761,668 $1,032,064
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C> <C>
Three months Three months Six Months Six months
ended September ended September ended September ended September
30, 1997 30, 1998 30, 1997 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Advertizing,internet services 15,947 627,287 48,397 1,160,883
Cost of Goods - 410,670 737,875
------ ------- ------ --------
15,947 261,889 48,397 437,008
Expenses:
General and administrative 219,408 314,593 333,514 629,540
Professional fees 39,669 7,925 67,746 28,875
Marketing 3,390 865 5,837 4,060
Occupancy 27,849 39,922 86,516 78,938
Goodwill - 2,674 - 5,348
Depreciation and amortization 15,982 11,810 28,660 14,952
------ ------ ------ ------
306,298 377,789 522,273 761,713
------ ------ ------ ------
Loss from operations (290,351) (115,900) (473,876) (324,705)
Other income (expense):
Interest income 11,873 1,710 11,873 2,079
Interest expense - (1,050) - (2,294)
------ ------ ------ ------
11,873 660 11,873 (215)
Net loss from continuing
operations (278,478) (115,240) (462,003) (324,920)
Net lossfrom early repayment
of loan - (60,139) - (60,139)
Net loss from discontinued
operations (45,000) - (62,554) -
Gain from sale of EDI division
(Note 3(a)) - - 200,998 -
Gain from sale of COPERNICUS
(Note 5) - - 1,183,456 -
------ ------ --------- ------
Net income (loss) 859,978 (175,379) 859,897 (385,059)
------ ------ ------ ------
Net loss per share from
continuing operations $ (.11) $ (0.04) $ (.19) $ (0.12)
Net loss per share from
discontinued operations (.02) (0.02) (.03) (0.02)
Income per share from sale
of EDI division - - .08 -
Income per share from sale of
COPERNICUS .48 - .48 -
------ ------ ------ ------
Net income (loss) per share .35 (0.06) .35 (0.14)
Weighted average common shares
outstanding 2,451,729 2,701,729 2,451,729 2,701,729
</TABLE>
See accompanying notes to consolidated financial statements
NEW PARADIGM SOFTWARE CORP. and subsidiaries
<TABLE>
<S> <C> <C>
Six months Six months
ended September ended September
30, 1997 30, 1998
(unaudited) (unaudited)
Cash flows from operating
activities:
Net income (loss) $ 859,978 $ (385,059)
Adjustments to reconcile net
income (loss) to net cash used in
operating activities:
Depreciation and amortization 58,299 14,623
Gain on sale of assets (1,384,455) -
Issuance of Common Stock for services -
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 25,109 (399,584)
Other receivables and prepayments (110,109) -
Other assets 69,592 (141,556)
Increase (decrease) in:
Accounts payable and accrued
expenses (251,250) 456,604
Prepayments - -
Deferred rent (71,127) -
--------- -----------
Total adjustments (1,663,941) 50,087
--------- -----------
Net cash used in operating activities (803,963) (344,972)
Cash flows from investing activities:
Purchases of property and equipment (10,862) -
Issue of shares for assets - 50,002
Goodwill (155,055)
--------- -----------
Net cash used in investing activities: (10,862) (105,053)
Cash flows from financing activities:
Note Receivable from sale of EDI (278,970) -
Increase in Notes receivable from officers - (3,420)
Decrease in notes receivable - 247,439
Increase in notes payable 63,500 28,849
--------- -----------
Net cash from financing activities (215,470) 272,868
--------- -----------
Net increase (decrease) in cash
and cash equivalents (1,030,376) (167,157)
Cash and cash equivalents,
beginning of period 328,168 211,095
--------- -----------
Cash and cash equivalents, end of period $ 702,208 $ 43,938
</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, 1998 and the quarter ended June 30, 1998 together with the
accompanying notes included in the Company's 10-KSB for the fiscal
year ended March 31, 1998 and the Company's 10-QSB for the quarter
ended September 30, 1998. 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.
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 4, 1998
/s/ Mark Blundell_____________________
Mark Blundell
President & Chief Financial Officer
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Weighted Average # of shares
Description
---------------------------------------------------------------------
7/1/98 (beginning of Quarter) 2,701,729
9/30/98 (end of Quarter) 2,701,729
----------
Weighted Average 2,701,729
__________
Net Loss (385,059)
__________
Loss/share (0.14)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 43,838
<SECURITIES> 0
<RECEIVABLES> 455,577
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 643,571
<PP&E> 112,883
<DEPRECIATION> 14,952
<TOTAL-ASSETS> 1,032,064
<CURRENT-LIABILITIES> 884,804
<BONDS> 0
0
0
<COMMON> 27,017
<OTHER-SE> 121,193
<TOTAL-LIABILITY-AND-EQUITY> 1,032,064
<SALES> 0
<TOTAL-REVENUES> 672,559
<CGS> 410,670
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 377,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,050)
<INCOME-PRETAX> (175,379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (115,900)
<DISCONTINUED> 0
<EXTRAORDINARY> (60,139)
<CHANGES> 0
<NET-INCOME> (175,379)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
