United States
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 December 31, 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)
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 February 10, 1999
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 Operations.
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 program.
By combining a number of agencies in the New York area, the Company
believes economies can be made by centralizing 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.
Management believes that the results achieved in combination with SKC
Advertising, Inc. ("SKC") in gaining new clients, selling Internet-
related services to existing clients and in saving expenses demonstrate
that these benefits can be achieved in practice as well as in theory.
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. Further there can be no assurance that the
additional clients and revenue gained and expenses saved with SKC as a
result of the acquisition can be achieved with other agencies which the
Company may acquire.
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 nine 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.
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 in fiscal 1998 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. From its inception until September 30, 1998, all
of the business brought to to Future Paradigm was origimated by one of the
three agencies, Beiderman, Kelly, Krimstein & Partners, Inc. (BKK)
(formerly Biederman Kelly & Schaffer, Inc.). Consequently, the other two
agencies agreed to withdraw form Future Paradigm. Through Future Paradigm,
the Company has undertaken or is undertaking Internet related projects
for the following clients: Cadillac Corp. (A General Motors Corp.
subsidiary), Lands' End, New York University School of Continuing
Education and Professional Studies (www.scps.nyu.edu), and ParentTime
(a Time, Inc. subsidiary).
Examples of Web sites created by New Paradigm include:
. New York University - Site for the School of Continuing Education
and Professional Studies: www.scps.nyu.edu
. Novartis - site for its "Program" product: www.programpet.com
. Association of the Bar of the City of New York: www.abcny.org
. National Multiple Sclerosis Society - general website: www.nmss.org
. Smolin Lupin, accountants: corporate Website: www.cpasmolinlupin.com
. Novartis - site for its "Sentinel" product: www.petprotect.com
. Josephthal & Co - corporate Website: www.josephthal.com
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. 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 December Quarter, SKC was
also awarded the account of the Stewart Airport, Newburgh, New York.
The Company achieved its first sale of Internet-related services to
SKC clients. The company intends to pursue other clients for additional
business. Management believes that the Internet capability of
NPIL has significantly enhanced the ability of SKC to win new business.
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,if the
third parties upon which the Company relies on 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 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
February 10, 1999 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., 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.
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
Quarter Ended December 31, 1998
The Company's revenue from its continuing operations increased 1,153%
from $56,350 for the quarter ended December 31, 1997 to $706,246 for
for the Quarter ended December 31, 1998. Revenue after cost of goods
increased from $56,350 to $315,836 an increase of 466%. The increase
in revenue is due to the increase in customers and activity of SKC and
the increase in internet related business.
The Company's operating expenses increased 18% from $249,727 to $295,354
for the quarter ended December 31, 1998 compared to the quarter ended
December 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 13% from $212,578 for the
quarter ending December 31, 1997 to $241,167 for the quarter ending
December 31, 1998. This was mainly due to the increase in staff from
the addition of SKC.
. Occupancy costs increased by 184% from $14,494 for the quarter ending
December 31, 1997 to $41,255 for the quarter ending December 31, 1998.
This was due to the additional premises for SKC.
Nine Months Ended December 31, 1998
The Company's revenue from continuing operations increased 1,683% from
$104,747 for nine months ended December 31, 1997 to $1,867,129 for the
nine months ended December 31, 1998. Revenues after cost of goods
increased from $104,747 to $762,844 an increase of 620%. The
increase in revenue is due to the increase in customers and in
internet related business.
The Company's operating expenses increased 40% from $772,000 to $1,057,607
for the nine months ended December 31, 1998 compared to the nine months
ended December 31, 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 59% from $546,092 for the
nine months ending December 31, 1997 to $870,707 for the nine months
ending December 31, 1998. This was mainly due to the increase in staff
from the addition of SKC.
Professional fees decreased 59% from $69,962 for the nine months ending
December 31, 1997 to $28,875 for the nine months ending December 31,
1998. The lower professional fees for the nine months ended
December 31, 1998 were due to reduced legal activity by the Company.
Marketing costs decrease marginally from $7,241 for the nine months
ended December 31, 1997 to $6,206 for the nine months ended
December 31, 1998.
Occupancy costs increased by 19% from $101,010 for the nine months
ending December 31, 1997 to $120,193 for the nine months ending
December 31, 1998. This was due to 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
November 14, 1998:
January 1999. Resignation of Mr. Morton Chelek from the Board of Directors
NEW PARADIGM SOFTWARE CORP. and subsidiaries
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31 December 31
1998 1998
(unaudited)
Assets
Current:
Cash and cash equivalents $ 202,030 $ 87,002
Restricted cash 9,065 -
Accounts receivable 45,993 357,435
Notes receivable, current 105,432 -
Other receivables and prepayments 12,500 81,490
--------- -----------
Total current assets 375,020 525,927
Property and equipment, less
accumulated depreciation and
amortization 127,506 113,310
Software, less accumulated
depreciation - 28,744
Goodwill - 152,381
Notes receivable from officers 117,135 120,555
Notes receivable, long term 142,007 -
--------- -----------
Total Assets $ 761,668 $ 940,971
Liabilities and Shareholders' Equity
Current:
Accounts payable and accrued
expenses $ 248,351 $ 714,251
Loan payable 30,000 58,200
--------- -----------
Total current liabilities 278,351 772,451
Redeemable Series D Preferred Stock
authorized and outstanding - 50,000
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) (9,056,312)
---------- -----------
Total Shareholders' equity $483,267 $168,416
---------- -----------
</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 Nine months Nine months
ended ended ended ended
December December December December
31, 1997 31, 1998 31, 1997 31, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Advertising and Internet
Services $ 56,350 $ 706,747 $ 104,747 $1,867,129
Cost of goods 390,410 1,114,285
--------- ------- ------- ---------
56,350 315,836 104,747 752,844
--------- ------- ------- ---------
Expenses:
General and administrative 212,578 241,167 546,092 870,707
Professional fees 2,216 - 69,962 28,875
Marketing 1,404 2,146 7,241 6,206
Occupancy 14,494 41,255 101,010 120,193
Goodwill - 2,674 - 8,022
Depreciation and
amortization 19,035 8,112 47,695 23,064
--------- ------- ------- ---------
249,727 295,354 772,000 1,057,067
--------- ------- ------- ---------
Profit (loss) from
operations (193,377) 20,482 (667,253) (304,223)
Other income (expense):
Interest income 11,235 - 23,108 2,079
Interest expense (276) (2,570)
--------- ------- ------- -------
11,235 (276) 23,108 (491)
Net profit (loss) from
continuing operations (182,142) 20,206 (644,145) (304,714)
Net loss from discontinued
operations (28,158) - (90,712) -
Loss from early repayment
of loan receivable - - - (60,000)
Net loss from sale of
Camelot Stock (341,574) - (341,574) -
Gain from sale of
EDI division - - 200,998 -
Gain from sale of COPERNICUS - - 1,183,456 -
Gain from reduction of
liability 361,999 - 361,999 -
--------- ------- ------- ----------
Net Profit (loss) $ (189,875) $ 20,206 $ 670,023 $ (364,853)
========= ======= ======= ==========
Net loss per share from
continuing operations $ (.07) $ .01 $ (.26) $ (.11)
Net loss per share from
discontinued operations (.01) - (.04) -
Loss from early repayment
of loan receivable - - - (.22)
Net loss per share from
sale of Camelot Stock (.15) - (.15) -
Income per share from sale
of EDI division - - .08 -
Income per share from sale of
COPERNICUS - - .48 -
Income per share from reduction
of liability .15 - .15 -
--------- ------- ------- -------
Net income (loss) per share $ (.08) $ .01 $ .27 $ (.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>
Nine months Nine months
ended ended
December December
31, 1997 31, 1998
(unaudited) (unaudited)
Cash flows from operating activities:
Net income (loss) $ 670,023 $ (364,853)
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization 86,514 14,196
Gain on sale of assets (1,384,455) -
Changes in assets and liabilities:
Decrease (Increase) in:
Accounts receivable (4,714) (311,442)
Other receivables and
prepayments 12,391 -
Other assets 69,817 (68,990)
Increase (decrease) in:
Accounts payable and accrued
expenses (622,260) 495,900
Deferred rent (71,127) -
----------- -----------
Total adjustments (1,913,834) 99,664
----------- -----------
Net cash used in operating
activities (1,243,811) (265,189)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (12,280) -
Loss from Camelot Stock 341,574 -
Goodwill - (152,381)
Software - (28,744)
---------- -----------
Net cash used in investing
activities: 329,294 (181,125)
Cash flows from financing activities:
Issue of shares 5 50,002
Notes Receivable (371,293) -
Increase in notesreceivable
from officers - (3,420)
Redemption of Series C Preferred
Stock (200,000) -
Proceeds from disposal of assets 2,050,000 -
Repayment of debt (550,000) -
Decrease in notes receivable - 247,439
Increase in notes payable - 28,200
----------- -----------
Net cash from financing activities 928,707 322,221
----------- -----------
Net increase (decrease) in cash and
cash equivalents 14,195 (124,093)
----------- -----------
Cash and cash equivalents,
beginning of period 328,168 211,095
----------- -----------
Cash and cash equivalents, end of
period $ 342,363 $ 87,002
----------- -----------
</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 quarters ended June 30, 1998 and September 30,
1998 together with the accompanying notes included in the Company's
10-KSB for the fiscal year ended March 31, 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: February 2, 1999 /s/ Mark Blundell________________________
Mark Blundell
President & Chief Financial Officer
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Weighted Average # of shares
Description
---------------------------------------------------------------------
10/1/98 (beginning of Quarter) 2,701,729
12/31/98 (end of Quarter) 2,701,729
----------
Weighted Average 2,701,729
__________
Net Profit 20,206
__________
Profit/share 0.01
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-30-1998
<CASH> 87,002
<SECURITIES> 0
<RECEIVABLES> 375,435
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 525,927
<PP&E> 113,310
<DEPRECIATION> 8,112
<TOTAL-ASSETS> 940,917
<CURRENT-LIABILITIES> 772,451
<BONDS> 0
0
3
<COMMON> 27,017
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 940,917
<SALES> 0
<TOTAL-REVENUES> 1,867,129
<CGS> 1,114,285
<TOTAL-COSTS> 752,844
<OTHER-EXPENSES> 1,057,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,570
<INCOME-PRETAX> (364,853)
<INCOME-TAX> 0
<INCOME-CONTINUING> (304,714)
<DISCONTINUED> 0
<EXTRAORDINARY> (60,139)
<CHANGES> 0
<NET-INCOME> (364,853)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
