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, 2000
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.
Outstanding as of November 10, 2000 Common Stock, par value $.01 per share
5,029,297
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
GENERAL
New Paradigm Software Corp. (the "Company") was organized in July 1993 and
commenced operations in November 1993. The Company completed its initial public
offering in August 1995. The Company plans to change its name to New Paradigm
Strategic Communications at its Shareholders' Meeting on November 16, 2000.
The Company is engaged in the following businesses:
- Creation of Web-based solutions and commercial Internet strategies through
its wholly owned subsidiary New Paradigm Inter-Link, Inc. ("NPIL"). NPIL began
operations in December 1995, and provides a broad range of Internet services to
corporations and other organizations.
- Advertising through its wholly owned subsidiary New Paradigm Advertising,
Inc. ("NPA"). NPA began operation in April 1998 by acquiring certain assets and
assuming certain liabilities of (1) Kapelus & Cipriano, Inc. a Harrison, New
York-based, full-service advertising agency trading as Schoen, Kapelus &
Cipriano ("SKC") and (2) Sutton & Partners, Inc. ("S&P"), a Greenwich,
Connecticut based advertising agency. The S&P transaction took place on July 1,
1999.
- Public relations through its wholly owned subsidiary, GMG Public
Relations, Inc. ("GMG"). GMG began operation in January 2000 by acquiring
certain assets and assuming certain liabilities of a company then named GMG
Public Relations, Inc. The Company acquired the right to re-name its own
subsidiary GMG Public Relations, Inc. in this transaction.
NPIL provides organizations with strategic advice on how best to utilize the
Internet to achieve their goals and creates Internet applications including Web
sites as required to implement the strategy. The Company's 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. NPIL
also services a number of clients directly, rather than through an agency. This
area of the Company's activity has recently expanded significantly. Direct
clients include:
- Guinness Stout
- Bass Ale
- National Multiple Sclerosis Society
- Association of the Bar of the City of New York
The Company intends to continue to market its Internet capabilities by acquiring
and by forming alliances with selected advertising agencies and other marketing
communications businesses that have established strategic relationships with
their clients. Advertising agencies that are partners with the Company include
Biderman Kelly Krimstein & Partners, Earle Palmer Brown New York and Solay
Keller Advertising.
Clients of the Company through these partnerships include Novartis Animal Health
(USA) and New York University School for Continuing and Professional Studies.
The Company intends to further develop this business by launching new products
and services connected with the Internet, and to continue to grow the underlying
advertising business. NPA has been successful in adding new clients in the past
twelve months. Management believes this is due to the added Internet and public
relations components it can now offer to potential NPA clients. NPA clients
include:
- Travelodge
- Scottish Tourist Board
- Beth Abraham Health Services
- Long Bay Beach
- Peter Deilmann EuropAmerica Cruises
- Focus Vision
The Company received notice that effective December 31, 2000, Travelodge will
handle its advertising business in-house. Management had projected $360,000 of
revenue for the Travelodge account with NPA in calendar year 2001.
The Company leverages its ability to provide Internet expertise and applications
to creatively meet the needs of its advertising and public relations clients,
and by supplying public relations and advertising service to its Internet and
advertising clients. For example, some GMG clients, such as Beth Abraham
Health Services, have begun to use NPA and NPIL for advertising and Internet
services.
COMPARISON OF FISCAL QUARTERS
The Company's gross revenue comprises service fees earned by the company and the
cost of advertising it places on behalf of, and bills to, its clients.
Typically, the cost of advertising represents a multiple of the fees earned by
the Company for its services. Conversely, the cost of advertising comprises
most of the Company's cost of goods sold. As a result, gross revenue and cost
of goods sold are dramatically affected by the volume of advertising placed on
behalf of clients in any given period. Management believes gross profits
provide a more accurate picture of the Company's performance net of the pass
through cost of advertising.
The Company's gross revenue decreased 14% from $1,195,201 for the quarter ended
September 30, 1999 to $1,023,112 for the quarter ended September 30, 2000 due to
a lower volume of advertising placed on behalf of clients. This decline was
partially offset by a 24% increase in fee revenues. The Company's gross revenue
increased 22% from $2,321,245 for the six months ended September 30, 1999 to
$2,831,454 for the six months ended September 30, 2000 due to a larger volume of
advertising and to a 50% increase in fee revenues.
The Company's operating expenses increased 55% from $555,519 for the quarter
ended September 30, 1999 to $858,771 for the quarter ended September 30, 2000.
The Company's operating expenses increased 45% from $1,009,949 for the six
months ended September 30, 1999 to $1,464,872 for the six months ended September
30, 2000.
The components of the operating expenses are as follows:
- General and administrative costs increased 60% from $466,541 for the
quarter ending September 30, 1999 to $747,611 for the quarter ending September
30, 2000, and 54% from $820,781 for the six months ended September 30 1999 to
$1,259,416 for the six months ended September 30, 2000, primarily due to an
increase in staffing from 20 employees at September 30, 1999 to 32 employees at
September 30, 2000. The increase in head count was required to support the
higher level of fee income in the most recent periods.
- Professional fees increased 57% from $22,533 for the quarter ending
September 30, 1999 to $35,274 for the quarter ending September 30, 2000 and
decreased 3% from $62,025 for the six months ended September 30 1999 to $60,119
for the six months ended September 30, 2000 due to the hiring of outside
consultants to improve certain aspects of the Company's operation.
- Amortization of goodwill increased 156% from $4,894 for the quarter ending
September 30, 1999 to $12,524 for the quarter ending September 30, 2000 and 137%
from $8,394 for the six months ended September 30 1999 to $19,904 for the six
months ended September 30, 2000 due to the recognition of certain components of
the SKC and S&P acquisition costs in the quarters ended June 30 and September
30, 2000. Please refer to Note 3 to the financial statements below.
- Depreciation and amortization increased 21% from $19,296 for the quarter
ending September 30, 1999 to $23,352 for the quarter ending September 30, 2000
and 8% from $38,176 for the six months ended September 30 1999 to $41,389 for
the six months ended September 30, 2000.
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 its 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 1. LEGAL PROCEEDINGS
The Company filed suit against New Era of Networks, Inc, ("Neon") and Vie
Systems, Inc. ("Vie") in the United States District Court for the Southern
District of New York, claiming more than $1,000,000 in damages, $10,000,000 in
punitive damages and the rescision of the sale of certain intellectual property
rights and patents to Vie on the Copernicus(R) product. The Company claims that
substantial royalty payments are due. The Court dismissed the Company's claim
for rescision and part of the Company's claim for punitive damages. Discovery
is proceeding on the claim for damages and the claim for punitive damages, to
the extent that it was not dismissed. Management believes that its claims have
substantial merit but that proceedings may take considerable time.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is filed with this quarterly report on Form 10-QSB:
Exhibit 27. Financial Data Schedule
(b) The following reports have been filed on Form 8-K since June 30, 2000:
None
<PAGE>
<TABLE>
<CAPTION>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,2000 September 30,2000
ASSETS (unaudited)
---------------
Current
<S> <C> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 288,467 $ 9,831
Accounts receivable. . . . . . . . . . . . . . . . 1,157,808 677,139
Prepaid expenses and other current assets. . . . . 18,176 -
Total current assets. . . . . . . . . . 1,464,451 686,970
Property and equipment, less accumulated
depreciation and amortization . . . . . . . . . . . . . 178,933 158,217
Notes receivable from Officers/Shareholders. . . . . . . 131,414 178,864
Goodwill net of accumulated depreciation . . . . . . . . 403,129 1,182,689
Security Deposit . . . . . . . . . . . . . . . . . . . . 21,000 26,162
Total current assets. . . . . . . . . . . . . . . $ 2,198,927 $ 2,232,902
LIABILITY AND SHAREHOLDERS EQUITY
Current
Accounts payable and accrued expenses. . . . . . . $ 1,748,914 $ 1,676,021
Notes payable. . . . . . . . . . . . . . . . . . . 95,000 143,637
Deferred revenue . . . . . . . . . . . . . . . . . 363,319 192,074
Total current liabilities. . . . . . . . . $ 2,207,233 $ 2,011,732
Long term
Acquisition Note Payable (Note 3) . . . . . . . . - 278,500
Commitments and contingencies
Redeemable Series D preferred stock - authorized
and outstanding - 50 shares, at redemption value . . . . - -
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 4,624,297 and
5,029,297 46,243 50,293
Additional paid-in capital . . . . . . . . . . . . . . . 9,637,962 9,931,413
Deficit. . . . . . . . . . . . . . . . . . . . . . . . . (9,692,511) (10,039,036)
Total Shareholders' deficiency . . . . . . . (8,306) (57,330)
Total liabilities and shareholder's deficiency . . . . . . $ 2,198,927 $ 2,232,902
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Three months ended
September 30,1999
(Note 2) September 30,2000
(unaudited) (unaudited)
-------------------- --------------------
REVENUES
<S> <C> <C>
Advertising and fee revenue. . . $ 1,195,201 $ 1,023,112
Cost of goods. . . . . . . . . 804,123 537,839
Gross profit . . . . . . 391,078 485,273
EXPENSES:
General and administrative . . 466,541 747,611
Professional fees. . . . . . . 22,533 35,274
Occupancy. . . . . . . . . . . 42,255 40,010
Amortization of goodwill . . . . 4,894 12,524
Depreciation and amortization. 19,296 23,352
$ 555,519 858,771
LOSS FROM OPERATIONS . . . . . . (164,441) (373,498)
OTHER INCOME (EXPENSE)
Interest and other income. . . (2,071) -
Interest expense . . . . . . . (1,662) (1,804)
Tax expense. . . . . . . . . . (430) (3,735)
(4,163) (5,539)
Net loss. . . . . . . . $ (168,604) $ (379,037)
PER SHARE DATA
Net loss per share. . . . . . (0.04) (0.08)
Weighted average common shares
Outstanding. . . . . . . . . . 3,921,029 4,752,502
</TABLE>
<TABLE>
<CAPTION>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended Six months ended
September 30,1999
(Note 2) September 30, 2000
(unaudited) (unaudited)
------------------- --------------------
REVENUES
<S> <C> <C>
Advertising and fee revenue. . . $ 2,321,245 $ 2,831,454
Cost of goods. . . . . . . . . 1,571,293 1,703,887
Gross profit . . . . . . 749,952 1,127,567
EXPENSES:
General and administrative . . 820,781 1,259,416
Professional fees. . . . . . . 62,025 60,119
Occupancy. . . . . . . . . . . 80,573 84,044
Amortization of goodwill . . . . 8,394 19,904
Depreciation and amortization. 38,176 41,389
$ 1,009,949 $ 1,464,872
LOSS FROM OPERATIONS . . . . . . (259,997) (337,305)
OTHER INCOME (EXPENSE)
Interest and other income. . . (456) (220)
Interest expense . . . . . . . (2,565) (5,265)
Tax expense. . . . . . . . . . (4,658) (3,735)
$ (7,679) $ (9,220)
Net loss. . . . . . . . $ (267,676) $ (346,525)
PER SHARE DATA
Net profit (loss) per share . (0.10) (0.07)
Weighted average common shares
Outstanding. . . . . . . . . . 2,701,729 4,708,464
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW PARADIGM SOFTWARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Six months ended
September 30,1999
(Note 2) September 30,2000
(unaudited) (unaudited)
------------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) . . . . . . . . . . . . . . . . . . . . $ (267,777) $ (346,525)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization. . . . . . . . . 46,570 61,293
Changes in assets and liabilities, net of the
effects of acquisitions:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . 139,360 498,847
Other receivables and prepayments. . . . (15,761)
Other assets. . . . . . . . . . . . . . . (249,000) (5,162)
Notes receivable. . . . . . . . . . . . . - (11,450)
Increase (decrease) in:
Accounts payable and accrued expenses . . . . (148,033) (337,358)
Prepayments. . . . . . . . . . . . . . . - -
Deferred revenue . . . . . . . . . . . . 95,724 (171,245)
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . (398,916) (311,600)
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of property & equipment . . . . . . 81,611 (20,673)
Investment in software. . . . . . . . . . . . . (98,744) -
Business acquisition, net of cash . . . . . . . (194,366)
-------------------
Net cash used in investing activities:. . . . . . (211,499) (20,673)
-------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issue of common stock. . . . . . . . . . . . . . 163,282 5,000
Proceeds of notes payable. . . . . . . . . . . . 134,951 -
Proceeds (increase in) of notes payable-
Officers . . . . . . . . . . . . . . . . . . . . (4,001) 48,637
Net cash used in financing activities . . . . . . 294,232 53,637
------------------- ------------------
Net decrease in cash and cash equivalents. . . . . (316,183) (278,636)
Cash and cash equivalents beginning
of period . . . . . . . . . . . . . . . . . . . . 339,526 288,467
Cash and cash equivalents, end of period . . . . . $ 23,343 $ 9,831
Supplemental cash flow disclosures
Issuance of common stock as consideration
for acquisition. . . . . . . . . . . . . . . . . - 385,000
Increase in accounts payable as consideration
for acquisition. . . . . . . . . . . . . . . . . - 235,500
Increase in acquisition Note Payable . . . . . . - 278,500
</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, 2000,
together with the accompanying notes included in the Company's annual; report on
Form 10-KSB for the fiscal year ended March 31, 2000, as amended. 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 comparative income statement and cash flow statement for the quarter ended
September 30, 1999 contained herein make reference to re-stated results
disclosed in the Company's annual report on Form 10-KSB for the year ended March
31, 2000, as amended, Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations, and unaudited footnote 13 to the financial
statements.
Note 3
In accordance with the terms of a certain acquisition agreement with Kapelus &
Cipriano, Inc. dated April 1, 1998, the Company was due to make certain
additional payments in cash and in shares of common stock to Kapelus & Cipriano,
Inc. based on the gross profit of NPA. By agreement dated September 26, 2000,
Kapelus & Cipriano, Inc. agreed to reduce the cash component and increase the
stock components of such payments. The Company agreed to issue 385,000 shares
of common stock valued at $292,500 and to pay $495,000. As a result, in the
quarter ended September 30, 2000, the Company booked goodwill on acquisition in
the amount of $787,500, and recorded long term note payable on acquisition in
the net amount of $232,500 and accounts payable in the amount of $262,500.
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, 2000 /s/ Mark Blundell
-------------------
Mark Blundell
President & Chief Financial Officer
