UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 0R 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANCE ACT OF 1934
For the transition period from to
------------- ----------------
Commission File Number 0-22969
Paladyne Corp.
(Name of Small Business Issurer in its charter)
Delaware 59-3562953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Paladyne Corp.
610 Crescent Executive Court, Suite 124, Lake Mary, FL 32746
(Address of Principal Executive Offices)
(407)333-2488
(Issuer's Telephone Number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Checked whether the issuer (1) filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of
December 31, 1999
Common Stock, $.001 PAR VALUE 7,401,229
Transitional Small Business
Disclosure Format (check one): Yes No X
--- ---
1
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TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheet - November 30, 1999 4
Condensed Consolidated Statements of Operations -
three months ended November 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows -
three months ended November 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2 Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports 15
SIGNATURES 14
2
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PART I.
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Condensed Consolidated Financial Statements for
the three month period ended November 30, 1999 and 1998 have been prepared by
Paladyne Corp., a Delaware Corp.. Effective March 5, 1999, Synaptx Worldwide,
Inc., a Utah Corp., merged with and into Paladyne Corp., in a migratory merger,
and Paladyne Corp. is the successor registrant pursuant to Rule 12g-3 under the
Securities Exchange Act of 1934. The financial statements in this report are of
Synaptx Worldwide Inc., for all periods through the date of the migratory
merger, and of Paladyne Corp. since that date. November 30, 1999 financial data
is for Paladyne Corp.
3
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PALADNYE CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 1999 AND 1998
NOV. 30, 1999 NOV. 30, 1998
(UNAUDITED) (UNAUDITED)
--------------- ---------------
ASSETS
Current Assets:
Cash 89,042 72,118
Accounts Receivable (net of
allowance for doubtful accounts
of $9,263 and $37,736) 626,755 1,423,095
Prepaid expenses and deposits 813 37,520
--------------- ---------------
Total Current Assets 715,620 1,532,733
Property and equipment 447,089 469,974
Less accumulated depreciation (309,195) (190,541)
--------------- ---------------
Net Property and Equipment 137,894 279,433
Costs in excess of net assets acquired -- 850,804
Other Assets 46,919 69,836
--------------- ---------------
Total Assets 900,433 2,732,806
LIABILITIES AND STOCKHOLDERS' EQUIT
Current Liabilities:
Accounts Payable 342,765 567,128
Accrued expenses and taxes 230,428 679,599
Notes payable 251,420 269,741
Current portion of long-term debt --- 147,609
Deferred revenue 144,899 85,842
--------------- ---------------
Total Current Liabilities 969,512 1,749,919
Long-term debt, net of current portion 150,000 320,901
Stockholders' (deficit) equity
Cumulative, convertible preferred stock;
$.001 par value; 10,000,000 shares
authorized, 137,143 issued and outstanding 137 137
Common stock; $.001 par value; 25,000,000
Shares authorized, 7,401,229 and
6,477,199 issued and outstanding 7,401 6,599
Additional paid in capital 5,020,313 4,548,869
Deficit (5,246,930) (3,893,619)
--------------- ---------------
Total stockholders' (deficit) equity (219,079) 661,986
--------------- ---------------
Total liabilities and stockholders' equity 900,433 2,732,806
4
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PALADYNE CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPEERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
1999 1998
(UNAUDITED) (UNAUDITED)
------------------ ---------------
Total Revenues 978,206 2,050,425
Cost of sales and revenues 757,960 1,531,876
------------- ---------------
Gross Profit 220,246 518,549
Selling, general and administrative expenses 246,601 528,708
Depreciation and amortization 10,260 46,572
------------- ---------------
Loss From Operation (36,615) (56,731)
Other (income) expense:
Interest expense 6,219 12,086
------------- ---------------
Net loss from Operations (42,835) (68,817)
Cumulative convertible preferred stock
dividend requirement 10,200 10,200
------------- ---------------
Net loss applicable to common stockholders (52,634) (79,017)
------------- ---------------
------------- ---------------
Weighted average shares outstanding 7,378,729 6,446,476
------------- ---------------
------------- ---------------
Basic and diluted net loss per share $ (.01) $ (.01)
5
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PALADYNE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
1999 1998
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities (146,274) (244,533)
Cash flows from investing activities
Additions to property, plant & equipment (9,509) (7,428)
Reductions in (additions to) other assets (1,250) 5,003
-------------- ----------
Net cash used in investing activities (10,759) (2,245)
Cash flows from financing activities
Reductions in bank lines of credit (7,820) (33,676)
Reductions in long-term debt -- (10,601)
Reductions in short-term debt -- (27,912)
Issuance of common stock 253,895 264,553
-------------- ----------
Cash provided by (used in) financing activities 246,075 192,364
Net (decrease) increase in cash 89,042 (54,414)
Cash at beginning of period -- 126,532
-------------- -----------
Cash at end of period 89,042 72,118
-------------- -----------
-------------- -----------
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL SATATEMENTS
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of results for this interim period. The accompanying financial
statements include estimated amounts and disclosures based on management's
assumptions about future events. Actual results may differ from those estimates.
The results of operations for the interim period are not necessarily indicative
of the results to be expected for the full year. Basic and diluted earnings per
share are the same due to the anti-dilutive nature of the options.
The condensed consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make information presented not misleading.
These financial statements should be read in conjunction with the financial
statements included in the Company `s Form 10-KSB for the fiscal year ended
August 31, 1999, as filed with the Securities and Exchange Commission and
available under the EDGAR reporting system or from the Company.
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. As with any new venture, concerns must be considered
in light of the normal problems, expenses and complications encountered by
entrance into established markets and the competitive environment in which the
Company operates. The financial statements do not include, nor does management
feel it necessary, any adjustments to reflect any possible future effects on the
recoverablilty and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
The Company recognizes revenue as it is earned, not necessarily when it is
billed or collected. The contractual relationship with its clients dictates the
recognition of revenue by the Company. The Company classifies any revenue billed
but not yet earned as deferred revenue on its balance sheet. As of November 30,
1999, the Company has a small balance as a result of small pre-billings to a
client for amounts to be earned over an extended period of time.
During Fiscal Year 1999, the Company changes its strategy from one of acquiring
and growing mainly distribution companies to one of building upon internal
strengths and acquiring organizations focused on developing technology that
enables the rapid development of high data integrity databases within the
customer relationship management segment. Customer relationship management in
the context of what the Company does, is broadly defined as processes that
enable companies to identify, acquire, and maintain desirable customers. This
shift is a result of what management feels is greater opportunity and a greater
opportunity to achieve profitable operations on a long-term basis.
In pursuit of this shift in strategy, the Company has discontinued its focus on
manufacturer's representative firms. The Company has either closed or sold the
five firms of this type and disclosed losses from disposal of these operations
in the August 31, 1999 10-KSB. In addition, the Company acquired Bradas in
February, 1999 as part of its strategic plan to enter into the above mentioned
markets.
7
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NOTE 2. PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company. The Company has no active subsidiaries as of September 1, 1999.
NOTE 3. PRIVATE PLACEMENTS
On August 19, 1999 the Board of Directors authorized a private placement of up
to $400,000 priced at $0.50 per unit, with a unit consisting of one share of the
Company's Common Stock and a callable stock warrant to purchase the Company's
Common Stock at $1.00 per share but callable at $0.05 per share if the closing
trading price of the Company's Common Stock closes at or above $2.00 per share
for sixty consecutive trading days when 25,000 shares trade. The period of this
offering extended through September 30, 1999. This offering resulted in proceeds
of $125,000, for which 250,000 units were issued, through August 31, 1999, and
an additional $287,000 and 574,000 units subsequent to year-end 1999, for a
total of $412,000 and 824,000 units being issued in total. Of the $412,000
raised, $187,000 was invested by Management and Directors of the Company.
NOTE 4. DISCONTINUED OPERATONS
After evaluating the Company's sales representative subsidiaries and their
relation to the overall strategic direction of the Company, given the change to
a customer relationship management, database driven strategy, the Board of
Directors made the decision to discontinue the sales representative line of
business in the third quarter of fiscal 1999. Prior to this decision in the
third quarter of fiscal 1999, the Company had already disposed of two divisions
that were under performing. The disposition of discontinued operations which
were written off if fiscal 1999 are discussed and the financial impact are shown
in the Company's August 31, 1999 year-end 10-KSB.
NOTE 5. DEFERRED REVENUE
The Company recognizes revenue as it is earned. The earning of revenue may trail
the billing based on contractual relationships with clients. As of November 30,
1999 the Company has approximately $144,899 in deferred revenue primarily due to
two projects that have provided for significant pre-billings for work to be done
in the future. The work to be completed is all short term in nature.
NOTE 6. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest was approximately $6,219 for the three-month period ended
November 30, 1999 consistent with the level of debt of the Company. For the
three months ended November 30, 1999, the Company recognized depreciation and
amortization of $10,260.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Paladyne Corp. (the "Company") provides software products and ancillary services
that enable companies to quickly build databases with high data integrity, thus
cutting long implementation times and eliminating the risk of building the
database with poor quality data. Paladyne data quality solutions and services
support desktop marketers and developers of data warehouses and data marts.
Paladyne software is based on an open, multi-tiered, cross-platform
architecture. The Company intends to build its business through internal growth
as well as seek acquisitions of existing companies. The Company has no
agreements or understandings regarding possible future acquisitions. The
Company's fiscal year ends August 31.
The Company's financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. As with any new venture, concerns must be
considered in light of the normal problems, expenses and complications
encountered by entrance into established markets and the competitive environment
in which the Company operates. The financial statements do not include, nor does
management feel it necessary, any adjustments to reflect any possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible inability of the
Company to continue as a going concern.
During Fiscal Year 1999, the Company changed its strategy from one of acquiring
and growing mainly distribution companies to one of building upon internal
strengths and acquiring organizations focused on developing technology that
enables the rapid development of high data integrity databases within the
customer relationship management segment. Customer relationship management in
the context of what the Company does, is broadly defined as processes that
enable companies to identify, acquire, and maintain desirable customers. This
shift is a result of what management feels is greater opportunity and a greater
opportunity to achieve profitable operations on a long-term basis.
In pursuit of this shift in strategy, the Company has discontinued its focus on
manufacturer's representative firms. The Company has either closed or sold the
five firms of this type and disclosed losses from disposal of these operations
in the August 31, 1999 10-KSB. In addition, the Company acquired Bradas in
February, 1999 as part of its strategic plan to enter into the above mentioned
markets.
9
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RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to the total revenues
of principal items contained in the Company's Condensed Consolidated Statements
of Operations for the three months ended November 30, 1999 and 1998,
respectively. The percentages discussed throughout this analysis are stated on
an approximate basis.
Three Months Ended
November 30
1999 1998
-------------------------
(UNAUDITED)
Net sales and revenues --------------------------- 100% 100%
Cost of sales ------------------------------------ 77% 75%
------- --------
Gross Profit (loss) ------------------------------ 23% 25%
Selling, general and administrative expenses ----- 26% 27%
------- --------
Operating
(loss) income ------------------------------------ (4%) (2%)
Interest expense --------------------------------- 1% 1%
------- -------
Net (loss) income ------------------------------- (5%) (3%)
NET SALES AND REVENUES
- ---------------------------------------
For the period ended November 30, 1999 gross revenues decreased by $1,072,219.
In 1999, the Company discontinued and sold all its business ventures except
those related to software databases which is the focus of the current business
structure. For the period ended November 30, 1998 these discontinued and sold
business generated $818,871 in revenue leaving software and databases revenue at
818,871. For the period ended November 30, 1999, software and databases
generated revenue of $978,206 representing almost a 17% increase in same product
revenues for the corresponding comparative quarters.
COST OF SALES
- -----------------------
Cost of sales has remained stable as a percentage of sales representing the
margins that are consistent with the strategic focus of the Company. The is no
logical comparison the first quarter of 1998 as the Company was engaged
primarily in varied business activities that do not lend themselves to separate
accounting for cost of sales.
10
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GROSS PROFIT
- --------------------
Gross profit was 23% and 25% respectively for 1999 and 1998. This decrease in
gross profit was expected due to the startup nature of the software and database
services where large investments are needed in manpower and equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------------------------------------------------
Selling, general and administrative expenses, including depreciation and
amortization, decreased as a percentage of sales from 27% in the first quarter
of 1998 to 26% in the first quarter of 1999 representing the Company's effort to
streamline the operations. The Company has closed its Elgin, IL office in
November 1999 and moved all administrative functions to its Lake Mary, FL
Corporate Offices. Management expects this positive trend to continue.
INTEREST EXPENSE
- ----------------------------
The reduction is interest expense in 1999 from 1998 is can be attributed to the
selling of ORAYCOM. The buyer of ORAYCOM assumed the open line of credit as part
of the disposition.
NET OPERATING LOSS
- --------------------------------
The Company has accumulated a significant net operating loss carry forwards as
of November 30, 1999, which may be offset against taxable income and income
taxes in future years. The use of these losses to reduce future income taxes
will depend on the generation of sufficient taxable income prior to the
expiration of the net operating loss carry forwards. The carry forwards expire
at various dates through 2019. No tax benefit has been reported in the financial
statements for the three months ended November 30, 1999 because there is a 50%
chance or greater that the carry forward will not be utilized. Accordingly, the
potential tax benefit of the loss carry forward is offset by a valuation
allowance of the same manner.
11
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LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------------------------------
The Company's principal cash requirements are for operating expenses, including
employee costs, outside consultants such as independent contractors who provide
database and professional marketing and sales consulting services, funding of
accounts receivable, capital expenditures and funding of the operations in
Chantilly, VA. The Company's primary sources of cash have been from private
placements of the Company's common stock, a bank line of credit, and cash
derived from operations. The Company is investigating various sources for
additional financing, principally additional equity placements. There is no
assurance that the Company will consummate any additional financing or that any
additional financing will not be dilutive to stockholders.
In April 1999, the Company entered into an expanded credit facility providing a
line of credit up to $250,000 at a rate of prime plus 1 1/4% and renewable six
months from the date of the original agreement. The line of credit has been
extended to December 31, 1999 and the Company is negotiating for an increase in
this line of credit and an extension through fiscal year 2000. Management
believes there a few barriers to achieving this objective. Management believes
that internal cash flow, the expanded credit facility and possible private
equity infusions should be adequate to meet the Company's capital needs for the
next twelve months.
YEAR 2000 ISSUE
- ------------------------
The Company evaluated all its computer systems in the later half of 1999. It was
determined and reported in the August 31, 1999 10-KSB that the Company believed
that the computer systems utilized were Y2K compliant. There have been no known
Y2K problems as of January 10, 2000 and management believes that none will be
encountered.
INFLATION
- ---------------
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
RISK FACTORS AND CAUTIONARY STATEMENTS
- ---------------------------------------------------------------------
Forward-looking statements in this report are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The Company
wishes to advise readers that actual results may differ substantially from such
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its debt obligations and to
provide for working capital needs from operating revenue, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
12
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company was granted a judgment against a customer for non-payment for
services performed. The Company continues to pursue collection of the judgment.
Although the Company has been granted a judgment for the amount due, the
ultimate collectibility of this amount is unknown at this time, therefore the
Company has fully reserved the entire amount as uncollectable at November 30,
1999. In November 1999, the Company terminated its relationship with its Vice
President of Sales. Subsequent to this termination, the employee has filed a
lawsuit in the Superior Court of Fulton County, in the State of Georgia,
claiming additional compensation is warranted, seeking payment of $178,750. The
Company does not agree with the assertion and intends to vigorously defend
itself against this claim. No reserve has been accrued in these financial
statements as the Company believes there is no merit to the claim.
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the three months ended November 30, 1999, the Company engaged in
private placements of its securities described in Note 3 to the
Condensed Consolidated Financial Statements elsewhere in this filing.
These placements were claimed exempt from the registration requirements
of the Securities Act of 1933 by reason of Section 4 (2) thereof.
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
Exhibit 27 - Financial Data Schedule
13
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PALADYNE CORP.
Date: January 14, 2000 By /s/ Ronald L. Weindruch
---------------------------------
Ronald L. Weindruch
President, Chief executive Officer
Date: January 14, 2000 By /s/ Joseph H. Landis
-------------------------------
Joseph H. Landis
Vice President - Controller
14
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EXHIBIT INDEX
------------------------
Exhibit Description
- ---------- ---------------
27 Financial Data Schedule
15
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM PALADYNE
CORP. FORM 10-QSB FOR THE PERIOD ENDED NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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