UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
------
FOR THE FISCAL YEAR ENDED AUGUST 31, 1999
______ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 0-22969
Paladyne Corp.
(Name of Small Business Issuer in its charter)
Delaware 59-3562953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
610 Crescent Executive Court, Suite 124, Lake Mary, FL 32746
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (407) 333-2488
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
under 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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation SB contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. Yes X No
--- ---
State the issuer's revenue for its most recent fiscal year:$4,365,852
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock as of December 10, 1999: $10,412,490
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
- --------------------------------------------------------------------------------
Outstanding as of
Class December 10, 1999
- --------------------------------------------------------------------------------
Common Stock, par value $.001 per share 7,356,229
- --------------------------------------------------------------------------------
Documents Incorporated by Reference: None
Transitional Small business Disclosure Format. Yes No X
--- ---
<PAGE>
PALADYNE CORP.
FORM 10-KSB
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Description of Business........................................... 3
ITEM 2. Description of Property........................................... 8
ITEM 3. Legal Proceedings................................................. 9
ITEM 4. Submission of Matters to a Vote of Security
Holders........................................................... 9
PART II
ITEM 5. Market for Common Equity and Other Shareholder
Matters........................................................... 9
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 12
ITEM 7. Financial Statements. ............................................ 13
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 44
PART III
ITEM 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section
16(a) of the Exchange Act..........................................45
ITEM 10. Executive Compensation.............................................47
ITEM 11. Security Ownership of Certain Beneficial
Owners and Management..............................................50
ITEM 12. Certain Relationships and Related Transactions.....................52
PART IV
ITEM 13. Exhibits and Reports on Form 8-K...................................54
Signatures...................................................................56
<PAGE>
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 or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its debt obligations, to
provide working capital needs from operating revenues, to obtain additional
financing needed for any future acquisitions, and other risks detailed in the
Company's periodic report filings with the Securities and Exchange Commission.
ITEM 1.
The following information relates to Paladyne Corp., a Delaware corporation. On
March 5, 1999, the Company merged with and into Paladyne Corp., its wholly owned
subsidiary, in a migratory merger, and Paladyne Corp. is the successor Company.
The purpose of the merger was simply to change the name of the Company and
re-incorporate the Company in Delaware to utilize more favorable corporate
taxation regulations. 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.
DESCRIPTION OF BUSINESS
Paladyne Corporation (the "Company") through its operating subsidiaries provides
seamless data integration and data quality software and services that enable its
customers to carryout customer-centric mailing, marketing and e-commerce
initiatives. The company also provides the database-related services of customer
identification, customer and prospect database development and management, data
integration and marketing campaign management.
Currently, the Company provides these services by engaging subcontractors to
perform the bulk of the activity, but management has undertaken an initiative to
build these capabilities internally via the acquisition of "Bradas", a company
formed to develop database software tools. In February, 1999, the Company agreed
to purchase the intellectual property of Bradas, including the initial framework
of what has become the Datagration e-Business Suite, a collection of software
tools that enable clients to effectively and efficiently build high data quality
databases, for 60,000 shares of common stock, 45,000 of which have been issued
at a value of approximately $49,000 and 15,000 shares of common stock and
400,000 stock warrants that will be issued based on the attainment of certain
predefined milestones. Additionally, the Company agreed to assume approximately
<PAGE>
$32,000 of debt incurred by Bradas' founder in the initial stages of creating
this tool. The Company agreed to fund the completion of the product including
providing necessary funding for both equipment and personnel to complete the
product and maintain and upgrade it.
The Company intends to build its business through internal growth as well as
seek acquisitions, should opportunities become available, of existing companies.
Except for the acquisition consummated, as described above, the Company has no
agreements or understandings regarding possible future acquisitions. The
Company's fiscal year ends August 31.
HISTORY
The predecessor Company was incorporated on June 25, 1981 under the laws of the
State of Utah and initially engaged in the acquisition and development of
mineral resource prospects. The predecessor Company subsequently ceased its
operations and became inactive for several years. In 1995, the predecessor
Company began to actively investigate and seek mergers with or acquisitions of
operating businesses.
On February 10, 1997, the predecessor Company entered into a merger agreement
(the "Merger") with Worldwide Applied Telecom Technology, Inc., a Delaware
corporation, ("WWATT"). As a result of the Merger, WWATT was merged with and
into the predecessor Company with the predecessor Company being the surviving
corporation, and the predecessor Company changed its corporate name to Synaptx
Worldwide, Inc. For accounting purposes, the transaction has been treated as a
recapitalization of WWATT, or a reverse merger, with WWATT being treated as the
acquirer.
Effective March 5, 1999, Synaptx Worldwide, Inc., a Utah Corporation, merged
with and into Paladyne Corp., in a migratory merger, and Paladyne Corp. is the
surviving Company.
In fiscal year 1998, the Company changed its strategy from one of acquiring and
growing mainly distribution companies to one of developing, both through
internal creation or through outsource arrangements, the database services
described above. This shift is a result of what Management feels is a greater
opportunity and a greater chance of achieving profitable operations on a
long-term basis.
The prior strategy was to initially build a nationwide sales force that would be
in place to support the products manufactured by the companies the Company hoped
to someday acquire. In support of that strategy, the Company acquired three
manufacturers' representative companies, and opened and staffed an additional
two offices, all between June 1997 and June 1998. Due to the underperformance of
these companies as a whole, and the shift in business focus and strategy, all of
the Company's manufacturers' representative companies discontinued operations
<PAGE>
and were sold in fiscal 1999. A summary of these transactions, from a
chronological standpoint is below.
Wholly-Owned Acquired/ Disposed/
Subsidiaries Opened Closed
------------ -------- ---------
ORAYCOM June, 1997 November, 1998
WG Controls January, 1998 May, 1999
Primus Marketing June, 1998 May, 1999
Offices Opened
--------------
dba Advantage
Technologies October, 1997 November, 1998
dba Patterson
Communications January, 1998 July, 1999
Throughout financial presentations and discussions in this document, the results
of these businesses are reflected as discontinued operations in accordance with
generally accepted accounting principles.
The Company's principal executive offices were moved in October, 1999 to 610
Crescent Executive Court, Suite 124, Lake Mary, FL 32746 and its telephone
number is (407) 333-2488.
PRODUCTS AND SERVICES:
The Company's products and services fulfill the data integration and data
quality needs of clients in the Telecommunications, Direct Marketing, Internet,
Cable TV and Utility industries. The Company currently offers these services via
subcontractor arrangements with third party vendors. As described above, the
Company is developing these capabilities internally, and plans to be offering
the internally generated product in fiscal 2000.
The Company's software product under development, the Datagration e-Business
Suite, is a component-based data integration and data quality solution built
upon an open, multi-tiered, cross platform architecture. Other significant
services being offered are outsourced marketing and prospecting database
development and management, and customer identification and householding. These
services enable clients to more effectively find new and retain existing
customers.
BUSINESS DEVELOPMENT AND STRATEGY:
Through the development of its internal capabilities to service its clients'
database needs, Paladyne's vision is to help businesses fully realize the
financial rewards of e-commerce by providing enterprise class web-enabled
e-business solutions. Management believes the Company will achieve this vision
by becoming a leading provider of e-business software and services that enable
the enterprise to achieve true customer-centric data integration and data
quality over the Internet.
<PAGE>
The Company intends to fulfill its mission by solving data integration and data
quality business problems initially within the Telecommunications and Direct
Marketing industries. While the Company currently does provide this, it is
provided via outsource arrangements with third party vendors.
The telecommunications ("telco") industry has grown from a regulated,
monopolistic environment to a government-mandated, competitive environment. As a
result of its regulated history, the Telco Industry is by nature a
network-centric industry since the regulatory environment previously rewarded
high quality universal service. The network providers are, out of necessity,
beginning the movement from a network to a customer focus.
Management believes the market for both network and customer management software
and services will grow tremendously over the next several years as a result of
this shift to a customer-centric industry. In that same period, Management
expects the market for the software and services subset to grow
disproportionately faster. The intended focus will be on developing software and
services that enable the client to correctly identify its customers across the
enterprise and enhance the value of the services the client offers, identify,
target, and acquire prospective customers for the client's services, and
ultimately retain desirable customers of that service.
The Direct Marketing Industry, and more specifically the potential of one-to-one
relationship selling, has grown extraordinarily fast with the general market
acceptance of the Internet as a means to obtain products and services. Direct
marketers must integrate data from disparate sources to complete transactions,
produce contact and mailing lists and build customer and prospect databases. In
addition to managing traditional internal and external data sources, direct
marketers must now obtain and exchange data via the Internet.
STRATEGIC ALLIANCE
Strategic Alliance: Direct Services, Inc.
The Company has formed a strategic alliance with Direct Services, Inc. of
Miramar, Florida ("DSI"). DSI is currently the key provider of database analysis
services provided by the Company. Though not currently supported by a long-term
contract, the companies worked together throughout fiscal years 1998 and 1999 to
provide these services and are working toward formalization of the relationship.
This vendor represented approximately 61% and 29% of cost of service revenues
for fiscal 1999 and 1998 respectively. The Company hopes to become less
dependent on this supplier as it develops its own internal capabilities. Should
this relationship terminate, management believes that such services can be
readily obtained from other sources as well as provided internally with minimal
interruption in service at a similar cost.
<PAGE>
POTENTIAL NEW ACQUISITIONS AND PRODUCT LINES
The above are the stated future goals of the Company, and the existing
subsidiaries and strategic relationships in place to pursue those goals.
However, there can be no assurance that the Company will ever achieve its
expressed goals.
The Company intends to investigate, should opportunities arise, strategic
acquisitions that fit its long-term objectives as financing and business
conditions warrant, although there can be no assurance that the Company will be
able to finalize any future acquisitions. The Company anticipates making future
acquisitions by primarily using its capital stock, employing tax-free exchanges
for the stock of the to-be-acquired companies. If necessary, the Company plans
to finance or seek outside financing for potential requirements of cash.
Although the Company occasionally explores additional acquisition opportunities,
the Company has no agreements regarding such possible future acquisitions. There
can be no assurances that financing for any future acquisitions will be
available on terms acceptable to the Company or at all, or that any future
acquisitions will be consummated.
SALES AND MARKETING
The Company markets and sells its products and services through its professional
employees. All the Company's contractual services and sales relationships are
sold by its professional staff based on past and ongoing relationships with
purchasing decision-makers who normally work in the marketing and sales and
information technologies organizations of clients. These long-term relationships
within the Telecommunications and Direct Marketing industries are the basis for
past and future business.
COMPETITION
The industries to which the Company currently offers and intends to offer its
products and services are highly competitive and characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions, and rapid changes in customer requirements. The Company's
competitors will vary from market to market depending upon what companies and
technologies are acquired. Principal competitive factors affecting the market
for products and services include product reputation, quality, performance,
price, professional service, and customer support. Features such as
adaptability, scalability, ability to integrate with other products,
functionality, and ease of use are key product differentiators.
EMPLOYEES
As of December 10, 1999, the Company employed 25 individuals, consisting of 5
executives, 19 professionals and sales representatives, and 1 office staff
personnel. In addition to its full-time employees, the Company uses the services
<PAGE>
of certain outsourced professionals on an as-needed basis. Management presently
anticipates hiring additional employees as business conditions warrant and as
funds become available.
INDUSTRY SEGMENTS
The Company operates in one business segment which is providing software and
services enabling customer-centric data integration and data quality supported
by software development and database, consulting and sales services.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices were moved effective December 1, 1998
to 615 Crescent Executive Court, Suite 128, Lake Mary, FL 32746. Subsequently,
the space was expanded within the same office park to 610 Crescent Executive
Court, Suite 124. The current lease, the term of which extends for three years,
covers approximately 1,640 square feet at an approximate annual rental rate of
$35,000.
The Company maintains its software and services development center in suburban
Washington D.C., located at 14100 Parke Long Court, Suite H, Chantilly, VA
20151. The lease covers approximately 3,100 square feet of space. The lease
extends for 39 months, from March, 1999 to May, 2002. Monthly rents start at
$3,645 and have a fixed escalation of approximately three and one-half percent
(3.5%) per year on each anniversary date of the lease. On a straight-line basis,
the monthly cost of the lease is approximately $3,900.
The Company also maintains an office in suburban Chicago at 168 E. Highland Ave,
Suite 300, Elgin, IL 60120. The lease covers approximately 19,760 square feet of
space. The lease extends for seven years, from January, 1998 to December, 2004.
Monthly rents start at $10,597 and have a fixed escalation of approximately
three and one-half percent (3.5%) per year on each anniversary date of the
lease. On a straight-line basis, the monthly cost of the lease is approximately
$12,000. The minimum future lease payments on this space are approximately
$775,000 through the end of the lease term.
In November, 1999 the Company shifted corporate administrative functions to
Florida. As a result, the Company anticipates vacating its Elgin, IL office in
fiscal 2000. Management believes there will be minimal cost to vacate this
space, primarily related to the write-off of unamortized leasehold improvements.
In anticipation of this loss, the leasehold improvements have been fully
amortized as of August 31, 1999, resulting in a write off of approximately
$39,000.
The Company believes its current premises are adequate for current purposes and
if necessary would be able to obtain alternative or additional space.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of Fiscal 1999.
PART II
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND OTHER RELATED SHAREHOLDER MATTERS
The Company's Common Stock has been traded on a limited basis in the
over-the-counter market and quotations are published on the OTC Bulletin Board
under the symbol "PLDY", and in the National Quotation Bureau, Inc. "pink
sheets" under Paladyne Corp. Prior to the migratory merger discussed previously,
these identifying marks were "SYTX" and Synaptx Worldwide, Inc.
The following table sets forth the range of high and low bid prices of the
Common Stock for each fiscal quarterly period. Prices reported represent prices
between dealers, do not include retail markups, markdowns or commissions and do
not represent actual transactions.
Fiscal Year
1999 1998
---- ----
High Low High Low
---- --- ---- ---
First Quarter $2.75 $0.88 $5.00 $2.50
Second Quarter $2.00 $0.88 $3.00 $1.50
Third Quarter $1.13 $0.31 $3.00 $2.00
Fourth Quarter $0.97 $0.25 $3.00 $2.00
(The price information above was obtained from an independent quotation
service).
There is no active secondary market for the Company's stock options or stock
warrants.
The ability of individual shareholders to trade their shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to register its
securities in any particular state. Further, most likely the Company's shares
will be subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
<PAGE>
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer's net tangible assets; or exempted from the definition by the Commission.
If the Company's shares are deemed to be a penny stock, trading in the shares
will be subject to additional sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors, generally persons with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's Common stock and may affect the
ability of shareholders to sell their shares.
As of December 10, 1999 there were 163 holders of record of the Company's Common
Stock. This amount does not take into account those shareholders whose
certificates are held in the name of broker-dealers or otherwise in street or
nominee name.
Any shares issued on or after March 12, 1997 and/or presently held by affiliates
or controlling shareholders of the Company may be sold pursuant to Rule 144,
subject to the volume and other limitations set forth under Rule 144. In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, including any person who may be deemed to be an
"affiliate" of the Company (as the term "affiliate" is defined under the Act),
<PAGE>
is entitled to sell, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's Common Stock during the four calendar weeks preceding such sale or
(ii) 1% of the shares then outstanding. A person who is not deemed to be an
"affiliate" of the Company and who has held restricted shares for at least three
years would be entitled to sell such shares without regard to the resale
limitations of Rule 144.
DIVIDEND POLICY
The Company has not declared or paid cash dividends or made distributions in the
past, and the Company does not anticipate that it will pay cash dividends or
make distributions in the foreseeable future, other than preferred dividends
described below. The Company currently intends to retain and invest future
earnings to finance its operations.
As part of the acquisition of WG Controls in January, 1998, the Company issued
Series A Preferred Stock which provides for annual dividends of $0.2975 per
share or $40,800 per year. If the Company's profits are insufficient to pay such
dividends, they will be cumulative and accrued for payment when Company profits
are adequate to fund payment. Accordingly, the Company must meet this obligation
before any dividends can be declared for the benefit of Common Stock
shareholders.
TRANSFER AGENT
The Company has designated American Stock Transfer and Trust, 40 Wall Street,
New York, NY, 10005 as its transfer
agent.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-KSB.
RESULTS OF OPERATIONS
The following selected financial information has been derived from the Company's
consolidated financial statements. The information set forth below is not
necessarily indicative of results of future operations and should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-KSB.
The following table sets forth the percentage relationships to net sales and
revenues of principal items contained in the Company's Consolidated Statements
of Operations for the two fiscal years ended August 31, 1999 and 1998. The
percentages discussed throughout this analysis are stated on an approximate
basis. Results for both periods presented have been restated to reflect all
disposed of businesses as discontinued operations consistent with the discussion
throughout this report.
Fiscal Years Ended
August 31,
1999 1998
---- ----
Net Service Revenues 100.0% 100.0%
Cost of Service Revenues 79.5% 79.1%
------ ------
Gross Profit 20.5% 20.9%
Selling, general and
administrative expenses 36.6% 76.8%
------ -----
Operating loss (16.1%) (55.9%)
Interest expense (1.4%) (1.5%)
------ ------
Net loss from continuing operations (17.5%) (57.4%)
Net loss from discontinued operations (13.9%) (25.5%)
Net Loss (31.4%) (82.9%)
======= =======
Year Ended August 31, 1999 Compared to Year Ended August 31, 1998
The Company's net service revenues increased by $588,655 or 15.6%, from
$3,777,196 for the fiscal year ended August 31, 1998 ("1998") to $4,365,852 for
the fiscal year ended August 31, 1999 ("1999"). The increase was reflective of
the Company's expanding database capabilities.
One multi - divisional customer in the telecommunications industry accounted for
approximately 87% of sales in the year ended August 31, 1999. Receivables from
this customer represented approximately 94% of total receivables at August 31,
1999. The same customer represented 28% of sales in the year ended August 31,
1998. Receivables from this customer represented approximately 4% of total
receivables at August 31, 1998.
<PAGE>
Cost of service revenues increased by $481,161 in 1999, or 16.1%, from
$2,991,425 in 1998 to $3,472,586 in 1999. This increase is consistent with the
increase in revenues and is mainly attributable to staffing of personnel in the
Company's Database Software and Services center outside Washington, D.C.
The Company is highly reliant on one vendor who performs the bulk of the work
related to database processing activities the Company performs for its clients.
While the Company does intend to develop the capabilities internally to offset
some of the dependence on this vendor, there will be significant need for the
services of this vendor going forward. This vendor represented approximately 61%
and 29% of cost of service revenues for fiscal 1999 and 1998 respectively.
The Company's gross profit margin, was 20.5% and 20.9% for 1999 and 1998,
respectively.
Selling, General and Administrative expenses ("SG&A"), including depreciation
and amortization, decreased by $1,302,749 in 1999 or 44.9%, from $2,899,218 in
1998 to $1,596,469 in 1999. The decrease was primarily related to a write-off in
1998 of goodwill related to the Company's marketing communications subsidiary,
Synaptx Impulse, Inc., of $1,092,894 was non-recurring in 1999.
In fiscal 1999, the Company discontinued its operations of manufacturers'
representative companies. The following table sets forth the results of
operations from these operations in fiscal 1999 and 1998.
1999 1998
---- ----
Sales $ 2,346,053 $ 2,020,988
Cost of sales 1,723,867 1,795,924
--------- ---------
Gross margin 622,186 225,064
General and administrative
expenses 551,829 1,187,250
------- ---------
Income (loss) from operations 70,357 (962,186)
Loss on disposal 675,194 -
------- ----------
Net Loss on discontinued
operations (604,837) (962,186)
========= =========
The results of these operations have been reflected as discontinued operations
throughout this report in accordance with generally accepted accounting
principles.
The increase in gross margin percentage in 1999 is due to the Company closing
the operations of Oraycom and Advantage Technologies in the first quarter
of 1999. These firms historically operated at negative gross margin.
General and Administrative expenses decreased primarily because of
non-recurring amortization of goodwill related to Oraycom that was written off
in Fiscal 1998 and fewer months of Rep firm operations in 1999. (See
"Description of Business - History)
Net interest expense increased from $55,560 in 1998 to $61,454 for 1999. The
increase of approximately $6,000 is consistent with higher average borrowings
throughout the current year.
<PAGE>
NET OPERATING LOSSES
The Company has accumulated approximately $2,400,000 of net operating loss
carryforwards as of August 31, 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 carryforwards. The carryforwards expire
through the year 2019. In the event of certain changes in control of the
Company, there will be an annual limitation on the amount of net operating loss
carryforwards which can be used. No tax benefit has been reported in the
financial statements for the years ended August 31, 1999 or 1998 because there
is a 50% or greater chance that the carryforward will not be utilized.
Accordingly, the potential tax benefit of the loss carryforward is offset by a
valuation allowance of the same amount.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing, raise additional equity capital, and
attain profitable operations. In addition, the Company's ability to continue as
a going concern must be considered in light of the problems, expenses and
complications frequently encountered by entrance into established markets and
the competitive environment in which the Company operates. Management believes
that sufficient capital resources will be generated from operations, equity
investment and refinancing of outstanding debt to provide necessary working
capital for fiscal year 2000. The report of the Company's Independent Certified
Public Accountants' includes an explanatory paragraph expressing substantial
doubt regarding the Company's ability to continue as a going concern.
The Company's principal cash requirements are for software development, selling,
general and administrative expenses, outside consultants such as independent
contractors who provide database services, employee costs, funding of accounts
receivable, capital expenditures and funding of acquisitions. The Company's
primary sources of cash have been from private placements of the Company's
Common Stock which raised $1,128,147 of net proceeds in the year ended August
31, 1998, and $476,555 in the current year, plus cash derived from operations.
The Company is investigating various sources for additional financing, including
both equity infusion and debt facility arrangements, though no representation is
made as to the Company's ability to secure either.
For the year ended August 31, 1999, cash decreased from $126,532 at the
beginning of the year to $0 at the end of the year. Net cash used in operating
activities was $529,856 due to the net loss of approximately $1,369,000 and a
net decrease in non-cash working capital items of approximately $175,000, offset
<PAGE>
by non-cash depreciation and amortization expenses of approximately $209,000,
the non-cash loss on discontinued operations of approximately $675,000, and the
non-cash impact of stock options and warrants issued to outside parties for
services of approximately $130,000.
Net cash provided by investing activities in Fiscal 1999 was $53,332
attributable to net cash raised from asset dispositions of approximately
$100,000, and reductions in other assets of approximately $76,000, offset by
fixed asset additions of approximately $122,000.
Net cash provided by financing activities in Fiscal 1999 was $349,992 due
primarily to net proceeds from stock issuance of approximately $482,000 and
additions to short term debt of approximately $19,000, offset by reductions in
bank lines of credit of approximately $42,000 and reductions to long term debt
of approximately $109,000.
In the year ended August 31, 1999, the Company sold 520,538 shares of its Common
Stock via private placements, resulting in net proceeds of $476,555. The
exercise of outstanding options and warrants during the current fiscal year
resulted in net proceeds to the Company of $5,500. Total cash therefore raised
as a result of the issuance of Common Stock was $482,055.
For the year ended August 31, 1998, cash increased from $58,265 at the beginning
of the year to $126,532 at the end of the year. Net cash used in operations was
$1,015,637 attributable to the net loss of $3,131,193, a decrease in accounts
payable of $210,993, and a decrease in deferred revenue of $264,273, offset by
non-cash expense items (depreciation, amortization and goodwill impairment) of
$2,054,418, a decrease in accounts receivable of $356,742, a decrease in other
current assets of $25,284, and an increase in accrued expenses of $154,378.
Net cash used in investing activities in Fiscal 1998 was $341,490, attributable
to net fixed asset additions of $124,114, additions to other assets of $828, and
cash paid for acquisitions of $216,548.
Net cash provided by financing activities in Fiscal 1998 was $1,425,394
attributable to the issuance of Common Stock of $1,184,021, increases in
short-term and long-term debt of $51,316 and $182,123, respectively, and an
increase in bank lines of credit of $7,934.
In the year ended August 31, 1998, the Company sold 590,016 shares of its Common
Stock via private placements, resulting in net proceeds of $1,128,147. The
exercise of outstanding options and warrants during the current fiscal year
resulted in net proceeds to the Company of $32,755. Additionally, vendors
accepted shares of Common Stock and stock options in lieu of cash totaling
$20,755, warrants valued at $2,500 were issued as interest to a short term
<PAGE>
lender, and preferred shares with a par value of $137 were issued in relation to
the WG acquisition. Total cash therefore, raised as a result of the issuance of
stock was $1,184,021.
The Company has a revolving line-of-credit with a bank with maximum available
borrowings of $250,000, due to expire December 31, 1999. The Company intends to
refinance this debt prior to its due date. Borrowings under the line-of-credit
and the outstanding principal and interest on the note are collateralized by
substantially all of the Company's assets and bear interest at the prime rate
(currently 8.25%) plus 1 1/4%. The line-of-credit is further secured by a
personal commercial guaranty of the Company's Chairman and CEO.
The Company also has a note payable to the Chairman and CEO of the Company (see
Note 11 to the financial statements in Part II, Item 7). This balance due on the
note is $150,000 as of the report date and bears interest at 12%.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This standard
establishes accounting and reporting standards for derivative instruments and
for hedging contracts. This standard is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. When the Company adopts this
statement, it is not expected to have a material impact on the Company's
financial statements or their presentation.
YEAR 2000 ISSUE
The "Year 2000 Issue" is whether the Company's computer systems will properly
recognize date sensitive information when the year changes to 2000, or "00."
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company has conducted reviews of its
computer systems and its purchased software programs (including accounting
software) and does not believe the Year 2000 Issue will pose any significant
operational problems for its systems or software or any significant costs to the
Company.
In addition, the Company intends to make similar reviews of the systems of
potential acquisition candidates for any financial or operational impact the
Year 2000 Issue may pose.
INFLATION
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
ITEM 7. FINANCIAL STATEMENTS
<PAGE>
The consolidated financial statements for Paladyne Corp. and subsidiaries for
the fiscal years ended August 31, 1999 and 1998 have been audited to the extent
indicated in their report (which contains an explanatory paragraph regarding the
Company's ability to continue as a going concern and an emphasis of a matter
paragraph regarding the Company's reliance on a significant customer and a
significant vendor) by BDO Seidman, LLP, independent certified public
accountants', and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein in response to Item 7
of this Form 10-KSB.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
To the Board of Directors
Paladyne Corp.
Lake Mary, Florida
We have audited the accompanying consolidated balance sheets of
Paladyne Corp. and subsidiaries as of August 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 12, 87% of the Company's sales in the year ended
August 31, 1999 are concentrated in one customer. In addition, the Company is
highly reliant on one vendor who performs the bulk of the work related to data
processing activities of the Company's clients. This vendor represented
approximately 61% of cost of service revenues in the year ended August 31, 1999.
The loss of either this customer or this vendor could have a material adverse
effect on the Company's financial condition and results of operations.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Paladyne Corp. and subsidiaries at August 31, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
<PAGE>
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficit and a stockholders' deficit. In addition, the
Company's line of credit agreement expires on December 31, 1999. The Company
does not have the ability to pay such debt should the lender demand payment.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Chicago, Illinois
October 15, 1999
<PAGE>
PALADYNE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
1999 1998
---- ----
ASSETS
CURRENT ASSETS
Cash $ - $ 126,532
Accounts receivable (net of allowance
for doubtful accounts of $9,263 and
$37,736) 392,933 918,785
Prepaid expenses and deposits 32,641 44,861
---------- ----------
Total current assets 425,574 1,090,178
PROPERTY AND EQUIPMENT 429,420 462,725
Less accumulated depreciation (301,035) (162,045)
---------- ----------
Net property and equipment 128,385 300,680
COSTS IN EXCESS OF NET ASSETS ACQUIRED
(net of accumulated amortization of
$4,333 and $1,878,834) 77,367 868,881
OTHER ASSETS 45,669 96,839
---------- ----------
TOTAL ASSETS $ 676,995 $ 2,356,578
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 330,516 $ 490,726
Accrued expenses 278,137 438,737
Notes payable 243,600 303,417
Current portion of long-term debt - 175,521
Deferred revenue 95,700 150,427
----------- ----------
Total current liabilities 947,953 1,558,828
LONG-TERM DEBT, NET OF CURRENT PORTION 150,000 331,502
COMMITMENTS - -
STOCKHOLDERS' EQUITY (DEFICIT)
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,
6,782,229 and 6,378,503
issued and outstanding 6,783 6,379
Additional paid in capital 4,766,418 4,284,534
Deficit (5,194,296) (3,824,802)
----------- ----------
Total stockholders' equity (deficit) (420,958) 466,248
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 676,995 $ 2,356,578
=========== ==========
See accompanying summary of accounting policies and notes to consolidated
financial statements
<PAGE>
PALADYNE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
1999 1998
---- ----
Service revenues $ 4,365,852 $ 3,777,196
Cost of service revenues 3,472,586 2,991,425
---------- -----------
Gross profit 893,266 785,771
Selling, general and administrative expenses 1,429,376 1,633,341
Depreciation and amortization 167,093 1,265,877
---------- -----------
Loss from operations (703,203) (2,113,447)
Interest expense 61,454 55,560
---------- -----------
Net loss from continuing operations (764,657) (2,169,007)
Discontinued operations
Income (loss) from operations of sales
representative subsidiaries 70,357 (962,186)
Loss on disposal (675,194) -
--------- ----------
Loss from discontinued operations (604,837) (962,186)
---------- -----------
Net loss (1,369,494) $ (3,131,193)
Cumulative convertible preferred stock
dividend requirements 40,800 27,200
---------- ------------
Net loss applicable to common
shareholders $(1,410,294) $(3,158,393)
=========== ============
Weighted average shares outstanding 6,555,056 5,559,297
=========== =============
Basic and diluted net loss per share -
Continuing operations $ (0.13) $ (0.40)
=========== ===========
Basic and diluted net loss per share -
Discontinued operations $ (0.09) $ (0.17)
=========== ===========
Basic and diluted net loss per share $ (0.22) $ (0.57)
=========== ===========
See accompanying summary of accounting policies and notes to consolidated
financial statements
<PAGE>
PALADYNE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED AUGUST 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
Par Par Paid-in Accumulated
Shares Value Shares Value Capital Deficit Total
------ ----- ------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, AUGUST 31, 1997 5,193,660 $ 5,194 - $ - $2,052,977 $(693,609) $1,364,562
=
Shares issued for business
acquisitions 537,501 537 137,143 137 1,048,048 1,048,722
Warrants exercised 31,012 31 14,058 14,089
Options exercised 20,544 21 18,645 18,666
Vendor settlements for stock 5,770 6 10,014 10,020
Vendor settlements for options 10,735 10,735
Warrants issued to lender 2,500 2,500
Private placement sales, net 590,016 590 1,127,557 1,128,147
NET LOSS FOR THE YEAR ($3,131,193) (3,131,193)
------------------------------------------------------------------------------------------------
BALANCES, AUGUST 31, 1998 6,378,503 $6,379 137,143 $137 $4,284,534 ($3,824,802) $466,248
Shares retired in business
dispositions (187,143) (187) (159,992) (160,179)
Options exercised 55,581 56 5,444 5,500
Noteholder settlement for stock 15,050 15 30,085 30,100
Warrants issued as compensation 130,312 130,312
Private placement sales, net 520,238 520 476,035 476,555
NET LOSS FOR THE YEAR (1,369,494) ( 1,369,494)
------------------------------------------------------------------------------------------------
BALANCES, AUGUST 31, 1999 6,782,229 $6,783 137,143 $137 4,766,418 ($5,194,296) $(420,958)
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
<PAGE>
PALADYNE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
Cash flows from operating activities
<S> <C> <C>
Net loss $ (1,369,494) $ (3,131,193)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation 161,535 98,288
Goodwill amortization 47,390 228,514
Loss on disposal of discontinued operations 675,194 -
Non-cash warrants and options issued 130,312 -
Impairment of goodwill - 1,520,948
Non-compete agreement amortization - 206,668
Changes in assets and liabilities net of
assets and liabilities acquired and
disposed of:
Decrease in accounts receivable 109,764 356,742
Increase in other current assets 174,095 25,284
Decrease in accounts payable (160,210) (210,993)
(Decrease) increase in accrued expenses (243,715) 154,378
Decrease in deferred revenue (54,727) (264,273)
---------------- ----------
Net cash used in operating
activities (529,856) (1,015,637)
Cash flows from investing activities
Additions to property, plant and equipment (121,916) (124,114)
Cash paid for business acquisitions - (216,548)
Cash received from business disposals (net) 99,078 -
Reductions in (additions to) other assets 76,170 (828)
------------ ----------
Net cash provided by (used in) investing
activities 53,332 (341,490)
Cash flows from financing activities
Reductions in bank lines of credit (41,899) 7,934
(Reductions in) additions to long-term debt-net (109,158) 182,123
Additions to short-term debt 18,994 51,316
Proceeds from issuance of common stock-net 482,055 1,184,021
------------ -----------
Cash provided by financing activities 349,992 1,425,394
------------ -----------
Net (decrease) increase in cash (126,532) 68,267
Cash at beginning of year 126,532 58,265
------------ ------------
Cash at end of year $ - $ 126,532
=========== ============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
<PAGE>
PALADYNE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
OPERATIONS
Paladyne Corp.,(the "Company"), is a holding company incorporated in the
State of Delaware. The Company has four wholly owned subsidiaries, Synaptx
Access, Inc. ("Access"), which was incorporated in Florida, Synaptx
Impulse, Inc. ("Impulse"), which was incorporated in Illinois, WG Controls,
Inc. ("WG") which was incorporated in Illinois, and Primus Marketing
Associates, Inc. ("Primus") which was incorporated in Minnesota. (See Note
2 for a complete discussion of business acquisitions and dispositions).
These subsidiary entities are inactive. The Company previously had a fifth
wholly owned subsidiary, ORAYCOM, Inc., a Texas Corporation, but this
company was disposed of in November 1998. The Company operates in one
business segment which is providing software and services enabling
customer-centric data integration and data quality supported by software
development and database, consulting and sales services. The Company's
primary offices are in Lake Mary, Florida. It also has operations in
Chantilly, VA and Elgin, IL. Its customers are located throughout the
continental United States.
BASIS OF REPORTING
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.
The Company has experienced recurring losses from operations as a result of
its investment in personnel necessary to achieve its operating plan which
is long-range in nature. For the years ending August 31, 1999, 1998 and
1997 the Company realized net losses of $1,369,494, $3,131,193, and,
602,555 respectively. At August 31, 1999, the Company has a working capital
deficit of $522,379 and a stockholders' equity (deficit) of ($420,958). In
addition the Company's line of credit agreement expires on December 31,
1999.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing and attain profitable operations. In
addition, the Company's ability to continue as a going concern must be
considered in light of the problems, expenses and complications frequently
encountered by entrance into established markets and the competitive
environment in which the Company operates.
<PAGE>
Although the Company recently completed an additional private placement,
raising in excess of $400,000, ($125,000, for which 250,000 shares of
Common Stock were issued, through August 31, 1999, and an additional
$287,000 and 574,000 shares subsequent to year-end, for a total of $412,000
and 824,000 shares being issued in total), and has refinanced existing debt
and is continually pursuing additional refinancing outstanding debt at more
favorable terms, there can be no assurance that the Company will be able to
secure financing when needed or obtain such terms satisfactory to the
Company, if at all, or raise additional private placement investment.
Failure to secure such financing or to raise additional private placement
investment may result in the Company rapidly depleting its available funds
and not being able to comply with its payment obligations under its bank
loans. In addition, if the Company is unable to meet its obligations under
its credit agreements, such creditors shall have the right to foreclose on
the assets of the Company, which will be prior to the interests of the
holders of Common Stock.
In fiscal year 1998, the Company changed its strategy from one of acquiring
and growing mainly manufacturers representative organizations to one of
developing, both through internal creation or through outsource
arrangements, the database services described above. This shift is a result
of what Management feels is a greater opportunity and a greater chance of
achieving profitable operations on a long-term basis.
The prior strategy was to initially build a nationwide sales force that
would be in place to support the products manufactured by the companies the
Company hoped to someday acquire. In support of that strategy, the Company
acquired three manufacturers' representative companies, and opened and
staffed an additional two offices, all between June 1997 and June 1998. Due
to the underperformance of these companies as a whole, and the shift in
business focus and strategy, all of the wholly-owned subsidiaries were
sold, and the two offices opened by the Company were closed, all in fiscal
1999. The results of operations of these businesses have been treated as
discontinued operations in the Company's financial statements. (See Note
15).
The financial statements do not include any adjustments to reflect the
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.
<PAGE>
RECLASSIFICATION OF PREVIOUS FINANCIAL STATEMENTS
Certain amounts in the 1998 financial statements were reclassified to
conform to the 1999 presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Upon consolidation, significant
intercompany accounts, transactions and profits are eliminated.
REVENUE RECOGNITION
Professional fees, made up primarily of database service revenues,
represent the principal sources of revenue of the Company. Revenues are
recognized when fees are earned based on work performed.
DEFERRED REVENUE
The Company often receives prepayments for professional services to be
rendered. This revenue is deferred and as the services are provided, a
proportionate share of the deferred revenue is recognized as income.
PROPERTY AND EQUIPMENT; DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost and depreciated over their
estimated useful lives of three to five years using the straight-line
method.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired ("goodwill") resulting from the
acquisitions of Impulse, ORAYCOM, WG, and Primus was being amortized on the
straight line method over 10 years, but was fully amortized upon the
dispositions of these subsidiaries.
It is the Company's policy to periodically evaluate the carrying value of
its operating assets, including goodwill, and to recognize impairments when
the estimated future net operating cash flows to be generated from the use
of the assets are less than their carrying value. The Company measures
impairment using a number of factors, which include the future business
outlook, turnover of key personnel and estimated future discounted cash
flows. In fiscal 1998, goodwill related to the purchases of ORAYCOM and
Impulse was fully written off as these assets were deemed to have been
permanently impaired. In fiscal year 1999, remaining goodwill related to
the purchases of Primus, and WG Controls, was fully written off as these
<PAGE>
businesses were sold off as part of the Company's strategic refocusing.
Additional goodwill was created in fiscal 1999 as a result of the purchase
of intellectual property from Bradas. (See Note 2).
INCOME TAXES
Paladyne Corp. is a "C" Corporation as are all of its wholly owned
subsidiaries. A deferred tax asset was created as a result of the estimated
future tax consequences of temporary differences between the financial
statement and tax basis of assets given the provisions of the enacted tax
laws. (See Note 5). The Company records a valuation allowance when
management determines it is more likely than not that the net deferred tax
asset will not be realized.
ESTIMATES
The accompanying financial statements include estimated amounts and
disclosures based on management's assumptions about future events. Actual
results may differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This
standard establishes accounting and reporting standards for derivative
instruments and for hedging contracts. This standard is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. When the
Company adopts this statement, it is not expected to have a material impact
on the Company's financial statements or their presentation.
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of temporary cash investments
and accounts receivable. The Company invests its temporary cash balances in
financial instruments of highly rated financial institutions with
maturities of less than three months.
The carrying values reflected in the balance sheets reasonably approximate
the fair values for cash, accounts receivable, payables and debt.
NET LOSS PER SHARE
In Fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement No.
<PAGE>
128 replaces the previously reported primary and fully-diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options and convertible securities. Diluted earnings per share is computed
similarly to fully diluted earnings per share. All earnings per share
amounts for all periods presented have been restated to conform to the
requirements of Statement No. 128.
Basic and diluted net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding, after giving
effect to the stock dividend described below. Outstanding Common Stock
options, warrants and shares of Common Stock issuable upon the conversion
of preferred stock have been excluded from the computation as their effect
would be anti-dilutive.
BUSINESS MERGER
On March 5, 1999, the Company merged with and into Paladyne Corp., its
wholly owned subsidiary, in a migratory merger, and Paladyne Corp. is the
successor Company. The purpose of the merger was simply to change the name
of the Company and re-incorporate the Company in Delaware to utilize more
favorable corporate taxation regulations.
NOTE 2. BUSINESS COMBINATIONS AND DISPOSITIONS
IMPULSE
On October 1, 1996, the Company acquired all of the existing outstanding
Common Stock of Impulse in exchange for 759,401 shares of its Common Stock,
valued at $690,000. The acquisition was accounted for using the purchase
method of accounting. Impulse was primarily engaged in marketing to the
telecommunications and information industries.
See Note 14 for discussion of the Company's decision in 1998 to write off
the remaining goodwill related to the purchase of Impulse, totaling
$1,092,894, as it was deemed to have been permanently impaired in
compliance with Statement of Financial Accounting Standards No. 121. The
Company still maintains ownership of this subsidiary.
ORAYCOM
On June 1, 1997, the Company exchanged 142,858 shares of its Common Stock,
valued at $500,000, for all of the existing outstanding Common Stock of
ORAYCOM. In addition, the Company paid $65,625 of additional consideration
as additional compensation for meeting specified revenue and earnings
targets. The acquisition was accounted for using the purchase method of
<PAGE>
accounting. The results of operations of ORAYCOM are included in the
accompanying financial statements for the three months from June 1, 1997 to
August 31, 1997 for the fiscal year ended August 31, 1997.
Subsequent to the close of business on November 30, 1998, the Company sold
all the capital stock in ORAYCOM, Inc. ("ORAYCOM") to O. Ray Strickland and
O. Ray Strickland IRA, (collectively, the "Strickland Group"). Mr.
Strickland was an employee of the Company and the General Manager of
ORAYCOM. He was the sole shareholder of ORAYCOM when the Company acquired
it from him in June, 1997. The agreement called for Strickland Group to
convey to the Company, 80,000 shares of the Company's Common Stock, valued
at $120,000, in exchange for all of the issued and outstanding shares of
ORAYCOM and waiver of the non-compete agreement in place with Mr.
Strickland. As a result, the Company took a charge in the fourth quarter of
fiscal 1998 of $428,054 to write off the remaining balance of the goodwill
related to the purchase of ORAYCOM. Upon closing, the Company recognized a
gain on the transaction of $63,501 in fiscal 1999.
WG CONTROLS, INC.
On January 1 1998, the Company acquired WG Controls, Inc., a sales
representative firm based in Arlington Heights, Illinois. WG was acquired
for 285,715 shares of the Company's $ .001 par value Common Stock, 137,143
shares of the Company's $ .001, Series A, cumulative convertible preferred
stock and $270,000 in cash payable as follows: $125,000 on the first
anniversary date of the Agreement, $125,000 on the second anniversary date
of the Agreement, and $20,000 on the third anniversary date of the
Agreement, for a total purchase price of $896,628. Additionally, on
closing, the Agreement called for the payment of $250,000 to key employees
related to noncompetition agreements.
The Series A Preferred Stock paid at closing provides for annual dividends
of $0.2975 per share or $40,800 per year. If the Company's profits are
insufficient to pay such dividends, they will be cumulative and accrued for
payment when Company profits are adequate to fund payment. The conversion
provision on the preferred stock calls for each of the 137,143 preferred
shares to be converted into .67361 shares of the Company's Common Stock or
92,381 shares of Common Stock when the Company's Common Stock achieves an
average closing price of $5.25 per share for a consecutive 60 day trading
period.
On May 31, 1999, the Company closed an agreement to sell the assets of WG
Controls, Inc. to the management of WG. The terms of the transaction were
<PAGE>
$250,000 in cash, $25,000 in a long-term note receivable, and the
assumption of approximately $196,000 in debt. The total sale price was
approximately $471,000. The Company recognized a loss on the transaction of
approximately $427,000 which included the write-off of approximately
$624,000 of goodwill related to the acquisition of WG in January, 1998.
PRIMUS MARKETING ASSOCIATES, INC.
On June 1, 1998, the Company acquired Primus Marketing Associates, Inc., a
sales representative firm based in Minnetonka, Minnesota for 214,286 shares
of the Company's $.001 par value Common Stock valued at $321,429. Primus is
a sales representative firm that provides field sales and business
development support for specified product lines and/or territories for
clients under contract who include cable TV and telecommunications (both
voice and data networking) original equipment manufacturers, Commonly
referred to as OEMs, located primarily in the north central section of the
United States.
Effective May 31, 1999 the Company sold the assets of Primus to the
management of Primus. The terms of the transaction were $12,500 in cash,
the return of 107,143 shares of the Company's stock, valued at $40,179, and
a 1% override on commission receipts for a period of twenty four months
following the transaction. The total sale price was approximately $53,000.
The Company recognized a loss on the transaction of approximately $311,000
which included the write-off of approximately $176,000 of goodwill related
to the acquisition of Primus in June, 1998.
The financial statements of all periods presented include the operations of
these disposed of operations as discontinued operations in accordance with
generally accepted accounting principles.
The following summarizes the financial implications in 1999 of the
subsidiaries disposed of:
<TABLE>
<CAPTION>
ORAYCOM WG Primus Total
<S> <C> <C> <C> <C>
Stock redeemed $ 120,000 - $ 40,179 $160,179
Cash(paid)received (922)- $ 100,000 - 99,078
Note receivable - 175,000 12,500 187,500
Debt assumed - 195,764 - 195,764
Net assets
disposed of (55,577) (249,120) (187,192) (491,889)
Goodwill written off - (623,556) (176,436) (799,992)
---------- --------- --------- ----------
Gain (loss) on
disposal $ 63,501 $(401,912) $(310,949) $(649,360)
========== ========== ========== ==========
Additional amortization of non
compete agreements (25,834)
Net loss on disposal of sales rep companies $(675,194)
==========
</TABLE>
<PAGE>
Additionally, goodwill was written off related to ORAYCOM in fiscal 1998 of
$428,054 as it was deemed to have been permanently impaired as of that
date.
BRADAS
In February, 1999, the Company agreed to purchase intellectual property,
including the initial framework of what has become the Datagration
e-Business Suite, from Bradas, Inc. for 60,000 shares of common stock,
45,000 of which have been issued with a value of approximately $49,000 and
15,000 shares of common stock and 400,000 stock warrants that will be
issued based on the attainment of certain predefined milestones.
Additionally, the Company agreed to assume approximately $32,000 of debt
incurred by the founder of Bradas in the initial stages of creating this
tool. The Company agreed to fund the completion of the product including
providing necessary funding for both equipment and personnel to complete
the product and maintain and upgrade it. Management estimates that beyond
what has been spent in 1999, an additional $200,000 in costs will be
incurred to complete the first release of the product.
NOTE 3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
1999 1998
---- ----
Leasehold improvements $ 51,182 $ 58,598
Furniture and fixtures 98,994 187,126
Computer equipment 279,244 176,819
Automobiles - 40,183
---------- ----------
429,420 462,726
Less accumulated depreciation 301,035 162,046
---------- ----------
Net property and equipment $ 128,385 $ 300,680
========== ==========
<PAGE>
NOTE 4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
Description % Rate Payment Terms 1999 1998
- ----------- ------ ------------- ---- ----
<S> <C> <C> <C> <C>
Line of Varies Due on demand $243,600 $250,000
Credit or Dec 31,1999,
see (a) below
WG Acquisition Imputed Various, see -0- 249,021
Debt @ 8.75% Note 2
Shareholder & Various See Note 11 150,000 210,100
Employee Loans
Term note 10.79 Due October 30, -0- 26,107
1998, see (a) below
Line of 13.25 Due on demand, see -0- 18,218
Credit (b) below
Line of 17.90 Due on demand, see -0- 9,092
Credit (b) below
Term notes & Various Various -0- 47,902
------- ------
Capital leases
Total 393,600 810,440
Less current maturities 243,600 478,938
------- -------
Long-term portion $150,000 $331,502
======== ========
</TABLE>
(a) The notes payable consist of borrowings under a revolving line-of-credit
and, in fiscal 1998, a term note as well. The lender for both the line of
credit and the term note in fiscal 1998 was fully paid off and a new
lender was secured in 1999. Both notes due to the original bank are fully
released. The note previously bore interest at prime plus approximately 3
percentage points. The current line bears interest at prime rate,
currently 8.25%, plus 1 1/4 %.
(b)The notes payable also consisted of unsecured borrowings under
revolving lines-of-credit with banks which were assumed when ORAYCOM and
Primus were acquired. The existing balance on the ORAYCOM line was assumed
by the buyer of ORAYCOM. The balance on the Primus line was paid off prior
to the sale of the Primus division.
NOTE 5. INCOME TAXES
The following table sets forth the approximate deferred tax assets and
liabilities resulting from temporary differences between the financial
reporting and tax bases of assets and liabilities:
1999 1998
---- ----
Net operating loss carryforwards $ 960,000 $ 770,000
Valuation allowance for deferred
tax asset (960,000) (770,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
<PAGE>
As of August 31, 1999, the Company has a net operating loss carryforward
of approximately $2,400,000 which may be used to reduce taxable income and
income taxes in future years. The primary difference between tax and book
reporting is non-deductible goodwill amortization. The carryforwards
expire at various dates through 2019.
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company sponsors a qualified employee savings plan for all eligible
employees, commonly referred to as a 401-K plan. Participants may make
contributions from their gross pay (limited to 15% of the employee's
compensation, as defined), with the Company matching such contributions
(subject to certain limitations) at the rate of 25% of the first 6% of
each participant's contribution.
Employer matching contributions to the plan were approximately $8,000 and
$18,000 for the years ended August 31, 1999 and 1998, respectively.
NOTE 7. LEASE OBLIGATIONS
The Company leases office space, equipment, and vehicles under operating
leases which expire at various dates. As of August 31, 1999, the Company's
future minimum lease payments under operating leases are as follows:
Year ending August 31, Amount
------
2000 $ 235,163
2001 225,412
2002 219,391
2003 188,049
2004 155,384
2005 and beyond 52,165
-----------
Total minimum rent commitments $ 1,075,564
===========
Total rental expense for the Company's facilities and equipment was
approximately $231,000 and $324,000 for the years ended August 31, 1999
and 1998, respectively. While the Company anticipates closing its Elgin,
IL office, Management believes there will no material impact to the
Company as a result of such a move.
NOTE 8. PRIVATE PLACEMENTS
On October 2, 1997, the Company sold 15,000 shares to an employee of the
Company for $2.00 per share, realizing total proceeds of $30,000. This
sale was outside of any of the formal private placements with the price
being determined as the market price of the shares as of that point in
time.
<PAGE>
On October 22, 1997, the Board of Directors authorized a private placement
of up to $2,000,000 in either shares of the Company's Common Stock at
$2.30 per share or of units at $3.00 per unit consisting of one share of
the Company's Common Stock and a warrant to purchase an additional share
of the Company's Common Stock at $2.30 per share with an exercisable life
of five years. This offering resulted in proceeds of $119,900 for which
43,000 shares of Common Stock were issued. On May 14, 1998, in conjunction
with the offering of Common Stock at $1.75, as described below, the Board
of Directors approved an option whereby these investors could convert
their investment as if they had subscribed for Common Stock at $1.75 per
share, including conversion of their warrants. All the investors elected
to do so, and as a result, the Company issued 25,516 more shares of Common
Stock, bringing the total Common Stock under this offering to 68,516
shares.
On May 14, 1998 the Board of Directors approved an additional private
placement of up to $1,050,000 in shares Company's Common Stock at $1.75
per share. This offering resulted in proceeds of $230,125 for which
131,500 shares of Common Stock were issued.
On June 18, 1998 the Board of Directors authorized a private placement of
up to $2,275,000 originally priced at $2.00 per share but subsequently
re-priced to $1.75 per share, in units (minimum subscription 50,000 units)
consisting of one share of the Company's Common Stock and a callable stock
warrant to purchase the Company's Common Stock at $3.00 per share but
callable at $0.25 per share if the closing trading price of the Company's
Common Stock closes at or above $4.50 per share for ten consecutive
trading days. The period of this offering extended through September 20,
1998 and was subsequently extended by the Board of Directors until
December 1, 1998 with the President of the Company authorized to extend
this offer for 30 more days or to December 31, 1998. This offering
resulted in proceeds of $1,040,000, for which 594,581 units were issued.
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
<PAGE>
which 250,000 units were issued, through August 31, 1999, and an
additional $287,000 and 574,000 units subsequent to year-end, 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 9. STOCK INCENTIVE PLAN
The Company has a stock incentive plan (the "Plan") adopted by the
shareholders on March 3, 1999 as part of the conversion to Paladyne that
replaced the Company's previous 1996 Stock Option Plan as amended. The
Plan authorizes the issuance of up to 2,500,000 shares of common stock.
The Plan provides for the issuance of both qualified and nonqualified
incentive stock options at an exercise price approximating the fair market
value, defined as the average bid and ask price over the prior five days'
trading in which at least 1,000 shares have traded, of the Company's stock
at the date of grant (or 110% of such fair market value in the case of
substantial stockholders). Options generally vest over two years, with
one-third being vested immediately, one-third vesting on the one year
anniversary of the issuance, and the final one-third vesting on the two
year anniversary date of the issuance. The maximum life of the options is
five years in the case of qualified incentive stock options and ten years
in the case of non-qualified incentive stock options.
A total of 2,500,000 shares of the Company's Common Stock have been
reserved pursuant to the Plan. As of August 31, 1999, 2,194,357 options
are outstanding: 2,099,342 shares issued inside the Plan, and 95,015
shares issued outside the Plan. As of August 31, 1999, 607,862 shares are
exercisable.
Transactions during the fiscal years ended August 31, 1998 and 1999 are
summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Price per Weighted Weighted
Shares Share Average Average
Price per Remaining
Share Life
-Years
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding as of
August 31, 1997 328,055 $ .09- $ 0.93 2.07
$ 2.18
Granted 1,469,500 $2.35- $ 2.80 3.91
$ 3.70
Exercised (20,544) $ .91 $ 0.91
Cancelled (99,223) $ .91- $ 2.32
---------
$3.36
Outstanding as of
August 31, 1998 1,677,788 $.09-3.70 $ 2.49 3.65
---------
Granted 1,604,750 $ .38- $ .73 4.16
$ 1.85
Exercised (55,581) $.09 -.91 $ 0.10
Cancelled (1,032,600) $ .91- $2.60
------------
$3.36
Outstanding as of
August 31, 1999 2,194,357 $.09- $ 1.21 3.73
=========
$3.70
Exercisable as of
August 31, 1998 571,021 $ 2.16 3.19
=======
Exercisable as of
August 31, 1999 607,862 $ 2.08 2.82
=======
</TABLE>
In July and October 1996, the Company granted nonqualified options
(included above), outside the Plan, to purchase 33,018 and 55,030 shares
of Common Stock at prices of $.91 and $.09, respectively. Options to
purchase 16,509 and 55,030 of these shares at $.91 and $.09, respectively,
have been exercised. The remaining 16,509 have expired as of the date of
this filing.
Additionally, in October, 1998 the Board of Directors converted all
options held by the former CFO of the Company, totaling 78,506 shares, to
be fully vested and to be options outside the plan as part of a severance
arrangement. These options were priced from $0.91 - $3.36 per share. These
options remain outstanding.
In May, 1998, the Company granted nonqualified options to purchase 675,000
and 37,500 shares of Common Stock, to officers and Directors of the
Company, outside the Plan. These options were priced between $2.55 and
$2.81. In June, 1999, these options were recalled and retired.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, in accounting for options granted
to employees. Under APB Opinion No. 25, because the exercise price of the
options equals the market price of the underlying stock on the measurement
date, no compensation expense is recognized.
The weighted-average grant-date fair value of stock options granted to
<PAGE>
employees and directors during the year and the weighted-average
significant assumptions used to determine those fair values, using a
modified Black-Scholes option pricing model, and the pro forma effect on
earnings of the fair value accounting for employee stock options under
Statement of Financial Accounting Standards No. 123 are as follows:
1999 1998
---- ----
Grant-date fair value per share $ 0.93 $ 1.05
Significant assumptions (weighted-average):
Risk-free interest rate at
grant date 5.01% 5.61%
Expected stock price
volatility 80.00% 40.00%
Expected dividend payout - -
Expected option life-years(a) 2.9 4.20
Net loss:
As reported $(1,369,493) $(3,131,193)
Pro forma $(2,033,318) $(4,613,333)
Net loss per share:
As reported $ (0.22) $(0.57)
Pro forma $ (0.31) $(0.83)
(a) The expected option life is based on the exercise of options by their
contractual expiration dates assuming that all options are so exercised
since the Company has no historical option exercise patterns on which to
base an alternative scenario.
In addition to the options described above, the Company has issued
warrants in conjunction with private placements, private placement
support, and acquisitions, a summary of which is below:
<TABLE>
<CAPTION>
Number of Price per Weighted Weighted
Shares Share Average Average
Price per Remaining
Share Life
-Years
<S> <C> <C> <C> <C>
Outstanding as of
August 31, 1997 200,006 $0.45-1.36 $ .84 2.44
Granted 900,000 $1.75-4.00 $2.93
Exercised (31,012) $0.45-0.91 $ .45
Cancelled - - -
-------
Outstanding as of
August 31, 1998 1,068,994 $0.45-4.00 $2.62 4.22
---------
Granted 863,365 $1.00-3.00 $1.51
Exercised - - -
Cancelled - - -
-------
Outstanding as of
August 31, 1999 1,932,359 $0.45-4.00 $2.18 4.48
=========
Exercisable as of
August 31, 1998 1,068,994 $2.62 4.22
=========
Exercisable as of
August 31, 1999 1,932,359 $2.18 4.48
=========
</TABLE>
<PAGE>
In Fiscal 1999, the Company recognized expense related to the granting of
stock options and warrants to non-employees and non-directors. These
options and warrants were granted in lieu of cash compensation for
services performed. These options and warrants were valued using a
Black-Scholes pricing model. The amount of the expense was $130,312.
NOTE 10. EMPLOYMENT AGREEMENTS
The Company has employment agreements with two employees. The aggregate
commitment for future salaries, excluding bonuses, under these employment
agreements is approximately $185,000. The following amounts apply to each
of the fiscal years ending August 31, as follows: 2000-$147,292,
2001-$37,500. These agreements shall be automatically renewed for
successive one-year terms unless canceled by either party at least 30 days
prior to the current term's expiration. The agreements also contain
severance provisions ranging from six months and up to three years in case
of early termination without cause.
NOTE 11. RELATED PARTY TRANSACTIONS
During the fiscal year ended August 31, 1998, various related parties
advanced the Company funds to meet cash flow needs. These advances ranged
in term from one month to two years and bore interest rates ranging from
10% - 12%. Total funds advanced totaled $265,100, of which $210,100 was
outstanding as of August 31, 1998. In fiscal 1999, an additional $60,000
net, was paid off, leaving a balance due of $150,000 as of August 31,
1999. This amount is entirely due to a trust controlled by the Chairman
and CEO of the Company, bears interest at 12% per annum, and is due June
30, 2001.
A company controlled by a former officer and director served as the
primary contractor for the leasehold improvements on the new office space
located in Elgin, Illinois. Materials and labor for services totaled
approximately $31,000 of which $4,320 was paid by issuance of 2,470 shares
of the Company's Common Stock and the remainder in cash.
<PAGE>
NOTE 12. SIGNIFICANT CUSTOMERS AND VENDORS
One multi - divisional customer in the telecommunications industry
accounted for approximately 87% and 28% of sales in the years ended August
31, 1999 and 1998, respectively. Receivables from this customer
represented approximately 94% and 4% of total receivables at August 31,
1999 and 1998, respectively.
The Company is highly reliant on one vendor who performs the bulk of the
work related to database processing activities the Company performs for
its clients. While the Company does intend to develop the capabilities
internally to offset some of the dependence on this vendor, there will be
significant need for the services of this vendor going forward. This
vendor represented approximately 61% and 29% of cost of service revenues
for fiscal 1999 and 1998 respectively.
NOTE 13. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for interest was approximately $72,400 and
$42,300 for the years ended August 31, 1999 and 1998, respectively.
During fiscal year 1999, the Company disposed of all the assets of WG
Controls, Primus Marketing Associates, and ORAYCOM. The following
summarizes the financial implications in 1999 of the subsidiaries disposed
of:
<TABLE>
<CAPTION>
ORAYCOM WG Primus Total
<S> <C> <C> <C> <C>
Stock redeemed $ 120,000 - $ 40,179 $160,179
Cash(paid)received (922) $ 100,000 - 99,078
Note receivable - 175,000 12,500 187,500
Debt assumed - 195,764 - 195,764
Net assets
disposed of (55,577) (249,120) (187,192) (491,889)
Goodwill written off - (623,556) (176,436) (799,992)
---------- --------- --------- ----------
Gain (loss) on
disposal $ 63,501 $(401,912) $(310,949) $(649,360)
========= ========= ========= =========
Additional amortization of non
compete agreements (25,834)
Net loss on disposal of sales rep companies $(675,194)
=========
</TABLE>
Additionally, goodwill was written off related to ORAYCOM in fiscal 1998
of $428,054 as it was deemed to have been permanently impaired as of that
date.
In February, 1999, the Company agreed to purchase intellectual property,
<PAGE>
including the initial framework of what has become the Datagration
e-Business Suite, from Bradas for 60,000 shares of common stock, 45,000 of
which have been issued valued at approximately $49,000, and 15,000 shares
of common stock and 400,000 stock warrants that will be issued based on
the attainment of certain predefined milestones. Additionally, the Company
agreed to assume approximately $32,000 of debt incurred by Bradas' founder
in the initial stages of creating this tool. The Company agreed to fund
the completion of the product including providing necessary funding for
both equipment and personnel to complete the product and maintain and
upgrade it. The Company has accrued expenses related to the issuance of
stock that has been earned of approximately $82,000 and has an offsetting
intangible asset on its records as of August 31, 1999.
During fiscal 1999 the Company retired a note payable to a former employee
of the Company in the amount of $30,100 by issuing 15,050 shares of its
common stock.
During fiscal 1998, the Company purchased all of the capital stock of WG
Controls, Inc., and Primus Marketing Associates, Inc. for $896,628 and
$321,429, respectively. Additionally, 37,500 shares of Common Stock were
issued as a result of additional earn-out related to a previous purchase.
In conjunction with the acquisitions, liabilities assumed were as follows:
Fair Value of assets acquired $ 1,550,866
Cash paid for acquisitions (216,548)
Notes payable issued (234,960)
Value of stock issued (983,097)
---------
Liabilities assumed $ 116,261
==========
NOTE 14. COSTS IN EXCESS OF ASSETS ACQUIRED
Due to the increasing uncertainty of realization of the goodwill on the
Company's books related to the acquisition of Impulse, the Company,
deeming the value of the asset permanently impaired in accordance with
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets", took a non-recurring charge of
$1,092,894 as of August 31, 1998 to write off the remaining balance of
goodwill related to Impulse. This decision has been made due to recurring
losses from operations resulting in the refocusing on the direction of the
Impulse unit, significantly different than the focus at the time of
acquisition and significant turnover of key employees.
<PAGE>
Additionally, as of August 31, 1998, the Company wrote off the goodwill
related to ORAYCOM, amounting to $428,054, as it also was deemed to have
been permanently impaired due to the recurring losses sustained by ORAYCOM
and the subsequent loss of a major customer representing nearly 40% of
ORAYCOM revenues. The goodwill related to the other manufacturers'
representative companies was fully amortized in Fiscal 1999 as a result of
the disposition of each of these subsidiaries. The goodwill related to
these entities amortized in the current year amounted to $868,881 and was
included in the loss from discontinued operations.
NOTE 15. DISCONTINUED OPERATIONS
In fiscal 1999, the Company discontinued its operations of manufacturers'
representative companies due to underperformance and a shift in the
Company's strategy. The following table sets forth the results of
operations from these subsidiaries in fiscal 1999 and 1998.
1999 1998
---- ----
Sales $ 2,346,053 $ 2,020,988
Cost of sales 1,723,867 1,795,924
--------- ---------
Gross margin 622,186 225,064
General and administrative
expenses 551,829 1,187,250
------- ---------
Income (loss) from
Operations 70,357 (962,186)
Loss on disposal (675,194) -
-------- ----------
Net Loss on discontinued
operations (604,837) (962,186)
========= =========
The increase in gross margin percentage in 1999 is due to the Company closing
the operations of Oraycom and Advantage Technologies in the first quarter
of 1999. These firms historically operated at negative gross margin.
General and Administrative expenses decreased primarily because of
non-recurring amortization of goodwill related to Oraycom that was written off
in Fiscal 1998 and fewer months of Rep firm operations in 1999. (See
"Description of Business - History)
NOTE 16. SUBSEQUENT EVENTS
In November, 1999, the Company decided to move its corporate
administrative functions to its office in Lake Mary, Florida and
concentrate its resources on the needs of the Company's software
development center in Chantilly, Virginia. As a result, the Company is
currently in negotiations with the landlord of its Elgin, IL facility to
vacate the space. The Company has analyzed the future usefulness of all
assets and has taken a charge of $72,300 as of August 31, 1999 for
leasehold improvements and equipment that will not be utilized after the
closing of the Elgin location. Based on the progress of the negotiations
as of the date of this report, Management does not foresee encountering
<PAGE>
any material costs related to terminating the lease and thus no provision
has been made for such costs. Total remaining future commitments related
to this lease were approximately $775,000 as of August 31, 1999.
Staff reductions as a result of this decision will be accomplished through
attrition and the Company will not generate any additional costs
necessitating accruals to complete this shutdown procedure.
The Company does not anticipate any additional material costs related to
closing the Elgin office.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
accountants on accounting or financial disclosure during the past two
fiscal years.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
As of August 31, 1999, the executive officers and directors of the Company
were as follows:
NAME AGE POSITION
---- --- --------
Ronald L. Weindruch.................... 52 President,
C.E.O.and
Chairman
William N. Kashul, Sr................... 66 Director
Stewart B. Harris....................... 58 Director
Kenneth Horn............................ 59 Director
Peter B. Atwal.......................... 43 Director
James L. McGovern....................... 57 Director
John D. Foster.......................... 56 Director
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. The Company has not
compensated its directors in cash for service on the Board of Directors or
any committee thereof, but directors are reimbursed for expenses incurred
for attendance at meetings of the Board of Directors and any committee of
the Board of Directors. Certain directors have been compensated with options
in recognition of their service on the Board, as described further below.
Officers are appointed annually by the Board of Directors and each executive
officer serves at the discretion of the Board of Directors. The Board of
Directors has two standing committees: an audit committee and a compensation
committee.
None of the officers and/or directors of the Company are officers or
directors of any other publicly traded corporation, except for John Foster
who is a Director of Aerial Communications, Inc., nor have any of the
directors and/or officers, nor have any of the affiliates or promoters of
the Company filed any bankruptcy petition, been convicted in or been the
subject of any pending criminal proceedings, or the subject or any order,
judgment, or decree involving the violation of any state or federal
securities laws within the past five years.
The business experience of each of the persons listed above during the past
five years is as follows:
RONALD L. WEINDRUCH has been the President, Chairman and Chief Executive
<PAGE>
Officer of Paladyne as well as the founder of Access, in 1994. Mr.
Weindruch was the Chairman of the Sanford Airport Authority in Sanford,
Florida from 1993 to 1996. Prior thereto, he held a variety of senior
management positions with Siemens, including senior vice-president of
operations at Siemens Stromberg-Carlson. Prior to beginning with Siemens in
1984, Mr. Weindruch served as director of marketing for the Nortel
(formerly Northern Telecom) DMS 100 switching system and was also group
director of business development for Nortel's digital switching group. Mr.
Weindruch holds an M.B.A. degree from George Washington University and a
B.S. degree from the University of Illinois.
JOHN D. FOSTER is President of Vedra International Associates, Inc., which
he founded in 1996. Mr. Foster retired from AT&T where he was a Corporate
Officer. He served as Vice President - Marketing and Sales, Southeast
Region, President and CEO of AT&T American Transtech, and as President and
Managing Director of AT&T Communications Services Group - Europe. Mr.
Foster is also a board member of Aerial Communications. He hold a B.S.
degree from Purdue University and a Masters from the University of
Illinois.
WILLIAM N. KASHUL, SR. is Vice - President of Sales of Home Wireless
Networks. Prior to that, Mr. Kashul was a regional vice president of
Strategic Account Development, North America, for Northern Telecom, Inc.
Mr. Kashul began his telecommunications career in the U.S. Army in 1953. He
joined BTE Automated Electric as an engineer in 1956 and went to ITT
Kellogg as a project engineer in 1959. He joined Stromberg-Carlson as a
senior sales engineer in 1967 before going to Northern Telecom in 1972. Mr.
Kashul is a member of the International Engineering Consortium's Executive
Advisory Council and holds an M.B.A. from the University of Chicago.
PETER B. ATWAL has over twenty-two years experience in the
telecommunications and data communications industry and has worked in
research and development, switching systems and operations support systems.
Currently Mr. Atwal is the Vice President of Business Development for
Milcomm Communications. Prior to his current position, Mr. Atwal was Chief
Technology Officer for ISR Global Telecom, a network management provider.
Mr. Atwal previously worked as a research and development manager for
Siemens, from 1985 - 1991, and as a consultant for Logica, Inc., from 1977
to 1985. Mr. Atwal holds a BSC degree in computer science from London
University.
<PAGE>
JAMES L. MCGOVERN recently retired from Norstan where he was Executive Vice
President and General Manager for the Communications Systems Division.
Norstan is a $300-million communications systems integrator of voice, data,
video, and image communications products and services focused on business
solutions. McGovern also held a number of key sales management and General
Manager positions at Xerox Corporation. McGovern is a marketing-oriented,
enthusiastic leader with an uncanny ability to inspire all levels of an
organization. His values-based management philosophy, vision, and
leadership qualities have been key to a successful career in a rapidly
changing industry. McGovern's understanding of the emerging technologies,
the underpinnings of business processes, and the intelligent application of
technology to those processes have earned him an excellent reputation among
Norstan's customers, suppliers, and business partners. Mr. McGovern holds a
B.S. degree from Northeastern University.
STEWART B. HARRIS is Executive Vice President of Carlson Marketing Group.
Mr. Harris founded and was President and Chief Executive Officer of S&H
Citadel, an incentive marketing company, and its predecessors from 1982
until February 1998 when it was acquired by Carlson Marketing. During his
career, Mr. Harris also held various sales, marketing, and executive
positions with IBM Corporation, HERS Apparel Industries, and MDB Holding.
KENNETH W. HORN is Managing Director of KNH Associates. He recently retired
as a Corporate Officer of Nortel Networks where he served a Vice
Presidents, Independents. Mr. Horn is widely credited with establishing
Nortel's industry leading position with the Independent Telecommunication
companies and the Competitive Local Exchange Carriers by generating many
billions in sales. Prior to joining Nortel, Mr. Horn was employed by Huyck
Corporation where he held various positions including Vice President and
General Manager of its largest division. Mr. Horn holds a B.S. degree from
Villanova University and a M.B.A. from Iona University.
ITEM 10. EXECUTIVE COMPENSATION
Compensation
The following table sets forth all compensation actually paid or accrued
by the Company for services rendered to the Company for the years ended
August 31, 1997, 1998 and 1999 to the Company's Chief Executive Officer
and Executive Vice President. No other executive officer of the Company
has earned a salary greater than $100,000 annually for any of the periods
depicted.
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table ALL STOCK
OTHER WRNTS &
NAME AND PRINCIPAL COMPEN OPTNS
POSITION YEAR SALARY BONUS SATION(A) ISSUED(B)
---- ------ ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Ronald L. Weindruch, 1997 $108,000 $ -0- $126,000 -
President, C.E.O. 1998 $122,292 $3,000 $ 81,700 67,500
1999 $137,500 $ -0- $ 36,034 208,784
</TABLE>
(a)All other compensation includes consulting and commission income.
(b) Of the total options and warrants outstanding to Mr. Weindruch, 64,790
were exercisable at August 31, 1999 and 185,000 were unexercisable. The
value of unexercised in the money options and warrants was $0 for
exercisable and approximately $7,000 for unexercisable. In addition to
cash compensation, the individual named above participates in the
Company's stock option plan. The following table details options granted
in fiscal year 1999:
% of
total
# of shares options
underlying granted Exer. Exp.
Name options in FY 99 Price Date
------------------- ------- -------- ----- ----
Ronald L. Weindruch 150,000 9.3% $.74 4/13/04
Ronald L. Weindruch 25,000 1.6% .42 6/14/03
No stock options held by this individual were exercised in the current
fiscal year whether the options were issued in the current year or in
years prior.
In fiscal 1999, Mr. Weindruch was granted warrants by the Board of
Directors to purchase 33,784 shares of the Company's Common Stock at
$0.74. These warrants have a life of five years. These were granted as
compensation for Mr. Weindruch's personal guaranty of the Company's line
of credit.
Employee Stock Option Plan
The Company's 1999 Stock Option Plan (the "Plan"), replaced the 1996 Stock
Option Plan, as amended, which was adopted in 1996 and amended in October,
1997 to increase the number of issuable shares under the Plan and to
clarify the basis for determining fair market value of shares in
conjunction with setting the exercise price of options at issuance. The
purpose of the Plan is to encourage stock ownership by management and
employees of the Company, to provide an additional incentive for those
employees to contribute to the success of the Company and to provide the
Company with the opportunity to use stock options as a means of recruiting
new managerial personnel where appropriate.
<PAGE>
The Plan authorizes the grant of options which qualify as incentive stock
options under Section 422A of the Internal Revenue Code ("qualified
options"), as well as stock options which do not qualify under that
section of the Code ("nonqualified options"). The Plan is administered by
the Board of Directors of the Company. The Board is authorized to select
the individual employees to receive options under the Plan, the number of
shares subject to each option, the option term and other matters specified
in the Plan.
The Plan provides that the exercise price of any option may not be less
than 100% of the fair market value of the Company's stock at the date of
grant, defined as the average bid and ask price over the prior five days'
trading in which at least 1,000 shares have traded. Options must be
granted within ten years from the date the Plan was approved by the
Company's shareholders.
A maximum of 2,500,000 shares of the Company's Common Stock are authorized
for issuance pursuant to options granted under the Plan, subject to
adjustments to prevent dilution or enlargement of rights of participants
in certain circumstances. As of December 10, 1999 there were 2,214,515
options issued and outstanding under the Plan of which 751,022 options are
exercisable at an option price per share ranging from $0.38 to $3.36 per
share and with expiration dates from November, 1999 through October, 2003.
In addition to options granted under the Plan, the Company has also issued
nonqualified stock options outside the Plan. In July 1996, nonqualified
options to purchase 33,018 shares of the Company's Common Stock at an
option price of $0.9086 per share were granted to the outside members of
the Board of Directors for their services. In October 1996, one of the
outside directors was granted nonqualified options to purchase 55,030
shares of the Company's Common Stock at an option price of $0.0909 per
share for his services in identifying the Impulse acquisition. In May,
1998 nonqualified options to purchase 712,500 shares of the Company's
Common Stock at option prices ranging from $2.55 - $2.81 share were issued
to the members of the Board of Directors for their services, with outside
Directors being issued 150,000 shares each and inside Directors being
issued 37,500 shares each. These shares were subsequently recalled and
replacement options were issued.
Profit Sharing Plan
<PAGE>
The Company sponsors a qualified employee savings plan (commonly referred
to as a "401K plan") for all eligible employees, including all the
officers of the Company. Participants may make contributions from their
gross pay (limited to 15% of the employee's compensation, as defined),
with Synaptx matching such contributions (subject to certain limitations)
at the rate of 25% of the first 6% of each participant's contribution. No
other deferred compensation plan is currently in place.
Employment Agreements
The Company has employment agreements with two employees. The aggregate
commitment for future salaries, excluding bonuses, under these employment
agreements is approximately $185,000. The following amounts apply to each
of the fiscal years ending August 31, as follows: 2000-$147,292,
2000-$37,500. These agreements shall be automatically renewed for
successive one-year terms unless canceled by either party at least 30 days
prior to the current term's expiration. The agreements also contain
severance provisions ranging from six months and up to three years in case
of early termination without cause.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best of the Company's
knowledge, as of December 10, with respect to each person known by the
Company to own beneficially more than 5% of the outstanding Common Stock,
each director and all directors and officers as a group.
PERCENT
NAME AND ADDRESS AMOUNT AND NATURE OF OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
Ronald L. Weindruch * 2,045,005(3) 26.77%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
Kenneth H. Horn 174,918(4) 2.34%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
William N. Kashul, Sr. * 223,128(5) 2.99%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
Peter B. Atwal * 43,334(6) 0.59%
610 Crescent Executive Court
<PAGE>
Suite 124
Lake Mary, FL 32746
James L. McGovern * 207,721(7) 2.78%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
John D. Foster * 185,849(8) 2.49%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
Stewart B. Harris* 125,000(9) 1.68%
610 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
All directors and
executive officers as a 3,004,955(9) 36.60%
group (7 persons in group)
Webbmont Holdings 911,567(10) 11.61%
615 Crescent Executive Court
Suite 124
Lake Mary, FL 32746
* Director and/or executive officer
Note: Unless otherwise indicated in the footnotes below, the Company
has been advised that each person above has sole voting and
investment power over the shares indicated above.
(1) Share amounts include, where indicated, Common Stock issuable upon
the exercise of certain stock options and stock warrants held by the
Company's directors and executive officers at exercise prices ranging
from $0.38 to $3.70 per share which are exercisable within sixty days.
(2) Based upon 7,356,229 shares of Common Stock outstanding on December
10, 1999. Percentage ownership is calculated separately for each person
on the basis of the actual number of outstanding shares as of December
10, 1999 and assumes the exercise of certain stock options and warrants
held by such person (but not by anyone else) exercisable within sixty
days.
(3) Includes 100,000 shares of stock held in the names of Mr.
Weindruch's children, and 1,500,000 held in a trust for which Mr.
Weindruch acts as trustee. Includes 283,124 shares which may be
<PAGE>
acquired by Mr. Weindruch pursuant to the exercise of stock purchase
options and warrants exercisable within sixty days at exercise prices
from $0.42 to $3.70 per share.
(4) Includes 50,000 shares held by a corporation controlled by Mr.
Horn. Includes 114,918 shares which may be acquired by Mr. Horn
pursuant to the exercise of stock purchase options and warrants
exercisable within sixty days at exercise prices from $0.38 to $1.00
per share.
(5) Includes 110,834 shares which may be acquired by Mr. Kashul
pursuant to the exercise of stock purchase options and warrants
exercisable within sixty days at exercise prices from $0.38 to $3.36
per share.
(6) Includes 43,334 shares which may be acquired by Mr. Atwal pursuant
to the exercise of stock purchase options and warrants exercisable
within sixty days at exercise prices from $0.38 to $3.36 per share.
(7) Includes 9,906 shares held in the names of Mr. McGovern's children.
Also includes 117,917 shares which may be acquired by Mr. McGovern
pursuant to the exercise of stock purchase options and warrants
exercisable within sixty days at exercise prices from $0.38 to $1.00
per share.
(8) Includes 108,334 shares which may be acquired by Mr. Foster
pursuant to the exercise of stock purchase options and warrants
exercisable within sixty days at exercise prices from $0.67 to $1.00
per share.
(9) Includes 75,000 shares which may be acquired by Mr. Harris pursuant
to the exercise of stock purchase warrants exercisable within sixty
days at an exercise price of $1.00 per share.
(10) Includes 496,429 shares which may be acquired by Webbmont Holdings
pursuant to the exercise of stock purchase warrants exercisable within
sixty days at the exercise prices from $1.00 to $3.00 per share.
Richard E. Hanik, formerly the Secretary and Chief Financial Officer of
the Company is not included above as he is no longer an officer of the
Company as of the date of this filing, although he was as of fiscal year
end 1998.
William E. Morris, formerly the Secretary and Controller of the Company is
not included above as he is no longer an officer of the Company as of the
date of this filing, although he was as of fiscal year end 1999.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
During the fiscal year ended August 31, 1998, various related parties
advanced the Company funds to meet cash flow needs. These advances ranged
in term from one month to two years and bore interest rates ranging from
10% - 12%. Total funds advanced totaled $265,100, of which $210,100 was
outstanding as of August 31, 1998. In fiscal 1999, an additional $60,000
net, was paid off, leaving a balance due of $150,000 as of August 31,
1999. This amount is entirely due to a trust controlled by the Chairman
and CEO of the Company, bears interest at 12% per annum, and is due June
30, 2001.
<PAGE>
PART IV
NEED TO REVIEW WHAT EXHIBITS TO INCLUDE HERE WITH BRUCE. PROBABLY REVIEW
ALL FILINGS FOR YEAR AND LIST ALL EXHIBITS FILED WITH THEM HERE.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KSB
(A) EXHIBITS
Exhibit No. Exhibit Name
- ---------- ------------
2.1 Merger Agreement and Plan of Reorganization previously filed as
Exhibit 2.1 to Form 10-SB/A
dated December 31, 1997
3.1 Certificate of Incorporation previously filed as Exhibit 3.1 to
Form 8-K for an event of March 5, 1999
3.2 By-Laws of Registrant previously filed as Exhibit 3.2 to Form 8-K
for an event of March 5, 1999
3.3 Articles of Merger of Synaptx Worldwide Inc. ("Synaptx") into the
Company, as filed with the State of Utah, previously filed as Exhibit
3.3 to Form 8-K for an event of March 5, 1999
3.4 Certificate of Merger of Synaptx into the Company, as filed with the
State of Delaware, previously filed as Exhibit 3.4 to Form 8-K for an
event of March 5, 1999
3.5 Agreement and Plan of Merger between Synaptx and the Company, previously
filed as Exhibit 3.5 to Form 8-K for an event of March 5, 1999
4.1 1999 Stock Option Plan, previously filed as Exhibit 10.2 to Form 8-K for
an event of March 5, 1999
9.1 Specimen of Common Stock Certificate previously filed as Exhibit 4.1 to
Form 10-SB/A dated December 31, 1997
9.2 Certificate of Series A Cumulative Convertible Preferred Stock
Certificate, previously filed as Exhibit 10 to Form 10-KSB for fiscal
year ended August 31, 1998
10.1 Lease Agreement on registrant's previous principal place of business
previously filed as Exhibit 10.1 to Form 10-SB/A dated December 31, 1997
10.2 Purchase Agreement of Synaptx Access, Inc. f.k.a.
North American Telco/Cable Representatives, Inc. previously filed as
Exhibit 10.2 to Form 10-SB/A dated December 31, 1997
10.3 Purchase Agreement for Synaptx Impulse, Inc., f.k.a. Maxwell Partners,
Inc. previously filed as Exhibit 10.3 to Form 10-SB/A dated
December 31, 1997
10.4 Purchase Agreement for ORAYCOM, Inc. previously filed as Exhibit 10.4
to Form 10-SB/A dated December 31, 1997
10.5 Employment Agreement for Ronald L. Weindruch previously filed as
Exhibit 10.5 to Form 10-SB/A dated December 31, 1997
<PAGE>
10.6 Employment Agreement for D. Mike Maxwell previously filed as Exhibit 10.6
to Form 10-SB/A dated December 31, 1997
10.7 New Lease Agreement on Principal Place of Business, previously filed as
Exhibit 10.7 to Form 10-KSB for fiscal year ended August 31, 1998
10.8 Agreement and Plan of Merger for WG Controls, Inc. between Synaptx
Worldwide, Inc. and the WG Controls, Inc.shareholders as follows:
James M. Gleason, Shirley Gleason, Michael Concialdi, and James Gammon
previously filed as Exhibit 10.1 to Form 8-K dated March 23, 1998
10.9 Employment Agreement, dated January 1, 1998, between WG Controls,
Inc. and James M. Gleason previously filed as Exhibit 10.2 to Form 8-K
dated March 23, 1998
10.10 Agreement and Plan of Stock for Stock Exchange, dated June 1, 1998
between Synaptx Worldwide, Inc. (the "Company") and John Primus and
Jannine Primus previously filed as Exhibit 10.1 to Form 8-K dated
August 14, 1998
10.11 Employment Agreement, dated June 1, 1998, between Primus Marketing
Associates, Inc. and John E.Primus previously filed as Exhibit 10.2 to
Form 8-K dated August 14, 1998
10.12 Non-compete Agreement, dated June 1, 1998, between the Company and
John E. Primus previously filed as Exhibit 10.3 to Form 8-K dated
August 14, 1998
10.13 Non-compete Agreement, dated June 1, 1998, between the
Company and Jannine E. Primus previously filed as Exhibit
10.4 to Form 8-K dated August 14, 1998
10.14 Letter Agreement to Sell 100% of ORAYCOM stock to O. Ray Strickland
and O.Ray Strickland IRA ("Strickland Group") previously filed as
Exhibit 10.14 to Form 10-KSB for fiscal year ended August 31, 1998
10.15 Acquisition or Disposition of Assets for sale of WG Controls, Inc. to WG
Technologies, filed as Exhibit to Form 10-QSB for fiscal quarters ended
May 31, 1999
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly organized.
PALADYNE CORP.
(Registrant)
By: /s/ Ronald L. Weindruch
--------------------------------
Date: December 27, 1999 RONALD L. WEINDRUCH
CEO, President, Chairman Principal
Financial Office
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name Position Date
- ---- -------- ----
CEO, President
Chairman & Principal
/s/ Ronald L. Weindruch Financial Officer December 27, 1999
- ----------------------- ---------------------- -----------------
Ronald L. Weindruch
/s/ William N. Kashul, Sr. Director December 27, 1999
- ----------------------- --------------------- ------------------
William N. Kashul, Sr.
Director
- ----------------------- --------------------- ------------------
Kenneth Horn
/s/ John D. Foster Director December 27, 1999
- ----------------------- --------------------- ------------------
John D. Foster
/s/ Peter B. Atwal Director December 27, 1999
- ----------------------- --------------------- ------------------
Peter B. Atwal
Director
- ----------------------- --------------------- ------------------
James L. McGovern
/s/ Stewart Harris Director December 27, 1999
- ----------------------- --------------------- ------------------
Stewart Harris
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1999 PALADYNE
CORPORATION, INC. FORM 10-KSB FOR THE PERIOD ENDED AUGUST 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 426
<ALLOWANCES> 47
<INVENTORY> 0
<CURRENT-ASSETS> 426
<PP&E> 429
<DEPRECIATION> (301)
<TOTAL-ASSETS> 677
<CURRENT-LIABILITIES> 948
<BONDS> 0
0
1
<COMMON> 7
<OTHER-SE> 414
<TOTAL-LIABILITY-AND-EQUITY> 677
<SALES> 4366
<TOTAL-REVENUES> 4366
<CGS> 3473
<TOTAL-COSTS> 3473
<OTHER-EXPENSES> 1596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 805
<INCOME-TAX> 0
<INCOME-CONTINUING> 805
<DISCONTINUED> 605
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1410
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
