UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 0R 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANCE ACT OF 1934
For the transition period from to
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Commission File Number 0-22969
Paladyne Corp.
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(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
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(Address of Principal Executive Offices)
(407)333-2488
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(Issuer's Telephone Number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Checked whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of
January 2, 2001
Common Stock, $.001 PAR VALUE 8,459,351
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets - November 30, 2000 4
and August 31, 2000
Condensed Statements of Operations -
three months ended November 30, 2000 and 1999 5
Condensed Statements of Cash Flows -
three months ended November 30, 2000 and 1999 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
SIGNATURES 13
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PART I.
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Condensed Financial Statements for the three months
ended November 30, 2000 and 1999 have been prepared by Paladyne Corp., a
Delaware corporation.
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PALADYNE CORP.
CONDENSED BALANCE SHEETS
NOVEMBER 30, 2000 AUGUST 31, 2000
(UNAUDITED)
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ASSETS
Current Assets:
Cash and cash equivalents $ 441,058 $ 635,612
Short term investments 242,666 484,508
Accounts receivable, net
of allowances of $114,300 and $12,555 1,320,941 1,037,544
Prepaid expenses and deposits 22,511 867
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Total Current Assets 2,027,176 2,158,531
Property and equipment, net 113,707 124,725
Goodwill, net 205,055 211,012
Capitalized software development costs, net 458,496 338,037
Other assets 69,841 51,461
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Total Assets $ 2,874,275 $ 2,883,766
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,076,069 $ 680,214
Accrued expenses 133,294 131,375
Accrued preferred stock dividends 119,000 108,800
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Total Current Liabilities 1,328,363 920,389
Commitments and Contingencies
Stockholders' Equity
Cumulative, convertible preferred stock;
$.001 par value; 10,000,000 shares
authorized, 137,143 issued and outstanding 137 137
Common stock; $.001 par value; 25,000,000
shares authorized, 8,459,351 and
8,456,599 issued and outstanding 8,459 8,457
Additional paid in capital 7,128,728 7,136,430
Accumulated deficit (5,591,412) (5,181,647)
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Total Stockholders' Equity 1,545,912 1,963,377
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Total Liabilities and Stockholders' Equity $ 2,874,275 $ 2,883,766
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See accompanying notes to condensed financial statements
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PALADYNE CORP.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30,
2000 1999
(UNAUDITED) (UNAUDITED)
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Total Revenues 1,034,732 978,206
Cost of Revenues 837,230 757,960
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Gross Profit 197,502 220,246
Selling, general and administrative expenses 590,629 246,601
Depreciation and amortization 39,266 10,260
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Loss From Operations (432,393) (36,615)
Other income (expense):
Interest income 22,628 ---
Interest expense --- (6,219)
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Net loss (409,765) (42,834)
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Cumulative Convertible Stock Dividend Requirement (10,200) (10,200)
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Net loss attributable to common stockholders $ (419,965) $ (53,034)
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Weighted average common shares outstanding 8,459,351 7,378,729
Loss per share - Basic and diluted $ (.05) $ (.01)
See accompanying notes to condensed financial statements
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PALADYNE CORP.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND NOVEMBER 30, 1999
2000 1999
(UNAUDITED) (UNAUDITED)
Cash flows used in operating activities $ (277,767) $ (146,274)
Cash flows provided by (used in) investing
activities 80,713 (10,759)
Cash flows provided by financing activities 2,500 246,075
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Net increase (decrease) in cash and
cash equivalents (194,554) 89,042
Cash and cash equivalents at beginning of period 635,612 ---
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Cash and cash equivalents at end of period $ 441,058 $ 89,042
Supplemental Cash Flow Information
Cash paid for interest $ --- $ 6,219
Accrual of preferred stock dividend 10,200 ---
See accompanying notes to condensed financial statements
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NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. BASIS OF PRESENTATION AND REVENUE RECOGNITION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
statement of results for this interim period. The accompanying financial
statements include estimated amounts and disclosures based on management's
assumptions about future events. Actual results may differ from those estimates.
The results of operations and cash flows for the interim periods are not
necessarily indicative of the results to be expected for the full year.
The condensed financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make information presented not misleading.
These financial statements should be read in conjunction with the financial
statements included in the Company's Form 10-KSB for the fiscal year ended
August 31, 2000 as filed with the Securities and Exchange Commission.
The Company recognizes revenue at the point at which the product is delivered to
the customer, for software, and for services when the services are performed.
The contractual relationship terms of agreements dictates the recognition of
revenue by the Company.
The Company, at times, 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 revenue.
NOTE 2. CAPITAL STOCK
On September 26, 2000, options to acquire 2,752 common shares of the Company
were exercised for $.9086 per share resulting in total proceeds of $2,500.
The holders of the Company's preferred stock are entitled to receive, out of the
net profits of the Company, annual dividends at the rate of $.2975 per share. If
the net profits of the Company are not sufficient to pay the preferred dividend,
then any unpaid portion of the dividend will be included in accrued expenses.
The Company had accrued cumulative preferred stock dividends of $119,000 as of
November 30, 2000.
NOTE 3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Costs incurred to establish the technological feasibility of computer software
products are charged to expense as incurred. Costs of producing product masters
subsequent to establishing technological feasibility, including coding and
testing, are capitalized. Capitalization of computer software costs ceases when
the product is available for general release to customers. Capitalized costs as
of November 30, 2000 for the development of the Datagration product, release 1.0
and release 2.0, was $486,729. Datagration 1.0 was released in March 2000 and
Datagration 2.0 was released in November 2000. Accumulated amortization of
software development costs as of November 30, 2000 was $28,233. These
capitalized software development costs are amortized using either the
straight-line method over the estimated economic life of the product (which is
estimated to be three years) or the ratio of current revenues to current and
anticipated revenues for the product whichever results in the greater amount of
amortization. Unamortized capitalized costs of a computer software product in
excess of its estimated net realizable value are expensed.
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NOTE 4. INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. The Company
recorded a valuation allowance to state deferred tax assets at estimated
realizable value due to uncertainty related to realization of those assets
through future taxable income.
NOTE 5. SUBSEQUENT EVENTS
On December 27, 2000 the Company announced that it had signed a definitive
merger agreement with e-commerce support centers, inc., ("ecom") calling for
ecom to become a wholly owned subsidiary of Paladyne. Upon closing of the merger
the Company will issue 4,100,000 shares of a newly created Series B Convertible
Preferred Stock, convertible into 8,200,000 of its common shares at a later
date. In addition, ecom shareholders could receive 4,500,000 warrants to
purchase Paladyne common shares; of this amount 4,000,000 could be exercisable
in proportion to exercise of existing warrants and options held by existing
Paladyne shareholders. The remaining 500,000 warrants will be earned and then
exercisable based on achievement of specific revenue targets for the combined
Company. Ecom shareholders will also receive additional common shares to
preserve their ownership percentage in connection with a related private
placement. Capitalized acquisition costs related to the merger were $18,070 at
November 30, 2000. These costs are included in "Other Assets" on the balance
sheet presented. The closing of the merger is subject to certain conditions and
performance obligations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
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Paladyne Corp. (the "Company") provides software products and ancillary services
that enable companies to quickly build databases with high data integrity, thus
cutting long implementation times and eliminating the risk of building the
database with poor quality data. Paladyne data quality solutions and services
support desktop marketers and developers of data warehouses and data marts.
Paladyne software is based on an open, multi-tiered, cross-platform architecture
within the customer relationship management segment. The Company intends to
build its business through internal growth as well as seek acquisitions of
existing companies.
On October 3, 2000 the Company announced it had signed a Letter of Intent with
e-commerce support centers, inc., ("ecom"), calling for a merger with ecom to
become a wholly owned subsidiary of Paladyne.
On December 27, 2000 the Company announced that it had signed a definitive
merger agreement with e-commerce support centers, inc., ("ecom") calling for
ecom to become a wholly owned subsidiary of Paladyne. Upon closing of the merger
the Company will issue 4,100,000 shares of a newly created Series B Convertible
Preferred Stock, convertible into 8,200,000 of its common shares at a later
date. In addition, ecom shareholders could receive 4,500,000 warrants to
purchase Paladyne common shares; of this amount 4,000,000 could be exercisable
in proportion to exercise of existing warrants and options held by existing
Paladyne shareholders. The remaining 500,000 warrants will be earned and then
exercisable based on achievement of specific revenue targets for the combined
Company. Ecom shareholders will also receive additional common shares to
preserve their ownership percentage in connection with a related private
placement. Capitalized acquisition costs related to the merger were $18,070 at
November 30, 2000. These costs are included in "Other Assets" on the balance
sheet presented. The closing of the merger is subject to certain conditions and
performance obligations.
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RESULTS OF OPERATIONS
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The following table sets forth the percentage relationship to the total revenues
of principal items contained in the Company's Condensed Statements of Operations
for the three months ended November 30, 2000 and 1999, respectively. The
percentages discussed throughout this analysis are stated on an approximate
basis.
Three Months Ended
November 30
2000 1999
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(UNAUDITED)
Total revenues 100% 100%
Cost of revenues 81% 77%
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Gross profit 19% 23%
Operating expenses 61% 26%
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Operating loss (42%) (3%)
Interest expense 0% (1%)
Interest income 2% 0%
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Net loss (40%) (4%)
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COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2000 TO THREE MONTHS ENDED
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NOVEMBER 30, 1999
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Revenues for the three months ended November 30, 2000 increased $56,526 to
$1,034,732 from the corresponding three month period in the prior year. This
increase is due to increased focus on the software database products and the
development of the Company's Datagration product line.
Gross profit decreased by $22,744 for the three month period ended November 30,
2000 from $220,246 for the corresponding three month period in the prior year to
$197,502. As a percentage of sales, gross profit decreased slightly to 19%
during the three month period ended November 30, 2000 from 23% for the same
period in the prior year. This decrease is attributable to an increase in the
costs associated with providing database services.
Operating expenses, including depreciation and amortization, have increased as
percentage of revenue from 26% for the three months ended November 30, 1999 to
61% from the three months ended November 30, 2000. This increase is due to a
write off of $114,300 for a receivable deemed uncollectible. There was also an
increase in rent expense due to additional corporate office space over the same
three month period in the prior year. In addition, during the first quarter of
fiscal 2001 as compared to the first quarter of fiscal 2000, computer hardware
and software expenses increased due to additional operating requirements and
expenses for tradeshows increased due to product introduction and the need to
exhibit the product in the marketplace.
There was no interest expense in the first quarter of fiscal 2001as the Company
did not utilize its current line of credit.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's principal cash requirements are for operating expenses, including
employee costs, outside consultants such as independent contractors who provide
database and professional marketing and sales consulting services, funding of
accounts receivable, capital expenditures and funding of the operations in
Chantilly, VA. The Company's primary sources of cash have been from private
placements of the Company's common stock, a bank line of credit, and cash
derived from operations. There is no assurance that the Company will not look
for any additional financing or that any additional equity infusion will not be
dilutive to stockholders. Management believes that internal cash flows, current
cash position, current credit facility and possible private equity infusions
should be adequate to meet the Company's capital needs for the next twelve
months.
Cash used in operating activities changed from $146,274 to $277,767 for the
three months ended November 30, 1999 to the corresponding three months in 2000.
This cash decrease is primarily the result of start up activities related to the
introduction of the Datagration product into the marketplace. The Company
continues to maintain adequate cash and investments to fund its operations but
the proposed merger with ecom will require a substantial amount of these funds.
As previously discussed, the Company has signed a definitive merger agreement
with e-commerce support centers, inc. It is anticipated that as a result of the
merger, the Company will be raising additional funds through private placements
to enable the combined Company to execute its business plan.
In April 1999, the Company entered into an expanded credit facility providing a
line of credit up to $250,000 at a rate of prime plus 1 1/4% and renewable six
months from the date of the original agreement. The line of credit was extended
to December 31, 1999. On February 28, 2000 the Company repaid the entire line of
credit of $250,000. The Company negotiated a new line of credit with The
Huntington National Bank in May 2000. The line of credit is for $500,000 secured
by the receivables of the Company and expires April 1, 2001. The rate is prime
plus 1 1/2 %. As of November 30, 2000 and January 12, 2001, the Company has not
used any proceeds from the line of credit.
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INFLATION
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In the opinion of management, inflation has not had a material effect on the
operations of the Company.
RISK FACTORS AND CAUTIONARY STATEMENTS
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Forward-looking statements in this report are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The Company
wishes to advise readers that actual results may differ substantially from such
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements, including, but not limited to, the
following: the ability of the Company to provide for its debt obligations and to
provide for working capital needs from operating revenue, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission.
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PART II
ITEM 1. LEGAL PROCEEDINGS
In November 1999, the Company terminated the employment with its Vice President
of Sales. Subsequent to this termination, the former employee filed a lawsuit
claiming additional compensation was warranted in the Superior Court of Fulton
County, in the State of Georgia and is seeking payment of $178,750. The Court
issued a summary judgment order on default in June 2000 to the plaintiff in the
amount of $137,500. The Company appealed the decision and in July 2000 submitted
to the Court a Motion to Open Default. A hearing was held on August 4, 2000 and
the Court ordered the summary judgment to be reopened and the Company may
present its defense in this matter. A court date has not been set for this
hearing as of January 15, 2001. The only notice the Company has received in this
matter is that the plaintiff's attorney has voluntarily removed themselves from
the action. The Company has not received any notification of a new attorney for
the plaintiff. The Company does not agree with the assertion and fully intends
to defend itself vigorously against this claim. As such, no provision has been
accrued in these financial statements as the Company believes there is no merit
to the claim.
SIGNATURES
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PALADYNE CORP.
Date: January 15, 2001 By: /s/ Ronald L. Weindruch
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Ronald L. Weindruch
President
Date: January 15, 2001 By: /s/ Joseph H. Landis
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Joseph H. Landis
Vice President - CFO
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