SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) - February 1, 2001
----------------
PALADYNE CORP.
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(Exact name of registrant as specified in its charter)
Delaware 0-22969 59-3562953
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(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
PO Box 22207, Lake Buena Vista, FL. 32830
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code - (407) 909-1723
--------------
610 Crescent Executive Court, Suite 124, Lake Mary, FL 32746
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(Former Name or Former Address, if changed since last report)
Item 2. Acquisition or Disposition of Assets
------------------------------------
On February 1, 2001, the registrant Paladyne Corp. ("Paladyne"), through
its wholly-owned subsidiary E-com Acquisition Corp. ("Acquisition Sub"), merged
(the "Merger") with e-commerce support centers, inc., a North Carolina
corporation ("ecom"), pursuant to an Agreement and Plan of Merger, dated as of
December 21, 2000, as amended (collectively the "Merger Agreement"), among
Paladyne, Acquisition Sub and ecom. Upon the Merger, ecom became a wholly-owned
subsidiary of Paladyne. For additional information about the Merger, see the
initial Form 8-K for an event of February 1, 2001.
Based upon discussions subsequent to the Merger, Paladyne, ecom and
Gibralter Publishing, Inc., a North Carolina corporation ("Gibralter"),
determined that it was necessary to renegotiate and to amend some of the
agreements which had became effective upon the Merger. The amendments change the
calculation for the issuance of the deferred shares and delay the repayment
dates of the two notes (the "Notes") issued by ecom to Gibralter in payment for
the assets purchased by ecom from Gibralter immediately prior to the Merger,
pursuant to a Second Amendment to Agreement and Plan of Merger ("Second
Amendment") and an Amending Agreement, respectively.
The Second Amendment was entered into by Paladyne and Terrence J. Leifheit
(the "Principal Stockholder"), on behalf of himself and as representative for
the other former stockholders of ecom (the "ecom Stockholders"). Section 3.1(iv)
of the Merger Agreement originally provided for the ecom Stockholders to receive
post-closing an amount of Paladyne Common Stock equivalent to 95% of each whole
share of Common Stock or other security convertible into Common Stock issued by
Paladyne until Paladyne received $6,500,000 in cash from sales of Common Stock.
Section 3.1(iv) as amended provides that beginning as of the date of the Second
Amendment and ending the earlier of December 20, 2002 or when Paladyne raises
$6,500,000 in cash from sales of Common Stock or Common Stock equivalents (the
"New Securities"), Paladyne will issue one share (the "Deferred Shares") of
Common Stock to the ecom Stockholders for each $1.00 in gross proceeds received
upon the sale of New Securities or issuable upon conversion, exercise or
exchange of New Securities.
The Amending Agreement amends the original Promissory Note A and Promissory
Note B which constitute the Notes, and terminates the Default and Assignment
Agreement, the Secondary Operating Agreement, and the Escrow Agreement. These
latter Agreements had been included as exhibits to the initial Form 8-K for an
event of February 1, 2001. The Amended Promissory Note A issued by ecom to
Gibralter in the principal amount of $1,500,000 is repayable in two equal
principal installments of $750,000, with the first installment due when Paladyne
raises a minimum of $3,000,000 in equity or convertible debt and the second
installment due no earlier than six months after the payment of the first
installment, and in no event until Paladyne has had a positive cash flow for any
three consecutive calendar months. The Amended Promissory Note B issued by ecom
to Gibralter in the principal amount of $3,500,000, is repayable in 12 equal
quarterly principal payments commencing October 1, 2001, or up to six months
thereafter if mutually agreed. Both Notes still bear interest at 10% per annum.
The Security Agreement pursuant to which ecom granted to Gibralter a first lien
on the purchased assets to secure the repayment of the Notes and the
2
Unconditional Guaranty Agreement whereby Paladyne guaranteed these Notes remain
in full force and effect.
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of Business Acquired.
-----------------------------------------
Report of Independent Certified Public Accountants.
Balance Sheets, as of September 30, 2000 and December 31, 1999.
Statements of Operations for the nine months ended
September 30, 2000 and three months ended December 31, 1999.
Statements of Capital Deficit as of September 30, 2000 and
December 31, 1999.
Statements of Cash Flows for the nine months ended
September 30, 2000 and three months ended December 31, 1999.
Notes to Financial Statements.
(b) Pro Forma Financial Information.
-------------------------------
Introduction
Unaudited Pro Forma Condensed Combined Balance Sheet as of
February 28, 2001
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended August 31, 2000.
Unaudited Pro Forma Condensed Combined Statement of Operations
for the six months ended February 28, 2001.
(c) Exhibits.
--------
*All documents are dated as of April 9, 2001.
10.1.3 Second Amendment to Agreement and Plan of Merger, among
Paladyne and Terrence J. Leifheit on behalf of himself
and as representative for the former shareholders of
ecom.
10.4.4.1 Amended Promissory Note A from ecom to Gibralter in the
principal amount of $1,500,000.
3
10.4.5.1 Amended Promissory Note B from ecom to Gibralter in the
principal amount of $3,500,000
10.4.11 Amending Agreement among Gibralter, Paladyne and ecom.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PALADYNE CORP.
--------------
(Registrant)
Dated: April 17, 2001 By /s/ John D. Foster
------------------------------------
John D. Foster, Chairman and CEO
5
E-COMMERCE SUPPORT CENTERS, INC.
----------------------------------------
FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
THREE MONTHS ENDED DECEMBER 31, 1999
E-COMMERCE SUPPORT CENTERS, INC.
Contents
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Report of Independent Certified Public Accountants 3
Financial Statements
Balance sheets 4
Statements of operations 5
Statements of capital deficit 6
Statements of cash flows 7
Notes to financial statements 8-15
2
E-COMMERCE SUPPORT CENTERS, INC.
BALANCE SHEETS
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
e-commerce support centers, Inc.
Jacksonville, North Carolina
We have audited the accompanying balance sheets of e-commerce support centers,
Inc. as of September 30, 2000 and December 31, 1999 and the related statements
of operations, capital deficit and cash flows for the nine months ended
September 30, 2000 and the three months ended December 31, 1999. 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 in the United States of America. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of September 30,
2000 and December 31, 1999 and the results of its operations and its cash flows
for the nine months ended September 30, 2000 and the three months ended December
31, 1999, in conformity with generally accepted accounting principles in the
United States of America.
As described in Note 5 to the Financial Statements, effective February 1, 2001,
the Company was merged into another entity.
High Point, North Carolina /s/ BDO Seidman, LLP
December 22, 2000, except for
Footnote 5, dated February 1, 2001
3
E-COMMERCE SUPPORT CENTERS, INC.
BALANCE SHEETS
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September 30, December 31,
2000 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ -
Accounts receivable, net of allowance for doubtful accounts
of $108,000 in 2000 1,086,394 131,811
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Total current assets 1,086,394 131,811
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
Depreciation and amortization (Notes 2 and 3) 3,980,428 3,237,907
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$ 5,066,822 $ 3,369,718
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LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 386,136 $ 32,653
Accrued expenses 362,692 118,635
Due to affiliate (Note 1) 5,852,085 3,395,239
Current portion of capital lease obligations (Note 3) 712,919 379,138
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TOTAL CURRENT LIABILITIES 7,313,832 3,925,665
LONG-TERM CAPITAL LEASE OBLIGATIONS, LESS
current portion (Note 3) 1,044,079 682,632
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Total liabilities 8,357,911 4,608,297
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COMMITMENTS (Note 3)
CAPITAL DEFICIT
Stock subscription receivable (2,000) -
Common stock - no par value; authorized 100,000 shares; issued and
outstanding 82,000 shares in 2000 - -
Additional paid-in capital 2,000 -
Accumulated deficit (3,291,089) (1,238,579)
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TOTAL CAPITAL DEFICIT (3,291,089) (1,238,579)
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$ 5,066,822 $ 3,369,718
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See accompanying notes to financial statements.
4
E-COMMERCE SUPPORT CENTERS, INC.
STATEMENTS OF OPERATIONS
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Nine Months Three Months
Ended Ended
September 30, December 31,
2000 1999
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REVENUES $ 3,306,968 $ 219,404
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OPERATING EXPENSES:
Call center expenses 2,115,479 441,844
Selling, general and administrative expenses 1,988,066 423,146
Depreciation and amortization 1,155,774 570,356
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TOTAL OPERATING EXPENSES 5,259,319 1,435,346
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LOSS FROM OPERATIONS (1,952,351) (1,215,942)
OTHER INCOME (EXPENSE) - interest (100,159) (22,637)
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Loss before taxes on income (2,052,510) (1,238,579)
TAXES ON INCOME (Note 4) - -
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NET LOSS $ (2,052,510) $ (1,238,579)
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NET LOSS PER SHARE - BASIC AND DILUTED $ (25.03) $ (15.10)
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See accompanying notes to financial statements.
5
E-COMMERCE SUPPORT CENTERS, INC.
STATEMENTS OF CAPITAL DEFICIT
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Stock Common Stock Additional
Subscription ------------------- Paid-in Accumulated Total Capital
Receivable Shares Amount Capital Deficit Deficit
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AMOUNT, October 1, 1999 $ - - $ - $ - $ - $ -
Net loss - - - - (1,238,579) (1,238,579)
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AMOUNT, December 31, 1999 - - - - (1,238,579) (1,238,579)
Issuance of company common stock (2,000) 82,000 - 2,000 - -
Net loss - - - - (2,052,510) (2,052,510)
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AMOUNT, September 30, 2000 $ (2,000) 82,000 $ - $ 2,000 $(3,291,089) $(3,291,089)
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See accompanying notes to financial statements.
6
E-COMMERCE SUPPORT CENTERS, INC.
STATEMENTS OF CASH FLOWS
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Nine months Three Months
Ended Ended
September 30, December 31,
2000 1999
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CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (2,052,510) $ (1,238,579)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,155,774 570,356
Allowance for doubtful accounts 108,000 -
Changes in assets and liabilities:
Accounts receivable (1,062,583) (131,811)
Accounts payable 353,483 32,653
Accrued expenses 244,057 118,635
Due to affiliate 2,456,846 3,395,239
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Net cash provided by operating activities 1,203,067 2,746,493
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CASH FLOW USED IN INVESTING ACTIVITIES -
Purchase of property and equipment (890,271) (2,682,090)
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CASH FLOW USED IN FINANCING ACTIVITIES -
Principal payments on capital lease obligations (312,796) (64,403)
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Net increase(decrease) in cash - -
CASH AND CASH EQUIVALENTS, beginning of period - -
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CASH AND CASH EQUIVALENTS, end of period $ - $ -
- - ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Equipment financed through capital leases $ 1,008,024 $ 1,126,173
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See accompanying notes to financial statements.
7
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
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1. SUMMARY OF Basis of Presentation and Description of Business
SIGNIFICANT
ACCOUNTING e-commerce support centers, Inc. ("e-com") began operations
POLICIES in October 1999 as a division of Gibralter Publishing, Inc.
("Gibralter"). In May of 2000, e-com was incorporated and
Gibralter transferred existing call center contracts to
e-com. e-com provides outsourced eCRM solutions for both
business to business and business to consumer Internet
sites. e-com's full spectrum of personalized customer
solutions include inbound customer support and Help Desk
support using live, one-to-one text chat; live phone support
comprised of callback technology and voice/video over IP;
multiple, simultaneous email response; customized reporting;
proactive site monitoring; and collaborative agent
interaction. e-com also provides traditional call center
services. These services are provided for companies
throughout the United States.
The accompanying financial statements include the
operations, assets and liabilities of e-com. In December
2000, e-com announced its plan to merge with Paladyne Corp.,
see Note 5. Immediately prior to the merger, an affiliated
Company through common ownership, Gibralter, transferred
certain assets and liabilities to e-com. Those assets and
liabilities will be reflected in e-com's financial
statements at Gibralter's historical cost. The net effect of
the transfer of assets and liabilities was recorded as a due
to the affiliate. In conjunction with the merger, e-com has
entered into a contractual arrangement with Gibralter to
provide traditional call center services previously
performed by Gibralter.
Revenues and expenses specifically identified have been
directly attributed to e-com in the financial statements.
e-com's costs and expenses in the accompanying financial
statements include allocations from Gibralter for
centralized legal, accounting, real estate, information
technology, and other Gibralter corporate services and
infrastructure costs because specific identification of the
expenses is not practicable. The expense allocations have
been determined on the bases that Gibralter and e-com
considered to be reasonable reflections of the utilization
8
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
of services provided or the benefit received by e-com using
a ratio of hours worked by customer service representatives.
However, the financial information included herein may not
necessarily reflect the financial position and results of
operations of e-com in the future or what these amounts
would have been had it been a separate, stand-alone entity
during the periods presented. However, management believe
that if e-com had been a stand-alone entity during the
periods presented, the expenses would not have been
materially different from the allocations presented.
REVENUE RECOGNITION AND CREDIT RISK
The Company's call center support business records service
revenue in the period in which the services are rendered,
based on contractual hourly or call rates.
Management performs credit evaluations of its customers and
generally does not require collateral.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, cash and
cash equivalents include amounts in banks and on hand, and
highly liquid instruments with an original maturity of three
months or less. Due to their relationship with Gibralter
previously mentioned, all of ecom's cash receipts are
netted against due to affiliate.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated
using the straight-line method over estimated useful lives
of the respective assets, as follows:
------------------------------------------------------------
Computer and telephone hardware 3-5 years
Computer software 3 years
Leasehold improvements Term of lease
Furniture and fixtures 7 years
Equipment 5 years
------------------------------------------------------------
9
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
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FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount
at which the instrument could be exchanged in a current
transaction between willing parties. Management estimates
that the carrying amounts of the Company's financial
instruments included in the accompanying balance sheets are
not materially different from their fair values.
LONG-LIVED ASSETS
Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets.
When any such impairment exists, the related assets will be
written down to fair value. This policy is in accordance
with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
INCOME TAXES
e-com accounts for income taxes under the asset and
liability method in accordance with generally accepted
accounting principles. Accordingly, deferred income taxes
are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable
to future years to differences between the financial
statement carrying amounts and the tax bases of existing
assets and liabilities. Valuation allowances are recorded
when realization of deferred tax assets can not be
considered more likely than not.
10
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
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USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
ADVERTISING
Cost incurred for advertising are expensed when incurred.
The charges to expense were not significant for the nine
month period ended September 30, 2000 and for the three
months ended December 31, 1999.
PER SHARE DATA
e-com computes earnings per share based upon the weighted
average shares outstanding during the period. Earnings per
share were, calculated on a proforma bases for the three
month period end December 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities.
Historically, e-com has not entered into derivatives
contracts either to hedge existing risks or for speculative
purposes. Accordingly, e-com does not expect adoption of the
new standard on January 1, 2001, to affect its financial
statements.
11
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
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On December 3, 1999, the SEC issued Staff Accounting
Bulletin 101 (SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 summarizes some of the SEC's
interpretations of the application of generally accepted
accounting principles to revenue recognition. Revenue
recognition under SAB 101 was initially effective for the
Company's first fiscal quarter of fiscal year beginning
after December 15, 1999. However, SAB 101B, which was
released June 26, 2000, delayed adoption of SAB 101 until no
later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. The Company believes that
its revenue recognition practices are in substantial
compliance with SAB 101 and that adoption of its provisions
would not be material to its prospective annual or quarterly
results of operations.
2. PROPERTY AND Property and equipment is summarized as follows:
EQUIPMENT
September 30, December 31,
2000 1999
-----------------------------------------------------------
Computer and telephone hardware $ 2,026,668 $ 1,468,085
Computer software 3,402,142 2,186,394
Leasehold improvements 698,841 698,841
Furniture and fixtures 276,974 194,974
Equipment 159,106 117,142
-----------------------------------------------------------
6,563,731 4,665,436
Accumulated depreciation and
amortization (2,583,303) (1,427,529)
-----------------------------------------------------------
Property and equipment, net $ 3,980,428 $ 3,237,907
-----------------------------------------------------------
12
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Assets recorded under capital leases and included in
property and equipment are as follows:
September 30 December 31
2000 1999
-----------------------------------------------------------
Computer and telephone
hardware $ 872,629 $ 491,405
Computer software 1,256,249 863,768
-----------------------------------------------------------
2,128,878 1,355,173
Accumulated depreciation
and amortization (938,459) (578,027)
-----------------------------------------------------------
Net assets under lease
obligations $ 1,190,419 $ 777,146
-----------------------------------------------------------
3. CAPITAL LEASE Future minimum lease payments on capital leases for the
OBLIGATIONS 12-month period ended September 30 are summarized as
follows:
-----------------------------------------------------------
2001 $ 855,371
2002 615,659
2003 508,984
2004 15,153
-----------------------------------------------------------
Total payments 1,995,167
Less amount representing interest 238,169
-----------------------------------------------------------
Present value of minimum lease payments 1,756,998
Less current portion 712,919
-----------------------------------------------------------
Long term portion of capital lease obligations $ 1,044,079
-----------------------------------------------------------
13
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
4. INCOME TAXES Provisions for federal and state income taxes consist of
the following:
Nine Months Three Months
Ended Ended
September 30, December 31,
2000 1999
-----------------------------------------------------------
Deferred:
Federal $ (737,000) $ (421,000)
State (100,000) (57,000)
Valuation allowance 837,000 478,000
-----------------------------------------------------------
Total deferred - -
-----------------------------------------------------------
Provision for income taxes $ - $ -
-----------------------------------------------------------
The Company's effective tax rate differs from the statutory
federal tax rate in 2000 and 1999 as shown in the following
table:
Nine Months Three Months
Ended Ended
September 30, December 31,
2000 1999
-----------------------------------------------------------
U.S. federal income taxes at the
statutory rate $ (737,000) $ (421,000)
State taxes, net (100,000) (57,000)
Changes in valuation allowance 837,000 478,000
-----------------------------------------------------------
Provision for income taxes $ - $ -
-----------------------------------------------------------
14
E-COMMERCE SUPPORT CENTERS, INC.
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to a
significant portion of the deferred tax assets and
liabilities as of September 30, 2000 and December 31, 1999
are presented below:
September 30, December 31,
2000 1999
-----------------------------------------------------------
Allowance for doubtful accounts $ 42,000 $ -
Net operating loss carryforwards 795,000 478,000
Valuation allowances (837,000) (478,000)
-----------------------------------------------------------
Net deferred taxes $ - $ -
-----------------------------------------------------------
The Company has recorded a valuation allowance against
deferred tax assets due to uncertainties regarding the
Company's ability to generate a sufficient level of taxable
income in future periods. In the event that realization of
the deferred tax assets is considered more likely than not
in future periods, the Company may reduce the valuation
allowance.
Due to the change in ownership, future utilization of net
operating loss carryforwards will be limited.
5. SUBSEQUENT Effective February 1, 2001, ecom merged into Paladyne Corp.,
EVENTS in exchange for Paladyne redeemable Preferred Stock.
15
Pro Forma Financial Data
Introduction
The following pro forma financial data is based upon the historical
financial statements of Paladyne Corp. ("Paladyne") and have been prepared to
illustrate the effects on such historical financial data of the acquisition of
e-commerce support centers, inc. ("ecom"). The unaudited pro forma statements of
operations combine the historical consolidated statements of operations of
Paladyne for the six months ended February 28, 2001 and the year ended August
31, 2000 with the historical statements of operations for ecom for the six
months ended December 31, 2000 and the year ended September 30, 2000,
respectively. The ecom acquisition is assumed to have been consummated on
September 1, 1999. The unaudited pro forma balance sheet of Paladyne as of
February 28, 2001 includes the acquisition of ecom, which was consummated on
February 1, 2001 and reflects the results of operations of ecom for the one
month ended February 28, 2001.
The pro forma financial data is provided for comparative purposes only and
does not purport to represent the actual financial position or results of
operations of Paladyne that actually would have been obtained if the ecom
acquisition had been consummated on the date specified, nor is it necessarily
indicative of the results of operations that may be achieved in the future.
The pro forma financial data is based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
with the historical financial statements of Paladyne and ecom.
B-1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 28, 2001
PALADYNE
(A)
------------
(UNAUDITED)
ASSETS:
Current Assets
Cash and cash equivalents $ 398,459
Short term investments 242,666
Accounts receivable, net 1,531,289
Prepaid expenses and other current assets 120,939
------------
Total Current Assets 2,293,353
Property and equipment, net 3,188,137
Goodwill, net 9,520,256 (B)
Capitalized software development costs, net 417,936
Other assets 52,272
------------
TOTAL ASSETS $ 15,471,954
============
LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities
Notes payable $ 1,850,000 (C)
Accounts payable 1,229,008
Accrued expenses 601,355
Due to Affiliate 128,911
Accrued preferred stock dividends 129,200
Current portion of capital lease obligations 797,247
Current portion of long-term debt 431,466 (C)
------------
Total Current Liabilities 5,167,187
Long-term capital lease obligations 881,753
Long-term debt 3,068,534 (C)
------------
Total Liabilities 9,117,474
------------
Stockholders' Equity
Preferred Stock - Series A 137
Preferred Stock - Series B 4,100 (D)
Common Stock 8,460
Additional paid-in capital 12,879,848 (D)
Accumulated deficit (6,538,065)
------------
Total Stockholders' Equity 6,354,480
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 15,471,954
============
Footnotes
(A) The unaudited historical balance sheet of Paladyne includes the acquisition
of ecom on February 1, 2001 and reflects the results of ecom's operations
for the one month ended February 28, 2001.
(B) The excess of the purchase price over the net assets acquired of
approximately $9,373,000 was recorded as goodwill and will be amortized
over a 15 year period. Amortization expense of approximately $52,000 was
recorded in February 2001 relating to this goodwill. The purchase price was
based on the fair value of Paladyne's common stock and the number of shares
obtainable upon conversion of the convertible preferred stock issued as
acquisition consideration. The purchase price was allocated based on the
estimated fair value of the net assets acquired. The purchase allocation is
preliminary and is subject to change based upon final appraisals of the
assets acquired.
(C) Debt of $5,000,000 was assumed in the acquisition, including a short-term
$1,500,000 note payable and a long- term $3,500,000 note payable. Interest
expense of approximately $42,000 was recorded in February 2001 relating to
this debt.
(D) Stock valued at approximately $5,765,000 was issued, representing the
purchase price, in the acquisition consisting of 4,100,000 shares of
convertible preferred stock with a par value of $.001.
B-2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
HISTORICAL PRO FORMA
-------------------------- --------------------------------
ECOM ACQUISITION
PALADYNE (A), (E) ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(UNAUDITED)
REVENUES $ 5,521,865 $ 3,526,372 $ - $ 9,048,237
COST OF REVENUES 3,366,400 2,557,323 - 5,923,723
------------ ------------ ------------ ------------
Gross Profit 2,155,465 969,049 - 3,124,514
EXPENSES:
Selling & G&A 2,047,982 2,411,212 4,459,194
Depreciation & Amortization 62,656 1,726,130 624,882 (B) 2,413,668
-
------------ ------------ ------------ ------------
Income (Loss) from Operations 44,827 (3,168,293) (624,882) (3,748,348)
OTHER INCOME (EXPENSE):
Interest Income 7,594 - - 7,594
Interest Expense (24,418) (122,796) (500,000) (C) (647,214)
Loss on disposal of assets (31,814) - - (31,814)
Other Income 16,460 - - 16,460
------------ ------------ ------------ ------------
Net Income (Loss) 12,649 (3,291,089) (1,124,882) (4,403,322)
Cumulative Convertible Preferred Stock Dividend 40,800 40,800
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (28,151) $ (3,291,089) $ (1,124,882) $ (4,444,122)
============ ============ ============ ============
Net loss per common share - basic and diluted $ (0.00) - - $ (0.56)
Weighted average common shares outstanding - 7,958,843 - - (D) 7,958,843
basic and diluted
Footnotes
(A) The unaudited historical financial statements of ecom were based on a
December year end and have been adjusted to to reflect the results of
operations for the year ended September 30, 2000.
(B) Adjustments to record the amortization of goodwill resulting from the ecom
acquisition.
(C) Adjustment to reflect the interest expense related to the notes payable
signed by ecom in connection with the purchase of the property and
equipment immediately prior to the acquisition.
(D) The convertible preferred stock issued in connection with the acquisition
was anti-dilutive as of August 31, 2001 and has no effect on net loss per
common share.
(E) The results of operations of ecom for the year ended September 30, 2000
included the results of operations for three months ended September 30,
2000 which is also included in the results of operations for the six months
ended December 31, 2000. There were no unusual transactions during the
three months ended September 30, 2000.
B-3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001
HISTORICAL PRO FORMA
-------------------------- --------------------------------
ECOM ACQUISITION
PALADYNE (A), (F) ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
REVENUES $ 2,353,389 $ 3,277,312 $ (897,082) (B) $ 4,733,619
COST OF REVENUES 1,287,434 1,994,898 (153,330) (B) 3,129,002
------------ ------------ ------------ ------------
Gross Profit 1,065,955 1,282,414 (743,752) 1,604,617
EXPENSES:
Selling & G&A 2,160,141 1,554,941 (805,183) (B) 2,909,899
Depreciation & Amortization 232,545 770,516 (130,357) (B) 1,185,145
312,441 (C)
------------ ------------ ------------ ------------
Income (Loss) from Operations (1,326,731) (1,043,043) (120,653) (2,490,427)
OTHER INCOME (EXPENSE):
Interest Income 21,048 - - 21,048
Interest Expense (57,721) (66,773) 57,473 (B) (317,021)
(250,000) (D)
Other Income 6,986 - - 6,986
------------ ------------ ------------ ------------
Net Income (Loss) (1,356,418) (1,109,816) (313,180) (2,779,414)
Cumulative Convertible Preferred Stock Dividend 20,400 - - 20,400
------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1,376,818) $ (1,109,816) $ (313,180) $ (2,799,814)
============ ============ ============ ============
Net loss per common share - basic and diluted $ (0.16) - - $ (0.33)
Weighted average common shares outstanding - 8,458,956 - - (E) 8,458,956
basic and diluted
Footnotes
(A) The unaudited historical financial statements of ecom were based on a
December year end and have been adjusted to to reflect the results of
operations for the six months ended December 31, 2000.
(B) Adjustment to remove the results of operations of ecom for the one month
ended February 28, 2001 as these amounts are already included in Paladyne's
historical financial statements.
(C) Adjustment to record the amortization of goodwill resulting from the ecom
acquisition.
(D) Adjustment to reflect the interest expense related to the notes payable
signed by ecom in connection with the purchase of property and equipment
immediately prior to the acquisition.
(E) The convertible preferred stock issued in connection with the acquisition
was anti-dilutive as of February 28, 2001 and has no effect on net loss per
common share.
(F) The results of operations of ecom for the six months ended December 31,
2000 included the results of operations for three months ended September
30, 2000 which are also included in the results of operations for the year
ended September 30, 2000. There were no unusual transactions during the
three months ended September 30, 2000.
B-4