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, 2001
         Transition Report Under 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                   (IRS Employer
    of incorporation or organization)             Identification No.)

                 1650 A Gum Branch Road, Jacksonville, NC 28540
               (Address of principal executive offices) (zip code)

                    Issuer's telephone number: (910) 478-0097

    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 [ ]    No [X]

State the issuer's revenue for its most recent fiscal year: $6,488,865 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 November 1, 2001: $2,233,000

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                                          November 1, 2001
--------------------------------------------------------------------------------
Common Stock, par value $.001 per share                           16,709,351


                  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 Related Security Holders..........9

                                     PART II

ITEM 5.  Market for Common Equity and Other Shareholder Matters...............10

ITEM 6.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.............. ..........12

ITEM 7.  Financial Statements.................................................20

ITEM 8.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..................................45

                                    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...............................................48

ITEM 11. Security Ownership of Certain Beneficial Owners and Management.......50

ITEM 12. Certain Relationships and Related Transactions.......................51

ITEM 13. Exhibits and Reports on Form 8-KSB...................................52

Signatures....................................................................55

<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 include statements
concerning underlying assumptions and other statements that are other than
statements of historical facts. 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 obligations, to provide
working capital needs from operating revenues, to obtain additional financing
needed for any future acquisitions, to meet competitive challenges and
technological changes, 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.
Effective February 1, 2001, Paladyne Corp. merged with e-commerce support
centers, inc. ("ECOM"), a North Carolina corporation. This merger resulted in
significant impacts to all phases of the Company as discussed below. Other
historical issues are as follows: Effective March 5, 1999, Synaptx Worldwide,
Inc., (the "predecessor Company") a Utah corporation, merged with and into
Paladyne Corp., in a migratory merger, and Paladyne Corp. was the successor
registrant pursuant to Rule 12g-3 under the Securities Exchange Act of 1934. The
financial statements in this report are of Synaptx Worldwide, Inc. for all
periods through the date of the migratory merger, and of Paladyne Corp. since
that date. There were no adjustments to the historical financial statements of
Paladyne Corp. as a result of the merger.

DESCRIPTION OF BUSINESS

Paladyne Corp. ("Paladyne" or the "Company"), through its subsidiary e-commerce
support centers, inc. (ECOM), provides customer relationship management (CRM)
solutions out of its customer contact center in Jacksonville, NC. ECOM serves
the CRM marketplace as well as traditional contact center marketplaces with
telemarketing, professional services, and customer and technical support as an
outsource provider.

On February 1, 2001, Paladyne merged with ECOM, which was a privately held
provider of third party customer and technical support. Paladyne brought a
proprietary data cleansing and integration software capability marketed as
Datagration(TM) to enhance the CRM capabilities of ECOM'S state-of-the-art
customer contact center.

The Company's executive offices are at 1650A Gum Branch Road, Jacksonville, NC
28540 and its telephone number is (910) 478-0097.


                                       3
<PAGE>


HISTORY

The predecessor Company was incorporated on June 25, 1981 under the laws of the
State of Utah as Calico Gold Properties, Inc. and initially engaged in the
acquisition and development of mineral resource prospects. The predecessor
Company engaged in limited mining operations and subsequently ceased its
operations and became inactive for several years. On February 10, 1997, the
predecessor Company merged with Worldwide Applied Telecom Technology, Inc., and
changed its name to Synaptx Worldwide, Inc. Effective March 5, 1999, Synaptx
Worldwide, Inc., a Utah corporation, merged with and into Paladyne Corp., in a
migratory merger with Paladyne Corp. being the surviving Company.

On February 1, 2001, Paladyne Corp. through a wholly-owned subsidiary 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"). Upon the
Merger, ECOM became a wholly-owned subsidiary of Paladyne.

The merger consideration (the "Merger Consideration") to the ECOM shareholders
consisted of 4,100,000 shares of newly-created Series B Convertible Preferred
Stock, $.001 par value (the "Series B Preferred Stock"), Anti-Dilution Warrants
and Performance Warrants (as discussed below) and the right to receive
additional shares of Paladyne Common Stock in conjunction with future placements
by Paladyne. The Series B Preferred Stock was converted into 8,200,000 shares of
Common Stock after receiving stockholder approval at a July 10, 2001
stockholders meeting for an increase in the authorized capital stock. To protect
against dilution to the former ECOM shareholders upon exercise of outstanding
pre-Merger Paladyne options and warrants (the "Present Options/Warrants"),
Paladyne granted to them Anti-Dilution Warrants to purchase 4,000,000 shares of
Paladyne Common Stock at an exercise price of $1.146 per share (subject to
adjustment), vesting as to 0.6 of a share of Common Stock for each share of
Common Stock issued upon the exercise of Present Options/Warrants, and expiring
30 days after the later of (i) termination or exercise of all Present
Options/Warrants or (ii) notice from Paladyne as to the aggregate number of
Present Options/Warrants that were exercised. At August 31, 2001, these Warrants
were exercisable for 3,742,000 shares of Common Stock, and 258,000 warrants were
terminated unexercised.

To give the former ECOM shareholders the opportunity to participate more
directly in the future performance of Paladyne resulting from the acquired ECOM
business, Paladyne granted to them Performance Warrants to purchase 500,000
shares of Paladyne Common Stock at an exercise price of $1.146 per share
(subject to adjustment), exercisable for five years and vesting in 100,000 share
tranches for each $20 million of net revenue increases, above $50 million
annually, achieved in either year or both of the two (2) year periods ending
January 31, 2002 and 2003. For the purpose of these awards, the measurement will
be on a trailing 12-month basis, and with an acceptable gross margin (20% or
greater) for each tranche to qualify.


                                       4
<PAGE>


In addition, ending upon the earlier to occur of December 20, 2002 or Paladyne's
completion of $6,500,000 in cash from sales of Common Stock or Common Stock
equivalents (the "New Securities"), ECOM shareholders will receive, one share
(the "Deferred Shares") of Common Stock 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 former ECOM shareholders have waived their
right to new securities with respect to the proceeds from a current placement.

The Merger Agreement provided that Paladyne would grant options, at market
value, to ECOM employees for the purchase of an aggregate of 500,000 shares of
Paladyne Common Stock under its 1999 Stock Option Plan. These options have not
yet been granted.

Immediately prior to the Merger, ECOM purchased from Gibralter Publishing, Inc.,
a North Carolina corporation ("Gibralter"), all of the tangible and intangible
assets used in ECOM's call center operations, subject to related liabilities,
pursuant to an Option Agreement. Prior to the Merger, Gibralter had been
operating the call center on behalf of ECOM. The purchase price for these assets
was $5 million which is payable by ECOM pursuant to two amended promissory notes
(the "Notes") issued to Gibralter and guaranteed by Paladyne, one Note for
$1,500,000, repayable in two installments of $750,000, the first being due after
completion of a $3,000,000 equity or convertible debt offering and the remaining
payment due no sooner than six months after the first payment and after three
consecutive months of positive cash flow from operations. The second Note for
$3,500,000, is repayable in equal quarterly principal and interest payments of
$377,000 beginning in April 2002 and continuing through January 2005. Both Notes
bear interest at 10% per annum and are secured by the purchased assets.


PRODUCTS AND SERVICES:

The Company's products and services were extended with the Merger with ECOM in
February 2001. ECOM is a fully web-enabled customer contact center. Companies
large and small outsource their customer support and outbound telemarketing
needs to ECOM, which provides live agents operating from a 60,000 square foot
facility for those services. Outsourcing customer support and telemarketing has
become a popular option for many companies since the cost of building and
maintaining a state-of-the-art contact center is high and an outsourcer, such as
ECOM, can spread those costs over many clients and maintain peak performance
through specialization. Agents answer phones and chat on the Internet with
client customers and provide a variety of services from order entry, problem
solving, order tracking, technical support, and outbound sales or research.
Agents have an array of communications capabilities; these include: live chat,
voice and video over IP, dial-around, instant messaging and other on-line
communications options in addition to traditional telephone support. The contact
center has capacity for 800 representatives with flexibility to utilize
workstations for inbound, outbound or web enabled service as needed.

The Company's software product, the Datagration e-Business Suite, is a
component-based data integration and data quality solution built upon an open,
multi-tiered, cross platform architecture. The product is designed to "cleanse"
and integrate disparate customer data sources to form a "single customer view".
Development continues on the product. The "single customer view" extends the
capabilities of the ECOM CSRs, enabling them to provide more intelligent sales
and service for greater effect. ECOM offers data cleansing and integration only
as a service at this time, with no immediate plans to sell the software.


                                       5
<PAGE>

In addition to the aforementioned services, ECOM offers billing services,
application development for trouble ticketing and billing systems, application
hosting in an ASP model, and fulfillment services.

BUSINESS DEVELOPMENT AND STRATEGY:

Paladyne intends to expand its services and customer base in the rapidly growing
Customer Relationship Management (CRM) and "electronic" Customer Relationship
Management (eCRM) marketplace. CRM is a business strategy that enables any
business to gain new customers, retain existing customers and maximize the most
profitable customer relationships. The Company believes its combining of live
on-line and telephone-based customer support with the essential integration of
customer data for use in customer contact situations, creates a competitive
advantage in pursing this strategy. More specifically,

ECOM is a fully web-enabled support center providing live chat, voice and video
over IP, dial-around, instant messaging and other on-line communications options
in addition to traditional phone support. Of the 70,000 customer care centers in
operation today in North America, only 8% have developed this Web-enabled
capability.

ECOM'S proprietary software and services allow it to integrate a client's older
customer data systems, add data from outside sources, or bring together all
information about a given customer in one place, be it to refresh client data
bases or support its own Customer Service Representatives (CSRs) ability to
resolve higher levels of customer issues or engage in active selling during real
time customer interactions.

Through partnerships, ECOM is in the process of extending its CRM services to
include campaign management, data mining and data warehousing to manage and
extract customer data in order to maximize profitability from customer
interactions. Through its contact center operations, ECOM will deploy contact
programs based on data-driven strategies and provide feedback from its CSRs into
the data warehouse for future mining.

In concert with this strategy, ECOM has established lines of business in
Professional Services to augment its Datagration-based offering. The Company
will also pursue physical plant expansion through organic growth or
acquisitions.

The above are the stated future goals of the Company. However, there can be no
assurance that the Company will ever achieve its expressed goals.


                                       6
<PAGE>

STRATEGIC ALLIANCE

As noted above, the Company is extending its service offerings in the areas of
data mining, campaign management and data warehousing. Towards this goal, it has
established strategic partnerships with companies with particular expertise in
these fields. As part of its vision, ECOM strives to offer full CRM services
that cover these areas of expertise. The Company seeks to improve its clients'
customer data and use that data to improve each clients' marketing efforts and
to provide customer intelligence to ECOM'S own CSRs in order that they can
maximize every customer transaction. Empowered with customer data, CSRs can
effectively cross-sell and up-sell customers during inbound and outbound
situations. This ability to generate incremental revenue, adds to the value of
the services for which ECOM would be contracted. In addition, for its core
contact center business, the Company has established partnerships with billing
and fulfillment vendors.

Strategic partners include:

SERVICE OFFERING                                PARTNER
--------------------------------------------------------------------------------
Campaign management                             Yellow Brick Solutions, Inc.
Data Mining                                     Bridgetree
Data warehousing                                Synera Systems S.L.
Fulfillment services                            APL Logistics
Billing services                                BillMax Billing Solutions

POTENTIAL NEW ACQUISITIONS AND PRODUCT LINES

The Company intends to investigate, should opportunities arise, strategic
acquisitions or mergers 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 plans to finance
or seek outside financing for potential requirements of cash. Although the
Company occasionally explores additional acquisition and merger opportunities,
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 or mergers will be consummated.

SALES AND MARKETING

The Company markets and sells its products and services through its employees
and through the cooperative efforts of its business partners. The Company
employs an integrated marketing effort designed to establish market presence and
generate potential clients in both horizontal CRM marketplace and in selected
vertical markets. To date these efforts have generated the annual revenues for
the Company. Current clients representing more than 5% of annual revenue are
Gibralter Publishing representing 47% of revenue, and Lowe's Companies, Inc.,
representing 20% of revenue. Other significant customers include which represent
less than 5% of annual revenue individually include: SmartBargains Retail
Convergence,Inc., Cox Communications, Inc., Interpath Communications, Inc.,
Broadwing, Inc., and Broadview Networks, Inc.


                                       7
<PAGE>


Lead generation and branding efforts are the responsibility of the Marketing
Department. Sales Department personnel engage prospects and develop new business
from existing clients. Both marketing and sales manage business partner
relationships.

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 vary from market segment to market segment; however, there are
several which pursue a similar, full serviced CRM approach. These include:
Harte-Hanks, Inc., Stream.com, Convergys Corporation, and Sykes Enterprises,
Incorporated. Principal competitive factors affecting the market for outsourced
products and services include product reputation, quality, performance, price,
professional service, multiple or backup facilities, 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 August 31, 2001, the Company employed 387 individuals, consisting of six
executives, 20 professionals and sales representatives, 54 office staff and 287
customer representatives. The Company believes that its relationship with its
employees is satisfactory.

BUSINESS SEGMENTS

The Company currently operates in one business segment which is the outsource
CRM solutions provider segment. It provides service to many industry segments
including: retail, financial services, telecommunications and technology.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company's principal executive offices are located at 1650A Gum Branch Road,
Jacksonville, NC 28540. The current facility is sub-leased from Gibralter, the
term of the sub-lease extends through May 31, 2003, covers approximately 55,000
square feet at an approximate annual rental rate of $209,000.

In June 2001, the Company closed its offices in suburban Washington D.C., and in
Lake Mary, Florida. In conjunction with the closing of these offices, rent
payments to the landlords were terminated. No formal termination agreements or
payments were made in conjunction with the office closings.


                                       8
<PAGE>


In January, 2000, the Company closed its office in suburban Chicago Illinois.
There was minimal cost to vacate this space, primarily due to the write-off of
unamortized leasehold improvements.

The Company believes its current premises are adequate for current purposes and
if necessary would be able to obtain alternative or additional space.

ITEM 3.  LEGAL PROCEEDINGS

In November 1999, the Company terminated the employment of 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. The case is still in discovery. The
Company intends to defend itself vigorously against this claim.

In the ordinary course of business the Company has become subject to litigation
and claims on various matters. These exists the possibility that the Company
will not prevail in all cases. However, barring unanticipated adverse final
determination in these litigation and claims, the Company does not believe that
such litigation and claims would have a material adverse effect on its financial
condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A Special Meeting of the Stockholders of the Company was held on July 12, 2001.
The matters that were voted on and approved were as follows:

         Election of six Directors from all Classes for terms to coincide with
              the end of each Class's term.

         Approval of an amendment to the Company's Certificate of Incorporation
              increasing the number of authorized shares of Common Stock, $.001
              par value, from 25,000,000 shares to 75,000,000 shares.

         Approval an amendment to the Company's 1999 Stock Option Plan
              increasing the number of available shares of Common Stock
              thereunder from 2,500,000 shares to 5,000,000 shares.


                                       9
<PAGE>

The following votes were cast at the Special Meeting:


                                          For          Against       Abstain
                                          ---          -------       -------
1. Directors                           10,055,460      337,675
2. Increase capital stock              10,134,890      258,245         -0-
3. Increase options shares             10,124,505      258,130         -0-

PART II

ITEM 5.  MARKET PRICE FOR COMMON EQUITY AND OTHER RELATED
         SHAREHOLDER MATTERS

(a) 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.

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
                                     2001                          2000
                                   --------                      --------
                               High          Low             High         Low
                              ------        -----           ------       ------
First Quarter                 $1.50         $1.03           $1.06        $0.50
Second Quarter                 1.33           .38            3.75         1.25
Third Quarter                  1.25           .50            3.25         1.25
Fourth Quarter                  .38           .02            1.88         1.06


The ability of individual stockholders 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
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.


                                       10
<PAGE>

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 (at least $2 million); 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 of 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 stockholders to sell their shares.

As of November 19, 2001, there were 151 holders of record of the Company's
Common Stock. This amount does not take into account those stockholders whose
certificates are held in the name of broker-dealers or otherwise in street or
nominee name.

DIVIDEND POLICY

The Company has not declared or paid cash dividends on its Common Stock 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. In addition, the Company has a deficit
stockholders' equity which would restrict payment of dividends. 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 that 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. As of August 31, 2001, the Company has accrued $149,600 of
preferred stock dividends.


                                       11
<PAGE>


TRANSFER AGENT

The Company has designated American Stock Transfer and Trust Company, 59 Maiden
Lane, New York, NY as its transfer agent for the Common Stock.

(b) During the fiscal quarter ended August 31, 2001, the Company issued
8,200,000 shares of Common Stock to persons who were the holders of the Series B
Preferred Stock, upon mandatory conversion following stockholder approval of an
increase in the authorized number of shares of Common Stock. These shares were
issued pursuant to an exemption from the registration requirements of the
Securities Act of 1933 under Section 3 (a) (9) thereof.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information:

         This document includes forward-looking statements. All statements other
than statements of historical fact included in this document, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and Sources of
Capital" regarding the Company's strategies, plans, objectives, expectations,
and future operating results are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct. Actual results could differ
materially based upon a number of factors including, but not limited to, the
state of the economy, competition, unanticipated business opportunities,
availability of financing, market acceptance, government regulation, dependence
on key personnel, limited public market and liquidity, shares eligible for
future sale, and other risks that may apply to the Company.

         The following is a discussion of the financial condition and results of
operations of the Company as of the date of this Annual Report. This discussion
and analysis should be read in conjunction with the accompanying audited
Consolidated Financial Statements of the Company including the Notes thereto
which are included elsewhere in this Form 10-KSB.

General

         The Company is providing customer relationship management (CRM)
solutions through its customer contact center in Jacksonville, NC. ECOM serves
the CRM marketplace as well as traditional contact center marketplaces with
telemarketing, professional services, and customer and technical support as an
outsource provider.


                                       12
<PAGE>


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 cash flows 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 revenues of
principal items contained in the Company's Consolidated Statements of Operations
for the fiscal year ended August 31, 2001. The results for the year ended
August 31, 2000 have been classified as discontinued operations since the line
of business that accounted for all of the revenue in that year were discontinued
in fiscal 2001. Accordingly, no comparison of fiscal 2001 to 2000 is shown. The
percentages discussed throughout this analysis are stated on an approximate
basis. Results for both periods presented have been stated to reflect
discontinued operations.

                                                                 Fiscal Year
                                                                    Ended
                                                                  August 31,
                                                                     2001
                                                                ------------

           Revenues                                                 100.0%
           Cost of revenues                                          52.5%
                                                                ------------
           Gross profit                                              47.5%
           Operating expenses                                   ------------
           Impairment of Goodwill and Capitalized
              Software costs                                         80.2%

                                                                    138.8%
           Operating loss                                          (171.5%)
           Other expenses, net                                        6.7%
                                                                ------------
           Net loss from continuing operations                     (178.2%)
           Loss from discontinued operations                    ------------
                                                                    (26.2%)
           Net loss                                                (204.4%)
                                                                ------------

Year Ended August 31, 2001

Revenues

The Company's revenues of $6,488,865 were attributable to the operations since
the merger with ECOM on February 1, 2001 ("Merger"). This revenue and all other
related operating activity is attributable to Company's call center activities
that were acquired in the Merger with ECOM. All fiscal 2000 revenue and other
operating activity, as well as the activity in fiscal 2001 prior to the Merger
has been classified as discontinued operations.


                                       13
<PAGE>

Cost of revenues

Cost of revenues of $3,407,668 or 52.5% related entirely to the Company's call
center activities since the Merger date. The Company's gross profit margin, was
47.5% for 2001.

Selling, General and Administrative

Selling, general and administrative expenses ("SG&A") during the year ended
August 31, 2001, including depreciation and amortization was $ 4,868,423.
Compensation costs of $ 1,839,944 and occupancy costs of $ 104,894 comprised
approximately 55% of SG&A during the period. Depreciation of equipment and
amortization of goodwill and capitalized Software Costs accounted for $1,313,046
prior to the impairment charge in connection with the write-off of goodwill and
capitalized software costs at August 31, 2001.

Impairment Charge

During the year ended August 31, 2001, the Company recorded a charge of $
9,008,713 for goodwill impairment related to its wholly-owned ECOM subsidiary.
Subsequent to its acquisition in February, 2001, the the e-commerce and
telecommunications industries experienced significant and rapid contraction. As
a result, the Company conducted a strategic review of its ECOM subsidiary, which
was experiencing significant changes in market conditions. In addition, during
the year ended August 31, 2001, the Company ceased the development of the
Company's Datagration software operations and recorded a charge of $338,037 for
unamortized capitalized software costs related to this discontinued operation .
This impairment and resulting charge to operations is attributed to several
factors including the Company's inability to close a private placement of the
Company's stock in conjunction with the Merger, the cessation of the Company's
previous operations due to loss of the customer base and difficulty integrating
the Datagration software into the Company's product line due to limitations and
implementation issues with the Datagration.

Due to the significance of the changes discussed above, management performed an
evaluation of the recoverability of all of the assets of ECOM, as described in
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of". Management
concluded from the results of this evaluation that a significant impairment
charge was required because estimated fair value was less than the carrying
value of the assets. Considerable management judgment is necessary to estimate
fair value. Accordingly, actual results could vary significantly from
managements' estimates.


                                       14
<PAGE>

Based upon this strategic review , the Company recognized an asset impairment
loss of $ 9,346,750 or $ .71 per share during the year ended August 31, 2001.

Interest Expense

Interest expense of $462,794 includes $291,666 of accrued interest related to
the $5,000,000 in notes to Gibralter Publishing that were issued in conjunction
with the Merger. Remaining interest expense is primarily attributable to capital
leases assumed in conjunction with the Merger.

Provision for Income Taxes

There was no tax provision or benefit recognized in fiscal 2001 and 2000. The
Company incurred losses of $13,270,031 in 2001. At August 31, 2001, the Company
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 to realize such assets. 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.

Discontinued Operations

In fiscal year 2001, the Company discontinued the operations of its data
integration and data quality that were being provided via subcontractor
arrangements with third party vendors. All of the fiscal 2000 revenue was
attributable to these discontinued operations. The following table sets forth
the results of operations and loss on disposal from these businesses in fiscal
2001 and 2000.


                                       15
<PAGE>


                                                Fiscal 2001       Fiscal 2000
                                                ------------      ------------

Revenues                                         $1,556,765       $5,521,865
Cost of revenues                                  1,262,793        3,366,400
                                                ------------      ------------
Gross profit                                        293,972        2,155,465

General & administrative expenses                 1,995,817        2,142,816
                                                ------------      ------------
Income (loss) from operations                    (1,701,845)          12,649
                                                ------------      ------------
Income (loss) from discontinued operations      ($1,701,845)         $12,649
                                                ------------      ------------

NET OPERATING LOSS

The Company has accumulated approximately $13,520,000 of net operating loss
carryforwards as of August 31, 2001, which may be offset against taxable income
and income taxes in future years. The use of these losses to reduce future
income tax liabilities will depend on the generation of sufficient taxable
income prior to the expiration of the net operating loss carryforwards. The
carryforwards expire in the year 2020. 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 that can be used.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal cash requirements are for selling, general and
administrative expenses, employee costs, funding of accounts receivable and
capital expenditures. The Company's primary sources of cash have been from
private placements of the Company's Common Stock or sale of Subordinated
Convertible Debentures which raised $300,000 of net proceeds in the fiscal year
2001 and $1,983,149 in fiscal year 2000. The Company is engaged in a best
efforts placement of up to $3,000,000 of a new class of Series C Preferred
Stock. The placement is to expire on December 31, 2001. Assuming the sale of all
securities in the placement, the Company should have sufficient working capital
for the next twelve months. There is no assurance that the placement will be
completely subscribed. In the event less than all securities offered are
subscribed for, the Company may have to seek other equity or debt sources to
raise capital, which could be substantially dilutive to stockholders. The
placement could also result in an exchange of the Gibralter Notes for certain
equity positions.

For the year ended August 31, 2001, cash and cash equivalents decreased from
$635,612 at the beginning of the year to $158,225 at the end of the year.

Net cash used in operating activities in the year ended August 31, 2001 was
$1,626,344 due to the net loss of approximately $13,311,000 and a net decrease
in working capital items of approximately $1,019,691, offset by non-cash
depreciation and amortization expenses of approximately $1,313,046 and the
non-cash write off of the Goodwill and Capitalized Software of $9,346,750.


                                       16
<PAGE>


Net cash provided by investing activities in fiscal 2001 was $484,505
attributable to a reduction in short-term investments as required by operating
uses during the year.

Cash provided by financing activities in fiscal 2001 was $ 664,452 due primarily
to the issuance of notes of $355,000 and the issuance of $300,000 aggregate
principal amount of Subordinated Convertible Debentures via private placements,
resulting in net proceeds of $300,000. The exercise of outstanding options and
warrants during fiscal year 2001 resulted in net proceeds to the Company of
$14,452.

In fiscal year 2001, the Company had a revolving line-of-credit with a bank for
$350,000, secured by the receivables of the Company. The entire balance was
outstanding at August 31, 2001. The rate is prime plus 1% and the line expires
on December 12, 2001.


                                       17
<PAGE>


The independent auditors report on the Company's August 31, 2001 financial
statements included in this Annual Report states that the Company's recurring
losses raise substantial doubts about the Company's ability to continue as a
going concern.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS NO. 133, as amended by SFAS NO. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000.

Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company's
adoption of the new standard on September 1, 2000 did not affect its financial
statements.

The Company adopted Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pension and Other -Post Employment Benefits ("SFAS
132") in the year ended August 31, 2000. SFAS No. 132 establishes disclosure
requirements regarding pension and post employment obligations. SFAS No. 132
does not affect the Company as of August 31, 2000.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. ("FAS") 141, "Business Combinations" ("FAS
141") and FAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. FAS 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination, whether acquired individually or with a group of other
assets, and the accounting and reporting for goodwill and other intangibles
subsequent to their acquisition. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to impairment
tests at least annually. The Company is required to adopt FAS 141 and FAS 142 on
a prospective basis as of January 1, 2002; however, certain provisions of these
new standards may also apply to any acquisitions concluded subsequent to June
30, 2001. This accounting pronouncement does not impact these financial
statements.


                                       18
<PAGE>


In October 2001, the Financial Accounting Standards Board issued FAS
144,"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144").FAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("FAS 121") and related literature and establishes a single accounting
model, based on the framework established in FAS 121, for long-lived assets to
be disposed of by sale. The Company is required to adopt FAS 144 no later than
January 1, 2002. This accounting pronouncement does not impact these financial
statements


In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25". FIN 44 clarifies the application of APB Opinion No. 25 for (a)
the definition of employee for purposes of applying APB Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain conclusions cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The adoption of FIN 44, as of July
1, 2000, did not have a material effect on the Company's historical financial
position or results of operations, but may impact the accounting for grants or
awards in future periods.

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.

INFLATION

In the opinion of management, inflation has not had a material effect on the
operations of the Company.


                                       19
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

The consolidated financial statements for Paladyne Corp. as of and for the
fiscal years ended August 31, 2001 and 2000 are included herein in response to
Item 7 of this Form 10-KSB.





                                       20
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



                       FINANCIAL STATEMENTS AND SCHEDULES

                            AUGUST 31, 2001 AND 2000



                         FORMING A PART OF ANNUAL REPORT
                 PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934




                                 PALADYNE CORP.







<PAGE>


                                 PALADYNE CORP.
                          INDEX TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------



                                                                       Page No.
                                                                       -------
Report of Independent Certified Public Accountants                       F-3
Consolidated Balance Sheet at August 31, 2001                            F-4
Consolidated Statements of Operations for the Two Years Ended
   August 31, 2001 and 2000                                              F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
   for the Two Years Ended August 31, 2001 and 2000                      F-7
Consolidated Statements of Cash Flows for the Two Years Ended
   August 31, 2001 and 2000                                              F-7
Notes to Consolidated Financial Statements                           F-8 to F-24




<PAGE>


                             STEFANOU & COMPANY, LLP
                          CERTIFIED PUBLIC ACCOUNTANTS

                                1360 Beverly Road
                                    Suite 305
                              McLean, VA 22101-3621
                                  703-448-9200
                               703-448-3515 (fax)
                                                                Philadelphia, PA
--------------------------------------------------------------------------------


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------


Board of Directors
Paladyne Corp.

         We have audited the accompanying consolidated balance sheet of Paladyne
Corp. and subsidiary as of August 31, 2001 and the related consolidated
statements of operations, stockholders' equity (deficiency), and cash flows for
the year ended August 31, 2001. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits. The consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
the year ended August 31, 2000 were audited by other auditors whose report dated
November 3, 2000 expressed an unqualified opinion on those statements.

         We conducted our audit in accordance with auditing standards generally
accepted 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 misstatements. 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 our audit provides a reasonable
basis for our opinion.

         In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Paladyne Corp. and subsidiary as of August 31, 2001 , and the consolidated
results of its operations and its cash flows for the year then ended, in
conformance with accounting principles generally accepted in the United States
of America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note M the Company
is experiencing difficulty in generating sufficient cash flow to meet it
obligations and sustain its operations, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note M. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                                /s/ STEFANOU & COMPANY, LLP
                                                    -----------------------
                                                    Stefanou & Company, LLP
                                                    Certified Public Accountants

McLean, Virginia
November 21, 2001


                                       F-3

<PAGE>

                                 PALADYNE CORP.
                           CONSOLIDATED BALANCE SHEET
                                 AUGUST 31, 2001

                                 ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                     $    158,225
    Accounts receivable (net of allowance for doubtful
    accounts of $607,999)                                            1,414,473
    Prepaid expenses and other assets                                  113,960
                                                                  ------------
               Total current assets                                  1,686,658

PROPERTY AND EQUIPMENT, AT COST
    Furniture and Fixtures                                             360,000
    Computers and Software                                           1,643,218
    Leasehold Improvements                                           1,209,967
                                                                  ------------
                                                                     3,213,185
    Accumulated depreciation and amortization                          783,449
                                                                  ------------
             Property and equipment, net                             2,429,736
Other  assets                                                           28,685
                                                                  ------------
                                                                     4,145,079

   LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                            2,500,585
    Notes payable (Note D)                                           2,663,752
    Accrued preferred stock dividend                                   149,600
    Current portion of capital lease obligations (Note G)              816,649
                                                                  ------------
         Total current liabilities                                   6,130,586

Notes Payable (Note D)                                               2,986,248

Capital lease obligation-long term portion (Note G)                    634,230
                                                                  ------------
                                                                     9,751,064
COMMITMENTS AND CONTINGENCIES (NOTE G)

DEFICIENCY IN STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value; 10,000,000 shares authorized;
Series A 137,143 shares issued and outstanding;                            137
Common Stock, $.001 par value , 75,000,000 shares authorized,
16,709,351 issued and outstanding                                       16,709
Additional paid -in-capital                                         12,869,647
Accumulated deficit                                                (18,492,478)
                                                                  ------------
          Total deficiency in stockholders' equity                  (5,605,985)
                                                                  ------------
                                                                  $  4,145,079
                                                                  ============

         See accompanying notes to the consolidated financial statements
                                       F-4
<PAGE>


                                  PALADYNE CORP
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         FOR THE YEARS ENDED AUGUST 31,


<TABLE>
<CAPTION>
                                                                                    2001              2000
                                                                                    ----              ----


<S>                                                                             <C>               <C>
Revenues                                                                        $  6,488,865      $       -

Cost of revenues                                                                   3,407,668
                                                                                ------------      ----------
                                                                                                          -

Gross Profit                                                                       3,081,197              -

Selling, general and administrative expenses                                       3,893,414              -
Depreciation and Amortization                                                      1,313,046              -
Impairment loss                                                                    9,008,713              -
                                                                                ------------      ----------
                                                                                                          -
Loss from operations                                                             (11,133,976)             -

Other income (expense)
     Interest income                                                                  28,584              -
     Interest expense                                                               (462,794)             -
                                                                                ------------      ----------
Loss from continuing operations, before income
  taxes and discontinued operations                                              (11,568,186)             -
Income (taxes) benefits                                                                    -              -
                                                                                ------------      ----------
                                                                                                          -
Loss from continuing operations, before discontinued
  operations                                                                     (11,568,186)             -
Income (loss) from discontinued operations                                        (1,701,845)        12,649
                                                                                ------------      ----------
Net income (loss)                                                                (13,270,031)        12,649

Cumulative convertible preferred stock dividend requirements                         (40,800)       (40,800)
                                                                                ------------      ----------

Net loss attributable to common stockholders                                    $ 13,310,831)     $ (28,151)
                                                                                ============      ==========

Weighted average shares outstanding Basic and Diluted                             13,212,599       7,958,843

Basic and diluted net loss per share continuing operations                          $   (.87)     $    (.00)
Basic and diluted net loss per share discontinued operations                            (.13)          (.00)
                                                                                ------------      ----------
Basic and diluted loss per share                                                    $ (1.00)      $    (.00)
                                                                                ============      ==========
</TABLE>


         See accompanying notes to the consolidated financial statements


                                       F-5





<PAGE>


                                  PALADYNE CORP
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
             FOR THE YEARS ENDED AUGUST 31, 2001 AND AUGUST 31, 2000

<TABLE>
<CAPTION>
                                                                         Preferred   PREFERRED     Preferred
                                                                         ---------   ---------     ---------
                                      Common       Common     Preferred    Stock                     Stock
                                      ------       ------     ---------    -----                     -----
                                      Stock        Stock       Stock        Par          Stock       Par Value
                                      -----        -----       -----       ----          -----      ---------
                                     Shares      Par value    Shares(A)   Value(A)    Shares (B)       (B)
                                     ------      ---------    ---------   --------    ----------       ---

<S>                                  <C>            <C>         <C>       <C>        <C>             <C>
BALANCE AT AUGUST 31, 1999           6,782,229      $ 6,783     137,143   $    137   $         -      $     -
Options exercised                      261,838          262                      -             -            -
Warrants exercised                      18,408           18           -          -
Share issued in exchange fro debt          520            1           -          -             -            -
Shares and warrants issued in
connection with  acquisition            68,475           68           -          -             -            -
Shares issued in exchange for
cash in connection with private
placement , net of costs             1,325,129        1,325           -          -             -            -
Warrants issued for non-employee
services rendered                            -                        -          -             -            -
Preferred dividend accrual                   -            -           -          -             -            -
Net income                                   -            -           -          -             -            -
                                    ----------     --------     -------   --------   -----------      -------
BALANCE AT AUGUST 31, 2000           8,456,599        8,457     137,143        137             -            -
Share issued in connection with
acquisition                                  -            -           -          -     4,100,000        4,100
Conversion of Preferred
Shares (Series B) for Common
Stock                                8,200,000        8,200           -               (4,100,000)      (4,100)
Issuances of additional shares          52,752           52           -          -             -            -
Net loss                                     -            -           -          -             -            -
                                    ----------     --------     -------     ------   -----------      -------
                                             -            -           -          -             -            -
BALANCE AT AUGUST 31, 2001          16,709,351     $ 16,709     137,143     $  137             -      $     -
                                    ==========     ========     =======     ======   ===========      =======

<CAPTION>

                                        Additional      Accumulated
                                        ----------      -----------
                                    paid- in Capital      Deficit           Total
                                    ----------------      -------           -----

<S>                                 <C>                <C>              <C>
BALANCE AT AUGUST 31, 1999          $ 4,766,418        $ (5,194,296)    $  (420,958)
Options exercised                       172,649                   -         172,911
Warrants exercised                       16,708                   -          16,726
Share issued in exchange fro debt         1,299                   -           1,300
Shares and warrants issued in
connection with  acquisition            224,332                   -         224,400
Shares issued in exchange for
cash in connection with private
placement , net of costs              1,981,824                   -       1,983,149
Warrants issued for non-employee
services rendered                        82,000                   -          82,000
Preferred dividend accrual             (108,800)                  -        (108,800)
Net income                                    -              12,649          12,649
                                    -----------        ------------    ------------
BALANCE AT AUGUST 31, 2000            7,136,430          (5,181,647)      1,963,377
Share issued in connection with
acquisition                           5,718,817                   -       5,722,917
Conversion of Preferred
Shares (Series B) for Common
Stock                                         -                   -           4,100

Issuances of additional shares           14,400                   -          14,452
Net loss                                      -         (13,310,831)    (13,310.831)
                                    -----------        ------------     -----------
BALANCE AT AUGUST 31, 2001           12,869,647        $(18,492,478)    $(5,605,985)
                                    ===========        ============     ===========
</TABLE>


        See accompanying notes to the consolidated financial statements


                                       F-6


<PAGE>


                                       58

                                  PALADYNE CORP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED AUGUST 31,

<TABLE>
<CAPTION>
                                                                                   2001               2000
                                                                                   ----               ----
<S>                                                                        <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income (loss) from continuing operations                       $  (11,568,186)         $       -
Adjustments to reconcile net income (loss) to cash used in operating
activities:
       Income (loss) from discontinued operations                              (1,701,845)            12,649
       Depreciation and Amortization                                            1,313,046             62,656
       Loss on disposal of assets                                                       -             31,814
       Non-cash warrants issued                                                         -             82,000
      Common stock issued for services                                                  -              1,300
      Impairment loss                                                           9,346,750
Changes in operating assets and liabilities
       Accounts receivable                                                       (259,500)          (644,611)
       Other current assets
                                                                                 (113,093)            31,774
       Accounts payable                                                           553,879            349,698
       Accrued Expenses                                                           779,829           (65,062)
       Other non current assets                                                    22,776
       Deferred revenue                                                                 -            (95,700)
                                                                                ---------          ---------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES                               (1,626,344)          (233,482)

CASH FLOWS FROM INVESTMENT ACTIVITIES
       Additions to property and equipment                                              -            (70,721)
       (Purchase) disposition of short-term investments                           484,505           (484,505)
       Capitalized software development costs                                           -          (349,071)
       Other assets                                                                     -            (5,792)
                                                                                ---------          ---------
NET CASH PROVIDED (USED IN ) INVESTING ACTIVITIES                                 484,505          (910,092)

CASH FLOWS FROM FINANCING ACTIVITIES
       Repayment of notes payable                                                       -          (243,600)
       Repayment of note payable to stockholder                                         -          (150,000)
       Proceeds from issuance of notes                                            650,000
       Proceeds from issuance of common stock, net                                      -          1,983,149
       Proceeds from exercise of options and warrants                              14,452            189,637
                                                                                ---------          ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                         664,452          1,779,186

NET INCREASE (DECREASE) IN CASH                                                  (477,387)           635,612
Cash at beginning of the year                                                     635,612                  -
                                                                                ---------          ---------
Cash at the end of the year                                                     $ 158,225          $ 635,612
                                                                                =========          =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest                                         $  405,220          $  24,400
Cash paid during the year for taxes                                                     -                  -
Common stock issued for services                                                        -              1,300
Common stock issued in exchange for debt                                                -             99,400
Accrued preferred stock dividend                                                   40,800            108,800
Common stock warrants  issued in exchange for debt                                      -            125,000
Conversion of preferred stock                                                   4,100,000
 Non cash investing and financing activities
       Assets acquired in merger                                                4,234,636
       Debt assumed in merger                                                   5,000,000
       Liabilities assumed in merger                                            2,375,579
       Costs of acquisition                                                       467,000
       Issuance of preferred stock in merger                                    5,765,420

</TABLE>

         See accompanying notes to the consolidated financial statements


                                       F-7
<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000


NOTE A-SUMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.

BUSINESS AND BASIS OF PRESENTATION


Paladyne Corp. (the "Company") through a wholly-owned subsidiary, e-commerce
support centers, inc., provides customer relationship management (CRM) solutions
at its customer contact center in Jacksonville, NC. Effective with the merger of
ECOM the Company discontinued operations of its data integration business.

The consolidated financial statements include the accounts of the Company, and
its wholly owned subsidiary, e-commerce support centers inc. All significant
inter-company transactions and balances have been eliminated.


REVENUE RECOGNITION


The Company recognizes revenue at the point at which services are provided to
the customer. The contractual terms of the agreements dictate the recognition of
revenue by the Company.


Advertising

The Company follows the policy of charging the costs of advertising to expenses
incurred. Advertising costs incurred during the years ended August 31, 2001 and
2000 were $ 7,473 and $ 0 respectively.

Income Taxes

Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statements of Financial Standards
No. 109, "Accounting for Income Taxes". Under this method deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be removed or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the statement of operations in the period
that includes the enactment date.

Cash Equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.



                                       F-8

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000


NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the fair value of
acquired assets. The Company amortizes these costs on a straight-line basis over
a period not exceeding fifteen years. Should events or circumstances occur
subsequent to the acquisition of a business which bring into question the
realizable value or impairment of the related goodwill, the Company will
evaluate the remaining useful life and balance of goodwill and make adjustments,
if required. The Company's principal consideration in determining an impairment
includes the strategic benefit to the Company of the particular asset or assets
as measured by discounted current and expected future operating income of that
specified group of assets and expected discounted future cash flows. Should
impairment be identified, a loss would be reported to the extent that the
carrying value of the related goodwill exceeds the fair value of that goodwill
based upon cash flow.


During the year ended August 31, 2001, the e-commerce and telecommunications
industries experienced significant and rapid contraction. As a result, the
Company conducted a strategic review of certain assets because of its revenue
decline. The strategic review triggered an impairment of long-lived assets of
$9,346,750 of goodwill (see Note B regarding the impact of this statement).


PROPERTY AND EQUIPMENT


Property and equipment are stated at cost and depreciated over their estimated
useful lives of three to seven years using the straight-line method.


CAPITALIZED COMPUTER HARDWARE AND SOFTWARE

The Company records the purchase of computer hardware at historical cost and
amortizes this cost over a period of three to five years. The Company has
adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company capitalizes software purchased from
third parties if the related software product under development has reached
technological feasibility or if there are alternative future uses for the
purchased software provided that capitalized amounts will be realized over a
period not exceeding five years.

In addition, the company capitalizes costs of materials, consultants, interest,
and payroll and payroll-related costs for employees incurred in developing
internal-use computer software once technological feasibility is attained. Costs
incurred prior to the establishment of technological feasibility are charged to
general and administrative expense.



                                       F-9
<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000


NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

 Long-Lived Assets

The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. SFAS No. 121 also requires assets to be
disposed of be reported at the lower of the carrying amount or the fair value
less costs to sell.



Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.


Stock Based Compensation



The Company accounts for stock transactions in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees." In accordance with statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," the Company has adopted the proforma disclosure requirements.
From time to time, the Company grants options or warrants to non employees in
return for services rendered. The Company recognizes a charge for the fair value
ascribed to such options and warrants over the service or vesting period.



Liquidity



As shown in the accompanying financial statements, the Company incurred a net
loss of $13,310,831 during the year ended August 31, 2001. The Company's current
liabilities exceeded its current assets by $ 4,443,928 as of August 31, 2001.



Comprehensive Income

The Company does not have any items of comprehensive income in any of the
periods presented.

Segment Information

The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segments.



                                      F-10

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000


NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)




Net Loss Per Share



The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information.

Basic net loss per share is computed by dividing net income or loss by the
weighted average number of common shares outstanding, after giving effect to the
stock dividend. Diluted loss per share includes the assumed exercise of stock
options and warrants using the treasury stock method and the effects of
convertible preferred stock. In fiscal 2001 and 2000, there were no differences
between basic and diluted loss per common share because the assumed exercise was
anti-dilutive. The assumed exercise of stock options and warrants and conversion
of preferred stock could potentially dilute basic earnings per share amounts in
the future.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.



Reclassifications



Certain reclassifications have been made in prior years' financial statements to
conform to classifications used in the current year.



New Accounting Pronouncements



In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. ("FAS") 141, "Business Combinations" ("FAS
141") and FAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. FAS 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination, whether acquired individually or with a group of other
assets, and the accounting and reporting for goodwill and other intangibles
subsequent to their acquisition. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to impairment
tests at least annually. The Company is required to adopt FAS 141 and FAS 142 on
a prospective basis as of January 1, 2002; however, certain provisions of these
new standards may also apply to any acquisitions concluded subsequent to June
30, 2001. This accounting pronouncement does not impact these financial
statements.

In October 2001, the Financial Accounting Standards Board issued FAS
144,"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144").FAS 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes FAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("FAS 121") and related literature and establishes a single accounting
model, based on the framework established in FAS 121, for long-lived assets to
be disposed of by sale. The Company is required to adopt FAS 144 no later than
January 1, 2002. This accounting pronouncement does not impact these financial
statements

                                      F-11

<PAGE>
                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE A-SUMMARY OF ACCOUNTING POLICIES (CONTINUED)



The Company adopted Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pension and Other -Post Employment Benefits ("SFAS
132") in the year ended December 31, 1999. SFAS No. 132 establishes disclosure
requirements regarding pension and post employment obligations. SFAS No. 132
does not affect the Company as of December 31, 1999.



The Company adopted Statement of Financial Standards No. 133, Accounting for
Derivative Instruments and for Hedging Activities ("SFAS No. 133") in the year
ended December 31, 1999. SFAS No. 133 requires that certain derivative
instruments be recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is also provided
to determine when hedge accounting treatment is appropriate whereby hedging
gains and losses are offset by losses and gains related directly to the hedged
item. SFAS No. 133's impact on the Company's consolidated financial statements
is not expected to be material as the Company has not historically used
derivative and hedge instruments.



In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (" SAB 101"), Revenue Recognition in Financial Statements,
which will become effective December 31, 2000. The Company does not expect the
standard to have a material effect on its financial condition or operating
results.



In March 2000, the Financial Accounting Standards Board issued interpretation
No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies the
application of APB No. 25 for (a) the definition of employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequences of various
modifications to previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 2, 2000 but certain conclusions cover specific events that
occur after either December 15, 1998 or January 12, 2000. The adoption of FIN 44
did not have an affect on the Company's financial statements but may impact the
accounting for grants or awards in future periods



NOTE B-BUSINESS COMBINATION


On February 1, 2001, Paladyne Corp. ("Paladyne") through a wholly-owned
subsidiary ECOM 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") in a transaction accounted for
using the purchase method of accounting. Upon the Merger, ECOM became a
wholly-owned subsidiary of Paladyne. ECOM is a provider of Customer Relationship
Management (CRM) solutions and customer contact center services as an
outsourcing option to companies from its contact center in Jacksonville, NC. The
merger consideration (the "Merger Consideration") to the ECOM shareholders
consisted of shares of newly-created Series B Convertible Preferred Stock, $.001
par value (the "Series B Preferred Stock"), Anti-Dilution Warrants and
Performance Warrants (as discussed below) and the right to receive additional
shares of Paladyne Common Stock in conjunction with future placements by
Paladyne. Terrence J. Leifheit, the principal shareholder of ECOM, and another
ECOM shareholder, delivered into escrow securities representing approximately
25% of the aggregate Merger Consideration as security for indemnification claims
Paladyne may have under the Merger Agreement.


                                      F-12
<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE B-BUSINESS COMBINATION (CONTINUED)


Upon the Merger, Paladyne issued 4,100,000 shares of Series B Preferred Stock.
Each share of Series B Preferred Stock votes on a two-for-one basis with the
Common Stock on all matters, but with a separate vote on matters directly
affecting such Series, mandatorily converts into two shares of Paladyne Common
Stock immediately following stockholder approval of an increase in the number of
authorized shares of Common Stock, will receive any dividends declared on an
as-converted basis with the Common Stock and will have a liquidation preference
of $5.00 per share. The stockholder approval was obtained at a July 10, 2001
stockholders meeting, accordingly, the shares are deemed converted as of that
date.

To protect against dilution to the former ECOM shareholders upon exercise of
outstanding pre-Merger Paladyne options and warrants (the "Present
Options/Warrants"), Paladyne granted to them Anti-Dilution Warrants to purchase
4,000,000 shares of Paladyne Common Stock at an exercise price of $1.146 per
share (subject to adjustment), vesting as to 0.6 of a share of Common Stock for
each share of Common Stock issued upon the exercise of Present Options/Warrants,
and expiring 30 days after the later of (i) termination or exercise of all
Present Options/Warrants or (ii) notice from Paladyne as to the aggregate number
of Present Options/Warrants that were exercised.

To give the former ECOM shareholders the opportunity to participate more
directly in the future performance of Paladyne resulting from the acquired ECOM
business, Paladyne granted to them Performance Warrants to purchase 500,000
shares of Paladyne Common Stock at an exercise price of $1.146 per share
(subject to adjustment), exercisable for five years and vesting in 100,000 share
tranches for each $20 million of net revenue increases, above $50 million
annually, achieved in either year or both of the two (2) year periods ending
January 31, 2002 and 2003. For the purpose of these awards, the measurement will
be on a trailing 12-month basis, and with an acceptable gross margin (20% or
greater) for each tranche to qualify.

In addition, ending upon the earlier to occur of December 20, 2002 or Paladyne's
completion of $6,500,000 in cash from sales of Common Stock or Common Stock
equivalents (the "New Securities"), ECOM shareholders will receive, one share
(the "Deferred Shares") of Common Stock 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 Merger Agreement provided that Paladyne would grant options, at market
value, to ECOM employees for the purchase of an aggregate of 500,000 shares of
Paladyne Common Stock under its 1999 Stock Option Plan. The Compensation
Committee of the Board of Directors was authorized to grant such options upon
receipt from former ECOM management of a proposal of the ECOM employees to whom
the options should be granted.


                                      F-13

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE B-BUSINESS COMBINATION (CONTINUED)


Immediately prior to the Merger, ECOM purchased from Gibralter Publishing, Inc.,
a North Carolina corporation, all of the tangible and intangible assets used in
ECOM 's call center operations, subject to related liabilities, pursuant to an
Option Agreement. Prior to the Merger, Gibralter had been operating the call
center on behalf OFECOM. The purchase price for these assets was $5 million
which is payable by ECOM pursuant to two amended promissory notes issued to
Gibralter and guaranteed by Paladyne, one note for $1,500,000, repayable in two
installments of $750,000, the first being due after completion of a $3,000,000
equity or convertible debt offering and the remaining payment due no sooner than
six months after the first payment and after three consecutive months of
positive cash flow from operations. The second note for $3,500,000, is repayable
in equal quarterly principal and interest payments of $377,000 beginning in
April 2002 and continuing through January 2005. Both notes bear interest at 10%
per annum and are secured by the purchased assets (See Note D).

A portion of these assets used by ECOM in its contact center operations consists
of equipment that is leased by Gibraltar pursuant to various equipment leases.
Pending the receipt by Gibralter of lessor consents to the assignments of these
leases toECOM, and in accordance with an Equipment Use Agreement entered into by
Gibralter andECOM, Gibralter has granted to ECOM the right to possess and use
the equipment and ECOM has agreed to assume and pay to the lessors the payments
to be made by Gibralter pursuant to the leases.

The total purchase price and carrying value of the net assets acquired and
liabilities assumed of ECOM were as follows:

    Debts assumed                                                  $  5,000,000
    Other liabilities assumed                                         2,375,579
    Costs of acquisition                                                467,000
    Preferred stock issued                                            5,765,000
    Less: assets acquired                                            (4,234,636)
                                                                    -----------
    Excess of purchase price over fair value of assets acquired     $ 9,372,943
                                                                    ===========

The 4,100,000 shares of Series B Preferred Stock issued in the Merger was valued
based upon the underlying 8,200,000 shares of Common Stock at a price of $.7031
( the average the Company's common stock price five days prior to February 1,
2001) for a total consideration of $5,765,000.


The Company has recorded the carryover basis of the net assets acquired, which
did not differ materially from their fair value. The results of operations
subsequent to the date of acquisition are included in the Company's consolidated
statement of operations.



                                      F-14

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000


NOTE B-BUSINESS COMBINATION (CONTINUED)


Impairment Charge

During the year ended August 31, 2001, the Company recorded a charge of $
9,008,713 for goodwill impairment related to its ECOM subsidiary . Subsequent to
its acquisition in February, 2001, the ECOM subsidiary experienced significant
changes in market conditions. This change caused the subsidiary not to reach the
sales levels the Company originally anticipated at the time of the aquisition.
In addition, the Company's acquisition and related business plan contemplated
the private placement of the Company's equity in order to develop the
subsidiary. Due to adverse capital market conditions the Company was unable to
raise a significant amount of equity financing. Separately, during the year
ended August 31, 2001, the Company ceased the development of the Company's data
integration and data quality software and recorded a charge of $338,037 for
impairment previously of capitalized software related to this discontinued
operation (see Note J).



Due to the significance of the changes discussed above, management performed an
evaluation of the recoverability of all of the assets of ECOM, as described in
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of". Management
concluded from the results of this evaluation that a significant impairment
charge was required because estimated fair value was less than the carrying
value of the assets. Considerable management judgment is necessary to estimate
fair value. Accordingly, actual results could vary significantly from
managements' estimates.



Based upon the evaluation, the Company recognized an asset impairment loss of $
9,346,750 or $ .71 per share during the year ended August 31, 2001.


NOTE C-  PROPERTY AND EQUIPMENT

     Major classes of property and equipment at August 31, 2001 consist of the
following:

                                                                       2001
                Leasehold improvements                           $  1,209,967
                Furniture and fixtures                                360,000
                Computer equipment and software                     1,643,218
                                                                 ------------
                                                                    3,213,185
                Less accumulated depreciation and amortization        783,449
                                                                 ------------
                Net property and equipment                       $  2,429,736
                                                                 ============


                                      F-15

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE D -  NOTES PAYABLE

Notes Payable at August 31, 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                     2001
                                                                                     ----
<S>                                                                              <C>
     Note payable  in  quarterly  installments of  $377,000, including
     interest at 10% per annum, secured  by property and equipment.             $ 3,500,000
     Note payable in  two  installments of  $750,000, plus interest at  10%
     per annum, secured  by property and equipment. The first installment
     is due after  completion of a $3,000,000 equity or convertible debt
     offering by the Company  and the remaining installment payment due the
     later of  six months after the first installment payment is made and
     after three consecutive months of positive cash flow from operations
     (as defined).                                                                1,500,000
     Note payable to Bank in monthly installments of interest only at the
     Bank's prime lending rate plus 1% , secured by accounts receivable.            350,000
         8 % convertible subordinated note payable , unsecured and due March
     31, 2002; Noteholder has the option to convert unpaid note principal
     together with accrued and unpaid interest to the Company's common
     stock  at a rate of $1.00 per share.   In the event the unpaid
     principal amount of the notes, together with any accrued and unpaid
     interest,   are not converted , or paid in full  by March  31, 2002
     then interest accrues at 10% per annum until paid in full.                      50,000
     8% Convertible Debenture Convertible into Preferred Shares at $5.00
     per unit; each unit convertible into common stock at the rate of $.60
     per share                                                                      250,000
                                                                                ------------
                                                                                  5,650,000
     Less: current portion                                                       (2,663,752)
                                                                                ------------
                                                                                $ 2,986,248
                                                                                ============
</TABLE>

Aggregate maturities of long-term debt as of August 31, 2001 are as follows:

                    Year                     Amount
                    ---                      ------

                   2002                      $ 2,663,752
                   2003                        1,106,848
                   2004                        1,221,753
                   2005                          657,647
                   2006 and after                      -
                                             -----------
                                             $ 5,650,000
                                             ===========


NOTE E- INCOME TAXES

The Company has adopted Financial Accounting Standard Number 109(SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Temporary differences between
taxable income reported for financial reporting purposes and income tax purposes
are insignificant.


                                      F-16

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE E- INCOME TAXES (CONTINUED)



For income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $13,520,000 which expire through 2020. The deferred tax asset
related to the carryforward is approximately $4,400,000. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, since in the opinion of management based upon the earnings history of
the Company, it is more likely than not that the benefits will be realized.
Significant changes in ownership may limit the Company's future use of its
existing net operating losses.

Components of deferred tax assets as of August 31, 2001 are as follows:



                Non current:

                Net operating loss carryforward                 $   4,400,000

                Valuation allowance                                (4,400,000)
                                                                  -----------
                Net deferred tax asset                            $         -
                                                                  ===========



NOTE F- EMPLOYEE BENEFIT PLAN

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 $ 0
and $12,000 for the years ended August 31, 2001 and 2000, respectively.

NOTE G- COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company leases office space, an entertainment facility and equipment under
operating leases. in North Carolina for its corporate use. Commitments for
minimum rentals under non-cancelable leases at the end of 2001 are as follows:

                           2002                           116,253
                           2003                            27,375
                           2004                                 -
                           2005                                 -
                           2006                                 -
                    2007 and thereafter                         -


                                      F-17

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE G- COMMITMENTS AND CONTINGENCIES (CONTINUED)

Capital Lease Obligations

Computer equipment and software includes the following amounts for capitalized
leases at August 31, 2001 :

                                                                        2001
     Computer equipment and software                               $ 1,643,218
     Less: accumulated depreciation an amortization                    219,088
                                                                   -----------
                                                                   $ 1,424,130

Future minimum lease payments required under the capital leases are as follows:

     2002                                                          $   844,198
     2003                                                              670,898
     2004                                                               14,070
     2005                                                                    -
     2006                                                                    -
     2007 and thereafter                                                     -
                                                                   -----------
                                                                     1,529,166
             Less amount representing interest                          78,287
                                                                   -----------
                                                                     1,450,879
             Less current portion                                      816,649
                                                                   -----------
             Long- term portion                                       $634,230
                                                                   ===========

         As of August 31, 2001, the Company had computer equipment and software
purchased under non-cancelable leases with an original cost of $ 1,643,218.
Amortization of $219,088 has been charged to operations as of August 31, 2001


Employment and Consulting Agreements

The Company has employment agreements with eight individuals. These agreements
provide for annual base compensation of approximately $1,100,000 per annum. . In
addition to salary and benefit provisions, the agreement includes defined
commitments should the employee terminate the employment with or without cause.
The agreements provide for additional incentives in the form of bonuses for
performance and also provide for the issuance of stock options.

The Company has consulting agreements with outside contractors, certain of whom
are also Company stockholders. The Agreements are generally for a term of 12
months from inception and renewable automatically from year to year unless
either the Company or Consultant terminates such engagement by written notice.


                                      F-18
<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE G- COMMITMENTS AND CONTINGENCIES (CONTINUED)

Litigation

In the year ended August 31, 2000 a former Company employee filed a complaint
against the Company. The complaint alleges the Company owes the plaintiff
additional compensation. The Company believes that it has meritorious defenses
to the plaintiff's claims and intends to vigorously defend itself against the
Plaintiff's claims.



The Company is also subject to other legal proceedings and claims which arise in
the ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.




NOTE H- STOCKHOLDERS' EQUITY

The Series A Preferred Stock issued in the 1998 acquisition of WG Controls, a
former subsidiary, 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 of the Series A Preferred Stock calls for
each of the 137,143 preferred shares to be converted into .67361 shares of the
Company's Common Stock, or an aggregate of 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. The Series A Preferred Stock has the
same voting rights as the Common Stock and have preference to the Common Stock
in the event of any liquidation, dissolution or winding up of the Company,
whether voluntary of involuntary.

On January 21, 2000, the Board of Directors authorized a private placement of up
to 500,000 units priced at $2.375 per unit, with a unit consisting of one share
of the Company's Common Stock and a callable warrant to purchase the Company's
Common Stock at $3.00 per share but callable at $0.05 per share if the closing
trading price of the Company's Common Stock closes at or above $6.00 per share
for 20 consecutive trading days. Net proceeds from this private placement as of
August 31, 2000 were $1,696,149, (which is net of offering expenses of $85,130).
This resulted in the issuance of 751,129 shares of Common Stock and the same
number of warrants.


On February 1, 2000, the Board of Directors authorized the issuance of 4,100,000
shares of newly-created Series B Convertible Preferred Stock in connection with
the Merger of ECOM. These shares were converted to 8,200,000 shares of the
Company's Common Stock on July 10, 2001.


                                     F-19

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE I - STOCK OPTION PLAN AND WARRANTS

The Company has a stock option plan (the "Plan") adopted by the stockholders on
March 3, 1999 which replaced the Company's previous 1996 Stock Option Plan. The
Plan authorizes the issuance of up to 5,000,000 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 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 5,000,000 shares of the Company's Common Stock have been reserved
pursuant to the Plan. As of August 31, 2001, 2,106,939 options are outstanding:
2,039,439 shares issued inside the Plan and 67,500 shares issued outside the
Plan.



Information regarding the options outstanding and exercisable at August 31, 2001
are as follows:

<TABLE>
<CAPTION>
             Options Outstanding                                 Options Exercisable
             -------------------                                 -------------------
                                                              Weighted
                                          Weighted         Average Exercise
                                           Average               Price                      Weighted
                                          Remaining              -----                       Average
Exercise              Number              Contractual                         Number        Exercise
Prices:            Outstanding            Life (Years)                     Exercisable       Price
-------            -----------            -----------                      -----------       -----

<S>                 <C>                       <C>            <C>              <C>           <C>
 $0.38 -$1.00       1,123,835                  2.25          $  .6358         708,436       $ .5890
    1.17-1.85         698,354                  3.39            1.0379         236,731        1.0471
    2.18-2.99         214,750                  1.12             2.544         182,242        2.5528
    3.36-3.70          70,000                  1.16            3.5057          70,000        3.5057
                    ---------                                               ---------
                    2,106,939                                               1,197,409
                    =========                                               =========

</TABLE>


                                      F-20

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000




NOTE I - STOCK OPTION PLAN AND WARRANTS (CONTINUED)

Transactions under stock option plans and individual non-qualified options not
under the plans are summarized as follows:

                                                                   Weighted
                                               Number of           Average
                                                 shares         Exercise Price
                                                 ------         --------------

Outstanding at August 31, 1999                 2,194,357        $   1.21
Granted                                          325,000            1.81
Exercised                                       (261,838)             .66
Cancelled                                       (720,208)            1.71
                                               ---------        ---------
Outstanding at August  31, 2000                1,537,311            1.20

Granted                                          947,104          1.0819
Exercised                                       (318,571)            1.08
Cancelled                                        (58,905)            1.65
                                               ---------        --------
Outstanding at August  31, 2001                2,106,939           $1.05
                                               =========        ========


For disclosure purposes the fair value of each stock option grant is estimated
on the date of the grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for stock options granted during the
years ended August 31, 2001 and 2000, respectively: annual dividends of $0.00
for both years, expected volatility of 140%, risk free interest rate of 6.0% an
expected life of 2 to 4 years for all grants. The weighted-average fair values
of the stock options granted during the years ended August 31, 2001 and 2000
were $ .0 and $82,000, respectively.


If the Company recognized compensation cost for the employee stock option plan
in accordance with SFAS No. 123, the Company's pro forma net loss and net loss
per share from continuing operations would have been $ (13,310,831) and $ (1.00)
in 2001 and $(6,353,393) and $(.14) in 2000, respectively.


In addition to the options described above, the Company has issued warrants to
its Chief Executive Officer and in conjunction with private placements, private
placement support, and acquisitions.


                                      F-21

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000




NOTE I - STOCK OPTION PLAN AND WARRANTS (CONTINUED)

Information regarding the warrants outstanding and exercisable at August 31,
2001 are as follows:


<TABLE>
<CAPTION>
             Warrants Outstanding                                Warrants Exercisable
             --------------------                                --------------------
                                                              Weighted
                                          Weighted         Average Exercise
                                           Average               Price                      Weighted
                                          Remaining              -----                       Average
Exercise              Number              Contractual                         Number        Exercise
Prices:            Outstanding            Life (Years)                     Exercisable       Price
-------            -----------            -----------                      -----------       -----

<S>                  <C>                 <C>               <C>             <C>            <C>
$ .045 -$ 1.00       1,604,784             1.39            $ .98362        1,604,784      $ .98362
    1.01- 2.00       4,784,473           4.0664              1.2096          682,881        1.6293
    2.38- 3.00       2,045,710             1.66              2.9022        2,045,710        2.9022
    3.38- 4.00         112,500             1.05              3.9305          112,500        3.9303

<CAPTION>
                                                                             Weighted
                                                           Number of          Average
                                                             shares        Exercise Price
                                                             ------        --------------

<S>                                                         <C>              <C>
Outstanding at August 31, 1999                              1,932,359        $   2.18
Granted                                                     2,302,510            1.89
Exercised                                                     (18,408)            .91
Cancelled                                                           -               -
                                                           ----------        --------
Outstanding at August  31, 2000                             4,216,461        $   2.03

Granted                                                     4,500,000           1.146
Exercised                                                     (27,408)          .7594
Cancelled                                                    (399,586)          .9309
                                                            ---------        --------
Outstanding at August  31, 2001                             8,289,467
                                                            =========

</TABLE>


                                      F-22

<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000



NOTE I - STOCK OPTION PLAN AND WARRANTS (CONTINUED)

The Company recognized expenses related to the granting of certain 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 $ 0 and $ 82,000 and during 2001 and 2000
respectively.

NOTE J DISCONTINUED OPERATIONS

In connection with the Company's acquisition of e-commerce support centers, inc.
in February, 2001, the Company's management ceased developing its seamless data
integration and data quality software business operation. As a result, the
Company's data integration and data quality software segment is accounted for as
a discontinued operation, and accordingly, the amounts in the 2000 financial
statements and related notes have been restated to reflect discontinued
operations accounting.

Certain information with respect to discontinued operations for the years ended
August 31, 2001 and 2000 is summarized as follows:

<TABLE>
<CAPTION>
                                                                     2001                    2000
                                                                     ----                    ----
<S>                                                             <C>                      <C>
Net Revenues                                                    $  1,585,349             $5,521,865
Cost of Sales                                                     (1,262,793)            (3,364,400)
                                                                ------------             ----------
Gross profit                                                         322,556              2,157,465
Selling, General and Administrative                              ( 2,015,544)            (2,047,952)
Other                                                                ( 8,857)               (96,864)
                                                                ------------             ----------
Income (Loss) from Discontinued Operations                      $ (1,701,845)            $   12,649
                                                                ============             ==========
</TABLE>




NOTE K- RELATED PARTY TRANSACTIONS

As of August 31, 1999, the Company had a $150,000 note payable to a trust
controlled by the President of the Company which bore interest at 12% per annum,
and was due June 30, 2001. On May 15, 2000, the Company repaid this entire
obligation. Interest expense on this note was approximately $13,000 and $17,000
in 2000 and 1999, respectively.


As of August 31, 2001 the company was indebted to its largest customer Gibralter
Publishing to the extent of approximately $5,500,000. Gibraltar is indebted to
the Company for services in the amount of $710, 413 at August 31, 2001. During
the year ended August 31, 2001, the Company recognized $3,080,413 of sales in
connection with services provided Gibraltar, representing 47% of the Company's
sales for the year for the year ended August 31, 2001.


                                      F-23
<PAGE>

                                 PALADYNE CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2001 AND 2000

NOTE L-MAJOR CUSTOMERS AND VENDORS

Revenue from three (3) major customers approximated $ 4,769,083 or 73% of sales
for the year ended August 31, 2001.



Two vendors accounted for $1,345,101 of expenditures during the years ended
August 31, 2001.



NOTE M- GOING CONCERN

The accompanying statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements during the
year ended August 31, 2001, the Company incurred losses from operations of $
11,133,976. This factor among others may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.

The Company's existence is dependent upon management's ability to develop
profitable operations and resolve its liquidity problems. Management anticipates
the Company will attain profitable status and improve its liquidity through the
continued developing, marketing and selling of its products and additional
equity investment in the Company. The accompanying financial statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.


In order to improve the Company's liquidity, the Company is actively pursing
additional equity financing through discussions with investment bankers and
private investors. There can be no assurance the Company will be successful in
its effort to secure additional equity financing.

If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.


                                     F-24


<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE

On July 17, 2001, the Company received the letter of resignation from BDO
Seidman, LLP, ("BDO") announcing that they were resigning as the Company's
independent accountants.

The BDO report on the Company's financial statements for either of the two
fiscal years ended August 31, 2001 and 2000 did not contain any adverse opinion
or disclaimer of opinion, and was not modified as to uncertainty, audit scope,
or accounting principles. There were no disagreements with BDO on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, during the two fiscal years ended August 31, 2000 and during
the interim period ended July 17, 2001, which, if not resolved to BDO's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement in connection with its report, as required by Item
304(a)(1)(iv) of Regulation S-K.

On September 4, 2001, the Company engaged Stefanou and Company, LLP
("Stefanou"), to act as the Company's independent certified public accountants
for the fiscal year ended August 31, 2001. The Company had not consulted with
Stefanou prior to Stefanou's retention on either the application of accounting
principles or the type of opinion Stefanou might render on the Company's
financial statements.


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 November 15, 2001, the executive officers and directors of the
Company were as follows:

<TABLE>
<CAPTION>

                       NAME                               AGE      Director                       POSITION
                                                                   Since
     -----------------------------------------        ------------              ----------------------------------------------
<S>                                                       <C>      <C>
     Terrence J. Leifheit....                             39       2001         Director, Chairman, CEO and Pres.
     Ronald L. Weindruch.....                             54       1997         Director, Executive V.P.
     Clifford A. Clark.......                             49       2001         Director, CFO
     Kenneth Horn............                             59       1999         Director, ** ##
     James L. McGovern.......                             59       1998         Director, **
     William P. O'Reilly                                  55       2001         Director
     William E. Willis, Jr.                               47       2001         Director##
     William J. Hadel                                     36                    V.P. of Sales
     Robert W. Hornbuckle                                 32                    V.P. of Information Technology
     Jan E. Kaster                                        27                    V.P. of Operations
     James A. Rapp                                        54                    V.P. of Marketing

</TABLE>


                                       45
<PAGE>

NOTE:     The terms of the directors are divided into three separate three-year
          classes. Each director holds office until the year in which his term
          expires. Weindruch and Willis' terms expire in 2002. Horn, O'Reilly
          and Clark's terms expire in 2003. Leifheit and McGovern's terms expire
          in 2004.

         ** member of Audit Committee
         ## member of Compensation Committee

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. The Audit Committee oversees the Company's accounting
and financial reporting and internal controls, reviews annual audit reports and
management letters and makes recommendations to the Board regarding appointment
of independent auditors. The principal function of the Compensation Committee is
to recommend to the Board of Directors the compensation of officers and to
oversee the administration of the 1999 Stock Option Plan, at the request of the
Board.

None of the officers and/or directors of the Company have, 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, 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:

TERRENCE J. LEIFHEIT became President, Chief Operating Officer and a Director of
Paladyne upon the ECOM Merger and CEO and Chairman in April 2001. He presides
over all operations of ECOM of which he was the founder and also the Paladyne
operations. In 1993, he co-founded Gibralter and led the evolution of that
company from hardbound reference publishing into an on-line publishing and
membership organization with $20 million in sales to customers in over 150
countries. In 1998, he founded Gibralter Data Services, Inc., an Internet
service provider specializing in Web page development and hosting services.
Prior to these activities, from 1991 to 1992, he served as Vice President of
Florida Safety Corporation and Vice President of Dallas Chemicals Corporation.
Mr. Leifheit attended the University of Texas at El Paso where he majored in
business.

RONALD L. WEINDRUCH has been Executive Vice President-Business Development since
February 2001 having served as President and Chief Executive Officer of the
Company from 1994 to February 2001 and February 2000, respectively. From 1993 to
1996, Mr. Weindruch was the Chairman of the Sanford Airport Authority in
Sanford, Florida. Prior to 1994, 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

                                       46

<PAGE>

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.

CLIFFORD A. CLARK has been the Company's VP of Finance since February 2001 and a
director since July 10, 2001. From 1999 to 2001, Mr. Clark served as Vice
President of Finance for Gibralter and other entities comprising Gibralter
Publishing, Inc. Mr. Clark's experience includes more than 25 years in numerous
financial and accounting roles, including 11 years with Price Waterhouse and 5
years in the venture capital arena. Since 1995, he has served as President of
Kane Realty Corporation, a multi-state real estate management and development
firm and President of Parallel Corporation, a retail floor covering company. Mr.
Clark has a bachelor's degree in Business Administration from the University of
North Carolina at Chapel Hill.

KENNETH W. HORN has been Managing Director of KNH Associates since April 1999.
In 1999, he retired as a Corporate Officer of Nortel Networks where he worked
for 18 years and had served as Vice President. Prior thereto, Mr. Horn was
employed by Huyck Corporation for 10 years 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.

JAMES L. MCGOVERN has been President of McGovern & Associates since 1996. In
1996, he retired from Norstan where he was President of Norstan Communications
from 1985 to 1996. Prior, he was Chief Operating Officer of Electronic
Engineering Co. which was acquired by Norstan in 1985. McGovern also held a
number of key sales and management positions with Xerox Corporation. He was
Chairman of Virtual Hold Corporation, and a Director for Paknetx which was
acquired by Aspect Telecommunications. Mr. McGovern holds a B.S. from
Northeastern University.

WLLIAM P. O'REILLY is a private investor having been Chairman of Verso
Technology until he retired in December 2000. From August 1995 to September
2000, Mr. O'Reilly served as CEO of Eltrax Systems, a NASDAQ traded information
technology company that was merged into Cereus Technology in September 2000. In
1989, he acquired Military Communications Corporation ("MCC") which provided
international public switched network services via telephone centers to the U.S.
military worldwide. MCC was sold to WorldCom in 1994. In 1981, Mr. O'Reilly
founded Lexitel Corporation; which merged with Allnet in 1984 to form ALC
Communications, a leading national long distance carrier. He was also a founder
and CEO of Digital Signal, a leading provider of low-cost fiber optic capacity
that is now part of Qwest. Mr. O'Reilly was also a founder and past President of
COMPTEL, the telecommunications industry association.

WILLIAM E. WILLIS, JR. is a Professor at the Kenan-Flagler School of Business at
the University of North Carolina and serves as a business/technology consultant
to Cable and Wireless, the State of North Carolina, and others. From 1998 to
2000, he was a corporate officer of Interpath Communications, Inc. where he
served in several executive positions, most recently as CTO and VP of
Engineering with responsibility for establishing technical strategy and system
architecture. From 1992 to 1998, he has served as Vice Provost, Information
Technology at North Carolina State University and as a member of the North
Carolina Information Resource Management Committee, which governed the use of IT
for the State, having been appointed by the Governor of the State to this latter
position. In addition, he co-founded an engineering software company where he
developed and launched a Unix/Linux-based spreadsheet product. Mr. Willis holds
BS and PhD degrees from North Carolina State University.



                                       47

<PAGE>


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,
1999, 2000 and 2001 to the Company's Chief Executive Officer or others who
earned a salary greater than $100,000 annually for any of the periods below:

<TABLE>
<CAPTION>

                                                                                                    ALL            STOCK
                                                                                                  OTHER           WARRANTS
NAME AND PRINCIPAL                                                                                COMPEN-       AND OPTIONS
POSITION                                      YEAR             SALARY            BONUS            SATION           ISSUED
------------------                         ----------      -------------   --------------    --------------    ------------

<S>                                         <C>             <C>             <C>               <C>                <C>
Terrence J. Leifheit, President CEO (1)     2001            $93,333         None                                 (3)


John Foster, CEO (2)                        2000            None            None              None               165,000
                                            2001            None            None              None                75,000

Ronald L. Weindruch,                        1999            137,500         $  -0-
Executive Vice President, 2001, 2000        2000            137,500            -0-            36,034             208,784
President, 1999                             2001            123,438            -0-             8,905              50,000
                                                                                                                      -
</TABLE>


(All other compensation includes consulting and commission income)

1 Mr. Leifheit's employment began in February 2001 in conjunction with the ECOM
merger.
2 Mr. Foster's employment ceased on April 20, 2001.
3 Does not include warrants issued to Mr. Leifheit upon the ECOM merger.
In addition to cash compensation, Mr. Leifheit, Mr. Foster and Mr. Weindruch
participate in the Company's stock option plan. The following table details
options granted in fiscal year 2001:

<TABLE>
<CAPTION>
                                                            % of
                                                            total
                                           # of shares      options
                                           underlying       granted          Exer.             Exp.
Holder                                     options          in FY 01         Price             Date
------                                     ------------     -------------    --------------    --------------

<S>                                            <C>             <C>           <C>               <C>
Terrence J. Leifheit                           515,955         58.4%         $1.02             2/1/05
Ronald L. Weindruch                                -0-
John Foster                                        -0-

</TABLE>
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, and
none of those options are "in the money."


Employee Stock Option Plan

The Company's 1999 Stock Option Plan (the "Plan"), assumed the 1996 Stock Option
Plan, as amended on the migratory merger, which was adopted in 1996 and amended
in October, 1997 and July


                                       48
<PAGE>

2001 to increase the number of issuable shares under the Plan to 5,000,000
shares of common stock 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.

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 who may delegate these duties to the Compensation Committee. 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 5,000,000 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 August 31, 2001, 1,998,436 options were outstanding:
1,930,936 shares issued inside the Plan, and 67,500 shares issued outside the
Plan. As of August 31, 2001, 1,082,255 shares are exercisable at an option price
per share ranging from $0.38 to $3.70 per share and with expiration dates from
November 2002 through April 2005.

Profit Sharing Plan

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 Paladyne matching such
contributions (subject to certain limitations) at the rate of 25% of the first
6% of each participant's contribution. Effective June 1, 2001, the Company
modified the plan to eliminate any matching of contributions. No other deferred
compensation plan is currently in place. Contributions totaling $1,500 was made
for Ronald L. Weindruch during the year ended August 31, 2001.

Employment Agreements

The Company has employment agreements with Terrence J. Leifheit, its President,
Ronald L. Weindruch, its Executive Vice President as well as with four other
management personnel. Mr. Leifheit's employment agreement expires on December
31, 2003, and may be extended for a period of one year, with an annual base
compensation of $300,000, which was deferred to $160,000 pending the closing of
a financing of $3 million or August 1, 2001, which is earlier, for the first
year, and to increase to $400,000 during the last two years. In addition, he is
to receive a bonus based upon total revenues billed as of December 31, 2001, and
a bonus equal to 0.5% of revenues for the months of December 2002 and December
2003. Upon entry into the Agreement, Mr. Leifheit was granted options to
purchase 100,000 shares of Common Stock and is to be granted options based upon
the amount of the Company's EBITDA for future periods. Should the Company
terminate the Employment Agreement for cause or Mr. Leifheit terminate it
without cause, he would be prohibited for a period of one year from competing
with the Company.


                                       49

<PAGE>

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 August 31, 2001, with respect to each person known by Company
to own beneficially more than 5% of the outstanding Common Stock, each director
and all directors and executive officers as a group.
<TABLE>
<CAPTION>

                                                     AMOUNT AND NATURE
NAME AND ADDRESS OF                                  OF BENEFICIAL
BENEFICIAL OWNER                                     OWNERSHIP (1)                          PERCENT OF CLASS (2)

<S>                                                  <C>                                   <C>
Terrence J. Leifheit*                                8,200,000 (3)                          49.0%

Ronald L. Weindruch *                                1,924,340(4)                           11.5%

Kenneth H. Horn *                                    225,668(5)                              1.3%

James L. McGovern*                                   177,835(6)                              1.0%

Clifford A. Clark*                                   247,284(7)                              1.5%

William Hadel                                        840,330(8)                              5.0%

William E. Willis, Jr.*                              33,300(9)                               0.2%

John D. Foster                                       1,011,567(10)                           6.1%

All directors and
executive officers as a
group (7 persons in group)                           10,561,143 (11)                        63.2%

</TABLE>

         Note: Unless otherwise noted, all persons address is 1650A Gum Branch
Road, Jacksonville, NC 28540

*        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 which are
         exercisable within sixty days from August 31, 2001.

(2)      Based upon 16,709,351 shares of Common Stock outstanding on
         August 31, 2001. Percentage ownership is calculated separately for each
         person on the basis of the actual number of outstanding shares as of
         August 31, 2001 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 (i) 6,821,690 shares owned directly and (ii) 1,378,310
         shares held in a Voting Trust for which Mr. Leifheit is the sole voting
         trustee. Does not include (i) 3,743,610 shares of Common Stock
         underlying warrants owned directly, (ii) 311,514 shares of Common Stock


                                       50
<PAGE>

         underlying warrants held in trust for the benefit of Mr. Leifheit's
         minor children, and which warrants are not presently exercisable or
         (iii) up to 6,500,000 shares of Common Stock issuable as Deferred
         Shares upon future placements. A portion of the shares and the warrants
         are being held in escrow as security for any indemnification claim the
         Company may have upon the ECOM merger.

(4)      Includes 100,000 shares of stock held in the names of Mr. Weindruch's
         children, and 1,500,000 held in trusts for which Mr. Weindruch acts as
         trustee. Includes 255,000 shares that may be 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.

(5)      Includes 92,418 shares held by a corporation controlled by Mr. Horn.
         Includes 67,407 shares which may be acquired by Mr. Horn pursuant to
         the exercise of stock purchase options exercisable within sixty days
         at exercise prices from $0.38 to $2.50 per share.

(6)      Also includes 145,833 shares that 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.

(7)      Includes 107,284 shares that may be acquired by Mr. Clark
         pursuant to the exercise of stock purchase options and warrants
         exercisable within sixty days at exercise prices from $0.70 to $1.14
         per share. This total also includes 140,000 shares that are included in
         the voting trust which Mr. Leifheit controls.

(8)      Includes 285,330 shares that may be acquired by Mr. Hadel
         pursuant to the exercise of stock purchase options and warrants
         exercisable within sixty days at exercise prices from $1.02 to $1.14
         per share. This total also includes 555,000 shares that Mr. Hadel also
         owns that are included in the voting trust which Mr. Leifheit controls.

(9)      Includes 33,300 shares that may be acquired by Mr. Willis
         pursuant to the exercise of stock purchase options exercisable within
         sixty days at exercise prices from $0.95 per share.

(10)     Includes 465,418 shares that may be acquired by Mr. Foster
         pursuant to the exercise of stock purchase options and warrants
         exercisable within sixty days at the exercise prices from $0.67 to
         $3.375 per share.

(11)     See notes 3,4,5,6,7,8 and 9


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Immediately prior to the Merger, ECOM purchased from Gibralter Publishing, of
which Mr. Leifheit was a principal shareholder, all of the tangible and
intangible assets used in ECOM's call center operations, subject to related
liabilities, pursuant to an Option Agreement. Prior to the Merger, Gibralter
Publishing had been operating the call center on behalf of ECOM. The purchase
price for these assets was $5 million which is payable by ECOM pursuant to two
promissory Notes issued to Gibralter, one note for $1,500,000, repayable in five
monthly principal installments of $25,000 commencing March 1, 2001, with the
balance due on August 31, 2001, and the second Note for $3,500,000, repayable in
equal quarterly principal payments through January 1, 2004. Both Notes bear
interest at 10% per annum, are secured by the purchased assets and are
guaranteed by Paladyne. As of April 9, 2001, these notes were amended to provide
that the $1,500,000 Note is due in two equal installments of $750,000, with the
first installment due when the Company raises a minimum of $3,000,000 and the
second installment six months later, and on no event until the Company has had a
positive cash flow for any three consecutive calendar months. The other Note was
payable in twelve equal quarterly installments commencing October 1, 2001,
however, Gilbralter and the Company agreed that the payments may commence on
April 1, 2002.

A portion of the assets used by ECOM in its call center operations consists of
equipment which is leased by Gibralter pursuant to various equipment leases.
Gibralter has granted to ECOM the right to possess and use the equipment and
ECOM has agreed to assume and pay to the lessors the payments to be made by
Gibralter pursuant to the leases. As of the Merger, the aggregate amount of
these lease obligations was approximately $1,500,000.


ECOM also subleases its offices from Gibralter, see Item 2 of this Report.

In addition, Gibralter is the Company's principal customer, comprising
approximately 47% of the Company's revenues for the fiscal year ended August 31,
2001.


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<PAGE>



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

2.2  Articles of Merger filed in North Carolina previously filed as Exhibit 2.2
to Form 8-K dated February 1, 2001

3.1  * Certificate of Incorporation filed in Delaware on January 11, 1999

3.2  * Certificate of Merger filed in Delaware on March 5, 1999

3.3  * Amendment to Certificate of Incorporation dated July 10, 2001 filed in
Delaware

3.4  Certificate of Designations for Series B Preferred Stock filed in Delaware
previously filed as Exhibit 2.1 to Form 8-K dated February 1, 2001

3.5  * Certificate of Designations for Series C Preferred Stock and Series
D Preferred Stock filed in Delaware on November 1, 2001

3.6  By-Laws of Registrant previously filed as Exhibit 3.2(ii) to Form 10-SB/A,
dated December 31, 1997.

4.1  Specimen of Common Stock Certificate previously filed as Exhibit 4.1 to
Form 10-SB/A dated December 31, 1997

4.2  Certificate of Series A Cumulative Convertible Preferred Stock Certificate
previously filed as Exhibit 4.2 to Form 10-KSB dated November 28, 2000

4.3  Registration Rights Agreement among Paladyne and Terrence Leifheit
individually and on behalf of the other ECOM shareholders previously filed
as Exhibit 4.1 to Form 8-K dated February 2, 2001

4.4  Form of Anti-Dilution Warrant previously filed as Exhibit 4.2 to Form 8-K
dated February 1, 2001

4.5  Form of Parent Performance Warrant previously filed as Exhibit 4.3 to Form
8-K dated February 1, 2001

10.1 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


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<PAGE>

10.2    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

10.3    Employment Agreement for Ronald L. Weindruch previously filed as Exhibit
10.5 to Form 10-SB/A dated December 31, 1997

10.4    New Lease Agreement on Principal Place of Business previously filed as
Exhibit 10.7 to Form 10-KSB dated November 28, 2000

10.5    Agreement and Plan of Merger for WG Controls, Inc. between Synaptx
Worldwide, Inc. and the WG Controls, Inc. shareholders as follows: J ames M.
Gleason, Shirley Gleason, Michael Concialdi, and James Gammon previously filed
as Exhibit 10.1 to Form 8-K dated March 23, 1998

10.6    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

10.7.1  Agreement and Plan of Merger, dated December 21, 2000, among Paladyne,
Acquisition Sub and ECOM filed as Exhibit 10.1.1 to Form 8-K dated February 1,
2001

10.7.2  Amendment to Agreement and Plan of Merger among Paladyne, Acquisition
Sub and ECOM filed As Exhibit 10.1.2 to Form 8-K Dated February 1, 2001

10.7.3  Second Amendment to Agreement and Plan of Merger, among Paladyne and Mr.
Leifheit on behalf of himself and as a representative for the former
shareholders of ECOM, dated April 9, 2001, previously filed as Exhibit 10.1.3 to
Form 8K/A dated February 1, 2001

10.8    Indemnification Escrow Agreement among Paladyne, Mr. Leifheit, Clifford
A. Clark and Thelen Reid & Priest LLP, as escrow agent, previously filed as
Exhibit 10.2 to Form 8-K dated February 1, 2001

10.9    Form of Lock-up Agreement, previously filed as Exhibit 10.3 to Form 8-K
dated February 1, 2001

10.10.1 Gibralter Option Agreement, dated as of April 13, 2000, between
Gibralter and ECOM, previously filed as Exhibit 10.4.1 to Form 8-K dated
February 1, 2001

10.10.2 First Amendment to Gibralter Option Agreement among ECOM, Gibralter and
Paladyne, previously filed as Exhibit 10.4.2 to Form 8-K dated February 1, 2001

10.10.3 Gibralter Assets Assignment among ECOM and Gibralter, previously filed
as Exhibit 10.4.3 to Form 8-K dated February 1, 2001

10.10.4 Promissory Note A from ECOM to Gibralter in the principal amount of
$1,500,000, previously filed as Exhibit 10.4.4.1 to Form 8-K dated February 1,
2001

10.10.5 Amended Promissory Note A from ECOM to Gibralter in the principal amount
of $1,500,000, previously filed as Exhibit 10.4.4.1 to Form 8-K dated February
1, 2001


                                       53
<PAGE>

10.10.6 Promissory Note B from ECOM to Gibralter in the principal amount of
$3,500,000, previously filed as Exhibit 10.4.5 to Form 8-K dated February 1,
2001

10.10.7 Amended Promissory Note B from ECOM to Gibralter in the principal amount
of $3,500,000, previously filed as Exhibit 10.4.5.1 to Form 8-K/A dated February
1, 2001

10.10.8 Gibralter Security Agreement among ECOM and Gibralter, previously filed
as Exhibit 10.4.6 to Form 8-K dated February 1, 2001

10.10.9 Unconditional Guaranty Agreement, among ECOM, Paladyne and Gibralter,
previously filed as Exhibit 10.4.7 to Form 8-K dated February 1, 2001

10.10.10 Gibralter Default and Assignment Agreement among ECOM, Gibralter and
Paladyne, previously filed as Exhibit 10.4.8 to Form 8-K dated February 1, 2001

10.10.11 Gibralter Secondary Operating Agreement among ECOM and Gibralter,
previously filed as Exhibit 10.4.9 to Form 8-K dated February 1, 2001

10.10.12 Gibralter Escrow Agreement among Gibralter, ECOM, Paladyne, and
Kilpatrick Stockton LLP, as escrow agent, previously filed as Exhibit 10.4.10 to
Form 8-K dated February 1, 2001

10.10.13 Amending Agreement among Gibralter, Paladyne and ECOM, previously filed
as Exhibit 10.4.11 to Form 8-K/A dated February 1, 2001

10.11    Gibralter Equipment Use Agreement among ECOM, Gibralter and Paladyne,
previously filed as Exhibit 10.5 to Form 8-K dated February 1, 2001

10.12    Gibralter Teleservices Agreement between Gibralter and ECOM previously
filed as Exhibit 10.6 to Form 8-K dated February 2, 2001

10.13    Employment Agreement between Paladyne and Mr. Leifheit previously filed
as Exhibit 10.7 to Form 8-K dated February 1, 2001

10.14    Employment Agreement between Paladyne and Joseph Landis, previously
filed as Exhibit 10.8 to Form 8-K dated February 1, 2001

21.1     * Subsidiaries of Paladyne Corp.

* Filed herewith

(b)  Reports on Form 8-K

July 17, 2001     8-K      Item 4.  Change in Certifying Accountant (Resignation
 of BDO Seidman LLP)


                                       54
<PAGE>

Item 7. Exhibits

July 17, 2001     8-K/A    Item 4.  Change in Certifying Accountant (Resignation
of BDO Seidman LLP)


                                   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/  Terrence J. Leifheit
                                                    -------------------------
Date: December 14, 2001                                  Terrence J. Leifheit
                                                         President, COO and CEO


                                       55
<PAGE>


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.
<TABLE>
<CAPTION>

                 Name                                      Position                                    Date
----------------------------------------    ---------------------------------------    --------------------------------------

<S>                                         <C>                                        <C>
/S/ Terrence J. Leifheit                    President, Director                        December 14, 2001
----------------------------------------    ---------------------------------------    --------------------------------------
Terrence J. Leifheit


/S/ Ronald L. Weindruch                     Exec. Vice President, Director             December 14, 2001
----------------------------------------    ---------------------------------------    --------------------------------------
Ronald L. Weindruch


                                            Director
----------------------------------------    ---------------------------------------    --------------------------------------
Kenneth Horn


/S/William E. Willis, Jr.                   Director                                   December 14, 2001
----------------------------------------    ---------------------------------------    --------------------------------------
William E. Willis, Jr.


/S/ William P. O'Reilly                     Director                                   December 14, 2001
----------------------------------------    ---------------------------------------    --------------------------------------
William P. O'Reilly


                                            Director
----------------------------------------    ---------------------------------------    --------------------------------------
James L. McGovern

                                            Vice President Finance and Director
/S/ Clifford A. Clark                                                                  December 14, 2001
----------------------------------------    ---------------------------------------    --------------------------------------
Clifford A. Clark

</TABLE>




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