<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 33-91426
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
AMENDMENT NO. 5
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PARAVANT COMPUTER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 3571 59-2209179
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
780 SOUTH APOLLO BLVD., ATRIUM ONE
MELBOURNE, FL 32901
(407) 727-3672
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
JAMES MARTIN KAPLAN, ESQ. JAY M. KAPLOWITZ, ESQ.
ZIMET, HAINES, FRIEDMAN & KAPLAN GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
460 PARK AVENUE 575 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
TELEPHONE NO.: (212) 486-1700 TELEPHONE NO.: (212) 752-9700
FACSIMILE NO.: (212) 223-1151 FACSIMILE NO.: (212) 752-9713
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
<CAPTION>
<S> <C> <C> <C> <C>
Common Stock, par value $.045 per share................ 1,150,000(2) $ 5.00 $ 5,750,000 $ 1,982.76
Redeemable Warrants, each to purchase one share of
Common Stock......................................... 1,610,000(3) $ .10 $ 161,000 $ 55.52
Common Stock, par value $.045 per share(4)............. 1,610,000(5) $ 6.00 $ 9,660,000 $ 3,331.03
Underwriter's Warrants to purchase Common Stock and
Redeemable Warrants(6)............................... 240,000 $ .0000416 $ 10 (7)
Common Stock, par value $.045 per share(8)............. 100,000 $ 7.00 $ 700,000 $ 241.38
Redeemable Warrants, each to purchase one share of
Common Stock(8)...................................... 140,000 $ .14 $ 19,600 $ 6.76
Common Stock, par value $.045 per share(9)............. 140,000 $ 6.00 $ 840,000 $ 289.66
Common Stock, par value $.045 per share, to be sold by
Selling Security Holders(10)......................... 360,355 $ 5.00 $ 1,801,775 $ 621.31
Total Registration Fee........................................................................................... $ 6,528.42(11)
</TABLE>
(footnotes on following page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
(2) Includes 150,000 shares which the Underwriter has an option to purchase
from the Registrant to cover over-allotments, if any.
(3) Includes 210,000 redeemable warrants which the Underwriter has the option
to purchase from the Registrant to cover over-allotments, if any.
(4) Issuable upon exercise of the Redeemable Warrants to be sold to the public
hereunder, together with such indeterminate number of shares of Common
Stock as may be issuable by reason of the anti-dilution provisions
contained therein.
(5) Assumes the Underwriter's option to purchase 210,000 additional redeemable
warrants to cover over-allotments, if any, has been exercised.
(6) To be issued by the Registrant and purchased by the Underwriter upon
consummation of this offering.
(7) No fee due pursuant to Rule 457(g).
(8) Issuable upon exercise of the Underwriter's Warrants.
(9) Issuable upon exercise of the Redeemable Warrants underlying the
Underwriter's Warrants, together with such indeterminate number of shares
of Common Stock as may be issuable by reason of the anti-dilution
provisions contained therein.
(10) Represents shares owned by certain security holders of the Registrant and
registered for offer on a delayed basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.
(11) Previously paid.
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTIONS IN PROSPECTUS
----------------------------------------------------------------------- ------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front Cover of
Prospectus........................................................... Cover Page
2. Inside Front and Outside Back Cover Prospectus......................... Cover Page, Inside Cover of Page,
Outside Back
3. Summary Information and Risk Factors................................... Prospectus Summary, Risk Factors,
Business
4. Use of Proceeds........................................................ Risk Factors, Use of Proceeds,
Business
5. Determination of Offering Price........................................ Cover Page, Underwriting, Risk
Factors
6. Dilution............................................................... Dilution, Risk Factors
7. Selling Security Holders............................................... Inside Cover Page, Concurrent
Registration of Common Stock,
Description of Securities
8. Plan of Distribution................................................... Prospectus Summary, Underwriting
9. Legal Proceedings...................................................... Business
10. Directors, Executive Officers, Promoters and Control Persons........... Management, Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and Management......... Principal Shareholders
12. Description of Securities.............................................. Description of Securities
13. Interest of Named Experts and Counsel.................................. *
14. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... Indemnification for Securities Act
Liabilities
15. Organization within the Last Five Years................................ *
16. Description of Business................................................ Prospectus Summary, The Company,
Risk Factors, Business
17. Management's Discussion and Analysis or Plan of Operation.............. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
18. Description of Company................................................. Summary Prospectus, The Company,
Risk Factors, Business
19. Certain Relationships and Related Transactions......................... Certain Transactions
20. Market for Common Equity and Related Stockholder Matters............... Prospectus Summary, Risk Factors,
Description of Securities
21. Executive Compensation................................................. Management
22. Financial Statements................................................... Financial Statements
23. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. *
</TABLE>
- ------------
* Not Applicable
<PAGE>
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The
first Prospectus will be used in connection with an underwritten offering of
Common Stock and Warrants by the Company (the 'Company Prospectus'). The second
Prospectus will be used in connection with the sale of Common Stock by certain
selling security holders from time to time in open market transactions (the
'Selling Security Holder Prospectus'). The Company Prospectus and the Selling
Security Holder Prospectus are substantially identical, except for the alternate
pages for the Selling Security Holder Prospectus included herein which are
labeled 'Alternate Page for Selling Security Holder Prospectus.' In addition,
what is referred to as the 'Offering' in the Company Prospectus will be changed,
where appropriate, to the 'Company Offering' throughout the Selling Stockholder
Prospectus.
After this Registration Statement becomes effective, both Prospectuses will
be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
<PAGE>
<PAGE>
PRELIMINARY PROSPECTUS DATED MAY 29, 1996
SUBJECT TO COMPLETION
PROSPECTUS
1,000,000 SHARES OF COMMON STOCK AND
1,400,000 REDEEMABLE WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PARAVANT COMPUTER SYSTEMS, INC.
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') hereby
offers 1,000,000 shares of common stock, par value $.045 per share (the 'Common
Stock'), and 1,400,000 redeemable warrants to purchase shares of Common Stock
(the 'Warrants'). Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $6.00 per share, subject to
adjustment, for a period of five years commencing , 1997 [eighteen
months from the date of this Prospectus.] The Common Stock and the Warrants will
be separately tradeable immediately upon issuance and may be purchased
separately in varying amounts. The Warrants are redeemable by the Company at any
time commencing 1997 [eighteen months from the date of this
Prospectus] upon notice of not less than 30 days, at a price of $.05 per
Warrant, provided that the last sale price of the Common Stock on the Nasdaq
National Market has exceeded $8.50 per share (subject to adjustment) for a
period of 30 consecutive trading days during the period in which the Warrants
are exercisable. See 'DESCRIPTION OF SECURITIES'.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants and there can be no assurance that any such market will
develop. The Company has applied for listing of the Common Stock and Warrants on
the Nasdaq National Market and it is anticipated that the Common Stock and
Warrants will be quoted on the Nasdaq National Market under the symbols 'TUFF'
and 'TUFFW'. The offering prices of the Common Stock and Warrants offered
hereby, and the exercise price of the Warrants, were determined pursuant to
negotiations between the Company and the Underwriter and do not necessarily
relate to the Company's book value or any other established criteria of value.
For a discussion of the factors considered in determining the offering prices,
see 'UNDERWRITING'.
Concurrently with this Offering, 360,355 shares of Common Stock (the
'Selling Security Holders' Shares') have been registered by the Company under
the Securities Act of 1933, as amended (the 'Securities Act'), on behalf of
certain of its stockholders (the 'Selling Security Holders'), pursuant to a
Selling Security Holder Prospectus included within the Registration Statement of
which this Prospectus forms a part. The Selling Security Holders' Shares are not
part of this underwritten offering, however, and may not be sold prior to 18
months from the date of this Prospectus without the prior written consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the Selling Security Holders' Shares. See 'SELLING SECURITY HOLDERS'.
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL
DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
'RISK FACTORS' ON PAGE 7 OF THE PROSPECTUS AND 'DILUTION'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................................... $5.00 $.45 $4.55
Per Warrant......................................................... $ .10 $.009 $ .091
Total............................................................... $5,140,000 $462,600 $4,677,400
</TABLE>
(1) In addition, the Company has agreed to pay the Underwriter a 3%
non-accountable expense allowance, to sell to the Underwriter warrants to
purchase 100,000 shares of Common Stock and/or 140,000 Warrants (the
'Underwriter's Warrants') and to retain the Underwriter as a financial
consultant. The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See 'UNDERWRITING'.
(2) Before deducting expenses, including the Underwriter's nonaccountable
expense allowance in the amount of $154,200 ($177,330, if the Underwriter's
over-allotment option is exercised in full), estimated at $626,000, payable
by the Company.
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the closing of this Offering, to purchase up to 150,000 additional
shares of Common Stock and 210,000 additional Warrants, on the same terms as
set forth above, solely for the purpose of covering over-allotments, if any.
If the Underwriter's over-allotment option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $5,911,000, $531,990 and $5,379,010, respectively. See
'UNDERWRITING'.
The shares of Common Stock and Warrants are being offered, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock and Warrants
will be made against payment therefor at the offices of the Underwriter, 909
Third Avenue, New York, New York 10022 on or about , 1996.
------------------------------
[LOGO] DUKE & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
REPORTS TO SHAREHOLDERS
Upon completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith, will be required to file
reports and other information with the Securities and Exchange Commission
('Commission') at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the public reference section of the
Commission, at that address and at prescribed rates. The Company intends to
furnish its shareholders with annual reports containing financial statements
audited by independent auditors and with additional information concerning the
business and affairs of the Company whenever deemed appropriate by the Board of
Directors or as required by law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, in
Washington, D.C., a Registration Statement on Form SB-2, relating to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement, including the exhibits and schedules thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, Washington, D.C. Copies of all or any part of such material may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission.
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND WARRANTS OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by references to the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus has been adjusted
to give effect to a common stock reverse-split effected on the basis of
approximately 4.5 shares to 1 share as of April 12, 1995. Immediately prior to
the date of this Prospectus, the Company's Articles of Incorporation will be
amended to increase its authorized shares of Common Stock from 10,000,000 to
30,000,000 shares.
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS')
designs, manufactures and markets rugged, portable computers and communications
interfaces for outdoor usage. Sold to the military, government and commercial
markets, the Company's hand-held and laptop computers are specially designed and
fabricated to withstand rough operational conditions and the rigors of adverse
environments ranging from scorching, wind-swept deserts to hot, humid jungles to
frozen arctic regions. Accordingly, PCS's products are relatively impervious to
temperature extremes, humidity, fog and moisture, vibration or shocks, as well
as impurities such as sand, dirt, dust and gravel. The Company typically
furnishes both hardware and software elements of its computer/communication
systems to its customers. See 'THE COMPANY', 'BUSINESS -- INDUSTRY BACKGROUND
AND PRODUCTS'.
The hand-held and laptop computers that the Company manufactures perform
tasks and functions of an extensive nature. In military applications, PCS's
computers operate weapon systems, provide radar displays, process incoming
information, communicate with other systems, train personnel in system's
utilization and diagnose and maintain equipment. In Raytheon's Hawk
Anti-Aircraft Missile System, for example, PCS's computers display radar
information indicating the location of potential targets, control the firing of
missiles and serve as communicators of information and orders.
In the government and commercial areas, the Company's products are used to
collect, store, download and process data obtained in the field. They are
specifically utilized in environmental studies and testing, land mapping and
surveys, forestry and logging operations, oil exploration, governmental
inspections, medical testing and support and construction projects. Weyerhauser,
a large forest products company, employs the Company's computers in a
specialized bucking operation performed on site. This application allows the
logger in the forest to maximize the overall economic potential of each tree
harvested by calculating the relative dollar values of various uses for cuts of
timber in light of existing market conditions and to saw the tree accordingly.
In comparison to other companies selling similar products, PCS's Management
believes that it has several competitive advantages. Because it emphasizes
ruggedization of its products from the selection and design of components to
assembly and encasement in sealed containers through the extensive testing at
various phases, the Company believes it has achieved high levels of capability,
performance and reliability for its products. PCS also offers its customers
engineering services that modify its standard products for specialized
applications. Moreover, its capability of incorporating state-of-the-art
communications interfaces into its products allow computers to talk to one
another and provide end-users with solutions to important technical problems.
Finally, the Company specializes in miniaturizing electronic equipment, and,
consequently, it places more computing power or communications capability into
smaller and lighter configurations. See 'RISK FACTORS', generally and 'RISK
FACTORS -- COMPETITION'.
PCS's competition, however, typically does not design for ruggedization
from start to finish but rather purchases off-the-shelf computers or electronics
available in the commercial market and encases them in protective, air-breathing
boxes. These companies also generally neglect to provide customization services,
furnish only limited communication capabilities for their products, if at all,
and do not go beyond the existing miniaturization found in normal commercial
computer applications. Naturally, given the higher levels of performance,
capability and reliability of PCS's computers, its products tend to be
substantially more expensive than those similar items offered by its
competitors. However, the
3
<PAGE>
<PAGE>
Company generally does not manufacture the components for its products. See
'RISK FACTORS -- COMPETITION' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
For the fiscal year ending September 30, 1995, approximately 96% of PCS's
total sales were made, directly or indirectly, to the military market in the
United States and abroad. The remaining 4% of its sales for such period were
made to the government and commercial markets. Approximately 20% of its total
sales for the same period were made by it directly to foreign customers while
additional sales of its products were made abroad by its U.S. customers.
In the military market, the Company's customers include the Armed Forces of
the U.S. government, foreign governments and major aerospace companies and prime
military contractors, such as Raytheon, Lockheed Martin, and Texas Instruments.
In regard to the government marketplace, PCS sells its products to the U.S.
Environmental Protection Agency, state Departments of Transportation, U.S.
Forestry Service and other government agencies. In the commercial market, the
Company's computers have been sold to public utilities, timber and logging
companies, surveyors, civil engineering firms, and railroads. PCS's customers
include: the Canadian Pacific Railroad, Weyerhauser, Westvaco and Geco Prakla.
Current trends in U.S. military procurement and budgeting policies appear
to be favorable to the Company. While the general trend in defense spending is
toward reductions of overall expenditures, the areas in which PCS operate are
either presently unaffected in any material way by such lower funding or are
benefiting from funding increases. In its attempt to economize, the U.S.
military tends to avoid expenditures on new large weapon systems and
special-function computers wherever possible. In contrast, much of the Company's
product emphasis is on upgrading and retro-fitting existing weapon systems in
order to increase their overall capabilities. In its product offerings, PCS also
stresses enhanced support for electronic warfare systems, diagnostics and
maintenance of military equipment as well as battlefield communications and data
processing. All of these areas are important to the U.S. military establishment
in its procurement policies and strategic plans. Finally, PCS's miniaturization
and customization capabilities, which make military electronic systems lighter
and more compact, lend themselves to greater application to military needs in
this age of rapid deployment of forces and equipment. Despite these factors, it
is uncertain whether continued downward trends in military spending may have
material adverse affects on the Company's future business. See 'THE COMPANY',
'RISK FACTORS' and 'BUSINESS', generally.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk and immediate substantial dilution and should not be purchased by investors
who cannot afford the loss of their entire investment. These risks include,
inter alia, substantial dependence upon military sales and government contracts,
reliance on a few major customers, possible technological obsolescence or
failure of its products and their uncertain acceptability in the market place,
special risks involving its foreign sales, the seasonality inherent in its
business, intense competition with larger companies, reliance on key executives,
sub-contractors and suppliers. See 'RISK FACTORS' generally and 'DILUTION'.
THE OFFERING
<TABLE>
<S> <C>
Securities offered........................ 1,000,000 shares of Common Stock and 1,400,000 Warrants to purchase
Common Stock. See 'DESCRIPTION OF SECURITIES'.
Common Stock to be outstanding after the
Offering(1)............................. 2,500,000 shares.
Warrants
Number to be outstanding
after the Offering(2)................... 1,400,000 Warrants.
Exercise terms.......................... Exercisable for a period of five years commencing ,
1997 (eighteen months from the date of this Prospectus), each
Warrant entitles the registered holder thereof to purchase one
share of Common Stock for $6.00,
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
subject to adjustment in certain circumstances. See 'DESCRIPTION OF
SECURITIES -- REDEEMABLE WARRANTS'.
Expiration Date......................... , 2002
Redemption.............................. Redeemable by the Company at any time commencing on ,
1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant,
provided that the last sale price of the Common Stock on the Nasdaq
National Market has exceeded $8.50 per share (subject to
adjustment) for a period of 30 consecutive trading days during the
period in which the Warrants are exercisable. The Warrants will be
exercisable until the close of business on the date fixed for
redemption. See 'DESCRIPTION OF SECURITIES -- REDEEMABLE WARRANTS'.
Use of Proceeds........................... The Company intends to use the net proceeds from this Offering for
research and development of new and existing products, repayment of
stockholder loans, expansion of marketing and sales activities,
purchase and/or lease of new office and production equipment,
repayment of bridge notes and intercompany balances, and working
capital and general corporate purposes. Excluding the effect of any
exercise of the Underwriter's over-allotment option, the Company
will receive net proceeds of this Offering in an amount estimated
to be approximately $4,051,400 (or approximately 78.8% of the
estimated gross proceeds of $5,140,000 to be received before
payment of applicable underwriting discounts and commissions and
certain other expenses of this Offering). See 'USE OF PROCEEDS'.
Proposed Nasdaq National Market
symbols(3).............................. Common Stock -- 'TUFF' and Warrant -- 'TUFFW'
</TABLE>
- ------------
(1) Does not include (i) 485,000 shares reserved for issuance under the
Company's Incentive Stock Option Plan ('Incentive Plan'); (ii) 15,000 shares
reserved for issuance under the Company's Nonemployee Directors' Stock
Option Plan ('Directors' Plan'); (iii) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan previously
maintained by the Company, which has been cancelled; and (iv) securities
which may be issued upon the exercise of the Warrants offered hereby, the
Underwriter's Warrants, the Underwriter's over-allotment option and warrants
('Bridge Warrants') to purchase an aggregate of 160,000 shares of Common
Stock issuable in connection with a bridge financing in August 1995 ('August
Bridge Financing'). See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN',
' -- NONEMPLOYEE DIRECTORS STOCK OPTION PLAN', 'DESCRIPTION OF
SECURITIES -- BRIDGE FINANCING' and 'UNDERWRITING'.
(2) Does not include any Warrants referred to in clause (iv) of Note 1 above.
(3) The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market. Although the shares of Common Stock and Warrants are
expected to be approved for listing on the Nasdaq National Market, such
listing does not imply that an established public trading market will
develop therefor or, if developed, that such market will be sustained. See
'RISK FACTORS', generally.
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,(3) YEAR ENDED
--------------------------- SEPTEMBER 30,
1996 1995 1995
------------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Statement of Earnings Data:
Revenues........................................................ $ 1,724,882 $1,851,532 $ 8,652,553
Net income (loss)............................................... $ (648,176) $ (304,040) $ 581,415
Earnings (loss) per share(1)(2)................................. $ (.43) $ (.19) $ .39
Supplemental earnings (loss) per share(4)....................... $ (.37) $ (.17) $ .33
Weighted average number of shares outstanding(1)(2)............. 1,500,000 1,580,000 1,500,000
Balance Sheet Data:
Working capital................................................. $ 535,173 $ 749,102 $ 1,350,408
Total assets.................................................... $ 7,425,302 $5,465,271 $ 9,449,715
Total liabilities............................................... $ 6,066,307 $4,343,555 $ 7,442,544
Total stockholders' equity...................................... $ 1,358,995 $1,121,716 $ 2,007,171
</TABLE>
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(1) The weighted average number of shares outstanding has been determined
assuming shares and options issued subsequent to September 30, 1995 were
outstanding for all periods presented, including periods in which the effect
is anti-dilutive.
(2) As adjusted to give effect to a reverse-split of outstanding Common Stock
effected in April 1995.
(3) Typically, a substantial portion of the Company's revenue is generated in
its fourth fiscal quarter in accordance with U.S. government annual
budgeting and spending patterns. See 'RISK FACTORS -- SEASONALITY, COST
OVERRUNS and LONG SALES CYCLE' and 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS'.
(4) Supplemental earnings (loss) per share has been computed by dividing net
income (loss) by the weighted average number of shares outstanding assuming
that the sale of 240,459 shares offered hereby had occurred at the beginning
of the applicable period and that the proceeds derived therefrom were used
to repay $400,000 in promissory notes issued in August 1995 and $802,294 in
promissory notes issued in April 1996.
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should only be made by investors who can
afford the loss of their entire investment. Prospective investors should give
careful attention to these risk factors, as well as to the other information
described elsewhere in this Prospectus, including the financial statements and
notes thereto, in evaluating the Company, its business and management before
making a decision to purchase the Common Stock and Warrants. In addition to the
risks discussed below, businesses, including the Company's, are often subject to
risks not foreseen, anticipated or appreciated by its management.
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this
Prospectus, including but not limited to the timely introduction and acceptance
of new products by the Company, the length of sales cycles in the military,
government and commercial markets and trends in military procurement and
budgeting policies.
SUBSTANTIAL DEPENDENCE UPON MILITARY SALES
The majority of PCS's sales have historically been to the United States
military, foreign military or military suppliers. The Company's future success,
if any, is highly dependent on the continued purchase by the military of its
portable computers or equipment manufactured by others which contain its
devices. For the fiscal years ending September 30, 1995 and 1994 and for the six
months ended March 31, 1996 and 1995, direct and indirect sales of the Company's
products to the U.S. Department of Defense and foreign governments represented
approximately 96%, 98%, 97% and 86%, respectively, of its sales. Attempts to
reduce military expenditures have commenced for a multitude of reasons,
including budget deficit reduction and a perceived easing of global tensions.
For the past two years, the uncertain defense budget situation has caused
delays in contract awards and reduced funding in various military programs.
Management expects that these downward trends will continue through 1996.
Fortunately for PCS, most of its product sales to the U.S. Military have either
been unaffected by such reductions in military spending or have benefitted from
increases in such funding. Management believes that this has occurred because
its products are often used for upgrades or retrofits of existing military
devices, electronic warfare systems, portable diagnostic and maintenance
equipment, lighter systems for rapid deployment and digitalization of the
battlefield.
However, it is uncertain whether any reductions or delays in military
funding or contract awards may have a material adverse effect on the Company's
business in the future. See 'BUSINESS -- INDUSTRY BACKGROUND' and 'CUSTOMERS'.
Although overall defense spending may stabilize or increase modestly, based
upon recent announcements from the U.S. Congress and Defense Department, it is
extremely difficult to predict the amount or pattern of such spending.
Management believes that in the foreseeable future military spending on new
weapon systems will continue to be restricted to research and development of
military hardware already under development and to limited production of such
systems. During this period, it anticipates that the U.S. military will still
emphasize the upgrading, repair and extended use of older systems.
One example of the U.S. military's deferring expenditures on new weapon
systems involves its handling of the F-16 and F-22 fighter planes. Instead of
replacing F-16's with the newer F-22's, the military has, in its economizing
efforts, sought to continue the F-16's in service for longer periods. As a
consequence, PCS's sales of its portable computers to Lockheed as part of that
company's upgraded electronic maintenance systems for F-16's has actually
increased recently. Should the U.S. military alter this policy and seek
full-scale production of the F-22 planes, sales of the Company's computers for
such maintenance system will, in all likelihood decrease. See
'BUSINESS -- INDUSTRY BACKGROUND AND PRODUCTS'.
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UNCERTAINTY OF ISO-9001 CERTIFICATION
The Company is currently endeavoring to upgrade its own manufacturing and
assembly facilities and procedures to meet the quality management and assurance
standards of ISO-9001, propounded by an international rating agency. These
standards have been adopted by the European Economic Community as their
preferred quality standards and, to some degree, by the U.S. Department of
Defense. As far as its compliance with ISO-9001 is concerned, the Company
envisages a 5 step process: (A) training and selection of a steering committee;
(B) review of existing quality procedures and developing better procedures and
statements of general goals; (C) preparation of specific written quality
procedures; (D) implementation and testing of such procedures; (E) formal audit
by an ISO-9001 certified auditor to determine if the Company's new or modified
procedures are sufficient and official issuance of ISO-9001 certification. Each
phase of this five-step process takes approximately six months. PCS has
completed the first two stages and is currently involved in meeting its goals
for phase three. It is estimated that within 18 months the Company should obtain
ISO-9001 certification although there can be no assurance of such. Any failure
or significant delay on the part of the Company in complying with such standards
could materially and adversely affect its direct and indirect sales to the U.S.
military as well as to certain foreign customers and prevent its expansion in
such markets. See 'BUSINESS -- SUPPLY AND MANUFACTURING'.
GOVERNMENT REGULATION AND CONTRACTS
Commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special risks such as dependence on government appropriations, termination
without cause, contract renegotiation and competition for the available
Department of Defense ('DoD') business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS. See 'RISK
FACTOR -- COMPETITION' and 'BUSINESS -- GOVERNMENT REGULATION AND CONTRACTS' and
'COMPETITION'.
DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is also substantially dependent on a relatively
small number of customers and DoD programs. In the fiscal year ended September
30, 1995, the Company's five largest customers in terms of sales, Raytheon
Company (47%), Lockheed Martin Corporation (29%), STN Atlas Electronics (13%),
TransPacific Technologies (3%) and Nichols Research (2%), accounted for an
aggregate of 94% of total PCS's sales. The loss of Raytheon or Lockheed Martin
as a customer could have a material adverse effect on PCS's results of
operations or financial condition. In fiscal year 1994, the Company's five
largest customers accounted for an aggregate of 89% of its total sales with the
largest customer in such year representing approximately 49% of total PCS's
sales. See 'BUSINESS -- CUSTOMERS'. Effective on May 15, 1995, two of its
largest customers, Lockheed and Martin Marietta merged. The Company is unable at
this early stage to predict what impact, if any, such merger will have on its
business or sales.
As of May 20, 1996, the Company's backlog was $5,746,687, 89% of which was
represented by large orders from three customers, namely -- Lockheed Martin
Corporation (54%), STN Atlas Electronics (24%) and Texas Instruments (12%). The
remaining 11% of such backlog represented orders from approximately 16 other
customers. The loss or diminution of orders from any large customer or group of
customers could have a substantial adverse effect on PCS's business and
prospects. See 'BUSINESS -- BACKLOG'.
TECHNOLOGICAL OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTABILITY
The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. PCS's business requires substantial ongoing
research and development efforts and expenditures, and its future success
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will depend in large measure on its ability to enhance its current products and
develop and introduce new products that keep pace with technological
developments in response to evolving customer requirements. Nevertheless, while
the Company is under pressure to introduce new products which embody recent
technology, the Company is under less pressure than computer companies serving
either commercial markets or commercial applications within the military. The
Company's military customers buy the Company's products for use in rugged
tactical applications and place a high premium on low risk in terms of
performance and complete configuration control (i.e., once a specific product
configuration is selected, military customers often do not want the product to
change in order to ensure absolute software compatibility and to provide spare
parts and trained personnel to consistently and reliably support the products in
the field for years). Typically, the Company will trail the commercial market in
terms of technology and the Company's experience to date is that this is usually
acceptable to the risk-averse engineering community which the Company serves.
The customer is afforded the opportunity to purchase 'proven' technology. Many
older customers continue to buy the old product configurations and even new
customers sometimes adopt the older design products. However, most new customers
start buying the Company's most recently introduced products but will then want
to buy the identical product configuration over an extended period of time.
Accordingly, while the Company is under continuing pressure to design new
products, it is not under the same degree of intense pressure as companies in
the commercial market to offer the latest technologies well ahead of its
competitors. There can be no assurance, however, that in the future the
Company's failure to anticipate or respond adequately to technological
developments and changing customer requirements or the occurrence of significant
delays in new product development or introduction or the technological failures
of its products or the systems in which they are incorporated, would not result
in a material loss of anticipated future revenues and seriously impair PCS's
competitiveness.
In addition, PCS may misgauge market needs and introduce products that fail
to gain the necessary market acceptability due to a variety of factors,
including pricing. Hence, it is also uncertain whether new products or
enhancements of existing products can be successfully marketed and sold by the
Company. See 'BUSINESS -- NEW PRODUCTS, MARKETING AND SALES AND RESEARCH AND
DEVELOPMENT ACTIVITIES'.
RISKS OF FOREIGN SALES
For the six months ended March 31, 1996 and 1995 and the fiscal years ended
September 30, 1995 and 1994, the Company derived approximately 24%, 5%, 20% and
8% of its total sales, respectively, from foreign markets. PCS expects that
foreign sales will continue to represent a significant portion of its future
revenue. Foreign sales are subject to numerous risks, including political and
economic instability in foreign markets, restrictive trade policies of foreign
governments, inconsistent product regulation by foreign agencies or governments,
currency valuation variations, exchange control problems, the imposition of
product tariffs and the burdens of complying with a wide variety of
international and U.S. export laws and differing regulatory requirements. To
date, the Company's foreign sales have been transacted in U.S. dollars and
payments have generally been supported by letters of credit. To the extent,
however, that any future foreign sales are transacted in a foreign currency or
not supported by letters of credit, PCS would also be subject to possible losses
due to foreign currency fluctuations and difficulties associated with collection
of accounts receivable abroad. See 'BUSINESS -- MARKETING AND SALES' and
'GOVERNMENT REGULATIONS AND CONTRACTS'.
SEASONALITY, COST OVERRUNS AND LONG SALES CYCLE
Because so much of its sales are related to the U.S. military and
government procurement, the Company's business is greatly influenced by the
timing of such purchases. Many U.S. military and government purchasing decisions
tend to be effectuated in the last portion of the Federal Government's fiscal
year. As a consequence, a gradual increase of the Company's sales develops
during its first three quarters, but most sales actually occur in its fourth
quarter ending September 30th each year to correspond with such government
purchase decisions. This unevenness in sales generation and development can
exert significant pressure on Management's capabilities and the Company's
resources.
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At times, PCS has experienced strains on, and shortages of, working capital
resulting from such seasonality.
For the most part, the Company enters into the equivalent of fixed price
contracts with its customers for the sales of its computer products and
engineering services. In the event that PCS has not properly estimated the costs
in advance of such sales or undergoes unforeseen difficulties in developing or
producing the products or services, its costs may exceed the prices previously
agreed upon or may be so great as to narrow significantly its expected
profit-margins. Although the Company has not historically experienced cost
overruns, such cost overruns may in the future have a material adverse impact on
the Company's business and its profitability.
On the military side of its business, the Company often experiences a
lengthy sales cycle that, from beginning to end, may run for as many as five (5)
years in some cases. There are generally a number of crucial points in this
cycle, including the identification of a product need in a military program, the
retention of the prime contractor, retention of subcontractors for each element,
assembly of elements for prototype systems, testing of such systems, funding for
production runs of the systems and execution of the production contracts for the
prime contractor and the sub-contractors. Not only does this cycle take a long
time, but it is also susceptible to failure at each crucial point.
Consequently, the Company can and does invest heavily in time, money and
manpower to obtain subcontracts for military production runs on its products. In
the final analysis, such investment may yield no business at all or may take so
long to develop that PCS's resources are strained or other more profitable
opportunities are missed. See 'BUSINESS -- INDUSTRY BACKGROUND, MARKETING AND
SALES' and 'GOVERNMENT REGULATIONS AND CONTRACTS'.
COMPETITION
The Company competes in the rugged portable computer business with a wide
variety of computer manufacturers and repackagers, many of which are larger,
better known and have more resources in finance, technology, manufacturing and
marketing. PCS competes on the basis of customization capabilities, price,
performance, delivery and quality. In many situations, the Company is the
highest-priced bidder by a wide margin.
Because a large portion of PCS's business is military-related, a
procurement procedure for militarized computers, namely -- Indefinite Delivery,
Indefinite Quantity ('IDIQ') contracts, could have a material adverse impact on
the Company. IDIQ represents large bulk purchasing of commercial and militarized
computers. With only a small portion of computers purchased being militarized,
these large umbrella contracts offer the U.S. government the lowest prices, but
usually each reaches hundreds of millions of dollars. As a result, only large
companies can afford to bid on these contracts, and smaller companies, like PCS,
can be easily locked out of the process unless they have formed strategic
alliances with a larger successful company or other means to avoid the impact of
IDIQ's are found. Fortunately, for the last five (5) years, the Company has made
military sales of its computers because they fall into product categories not
currently covered by IDIQ requirements. See 'BUSINESS -- GOVERNMENT REGULATION
AND CONTRACTS AND COMPETITION'.
DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL
The Company is highly dependent on the services of Richard P. McNeight, its
President and Chief Operating Officer, and William R. Craven, its Vice President
of Marketing. The Company has entered into a three-year employment contract with
each of them effective through December 31, 1997. The Company has also obtained
'key-man' term insurance in the amount of $1,500,000 on the lives of each of
them. The loss of their services to the Company could materially and adversely
affect its business and operations. See 'MANAGEMENT'.
In recent years, as PCS's business has improved and Messrs. McNeight and
Craven have assumed more management responsibilities, Krishan K. Joshi, its
Chairman and Chief Executive Officer, has
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spent considerably less of his time managing the Company's affairs. Management
believes that his diminished role has not had, nor will it have in the future,
any adverse effects on the Company's operations or financial condition. At
present, PCS has no plans to appoint a full-time Chief Executive Officer in the
near future.
Competition for qualified employees is intense, and the loss of any such
person or the inability to locate, attract, retain and motivate qualified
personnel required for the expansion of PCS's activities could materially and
adversely affect its business and operations. There can be no assurance that it
will be successful in this regard or, if successful, that the services of such
personnel can be secured on terms deemed favorable to it. See
'BUSINESS -- EMPLOYEES'.
RELIANCE ON SUB-CONTRACTORS AND SUPPLIERS
The Company subcontracts the fabrication of its computer boards to a few
third party manufacturers. It purchases the metal cases, hard disk drives,
brackets, window panels and the keyboards for its portable computers from sole
sources such as Distec, Xcel and HiTech. PCS also licenses its software from
sole sources, including MicroSoft, Phoenix Technology, Magnavox and JFK
Associates. Many of its other components are furnished by outside suppliers.
Except for its software suppliers, it does not have written agreements with any
of these subcontractors or suppliers. This reliance on a few subcontractors,
sole sources and other suppliers can, and has, resulted in some delays in
deliveries as well as several quality control and production problems. Moreover,
the discontinuation of a necessary component by a subcontractor or supplier can
also be a significant negative development for the Company. In addition,
interference, suspension or termination of such fabrication or supply sources
will cause greater delays due to the difficulties and time required to find
suitable replacements or substitute sources and may have a material adverse
impact on the Company's business. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- SUPPLY AND
MANUFACTURING'.
POSSIBLE PRODUCT LIABILITY
The risk that the Company's products may malfunction and cause loss of, or
error in, data, loss of man hours, damage to, or destruction of, equipment or
delays is significant. Consequently, PCS, as a manufacturer of such computers,
may be subject to claims if such malfunctions or breakdowns occur. The Company
is not aware of any past or present claims against it. While PCS presently
maintains product liability insurance of $1,000,000, it cannot be certain that
such coverage will be adequate to satisfy future claims, if any.
POSSIBLE NEED FOR ADDITIONAL FINANCING
It is conceivable that the developments in the Company's business may
require additional funds beyond the net proceeds to be derived from this
Offering during the next several years. The Company expects to generate some of
these funds through its business, bank loans and other sources. There is no
assurance that if such additional funds are necessary, PCS can obtain them on
any basis or on terms deemed favorable to it. See 'USE OF PROCEEDS',
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS; BENEFIT TO INSIDERS
Although the Company intends to apply the net proceeds of this Offering in
the manner described under the caption 'Use of Proceeds' (which includes an
allocation of $761,400 (18.80%) of the estimated net proceeds of this Offering
to working capital and general corporate purposes), it has broad discretion
within such proposed uses as to the precise allocation of the net proceeds, the
timing of expenditures and all other aspects of the use thereof. The Company
reserves the right to reallocate the net proceeds of this Offering among the
various categories set forth under 'Use of Proceeds' as it, in its sole
discretion, deems necessary or advisable. Moreover, upon successful completion
of this Offering, the guarantees of the Company's obligations to its bank by
Krishan K. Joshi, the Company's Chairman, and UES, Inc., a company which
presently indirectly owns 48.7% of PCS's outstanding Common Stock that Mr. Joshi
also controls ('UES'), will be terminated. Accordingly, Mr. Joshi and UES may be
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deemed to benefit from the elimination of such guarantees. In addition,
approximately $802,000 (19.80%) of the net proceeds of this Offering will be
used to repay loans made by UES Florida, Inc. (a subsidiary of UES) ('UES
Florida'), Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing and approximately $88,000 (2.17%) of
the net proceeds of this Offering will be used to reimburse UES for certain
health insurance and other expenses paid by UES on the Company's behalf. See
'USE OF PROCEEDS' and 'CERTAIN TRANSACTIONS'.
CONCENTRATION OF OWNERSHIP
Upon completion of this Offering, present stockholders of the Company will
beneficially own approximately 61.5% of the Company's voting shares. In
addition, upon consummation of this Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing, will beneficially own approximately
29.8%, 11.4% and 6.2%, respectively, of the outstanding shares of Common Stock
of the Company. Although such stockholders will not hold, following this
Offering, a majority of the voting securities of the Company, their significant
beneficial holdings enable them to exercise substantial influence over the
Company. See 'PRINCIPAL STOCKHOLDERS'.
NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY
The Company has no patent or copyright protection on its products. Its
ability to compete effectively with other companies will depend, in part, on its
ability to maintain the proprietary nature of its technologies. PCS intends to
rely substantially on unpatented proprietary information and know-how, and there
can be no assurance that others will not develop such information and know-how
independently or otherwise obtain access to its technology. Also, it is not
certain that the Company's proprietary technology will not infringe patents or
other rights owned by others, and that as a result it may not be in a position
to license such technology at a reasonable cost. See 'BUSINESS -- INTELLECTUAL
PROPERTY'.
LACK OF DIVIDENDS AND DILUTION
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. See
'DIVIDEND POLICY' and 'DESCRIPTION OF SECURITIES'. Upon completion of this
Offering, the net tangible book value per share of the Common Stock of the
Company will be substantially lower than the price paid for the shares of Common
Stock by the public investors pursuant to this Offering. Consequently, there
will be an immediate and substantial dilution of $3.02 or 60% to the investors
purchasing these securities. See 'DILUTION'.
NO PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Common
Stock or Warrants. Accordingly, there can be no assurance that an active trading
market will develop and be sustained upon the completion of this Offering or
that the market prices of such securities will not decline below the initial
public offering prices. The initial public offering prices of such securities
have been determined by negotiations between the Company and the Underwriter.
See 'UNDERWRITING' for a discussion of the factors to be considered in
determining the initial public offering prices. The stock market has, from time
to time, experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic and other external factors, as well as
period-to-period fluctuations in financial results, may also have a significant
impact on the market price of such securities.
UNDERWRITER'S WARRANTS
The Company has agreed to sell the Underwriter's Warrants to the
Underwriter for an aggregate price of $10.00 for the 100,000 shares of Common
Stock and Warrants to purchase 140,000 shares of
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Common Stock covered by the Underwriter's Warrants. The Underwriter's Warrants
entitle the Underwriter to purchase such securities in an amount equal to 10% of
the total number of Common Stock and Warrants sold in this Offering (excluding
the Underwriter's over-allotment option). The Underwriter's Warrants will be
exercisable for a four-year period commencing one year after the effective date
of the Registration Statement, of which this Prospectus is a part, at exercise
prices equal to 120% of the initial public offering prices set forth on the
cover page of this Prospectus.
For the life of the Underwriter's Warrants the holders thereof are given
the opportunity to profit from a rise in the market price of the Common Stock or
Warrants, which may result in a dilution of the interests of other stockholders.
As a result, the Company may find it more difficult to raise additional equity
capital if it should be needed for its business while the Underwriter's Warrants
are outstanding. See 'UNDERWRITING'.
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only two public offerings. Accordingly,
there can be no assurance that the Underwriter's limited public offering
experience will not affect the Company's offering of the Common Stock and
Warrants and subsequent development of a trading market, if any.
UNDERWRITER'S INFLUENCE ON THE MARKET
A significant number of shares of Common Stock and Warrants offered hereby
may be sold to customers of the Underwriter. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriter. Although it has no obligation to do so, the Underwriter
intends to engage in market-making activities or solicited brokerage activities
with respect to the purchase or sale of Common Stock or Warrants in the Nasdaq
National Market or other over-the-counter market where such securities will
trade. However, no assurance can be given that the Underwriter will continue to
participate as a market maker in the securities of the Company or that other
broker/dealers will make a market in such securities. The Underwriter has the
right to act as the Company's exclusive agent in connection with certain future
solicitations of holders of the Warrants to exercise their Warrants. Unless
granted an exemption by the Securities and Exchange Commission from Rule 10b-6
under the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the period prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrant based upon a prior
solicitation until the later of the termination of such solicitation activity or
the termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market for the Company's securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Company's securities.
QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET VOLATILITY
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the computer and defense industries have in the
past been, and can in the future be expected to be, especially volatile. Various
factors and events, including future announcements of new product and service
offerings by the Company or its competitors, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market prices of the Company's securities.
Prior to this Offering, there has been no established public trading market
for the Company's securities and there is no assurance that a public trading
market for the Company's securities will develop after the completion of this
Offering. If a trading market does in fact develop for the securities offered
hereby, there can be no assurance that it will be sustained.
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The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market upon the effective date of this Offering. The Commission
has approved rules imposing criteria for listing of securities on the Nasdaq
National Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq National Market, a
company, among other things, must have at least $4,000,000 in net tangible
assets, $3,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, a company, among other things, must
have $1,000,000 in net tangible assets, $1,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the Nasdaq National Market's maintenance criteria in the
future, its securities may be delisted from the Nasdaq National Market. In such
event, the Company would seek to list its securities on the Nasdaq Small
Capitalization Market. However, if it was unsuccessful, trading, if any, in the
Company's securities would thereafter be conducted in the over-the-counter
market in the so-called 'pink sheets' or the NASD's 'Electronic Bulletin Board'.
As a consequence of such delisting, an investor would likely find it more
difficult to dispose of, or to obtain quotations as to, the price of the
Company's securities.
PENNY STOCK REGULATION
In the event that the Company is unable to satisfy the maintenance
requirements for the Nasdaq National Market and its Common Stock falls below the
minimum bid price of $5.00 per share for the initial quotation, the Company
would seek to list its securities on the Nasdaq Small Capitalization Market. If
it was unsuccessful, trading would be conducted on the 'pink sheets' or the
NASD's 'Electronic Bulletin Board'. In the absence of the Common Stock being
quoted on Nasdaq, or the Company's having $2,000,000 in stockholders' equity,
trading in the Common Stock would be covered by Rule 15g-9 promulgated under the
Exchange Act, for non-Nasdaq and non-exchange listed securities. Under such
rule, broker-dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of the purchasers in this Offering, to sell their securities in
the secondary market. There is no assurance that trading in the Company's
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
The Warrants are being registered pursuant to a Registration Statement
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of which this Prospectus is a part, and after its
effectiveness the Warrants may be traded, and upon exercise, their underlying
shares of Common Stock may be sold, in the public market that may develop for
the securities for approximately one year thereafter.
However, unless such Registration Statement is kept current by the Company
and measures to qualify or keep qualified such securities in certain states are
taken, investors purchasing the Warrants in this Offering, although immediately
exercisable, will not be able to exercise the Warrants or sell its underlying
shares of Common Stock issuable upon exercise of the Warrants in the public
market. The Company has agreed to use its best efforts to qualify and maintain a
current registration statement covering such shares of Common Stock during the
term of the Warrants. There can be no assurance,
14
<PAGE>
<PAGE>
however, that PCS will be able to maintain a current registration statement or
to effect appropriate qualifications under applicable state securities laws, the
failure of which may result in the exercise of the Warrants and the resale or
other disposition of Common Stock issued, upon such exercise, being unlawful.
See 'DESCRIPTION OF SECURITIES -- WARRANTS'.
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock of the Company may be issued by the Board of
Directors, without stockholder approval, on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. For a period of two years from the date of this
Prospectus, the issuance of Common Stock or any warrants, options or other
rights to purchase Common Stock is subject to the Underwriter's prior consent,
which may not be unreasonably withheld. Accordingly, such restriction limits the
ability of the Company to issue shares of Preferred Stock which are, by their
terms, convertible into or exchangeable for shares of Common Stock. The
Underwriter has informed the Company that the primary factor that it will
consider in approving additional sales of securities by the Company will be the
price at which the securities will be sold since the Underwriter's concern is to
prevent issuances of securities at below fair market value which it believes
would be harmful to the public investors. Although the ability to issue
Preferred Stock may provide flexibility in connection with possible acquisitions
and other corporate purposes, such issuance may make it more difficult for a
third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock of the Company. This result could prevent an
increase in the market price of PCS's Common Stock or cause a decline in such
price. PCS has no current plans to issue any shares of its Preferred Stock. See
'DESCRIPTION OF SECURITIES -- PREFERRED STOCK'.
POSSIBLE CONTINGENT LIABILITY
In connection with a bridge financing involving certain private investors,
the Company may be deemed to have incurred a technical violation of Section 5 of
the Securities Act of 1933, as amended. Accordingly, there may be a contingent
liability associated with such matter. However, Management believes that there
was no such violation, and the possibility of such related liability is remote.
See 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING' and FOOTNOTE 8 to FINANCIAL
STATEMENTS. See also 'BUSINESS -- LEGAL PROCEEDINGS' for information relating to
a lawsuit filed against the Company by its former counsel.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this Offering could adversely affect the market price of such
shares. Upon the consummation of this Offering, the Company will have 2,500,000
shares of Common Stock outstanding, of which the 1,000,000 shares of Common
Stock offered hereby by the Company and, subject to certain contractual
restrictions with the Underwriter described below, the 360,355 shares of Common
Stock offered by the Selling Security Holders, will be freely tradeable without
restriction or further registration under the Securities Act. All of the
remaining 1,139,645 shares of Common Stock outstanding are 'restricted
securities,' as that term is defined under Rule 144 promulgated under the
Securities Act, and in the future may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 (including, without limitation, certain volume limitations and
holding period requirements thereof) or pursuant to another exemption under the
Securities Act. In addition, the Company's directors, officers and
securityholders (including the Selling Security Holders) beneficially owning
over 99% of the 1,500,000 shares of Common Stock outstanding as of the date of
this Prospectus have agreed not to dispose of their shares, subject to certain
exceptions, for a period of eighteen months from the date of this Prospectus,
without the prior written consent of the Underwriter. The Company has been
advised by the Underwriter that it has not entered into any agreements or
understandings with such individuals regarding an early release of the
eighteen-month restriction; however, the Underwriter's general policy is to look
at the market conditions with respect to the particular securities and to look
at each request on an individual basis. The Underwriter has indicated to the
Company that the
15
<PAGE>
<PAGE>
market conditions it generally focuses on are the volume of trading in the
securities and the price of the securities and that the Underwriter would grant
a release only if it believed that such release would not interfere with an
orderly market in the Company's securities. See 'UNDERWRITING'.
THE COMPANY
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') is a
manufacturer of rugged, portable computers and communication interfaces utilized
in outdoor settings. PCS also offers extensive customization services to modify
its standard products to the specific needs of the end-users. The Company's
laptop and hand-held processors are designed and built to function in adverse
environments under harsh weather, climate and operational conditions. Insulated
from temperature extremes, flying debris, shock, vibration, moisture and
humidity, its products have a reputation for high-level performance and
reliability in difficult circumstances.
The Company's products are sold to the U.S. and foreign military
establishments, other government agencies and commercial enterprises. In the
military setting, PCS's products control weapon systems and radar units, test,
diagnose and maintain equipment, train personnel and communicate with other
systems. For government and commercial markets, the Company's portable computers
gather, record, store and process an array of data involving a wide variety of
applications. The customers of PCS entail, among others, the Armed Services of
the U.S. government and various foreign governments, major aerospace companies
and prime military contractors, governmental agencies in environmental, forestry
and transportation areas, public utilities, railroads, timber and logging
companies, and surveying and engineering firms. The Company sells and markets
its products through a small internal sales force, sale representatives in the
U.S. and distributors abroad. See 'BUSINESS -- PRODUCTS, MARKETING AND SALES,
AND CUSTOMERS'.
The Company was organized as a corporation under the laws of the State of
Florida on June 25, 1982. Its principal executive offices are located at 780
South Apollo Boulevard, Atrium One, Melbourne, FL 32901. Its telephone number is
(407) 727-3672.
16
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<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was
$894,209 or $.60 per share. Net tangible book value is determined by dividing
the tangible net worth of the Company, consisting of tangible assets (total
assets exclusive of capitalized public offering expenses and other intangible
assets) less total liabilities, by the number of shares of Common Stock
outstanding at March 31, 1996. After giving effect to the sale by the Company of
the Common Stock and Warrants at the initial public offering prices and the
receipt of the net proceeds therefrom (after deduction of estimated public
offering expenses and underwriting discounts and commissions), the pro forma net
tangible book value of the Company at March 31, 1996, would have been $4,945,609
or $1.98 per share, representing an immediate increase in net book value of
$1.38 per share (230%) to present shareholders and an immediate dilution of
$3.02 per share (60%) to public investors. 'Dilution' means the difference
between the public offering price and the pro forma net tangible book value per
share after giving effect to the Offering. The following table illustrates the
dilution of a new investor's equity as of March 31, 1996 giving effect to such
recapitalization.
<TABLE>
<S> <C> <C>
Public offering price per share............................................................... $ 5.00
Net tangible book value per share before Offering................................ $ .60
Increase per share attributable to public investors(2)........................... $1.38
Pro Forma net tangible book value per share after Offering(2)................................. $ 1.98
------
Dilution to public investors.................................................................. $ 3.02
------
------
</TABLE>
The following table summarizes, as of March 31, 1996, the difference
between the existing stockholders and the public investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price per share:
<TABLE>
<CAPTION>
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 1,500,000 60% $ 828,765 14% $ .55
------
------
Public Investors.......................... 1,000,000 40 5,140,000(1) 86
--------- ------- ---------- -------
Total(2)............................. 2,500,000 100% $5,968,765 100%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
- ------------
(1) Public offering price, before deduction of public offering expenses.
(2) Does not take into account: (i) the issuance of up to 240,000 shares of
Common Stock upon the exercise of the Underwriter's Warrants and the
Warrants included therein; (ii) the issuance of up to 360,000 shares of
Common Stock upon the exercise of the Underwriter's over-allotment option
and the Warrants included therein; (iii) 485,000 shares of Common Stock
reserved for issuance under the Incentive Plan and 15,000 shares reserved
for issuance under the Directors' Plan; (iv) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan; (v) the
issuance of up to 160,000 shares of Common Stock upon exercise of the Bridge
Warrants; and (vi) the issuance of up to 1,400,000 shares of Common Stock
upon exercise of the Warrants sold hereby. See 'MANAGEMENT -- INCENTIVE
STOCK OPTION PLAN', ' -- NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN',
'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING,' and 'UNDERWRITING'.
17
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby, after deducting underwriting discounts and commissions
and other expenses of this Offering, are estimated to be approximately
$4,051,400 (without giving effect to any exercise of the Underwriter's
over-allotment option). See 'BUSINESS -- LEGAL PROCEEDINGS'. The Company
currently intends to utilize the net proceeds of this Offering substantially as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF
APPLICATIONS AMOUNT(1) TOTAL
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Increased research and development and engineering for improvement of
existing products and development of new products and applications....... $1,000,000 24.68%
Repayment of indebtedness to stockholders(2)............................... 802,000 19.80
Expansion of domestic and international marketing activities, including
hiring additional personnel, increased advertising and trade shows....... 500,000 12.34
Purchase/leasing of new office and production equipment and information
management system........................................................ 500,000 12.34
Repayment of promissory notes to investors(3).............................. 400,000 9.87
Repayment of intercompany balances(4)...................................... 88,000 2.17
Working capital and general corporate purposes............................. 761,400 18.80
----------- -----------
Total................................................................. $4,051,400 100.0%
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) In the event that the Underwriter's over-allotment option is exercised, the
Company will realize additional net proceeds, which will be used for working
capital and general corporate purposes.
(2) Approximately $802,000 of the net proceeds will be used to repay promissory
notes in favor of UES Florida (a subsidiary of UES, of which Krishan K.
Joshi, the Company's Chairman, owns 58% of the shares of its common stock),
Richard P. McNeight, the Company's President, William R. Craven, the
Company's Vice President of Marketing, and another shareholder. Interest on
said notes accrues at the annual rate of 6%. The proceeds from such notes
were used by the Company for working capital and general corporate purposes.
See 'CERTAIN TRANSACTIONS'.
(3) Approximately $400,000 of the net proceeds will be used to pay promissory
notes issued in August 1995 to finance working capital needs. Interest on
said notes accrues at the annual rate of 6%. The promissory notes will be
repaid no later than September 1996. The proceeds from such notes were used
by the Company for working capital and general corporate purposes. See
'CERTAIN TRANSACTIONS'.
(4) Approximately $88,000 of the net proceeds will be used to reimburse UES,
which presently indirectly owns 48.7% of PCS's Common Stock and which
Krishan K. Joshi, the Company's Chairman, controls, for certain health
insurance and other expenses paid on the Company's behalf.
------------------------
The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements; any excess will be added
to working capital and any shortage will be deducted from working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in PCS's business. The Company may re-allocate such amounts from
time to time among the categories shown above or to new categories if it
believes such to be in its best interest because of the necessity to expand the
business due to increases in sales volume or changes in the competitive
environment. Pending full utilization of the net proceeds of this Offering, the
Company intends to reduce a portion of the indebtedness that the Company expects
to be outstanding upon completion of this Offering under its secured line of
credit agreement with National City Bank in Dayton, Ohio (resulting in increased
availability under the line of credit agreement for working capital needs and
general corporate purposes) and/or make temporary investments in short-term,
high-grade interest-bearing investments. PCS believes that the net proceeds from
this Offering, estimated working capital from operations and other sources of
funds will be adequate to sustain operations for at least a 24-month period
after this Offering, and it is anticipated that such proceeds will be expended
over the first 18 months after this Offering. See 'CAPITALIZATION' and
'BUSINESS -- SUPPLY AND MANUFACTURING AND SALES AND MARKETING' and 'RESEARCH AND
DEVELOPMENT ACTIVITIES'.
DIVIDEND POLICY
The Company has not paid any dividends on its shares of Common Stock and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, it does not anticipate the payment of
cash dividends in the foreseeable future. However, the payment of dividends, if
any, rests within the discretion of the Board of Directors and will depend upon,
among other things, the Company's earnings, its capital requirements and its
overall financial condition. See 'DESCRIPTION OF SECURITIES'.
18
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and the pro forma capitalization at March 31, 1996 giving effect to an
April 1996 loan of $802,294 to the Company by certain of its shareholders and
such pro forma capitalization adjusted for the issuance and sale of the
securities offered hereby and the repayment of certain indebtedness.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Indebtedness(1):
Short-Term Debt, including current portion of long-term debt and
capital lease obligation......................................... $4,347,283 $5,149,577 $3,947,283
---------- ---------- -----------
Long-Term Debt and capital lease obligation........................ 219,804 219,804 219,804
Stockholders' Equity(2)(3):
Preferred Stock, par value $.01 per share; 2,000,000 shares
authorized; none issued.......................................... -- -- --
Common Stock, par value $.045 per share; 10,000,000 shares
authorized; 1,500,000 shares issued and outstanding at March 31
1996; 2,500,000 shares issued and outstanding as adjusted for
this Offering.................................................... 67,500 67,500 112,500
Capital in Excess of Par Value..................................... 761,265 761,265 4,767,665
Retained Earnings.................................................. 530,230 530,230 530,230
---------- ---------- -----------
Total Stockholders' Equity.................................... 1,358,995 1,358,995 5,410,395
---------- ---------- -----------
Total Capitalization.......................................... $5,926,082 $6,728,376 $9,571,482
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------
(1) Includes $3,775,000 at March 31, 1996 of indebtedness owed to National City
Bank, Dayton, Ohio ('Bank'), under the Company's $4,000,000 secured credit
arrangement with the Bank, which is payable on demand. A portion of the
borrowings under such arrangement may be repaid from the proceeds of this
Offering. The balance is anticipated to be repaid periodically as proceeds
from the collection of its accounts receivable are received. Such
indebtedness is secured by a lien on accounts receivable, inventory and
equipment, and is guaranteed by UES and Mr. Joshi, the Company's Chairman.
Interest is charged at the Bank's prime rate plus 1/2% for secured
borrowings and the prime rate plus 1% for undersecured borrowings. After
this Offering is completed, the guarantees will be eliminated. See 'USE OF
PROCEEDS', 'RISK FACTORS -- MANAGEMENT'S BROAD DISCRETION IN USE OF
PROCEEDS; BENEFIT TO INSIDERS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS', 'BUSINESS -- PROPERTIES AND
FACILITIES', 'CERTAIN TRANSACTIONS' and Notes 7, 8, 9 and 10 of Notes to
Financial Statements for information with respect to the Company's lease
obligations and indebtedness, including bank indebtedness.
(2) Does not include (i) up to 360,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option and the Warrants
included therein; (ii) 485,000 shares of Common Stock reserved for issuance
under the Incentive Plan and 15,000 shares reserved for issuance under the
Directors' Plan; (iii) 85,945 shares of Common Stock reserved for issuance
under a non-qualified stock option plan which has been terminated; (iv) up
to 240,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the Warrants included therein; (v) up to 160,000
shares of Common Stock issuable upon exercise of the Bridge Warrants; and
(vi) 1,400,000 shares of Common Stock issuable upon exercise of the
Warrants. See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN', ' -- NONEMPLOYEE
DIRECTORS' STOCK OPTION PLAN', 'DESCRIPTION OF SECURITIES -- BRIDGE
FINANCING' and 'UNDERWRITING'.
(3) Immediately prior to the date of this Prospectus, the Company's Articles of
Incorporation will be amended to increase its authorized shares of Common
Stock from 10,000,000 to 30,000,000 shares.
19
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which should
be read in conjunction with the Company's financial statements and related notes
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are included elsewhere in this Prospectus. The data
as of and for the years ended September 30, 1995 and 1994, has been derived from
the Company's financial statements which have been audited by KPMG Peat Marwick
LLP, independent accountants. The data as of and for the six months ended March
31, 1996 has been derived from the Company's unaudited interim financial
statements. In the opinion of Management, such interim financial data reflect
all adjustments necessary for a fair presentation of financial position, results
of operations and cash flows. Operating results for the six month period ended
March 31, 1996 are not necessarily indicative of the results that may be
attained for the entire fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Earnings Data:
Revenues........................................................ $1,724,882 $1,851,532 $8,652,553 $7,809,073
Cost of Revenues................................................ 1,131,911 1,085,801 4,680,661 4,414,745
---------- ---------- ---------- ----------
Gross Profit............................................... 592,971 765,731 3,971,892 3,394,328
Selling and administrative expense.............................. 1,408,657 1,115,007 2,668,320 2,641,393
---------- ---------- ---------- ----------
Income (loss) from operations.............................. (815,686) (349,276) 1,303,572 752,935
Other income (expense):
Interest expense........................................... (222,202) (161,199) (392,589) (242,176)
Miscellaneous income (expense)............................. (1,356) 4,335 (50,711) (6,583)
Gain on sale of assets..................................... -- -- -- 17,215
---------- ---------- ---------- ----------
Income (loss) before income taxes..................... (1,039,244) (506,140) 860,272 521,391
Income tax expense (benefit)............................... (391,068) (202,100) 278,857 154,188
---------- ---------- ---------- ----------
Net income (loss)..................................... (648,176) (304,040) $ 581,415 $ 367,203
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per share............................................ $ (.43) (.19) $ 0.39 $ 0.24
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental earnings (loss) per share(1)............................ (.37) (.17) .33 .24
Balance Sheet Data:
Cash and cash equivalents....................................... $ 3,573 $ 3,500 $ 211,426 $ 4,806
Working Capital................................................. 535,173 749,102 1,350,408 1,043,633
Total assets.................................................... 7,425,302 5,465,271 9,449,715 6,864,603
Long-term obligations, less current portion..................... 219,804 403,327 306,388 430,486
Total Stockholders' equity...................................... $1,358,995 $1,121,716 $2,007,171 $1,425,756
</TABLE>
- ------------
(1) Supplemental earnings (loss) per share has been computed by dividing net
income (loss) by the weighted average number of shares outstanding assuming
that the sale of 240,459 shares offered hereby had occurred at the beginning
of the applicable period and that the proceeds derived therefrom were used
to repay $400,000 in promissory notes issued in August 1995 and $802,294 in
promissory notes issued in April 1996.
20
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 VS. SIX MONTHS ENDED MARCH 31, 1995
Revenues for the period were $1,724,882 in 1996 compared to $1,851,532 for
the same period in 1995, a decrease of $126,650 or 7%. This difference is not
expected to adversely impact the Company's total anticipated sales or
profitability for fiscal year 1996.
Gross profit was $592,971 for the period in 1996, or 34% of sales, compared
to $765,731 or 41% in 1995, a decrease of $172,760, or 23%. The change in gross
profit is primarily related to lower sales volume and lower production levels
during the 1996 period. However, annual gross profits are expected to be
consistent with that of prior years. Management believes the decrease in gross
profit during the 1996 period is not indicative of a general decrease in overall
profitability at PCS, but instead results primarily from the fact that the
Company experiences fluctuations in its operating results due to its long sales
cycle and the seasonality of its business. Because so much of the Company's
sales are related to U.S. military and government procurement, the Company's
business is greatly influenced by the timing of such purchases, with a gradual
increase in sales developing during its first three fiscal quarters and most
sales typically occurring in the fourth quarter ending September 30 of each
year. As a result of this unevenness in sales generation and development and the
variable nature of the timing of related costs of revenues incurred by the
Company, the gross profit for any of the first three fiscal quarters of a year,
taken individually or in the aggregate, is not necessarily indicative of annual
gross profit and accordingly period-to-period comparisons, other than on full
fiscal year basis, may not be meaningful.
Selling and administrative expenses were $1,408,657 in 1996 or 82% of
sales, compared to $1,115,007 or 60% in 1995, an increase of $293,650 or 22%.
The increase is partly related to an overall increase in personnel costs
associated with the requirements of the anticipated change in PCS's status to a
public company and differences in the timing of various expenditures throughout
the periods. A portion of selling and administrative expenses are commissions
which vary directly with sales volume. Commissions accrue at the time of sale
and are paid upon collection of the related accounts receivable. For the 1996
period, commissions were $152,613, or 8.8% of sales, which was $72,812 greater
than the prior period; notwithstanding the decline in sales during the 1996
period, commissions increased primarily as a result of differences in commission
rates payable on the particular items sold during the period. Commissions vary
depending on whether the Company utilizes its own sales representatives or
manufacturers' representatives. See 'BUSINESS -- Marketing and Sales'. Other
significant increases include the increased professional fees of $108,192 and
increased insurance costs of $40,492. Selling and administrative expenses are
expected to continue their yearly pattern of increasing in total, but decreasing
as a percentage of sales, as more fully discussed in the fiscal year comparison
below.
Losses from operations increased to $815,686 in the six months ended March
31, 1996 from $349,276 in the same period for 1995 or 47% and 19% of sales,
respectively. This increase is due primarily to the decrease in sales and
increase in selling and administrative expenses described above.
Interest expense increased to $222,202 in the six months ended March 31,
1996 from $161,199 in the 1995 period, or 13% and 9% of sales, respectively, due
primarily to increased balances outstanding under the Company's credit
arrangements.
As a result, a net loss of $648,176 was recorded for the six months ended
March 31, 1996 compared to a $304,040 net loss in 1995, for the same period. As
a percentage of sales, net loss increased to 38% in the six months ended March
31, 1996 from 16% for the same period in 1995. This increase is due primarily to
the decrease in sales, increase in selling and administrative expenses and
increase in interest expense described above.
The operations of PCS have been cyclical, as noted above, and generally
result in a significant increase in deliveries and revenues in the fourth
quarter of each fiscal year as opposed to the first three quarters. The
Company's fourth quarter higher sales levels are due to the lead-time
requirements
21
<PAGE>
<PAGE>
necessary to procure, manufacture and assemble the components for fourth quarter
deliveries. Accordingly, results of operations for any of the first three fiscal
quarters of the Company's fiscal year are not necessarily indicative of results
expected for the full year. See 'RISK FACTORS -- SEASONALITY, COST OVERRUNS AND
LONG SALES CYCLE', 'BUSINESS -- INDUSTRY BACKGROUND', ' -- MARKETING AND SALES'
and ' -- GOVERNMENT REGULATIONS AND CONTRACTS'.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 VS. SEPTEMBER 30, 1994
Revenues for fiscal 1995 were $8,652,553, an 11% increase over 1994 sales
of $7,809,073. This increase is primarily due to Paravant's entry into
full-scale production of its customized RLT-88 system for international delivery
in support of the Swiss government's laser-based anti-tank weapon simulator
system and the Company's first production deliveries for the U.S. Marine Corps
Avenger system upgrade.
Gross profit was $3,971,892 in 1995, or 46% of sales, compared to
$3,394,328 or 43% in 1994, an increase of $577,564 or 17%.
Selling and administrative expenses of $2,668,320 in 1995 did not increase
significantly from 1994 expenses of $2,641,393. As a percentage of sales,
selling and administrative expenses declined to 31% in 1995 from 34% in 1994.
This decline, which continued a trend from prior years, is a significant
contributor to increasing the Company's historical operating margins on an
annual basis.
Income from operations grew to $1,303,572 in 1995 from $752,935 in 1994, an
increase of 73%. As a percentage of sales, income from operations increased to
15% in 1995 from 10% in 1994. The increase in income from operations benefited
primarily from increased sales volume and gross margins and declining selling
and administrative expenses as a percentage of sales.
Expenses for interest grew by 62% to $392,589 in 1995 compared to $242,176
in 1994. As a percentage of sales, interest expense increased to 5% in 1995 from
3% in 1994. This reflects additional borrowings by the Company used to finance
higher levels of accounts receivable and inventory resulting in increased
revenues.
As a result, the Company's net income grew by 58% to $581,415 in 1995 when
compared to $367,203 in 1994. Net income as a percentage of sales was 7% in 1995
and 5% in 1994, which is consistent with historical relationships of 4% to 7%.
LIQUIDITY AND CAPITAL RESOURCES
Excluding the effect of any exercise of the Underwriter's over-allotment
option, the Company will receive net proceeds of this Offering in an amount
estimated to be approximately $4,051,400 (or approximately 78.8% of the
estimated gross proceeds of $5,140,000 to be received before payment of
applicable underwriting discounts and commissions and certain other expenses of
this Offering). See 'USE OF PROCEEDS.'
With the net proceeds from this Offering, the Company intends, inter alia,
to make the following acquisitions of equipment at costs ranging from
approximately $150,000 to $200,000 for each category: (a) Management Information
Systems (MIS) with file server and local area network; (b) upgraded computer
workstations for administrative employees; and (c) upgraded computer
workstations for engineering personnel, computer-aided design structure (CAD)
and electronic test equipment. In general, such equipment should help the
Company achieve a higher level of employee productivity, lower costs, shorter
design cycles and quicker market entry for new products.
PCS anticipates investing approximately $1,000,000 in its ongoing research
and development activities. Since the Company is a technology-based company,
Management considers research and development of vital importance to its growth.
In the foreseeable future, the Company expects to concentrate such efforts on
new, low-cost, rugged notebook models. These smaller portable computers will
sell for approximately $10,000 per unit or less, as compared to almost $20,000
per unit for its rugged laptop models. This emphasis on the rugged notebook is
in direct response to a perceived customer need for higher performance,
lower-priced portable computers in the ruggedized category.
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High-end rugged notebook models are to be designed for the military market
and will be sold through its existing distribution and sales network. Lower-end
rugged notebook products are targeted for the commercial and industrial markets.
Because the Company's marketing and distribution are weaker in these areas, it
intends to spend additional funds to gain exposure and capture market share. It
estimates that approximately $500,000 will be spent from the net proceeds of
this Offering on such marketing activities. In addition, Paravant intends to
actively pursue the medical markets, which will require additional sales and
marketing expenditures, including for personnel, literature and promotional
activities. See 'USE OF PROCEEDS'.
In the short term, continuation of profitable operations is not dependent
on such equipment acquisitions, expenditures on product development or
marketing. However, in the longer term, expenditures for such activities could
significantly impact the Company's profitability. PCS expects that current sales
levels will be maintained for the foreseeable future without any significant
increases in such expenditures.
The Company has a secured revolving credit arrangement with National City
Bank in Dayton, Ohio (the 'Bank') for a credit line of up to $4,000,000 that is
due on demand and bears interest at prime rate plus 1/2% for secured borrowings
and prime rate plus 1% for undersecured borrowings. All borrowings are
collateralized by accounts receivable, inventory and equipment. Such arrangement
is subject to a borrowing base formula involving certain accounts receivable and
inventory, and is guaranteed by Krishan K. Joshi, the Company's Chairman, and
UES, Inc., a company controlled by Mr. Joshi which indirectly owns 48.7% of
PCS's Common Stock. After this Offering is completed, such guarantees will be
eliminated. The Company intends to maintain this arrangement with the Bank for
the foreseeable future following consummation of this Offering, although there
can be no assurance that the Bank will not in the future demand repayment of all
amounts then outstanding under its loan arrangement. In March 1996, the Company
combined a $500,000 temporary demand line of credit and a $311,469 secured term
loan provided by the Bank with a $811,469 five year term loan, bearing interest
at a fixed annual rate of 8%, partially guaranteed by the U.S. Small Business
Administration, with all borrowings thereunder secured by a lien on accounts
receivable, inventory and equipment. As of March 31, 1996 and April 30, 1996,
there is approximately $3,775,000 and $3,350,000, respectively, outstanding
under the arrangements with the Bank. The Company also has long term debt and
capital lease obligations of approximately $219,804 and $210,604 in total at
March 31, 1996 and April 30, 1996, respectively. These long term obligations
bear interest rates of 1.25% to 1.50% over the prime rate and are expected to be
satisfied within 5 years.
In August 1995, the Company borrowed $400,000 pursuant to bridge notes from
a group of private investors at an annual interest rate of 6%. In addition, the
Company sold to the same investors warrants to purchase 160,000 shares of Common
Stock. Such warrants are exercisable until , 2001 at an exercise
price of $6.00 per share. It is anticipated that the principal amount of the
notes will be satisfied from the net proceeds of this Offering no later than
September 1996. See 'DESCRIPTION OF SECURITIES -- Bridge Financing'.
PCS has, and continues to have, a dependence upon a few major customers for
a significant portion of its revenues. This dependence for revenues has not been
responsible for any unusual fluctuations in operating results in the past, and
Management does not believe this concentration will generate fluctuations in
operating results in the future. However, the potential impact of losing a major
customer without securing offsetting and equivalent orders could result in a
significant negative impact to the operating results of PSC. The gross margin
contributions of the Company's major customers are not generally different than
those from its other customers as a whole. See 'RISK FACTORS -- DEPENDENCE ON
MAJOR CUSTOMERS' and Note 17 of the Company's Financial Statements.
PCS's operating cash flow was negative $(374,668) for the six months ended
March 31, 1996. The Company's operating cash flow was negative $(506,389) in
fiscal 1995 and negative $(562,740) in fiscal 1994. These cash outflows were
primarily associated with general increases in inventory levels and temporary
increases associated with accounts receivable, all in support of the Company's
rapid increase in operations reflected by the growth in revenues from $4,621,527
in fiscal 1993 to $8,652,553 in fiscal 1995, an increase of almost 87%. In
addition, the Company invested $54,568 for the six months ended March 31, 1996,
$60,350 in fiscal 1995 and $99,547 in fiscal 1994 to acquire manufacturing
equipment
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<PAGE>
also in support of these expanded operating levels. In order to sustain the
operating and investing cash requirements of PCS, borrowings by the Company,
both under its revolving credit arrangements and the bridge notes referred to
above, have been increased by almost $1,277,000 since September 30, 1994. The
net proceeds from this Offering will be used for the acquisition of office and
manufacturing equipment, research and development, working capital and repayment
of certain indebtedness. See 'USE OF PROCEEDS'.
Due to the Company's orders related to DoD procurements, the operations of
PCS have been cyclical and generally result in a significant increase in
deliveries and revenues in the fourth quarter of its fiscal year ending on
September 30. Accordingly, a significant increase in inventory occurs late in
the third quarter and continues through the fourth quarter of each fiscal year.
This increase in inventory is followed by a corresponding increase in accounts
receivable. Inventory and accounts receivable levels then return to lower levels
in the first and second quarter of the next fiscal year.
The table below reflects select quarterly financial data of the Company and
illustrates increased operation levels in the fourth quarter of its fiscal year.
Revenues in the fourth quarter of each fiscal year is significantly higher than
the first three quarters. Inventory balances are greatest in the third quarter
in support of the significantly increased deliveries related to the Company's
fourth quarter higher sales level due to the lead-time requirements necessary to
procure, manufacture, and assemble the components for fourth quarter deliveries.
As of March 31, 1996, Management believes inventory balances are not in excess
of requirements for deliveries and normal minimum stocking levels.
Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, it may be the case that the collection of
accounts receivable are delayed due to the delayed finalization of a prime
contractor's contract with the Government, which results in an extended
collection period for the Company. Notwithstanding this condition, the Company
has not been required to write off any significant bad debt in the past, and
Management does not believe that any significant accounts receivable at March
31, 1996 are likely to be uncollectible.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995 FISCAL YEAR 1994
------------------------ --------------------------------------------------- -------------------------
THREE THREE THREE THREE
MONTHS THREE MONTHS MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED MONTHS ENDED ENDED MONTHS ENDED ENDED
MARCH 31, DECEMBER 31, SEPTEMBER 30, ENDED JUNE MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1996 1995 1995 30, 1995 1995 1994 1994 1994
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $1,064,561 $ 660,321 $ 5,572,199 $1,228,822 $1,043,532 $ 808,000 $ 4,274,114 $1,946,618
Cost of revenues...... 825,732 306,179 3,075,668 519,192 794,005 291,796 2,490,010 838,895
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Gross profit.......... $ 238,829 $ 354,142 $ 2,496,531 $ 709,630 $ 249,527 $ 516,204 $ 1,784,104 $1,107,723
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Accounts Receivable... $2,192,109 $2,194,850 $ 5,295,106 $1,557,135 $1,230,558 $1,180,345 $ 3,387,336 $1,278,733
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Inventory............. $3,495,742 $2,915,203 $ 2,411,834 $3,525,697 $2,706,165 $2,510,575 $ 2,213,309 $2,461,500
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
<CAPTION>
THREE
MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
Revenues.............. $1,184,654 $ 403,687
Cost of revenues...... 821,460 264,380
---------- ------------
Gross profit.......... $ 363,194 $ 139,307
---------- ------------
---------- ------------
Accounts Receivable... $1,227,766 $ 783,726
---------- ------------
---------- ------------
Inventory............. $1,792,159 $1,623,873
---------- ------------
---------- ------------
</TABLE>
This uneven cycle results in severe liquidity pressures during the periods
of increased inventory and accounts receivable balances which Management intends
to address with equity funding through this Offering.
The following is a summary description of certain programs, referred to
elsewhere in this Prospectus, which represent a substantial portion of the
Company's ongoing military business:
HAWK/AVENGER Air Defense Missile Systems -- since 1991, these Raytheon
programs have represented a substantial portion of the Company's sales. In
1996, the Company has received engineering orders to do modifications to
the Remote Terminal Unit ('RTU') product of approximately $150,000 in
support of anticipated future sales for the Avenger launcher vehicle
program.
Phalanx Close-In Ships' Defense Weapon System -- in 1994, Lockheed
Martin spent approximately $280,000 with the Company for engineering
services to develop a portable maintenance unit with custom interfaces for
the Phalanx gun. In 1995, approximately seven units were ordered for
$182,000.
Atlas Elektronik GmbH -- Altas Elektronik of Bremen, Germany has
recently placed a new order for approximately $1,225,000 for RLT-88E Data
Monitor systems scheduled to be delivered
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by the end of 1996. Final deliveries on Atlas' previous order of
approximately $1,500,000 are anticipated to be made in June 1996.
LANTIRN Low Altitude Navigation System -- Robins Air Force Base has
been buying computers for LANTIRN from the Company since approximately 1990
with orders of approximately $44,000-$70,000 per year. In 1996, orders in
the aggregate amount of approximately $42,000 were placed with the Company.
HARM Missile System -- in 1994 and 1995, the Company was given orders
for products and engineering for approximately $250,000. In March 1996, the
Company received an order for $1,144,000 of RLT-410 computer systems to be
shipped in 1996.
F-16 Fighter -- in 1994, the Company received contracts to perform
engineering services for in excess of $300,000 and shipped approximately
$704,000 of Enhanced Diagnostic Aid ('EDNA') computers. In 1995, the
Company shipped approximately $532,000 of EDNA computers. In 1996, the
Company received a firm order for $3,536,000 of EDNA computers to be
shipped in 1996 and 1997.
U-2 Aircraft -- in 1994, the DoD purchased the Company's Model 100
units modified to meet the interface requirements of the U-2 aircraft. The
units were valued at a total of $378,000. In 1995, the DoD purchased
additional units for approximately $147,000.
Taiwanese Fighter Program -- in 1993, the Garret Engine Division of
Allied Signal purchased RLT 310 units on behalf of the Taiwanese Air Force,
for a total of approximately $325,000. In 1994 and 1995, Allied purchased a
small amount of parts and support services. In 1996, Allied placed an order
for additional units for a total of $90,000.
There can be no assurance that any future orders under the foregoing programs
will be placed or that requisite funding will be available for future purchases.
See 'BUSINESS -- Products'.
As of May 20, 1996 and 1995, the Company's backlog was $5,746,687 and
$3,080,181, respectively, consisting of firm fixed price purchase orders. All of
these purchase orders are expected to generate profits within the Company's
historical levels and the Company believes that the completion of the orders
comprising its backlog, and any new orders which may be accepted by the Company
in the future, should not result in additional liquidity pressures which cannot
be addressed in a manner consistent with the Company's past practices. The
Company's backlog of $5,746,687 is scheduled for delivery within one year, with
approximately 90% of such backlog representing orders for the programs described
above and the balance representing miscellaneous other orders.
Management believes that post-offering liquidity will be sufficient to
operate on a short-term and long-term basis. As the Company continues to grow,
additional bank borrowings, other debt placements and equity offerings may be
considered, in part or in combination, as the situation warrants.
BUSINESS
GENERAL
The Company specializes in the development, production and sale of
ruggedized, portable computers with communication features for military,
government and commercial applications in harsh environments and difficult
operational situations. It generally provides its customers with both the
software and hardware elements of its laptop and hand-held processors. In
addition, it offers extensive engineering services to customize its products for
the special requirements of the mission, project or task concerned.
HISTORY
In early 1983, the Company commenced its business operations and only
offered engineering services for computer applications. In this initial period,
PCS modified computer hardware and other equipment and developed special
software applications for its customers. It also served as a value-added
reseller for a Japanese manufacturer of portable computers.
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<PAGE>
In the mid 1980's, the Company began developing its first rugged computer
under a special grant from the U.S. Department of Defense Small Business
Innovative Research Program. By 1987, it was producing its RHC-88 hand-held
computer and selling it to the U.S. Army and the Electric Utility Industry.
Afterwards, the Company designed and produced other computer-related products.
By late 1989, UES, Inc., under the control of Krishan K. Joshi, bought a
51% equity interest in the Company through its wholly owned subsidiary, UES
Florida, Inc. Previously, PCS and UES had worked together on a joint development
project. By mid 1990, four of its original five founders had left PCS's employ
and sold all their equity interest in it. Of this group, only Richard P.
McNeight, its President, remains.
For a while after the acquisition of control of PCS, UES and Mr. Joshi
played an active and substantial role in its day-to-day management and
operations. In the Fall of 1991, William R. Craven joined the Company and became
its Vice President of Marketing. Since that time, UES and Mr. Joshi have devoted
much less time and effort to the management of the Company's affairs. See
'MANAGEMENT'.
INDUSTRY BACKGROUND -- MILITARY MARKET
Traditionally, the U.S. Department of Defense ('DoD') has retained military
contractors to develop computer technology for specific missions that meet
extensive military specifications. This approach has often taken longer from
development through production and tends to be much more expensive than similar
technology available in the commercial sector. Unlike other scientific areas,
the rapid advances made in computer technology in the commercial market have
often exceeded and driven those developed specifically for the military.
Consequently, when the U.S. military has pursued the more costly and
time-consuming procurement procedures, its computers have still lagged behind
the comparable commercial technology in terms of capabilities.
Due to these factors, the U.S. Department of Defense began in the mid
1980's to shift from its over-dependence on computers meeting full military
specifications (Mil-Spec) to acquiring commercially available computers that
have been modified for environmental and operational realities of the military
applications in question. While the U.S. military still procures Mil-Spec
computers, this transition to the more commercially oriented systems has
resulted in its realization of the desired benefits and savings.
Given the dismantling of the former Soviet Union and related budgetary
considerations, there has been a concerted effort on the part of U.S. Congress
since 1990 to downsize the military. Over the same time frame, U.S. military
spending has gradually declined. The Company believes that either further
decreases or stabilized levels of spending will occur during the remaining
portion of this decade.
Such downward trend in overall defense spending has been a positive
development for sales to the U.S. military in recent years of less than full
Mil-Spec militarized computers in general and rugged computers specifically.
This is the case because such computers have produced cost savings and certain
operational benefits in meeting the military's need for computing capabilities.
In one sense, they have proven cheaper and, in some cases, better than the full
Mil-Spec computers. In another sense, they have extended the longevity of older
weapons and related systems while enhancing their technological capabilities. In
this manner, they have played a role in facilitating the upgrading or
retrofitting of existing weapons. Moreover, they have caused the dissemination
and utilization of computer technology throughout the military structure,
especially at the lower echelons. This has resulted in greater tactical usage of
such technology in the battlefield context.
Despite such benefits, certain negative implications in regard to the
market prospects for rugged computers may arise in the longer run as a
consequence of less overall military spending. In any event, lower military
spending may eventually serve as a constraint on the growth of sales of such
computers.
Only a portion of militarized computers consists of their ruggedized
versions. 'Ruggedization' or 'rugged' or 'ruggedized computers' are terms used
to describe computers that are built to withstand certain environmental and
operational hazards with which normal commercial computers functioning indoors
would not typically have to contend. The ruggedization of the computer is an
attempt to protect or insulate it fully from such hazards or at least minimize
their adverse impact so that it functions to accomplish the task at hand or
complete the mission. From a strictly environmental point of view, these
26
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hazards are usually weather-related or climatic in nature and encompass
temperature extremes ranging from -30 to +145 degrees Fahrenheit, severe
moisture and humidity conditions and the infiltration by flying or wind-borne
debris, such as sand, dust or other particles. These adverse circumstances occur
outdoors but more particularly in deserts, jungles, arctic regions or at sea.
In the operational area, the hazards involve strong vibrations and shocks
that result from rapid ascents and descents, rough handling, transportation and
explosions as well as electric interference or internal thermal conditions. In
the former situations, the signals emitted by other electronic equipment may
interfere with and distort the proper functioning of computers. Also, as more
and more computing power is inserted into small spaces and containers, the heat
generated by the computer itself may cause the processor to malfunction or fail.
In military settings these operational hazards are, in all likelihood, greater
than in normal outdoor applications.
Computers are ruggedized by the selection and mounting of certain
components, the design, configuration and fabrication of enclosures and
electronics and the application of special seals and coatings. Computer
components generally fall within three broad categories: Mil-Spec, industrial
and commercial. Mil-Spec components are at the far end of the continuum when it
comes to the degree of ruggedization. This category fulfills the highest
requirements for withstanding adverse factors. Mil-Spec and industrial parts for
computers tend to be of higher quality and composed of better materials than
commercial components. They are usually made on production lines using different
approaches than their commercial counterparts.
Consequently, components made for Mil-Spec and industrial usage tend to be
much more expensive than comparable commercial ones due to the raw materials and
methods employed in their manufacture. Mil-Spec components are even more costly
than similar industrial parts. In addition, because the production runs in
Mil-Spec and industrial applications rarely reach the volume levels of
commercial production, there are no or few economies of scale and concomitant
cost reductions that are achievable.
Commercial components are lower in price initially and tend to cost even
less over time due to economies of scale and production efficiencies. Such
components, however, offer little protection from the adverse effects of harsh
environmental or operational conditions. Cost and pricing differences between
commercial and industrial/Mil-Spec items for both electric and mechanical
components are extremely substantial and Industrial and Mil-Spec products may
cost from three to ten times more than commercial ones.
For most of its requirements, the U.S. Military takes the position that
Mil-Spec standards for computers are too expensive and excessive for the degree
of protection actually needed. Accordingly, if the equipment can survive and
operate satisfactorily under the same conditions that humans can, it will
usually be appropriate for its mission. Mil-Spec items are being gradually
phased out of military procurement programs.
The use of the newer surface mount technology ('SMT') to attach components
to the computer boards enhances its durability and ruggedness over the older
mounting technology. In SMT, the components are glued to the board by means of a
chemical adhesion process and are then soldered instead of being inserted into
holes in the board and soldered. SMT is a more precise manufacturing technique
and offers better insulation against vibration and shock. See
'BUSINESS -- SUPPLY AND MANUFACTURING'.
Parts' selections, board design and proper case and sealing materials can
reduce the ill-effects of electronic-magnetic interference ('EMI') from other
equipment and internal thermal generation. The design and fabrication of the
computer encasement and keyboard with tougher materials, full closure and
special sealants also protect it against moisture, humidity, particles and
temperature extremes.
Typically, the companies that market and sell ruggedized computers are
repackagers having little or no input in the design of their electronics and the
selection and mounting of components on printed circuit boards. They usually
purchase the computer boards and sub-assemblies in an 'as is' condition from
commercial manufacturers. The major contribution of the repackagers to the
protection of the computer is a tougher box in which the computer is housed.
Because it is usually air-breathing in nature,
27
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<PAGE>
even this stronger covering fails to shield the computer from the penetration of
rain, snow, fog, dust or other particles.
In contrast, the Company uses industrial-type or highly selected commercial
components for its computers rather than strictly ordinary commercial ones as do
many of its competitors. This selection allows it to provide better quality and
more rugged parts but at cheaper prices than full Mil-Spec which tend to be much
more costly. It also applies SMT to the fabrication of its computer boards. In
addition, PCS designs such boards, the computer's outer case, keyboards,
sub-assemblies and other elements in order to maximize the ruggedness of its
products, to furnish customization of electronics and software and to give the
customer greater control over configuration and components.
Militarized computers, including rugged computers, are available in many
different types, sizes and configurations. They may also bridge or overlap
product categories in certain instances. One category of such computer is a
dedicated system computer. This type of processor is installed and integrated
into specific command and control systems, weapons or other equipment.
Rack-mounted computers are an example of this type of computer. They are usually
an integral part of such equipment, are not easily detached from it and weigh in
excess of 30 lbs.
Another category involves transportable computers that are not fixed in
place and may be deployed in different applications. Typically, they are
stand-alone units and are characterized by desktop computers and workstations.
These computers weigh between 30 and 60 lbs. and require external power sources.
A third category of militarized computer is the portable computer, which
includes laptops and hand-helds, as well as the newer notebooks. Often carried
and used in the field, these computers are self-contained units that may be
employed in conjunction with other systems or on a stand-alone basis. They
usually operate on battery-power but may, in certain cases, be plugged into an
external power source. Such computers usually weigh less than 20 lbs.
A substantial portion of the market for militarized computers, including
rugged computers, covers the first two categories, namely -- dedicated systems
and transportable computers. The market for portables in the military area is
considerably smaller than either of the first two categories and only a portion
of that market is ruggedized.
In addition, many of the companies that sell these types of computers also
market computers from more than one category as well as standard computer
peripherals such as printers, mass storage devices, communication terminals and
displays. At present, the Company only sells portable computers and
communications interfaces; it does not provide a broad range of standard
computer peripherals. See 'BUSINESS -- COMPETITION'.
PRODUCTS
The Company currently offers its customers a line of rugged, portable
computers that includes two (2) types of hand-held processors and four (4) types
of laptops. In terms of performance, PCS's portables have the computing power
of, and are compatible with, IBM PC's and are designed with an open architecture
configuration for maximum flexibility. All its portable computers possess
substantial memory capabilities for their size. The Company's software is based
on MS-DOS operating systems.
All the Company's computers are battery-powered, contain back-up power
packs and have a longevity of 8 to 16 hours for its hand-held and 3 to 12 hours
for its laptops. However, its computers are also designed to be plugged into
either AC (alternating current) or DC (direct current), external power sources
in vehicles or other systems.
All PCS's computers have expansion capabilities with slots for additional
expansion boards and/or PCMCIA cards (credit card sized memory and interface
cards) and, for most of its laptops, optional removable hard drive and/or floppy
discs are also available. The monitor or display aspects of the Company's
computers offer high-resolution, monochrome LCD (Liquid Crystal Devices)
selected specifically for sunlight visibility and wide temperature ranges. The
standard display also features, as optional, a white back-light or secure
back-light for use in low ambient light. In laptops, color displays are offered
if desired.
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Like other elements of its computers, the Company's keyboards are arranged
for operational ease in hostile environments and under adverse conditions. In
its hand-held computers, the keyboard has tactile feedback keys and
alpha-numeric keypads designed with wide spacing for glove-hand use by non-
typists. As far as its laptops are concerned, the keyboards are either of the
membrane variety or standard, full-travel keyboards, both featuring the regular
QWERTY key arrangement, generally used by typists, word processors and computer
users. Each laptop has a sealed mouse that serves as a pointer to move the
cursor and select functions. Although such a standard keyboard has been
ruggedized to be relatively water and dust-proof, the membrane type offers even
greater impermeability. It may be drenched or hosed with water and still
function adequately. As an option, membrane keypads are also available with
back-lights for use in darkness or low-light circumstances.
In size, PCS's hand-held models are 9.4 and 10 by about 6.5 with
thicknesses varying from 1.5 to 2.6; they weigh either 2.7 lbs. or 4.5 lbs. In
contrast, its laptop range in size from 14 to 17 by 7.5 to 10.5 with thicknesses
varying from 4 to 7.25. Weights of its laptop run from 12 lbs. to 23 lbs.
The Company's computers are designed to meet and exceed certain military
specifications for operation in harsh environments and for insulation from EMI.
The reliability and performance of its products in extreme environmental and
operational situations relate directly to PCS's fundamental electrical and
mechanical designs, its specification and selection of proper components, its
manufacturing techniques and the extensive testing that it employs at various
phases.
Like many of its competitors, the Company's computers are available with
standard serial and parallel communications capabilities. These capabilities
allow PCS's computers to transmit and receive electronic signals and messages to
and from other electronic systems. Its standard communications interfaces may be
made operational in military, governmental and commercial applications.
However, unlike many of its competitors, the Company also offers
specialized communication interfaces for military applications that meet certain
military specifications. These interfaces link up all the electronic devices in
one system so that they can talk to one another and thereby exchange critical
information necessary for the performance and mission of that system. In
addition, PCS has developed a tactical communication interface that connects
different electronics systems operating on the battlefield with one another.
Communication with these various interfaces can be achieved electronically, by
radio or other means. See 'BUSINESS -- NEW PRODUCTS'.
In the military area, typical applications of the Company's computers
entail aircraft and shipboard diagnostic, testing and maintenance systems,
controller and radar displays for missile systems, performance recorders in
training exercises, mission loaders and verifiers of data and field command
control systems.
As of May 14, 1996, the following table represents a substantial portion of
the Company's current military business covering its three primary applications
(Maintenance & Support, Training, and Battlefield Communications), the identity
of its customer, the type of computer involved and the application concerned:
<TABLE>
<CAPTION>
TYPE OF
DESCRIPTION OF PROGRAM NAME OF CUSTOMER COMPUTER APPLICATION
- -------------------------------------- ---------------- --------- ------------------------------------
<S> <C> <C> <C>
HAWK/AVENGER Air Defense Missile Raytheon Laptop Portable Fire Controller
Systems
Phalanx Close-In, Ships' Defense Lockheed Martin Laptop Portable Electronic Maintenance
Weapon System Device
Swiss Army Anti-Tank Weapon Training STN Atlas Laptop Laser Simulation Training System
Elektronik GmbH
LANTIRN Low Altitude Navigation System Lockheed Martin Hand-held Maintenance Data Recording Device
HARM Missile System Texas Instrument Laptop Mission Loading and Electronic
Diagnostics
F-16 Fighter Lockheed Martin Laptop Electronic Diagnostics Check and
Mission Loading
</TABLE>
(table continued on next page)
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(table continued from previous page)
<TABLE>
<CAPTION>
TYPE OF
DESCRIPTION OF PROGRAM NAME OF CUSTOMER COMPUTER APPLICATION
- -------------------------------------- ---------------- --------- ------------------------------------
<S> <C> <C> <C>
U-2 Aircraft Surveillance Lockheed Martin Hand-held Mission Loading and Electronic
Maintenance
Taiwanese Fighter Program Allied Signal Laptop Engine Diagnostics
Downloader/Uploader
</TABLE>
On the government and commercial sides, PCS's products collect, store,
process and communicate data generally and are used specifically in such
applications as maintenance of nuclear power plant equipment and utility
transmission towers, state highway department surveying, timber and logging
operations, environmental and forestry studies and testing.
CUSTOMIZATION
The Company provides its customers and end-users with engineering services
that modify or adjust its standard portable computers, related software and
communication interfaces to their specific needs and requirements. A substantial
portion of its product sales to the military involve varying degrees of
customization while only a small portion of computers sold to its government and
commercial customers require such engineering modifications.
The range of engineering services furnished by PCS includes special rugged
packaging design, miniaturization of electronics, development of ultra-low power
systems and improvements in communications capabilities. There are many examples
of specific situations where PCS has rendered such services, and the following
modifications of its products are representative only:
-- The development of special communication interface modules and cards
to permit the computer to communicate with aircraft or a weapon
system.
-- The design of special connectors to computers to allow the use of the
customer's existing cable set-up contained in other equipment.
-- The expansion of environmental testing capabilities so that computers
may be made impervious to certain chemicals or wider temperature
ranges in accordance with program requirements.
-- The addition of a fail-safe mechanical switch to a weapon firing
system.
-- The installation of application software package for special data
collection and processing.
The Company typically charges for such customization services on a fixed
price basis. In the early phase of a military program, PCS is often called upon
to design, engineer and fabricate the prototype. Once this is successfully done,
it is generally in a better position to obtain the full production run for that
specific program. The Company also engages in system integration and post-sale
services to assist the customer in attaining operational status for the systems
or in correcting any problems.
Management believes that by providing engineering services, it not only
creates another revenue-generating activity for the Company, but it also
facilitates the marketing of PCS's products especially since most of its
competitors typically do not offer any customization of the electronics. In the
fiscal years ended September 30, 1995 and 1994, and for the six months ended
March 31, 1996 revenue from engineering services represented 12%, 17% and 9% of
the Company's total sales, respectively.
NEW PRODUCTS
Because of its expertise in miniaturization and its endeavors to pack more
computing power into smaller, completely sealed enclosures, the Company has
continually experimented with heat reduction methods. As a result of these
efforts, PCS has recently developed and successfully tested a solid-state,
miniaturized electronic chiller or heat pump. This device will more efficiently
lower temperatures and absorb heat generated by the electronic components of
PCS's computers. Accordingly, this development should allow the placement of
more powerful, higher temperature microprocessors in its sealed containers. The
electronic chiller has been incorporated into the Company's product offering as
a component.
In conjunction with Magnavox Electronic Systems of Fort Wayne, Indiana,
which has been acquired by Hughes Electronics (the 'former Magnavox division'),
the Company has developed a
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tactical communication interface that links a wide variety of electronic
equipment on today's battlefield. This device is a part of a data communication
network which sends information back and forth among the U.S. Army's weapons
systems and command structure either by voice radio or digitally by keyboard.
While the former Magnavox division undertook the necessary software
development and hardware design for this new communication set-up, PCS improved
the existing hardware by miniaturizing and fabricating the electronic circuit
board. For example, such interface will allow tanks on the battlefield to more
effectively communicate their position and other information over radio nets to
their commander and other friendly battlefield units. The tactical communication
interface went into full production in August, 1995.
The Company also has under development a ruggedized notebook that, in terms
of size, weight and capabilities, fits between its current hand-held and laptop
products. This notebook computer is expected to be available for sale by
September, 1996 and to be utilized by military, government and commercial
customers. The ruggedized notebook would be the Company's first product to
utilize commercial electronics. See 'BUSINESS -- RESEARCH AND DEVELOPMENT
ACTIVITIES'.
SUPPLY AND MANUFACTURING
The Company designs and engineers all its portable computers, purchases
their components from third parties and then tests and assembles the final
products. As part of this process, PCS specifically designs the electronic or
printed circuit board, clearly the most important, sophisticated and complex
element of its computers. At times, this board can be composed of as many as
twelve layers. The Company also fabricates the prototype of such board, tests
it, purchases all the necessary components for the board and then provides them
in kit form to specialized board fabricators for both pilot and production runs.
This approach to outsourcing differs from that followed by most other
rugged computer manufacturers which operate on a turn-key basis with their board
fabricators. Those fabricators handle the design, testing, purchase of all
components themselves and then furnish the manufacturer with the completed
boards. In contrast, the Company's approach to board fabrication allows it to
maintain better control of the quality and delivery of such boards, especially
because it is designing the boards and selecting the parts. In addition, its own
personnel serve as on-site inspectors at the plants of the board fabricators.
Each of the fabricators employed by PCS applies surface mount technology in the
fabrication of its printed circuit boards. As previously indicated, such
technology, in terms of ruggedization, is the most secure and
vibration-resistant process.
The Company will continue to outsource board fabrication. Given the rapid
changes in computer technology, PCS is not capable of keeping abreast of the
costly purchase requirements for new production equipment necessary in the
precise placement of electronic components on boards. Outsourcing in this regard
allows the Company's products to receive the benefit of the latest technological
development at an acceptable and modest cost. Once the boards are completed,
they are tested by the fabricator and, upon satisfactory completion of such
tests, are shipped to the Company. When delivered, PCS further tests the
completed boards and other components and then assembles the computers. Apart
from the printed circuit boards, the components that PCS purchases from external
sources include chassis, wire harnesses, computer chips, keyboards, displays and
metal cases.
With the new ruggedized notebook, the Company has selected the commercial
electronics boards of one manufacturer. Certain components will be attached to
the boards in a more secure fashion and some wiring connectors will be replaced
to improve shock and vibration performance. The electronics will be packaged in
a sealed container designed by the Company and, where required, a solid state
miniaturized heat pump will be installed to enhance the operating range of the
commercial electronics.
The Company does not assemble its products on a continuous mass-production
basis. Instead, its computers are usually assembled on a batch basis in which
products move irregularly from station to station. Tests are performed at
various stages of the process according to PCS's standards or as requested by
specific customers. Further testing of products is generally accomplished at the
end of the assembly process. The Company's manufacture of computers is done
pursuant to specific purchase orders or for general inventory purposes.
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PCS utilizes modern equipment for the design, engineering, assembly and
testing of its products. The Company has allocated a portion of the proceeds of
this Offering to purchase and/or lease additional equipment to enhance its
assembly efficiency and to increase its testing capacity in order to insure
increased production, when and if required, as well as to obtain better control
of quality, inventory and order processing. See 'USE OF PROCEEDS' and
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
Generally, PCS is not a party to any formal written contract regarding the
deliveries of its hardware, supplies and components or their fabrication. It
usually purchases such items pursuant to written purchase orders of both
individual and blanket variety. Blanket purchase orders usually entail the
purchase of a larger amount of items at fixed prices for delivery and payment on
specific dates.
The Company relies on a few board fabricators of different sizes and
capabilities located within the same geographical area as its headquarters.
Certain components used in its computers are obtained from sole sources. PCS has
occasionally experienced delays in deliveries of components and may experience
similar problems in the future. In an attempt to minimize such problems, the
Company has developed and keeps an inventory of parts that are generally more
difficult to obtain. However, any interruption, suspension or termination of
component deliveries from PCS's suppliers could have a material adverse effect
on its business.
Although Management believes that in nearly every case alternate sources of
supply can be located, inevitably a certain amount of time would be required to
find substitutes. During any such interruption in supplies, the Company may have
to curtail the production and sale of its computers for an indefinite period.
The Company's design, engineering and assembly facilities are located in
its Melbourne, Florida headquarters. These facilities comply with certain U.S.
military specifications necessary for the manufacture and assembly of products
supplied to it. PCS is seeking to qualify its facility in order to meet the
quality management and assurance standards of an international rating
organization (ISO-9001) within the next two years. Some measures have been taken
by the Company to qualify under such standards. However, meeting these criteria
involve a long complicated process of new planning, documentation and other
factors. Such qualification should improve the Company's marketing opportunities
in the growing international military markets for rugged computers. However,
there is no assurance that PCS can achieve such standards or that it will match
or increase such sales of its products abroad in the future even if such
standards are met.
The Company has entered into licensing arrangements for certain hardware
and software elements contained in, or used in conjunction with, its computers.
These agreements are usually non-exclusive, provide for minimum fees and
royalties related to sales to be paid by the Company to the particular licensor,
run for a limited term and are subject to other terms, conditions and
restrictions.
PCS receives its basic operating software system MS-DOS with various Window
versions from Microsoft, Inc. pursuant to such licensing arrangements. It also
obtains from Phoenix Technologies, Inc. its BIOS (Basic Input/Output System)
pursuant to a separate license agreement. Under either arrangement, the Company
may modify such software and occasionally alters the BIOS for special
situations. The termination, suspension or curtailment of these or other
licensing arrangements to which the Company is a party may have a material
adverse impact on its business and operations.
WARRANTY AND CUSTOMER SERVICE
The Company usually provides one-year warranties on all its products
covering both parts and labor although extended warranties may be purchased by
customers. At its option, PCS repairs or replaces products that are defective
during the warranty period if the proper usage and preventive maintenance
procedures have been followed by its customers. Repairs that are necessitated by
misuse of such products or are required beyond the warranty period are not
covered by its normal warranty.
In cases of defective products, the customer typically returns them to
PCS's Florida facility. Its service personnel then replace or repair the
defective items and ship them back to the customer. Generally, all servicing is
done at the Company's plant, and it charges its customers a fee for those
service items that are not covered by warranty. Except for its extended
warranties, it does not offer its customers any formal written service
contracts.
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Some personnel in its customer service area often answer technical
questions from customers and offer solutions to their specific applications
problems. In certain instances, other personnel receive and process orders for
product demonstrations, disseminate pricing information and accept purchase
orders for computers.
MARKETING AND SALES
The Company markets and sells its computer products through an internal
sales force of four individuals and several of its officers, approximately 34
manufacturers' representatives in the United States and approximately 23
distributors abroad. Its manufacturers' representatives cover approximately 39
states, including Washington, D.C., and its foreign distributors operate in
nearly 37 countries, including England, France, Japan, Australia and Germany.
PCS's relationship with its manufacturers' representatives are generally
governed by a written contract, terminable on 30 days prior notice. These
contracts usually provide for exclusive territorial and product representation
and commissions of 8% of the net invoice price on standard products. In some
cases, the commission will decline from 8% to 4% on standard products as sales
rise above certain dollar levels. Commissions on non-standard products and
custom engineering are usually subject to negotiation between the parties in
accordance with the terms of the contract. However, they tend to range from 6%
to 8% in practice. The Company lowered the commissions of its manufacturers'
representatives on standard products from 10% to a flat 8% on October 1, 1994.
The Company's manufacturers' representative contracts are subject to certain
other terms and conditions.
PCS's sales representatives do not purchase for their own account, but
merely sell such computer products on PCS's behalf. Seventeen manufacturers'
representatives accounted for an aggregate of approximately 36% of the Company's
1995 annual sales and 60% thereof for the first six months ended March 31, 1996.
The loss of certain of such representatives may have a material negative effect
on PCS's business.
Sales of the Company's products or services to foreign distributors are
also generally made pursuant to written contracts. Under such contracts, the
distributor is granted either an exclusive or non-exclusive territorial and
product representation as well as discounts based on the list price ranging from
20% to 35%, depending on the type or amount of products sold. In some cases,
there are minimum order requirements. Due to the custom nature of PCS's
products, its foreign distributors generally do not keep its computers in their
inventory until specific orders are obtained. The term of these agreements
generally run from 1 to 3 years but are terminable on 60 days' advance notice.
Payment is due in U.S. dollars within 30 days after delivery. These contracts
are subject to other terms and conditions. The Company has a primary distributor
for Asia and another primary distributor for Europe. No one distributor accounts
for more than 5% of its total sales in any period referred to above.
The Company promotes its computer products through the dissemination of
product literature, attendance and exhibition at trade shows, conduct of
seminars and the distribution of news releases on special developments to trade
magazines and newsletters to an extensive customer list. PCS does little
advertising in trade periodicals. Management believes that most of the Company's
sales leads are generated by trade shows and word-of-mouth referrals.
The Company has entered into joint marketing arrangements with several
large companies to promote their respective products in the military
marketplace. These companies include IDP of Gaithersburg, Maryland (involving
the manufacture and distribution of the new ruggedized notebook), and Raytheon
(in regard to its air defense command and control system). These arrangements
allow PCS to gain access to additional proprietary software and to increase its
market exposure under the sponsorship of better-known names in the defense
industry. In turn, these companies utilize the Company's products and its
expertise in ruggedizing computers and miniaturizing their electronics. While
Management believes that the marketing arrangement with IDP may be important in
the future, it is not presently material to the operations of the Company. In
contrast, as Raytheon is a significant customer of the Company, the marketing
program with Raytheon is material. Through the current joint marketing program
with Raytheon, Raytheon is allowed to provide certain consulting services and
assistance to the Company under a defined DoD program, resulting in further
customization of the RTU product purchased for the DoD and, the Company
believes, the development of a stronger relationship between the Company and
Raytheon's engineers. The Company is presently in discussions
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with Raytheon with a view toward replacing the current arrangement with a
broader co-marketing arrangement. However, there can be no assurance that such
arrangement will be finalized or, if finalized, that it will be a profitable one
for the Company, In any event, the termination, suspension or curtailment of any
such arrangement may have material adverse consequences for the Company's
business.
In the military market, the sales cycle for the Company's products usually
entails a number of complicated steps and can take from one year to five years.
The sale cycle in the government and commercial markets is generally not as
complex or time consuming, but still may take as long as two years. Sales to the
military and government markets are greatly influenced by special budgetary and
spending factors pertinent to these organizations and are usually seasonal in
nature.
Utilizing the net proceeds from this Offering, the Company intends to
expand its sales and marketing efforts in all of its markets as follows: (i)
increase advertising in trade magazines; (ii) increase its presence at trade
shows with larger booths and more extensive exhibits; (iii) increase the number
of trade shows in which Company personnel attend and products are presented;
(iv) hold additional seminars at military bases and other prime locations; (v)
hire additional sales personnel and consultants to gather leads and promote
sales; (vi) expand sales and marketing activities in the medical markets; and
(vii) invest in research and development in order to increase its product
offering. See 'USE OF PROCEEDS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- RESEARCH AND
DEVELOPMENT ACTIVITIES'.
CUSTOMERS
The Company sells its products, directly or indirectly, to the U.S. and
foreign military establishments, large aerospace and military contractors
supplying these establishments, government agencies regulating environmental,
geologic and forestry matters, State departments of transportation, public
utilities, forest products companies, surveying and engineering concerns and
railroads.
For the fiscal year ended September 30, 1995 and six months ended March 31,
1996, Raytheon's Missile Systems Division accounted for 47% and 10% of the
Company's total sales, respectively. For those same periods, Lockheed Martin,
STN Atlas Electronics, TransPacific Technologies and Nichols Research accounted
for 29% and 22%, 13% and 21%, 3% and 3%, and 2% and 0% respectively. The loss of
any of these customers could have a material adverse impact on PCS's business.
As a result of a recent merger, Lockheed and Martin Marietta are now part of the
same business organization.
COMPETITION
The Company competes in each of its markets against other concerns, most of
which are larger and have greater financial, technical, marketing, distribution
and other resources than PCS. It competes on the basis of service, performance,
reliability, price, and deliveries.
With respect to its hand-held business, the Company encounters competition
from Litton Data Systems, Group Technologies, Tadiran and Miltope in military
applications; Husky Computer Company in both military and non-military markets;
and CMT, Micro Palm and DAP in non-military applications. As far as its laptops
are concerned, PCS faces competition from SAIC, Miltope, Cyberchron and North
American Industries (CODAR) in the military and non-military areas.
Certain military procurement policies requiring purchases of computers for
the military under Indefinite Delivery, Indefinite Quantity ('IDIQ') contracts
could result in seriously restricting the Company's efforts to sell its
computers to the U.S. military. These IDIQ contracts encourage big purchases of
such computers amounting to many hundreds of millions of dollars. Such
procurement policies clearly favor large companies with resources of that
magnitude. Unless PCS can forge strategic alliances with larger military
contractors having such resources or qualify for certain exceptions to IDIQ
arrangements, it may suffer adverse material consequences in its continuing
quest for military business. See 'RISK FACTORS -- COMPETITION'.
In the military and government markets, the Company will often be engaged,
directly or indirectly, in the process of seeking competitive bid or negotiated
contracts with government departments and agencies. These government contracts
are subject to specific rules and regulations with which PCS may
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have difficulty complying. However, PCS is occasionally one of only a few
companies whose products meet the required specifications designated by such
customers.
In most cases, PCS tends to be the high priced bidder. The reasons for this
situation are numerous. The Company designs its computers on an overall basis to
assure their ruggedness and use in the worst circumstances. Accordingly, it
generally employs more expensive components than its competitors. These
generally more expensive components consist of industrial or higher-level
commercial type instead of ordinary commercially available parts. The Company's
computers are enclosed in sealed containers. Moreover, PCS makes extensive
modifications and refinements of its computers for its customers pursuant to
their specifications and special needs. As a consequence, PCS's products
generally function at a higher level of performance and reliability than its
competitors.
For those applications in which harsh environmental and operational
conditions prevail, customers are often willing to pay higher prices, especially
where few, if any, other companies offer similar devices. In those less
demanding circumstances, the Company's products sell at a severe competitive
disadvantage and often are not purchased because the applications do not justify
its higher prices. Since PCS sells its computer products into segments of the
commercial market and has a history of resale pricing, under DoD regulations
such commercial pricing information may be utilized to support the prices that
it charges in the military marketplace. See 'RISK FACTORS', generally and
'BUSINESS -- GOVERNMENT REGULATIONS AND CONTROLS'.
BACKLOG
As of May 20, 1996, the Company's backlog was $5,746,687, as compared with
backlog of $3,080,181 as of May 20, 1995. Three customers accounted for
approximately 54%, 24% and 12% of such backlog as of May 20, 1996. PCS presently
expects to manufacture and deliver most of the products in backlog within the
next 12 months.
Substantially all the Company's backlog figures are based on written
purchase orders executed by the customer and involve product deliveries and not
engineering services. All orders are subject to cancellation. However, in that
event, PCS is generally entitled to reimbursement of its cost and negotiated
profits; provided that such contract would have been profitable.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's research and development involves: (i) its sole activities;
(ii) joint efforts between it and another enterprise; and (iii) endeavors of
third party contractors retained by it. A substantial portion of its research
and development is accomplished on an in-house basis. The Company has recently
completed a joint development contract with the former Magnavox division in Fort
Wayne, Indiana on the tactical communications interface and a sole development
contract with JFK Associates, Inc. on a RHC-44E printed circuit board, related
software and documentation.
The Company has designed a new rugged notebook. This product is intended to
fit between its laptops and its hand-held computers in size, weight and price.
Weighing approximately 12 lbs., it will have a full-size display and same type
of keyboard as a laptop, a powerful Pentium processor and expansion
capabilities. Management believes that there is a market for this kind of
ruggedized computer in the military, government and commercial areas. The
Company expects to expend a substantial portion of the funds allocated to
research and development from the net proceeds of this Offering on the expansion
and enhancement of its rugged notebook product line. See 'MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS'.
Research and development expenditures during the fiscal years ended
September 30, 1995 and 1994 were $480,951 and $421,126, respectively, and
represented 5.6% and 5.4% of total sales, respectively. A substantial portion of
such expenditures for those fiscal years were applied to the development of the
rugged notebook, the RLT 410, an Intel 80486 based ruggedized laptop, the RLT
410 Model D, a larger laptop capable of accepting both full-size ISA and PC/104
miniaturized expansion boards, and the early development of a Pentium based main
board for the RLT product line.
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INTELLECTUAL PROPERTY
Proprietary information and know-how are important to the Company's
commercial success. PCS holds no patents or copyrights but has trademark
protection for the Paravant name and logo. There can be no assurance that others
will not either develop independently the same or similar information or obtain
and use proprietary information of the Company. In addition, none of its
employees have signed confidentiality agreements regarding its proprietary
information nor have any employees signed any non-competition agreements other
than Messrs. McNeight and Craven. See 'RISK FACTORS -- NO ASSURANCE AS TO
PROTECTION OF INTELLECTUAL PROPERTY' and 'MANAGEMENT'.
Management believes that its products do not infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against it in the future or be successful in
asserting such claims.
GOVERNMENT REGULATIONS AND CONTRACTS
Due to the nature of the products designed, manufactured and sold by PCS
for military applications, it is subject to certain U.S. Department of Defense
('DoD') regulations. In addition, commercial enterprises engaged primarily in
supplying equipment and services, directly or indirectly, to the United States
government are subject to special risks such as dependence on government
appropriations, termination without cause, contract renegotiation and
competition for the available DoD business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS.
Government contracts governing the Company's products are often subject to
termination, negotiation or modification in the event of changes in the
government's requirements or budgetary constraints. Products sold by PCS for
government applications are primarily sold to companies acting as contractors or
subcontractors and not directly to government entities. Agreements with such
contractors or subcontractors generally are not conditioned upon completion of
the contract by the prime contractor. To the extent that such contracts are so
conditioned, a failure of completion may have a material adverse effect on the
Company's business. Currently, it does not have any contracts so conditioned.
See 'RISK FACTORS -- SUBSTANTIAL DEPENDENCE ON MILITARY SALES', ' -- GOVERNMENT
REGULATION AND CONTRACTS', ' -- SEASONALITY' AND ' -- COMPETITION' and
'BUSINESS -- COMPETITION'.
The contracts for sale of its computers are generally fixed-priced
contracts. This means that the price is set in advance and generally may not be
varied. Such contracts require the Company to properly estimate its costs and
other factors prior to commitment in order to achieve profitability and
compliance. The Company's failure to do so may result in unreimbursable cost
overruns, late deliveries or other events of non-compliance. See 'RISK FACTORS',
generally.
Under certain circumstances, PCS is also subject to certain U.S. State
Department and U.S. Department of Commerce requirements involving prior
clearance of foreign sales. Such export control laws and regulations either ban
the sale of certain equipment to specified countries or require U.S.
manufacturers and others to obtain necessary federal government approvals and
licenses prior to export. As a part of this process, the Company generally
requires its foreign distributors to provide documents which indicate that the
equipment is not being transferred to, or used by, unauthorized parties abroad.
The Company and its agents are also governed by the restrictions of the
Foreign Corrupt Practices Act of 1977, as amended, ('FCPA') which prohibits the
promise or payments of any money, remuneration or other items of value to
foreign government officials, public office holder, political parties and others
with regard to the obtaining or preserving commercial contracts or orders. PCS
has required its foreign distributors to comply with the requirements of FCPA.
All these restrictions may hamper the Company in its marketing efforts abroad.
PCS's manufacturing operations are subject to various federal, state and
local laws, including those restricting or regulating the discharge of materials
into the environment, or otherwise relating to the
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protection of the environment. The Company is not involved in any pending or
threatened proceedings which would require curtailment of, or otherwise restrict
its operations because of such regulations, and compliance with applicable
environmental laws has not had a material effect upon its capital expenditures,
financial condition or results of operations.
Management believes that although compliance with applicable federal laws
and regulations involves certain additional procedures by the Company that would
not otherwise be required, such compliance has not generally inhibited or
limited the Company's ability to enter into material contracts.
EMPLOYEES
As of May 14, 1996, the Company had 57 full time employees including its
officers, of whom 26 were engaged in manufacturing and repair services, 10 in
administration and financial control, 16 in engineering and research and
development, and five in marketing and sales.
None of its employees are covered by a collective bargaining agreement or
are represented by a labor union. PCS considers its relationship with its
employees to be satisfactory.
The design and manufacture of the Company's equipment requires substantial
technical capabilities in many disparate disciplines from mechanics and computer
science to electronics and mathematics. While management believes that the
capability and experience of its technical employees compares favorably with
other similar manufacturers, there can be no assurance that it can retain
existing employees or attract and hire the highly capable technical employees
necessary in the future on terms deemed favorable to it, if at all. See 'RISK
FACTORS -- DEPENDENCE ON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL'.
PROPERTIES AND FACILITIES
The Company leases a 10,466 square foot facility in Melbourne, Florida,
which is used as its principal corporate headquarters and manufacturing plant.
This facility, which is considered adequate for present and anticipated future
needs, is a two-story, modern brick building in a commercial-industrial area.
The lease on this space terminates in November, 1998 and provides for a fixed
annual rent of $109,291 for 1995 and $140,658 for 1996, payable in equal monthly
installments. These amounts include the Company's proportionate cost of
utilities, repairs, cleaning, taxes and insurance. Management believes that this
facility will meet its operational needs for the foreseeable future.
The Company also leases certain automobile, truck, office, production and
testing equipment and expects to purchase or lease additional equipment after
consummation of this Offering. See 'USE OF PROCEEDS'.
LEGAL PROCEEDINGS
In March 1996, the Company's former counsel, Cascone & Cole, rendered an
invoice to the Company in the amount of approximately $365,000 for legal fees
and expenses to which such counsel claimed to be entitled in connection with its
representation of the Company for both general corporate services and services
relating to the Company's initial public offering. As the Company had made prior
payments to such counsel of $130,000, the net amount claimed to be due was
approximately $235,000. The Company has contested the invoice and accrued an
estimate for the settlement, if any, of these fees. On March 27, 1996, Cascone &
Cole filed an action in the Supreme Court of the State of New York, County of
New York, entitled Cascone & Cole v. Paravant Computer Systems, Inc., Victor M.
Wang, Duke & Company, Inc., Dean Petkanas and Eagle Group Incorporated (Index
No. 96601634) against the Company, the Underwriter and certain other defendants,
alleging, among other things, breach of contract, failure to pay attorneys fees,
fraud, copyright infringement and defamation by the Company in connection with
the aforementioned services, as well as claiming a finder's fee with respect to
the Underwriter's relationship with the Company. Plaintiff is seeking damages in
the amount of approximately $28 million from the Company. The Company has filed
an answer denying the allegations made by plaintiff and has asserted defenses
and counterclaims against the plaintiff seeking, among other things, recovery of
amounts paid to plaintiff as well as punitive damages and court costs. The
Company will vigorously defend itself in this matter. Management believes that
the ultimate resolution of this matter will not have a material adverse effect
on the Company.
The Company knows of no other material litigation or proceeding, pending or
threatened, to which it is or may become a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Krishan K. Joshi(1)(2).................. 59 Chairman, Chief Executive Officer and Director
Richard P. McNeight(3).................. 46 President, Chief Operating Officer and Director
William R. Craven....................... 48 Vice President of Marketing, Director and Secretary
Kevin J. Bartczak....................... 43 Vice President, Treasurer, and Chief Financial Officer
Lary J. Beaulieu........................ 49 Vice President of Engineering
James E. Clifford(1)(2)(3)(4)........... 59 Director
Michael F. Maguire(3)(4)................ 69 Director
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Trustee for Profit Sharing Plan
(3) Member of Audit Committee
(4) Member of Stock Option Committee
------------------------
All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualify. Executive officers hold office
until their successors are chosen and qualify, subject to earlier removal by the
Board of Directors.
The biographical information for the Company's officers and directors is as
follows:
Krishan K. Joshi. From 1976 to date, Mr. Joshi has served as founder,
chairman and president of UES, Inc., a technology development company.
Following the acquisition of PCS in December of 1989, he became Chairman,
Chief Executive Officer and President of the Company. However, in April
1994, he resigned as President of PCS and continues to serve as Chairman
and Chief Executive Officer. He spends less than 20% of his time on Company
affairs. He has also been Chairman of Astro Industries, Inc., a
manufacturer and distributor of aerospace wire and cable products, since
August 1980. He holds a Bachelor of Science degree in Mathematics and
Physics from Punjab University in India; a Bachelors degree in Aeronautical
and Astronautical Engineering from Ohio State University and Master of
Science degree in Engineering from the University of Dayton, Ohio; and has
engaged in Doctoral studies in Mechanical Engineering at the University of
Cincinnati.
Richard P. McNeight. From 1984 until June 1994, Mr. McNeight served as
a Vice President and General Manager of the Company. He was appointed
President of PCS in June 1994. From 1982 to 1984, he was employed by
Siemen's Corporation as a senior member of its systems engineering staff.
From 1972 to 1982, he worked for ITT's North Telecommunications Division in
several positions as a software engineering director and manager and
engineer. Mr. McNeight holds a Bachelors degree in Applied
Science/Engineering from the University of Wisconsin and a Masters degree
in Computer Information/Control Engineering from the University of
Michigan.
William R. Craven. Mr. Craven joined the Company in September 1991 as
a Vice President in charge of Marketing and has served in that capacity
continually to the present. From 1990 to 1991, he was employed as a Vice
President of Marketing for Telxon Corp., a manufacturer of hand-held
computers and software systems. From 1982 to 1990, he served as a Vice
President of Mead Corp., a manufacturer of paper products and provider of
electronic services, in a variety of positions, including marketing,
product development and joint ventures. For three years during that period,
he acted as President of Seiko Mead Company, a Japanese-American joint
venture established to manufacture color computer printers and copiers. He
was employed as a Director of Marketing by Gentech Industries, a
manufacturer of packaging materials and systems, from 1979 to 1982. He also
served as Sales and Product Managers for Champion International, a
manufacturer of paper
38
<PAGE>
<PAGE>
products from 1971 until 1979. Mr. Craven holds a Bachelor of Science
degree in Physics and Mathematics from Birmingham Southern College.
Lary J. Beaulieu. Since 1988 Mr. Beaulieu has been employed
continually by the Company in several capacities, including Director of
Engineering, Chief Engineer and Vice President of Engineering. From 1982 to
1988, he served as Manager of Inspection and Service Products, Engineering
Manager and New Product Design Manager for Schlumberger Technologies, a
manufacturer of service/inspection products. He worked in several
engineering positions from 1972 through 1981 for ITT's North
Telecommunications Division. Mr. Beaulieu holds Bachelor and Masters of
Science degrees in electrical engineering from Tufts University.
Kevin J. Bartczak. Mr. Bartczak joined the Company as an officer in
February, 1995. From 1993 to 1995, he served as Chief Financial Officer,
Secretary and Director of Opto Mechanik, Inc. ('OMI'), a manufacturer of
electro optical fire control and assemblies for weapons systems. On October
14, 1994, OMI filed for protection under Chapter 11 of the U.S. Bankruptcy
Code and is still in bankruptcy. He was employed from 1987 to 1993 as a
division controller of Harsco Corporation, a manufacturer of heavy
equipment and land combat systems. From 1984 to 1987, he was also employed
as a division controller of General Defense Corporation, a manufacturer and
developer of ammunition, radar guidance and weapon systems. Mr. Bartczak
served from 1981 to 1984 as a division controller and manager of corporate
accounting of Elkem Metal Company, a producer of metal alloys. From 1979 to
1981, he functioned as senior accountant for the Cyclops Corporation, a
producer of specialty steel, industrial and residential building products
and consumer electronics. As a certified public accountant, he worked as an
audit supervisor for Arthur Young & Co from 1975 to 1979. Mr. Bartczak
holds a Bachelor of Science degree in Business Management from Indiana
University of Pennsylvania.
James E. Clifford. From 1989 to date, Mr. Clifford served as President
and Director of Engineering Development Laboratories, Inc., a manufacturer
of aircraft avionics and flight control electronics and, from 1983 to 1989,
as President of Signal Technology Laboratories, Inc. ('STL'), a
manufacturer and developer of militarized electronic defense systems. Mr.
Clifford still serves as Director of STL. Prior thereto, he served as an
officer in the U.S. Air Force for 23 years, attaining the rank of Colonel
specializing in air lift and aircraft acquisition programs. Mr. Clifford
holds Bachelors and Masters of Science degrees in Electrical Engineering
from Oklahoma State University.
Michael F. Maguire. From 1984 to the present, Mr. Maguire has been
employed as President of Maguire Investment Management, Inc., a small
consulting firm that he founded. From 1973 through 1986, he was an officer
of Harris Corp., a large computer manufacturer, attaining the position of
senior vice president. He was also employed by Perken Elmer, a manufacturer
of analytical instruments and life-science systems, from 1962 through 1973
as an engineering manager, vice president, general manager and group vice
president. From 1950 to 1962, he held various engineering design and
management positions with GE, Pratt Whitney, and Sperry Rand companies. He
currently is director of Harris Computer Systems Corp., Autosight, Inc. and
Opto Mechanik, Inc. On October 14, 1994, OMI filed for protection under
Chapter 11 of the U.S. Bankruptcy Code and is still in bankruptcy. In 1950,
he received a Bachelor of Science degree in electrical engineering from
Rensselair Polytechnic Institute and in 1955 a Masters of Science degree
from the University of Connecticut.
Potential investors should consider the backgrounds of the Company's
officers and directors and whether or not they have the necessary experience and
capabilities to operate the Company and develop its business effectively.
Management's experience and ability are often deemed to be the most significant
factors in the success of any business. PCS's Management believes that it
currently possesses the necessary ability and experience to operate its business
effectively. Should either Messrs. McNeight or Craven leave the Company's
employ, it would be operating at a definite disadvantage. While PCS may be in a
position to replace them with comparable personnel, there is no certainty that
such would be the case, and in any event delays in replacing them are likely.
See 'RISK FACTORS -- DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED
PERSONNEL'.
39
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as certain other compensation paid to or earned by, its then
President and three other highest paid executive officers (collectively, the
'Named Executive Officers') in all capacities during the fiscal years ended
September 30, 1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION BONUSES AWARDS(2)
- --------------------------------------------------------- ------------------- ------- ------------
<S> <C> <C> <C> <C>
Krishan K. Joshi(1) ..................................... 1995 $ 45,200 -- --
President (CEO), Chairman 1994 28,800 -- --
1993 30,783 -- --
Richard P. McNeight(3) .................................. 1995 124,241 -- --
President and Chief Operating Officer 1994 116,896 $3,000 $ 723
1993 91,180 5,000 129
William R. Craven ....................................... 1995 106,616 -- --
Vice President of Marketing 1994 91,694 1,000 832
1993 82,250 4,827 120
Lary J. Beaulieu ........................................ 1995 98,560 -- --
Vice President of Engineering 1994 105,724 9,109 894
1993 84,622 4,818 123
</TABLE>
- ------------
(1) Reflects compensation for his part-time work for the Company.
(2) Includes Company matching funds for 401(k) Profit Sharing Plan.
(3) Excludes personal use of Company automobile and computer equipment estimated
at $5,000 per year.
The following table provides information related to options granted to the
Named Executive Officers during the fiscal year September 30, 1995. No stock
appreciation rights were issued by the Company during fiscal 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
- -------------------------------------------------- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief Executive Officer............ -- -- -- --
Richard P. McNeight, 40,000 21.0 $ 2.37 11/99
President and Chief Operating Officer(1)(2)..... 61,006 31.8 $ 2.15 11/00
William R. Craven,
Vice President -- Marketing(2).................. 5,000 2.6 $ 2.15 11/04
Lary J. Beaulieu,
Vice President -- Engineering(3)................ 5,000 2.6 $ 2.15 11/04
</TABLE>
- ------------
(1) Includes options covering 61,006 shares of Common Stock granted in November
1994 to Mr. McNeight at an exercise price of $2.15 per share under a
non-qualified stock option plan previously maintained by the Company, which
has since been terminated. See 'CERTAIN TRANSACTIONS' AND 'PRINCIPAL
STOCKHOLDERS'.
(footnotes continued on next page)
40
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) Excludes options for 30,000 shares and 15,000 shares of Common Stock granted
to Messrs. McNeight and Craven, respectively, under the Company's Incentive
Plan at an exercise price of $4.40 and $4.00 per share, respectively, in
November 1995. See 'CERTAIN TRANSACTIONS' and 'PRINCIPAL STOCKHOLDERS'.
(3) Excludes options for 10,000 shares of Common Stock granted to Mr. Beaulieu
under the Company's Incentive Stock Option Plan at an exercise price of
$4.00 per share in November 1995.
AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 1995 AND YEAR END OPTION/SAR
VALUES
The following table provides information related to options exercised by
the Named Executive Officers during the fiscal year ended September 30, 1995 and
the number and value of options and stock appreciation rights held at fiscal
year end which are currently exercisable. No options or stock appreciation
rights were exercised during the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS/SARS
UNDERLYING UNEXERCISED
SHARES OPTIONS/SARS AT FY-END AT FY-END ($)(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief
Executive Officer................ -- -- 148,616 -0- $ 676,634 $ -0-
Richard P. McNeight,
President and Chief
Operating Officer................ -- -- 125,555 56,667 441,777 88,401
William R. Craven, Vice
President -- Marketing........... -- -- 102,421 18,333 463,001 24,499
Lary J. Beaulieu, Vice
President -- Engineering......... -- -- 3,344 13,333 10,242 19,499
</TABLE>
- ------------
(1) Represents the value of options assuming the initial public offering price
set forth on the cover page of this Prospectus.
------------------------
Mr. McNeight is serving as the Company's President pursuant to a written
employment contract for three years commencing January 1, 1995. This agreement
provides for an initial annual compensation of $130,000, unspecified bonuses, an
increase of 10% in compensation in each of the second and third years and a
two-year non-competition covenant covering the rugged computer business that
commences after termination of employment.
Mr. Craven has entered into a three year written employment contract with
the Company commencing January 1, 1995. His initial annual compensation under
such contract is $110,000, and it also provides for unspecified bonuses, a 10%
increase per annum in each of the second and third years, and a similar two-year
non-competition covenant.
Each of the foregoing contracts may be terminated by the Company if it
fails to complete an initial public offering of its securities by September 15,
1996.
In February 1995, the Company entered into a three year employment contract
with Kevin J. Bartczak, which provides for his employment as Vice President and
Chief Financial Officer. This agreement provides for compensation at the initial
rate of $80,000 per year, increasing to $90,000 in the second year and $100,000
in the third year, and provides for discretionary bonuses. In addition, the
agreement provides for the grant to Mr. Bartczak, in March 1995, of options to
purchase 10,000 shares of Common Stock at an exercise price of $2.15. In the
event Mr. Bartczak's employment is terminated by the Company without cause, he
will be entitled to a severance amount equal to 6 months' salary (plus certain
health insurance expense amounts) if termination occurs during the first two
years under the agreement and 90 days' salary if termination occurs during the
third year.
41
<PAGE>
<PAGE>
The Company's outside directors will be paid a fee of $500 for attendance
at each of its Board of Directors meeting plus related expenses.
INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan, as amended (the 'Incentive
Plan'), options to purchase a maximum of 485,000 shares of its Common Stock may
be granted to officers and other key employees of PCS. Options granted under the
Incentive Plan are intended to qualify as incentive stock options as defined in
the Internal Revenue Code.
The Incentive Plan is administered by the Board of Directors and a
Committee presently consisting of two members of the Board that determine which
persons are to receive options, the number of options granted and their exercise
prices. In the event an optionee voluntarily terminates his employment with the
Company, the optionee has the right to exercise his accrued options within
thirty (30) days of such termination. However, the Company may redeem any
accrued option held by each optionee by paying him the difference between the
option exercise price and the then fair market value.
If an optionee's employment is involuntarily terminated, other than because
of death, he also has the right to exercise his accrued option, within thirty
(30) days of such termination. Upon death, the optionee's estate or heirs have
one year to exercise said optionee's accrued options. The maximum term of any
option is ten years, and the option price per share may not be less than the
fair market value of the Company's shares at the date the option is granted.
However, options granted to persons owning more than 10% of its voting shares
may not have a term in excess of five years, and the option price per share may
not be less than 110% of fair market value.
If the aggregate fair market value of the shares of Common Stock
(determined at the time the option is granted) with respect to which incentive
stock options are exercisable for the first time by such optionee during any
calendar year (under all such plans) exceeds $100,000, then only the first
$100,000 of such shares so purchased will be treated as incentive options and
any excess over $100,000 so purchased shall be treated as options which are not
incentive stock options. This rule shall be applied by taking options into
account in the order or sequence in which they are granted. Options must be
granted within ten years from the effective date of the Incentive Plan.
Options granted under the Incentive Plan are not transferable other than by
will or by the laws of descent and distribution. Options granted under the
Incentive Plan are protected by anti-dilution provisions increasing the number
of shares issuable thereunder and reducing the exercise price of such option,
under certain conditions. The Incentive Plan will terminate on December 22, 2004
or on such earlier date as the Board of Directors may determine. Any option
outstanding at the termination date will remain outstanding until it expires or
is exercised in full, whichever occurs first. As of May 14, 1996, options to
acquire an aggregate of 250,000 shares of the Company's Common Stock at exercise
prices ranging from $2.15 per share, to $4.40 per share had been granted under
the Incentive Plan to key PCS employees and directors (including options to
purchase 40,000 shares of Common Stock at an exercise price of $2.37 per share,
and options to purchase 30,000 shares of Common Stock at an exercise price of
$4.40 per share, granted to Mr. McNeight; options to purchase 5,000 shares of
Common Stock at an exercise price of $2.15 per share, and options to purchase
15,000 shares of Common Stock at an exercise price of $4.00 per share, granted
to Mr. Craven; and options to purchase 5,000 shares of Common Stock at an
exercise price of $2.15 per share, and 10,000 shares of Common Stock at an
exercise price of $4.00 per share, granted to Mr. Beaulieu). These options may
only be exercised if the holders remain with the Company for at least one year
after their date of grant. In the case of options granted under the Incentive
Plan to employees, such options vest and are exercisable at the rate of 33 1/3%
per year of continuous employment with the Company.
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
In order to attract and retain the services of non-employee members of the
Board of Directors and to provide them with increased motivation and incentive
to exert their best efforts on behalf of the Company by enlarging their personal
stake in the Company, the Company has adopted the Nonemployee Directors' Stock
Option Plan (the 'Director's Plan'), pursuant to which stock options covering an
aggregate of 15,000 shares of the Company's Common Stock may be granted to such
non-employee directors.
42
<PAGE>
<PAGE>
Pursuant to the Directors' Plan, each member of the Board of Directors of
the Company who is not an employee of the Company (or a subsidiary) (a
'Non-employee Director') and who is elected or re-elected as a director of the
Company by the shareholders at any annual meeting of shareholders commencing
with the annual meeting to be held during 1997, will receive, as of the date of
each such election or re-election, options to purchase 2,500 shares of the
Company's Common Stock. In addition, Non-employee Directors each will receive
options to purchase 2,500 shares of Common Stock upon his initial election or
appointment as director. All options granted under the Directors' Plan are to be
non-incentive options. Messrs. Clifford and Maguire, the current Non-employee
Directors, will each be granted, effective as of the date of this Prospectus,
non-incentive options to purchase 2,500 shares of Common Stock, at an exercise
price of $5.00 per share.
401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the 'PSP') is qualified under
Sections 401(a) and 401(k) of the Federal Internal Revenue Code. The effective
date of the PSP is January 1, 1990. This plan is administered under a Trust and
two of the Company's directors are currently serving as its trustees. All
employees of the Company, who are 21 years or older, including its executive
officers, are eligible to participate in this plan after three months of
employment.
Under the PSP, participating employees have the right to elect that their
contributions to this plan be made from deductions from the compensation owed to
them by the Company up to 15% of their compensation per annum not to exceed
$9,240 for 1995 and $9,500 in 1996. In addition, PCS, at its discretion, can
make contributions to this plan of up to 1% of the participant's annual
compensation that will be allocated among them. Participating employees are
entitled to full distribution of their share of the Company's contribution under
this plan upon their death, total disability or when they reach retirement age
(i.e., 65 years of age). If their employment is terminated earlier, their share
of PCS's contributions will depend upon their number of years of employment with
the Company. All employees are entitled to receive 25%, 50%, 75%, and 100%,
respectively, of the Company's contributions upon completion of 2, 3, 4, and 5
years of employment, respectively.
All participating employees have the right to receive 100% of their own
contributions to the PSP upon any termination of employment. Apart from the
Company's and employees' contributions, they may receive investment earnings
relating to the funds in their account under this plan.
CERTAIN TRANSACTIONS
Under the Company's $4,000,000 line of credit with National City Bank,
Dayton Ohio, Krishan K. Joshi, the Company's Chairman, and UES, Inc., a company
which presently indirectly owns 48.7% of PCS's outstanding Common Stock, that
Mr. Joshi also controls ('UES'), have each guaranteed any and all outstanding
amounts of such loan. As of March 31, 1996 and April 30, 1996, the Company's
liability to such bank is approximately $3,775,000 and $3,350,000, respectively,
but such sum could increase or decrease in the future. Similar guarantees
involving Mr. Joshi and UES were required for earlier loan arrangements between
the Company and such Bank. Upon successful completion of this Offering, such
guarantees will be terminated. Mr. Joshi and UES may be deemed to benefit from
the elimination or modification of such guarantees. See 'USE OF PROCEEDS',
'CAPITALIZATION' and 'RISK FACTORS -- MANAGEMENT'S BROAD DISCRETION IN USE OF
PROCEEDS; BENEFIT TO INSIDERS'.
The Company is a guarantor of certain debt of a significant shareholder,
UES, through its wholly owned subsidiary. The debt includes a $1,250,000 line of
credit with such Bank that is due on demand and bears interest at the prime
rate. The amount outstanding under the agreement as of September 30, 1995 was
approximately $779,715. The debt also includes a commercial note payable by UES
to such Bank bearing an initial interest rate of 8.75% adjusted monthly to 1.50%
above the prime rate. Interest and principal payments on this note are due in
eighty-four monthly installments of $11,905 each and final payment is due in
September, 2001. The amount outstanding under the note at September 30, 1995 was
$845,235. The guarantee of such UES debt by the Company will terminate upon the
successful completion of this Offering.
43
<PAGE>
<PAGE>
Beaver Creek Enterprises, an Ohio partnership among certain UES employees,
including Mr. Joshi, owns a three (3) bedroom residential condominium in
Melbourne, Florida, consisting of approximately 1,450 square feet. It rents this
apartment to the Company at $750 per month, which includes its apportioned real
estate taxes, pursuant to a month to month lease arrangement. For the fiscal
years ended September 30, 1995 and 1994, the Company paid such partnership
$9,000 and $9,000, respectively, for the use of such condominium. For the six
month period ended March 31, 1996, the Company paid $4,500 for the use of such
condominium. This apartment is used to house PCS's executives, including Messrs.
Craven and Joshi, when they are visiting the Company's headquarters, as well as
select customers.
On December 16, 1991 Messrs. McNeight, Craven and Joshi were granted
options covering 49,539 shares, 99,077 shares and 148,616 shares of PCS's Common
Stock held by UES Florida, Inc., respectively, an affiliate of the Company ('UES
Florida'), each at an adjusted exercise price of $.45 per share. On November 22,
1994, Mr. McNeight was granted 61,006 options to purchase shares of PCS's Common
Stock at an adjusted exercise price of $2.15 per share under a non-qualified
stock option plan previously maintained by the Company, which has since been
terminated. The exercise prices of the foregoing options granted in 1991 and
1994 approximated the estimated market value of the shares of Common Stock on
the date of grant. See 'MANAGEMENT -- EXECUTIVE COMPENSATION' and 'PRINCIPAL
STOCKHOLDERS'.
PCS had an intercompany payable to UES of $188,436 at March 31, 1996 for
reimbursement of expenses paid by UES on the Company's behalf. In April 1996,
the Company paid $100,000 to UES which reduced the balance of the intercompany
payable to $88,436.
PCS advanced $7,600 during 1993 to one of its officers and shareholders.
The advance was repaid in full to it during the year ended September 30, 1994.
Officers, directors of the Company and post offering 5% shareholders or their
affiliates will not borrow funds from it except for bona fide business purposes.
In March 1996, UES Florida and Messrs. McNeight and Craven and another
shareholder sold an aggregate of 308,581 shares of Common Stock to private
investors ('Selling Security Holders') at a purchase price of $4 per share
('March 1996 Stock Purchase'). (Of the shares sold, UES Florida and Messrs.
McNeight and Craven sold 248,581, 30,000, and 10,000 shares, respectively.) In
connection with these transactions, UES Florida, Messrs. McNeight and Craven and
such other shareholder loaned to the Company in April 1996, for working capital
purposes, the sums of $646,294, $78,000, $26,000 and $52,000, respectively, or
an aggregate of $802,294 of the proceeds realized from such sales, at an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable ten days after the consummation of this Offering. A portion
of the proceeds of this Offering will be used to satisfy such obligation. At or
following the time of the March 1996 Stock Purchase, the private investors
purchased an additional 51,774 shares from two other stockholders of the
Company. In order to induce the investors to purchase shares of Common Stock of
the Company and thereby provide UES Florida, Messrs. McNeight and Craven and the
other shareholder lender with funds which they loaned to the Company, the
Company granted to the investors certain 'piggyback' registration rights to have
their Common Stock registered under the Securities Act. Accordingly, all 360,355
shares of Common Stock acquired by the Selling Security Holders have been
included in the Registration Statement of which this Prospectus forms a part.
The shares of Common Stock offered by the Selling Security Holders are not part
of the underwritten offering, however, and may not be sold prior to 18 months
from the date of this Prospectus without the prior written consent of the
Underwriter. See 'CONCURRENT REGISTRATION OF COMMON STOCK'.
During September 1994, the Company was offered an initial bridge financing
involving an offer to sell 200,000 shares of Common Stock at a price of $.50 per
share, which was withdrawn. In lieu thereof, the Company received an offer for a
second bridge financing involving loans in an aggregate principal amount of
$400,000 and the sale of an aggregate of 80,000 shares of Common Stock and
warrants to purchase an additional 80,000 shares. Because the Securities and
Exchange Commission raised significant objections to both such bridge
financings, the bridge financing was revised in August 1995 to provide for the
issuance to a small group of private investors of 6% subordinated convertible
promissory notes in the principal amount of $400,000 and warrants to purchase
160,000 shares of
44
<PAGE>
<PAGE>
Common Stock. A portion of these notes totalling approximately $98,000 were
mandatorily convertible into 40,000 shares of Common Stock at a conversion price
of $2.45 per share in the event the Company completed a public offering of its
Common Stock prior to January 1, 1996. As the Company did not complete the
public offering prior to January 1, 1996, the conversion feature expired. The
promissory notes will be paid no later than September 1996 from a portion of the
proceeds of this Offering. Each warrant represents the right to purchase one
share of Common Stock, commencing on the effective date of this Offering and
until the expiration of five years from the date of this Prospectus. The
exercise price of the warrants is $6.00 per share, until , 2001
and during their term. See 'DESCRIPTION OF SECURITIES -- Bridge Financing'.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Company's
Common Stock owned as of the date of this Prospectus and as adjusted to reflect
the sale of the securities offered by this Prospectus and the Company's April
1995 reverse stock split by (i) each person who is known by it to own
beneficially more than 5% of its outstanding Common Stock, (ii) each director,
and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND OWNED(2)
NATURE OF -------------------------
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING(3)
- ----------------------------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Krishan K. Joshi(4)(5)(6).............................................. 745,156 49.7% 29.8%
Richard P. McNeight(4)(6).............................................. 292,603 18.6 11.4
William R. Craven(4)(6)................................................ 154,550 10.3 6.2
James E. Clifford(4)(6)................................................ 4,500 * *
Michael F. Maguire(4)(6)............................................... 4,500 * *
Pearl View Corporation N.V.(7)......................................... 116,667 7.8 4.7
Silk Valley Corporation N.V.(7)........................................ 116,666 7.8 4.7
Cordiff Corporation N.V.(7)............................................ 116,667 7.8 4.7
All officers and directors as a group (7 persons)(5)(6)................ 1,268,376 79.5 48.9
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise set forth in the footnotes below, all shares are
beneficially owned and the sole voting and investment power is held by the
persons named.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Prospectus have been
exercised. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Assumes no exercise of the Warrants sold in connection with this Offering.
(4) The address of each such person is c/o Paravant Computer Systems, Inc., 780
South Apollo Blvd., Atrium One, Melbourne, Florida 32901.
(5) Includes 730,618 shares of Common Stock held by UES Florida, Inc., a wholly
owned subsidiary of UES, Inc. Mr. Joshi is the Chairman and a director of
UES, Inc., of which he owns 58% of the shares of its common stock and which,
as a result, he controls. With respect to the 730,618 shares held by UES
Florida, Inc., 148,616 of such shares are subject to an option granted by
UES Florida, Inc. to Mr. Joshi. Both UES, Inc. and UES Florida, Inc. have
offices at 4402 Dayton-Xenia Road, Dayton, OH 45432.
(6) Includes options obtained from UES Florida, Inc. covering 49,539 shares for
Mr. McNeight, 99,077 shares for Mr. Craven and 148,616 shares for Mr. Joshi.
Includes options granted under the Incentive
(footnotes on next page)
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(footnotes from previous page)
Plan covering 13,333 shares for Mr. McNeight, 1,667 shares for Mr. Craven,
2,000 shares for each of Messrs. Clifford and Maguire and 4,999 shares for
other officers and directors, options for 62,683 shares of Common Stock
granted to Mr. McNeight, 1,667 shares of Common Stock granted to Mr. Craven
and 1,667 shares of Common Stock granted to other officers and directors
under a non-qualified stock option plan which plan has been terminated and
options granted under the Directors' Plan covering 2,500 shares for each of
Messrs. Clifford and Maguire, all of which options are currently
exercisable. Excludes options granted under the Incentive Plan covering
56,667 shares for Mr. McNeight, 18,333 shares for Mr. Craven and 25,001
shares for other officers and directors, all of which options are not
exercisable within 60 days of the date of this Prospectus. See 'MANAGEMENT'
and 'CERTAIN TRANSACTIONS'.
(7) The address of each such beneficial owner is P.O. Box 837, Curacao,
Netherlands Antilles.
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this Offering, an aggregate of 360,355 shares of Common
Stock ('Selling Security Holders' Shares') are being registered by the Company
under the Securities Act pursuant to a Selling Security Holder Prospectus
included within the Registration Statement of which this Prospectus forms a
part. The holders of all such Selling Security Holders' Shares have agreed not
to sell, transfer or otherwise dispose of these securities for eighteen months
following the date of this Prospectus, without the prior written consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the Selling Security Holders' Shares. It is anticipated that when such shares
are eligible for sale free of the contractual restriction described above, they
will be offered and sold from time to time in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions.
DESCRIPTION OF SECURITIES
SECURITIES OFFERED
The 1,000,000 shares of Common Stock and 1,400,000 Warrants to purchase
shares of Common Stock offered hereby are offered separately from one another
and will be traded separately upon the effectiveness of this Offering.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.045 per share; however, immediately prior to the date of this
Prospectus, the Company's Articles of Incorporation will be amended to increase
its authorized shares of Common Stock from 10,000,000 to 30,000,000 shares. The
holders of the Common Stock possess exclusive voting power for the election of
directors and for all other purposes and are entitled to one vote for each share
of Common Stock held of record. The Common Stock does not have cumulative voting
rights. Holders of Common Stock are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of its affairs. The holders of the Common
Stock have no preemptive rights with respect to offerings of shares of Common
Stock.
The outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered hereby, when issued in accordance with
the terms of the Offering, will be fully paid and non-assessable. As of the date
of this Prospectus, there were approximately 30 holders of record of the
Company's Common Stock.
Dividends may be paid on Common Stock out of funds legally available for
such purposes and when declared by the Board of Directors. The Company has not
paid any dividends on its Common Stock, and it currently intends to retain any
earnings for use in its business. Accordingly, it is anticipated that dividends
will not be paid to holders of Common Stock in the foreseeable future. See
'DIVIDEND POLICY'. After this Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the
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Company's President, and William R. Craven, the Company's Vice President of
Marketing, will beneficially own approximately 47.4% of PCS's outstanding Common
Stock. Although such stockholders will not hold, following this Offering, a
majority of the voting securities of the Company, their significant beneficial
holdings enable them to exercise substantial influence over the Company.
PREFERRED STOCK
PCS is authorized to issue 2,000,000 shares of Preferred Stock, par value
$.01 per share. The Company has no plans to issue or sell shares of Preferred
Stock in the foreseeable future. When and if such shares of Preferred Stock are
issued, the holders of such stock will have certain preferences over the holders
of Common Stock, including the satisfaction of dividends on any outstanding
Preferred Stock. The Board of Directors has the authority to determine the
dividend rights, dividend rates, conversion rights, rights and terms of
redemption and liquidation preferences, and sinking fund terms of any series of
Preferred Stock, the number of shares constituting any such series and the
designation thereof.
Such Preferred Stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
Management. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect, a takeover or otherwise
gain control of the Company by causing shares of Preferred Stock with voting or
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines not to be in the best interest of PCS and its shareholders. In
addition, the Company's ability to issue such shares of Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
For a period of two years from the date of this Prospectus, the issuance of
Common Stock or any warrants, options or other rights to purchase Common Stock
is subject to the Underwriter's prior consent, which may not be unreasonably
withheld. Accordingly, such restriction limits the ability of the Company to
issue shares of Preferred Stock which are, by their terms, convertible into or
exchangeable for Common Stock.
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
'Warrant Holders') to purchase one share of Common Stock at a price of $6.00,
subject to adjustment in certain circumstances, for a period of five years
commencing on , 1997 (eighteen months from the date of this
Prospectus) until 5:00 p.m., Eastern Time, on , 2002. The
Warrants will be separately transferable immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing on
, 1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant, provided that
the last sale price of the Common Stock on the Nasdaq National Market has
exceeded $8.50 per share (subject to adjustment) for a period of 30 consecutive
trading days during the period in which the Warrants are exercisable. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the
'Warrant Agreement'). The exercise price and number of shares of Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company. In
addition, the Warrants are subject to adjustment for issuances of Common Stock
at prices below the market price of a share of Common Stock on the Nasdaq
National Market. Reference is made to the Warrant Agreement (which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part) for a complete description of the terms and conditions therein (the
description herein contained being qualified in its entirety by reference
thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the
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Warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by certified check or bank draft payable to the
Company) to the warrant agent for the number of Warrants being exercised. The
Warrant Holders do not have the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
BRIDGE FINANCING
Pursuant to the August Bridge Financing, the Company borrowed $400,000 from
a group of private investors at an annual interest rate of 6%. It is anticipated
that the principal amount of such notes will be repaid from the proceeds of this
Offering not later than September 1996. In addition, as part of the August
Bridge Financing, the Company sold to the same investors warrants to purchase
160,000 shares of Common Stock. Each warrant represents the right to purchase
one share of Common Stock, commencing on the effective date of this Offering and
until the expiration of five years from the date of this Prospectus. The
exercise price of the warrants is $6.00 per share, until , 2001
and during their term. After expiration, the warrants will be void and of no
value.
The warrants are to be subject to earlier redemption as follows. If the
average of the closing bid prices of the Common Stock (if the Common Stock is
then traded in the over-the-counter market) or the average of the closing prices
of the Common Stock if the Common Stock is then traded on a national securities
exchange or the Nasdaq National Market or Small Cap System) exceeds $6.00 for
any consecutive 20 trading days, then upon at least 30 days' prior written
notice, given within 60 days of the period, the Company will be able to call all
(but not less than all) of the warrants for redemption at a price of $.05 per
warrant.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and number of shares issuable upon
exercise on the occurrence of certain events, such as stock dividends or certain
other changes in the number of outstanding shares except for shares issued
pursuant to any Company stock option plans for the benefit of its employees,
directors and agents, the warrants offered hereby, the Underwriter's Warrants,
the Underwriter's overallotment option, any securities involved in such bridge
financing, and any equity securities for which adequate consideration is
received. The Company is not to be required to issue fractional shares. In lieu
of the issuance of such fractional shares, the Company will pay cash to such
holders of the warrants. In computing the cash payable to such holders, a share
of Common Stock will be valued at its price immediately prior to the close of
business on the expiration date. The holder of a warrant will not possess any
rights as a stockholder of the Company unless he exercises his warrant. See
'RISK FACTORS -- Possible Contingent Liability' and 'USE OF PROCEEDS'.
LIMITATION OF DIRECTORS' LIABILITY
Under provisions of Florida's corporate statutes, a director is not
personally liable for monetary damages to the corporation on whose board of
directors he serves or anyone else for his actions or conduct regarding
corporate management or policy unless: (a) the director breached or failed to
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perform his duties as a director and (b) such director's breach or failure to
perform those duties constitutes:
(1) A violation of criminal laws which the director reasonably
believes to be lawful or not unlawful;
(2) A transaction in which the director, directly or indirectly,
derived an improper personal benefit;
(3) A declaration of an illegal dividend or illegal repurchase of
corporate shares or an illegal distribution of its assets;
(4) Conduct in a legal proceeding for the corporation or its
shareholders that consciously disregards the corporation's best interest or
willful misconduct; or
(5) Conduct in such proceeding by someone else that demonstrates
recklessness or an act or omission in bad faith with malicious purpose or
wanton and willful disregard of human rights, safety or property.
LISTING ON NASDAQ NATIONAL MARKET
Immediately following the Offering, it is anticipated that the Common Stock
and Warrants will be quoted on the Nasdaq National Market under the symbols
'TUFF' and 'TUFFW'. An application to list such securities on Nasdaq National
Market has been filed.
No assurance can be given that the prices of such securities will be so
quoted or that a trading market for the Company's securities will develop or be
sustained, or at what price the securities will trade. In addition, even if such
securities are listed and traded initially on the Nasdaq National Market, the
Company may fail to meet subsequently certain minimum standards for continued
listing. In that event, such securities will consequently be delisted, and their
price will no longer be quoted in such system. In such event, the Company would
seek to list its securities on the Nasdaq Small Capitalization Market. However,
if it was unsuccessful, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called 'pink
sheets' or the NASD's 'Electronic Bulletin Board'. As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's securities. See 'RISK
FACTORS -- QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET
VOLATILITY'.
TRANSFER AND WARRANT AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 is the transfer and warrant agent and registrar for the securities of the
Company.
UNDERWRITING
Duke & Co., Inc. (the 'Underwriter') has agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase 1,000,000 shares
of Common Stock and 1,400,000 Warrants to purchase shares of Common Stock from
the Company. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock for $6.00, subject to adjustment in certain circumstances.
The Underwriter is committed to purchase and pay for all of the Common Stock and
Warrants offered hereby if any of such securities are purchased. The shares of
Common Stock and Warrants are being offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set forth
on the cover page of this Prospectus. The Underwriter may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
(the 'NASD') concessions, not in excess of $ per share of Common Stock and
$
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per Warrant, of which not in excess of $ per share of Common Stock and
$ per Warrant may be reallowed to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 30
days from the consummation of this Offering, to purchase up to 150,000
additional shares of Common Stock and/or Warrants to purchase 210,000 shares of
Common Stock at the public offering prices set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter may
exercise this option in whole or, from time to time, in part, solely for the
purpose of covering overallotments, if any, made in connection with the sale of
the shares of Common Stock and Warrants offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this Offering ($154,200). Subject to
certain limitations, the Company has also agreed to pay all expenses in
connection with qualifying the shares of Common Stock and Warrants offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees, for an
aggregate of $10.00, warrants (the 'Underwriter's Warrants') to purchase up to
100,000 shares of Common Stock at an exercise price of $6.00 per share (120% of
the initial public offering price per share) and/or up to 140,000 Warrants (each
to purchase one share of Common Stock at $6.00 per share) at an exercise price
of $.12 per Warrant (120% of the initial public offering price per Warrant). The
Underwriter's Warrants may not be sold, transferred, assigned or hypothecated
for one year from the date of this Prospectus, except to the officers and
partners of the Underwriter, co-underwriters, selling group members and their
officers or partners, and are exercisable during the four-year period commencing
one year from the date of this Prospectus (the 'Warrant Exercise Term'). During
the Warrant Exercise Term, the holders of the Underwriter's Warrants are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock. To the extent that the Underwriter's Warrants are exercised,
dilution to the interests of the Company's shareholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants, the underlying shares of
Common Stock or the underlying Warrants, or the shares of Common Stock issuable
upon any exercise of such underlying Warrants may be deemed additional
underwriting compensation. The exercise price and number of shares of Common
Stock or other securities issuable on exercise of the Underwriter's Warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, subdivision, reclassification, reorganization, merger or
recapitalization. An adjustment shall also be made in the case of a distribution
to holders of Common Stock of evidence of its indebtedness or assets or
subscription rights or warrants. Subject to certain limitations and exclusions,
the Company has agreed, at the request of the holders of a majority of the
Underwriter's Warrants, at the Company's expense, to register the Underwriter's
Warrants, the shares of Common Stock and warrants underlying the Underwriter's
Warrants, and the shares of Common Stock issuable upon exercise of the
underlying Warrants under the Securities Act on one occasion during the
three-year period commencing one year from the date of this Prospectus, and to
include, on one occasion, such Underwriter's Warrants and such underlying
securities in an appropriate registration statement which is filed by the
Company during the Warrant Exercise Term.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this Prospectus),
to pay to the Underwriter a fee of 2.5% of the exercise price for each Warrant
exercised, provided, however, that the Underwriter will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of Common Stock at the time of exercise is lower than the exercise
price of the Warrants; (ii) the Warrants are held in any discretionary account;
(iii) disclosure of compensation arrangements is not made, in addition to
disclosure provided in this Prospectus, in documents provided to holders of the
Warrants at the time of exercise; (iv) the exercise of Warrants is unsolicited
by the Underwriter; or (v) the solicitation of exercise of the Warrants was in
violation of Rule 10b-6 promulgated under the Exchange Act.
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The Company has agreed, for a period of three years from the consummation
of this Offering, to engage the designee of the Underwriter as a non-voting
advisor to the Company's Board of Directors or, at the Underwriter's request, to
nominate and use its best efforts to elect a reasonably acceptable designee of
the Underwriter as a director of the Company. The Underwriter has not yet
exercised its right to designate such person.
In addition, the Company has agreed to enter into a consulting agreement to
retain the Underwriter as a financial consultant for a period of two years
following the consummation of this offering at a monthly fee of $3,500 (or an
aggregate of $84,000), the entire $84,000 payable in full immediately upon the
consummation of this Offering. The consulting agreement will not require the
consultant to devote a specific amount of time to the performance of its duties
thereunder. It is anticipated that these consulting services will be provided by
principals of the Underwriter and/or members of the Underwriter's corporate
finance department who, however, have not been designated as of the date hereof.
In the event that the Underwriter originates a financing or a merger,
acquisition, joint venture or other transaction to which the Company is a party,
the Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act.
The Company's officers, directors and securityholders beneficially owning
over 99% of the shares of Common Stock outstanding as of the date of this
Prospectus (including all of the Selling Security Holders) have agreed not to
dispose of any of their shares of Common Stock, subject to certain exceptions,
for a period of eighteen months from the date of this Prospectus, without the
prior written consent of the Underwriter.
Prior to this Offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering prices of
the Common Stock and Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining the initial public offering prices and the
exercise price were the Company's financial condition and prospects, management,
market prices of similar securities of comparable publicly-traded companies,
certain financial and operating information of companies engaged in activities
similar to those of the Company and the general condition of the securities
markets.
Although it has no obligation to do so, the Underwriter intends to engage
in market-making activities or solicited brokerage activities with respect to
the purchase or sale of the Common Stock or Warrants in the Nasdaq National
Market or other over-the-counter market where such securities will trade.
However, no assurance can be given that the Underwriter will continue to
participate as a market maker in the securities of the Company or that other
broker/dealers will make a market in such securities. The Underwriter has the
right to act as the Company's exclusive agent in connection with any future
solicitation of holders of the Warrants to exercise their Warrants. Unless
granted an exemption by the Securities and Exchange Commission from Rule 10b-6
under the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the period prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrant based upon a prior
solicitation until the later of the termination of such solicitation activity or
the termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market for the Company's securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market prices of the Company's securities.
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only two public offerings. Accordingly,
there can be no assurance that the Underwriter's limited public offering
experience will not affect the Company's offering of the Common Stock and
Warrants and subsequent development of a trading market, if any.
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LEGAL MATTERS
The legality of the Common Stock and Warrants offered hereby will be passed
upon for the Company by Zimet, Haines, Friedman & Kaplan, New York, New York.
Gersten, Savage, Kaplowitz & Curtin, LLP, New York, New York has acted as
counsel for the Underwriter in connection with this Offering.
EXPERTS
The financial statements of the Company at September 30, 1995 and 1994
appearing in this Prospectus and Registration Statement have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
In October, 1994, the Board of Directors of the Company retained KPMG Peat
Marwick LLP as the Company's independent auditors following the termination of
Hoyman, Dobson & Company, P.A., the Company's former accountants. There were no
disagreements with such firm on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, and
such firm's report on the Company's financial statements did not contain an
adverse opinion or disclaimer, or qualification as to uncertainty, audit scope
or accounting principles.
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PARAVANT COMPUTER SYSTEMS, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
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PARAVANT COMPUTER SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Financial Statements:
Balance Sheets........................................................................................ F-3
Statements of Income.................................................................................. F-4
Statements of Changes in Stockholders' Equity......................................................... F-5
Statements of Cash Flows.............................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
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<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors:
PARAVANT COMPUTER SYSTEMS, INC.:
We have audited the accompanying balance sheets of Paravant Computer
Systems, Inc., as of September 30, 1995 and 1994, and the related statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paravant Computer Systems,
Inc., as of September 30, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Orlando, Florida
February 19, 1996
(except as to Note 18)
which is as of May 15, 1996
F-2
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PARAVANT COMPUTER SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 211,426 $ 4,806
Accounts receivable (notes 7 and 9).............................................. 5,295,106 3,387,336
Employee receivables and advances................................................ 65,707 34,621
Costs and estimated earnings in excess of billings on uncompleted contracts (note
6).............................................................................. 322,071 226,677
Inventory (notes 2, 7 and 9)..................................................... 2,411,834 2,213,309
Prepaid expenses................................................................. 51,441 82,567
Deferred income taxes............................................................ 128,979 102,678
---------- ----------
Total current assets........................................................ 8,486,564 6,051,994
Property, plant and equipment, net (notes 3, 7 and 9)................................. 462,447 428,758
Intangible assets, net (note 4)....................................................... 117,625 146,125
Demonstration pool and custom mold, net (note 5)...................................... 67,787 153,625
Deferred income taxes, net of valuation allowance of $0 and $15,000 in 1995 and 1994,
respectively........................................................................ 32,150 21,632
Capitalized offering costs............................................................ 257,812 50,000
Other assets.......................................................................... 25,330 12,469
---------- ----------
$9,449,715 $6,864,603
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank (notes 7 and 18)........................................... $3,460,000 $2,898,000
Other notes payable (note 8)..................................................... 400,000 --
Current maturities of long-term debt (note 9).................................... 110,004 110,004
Current maturities of capital lease obligations (note 10)........................ 67,685 50,662
Accounts payable................................................................. 1,334,631 964,628
Amounts due to majority shareholder.............................................. 87,294 --
Accrued commissions.............................................................. 514,240 247,293
Accrued expenses................................................................. 844,637 541,688
Income taxes payable............................................................. 317,665 196,086
---------- ----------
Total current liabilities................................................... 7,136,156 5,008,361
Long-term debt, less current maturities (note 9)...................................... 229,155 339,159
Capital lease obligations, less current maturities (note 10).......................... 77,233 91,327
---------- ----------
Total liabilities........................................................... 7,442,544 5,438,847
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued.......................................................................... -- --
Common stock, par value $.045 per share. Authorized 10,000,000 shares, issued
1,500,000 shares at September 30, 1995 and 1,579,234 shares at September 30,
1994, outstanding 1,500,000 shares at September 30, 1995 and 1994............... 67,500 71,065
Additional paid-in capital....................................................... 761,265 796,498
Retained earnings................................................................ 1,178,406 596,991
Treasury stock, at cost.......................................................... -- (38,798)
---------- ----------
Total stockholders' equity.................................................. 2,007,171 1,425,756
---------- ----------
$9,449,715 $6,864,603
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenues.............................................................................. $8,652,553 $7,809,073
Cost of revenues...................................................................... 4,680,661 4,414,745
---------- ----------
Gross profit................................................................ 3,971,892 3,394,328
Selling and administrative expense.................................................... 2,668,320 2,641,393
---------- ----------
Income from operations...................................................... 1,303,572 752,935
Other income (expense):
Interest expense................................................................. (392,589) (242,176)
Gain on sale of assets........................................................... -- 17,215
Miscellaneous expense............................................................ (50,711) (6,583)
---------- ----------
Income before income taxes.................................................. 860,272 521,391
Income tax expense (note 14).......................................................... 278,857 154,188
---------- ----------
Net income.................................................................. $ 581,415 $ 367,203
---------- ----------
---------- ----------
Weighted average number of shares outstanding......................................... 1,500,000 1,493,805
---------- ----------
---------- ----------
Earnings per share.................................................................... $ .39 $ .24
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- ADDITIONAL RETAINED -------------------- TOTAL
NUMBER PAR PAID-IN EARNINGS NUMBER STOCKHOLDERS'
OF SHARES VALUE CAPITAL (DEFICIT) OF SHARES COST EQUITY
--------- ------- ---------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1993........ 1,579,234 $71,065 $794,908 $ 229,788 85,944 $(42,098) $ 1,053,663
Sale of treasury stock.............. -- -- 1,590 -- (6,710) 3,300 4,890
Net income for the year ended
September 30, 1994................ -- -- -- 367,203 -- -- 367,203
--------- ------- ---------- ---------- --------- -------- -------------
Balances, September 30, 1994........ 1,579,234 71,065 796,498 596,991 79,234 (38,798) 1,425,756
Retirement of treasury stock........ (79,234) (3,565) (35,233) -- (79,234) 38,798 --
Net income for the year ended
September 30, 1995................ -- -- -- 581,415 -- -- 581,415
--------- ------- ---------- ---------- --------- -------- -------------
Balances, September 30, 1995........ 1,500,000 67,500 $761,265 $1,178,406 -- -- $ 2,007,171
--------- ------- ---------- ---------- --------- -------- -------------
--------- ------- ---------- ---------- --------- -------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 581,415 $ 367,203
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................. 220,005 210,626
Deferred income taxes..................................................... (36,819) 16,475
Gain on sale of property, plant and equipment............................. -- (17,215)
Provision for obsolete inventory.......................................... 2,560 48,000
Increase (decrease) in cash caused by change in:
Accounts receivable.................................................. (1,907,770) (1,107,187)
Employee receivables and advances.................................... (31,086) 22,858
Inventory............................................................ (198,525) (961,115)
Costs and estimated earnings in excess of billings on uncompleted
contracts......................................................... (95,394) 343,920
Prepaid expenses..................................................... 31,126 (51,663)
Other assets......................................................... (220,673) (1,653)
Accounts payable..................................................... 457,297 319,025
Accrued commissions.................................................. 266,947 100,941
Accrued expenses..................................................... 302,949 96,850
Income taxes payable................................................. 121,579 89,375
Billings in excess of costs and estimated earnings on uncompleted
contracts......................................................... -- (39,180)
----------- -----------
Net cash used in operating activities........................... (506,389) (562,740)
----------- -----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.................................. (60,350) (99,547)
Proceeds from sale of other assets............................................. -- 17,215
Acquisition of rights.......................................................... -- (67,500)
Acquisitions of demonstration pool and custom mold............................. (16,556) (121,844)
----------- -----------
Net cash used in investing activities........................... (76,906) (271,676)
----------- -----------
Cash flows from financing activities:
Repayment on stockholder notes payable......................................... -- (200,000)
Net proceeds from notes payable to bank........................................ 562,000 1,146,511
Proceeds from other notes payable.............................................. 400,000 --
Repayments on long-term debt................................................... (110,004) (102,348)
Repayment on capital lease obligations......................................... (62,081) (20,144)
Proceeds from sale of treasury stock........................................... -- 4,890
----------- -----------
Net cash provided by financing activities....................... 789,915 828,909
----------- -----------
Net increase (decrease) in cash and cash equivalents............ 206,620 (5,507)
Cash and cash equivalents at beginning of year...................................... 4,806 10,313
----------- -----------
Cash and cash equivalents at end of year............................................ $ 211,426 $ 4,806
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 365,918 $ 240,989
----------- -----------
----------- -----------
Income taxes.............................................................. $ 182,469 $ 44,000
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and financing activities:
The Company entered into capital lease agreements for computer equipment
totaling $62,450 for the year ended September 30, 1995.
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
Paravant Computer Systems, Inc., (the 'Company') is engaged in the design,
development, production and sale of computer and communication systems,
specializing in rugged, hand-held and laptop computer products. The work is
performed under general purchase orders, cost-plus-fee contracts, fixed-price
contracts and on a general production basis. The Company is a majority owned
subsidiary of UES Florida, Inc. ('UES Florida'), a wholly-owned subsidiary of
Universal Energy Systems, Inc. ('UES').
(B) INVENTORY
Inventory is stated at the lower of cost or market using the weighted
average cost method. The Company provides for a reserve of obsolete inventory as
it becomes unusable or obsolete.
(C) REVENUE AND COST RECOGNITION
The Company recognizes revenues on product sales when the customer accepts
title which typically occurs on shipment. The Company allows customers to return
defective products for up to one year for repair. The Company accrues a reserve
for future warranty costs at the time of product sales. The warranty reserve was
$99,804 and $77,771 as of September 30, 1995 and 1994, respectively.
The Company recognizes revenues on cost-plus-fee contracts for engineering
services as costs are incurred. The fee on cost-plus-fee contracts is recognized
ratably over total costs as they are incurred. Revenues and costs from
fixed-price contracts for engineering services are recognized on the
percentage-of-completion method, measured by the percentage of total costs
incurred to date to total estimated costs for each contract. This method is used
because management considers total expended costs to be the best available
measure of progress on these contracts. Any losses on fixed-price contracts are
accrued at such time as those losses become determinable. Due to uncertainties
inherent in the estimation process, it is at least reasonably possible that
completion costs will be further revised in the near term. The aggregate of
costs and estimated earnings on uncompleted contracts in excess of related
billings is shown as a current asset, and the aggregate of billings on
uncompleted contracts in excess of related costs and estimated earnings is shown
as a current liability.
Management has not provided an allowance for doubtful accounts receivable.
The Company has historically not incurred material bad debt expense and does not
except to incur any material bad debt expense related to accounts receivable as
of September 30, 1995 and 1994.
(D) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets ranging from 5 to 7 years using the
straight-line method. Production rights, which are included in intangible assets
and demonstration pool equipment are also amortized using the straight-line
method over their useful lives. The Company also has a custom mold which is
amortized on a units-of-production basis for financial reporting purposes.
(E) INCOME TAXES
The Company accounts for income taxes using the asset and liability 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 and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using
F-7
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(F) USE OF ESTIMATES IN FINANCIAL STATEMENT PRESENTATION
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(G) EARNINGS PER SHARE
Earnings per share have been computed by dividing net income by the
weighted average number of common shares outstanding. The weighted average
number of shares outstanding has been determined assuming shares and options
issued subsequent to September 30, 1995 were outstanding for the periods
presented. When dilutive, stock options are included as share equivalents using
the treasury stock method. Common stock authorized, issued and outstanding as of
September 30, 1995 and 1994 reflects the effects of a 4.5-for-1 reverse common
stock split authorized on April 12, 1995 by the Board of Directors.
(H) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(2) INVENTORY
The following is a summary of inventory at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials..................................................... $1,369,675 $1,768,386
Work in process................................................... 930,677 488,072
Finished goods.................................................... 262,042 104,851
---------- ----------
2,562,394 2,361,309
Reserve for obsolete inventory.................................... (150,560) (148,000)
---------- ----------
$2,411,834 $2,213,309
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(3) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at September
30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Computer equipment.................................................... $394,556 $325,353
Furniture and fixtures................................................ 343,332 297,937
Factory equipment..................................................... 176,053 174,825
Leasehold improvements................................................ 14,267 7,293
-------- --------
Total cost....................................................... 928,208 805,408
Less accumulated depreciation......................................... (465,761) (376,650)
-------- --------
$462,447 $428,758
-------- --------
-------- --------
</TABLE>
Depreciation and amortization expense on these assets amounted to $89,111
and $105,036 for the years ended September 30, 1995 and 1994, respectively.
(4) INTANGIBLE ASSETS
The Company has exclusive rights to a printed circuit board and certain
other software. The rights are being amortized over the estimated economic
useful lives of the technology of five to ten years.
Cost and accumulated amortization of the rights included in intangible
assets at September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost.................................................................. $267,500 $267,500
Accumulated amortization.............................................. 149,875 121,375
-------- --------
$117,625 $146,125
-------- --------
-------- --------
</TABLE>
Total amortization expense on these assets was $28,500 and $27,625 for the
years ended September 30, 1995 and 1994, respectively.
(5) DEMONSTRATION POOL AND CUSTOM MOLD
These assets consist of equipment held in the demonstration pool and a
custom mold. Cost and accumulated amortization of these assets at September 30,
1995 and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost.................................................................. $449,343 $432,787
Accumulated amortization.............................................. 381,556 279,162
-------- --------
$ 67,787 $153,625
-------- --------
</TABLE>
Total amortization expense on these assets was $102,394 and $77,965, for
the years ended September 30, 1995 and 1994, respectively.
F-9
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(6) UNCOMPLETED CONTRACTS
The status of contracts which were incomplete at September 30, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Costs and estimated earnings incurred on uncompleted contracts.... $2,664,923 $2,488,789
Billings on uncompleted contracts................................. (2,342,852) (2,262,112)
---------- ----------
Net.......................................................... $ 322,071 $ 226,677
---------- ----------
---------- ----------
</TABLE>
These balances are included under the caption costs and estimated earnings
in excess of billings on uncompleted contracts in the accompanying balance
sheet.
(7) NOTES PAYABLE TO BANK
The Company has two lines of credit with a bank totaling $3,500,000 which
are due on demand and bear interest at the prime rate plus 1/2% for secured
borrowings under prescribed levels and the prime rate plus 1% for other
borrowings. Secured borrowings are collateralized by accounts receivable,
inventory and equipment. The amount outstanding under these credit agreements at
September 30, 1995 and 1994 was $3,460,000 and $2,498,000, respectively. The
credit agreements do not contain any material financial covenants.
(8) OTHER NOTES PAYABLE
In August 1995, the Company issued subordinated, convertible promissory
notes payable ('Notes') in the principal amount of $400,000 and 160,000 warrants
for $.01 per warrant exercisable at $6.00 per share. A portion of these notes
totaling approximately $98,000 were mandatorily convertible into 40,000 shares
of the Company's common stock at a conversion price of $2.45 in the event the
Company completed a public offering of its common stock prior to January 1,
1996. The Company did not complete the public offering prior to January 1, 1996
and the conversion feature expired. The Notes, which bear interest at 6%, remain
due by September 1996.
In regard to the above financing, the Company may be deemed to have
incurred a technical violation of a provision of the Securities Act of 1933, as
amended. Accordingly, there may be a contingent liability associated with such
matter. The maximum amount of such liabilities is estimated at the amount of
converted debt in such financing of $98,000. However, management believes that
there was no such violation, and the possibility of such related liability is
remote.
(9) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable to bank bearing an initial interest rate of 7.25%; interest rate
adjusted monthly to 1.25% above the prime rate; interest and principal due
in sixty monthly installments including principal of $9,167 per payment;
final payment due October of 1998, secured by accounts receivable, inventory
and equipment............................................................... $ 339,159 $ 449,163
Less current maturities....................................................... (110,004) (110,004)
--------- ---------
Long-term debt, less current maturities.................................. $ 229,155 $ 339,159
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
Maturities for subsequent periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
- -------------
<C> <S> <C>
1996 ................................................................ $110,004
1997 ................................................................ 110,004
1998 ................................................................ 110,004
1999 ................................................................ 9,147
--------
$339,159
--------
--------
</TABLE>
(10) LEASES
The Company is obligated under various capital leases for equipment. At
September 30, 1995 and 1994, respectively, property, plant and equipment
included net capital lease assets of $72,950 and $147,668.
The Company leases office facilities at a rate of $12,365 per month. In
addition, the Company leases a residential unit from a related partnership under
a month-to-month lease at a rate of $750 per month. The Company also leases
automobiles and equipment with lease terms into June of 1999.
The following is a schedule by years of future minimum lease payments under
capital and operating leases together with the present value of the net minimum
lease payments as of September 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
- ------------- -------- ---------
<C> <S> <C> <C>
1996 ................................................... $ 85,910 $ 140,457
1997 ................................................... 64,240 138,902
1998 ................................................... 20,042 137,880
1999 ................................................... 2,853 25,908
2000 ................................................... -- 3,310
-------- ---------
Total minimum lease payments.................................. $173,045 $ 446,457
---------
---------
Less amounts representing interest................................. 28,127
--------
Present value of net minimum lease payments................... 144,918
Less current maturities............................................ 67,685
--------
Capital lease obligations.......................................... $ 77,233
--------
--------
</TABLE>
Rent expense under operating lease agreements totaled $143,795 and $121,327
for the years ended September 30, 1995 and 1994, respectively.
(11) STOCKHOLDERS' EQUITY
Common stock authorized, issued and outstanding as of September 30, 1995
and 1994 reflects the effects of a 4.5-for-1 reverse common stock split
authorized on April 12, 1995 by the Board of Directors.
(12) STOCK OPTIONS
On December 22, 1993, the Company granted options under a nonqualified
stock option plan ('nonqualified plan') to employees to purchase 24,939 shares
of the Company's common stock at an exercise price of $.036 per share. The terms
of these options provide that the options may be exercised during a period
beginning December 22, 1994 and ending six years from the date the options were
granted. The Company terminated the nonqualified plan on November 22, 1994.
F-11
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
On November 22, 1994, the Company granted options to a key officer to
purchase 60,612 shares of the Company's common stock at an exercise price of
$2.15 per share. The terms of these options provide that the options are
exercisable through November 22, 2004. The exercise price of these options
approximates the estimated market value of the shares on the issuance date.
On November 22, 1994, the Company reserved 300,000 shares of common stock
for its qualified incentive stock option plan ('qualified plan'). On November
22, 1994 and March 2, 1995, the Company granted options to employees to purchase
115,000 and 15,000 shares, respectively, of the Company's common stock at
exercise prices ranging from $2.15 to $2.37 per share which approximates the
estimated market value of the shares on that date. The terms of these options
provide that the options may be exercised beginning one year after date of grant
for a period of nine years.
(13) RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are included
in selling and administrative expenses. The amounts charged to expense were
$480,951 and $421,126 for the years ended September 30, 1995 and 1994,
respectively.
(14) INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
1995:
Federal....................................................... $266,225 $(38,119) $228,106
State......................................................... 49,451 1,300 50,751
-------- -------- --------
$315,676 $(36,819) $278,857
-------- -------- --------
-------- -------- --------
1994:
Federal....................................................... $105,713 $ 14,068 $119,781
State......................................................... 32,000 2,407 34,407
-------- -------- --------
$137,713 $ 16,475 $154,188
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred income taxes as of September 30, 1995 and 1994 reflect the impact
of 'temporary differences' between amounts of assets and liabilities for
financial statement purposes and such amounts as measured by tax laws. The
temporary differences give rise to deferred tax assets and liabilities, which
are summarized below as of September 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Gross deferred tax liabilities:
Accumulated depreciation............................... $(32,271) $(25,430)
-------- --------
Gross deferred tax assets:
Inventory.............................................. 61,927 49,358
Warranty expense....................................... 37,556 29,366
Accrued vacation....................................... 29,496 23,954
Net operating loss carryforwards....................... 14,834 25,402
Research credits....................................... 49,587 49,587
-------- --------
Total gross deferred tax assets................... 193,400 177,667
Less valuation allowance.................................... -- (15,000)
-------- --------
Deferred tax assets......................................... 193,400 162,667
-------- --------
Total net deferred tax assets..................... $161,129 $137,237
-------- --------
-------- --------
</TABLE>
F-12
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
Realization is dependent on sufficient taxable income in future years. A
valuation allowance is provided when it is more likely than not that some
portion of all of the deferred tax assets will not be realized. The Company has
established a valuation allowance primarily for net operating loss
carryforwards. As of September 30, 1995, no valuation allowance has been
recognized in the accompanying financial statements for the deferred tax assets
because the Company believes that sufficient taxable income will be generated in
future years to fully utilize such amounts.
Following is a reconciliation of the expected income tax expense computed
by the U.S. Federal statutory rate of 34% and the actual income tax provision
for the year ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Expected income tax......................................... $292,492 $177,273
Increase (decrease) resulting from:
State income taxes, net of federal benefit............. 31,897 21,496
Nondeductible entertainment expense.................... 5,645 5,557
Research and experimentation credit.................... (14,698) (22,750)
Change in valuation allowance.......................... (15,000) (24,650)
Other.................................................. (21,479) (2,738)
-------- --------
$278,857 $154,188
-------- --------
-------- --------
</TABLE>
The Company has net operating loss carryforwards of approximately $40,000
for federal and state income tax purposes, which are available to offset future
taxable income. These loss carryforwards expire in various years from 1997
through 2009.
(15) RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees. Retirement expense incurred was $10,344 and $10,714
for the years ended September 30, 1995 and 1994, respectively.
(16) RELATED PARTY TRANSACTIONS
The Company was obligated under a note payable to a stockholder at
September 30, 1993. The note was unsecured and bore interest at 7%. The note was
paid in full by the Company during the year ended September 30, 1994.
The Company has an intercompany payable to UES of $87,294 at September 30,
1995 for accrued health insurance costs paid by UES which is included in amounts
due to majority shareholder. There were no intercompany payables at September
30, 1994.
At September 30, 1995 and 1994, the Company was a guarantor of certain debt
of UES. The debt includes a $1,250,000 line of credit with a bank that is due on
demand and bears interest at the prime rate. The amount outstanding under the
agreement at September 30, 1995 and 1994 was $779,715 and $954,566,
respectively. The debt also includes a commercial note payable to the same bank
bearing an initial interest rate of 8.75% adjusted monthly to 1.50% above the
prime rate. Interest and principal payments on this note are due in eighty-four
monthly installments including principal of $11,905 per payment with final
payment due in September 2001. The amount outstanding under the commercial note
payable at September 30, 1995 and 1994 was $845,235 and $988,095, respectively.
F-13
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(17) CONCENTRATION OF CREDIT RISK
Sales and accounts receivable to the customers that exceed 10% of sales or
receivables for the years ended September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
SALES % TOTAL SALES % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $4,055,907 47% $3,846,432 49%
Customer B............................................. 2,502,997 29 1,387,967 18
Customer C............................................. 1,109,825 13 -- --
Customer D............................................. -- -- 976,807 13
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTS ACCOUNTS
RECEIVABLE % TOTAL RECEIVABLE % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $2,912,231 55% $ 860,447 25%
Customer B............................................. 1,079,567 20 1,026,489 30
Customer C............................................. 585,273 11 -- --
Customer D............................................. -- -- 870,663 26
</TABLE>
(18) SUBSEQUENT EVENTS
In February of 1996, the Company entered into an agreement to increase the
maximum borrowing amount under one of its lines of credit from $3,000,000 to
$4,000,000. The other $500,000 line of credit was combined with the long term
debt and is payable over the next 5 years in monthly principal installments of
$16,454 plus interest. The other terms of the agreements remained the same.
On November 16, 1995, the Company granted options to selected employees to
purchase 120,000 shares of the Company's common stock at exercise prices ranging
from $4.00 to $4.40 per share, which approximates the market price of the shares
at the date of issuance.
On March 14, 1996 the Company increased the options reserved under its
qualified stock option plan from 300,000 to 485,000 and also reserved 15,000
shares under a plan to benefit the nonemployee directors under terms similar to
the qualified plan.
In March 1996, the Company's former counsel rendered an invoice to the
Company totaling approximately $365,000 for legal fees and expenses representing
both general corporate services as well as services relating to the Company's
initial public offering. The Company has contested the invoice and accrued an
estimate for the settlement, if any, of these fees. In March 1996, the Company's
former counsel filed an action against the Company, its current underwriter and
certain other defendants, alleging, among other things, breach of contract,
failure to pay attorneys fees, fraud, copyright infringement and defamation by
the Company in connection with the aforementioned services as well as claiming a
finder's fee with respect to the underwriter's relationship with the Company.
Plaintiff is seeking damages of approximately $28,000,000 from the Company. The
Company has filed an answer denying the claims asserted by plaintiff and has
asserted defenses and counterclaims against the plaintiff seeking recovery of
amounts paid to the plaintiff, plus punitive damages and court costs.
Management, after consultation with counsel, is of the opinion that the ultimate
resolution of this matter will not have a material adverse effect on future
operations of the Company. If the total payments are less than or more than the
amount provided in the financial statements, such difference will decrease or
increase offering costs or operating expenses, as appropriate.
In March 1996, certain stockholders of the Company sold an aggregate of
308,581 shares of common stock to private investors at a purchase price of $4
per share. A portion of the proceeds from these sales totaling $802,294 was
advanced to the Company in April 1996 pursuant to promissory notes having an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable on the earlier of April 15, 1997 or the date which is ten
days after the consummation of the Company's initial public offering.
F-14
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 3,573 $ 3,500
Accounts receivable.............................................................. 2,192,109 1,230,558
Employee receivables and advances................................................ 57,562 14,400
Costs and estimated earnings in excess of billings on uncompleted contracts...... 140,908 375,856
Inventory (note 2)............................................................... 3,495,742 2,706,165
Prepaid expenses................................................................. 32,400 101,871
Income taxes receivable.......................................................... 330,403 152,240
Deferred income taxes............................................................ 128,979 104,740
---------- ----------
Total current assets........................................................ 6,381,676 4,689,330
Property, plant and equipment, net.................................................... 469,609 477,121
Intangible assets, net................................................................ 96,250 132,543
Demonstration pool and custom mold, net............................................... 37,947 52,888
Deferred income taxes................................................................. 32,150 25,710
Capitalized offering costs............................................................ 368,536 75,000
Other assets.......................................................................... 39,134 12,679
---------- ----------
$7,425,302 $5,465,271
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank............................................................ $3,775,000 $3,084,996
Other notes payable.............................................................. 400,000 --
Current maturities of long-term debt............................................. 110,004 110,004
Current maturities of capital lease obligations.................................. 62,279 44,955
Accounts payable................................................................. 713,958 351,112
Amounts due to majority shareholder.............................................. 188,436 36,477
Accrued commissions.............................................................. 252,314 83,384
Accrued expenses................................................................. 344,512 229,300
---------- ----------
Total current liabilities................................................... 5,846,503 3,940,228
Long-term debt, less current maturities............................................... 173,964 331,293
Capital lease obligations, less current maturities.................................... 45,840 72,034
---------- ----------
Total liabilities........................................................... 6,066,307 4,343,555
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued.......................................................................... -- --
Common stock, par value $.045 per share. Authorized 10,000,000 shares, issued
1,500,000 shares at March 31, 1996 and 1995, outstanding 1,500,000 shares at
March 31, 1996 and 1995......................................................... 67,500 67,500
Additional paid-in capital....................................................... 761,265 761,265
Retained earnings................................................................ 530,230 292,951
---------- ----------
Total stockholders' equity.................................................. 1,358,995 1,121,716
---------- ----------
$7,425,302 $5,465,271
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................................. $1,724,882 $1,851,532
Cost of revenues...................................................................... 1,131,911 1,085,801
---------- ----------
Gross profit................................................................ 592,971 765,731
Selling and administrative expense.................................................... 1,408,657 1,115,007
---------- ----------
Loss from operations........................................................ (815,686) (349,276)
Other income (expense):
Interest expense................................................................. (222,202) (161,199)
Miscellaneous.................................................................... (1,356) 4,335
---------- ----------
Loss before income taxes.................................................... (1,039,244) (506,140)
Income tax benefit.................................................................... (391,068) (202,100)
---------- ----------
Net loss.................................................................... $ (648,176) $ (304,040)
---------- ----------
---------- ----------
Weighted average number of shares outstanding......................................... 1,500,000 1,580,000
---------- ----------
---------- ----------
Earnings per share.................................................................... $ (.43) $ (.19)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (648,176) $ (304,040)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.............................................. 100,248 103,568
Increase (decrease) in cash caused by change in:
Accounts receivable................................................... 3,102,997 2,156,778
Employee receivables and advances..................................... 8,145 20,221
Inventory............................................................. (1,083,908) (492,856)
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................... 181,163 (149,179)
Prepaid expenses...................................................... 19,041 (19,304)
Deferred income taxes................................................. -- (43,200)
Income taxes receivable............................................... (330,403) (188,500)
Capitalized offering costs............................................ (110,724) (25,000)
Other assets.......................................................... (13,804) (210)
Income taxes payable.................................................. (280,521) (122,766)
Accounts payable...................................................... (556,675) (897,274)
Accrued commissions................................................... (261,926) 83,384
Accrued expenses...................................................... (500,125) (239,446)
----------- ----------
Net cash used in operating activities............................ (374,668) (117,824)
----------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment................................... (54,568) (37,612)
Acquisitions of demonstration pool and custom mold.............................. (1,627) --
----------- ----------
Net cash used in investing activities............................ (56,195) (37,612)
----------- ----------
Cash flows from financing activities:
Net proceeds from notes payable to bank......................................... 315,000 186,996
Repayments on long-term debt.................................................... 55,191 (7,866)
Repayment on capital lease obligations.......................................... (36,799) (25,000)
----------- ----------
Net cash provided by financing activities........................ 223,010 154,130
----------- ----------
Net decrease in cash and cash equivalents........................ (207,853) (1,306)
Cash and cash equivalents at beginning of the period................................. 211,426 4,806
----------- ----------
Cash and cash equivalents at end of the period....................................... $ 3,573 3,500
----------- ----------
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 232,401 $ 161,199
----------- ----------
----------- ----------
Income taxes............................................................... $ 280,521 $ 115,000
----------- ----------
----------- ----------
During the periods ended March 31, 1996 and 1995, the Company entered into capital
leases totaling $0 and $174,942, respectively.
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions and requirements of Regulation S-B and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair statement of financial position, results of operations and cash flows for
the interim periods presented. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
years.
It is suggested that these financial statements and footnotes be read in
conjunction with the Company's audited financial statements for the fiscal years
ending September 30, 1995 and 1994. The accounting principles used in preparing
these financial statements are the same as those described in such statements.
(2) INVENTORY
The following is a summary of inventory at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials..................................................... $2,148,926 1,906,636
Work in process................................................... 1,303,277 817,029
Finished goods.................................................... 194,099 104,851
---------- ----------
3,646,302 2,828,516
Reserve for obsolete inventory.................................... (150,560) (122,351)
---------- ----------
$3,495,742 2,706,165
---------- ----------
---------- ----------
</TABLE>
(3) EARNINGS PER SHARE
Earnings per share have been computed by dividing net loss by the weighted
average number of shares outstanding. The weighted average number of shares
outstanding have been determined assuming shares and options issued subsequent
to March 31, 1996 were outstanding for the periods presented.
(4) SUBSEQUENT EVENT
In March 1996, certain stockholders of the Company sold an aggregate of
308,581 shares of common stock to private investors at a purchase price of $4
per share. A portion of the proceeds from these sales totaling $802,294 was
advanced to the Company in April 1996 pursuant to promissory notes having an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable on the earlier of April 15, 1997 or the date which is ten
days after the consummation of the Company's initial public offering.
F-18
<PAGE>
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders........................... 2
Additional Information............................ 2
Prospectus Summary................................ 3
Summary Financial Information..................... 6
Risk Factors...................................... 7
The Company....................................... 16
Dilution.......................................... 17
Use of Proceeds................................... 18
Dividend Policy................................... 18
Capitalization.................................... 19
Selected Financial Data........................... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 21
Business.......................................... 25
Management........................................ 38
Certain Transactions.............................. 43
Principal Stockholders............................ 45
Concurrent Registration of Common Stock........... 46
Description of Securities......................... 46
Underwriting...................................... 49
Legal Matters..................................... 52
Experts........................................... 52
Index to Financial Statements..................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTION IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN ITS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
__________________________________ __________________________________
<PAGE>
__________________________________ __________________________________
PARAVANT
COMPUTER
SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK
AND
1,400,000 REDEEMABLE WARRANTS TO
PURCHASE SHARES OF COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
[LOGO]
DUKE & CO., INC.
, 1996
__________________________________ __________________________________
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
PRELIMINARY PROSPECTUS DATED MAY 29, 1996
SUBJECT TO COMPLETION
PROSPECTUS
360,355 SHARES OF COMMON STOCK
PARAVANT COMPUTER SYSTEMS, INC.
This Prospectus relates to the offer and sale by certain persons (the
'Selling Security Holders') of up to 360,355 shares of common stock, par value
$.045 per share (the 'Common Stock'), of Paravant Computer Systems, Inc. (the
'Company', 'Paravant' or 'PCS'). The Company will not receive any of the
proceeds from the sale of such shares. It is anticipated that the Common Stock
will be offered and sold from time to time in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. See 'Selling Security
Holders and Plan of Distribution.'
Prior to this Offering, there has been no public market for the Common
Stock of the Company and there can be no assurance that any such market will
develop. The Company has applied for listing of the Common Stock on the Nasdaq
National Market and it is anticipated that the Common Stock will be quoted on
the Nasdaq National Market under the symbol 'TUFF'.
Concurrently with this offering, the Company is offering by separate
prospectus 1,000,000 shares of Common Stock (the 'Company Offered Shares') and
redeemable warrants (the 'Company Offered Warrants') to purchase 1,400,000
shares of Common Stock (the 'Company Offering'). See 'Concurrent Registration of
Securities.'
The Company has agreed to pay certain of the expenses in connection with
the registration and sale of the shares being offered by the Selling Security
Holders (other than brokerage commissions and fees and expenses of counsel).
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED
BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
'RISK FACTORS' ON PAGE 7 OF THE PROSPECTUS.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
REPORTS TO SHAREHOLDERS
Upon completion of the Company Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith, will be required to file
reports and other information with the Securities and Exchange Commission
('Commission') at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the public reference section of the
Commission, at that address and at prescribed rates. The Company intends to
furnish its shareholders with annual reports containing financial statements
audited by independent auditors and with additional information concerning the
business and affairs of the Company whenever deemed appropriate by the Board of
Directors or as required by law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, in
Washington, D.C., a Registration Statement on Form SB-2, relating to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement, including the exhibits and schedules thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, Washington, D.C. Copies of all or any part of such material may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission.
2
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
Company generally does not manufacture the components for its products. See
'RISK FACTORS -- COMPETITION' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
For the fiscal year ending September 30, 1995, approximately 96% of PCS's total
sales were made, directly or indirectly, to the military market in the United
States and abroad. The remaining 4% of its sales for such period were made to
the government and commercial markets. Approximately 20% of its total sales for
the same period were made by it directly to foreign customers while additional
sales of its products were made abroad by its U.S. customers.
In the military market, the Company's customers include the Armed Forces of the
U.S. government, foreign governments and major aerospace companies and prime
military contractors, such as Raytheon, Lockheed Martin, and Texas Instruments.
In regard to the government marketplace, PCS sells its products to the U.S.
Environmental Protection Agency, state Departments of Transportation, U.S.
Forestry Service and other government agencies. In the commercial market, the
Company's computers have been sold to public utilities, timber and logging
companies, surveyors, civil engineering firms, and railroads. PCS's customers
include: the Canadian Pacific Railroad, Weyerhauser, Westvaco and Geco Prakla.
Current trends in U.S. military procurement and budgeting policies appear to be
favorable to the Company. While the general trend in defense spending is toward
reductions of overall expenditures, the areas in which PCS operate are either
presently unaffected in any material way by such lower funding or are benefiting
from funding increases. In its attempt to economize, the U.S. military tends to
avoid expenditures on new large weapon systems and special-function computers
wherever possible. In contrast, much of the Company's product emphasis is on
upgrading and retro-fitting existing weapon systems in order to increase their
overall capabilities. In its product offerings, PCS also stresses enhanced
support for electronic warfare systems, diagnostics and maintenance of military
equipment as well as battlefield communications and data processing. All of
these areas are important to the U.S. military establishment in its procurement
policies and strategic plans. Finally, PCS's miniaturization and customization
capabilities, which make military electronic systems lighter and more compact,
lend themselves to greater application to military needs in this age of rapid
deployment of forces and equipment. Despite these factors, it is uncertain
whether continued downward trends in military spending may have material adverse
affects on the Company's future business. See 'THE COMPANY', 'RISK FACTORS' and
'BUSINESS', generally.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk and should not be purchased by investors who cannot afford the loss of
their entire investment. These risks include, inter alia, substantial dependence
upon military sales and government contracts, reliance on a few major customers,
possible technological obsolescence or failure of its products and their
uncertain acceptability in the market place, special risks involving its foreign
sales, the seasonality inherent in its business, intense competition with larger
companies, reliance on key executives, sub-contractors and suppliers. See 'RISK
FACTORS' generally.
THE OFFERING
<TABLE>
<S> <C>
Securities offered........................ 360,355 shares of Common Stock. See 'DESCRIPTION OF SECURITIES'.
Common Stock to be outstanding after the
Company Offering(1)..................... 2,500,000 shares.
Use of Proceeds........................... The Company will not receive any of the proceeds from this Offering.
Proposed Nasdaq National Market
symbol(2)............................... Common Stock -- 'TUFF'
</TABLE>
4
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
(footnotes from previous page)
(1) Does not include (i) 485,000 shares reserved for issuance under the
Company's Incentive Stock Option Plan ('Incentive Plan'); (ii) 15,000 shares
reserved for issuance under the Company's Nonemployee Directors' Stock
Option Plan ('Directors' Plan'); (iii) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan previously
maintained by the Company, which has been cancelled; and (iv) securities
which may be issued upon the exercise of the Warrants offered in the Company
Offering, the Underwriter's Warrants and the Underwriter's over-allotment
option relating to the Company Offering and warrants ('Bridge Warrants') to
purchase an aggregate of 160,000 shares of Common Stock issuable in
connection with a bridge financing in August 1995 ('August Bridge
Financing'). See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN',
' -- NONEMPLOYEE DIRECTORS STOCK OPTION PLAN', 'DESCRIPTION OF
SECURITIES -- BRIDGE FINANCING' and 'UNDERWRITING'.
(2) The Company has applied for listing of the Common Stock on the Nasdaq
National Market. Although the shares of Common Stock are expected to be
approved for listing on the Nasdaq National Market, such listing does not
imply that an established public trading market will develop therefor or, if
developed, that such market will be sustained. See 'RISK FACTORS',
generally.
5
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk and should only be made by investors who can afford the loss of
their entire investment. Prospective investors should give careful attention to
these risk factors, as well as to the other information described elsewhere in
this Prospectus, including the financial statements and notes thereto, in
evaluating the Company, its business and management before making a decision to
purchase the securities offered hereby. In addition to the risks discussed
below, businesses, including the Company's, are often subject to risks not
foreseen, anticipated or appreciated by its management.
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this
Prospectus, including but not limited to the timely introduction and acceptance
of new products by the Company, the length of sales cycles in the military,
government and commercial markets and trends in military procurement and
budgeting policies.
SUBSTANTIAL DEPENDENCE UPON MILITARY SALES
The majority of PCS's sales have historically been to the United States
military, foreign military or military suppliers. The Company's future success,
if any, is highly dependent on the continued purchase by the military of its
portable computers or equipment manufactured by others which contain its
devices. For the fiscal years ending September 30, 1995 and 1994 and for the six
months ended March 31, 1996 and 1995, direct and indirect sales of the Company's
products to the U.S. Department of Defense and foreign governments represented
approximately 96%, 98%, 97% and 86%, respectively, of its sales. Attempts to
reduce military expenditures have commenced for a multitude of reasons,
including budget deficit reduction and a perceived easing of global tensions.
For the past two years, the uncertain defense budget situation has caused
delays in contract awards and reduced funding in various military programs.
Management expects that these downward trends will continue through 1996.
Fortunately for PCS, most of its product sales to the U.S. Military have either
been unaffected by such reductions in military spending or have benefitted from
increases in such funding. Management believes that this has occurred because
its products are often used for upgrades or retrofits of existing military
devices, electronic warfare systems, portable diagnostic and maintenance
equipment, lighter systems for rapid deployment and digitalization of the
battlefield.
However, it is uncertain whether any reductions or delays in military
funding or contract awards may have a material adverse effect on the Company's
business in the future. See 'BUSINESS -- INDUSTRY BACKGROUND' and 'CUSTOMERS'.
Although overall defense spending may stabilize or increase modestly, based
upon recent announcements from the U.S. Congress and Defense Department, it is
extremely difficult to predict the amount or pattern of such spending.
Management believes that in the foreseeable future military spending on new
weapon systems will continue to be restricted to research and development of
military hardware already under development and to limited production of such
systems. During this period, it anticipates that the U.S. military will still
emphasize the upgrading, repair and extended use of older systems.
One example of the U.S. military's deferring expenditures on new weapon
systems involves its handling of the F-16 and F-22 fighter planes. Instead of
replacing F-16's with the newer F-22's, the military has, in its economizing
efforts, sought to continue the F-16's in service for longer periods. As a
consequence, PCS's sales of its portable computers to Lockheed as part of that
company's upgraded electronic maintenance systems for F-16's has actually
increased recently. Should the U.S. military alter this policy and seek
full-scale production of the F-22 planes, sales of the Company's computers for
such maintenance system will, in all likelihood decrease. See
'BUSINESS -- INDUSTRY BACKGROUND AND PRODUCTS'.
7
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
UNCERTAINTY OF ISO-9001 CERTIFICATION
The Company is currently endeavoring to upgrade its own manufacturing and
assembly facilities and procedures to meet the quality management and assurance
standards of ISO-9001, propounded by an international rating agency. These
standards have been adopted by the European Economic Community as their
preferred quality standards and, to some degree, by the U.S. Department of
Defense. As far as its compliance with ISO-9001 is concerned, the Company
envisages a 5 step process: (A) training and selection of a steering committee;
(B) review of existing quality procedures and developing better procedures and
statements of general goals; (C) preparation of specific written quality
procedures; (D) implementation and testing of such procedures; (E) formal audit
by an ISO-9001 certified auditor to determine if the Company's new or modified
procedures are sufficient and official issuance of ISO-9001 certification. Each
phase of this five-step process takes approximately six months. PCS has
completed the first two stages and is currently involved in meeting its goals
for phase three. It is estimated that within 18 months the Company should obtain
ISO-9001 certification although there can be no assurance of such. Any failure
or significant delay on the part of the Company in complying with such standards
could materially and adversely affect its direct and indirect sales to the U.S.
military as well as to certain foreign customers and prevent its expansion in
such markets. See 'BUSINESS -- SUPPLY AND MANUFACTURING'.
GOVERNMENT REGULATION AND CONTRACTS
Commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special risks such as dependence on government appropriations, termination
without cause, contract renegotiation and competition for the available
Department of Defense ('DoD') business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS. See 'RISK
FACTOR -- COMPETITION' and 'BUSINESS -- GOVERNMENT REGULATION AND CONTRACTS' and
'COMPETITION'.
DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is also substantially dependent on a relatively
small number of customers and DoD programs. In the fiscal year ended September
30, 1995, the Company's five largest customers in terms of sales, Raytheon
Company (47%), Lockheed Martin Corporation (29%), STN Atlas Electronics (13%),
TransPacific Technologies (3%) and Nichols Research (2%), accounted for an
aggregate of 94% of total PCS's sales. The loss of Raytheon or Lockheed Martin
as a customer could have a material adverse effect on PCS's results of
operations or financial condition. In fiscal year 1994, the Company's five
largest customers accounted for an aggregate of 89% of its total sales with the
largest customer in such year representing approximately 49% of total PCS's
sales. See 'BUSINESS -- CUSTOMERS'. Effective on May 15, 1995, two of its
largest customers, Lockheed and Martin Marietta merged. The Company is unable at
this early stage to predict what impact, if any, such merger will have on its
business or sales.
As of May 20, 1996, the Company's backlog was $5,746,687, 89% of which was
represented by large orders from three customers, namely -- Lockheed Martin
Corporation (54%), STN Atlas Electronics (24%) and Texas Instruments (12%). The
remaining 11% of such backlog represented orders from approximately 16 other
customers. The loss or diminution of orders from any large customer or group of
customers could have a substantial adverse effect on PCS's business and
prospects. See 'BUSINESS -- BACKLOG'.
TECHNOLOGICAL OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTABILITY
The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. PCS's business requires substantial ongoing
research and development efforts and expenditures, and its future success
8
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spent considerably less of his time managing the Company's affairs. Management
believes that his diminished role has not had, nor will it have in the future,
any adverse effects on the Company's operations or financial condition. At
present, PCS has no plans to appoint a full-time Chief Executive Officer in the
near future.
Competition for qualified employees is intense, and the loss of any such
person or the inability to locate, attract, retain and motivate qualified
personnel required for the expansion of PCS's activities could materially and
adversely affect its business and operations. There can be no assurance that it
will be successful in this regard or, if successful, that the services of such
personnel can be secured on terms deemed favorable to it. See
'BUSINESS -- EMPLOYEES'.
RELIANCE ON SUB-CONTRACTORS AND SUPPLIERS
The Company subcontracts the fabrication of its computer boards to a few
third party manufacturers. It purchases the metal cases, hard disk drives,
brackets, window panels and the keyboards for its portable computers from sole
sources such as Distec, Xcel and HiTech. PCS also licenses its software from
sole sources, including MicroSoft, Phoenix Technology, Magnavox and JFK
Associates. Many of its other components are furnished by outside suppliers.
Except for its software suppliers, it does not have written agreements with any
of these subcontractors or suppliers. This reliance on a few subcontractors,
sole sources and other suppliers can, and has, resulted in some delays in
deliveries as well as several quality control and production problems. Moreover,
the discontinuation of a necessary component by a subcontractor or supplier can
also be a significant negative development for the Company. In addition,
interference, suspension or termination of such fabrication or supply sources
will cause greater delays due to the difficulties and time required to find
suitable replacements or substitute sources and may have a material adverse
impact on the Company's business. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- SUPPLY AND
MANUFACTURING'.
POSSIBLE PRODUCT LIABILITY
The risk that the Company's products may malfunction and cause loss of, or
error in, data, loss of man hours, damage to, or destruction of, equipment or
delays is significant. Consequently, PCS, as a manufacturer of such computers,
may be subject to claims if such malfunctions or breakdowns occur. The Company
is not aware of any past or present claims against it. While PCS presently
maintains product liability insurance of $1,000,000, it cannot be certain that
such coverage will be adequate to satisfy future claims, if any.
POSSIBLE NEED FOR ADDITIONAL FINANCING
It is conceivable that the developments in the Company's business may
require additional funds beyond the net proceeds to be derived from the Company
Offering during the next several years. The Company expects to generate some of
these funds through its business, bank loans and other sources. There is no
assurance that if such additional funds are necessary, PCS can obtain them on
any basis or on terms deemed favorable to it. See 'USE OF PROCEEDS',
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS; BENEFIT TO INSIDERS
Although the Company intends to apply the net proceeds of the Company
Offering in the manner described under the caption 'Use of Proceeds' (which
includes an allocation of $761,400 (18.80%) of the estimated net proceeds of the
Company Offering to working capital and general corporate purposes), it has
broad discretion within such proposed uses as to the precise allocation of the
net proceeds, the timing of expenditures and all other aspects of the use
thereof. The Company reserves the right to reallocate the net proceeds of the
Company Offering among the various categories set forth under 'Use of Proceeds'
in the prospectus relating to the Company Offering ('Company Offering
Prospectus') as it, in its sole discretion, deems necessary or advisable.
Moreover, upon successful completion of the Company Offering, the guarantees of
the Company's obligations to its bank by
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Krishan K. Joshi, the Company's Chairman, and UES, Inc., a company which
presently indirectly owns 48.7% of PCS's outstanding Common Stock that Mr. Joshi
also controls ('UES'), will be terminated. Accordingly, Mr. Joshi and UES may be
deemed to benefit from the elimination of such guarantees. In addition,
approximately $802,000 (19.80%) of the net proceeds of the Company Offering will
be used to repay loans made by UES Florida, Inc. (a subsidiary of UES )('UES
Florida'), Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing, and approximately $88,000 (2.17%) of
the net proceeds of the Company Offering will be used to reimburse UES for
certain health insurance and other expenses paid by UES on the Company's behalf.
See 'USE OF PROCEEDS' and 'CERTAIN TRANSACTIONS'.
CONCENTRATION OF OWNERSHIP
Upon completion of the Company Offering, present stockholders of the
Company will beneficially own approximately 61.5% of the Company's voting
shares. In addition, upon consummation of the Company Offering, Krishan K.
Joshi, the Company's Chairman, Richard P. McNeight, the Company's President, and
William R. Craven, the Company's Vice President of Marketing, will beneficially
own approximately 29.8%, 11.4% and 6.2%, respectively, of the outstanding shares
of Common Stock of the Company. Although such stockholders will not hold,
following the Company Offering, a majority of the voting securities of the
Company, their significant beneficial holdings enable them to exercise
substantial influence over the Company. See 'PRINCIPAL STOCKHOLDERS'.
NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY
The Company has no patent or copyright protection on its products. Its
ability to compete effectively with other companies will depend, in part, on its
ability to maintain the proprietary nature of its technologies. PCS intends to
rely substantially on unpatented proprietary information and know-how, and there
can be no assurance that others will not develop such information and know-how
independently or otherwise obtain access to its technology. Also, it is not
certain that the Company's proprietary technology will not infringe patents or
other rights owned by others, and that as a result it may not be in a position
to license such technology at a reasonable cost. See 'BUSINESS -- INTELLECTUAL
PROPERTY'.
LACK OF DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. See
'DIVIDEND POLICY' and 'DESCRIPTION OF SECURITIES'.
NO PRIOR PUBLIC MARKET
Prior to the Company Offering, there has been no public market for the
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop and be sustained upon the completion of the Company Offering
or that the market prices of such securities will not decline below the initial
public offering prices. The initial public offering prices of such securities
have been determined by negotiations between the Company and the Underwriter.
The stock market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. Regulatory developments and economic and other external
factors, as well as period-to-period fluctuations in financial results, may also
have a significant impact on the market price of such securities.
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE
While certain of the officers of the Underwriter of the Company Offering
have significant experience in corporate financing and the underwriting of
securities, the Underwriter has previously underwritten only two public
offerings. Accordingly, there can be no assurance that the Underwriter's limited
public offering experience will not affect the Company's securities and
subsequent development of a trading market, if any.
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UNDERWRITER'S INFLUENCE ON THE MARKET
A significant number of shares of Common Stock and Warrants offered by the
Company Prospectus may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although it has no obligation to do
so, the Underwriter intends to engage in market-making activities or solicited
brokerage activities with respect to the purchase or sale of the Company's
securities in the Nasdaq National Market or other over-the-counter market where
such securities will trade. However, no assurance can be given that the
Underwriter will continue to participate as a market maker in the securities of
the Company or that other broker/dealers will make a market in such securities.
The Underwriter has the right to act as the Company's exclusive agent in
connection with certain future solicitations of holders of the Company Offered
Warrants to exercise their Warrants. Unless granted an exemption by the
Securities and Exchange Commission from Rule 10b-6 under the Exchange Act, the
Underwriter will be prohibited from engaging in any market-making activities or
solicited brokerage activities with regard to the Company's securities during
the period prescribed by exemption (xi) to Rule 10b-6 before the solicitation of
the exercise of any Company Offered Warrant based upon a prior solicitation
until the later of the termination of such solicitation activity or the
termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Company Offered Warrants following such
solicitation. As a result, the Underwriter and soliciting broker/dealers may be
unable to continue to make a market for the Company's securities during certain
periods while the Company Offered Warrants are exercisable. Such a limitation,
while in effect, could impair the liquidity and market price of the Company's
securities.
QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET VOLATILITY
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the computer and defense industries have in the
past been, and can in the future be expected to be, especially volatile. Various
factors and events, including future announcements of new product and service
offerings by the Company or its competitors, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market prices of the Company's securities.
Prior to the Company Offering, there has been no established public trading
market for the Company's securities and there is no assurance that a public
trading market for the Company's securities will develop after the completion of
the Company Offering. If a trading market does in fact develop for the
securities offered hereby, there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market upon the effective date of the Company Offering. The
Commission has approved rules imposing criteria for listing of securities on the
Nasdaq National Market, including standards for maintenance of such listing. In
order to qualify for initial quotation of securities on the Nasdaq National
Market, a company, among other things, must have at least $4,000,000 in net
tangible assets, $3,000,000 in market value of the public float and a minimum
bid price of $5.00 per share. For continued listing, a company, among other
things, must have $1,000,000 in net tangible assets, $1,000,000 in market value
of securities in the public float and a minimum bid price of $1.00 per share. If
the Company is unable to satisfy the Nasdaq National Market's maintenance
criteria in the future, its securities may be delisted from the Nasdaq National
Market. In such event, the Company would seek to list its securities on the
Nasdaq Small Capitalization Market. However, if it was unsuccessful, trading, if
any, in the Company's securities would thereafter be conducted in the
over-the-counter market in the so-called 'pink sheets' or the NASD's 'Electronic
Bulletin Board'. As a consequence of such delisting, an investor would likely
find it more difficult to dispose of, or to obtain quotations as to, the price
of the Company's securities.
PENNY STOCK REGULATION
In the event that the Company is unable to satisfy the maintenance
requirements for the Nasdaq National Market and its Common Stock falls below the
minimum bid price of $5.00 per share for the initial quotation, the Company
would seek to list its securities on the Nasdaq Small Capitalization Market. If
it was unsuccessful, trading would be conducted on the 'pink sheets' or the
NASD's
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'Electronic Bulletin Board'. In the absence of the Common Stock being quoted on
Nasdaq, or the Company's having $2,000,000 in stockholders' equity, trading in
the Common Stock would be covered by Rule 15g-9 promulgated under the Exchange
Act, for non-Nasdaq and non-exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of the purchasers in this Offering, to sell their securities in
the secondary market. There is no assurance that trading in the Company's
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock of the Company may be issued by the Board of
Directors, without stockholder approval, on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. For a period of two years from the date of this
Prospectus, the issuance of Common Stock or any warrants, options or other
rights to purchase Common Stock is subject to the Underwriter's prior consent,
which may not be unreasonably withheld. Accordingly, such restriction limits the
ability of the Company to issue shares of Preferred Stock which are, by their
terms, convertible into or exchangeable for shares of Common Stock. The
Underwriter has informed the Company that the primary factor that it will
consider in approving additional sales of Common Stock by the Company will be
the price at which the shares will be sold since the Underwriter's concern is to
prevent issuances of stock at below fair market value which it believes would be
harmful to the public investors. Although the ability to issue Preferred Stock
may provide flexibility in connection with possible acquisitions and other
corporate purposes, such issuance may make it more difficult for a third party
to acquire, or may discourage a third party from acquiring, a majority of the
voting stock of the Company. This result could prevent an increase in the market
price of PCS's Common Stock or cause a decline in such price. PCS has no current
plans to issue any shares of its Preferred Stock. See 'DESCRIPTION OF
SECURITIES -- PREFERRED STOCK'.
POSSIBLE CONTINGENT LIABILITY
In connection with a bridge financing involving certain private investors,
the Company may be deemed to have incurred a technical violation of Section 5 of
the Securities Act of 1933, as amended. Accordingly, there may be a contingent
liability associated with such matter. However, Management believes that there
was no such violation, and the possibility of such related liability is remote.
See 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING' and FOOTNOTE 8 to FINANCIAL
STATEMENTS. See also 'BUSINESS -- LEGAL PROCEEDINGS' for information relating to
a lawsuit filed against the Company by its former counsel.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Company Offering could adversely affect the market price of
such shares. Upon the consummation of the Company Offering, the Company will
have 2,500,000 shares of Common Stock outstanding, of which the 1,000,000 shares
of Common Stock offered by the Company and, subject to certain
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contractual restrictions with the Underwriter described below, the 360,355
shares of Common Stock offered hereby, will be freely tradeable without
restriction or further registration under the Securities Act. All of the
remaining 1,139,645 shares of Common Stock outstanding are 'restricted
securities', as that term is defined under Rule 144 promulgated under the
Securities Act, and in the future may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 (including, without limitation, certain volume limitations and
holding period requirements thereof) or pursuant to another exemption under the
Securities Act. The Company's directors, officers and securityholders (including
the Selling Security Holders) beneficially owning over 99% of the 1,500,000
shares of Common Stock outstanding as of the date of this Prospectus have agreed
not to dispose of their shares, subject to certain exceptions, for a period of
eighteen months from the date of the Company Prospectus, without the prior
written consent of the Underwriter. The Company has been advised by the
Underwriter that it has not entered into any agreements or understandings with
such individuals regarding an early release of the eighteen-month restriction;
however, the Underwriter's general policy is to look at the market conditions
with respect to the particular securities and to look at each request on an
individual basis. The Underwriter has indicated to the Company that the market
conditions it generally focuses on are the volume of trading in the securities
and the price of the securities and that the Underwriter would grant a release
only if it believed that such release would not interfere with an orderly market
in the Company's securities.
THE COMPANY
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') is a
manufacturer of rugged, portable computers and communication interfaces utilized
in outdoor settings. PCS also offers extensive customization services to modify
its standard products to the specific needs of the end-users. The Company's
laptop and hand-held processors are designed and built to function in adverse
environments under harsh weather, climate and operational conditions. Insulated
from temperature extremes, flying debris, shock, vibration, moisture and
humidity, its products have a reputation for high-level performance and
reliability in difficult circumstances.
The Company's products are sold to the U.S. and foreign military
establishments, other government agencies and commercial enterprises. In the
military setting, PCS's products control weapon systems and radar units, test,
diagnose and maintain equipment, train personnel and communicate with other
systems. For government and commercial markets, the Company's portable computers
gather, record, store and process an array of data involving a wide variety of
applications. The customers of PCS entail, among others, the Armed Services of
the U.S. government and various foreign governments, major aerospace companies
and prime military contractors, governmental agencies in environmental, forestry
and transportation areas, public utilities, railroads, timber and logging
companies, and surveying and engineering firms. The Company sells and markets
its products through a small internal sales force, sale representatives in the
U.S. and distributors abroad. See 'BUSINESS -- PRODUCTS, MARKETING AND SALES,
AND CUSTOMERS'.
The Company was organized as a corporation under the laws of the State of
Florida on June 25, 1982. Its principal executive offices are located at 780
South Apollo Boulevard, Atrium One, Melbourne, FL 32901. Its telephone number is
(407) 727-3672.
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USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Selling Security Holders. The net proceeds to the
Company from the sale of the Company Offered Shares and Company Offered Warrants
offered pursuant to the Company Offering, after deducting underwriting discounts
and commissions and other expenses of the Company Offering, are estimated to be
approximately $4,051,400 (without giving effect to any exercise of the
Underwriter's over-allotment option). See 'BUSINESS -- LEGAL PROCEEDINGS'. The
Company currently intends to utilize the net proceeds of the Company Offering
substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF
APPLICATIONS AMOUNT(1) TOTAL
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Increased research and development and engineering for improvement of
existing products and development of new products and applications....... $1,000,000 24.68%
Repayment of indebtedness to stockholders(2)............................... 802,000 19.80
Expansion of domestic and international marketing activities, including
hiring additional personnel, increased advertising and trade shows....... 500,000 12.34
Purchase/leasing of new office and production equipment and information
management system........................................................ 500,000 12.34
Repayment of promissory notes to investors(3).............................. 400,000 9.87
Repayment of intercompany balances(4)...................................... 88,000 2.17
Working capital and general corporate purposes............................. 761,400 18.80
----------- -----------
Total................................................................. $4,051,400 100.0%
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) In the event that the Underwriter's over-allotment option relating to the
Company Offering is exercised, the Company will realize additional net
proceeds, which will be used for working capital and general corporate
purposes.
(2) Approximately $802,000 of the net proceeds of the Company Offering will be
used to repay promissory notes in favor of UES Florida (a subsidiary of UES,
of which Krishan K. Joshi, the Company's Chairman, owns 58% of the shares of
its common stock), Richard P. McNeight, the Company's President, William R.
Craven, the Company's Vice President of Marketing, and another shareholder.
Interest on said notes accrues at the annual rate of 6%. The proceeds from
such notes were used by the Company for working capital and general
corporate purposes. See 'CERTAIN TRANSACTIONS'.
(3) Approximately $400,000 of the net proceeds of the Company Offering will be
used to pay promissory notes issued in August 1995 to finance working
capital needs. Interest on said notes accrues at the annual rate of 6%. The
promissory notes will be repaid no later than September 1996. The proceeds
from such notes were used by the Company for working capital and general
corporate purposes. See 'CERTAIN TRANSACTIONS'.
(4) Approximately $88,000 of the net proceeds of the Company Offering will be
used to reimburse UES which presently indirectly owns 48.7% of PCS's Common
Stock and which Krishan K. Joshi, the Company's Chairman, controls, for
certain health insurance and other expenses paid by UES on the Company's
behalf.
------------------------
The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements; any excess will be added
to working capital and any shortage will be deducted from working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in PCS's business. The Company may re-allocate such amounts from
time to time among the categories shown above or to new categories if it
believes such to be in its best interest because of the necessity to expand the
business due to increases in sales volume or changes in the competitive
environment. Pending full utilization of the net proceeds of the Company
Offering, the Company intends to reduce a portion of the indebtedness that the
Company expects to be outstanding upon completion of the Company Offering under
its secured line of credit agreement with National City Bank in Dayton, Ohio
(resulting in increased availability under the line of credit agreement for
working capital needs and general corporate purposes) and/or make temporary
investments in short-term, high-grade interest-bearing investments. PCS believes
that the net proceeds from the Company Offering, estimated working capital from
operations and other sources of funds will be adequate to sustain operations for
at least a 24-month period after the Company Offering, and it is anticipated
that such proceeds will be expended over the first 18 months after the Company
Offering. See 'CAPITALIZATION' and 'BUSINESS -- SUPPLY AND MANUFACTURING AND
SALES AND MARKETING' and 'RESEARCH AND DEVELOPMENT ACTIVITIES'.
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DIVIDEND POLICY
The Company has not paid any dividends on its shares of Common Stock and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, it does not anticipate the payment of
cash dividends in the foreseeable future. However, the payment of dividends, if
any, rests within the discretion of the Board of Directors and will depend upon,
among other things, the Company's earnings, its capital requirements and its
overall financial condition. See 'DESCRIPTION OF SECURITIES'.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and the pro forma capitalization at March 31, 1996 giving effect to an
April 1996 loan of $802,294 to the Company by certain of its shareholders and
such pro forma capitalization adjusted for the issuance and sale of the
securities offered pursuant to the Company Offering and the repayment of certain
indebtedness.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Indebtedness(1):
Short-Term Debt, including current portion of long-term debt and
capital lease obligation......................................... $4,347,283 $5,149,577 $3,947,283
---------- ---------- -----------
Long-Term Debt and capital lease obligation........................ 219,804 219,804 219,804
Stockholders' Equity(2)(3):
Preferred Stock, par value $.01 per share; 2,000,000 shares
authorized; none issued.......................................... -- -- --
Common Stock, par value $.045 per share; 10,000,000 shares
authorized; 1,500,000 shares issued and outstanding at March 31,
1996; 2,500,000 shares issued and outstanding as adjusted for
this Offering.................................................... 67,500 67,500 112,500
Capital in Excess of Par Value..................................... 761,265 761,265 4,767,665
Retained Earnings.................................................. 530,230 530,230 530,230
---------- ---------- -----------
Total Stockholders' Equity.................................... 1,358,995 1,358,995 5,410,395
---------- ---------- -----------
Total Capitalization.......................................... $5,926,082 $6,728,376 $9,571,482
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------
(1) Includes $3,775,000 at March 31, 1996 of indebtedness owed to National City
Bank, Dayton, Ohio ('Bank'), under the Company's $4,000,000 secured credit
arrangement with the Bank, which is payable on demand. A portion of the
borrowings under such arrangement may be repaid from the proceeds of the
Company Offering. The balance is anticipated to be repaid periodically as
proceeds from the collection of its accounts receivable are received. Such
indebtedness is secured by a lien on accounts receivable, inventory and
equipment, and is guaranteed by UES and Mr. Joshi, the Company's Chairman.
Interest is charged at the Bank's prime rate plus 1/2% for secured
borrowings and the prime rate plus 1% for undersecured borrowings. After the
Company Offering is completed, the guarantees will be eliminated. See 'USE
OF PROCEEDS', 'RISK FACTORS -- MANAGEMENT'S BROAD DISCRETION IN USE OF
PROCEEDS; BENEFIT TO INSIDERS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS', 'BUSINESS -- PROPERTIES AND
FACILITIES', 'CERTAIN TRANSACTIONS' and Notes 7, 8, 9 and 10 of Notes to
Financial Statements for information with respect to the Company's lease
obligations and indebtedness, including bank indebtedness.
(2) Does not include (i) up to 360,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option and the Warrants
included therein; (ii) 485,000 shares of Common Stock reserved for issuance
under the Incentive Plan and 15,000 shares reserved for issuance under the
Directors' Plan; (iii) 85,945 shares of Common Stock reserved for issuance
under a non-qualified stock option plan previously maintained by the Company
which has been terminated; (iv) up to 240,000 shares of Common Stock
issuable upon exercise of the Underwriter's Warrants and the Warrants
included therein relating to the Company Offering; (v) up to 160,000 shares
of Common Stock issuable upon exercise of the Bridge Warrants; and (vi)
1,400,000 shares of Common Stock issuable upon exercise of the Warrants. See
'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN', ' -- NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN' and 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING'.
(3) Immediately prior to the date of this Prospectus, the Company's Articles of
Incorporation will be amended to increase its authorized shares of Common
Stock from 10,000,000 to 30,000,000 shares.
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Beaver Creek Enterprises, an Ohio partnership among certain UES employees,
including Mr. Joshi, owns a three (3) bedroom residential condominium in
Melbourne, Florida, consisting of approximately 1,450 square feet. It rents this
apartment to the Company at $750 per month, which includes its apportioned real
estate taxes, pursuant to a month to month lease arrangement. For the fiscal
years ended September 30, 1995 and 1994, the Company paid such partnership
$9,000 and $9,000, respectively, for the use of such condominium. For the six
month period ended March 31, 1996, the Company paid $4,500 for the use of such
condominium. This apartment is used to house PCS's executives, including Messrs.
Craven and Joshi, when they are visiting the Company's headquarters, as well as
select customers.
On December 16, 1991 Messrs. McNeight, Craven and Joshi were granted
options covering 49,539 shares, 99,077 shares and 148,616 shares of PCS's Common
Stock held by UES Florida, Inc., respectively, an affiliate of the Company ('UES
Florida'), each at an adjusted exercise price of $.45 per share. On November 22,
1994, Mr. McNeight was granted 61,006 options to purchase shares of PCS's Common
Stock at an adjusted exercise price of $2.15 per share under a non-qualified
stock option plan previously maintained by the Company, which has since been
terminated. The exercise prices of the foregoing options granted in 1991 and
1994 approximated the estimated market value of the shares of Common Stock on
the date of grant. See 'MANAGEMENT -- EXECUTIVE COMPENSATION' and 'PRINCIPAL
STOCKHOLDERS'.
PCS had an intercompany payable to UES of $188,436 at March 31, 1996 for
reimbursement of expenses paid by UES on the Company's behalf. In April 1996,
the Company paid $100,000 to UES which reduced the balance of the intercompany
payable to $88,436.
PCS advanced $7,600 during 1993 to one of its officers and shareholders.
The advance was repaid in full to it during the year ended September 30, 1994.
Officers, directors of the Company and post offering 5% shareholders or their
affiliates will not borrow funds from it except for bona fide business purposes.
In March 1996, UES Florida and Messrs. McNeight and Craven and another
shareholder sold an aggregate of 308,581 shares of Common Stock to private
investors ('Selling Security Holders') at a purchase price of $4 per share
('March 1996 Stock Purchase'). (Of the shares sold, UES Florida and Messrs.
McNeight and Craven sold 248,581, 30,000, and 10,000 shares, respectively.) In
connection with these transactions, UES Florida, Messrs. McNeight and Craven and
such other shareholder loaned to the Company in April 1996, for working capital
purposes, the sums of $646,294, $78,000, $26,000 and $52,000, respectively, or
an aggregate of $802,294 of the proceeds realized from such sales, at an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable ten days after the consummation of the Company Offering. A
portion of the proceeds of the Company Offering will be used to satisfy such
obligation. At or following the time of the March 1996 Stock Purchase, the
private investors purchased an additional 51,774 shares from two other
stockholders of the Company. In order to induce the investors to purchase shares
of Common Stock of the Company and thereby provide UES Florida, Messrs. McNeight
and Craven and the other shareholder lender with funds which they loaned to the
Company, the Company granted to the investors certain 'piggyback' registration
rights to have their Common Stock registered under the Securities Act.
Accordingly, all 360,355 shares of Common Stock acquired by the Selling Security
Holders have been included in the Registration Statement of which this
Prospectus forms a part. The shares of Common Stock offered by the Selling
Security Holders are not part of the underwritten offering, however, and may not
be sold prior to 18 months from the date of this Prospectus without the prior
written consent of the Underwriter. See 'SELLING SECURITY HOLDERS'.
During September 1994, the Company was offered an initial bridge financing
involving an offer to sell 200,000 shares of Common Stock at a price of $.50 per
share, which was withdrawn. In lieu thereof, the Company received an offer for a
second bridge financing involving loans in an aggregate principal amount of
$400,000 and the sale of an aggregate of 80,000 shares of Common Stock and
warrants to purchase an additional 80,000 shares. Because the Securities and
Exchange Commission raised significant objections to both such bridge
financings, the bridge financing was revised in August 1995 to provide for the
issuance to a small group of private investors of 6% subordinated convertible
promissory notes in the principal amount of $400,000 and warrants to purchase
160,000 shares of Common Stock. A portion of these notes totalling approximately
$98,000 were mandatorily convertible
44
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
into 40,000 shares of Common Stock at a conversion price of $2.45 per share in
the event the Company completed a public offering of its Common Stock prior to
January 1, 1996. As the Company did not complete the public offering prior to
January 1, 1996, the conversion feature expired. The promissory notes will be
paid no later than September 1996 from a portion of the proceeds of the Company
Offering. Each warrant represents the right to purchase one share of Common
Stock, commencing on the effective date of the Company Offering and until the
expiration of five years from the date of the Company Prospectus. The exercise
price of the warrants is $6.00 per share, until , 2001 and during
their term. See 'DESCRIPTION OF SECURITIES -- Bridge Financing'.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Company's
Common Stock owned as of the date of this Prospectus and as adjusted to reflect
the sale of the securities offered by the Company Prospectus and the Company's
April 1995 reverse stock split by (i) each person who is known by it to own
beneficially more than 5% of its outstanding Common Stock, (ii) each director,
and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND OWNED(2)
NATURE OF -------------------------
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING(3)
- ----------------------------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Krishan K. Joshi(4)(5)(6).............................................. 745,156 49.7% 29.8%
Richard P. McNeight(4)(6).............................................. 292,603 18.6 11.4
William R. Craven(4)(6)................................................ 154,550 10.3 6.2
James E. Clifford(4)(6)................................................ 4,500 * *
Michael F. Maguire(4)(6)............................................... 4,500 * *
Pearl View Corporation N.V.(7)......................................... 116,667 7.8 4.7
Silk Valley Corporation N.V.(7)........................................ 116,666 7.8 4.7
Cordiff Corporation N.V.(7)............................................ 116,667 7.8 4.7
All officers and directors as a group (7 persons)(5)(6)................ 1,268,376 79.5 48.9
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise set forth in the footnotes below, all shares are
beneficially owned and the sole voting and investment power is held by the
persons named.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Prospectus have been
exercised. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Assumes no exercise of the Company Offered Warrants sold in connection with
the Company Offering.
(4) The address of each such person is c/o Paravant Computer Systems, Inc., 780
South Apollo Blvd., Atrium One, Melbourne, Florida 32901.
(5) Includes 730,618 shares of Common Stock held by UES Florida, Inc., a wholly
owned subsidiary of UES, Inc. Mr. Joshi is the Chairman and a director of
UES, Inc., of which he owns 58% of the shares of its common stock and which,
as a result, he controls. With respect to the 730,618 shares held by UES
Florida, Inc., 148,616 of such shares are subject to an option granted by
UES Florida, Inc. to Mr. Joshi. Both UES, Inc. and UES Florida, Inc. have
offices at 4402 Dayton-Xenia Road, Dayton, OH 45432.
(6) Includes options obtained from UES Florida, Inc. covering 49,539 shares for
Mr. McNeight, 99,077 shares for Mr. Craven and 148,616 shares for Mr. Joshi.
Includes options granted under the Incentive
45
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
(footnotes from previous page)
Plan covering 13,333 shares for Mr. McNeight, 1,667 shares for Mr. Craven,
2,000 shares for each of Messrs. Clifford and Maguire and 4,999 shares for
other officers and directors, options for 62,683 shares of Common Stock
granted to Mr. McNeight, 1,667 shares of Common Stock granted to Mr. Craven
and 1,667 shares of Common Stock granted to other officers and directors
under a non-qualified stock option plan which plan has been terminated and
options granted under the Directors' Plan covering 2,500 shares for each of
Messrs. Clifford and Maguire, all of which options are currently
exercisable. Excludes options granted under the Incentive Plan covering
56,667 shares for Mr. McNeight, 18,333 shares for Mr. Craven and 25,001
shares for other officers and directors, all of which options are not
exercisable within 60 days of the date of this Prospectus. See 'MANAGEMENT'
and 'CERTAIN TRANSACTIONS'.
(7) The address of each such beneficial owner is P.O. Box 837, Curacao,
Netherlands Antilles.
46
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 360,355 shares of Common Stock acquired as part of
the March 1996 Stock Purchase and related transactions ('Selling Security
Holders' Shares') may be offered and sold pursuant to this Prospectus by the
Selling Security Holders who purchased the Selling Security Holders' Shares in
connection therewith. The Company has agreed to register the public offering of
the Selling Security Holders' Shares under the Securities Act concurrently with
the Company Offering and to pay certain expenses in connection therewith. The
Selling Security Holders' Shares have been included in the Registration
Statement of which this Prospectus forms a part. See 'Certain Transactions'.
None of the Selling Security Holders' Shares may be sold by the Selling
Stockholders prior to 18 months after the date of this Prospectus, without the
prior written consent of the Underwriter. None of the Selling Security Holders
has ever held any position or office with the Company or had any other material
relationship with the Company. The Company will not receive any of the proceeds
from the sale of the Selling Security Holders' Shares by the Selling Security
Holders. The following table sets forth certain information with respect to the
Selling Security Holders:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF OF
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
SELLING SECURITY HOLDERS PRIOR TO SALE(1) AFTER SALE(2)
- ---------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Pearl View Corporation N.V.......................... 116,667 -0-
Silk Valley Corporation N.V......................... 116,666 -0-
Cordiff Corporation N.V............................. 116,667 -0-
Jasminville Corporation, N.V........................ 10,355 -0-
--
----------
Total..................................... 360,355 -0-
--
--
----------
----------
</TABLE>
- ------------
(1) Assumes no additional shares are acquired.
(2) Assumes all of the Selling Security Holders' Shares offered hereby are sold
by the Selling Security Holders.
The Selling Security Holders' Shares may be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. The Selling Security Holders'
Shares may be sold by one or more of the following methods without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchases; and (d) face-to-face transactions between sellers and
purchasers without a broker/dealer. In effecting sales, brokers or dealers
engaged by the Selling Security Holders may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissions or discounts
from Selling Security Holders in amounts to be negotiated. Such brokers and
dealers and any other participating brokers or dealers may be deemed to be
'underwriters' within the meaning of the Securities Act, in connection with such
sales.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, an aggregate of 1,000,000 Company Offered
Shares and Company Offered Warrants to purchase an additional 1,400,000 shares
of Common Stock are being offered by the Company in connection with the Company
Offering underwritten by Duke & Co., Inc. (the 'Underwriter') on a 'firm
commitment' basis. The Company Offered Shares and Company Offered Warrants have
been registered by the Company under the Securities Act pursuant to a Company
Prospectus included within the Registration Statement of which this Prospectus
forms a part.
The Company's officers, directors and securityholders (including all of the
Selling Security Holders) beneficially owning over 99% of the shares of Common
Stock outstanding as of the date of this Prospectus have agreed not to dispose
of their shares of Common Stock, subject to certain exceptions, for eighteen
months following the date of this Prospectus, without the prior written consent
of the Underwriter of the Company Offering.
47
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.045 per share; however, immediately prior to the date of this
Prospectus, the Company's Articles of Incorporation will be amended to increase
its authorized shares of Common Stock from 10,000,000 to 30,000,000 shares. The
holders of the Common Stock possess exclusive voting power for the election of
directors and for all other purposes and are entitled to one vote for each share
of Common Stock held of record. The Common Stock does not have cumulative voting
rights. Holders of Common Stock are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of its affairs. The holders of the Common
Stock have no preemptive rights with respect to offerings of shares of Common
Stock.
The outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered hereby, when issued in accordance with
the terms of the Company Offering, will be fully paid and non-assessable. As of
the date of the Company Prospectus, there were approximately 30 holders of
record of the Company's Common Stock.
Dividends may be paid on Common Stock out of funds legally available for
such purposes and when declared by the Board of Directors. The Company has not
paid any dividends on its Common Stock, and it currently intends to retain any
earnings for use in its business. Accordingly, it is anticipated that dividends
will not be paid to holders of Common Stock in the foreseeable future. See
'DIVIDEND POLICY'. After the Company Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing, will beneficially own approximately
47.4% of PCS's outstanding Common Stock. Although such stockholders will not
hold, following the Company Offering, a majority of the voting securities of the
Company, their significant beneficial holdings enable them to exercise
substantial influence over the Company.
PREFERRED STOCK
PCS is authorized to issue 2,000,000 shares of Preferred Stock, par value
$.01 per share. The Company has no plans to issue or sell shares of Preferred
Stock in the foreseeable future. When and if such shares of Preferred Stock are
issued, the holders of such stock will have certain preferences over the holders
of Common Stock, including the satisfaction of dividends on any outstanding
Preferred Stock. The Board of Directors has the authority to determine the
dividend rights, dividend rates, conversion rights, rights and terms of
redemption and liquidation preferences, and sinking fund terms of any series of
Preferred Stock, the number of shares constituting any such series and the
designation thereof.
Such Preferred Stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
Management. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect, a takeover or otherwise
gain control of the Company by causing shares of Preferred Stock with voting or
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines not to be in the best interest of PCS and its shareholders. In
addition, the Company's ability to issue such shares of Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
For a period of two years from the date of this Prospectus, the issuance of
Common Stock or any warrants, options or other rights to purchase Common Stock
is subject to the Underwriter's prior consent, which may not be unreasonably
withheld. Accordingly, such restriction limits the ability of the Company to
issue shares of Preferred Stock which are, by their terms, convertible into or
exchangeable for Common Stock.
48
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
REDEEMABLE WARRANTS
Each Company Offered Warrant (the 'Warrants') offered pursuant to the
Company Offering entitles the registered holder thereof (the 'Warrant Holders')
to purchase one share of Common Stock at a price of $6.00, subject to adjustment
in certain circumstances, for a period of five years commencing on
, 1997 (eighteen months from the date of this Prospectus) until
5:00 p.m., Eastern Time, on , 2002. The Warrants will be
separately transferable immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing on
, 1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant, provided that
the last sale price of the Common Stock on the Nasdaq National Market has
exceeded $8.50 per share (subject to adjustment) for a period of 30 consecutive
trading days during the period in which the Warrants are exercisable. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the
'Warrant Agreement'). The exercise price and number of shares of Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company. In
addition, the Warrants are subject to adjustment for issuances of Common Stock
at prices below the market price of a share of Common Stock on the Nasdaq
National Market. Reference is made to the Warrant Agreement (which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part) for a complete description of the terms and conditions therein (the
description herein contained being qualified in its entirety by reference
thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
BRIDGE FINANCING
Pursuant to the August Bridge Financing, the Company borrowed $400,000 from
a group of private investors at an annual interest rate of 6%. It is anticipated
that the principal amount of such notes will be repaid from the proceeds of this
Offering no later than September 1996. In addition, as part of the August Bridge
Financing, the Company sold to the same investors warrants to purchase 160,000
shares of Common Stock. Each warrant represents the right to purchase one share
of Common Stock, commencing on the effective date of this Offering and until the
expiration of five years from the date of this Prospectus. The exercise price of
the warrants is $6.00 per share, until , 2001 and during their
term. After expiration, the warrants will be void and of no value.
The warrants are to be subject to earlier redemption as follows. If the
average of the closing bid prices of the Common Stock (if the Common Stock is
then traded in the over-the-counter market) or the average of the closing prices
of the Common Stock if the Common Stock is then traded on a national securities
exchange or the Nasdaq National Market or Small Cap System) exceeds $6.00 for
49
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
any consecutive 20 trading days, then upon at least 30 days' prior written
notice, given within 60 days of the period, the Company will be able to call all
(but not less than all) of the warrants for redemption at a price of $.05 per
warrant.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and number of shares issuable upon
exercise on the occurrence of certain events, such as stock dividends or certain
other changes in the number of outstanding shares except for shares issued
pursuant to any Company stock option plans for the benefit of its employees,
directors and agents, the warrants offered hereby, the Underwriter's Warrants,
the Underwriter's overallotment option, any securities involved in such bridge
financing, and any equity securities for which adequate consideration is
received. The Company is not to be required to issue fractional shares. In lieu
of the issuance of such fractional shares, the Company will pay cash to such
holders of the warrants. In computing the cash payable to such holders, a share
of Common Stock will be valued at its price immediately prior to the close of
business on the expiration date. The holder of a warrant will not possess any
rights as a stockholder of the Company unless he exercises his warrant. See
'RISK FACTORS -- Possible Contingent Liability' and 'USE OF PROCEEDS'.
LIMITATION OF DIRECTORS' LIABILITY
Under provisions of Florida's corporate statutes, a director is not
personally liable for monetary damages to the corporation on whose board of
directors he serves or anyone else for his actions or conduct regarding
corporate management or policy unless: (a) the director breached or failed to
perform his duties as a director and (b) such director's breach or failure to
perform those duties constitutes:
(1) A violation of criminal laws which the director reasonably
believes to be lawful or not unlawful;
(2) A transaction in which the director, directly or indirectly,
derived an improper personal benefit;
(3) A declaration of an illegal dividend or illegal repurchase of
corporate shares or an illegal distribution of its assets;
(4) Conduct in a legal proceeding for the corporation or its
shareholders that consciously disregards the corporation's best interest or
willful misconduct; or
(5) Conduct in such proceeding by someone else that demonstrates
recklessness or an act or omission in bad faith with malicious purpose or
wanton and willful disregard of human rights, safety or property.
LISTING ON NASDAQ NATIONAL MARKET
Immediately following the Company Offering, it is anticipated that the
Common Stock and Company Offered Warrants will be quoted on the Nasdaq National
Market under the symbols 'TUFF' and 'TUFFW'. An application to list such
securities on Nasdaq National Market has been filed.
No assurance can be given that the prices of such securities will be so
quoted or that a trading market for the Company's securities will develop or be
sustained, or at what price the securities will trade. In addition, even if such
securities are listed and traded initially on the Nasdaq National Market, the
Company may fail to meet subsequently certain minimum standards for continued
listing. In that event, such securities will consequently be delisted, and their
price will no longer be quoted in such system. In such event, the Company would
seek to list its securities on the Nasdaq Small Capitalization Market. However,
if it was unsuccessful, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called 'pink
sheets' or the NASD's 'Electronic Bulletin Board'. As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's securities. See 'RISK
FACTORS -- QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET
VOLATILITY'.
TRANSFER AND WARRANT AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 is the transfer and warrant agent and registrar for the securities of the
Company.
50
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[THIS PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Zimet, Haines, Friedman & Kaplan, New York, New York.
EXPERTS
The financial statements of the Company at September 30, 1995 and 1994
appearing in this Prospectus and Registration Statement have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
In October, 1994, the Board of Directors of the Company retained KPMG Peat
Marwick LLP as the Company's independent auditors following the termination of
Hoyman, Dobson & Company, P.A., the Company's former accountants. There were no
disagreements with such firm on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, and
such firm's report on the Company's financial statements did not contain an
adverse opinion or disclaimer, or qualification as to uncertainty, audit scope
or accounting principles.
52
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
__________________________________ __________________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders........................... 2
Additional Information............................ 2
Prospectus Summary................................ 3
Summary Financial Information..................... 6
Risk Factors...................................... 7
The Company....................................... 15
Use of Proceeds................................... 18
Dividend Policy................................... 19
Capitalization.................................... 19
Selected Financial Data........................... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 21
Business.......................................... 25
Management........................................ 38
Certain Transactions.............................. 43
Principal Stockholders............................ 45
Selling Security Holders and Plan of
Distribution.................................... 47
Concurrent Registration of Securities............. 47
Description of Securities......................... 48
Legal Matters..................................... 52
Experts........................................... 52
Index to Financial Statements..................... F-1
</TABLE>
__________________________________ __________________________________
PARAVANT
COMPUTER
SYSTEMS, INC.
360,355 SHARES OF COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
, 1996
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Board of Directors has authorized it to provide a general
indemnification to its officers, directors and employees regarding any claims or
liabilities incurred in the course of their employment.
The Florida Business Corporation Act ('FBCA') provides that each officer
and director of the Company shall be indemnified by the Registrant against
certain costs, expenses and liabilities which he or she may incur in his or her
capacity as such.
Section # 607.0850 of the FBCA 'Indemnification of officers, directors,
employees and agents,' provides:
(1) A corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including
any appeal thereof, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had reasonable
cause not to believe that his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of
the corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense
of litigating and the proceeding to conclusion, actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if
such person acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation, except
that no indemnification shall be made under this subsection in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of
any proceeding referred to in subsection (1) or subsection (2), or in
defense of any claim, issue, or matter therein, he shall be indemnified
against expenses actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsection (1) or subsection (2). Such determination shall be
made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
II-1
<PAGE>
<PAGE>
(b) If such a quorum is not obtainable, or even if obtainable, by
majority vote of a committee duly designated by the board of directors
(in which directors who are parties may participate) consisting solely
of two or more directors not at the time parties to the proceeding;
(c) By independent legal counsel;
1. Selected by the board of directors prescribed in paragraph
(a) or the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtainable for
paragraph (a) and the committee cannot be designated under paragraph
(b), selected by majority vote of the full board of directors (in
which directors who are parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such
quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of
permissibility is made by independent legal counsel, persons specified by
paragraph (4)(c) shall evaluate the reasonableness of expenses and may
authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil
or criminal proceeding may be paid by the corporation in advance of the
final disposition of such proceeding upon receipt of an undertaking by or
on behalf of such director or officer to repay such amount if he is
ultimately found not to be entitled to indemnification by the corporation
pursuant to this section. Expenses incurred by other employees and agents
may be paid in advance upon such terms or conditions that the board of
directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and a corporation may make any other or
further indemnification or advancement or expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office. However, indemnification or advancement of expenses shall not
be made to or on behalf of any director, officer, employee, or agent if a
judgment or or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action so adjudicated and
constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of s.607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person unless otherwise provided when authorized
or ratified.
(9) Unless the corporation's articles of incorporation provide
otherwise, notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination of the board or of
the shareholders in the specific case, a director, officer, employee, or
agent of the corporation who is or was a party to a proceeding may apply
for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after
giving any notice that it
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<PAGE>
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification or advancement under subsection (3), in which
case the court shall also order the corporation to pay the director
reasonable expenses incurred in obtaining court-ordered indemnification
or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or
both, in view of all the relevant circumstances, regardless of whether
such person met the standard of conduct set forth in subsection (1),
subsection (2), or subsection (7).
(10) For purposes of this section, the term 'corporation' includes, in
addition the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or a merger,
so that any person who is or was a director, officer, employee or agent of
a constituent corporation, or is or was serving at the request of a
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, is in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(11) For purposes of this section:
(a) The term 'other enterprises' includes employee benefit plans;
(b) The term 'expenses' includes counsel fees, including those for
appeal;
(c) The term 'liability' includes obligations to pay a judgment,
settlement, penalty, fine, (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and
reasonably incurred with respect to a proceeding;
(d) The term 'proceeding' includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil,
criminal, administrative, or investigative and whether formal or
informal;
(e) The term 'agent' includes a volunteer;
(f) The term 'serving at the request of the corporation' includes
any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties
relating to an employee benefit plan and its participants or
beneficiaries; and
(g) The term 'not opposed to the best interest of the corporation'
describes the actions of a person who acts in good faith and in a manner
he reasonably believes to be in the best interest of the participants
and beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against any such liability under the
provisions of this section.
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<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Registration fee............................................................................ $ 6,528
<S> <C>
NASD filing fee............................................................................. 2,378
Blue Sky fees and expenses.................................................................. 5,000
Nasdaq National Market fees................................................................. 24,500
Non-accountable expense allowance........................................................... 154,200
Underwriter's consulting fee................................................................ 84,000
Legal fees and expenses..................................................................... 185,000*
Accounting fees and expenses................................................................ 55,000
Printing and engraving...................................................................... 80,000
Registrar and transfer agent fees........................................................... 5,000
Miscellaneous............................................................................... 24,394
--------
$626,000
--------
--------
</TABLE>
- ------------
* The legal fees referred to herein include an estimate of fees payable to the
Registrant's current counsel, Zimet, Haines, Friedman & Kaplan, and an
estimate of fees to which its former counsel, Cascone & Cole, may be
entitled. However, the amount does not include additional compensation of
approximately $150,000 to which Cascone & Cole claims to be entitled. Based
upon its current knowledge of matters relating to such claim, the Registrant
believes its former counsel is not entitled to such additional compensation.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
As of August 21, 1995 the Registrant sold to certain private investors 6%
promissory notes in the aggregate principal amount of $400,000, together with
warrants to purchase 160,000 shares of Common Stock. It is anticipated that such
notes will be repaid from a portion of the proceeds of this offering not later
than September 1996.
The sales of the aforementioned securities were made in reliance upon the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Section 4(2) thereof and/or Regulation D promulgated
thereunder, as transactions by an issuer not involving a public offering. The
Company believes that the purchasers of the securities described above acquired
them with an acknowledgement or representation that the purchase of the
securities was speculative and involved a high degree of risk, the purchasers
had the opportunity to obtain information as desired or requested, the
purchasers could bear the economic risk of a complete loss of their investment
without materially affecting their financial condition, the purchasers were
sophisticated investors, there are substantial restrictions on the
transferability of the securities, there was no public market for the Company's
securities at the time of the offering and that the purchasers might be required
to hold the securities indefinitely and that it may not be possible for a
purchaser to liquidate such investment.
ITEM 27. EXHIBITS
The following is a list of exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------------ ----------------------------------------------------------------------------------- ------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement between Registrant and Duke & Co., Inc.
(revised)........................................................................ Previously Filed
1.4 -- Form of Financial Advisory and Investment Banking Agreement (revised)........... Previously Filed
3.1 -- Articles of Incorporation of the Registrant, as amended......................... Previously Filed
3.1A -- Form of Articles of Amendment of Articles of Incorporation...................... Previously Filed
3.2 -- Restated and Amended By-laws of the Registrant.................................. Previously Filed
3.2A -- Amendment to the By-Laws........................................................ Previously Filed
4.1 -- Specimen Common Stock Certificate of Registrant................................. Previously Filed
4.2 -- Specimen Warrant of Registrant.................................................. Previously Filed
4.3 -- Form of Warrant Agreement between Registrant, Duke & Co., Inc. and Warrant Agent
(revised)........................................................................ Previously Filed
</TABLE>
(table continued on next page)
II-4
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------------ ----------------------------------------------------------------------------------- ------------------
<C> <S> <C>
4.4 -- Form of Lock-Up Agreement (revised)............................................. Previously Filed
4.5 -- Form of Underwriter's Warrant (revised)......................................... Previously Filed
5.1 -- Opinion re: legality (revised).................................................. Previously Filed
10.1 -- Employment Agreement between the Registrant and Richard P. McNeight............. Previously Filed
10.2 -- Employment Agreement between the Registrant and William R. Craven............... Previously Filed
10.3 -- Incentive Stock Option Plan and form of Stock Option Agreement.................. Previously Filed
10.3A -- Amendment No. 1 to the Incentive Stock Option Plan.............................. Previously Filed
10.4 -- Original Office Lease and Amendment between the Registrant and Atrium
Professional Centre.............................................................. Previously Filed
10.5 -- Form of Registrant's Manufacturer's Representative Agreement.................... Previously Filed
10.6 -- Form of Registrant's Distributor's Agreement.................................... Previously Filed
10.7 -- Amended Licensing Agreement between the Registrant and MicroSoft Corporation.... Previously Filed
10.8 -- Licensing Agreement between the Registrant and Phoenix Technologies, Ltd........ Previously Filed
10.9 -- Joint Development Agreement between the Registrant and MES, Inc................. Previously Filed
10.10 -- Joint Marketing Agreement between the Registrant and Texas Instrument
Corporation...................................................................... Previously Filed
10.11 -- Joint Marketing Agreement between the Registrant and Raytheon Company........... Previously Filed
10.12 -- Licensing Agreement between Registrant and Grid Systems Corporation............. Previously Filed
10.13 -- Forms of (Revised) Subscription Agreement and Subordinated Convertible
Promissory Note.................................................................. Previously Filed
10.14 -- Nonemployee Directors' Stock Option Plan........................................ Previously Filed
10.15 -- Employment Agreement between the Registrant and Kevin J. Bartczak............... Previously Filed
10.16 -- Letter agreements between the Registrant and National City Bank................. Previously Filed
10.17 -- Commercial demand note by Registrant in favor of National City Bank............. Previously Filed
10.18 -- Security agreement (accounts receivable) by Registrant in favor of National City
Bank............................................................................. Previously Filed
10.19 -- Security agreement (equipment) by Registrant in favor of National City Bank..... Previously Filed
10.20 -- Form of promissory note of Registrant issued in connection with stockholder
loans made in April 1996......................................................... Previously Filed
10.20A -- Form of Common Stock Purchase Agreement for purchase of shares by selling
security holders................................................................. *
10.21 -- Option Agreements dated as of December 16, 1991 between UES Florida, Inc. and
each of Krishan K. Joshi, Richard P. McNeight and William R. Craven.............. Previously Filed
10.22 -- Option Agreement dated as of November 23, 1994 with Richard P. McNeight......... Previously Filed
10.23 -- Form of Warrant Agent Agreement and Warrant relating to August 1995 bridge
financing........................................................................ *
10.24 -- Promissory Note dated February 19, 1993 by Richard P. McNeight.................. *
16. -- Letter re change in Certifying Accountants...................................... Previously Filed
23.1 -- Consent of Accountants (See page II-8).......................................... *
23.3 -- Consent of Counsel (included in its opinion filed as Exhibit 5.1)............... Previously Filed
27 -- Financial Data Schedule......................................................... Previously Filed
</TABLE>
- ------------
* Filed with this Amendment.
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ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of the Act,
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement, and
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering; and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the 'Act') may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements of filing on Form SB-2 and has authorized this
Amendment No. 5 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Melbourne, Florida, on May 29, 1996.
PARAVANT COMPUTER SYSTEMS, INC.
By: /S/ KRISHAN K. JOSHI
.................................
KRISHAN K. JOSHI
CHAIRMAN
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated:
<TABLE>
<CAPTION>
DATE SIGNATURES TITLE
- ----------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
May 29, 1996 /S/ KRISHAN K. JOSHI Chairman, Chief Executive Officer
.................................... and Director (Principal Executive
KRISHAN K. JOSHI Officer)
May 29, 1996 /S/ RICHARD P. MCNEIGHT President and Director
....................................
RICHARD P. MCNEIGHT
May 29, 1996 /S/ WILLIAM R. CRAVEN Vice President, Director and
.................................... Secretary
WILLIAM R. CRAVEN
May 29, 1996 /S/ KEVIN BARTCZAK Treasurer, Vice President and Chief
.................................... Financial Officer (Principal
KEVIN BARTCZAK Financial Officer and Principal
Accounting Officer)
May 29, 1996 /S/ JAMES E. CLIFFORD Director
....................................
JAMES E. CLIFFORD
May , 1996 Director
....................................
MICHAEL MAGUIRE
</TABLE>
II-7
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
PARAVANT COMPUTER SYSTEMS, INC.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 33-91426) of our report dated February 19, 1996 (except as to Note 18
which is as of May 15, 1996) on our audits of the financial statements of
Paravant Computer Systems, Inc. We also consent to the reference to our firm
under the headings 'Experts' and 'Selected Financial Data' in the prospectus.
KPMG PEAT MARWICK LLP
Orlando, Florida
May 29, 1996
II-8
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ------------ ----------------------------------------------------------------------------------- ------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement between Registrant and Duke & Co., Inc.
(revised)........................................................................ Previously Filed
1.4 -- Form of Financial Advisory and Investment Banking Agreement (revised)........... Previously Filed
3.1 -- Articles of Incorporation of the Registrant, as amended......................... Previously Filed
3.1A -- Form of Articles of Amendment of Articles of Incorporation...................... Previously Filed
3.2 -- Restated and Amended By-laws of the Registrant.................................. Previously Filed
3.2A -- Amendment to the By-Laws........................................................ Previously Filed
4.1 -- Specimen Common Stock Certificate of Registrant................................. Previously Filed
4.2 -- Specimen Warrant of Registrant.................................................. Previously Filed
4.3 -- Form of Warrant Agreement between Registrant, Duke & Co., Inc. and Warrant Agent
(revised)........................................................................ Previously Filed
4.4 -- Form of Lock-Up Agreement (revised)............................................. Previously Filed
4.5 -- Form of Underwriter's Warrant (revised)......................................... Previously Filed
5.1 -- Opinion re: legality (revised).................................................. Previously Filed
10.1 -- Employment Agreement between the Registrant and Richard P. McNeight............. Previously Filed
10.2 -- Employment Agreement between the Registrant and William R. Craven............... Previously Filed
10.3 -- Incentive Stock Option Plan and form of Stock Option Agreement.................. Previously Filed
10.3A -- Amendment No. 1 to the Incentive Stock Option Plan.............................. Previously Filed
10.4 -- Original Office Lease and Amendment between the Registrant and Atrium
Professional Centre.............................................................. Previously Filed
10.5 -- Form of Registrant's Manufacturer's Representative Agreement.................... Previously Filed
10.6 -- Form of Registrant's Distributor's Agreement.................................... Previously Filed
10.7 -- Amended Licensing Agreement between the Registrant and MicroSoft Corporation.... Previously Filed
10.8 -- Licensing Agreement between the Registrant and Phoenix Technologies, Ltd........ Previously Filed
10.9 -- Joint Development Agreement between the Registrant and MES, Inc................. Previously Filed
10.10 -- Joint Marketing Agreement between the Registrant and Texas Instrument
Corporation...................................................................... Previously Filed
10.11 -- Joint Marketing Agreement between the Registrant and Raytheon Company........... Previously Filed
10.12 -- Licensing Agreement between Registrant and Grid Systems Corporation............. Previously Filed
10.13 -- Forms of (Revised) Subscription Agreement and Subordinated Convertible
Promissory Note.................................................................. Previously Filed
10.14 -- Nonemployee Directors' Stock Option Plan........................................ Previously Filed
10.15 -- Employment Agreement between the Registrant and Kevin J. Bartczak............... Previously Filed
10.16 -- Letter agreements between the Registrant and National City Bank................. Previously Filed
10.17 -- Commercial demand note by Registrant in favor of National City Bank............. Previously Filed
10.18 -- Security agreement (accounts receivable) by Registrant in favor of National City
Bank............................................................................. Previously Filed
10.19 -- Security agreement (equipment) by Registrant in favor of National City Bank..... Previously Filed
10.20 -- Form of promissory note of Registrant issued in connection with stockholder
loans made in April 1996......................................................... Previously Filed
10.20A -- Form of Common Stock Purchase Agreement for purchase of shares by selling
security holders................................................................. *
10.21 -- Option Agreements dated as of December 16, 1991 between UES Florida, Inc. and
each of Krishan K. Joshi, Richard P. McNeight and William R. Craven.............. Previously Filed
10.22 -- Option Agreement dated as of November 23, 1994 with Richard P. McNeight......... Previously Filed
10.23 -- Form of Warrant Agent Agreement and Warrant relating to August 1995 bridge
financing........................................................................ *
10.24 -- Promissory Note dated February 19, 1993 by Richard P. McNeight.................. *
16. -- Letter re change in Certifying Accountants...................................... Previously Filed
23.1 -- Consent of Accountants (See page II-8).......................................... *
23.3 -- Consent of Counsel (included in its opinion filed as Exhibit 5.1)............... Previously Filed
27 -- Financial Data Schedule......................................................... Previously Filed
</TABLE>
- ------------
* Filed with this Amendment.
<PAGE>
<PAGE>
EXHIBIT 10.20A
COMMON STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of 1996, by and among the individuals or
entities identified on Schedule A hereto (the 'Sellers'), the individuals or
entities identified on Schedule B hereto (collectively, the 'Purchasers') and
Paravant Computers Systems, Inc. (the 'Company').
RECITALS
WHEREAS, the Purchasers wish to purchase and the Sellers wish to sell an
aggregate of shares (the 'Shares') of common stock, par value $.045
('Common Stock'), of Paravant Computer Systems, Inc. at $4.00 per Share;
WHEREAS, the Company has approximately 1,500,000 shares of Common Stock
issued and outstanding;
NOW, THEREFORE, in consideration of the receipt of $10.00, and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. Sale of Shares. Subject to and upon the terms and conditions set forth
in this Agreement, the Sellers hereby sell, transfer, convey, assign and deliver
to the Purchasers, the Shares with blank stock powers at an aggregate purchase
price of $ (the 'Aggregate Purchase Price') payable by delivery of a check
or wire transfer for such upon execution of this Agreement. Each of the Sellers
shall sell the amount of Shares set forth next to their respective names on
Schedule A and each of the Purchasers shall purchase the amount of Shares set
forth next to their respect names on Schedule B.
2. Representations and Warranties of the Sellers
The Sellers represent and warrant to the Purchasers and the Company as
follows:
a. Loan to Company. The Sellers agree that they will loan the Purchase
Price less certain taxes to the Company, as a loan to meet certain expenses
of the Company. This loan shall be documented with a separated agreement
between the Sellers and the Company.
b. Non-Encumbrance. The Shares are validly issued, fully paid and
nonassessable and have not been issued in violation of, and shall not be
subject to, any preemptive or subscription rights. The Sellers own the
Shares free and clear of any liens or encumbrances.
c. Due Execution. The execution, delivery and performance by the
Sellers of this Agreement are within the Sellers' powers and do not violate
any contractual restriction contained in any agreement which binds or
affects or purports to bind or affect the Sellers.
d. Absence of Finder. The Sellers represent that no party has acted as
a finder or is otherwise entitled to any compensation in connection with
the transactions contemplated by this Agreement.
e. Binding Effect. This Agreement, when executed and delivered will be
the legal, valid and binding obligations of the Sellers enforceable against
the Sellers in accordance with its terms.
3. Representations and Warranties by the Purchasers. The Purchase represent
and warrant to the Sellers and the Company as follows:
a. Execution, Delivery, Authorization, Approval and Performance of
Agreement. The execution and delivery by Purchasers of this Agreement and
their performance hereunder does not and will not conflict with or
constitute a default, breach or violation under any provision of applicable
law or regulation or of any agreement, judgment, injunction, order, decree
or other instrument binding upon Purchasers or to which their respective
properties are subject. This Agreement when executed and delivered by
Purchasers will constitute the legal, valid and binding agreement of
Purchasers and is enforceable in accordance with its terms.
2
<PAGE>
<PAGE>
b. Investment Representation:
(i) The Purchasers represent that they are purchasing the Shares
for their own account for investment only and not with a view towards
distribution or resale, and agree not to sell, transfer, pledge, hypothecate or
otherwise dispose of, or offer to dispose of, the Shares, unless the Shares have
been registered under the Securities Act of 1933 (the "Act") and applicable
state securities laws or such registration is not required in the opinion of
counsel for the Purchasers reasonably acceptable to the Company. Any routine
sale of the Shares made in reliance upon Rule 144 promulgated under the Act can
be made only in accordance with the terms and conditions of said Rule and
further, that in case such Rule is not applicable to any sale of the Shares,
resale thereof may require compliance with some other exemption under the Act
prior to resale. The Purchasers understand that certificates for the Shares
issued pursuant to this Agreement shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE, TRANSFERRED,
HYPOTHECATED OR OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER SUCH ACT OR AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM
REGISTRATION FOR SUCH SALE, OFFER, TRANSFER, HYPOTHECATION OR OTHER
ASSIGNMENT IS AVAILABLE UNDER SUCH ACT."
(ii) The Purchasers represent that (i) they are purchasing the
Shares after having made adequate investigation of the business, finances and
prospects of the Company, (ii) that they have been furnished with a draft of the
Company's proposed registration statement ("Draft Registration Statement") (iii)
that they are not relying on any oral of other representations except those
contained herein and (iv) acknowledge that there can be no assurance that a
public offering will be consummated or if consummated that a public offering
will be or the terms described in the Draft Registration Statement.
c. Absence of Finder. The Purchasers represent that no party has acted
as a finder or is otherwise entitled to any compensation in connection with the
transactions contemplated by this Agreement.
4. Representations and Warranties by the Company. The Company represents
and warrants to the Purchasers as follows:
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a. Execution, Delivery, Authorization, Approval and Performance of
Agreement. The execution and delivery by the Company of this Agreement and their
performance hereunder does not and will not conflict with or constitute a
default, breach or violation under any provision of applicable law or regulation
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Company or to which its respective properties are subject. This
Agreement executed and delivered by the Company will constitute the legal, valid
and binding agreement of the Company and is enforceable in accordance with its
terms.
b. Capitalization. The Company represents that is has 1,500,000 shares
of Common Stock outstanding on a fully diluted basis, not including 500,000
shares reserved for issuance under the Company's stock option plans and 85,390
shares of Common Stock reserved for issuance under its non-qualified Stock
Option Plan which has been cancelled.
c. Preemptive rights. The Company has no knowledge of any other
individual who has a contractual on preemptive right to purchase the Shares.
d. Administrative Duties. The Company represents that it will cause the
Shares to be issued in the names requested by the Purchasers.
5. Piggyback Registration Rights. The Company agrees that in the event that
it files a registration statement of its securities under the Act that it will
give the Purchasers one right to include the Shares in such Registration
Statement. In the event that the Shares are included in such registration
statement, the Purchasers' agree that they will not sell, transfer or otherwise
dispose of such shares for a period of eighteen (18) months without the consent
of the managing underwriter, if any, of such initial public offering.
6. Miscellaneous.
a. Amendments, Etc. No amendment of any provision of this Agreement
shall in any event be effective unless the amendment shall be in writing and
signed by each of the parties to this Agreement, and no waiver nor consent to
any departure by any party therefrom shall in any event be effective unless such
waiver or consent shall be in writing and signed by the party waiving or
consenting to such
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provision, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
b. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, facsimile, telex or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered:
(1) if to the Sellers,
c/o Zimet Haines Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Attention: James Martin Kaplan, Esq.;
(2) if to the Purchasers,
c/o Gersten, Savage, Kaplowitz & Curtin
575 Lexington Avenue
New York, New York 10022
Attention: Jay M. Kaplowitz
(3) if to the Company,
Paravant Computer Systems, Inc.
780 South Apollo Blvd., Atrium One
Melbourne, Florida 32901
Attention: President
or, as to any such party, at such other address as shall be designated by such
party in a written notice to the other parties.
c. No Waiver; Remedies. No failure on the part of the Purchasers or the
Sellers to exercise, and no delay in exercising, any right under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
d. Survival of Agreements, etc. The representations, warranties,
covenants and provisions contained in this Agreement shall survive the date
hereof and the purchase of the Shares by the Purchasers hereunder.
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e. Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
f. Integration. This Agreement sets forth the entire understanding of
the parties hereto with respect to all matters contemplated hereby and thereby
supersedes any previous agreements and understandings among them concerning such
matters. No statements or agreements, oral or written, made prior to or at the
signing hereof, shall vary, waive or modify the written terms hereof.
g. Binding Effect; Governing Law. This Agreement shall be binding upon
and inure to the benefit of the Sellers and the Purchasers and their respective
successors and assigns, except that neither the Sellers nor the Purchasers may
assign this Agreement, or the rights or obligations hereunder, without the prior
written consent of the other party. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements and instruments executed and performed in the State of New York.
h. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute but one and the
same agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement.
Purchasers Sellers
- ---------- -------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
- --------------------------- ----------------------------
PARAVANT COMPUTER SYSTEMS, INC.
By:
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EXHIBIT 10.23
WARRANT AGENT AGREEMENT
WARRANT AGENT AGREEMENT dated as of , by and among
Parvant Computer Systems, Inc. a Florida corporation (the 'Company' or 'PCS')
and Paravant Computer Systems, Inc., in its capacity as warrant agent (the
'Warrant Agent').
WHEREAS, as part of a bridge financing in August 1995, ('Bridge Financing')
the Company borrowed $400,000 from a group of private investors and agreed to
issue warrants ('Warrants') to purchase 160,000 shares of the Company's Common
Stock, par value $.045 per share ('Common Stock');
WHEREAS, each Warrant will entitle the holder to purchase one share of
Common Stock, subject to the terms hereof; and
WHEREAS, PCS is willing to act as Warrant Agent in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. PCS is hereby appointed to act as
Warrant Agent for the Company in accordance with the instructions hereinafter
set forth in this Agreement, and the Warrant Agent hereby accepts such
appointment.
Section 2. Form of Warrant. The certificate representing the Warrants and
the form of election to purchase Common Stock to be printed on the reverse
thereof shall be substantially as set forth in Exhibit A attached hereto. Each
Warrant shall entitle the registered holder thereof to purchase one share of
Common Stock at a purchase price of Six and 00/100 Dollars ($6.00), at any time
from the effective date of the Company's initial public offering through Duke &
Co., Inc. ('IPO'), until 5:00 p.m. Eastern time, of even day and month five
years thereafter (the 'Expiration Date'). The Warrant exercise price and the
number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events, all as hereinafter
provided. The Warrants shall be executed on behalf of the Company by the mutual
or facsimile signature of the present or any future Chairman of the Board,
President or Vice President of the Company, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company.
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Warrants shall be dated as of the issuance by the Warrant Agent either upon
initial issuance or upon transfer or exchange.
In the event the aforesaid expiration dates of the Warrants fall on a
Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange
is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on the next
succeeding business day.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. Upon the
initial issuance of the Warrants, the Warrant Agent shall issue and register the
Warrants in the names of the respective holders thereof. The Warrants shall be
countersigned manually or by facsimile by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. The Warrants may,
however, be so countersigned by the Warrant Agent (or by its successor as
Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.
Section 4. Transfer and Exchanges. The Warrant Agent shall transfer, from
time to time, any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender thereof for transfer properly
endorsed or accompanied by appropriate instructions for transfer. Upon any such
transfer, a new Warrant shall be issued to the transferee and the surrendered
Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be
delivered by the Warrant Agent to the Company from time to time upon request.
Warrants may be exchanged at the option of the holder thereof, when surrendered
at the office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock.
Section 5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which may be
exercised commencing as of the Effective Date, to purchase from the Company (and
the Company shall issue and sell to such registered holder of Warrants) the
number of fully paid and non-assessable shares of Common Stock specified in such
Warrants upon surrender of such Warrants to the Company at the office of the
Warrant Agent, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the warrant
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price, determined in accordance with the provisions of Section 9 and 10 of this
Agreement, for the number of shares of Common Stock in respect of which such
Warrants are then exercised. Payment of such warrant price shall be made in cash
or by certified check or bank draft to the order of the Company. Subject to
Section 6, upon such surrender of Warrants and payment of the warrant price, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common Stock as of
the date of the surrender of such Warrants and payment of the warrant price as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the registered holders thereof, either as an
entirety or from time to time for a portion of the shares specified therein and,
in the event that any Warrant is exercised in respect of less than all of the
shares of Common Stock specified therein at any time prior to the Expiration
Date of the Warrants, a new Warrant or Warrants will be issued to the registered
holder for the remaining number of shares of Common Stock specified in the
Warrant so surrendered, and the Warrant Agent is hereby irrevocably authorized
to countersign and to deliver the required new Warrants pursuant to the
provisions of this Section and of Section 3 of this Agreement and the Company,
whenever requested by the Warrant Agent, will supply the Warrant Agent with
Warrants duly executed on behalf of the Company for such purpose.
Section 6. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Common Stock issuable upon the
exercise of Warrants and not paid by the holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance or delivery of any certificates of
shares of Common Stock in a name other than that of the registered holder of
Warrants in respect of which such shares are issued, and in such case neither
the Company nor the Warrant Agent shall be required to issue or deliver any
certificate for shares of Common Stock or any Warrant until the person
requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid.
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Section 7. Mutilated or Missing Warrants. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue and the Warrant Agent shall countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of such
loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant,
indemnity, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay documentary stamp taxes and such reasonable charges as the Company or the
Warrant Agent may prescribe.
Section 8. Reservation of Common Stock. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by the Warrants, and the
transfer agent for the shares of Common Stock and every subsequent transfer
agent for any shares of the Company's Common Stock issuable upon the exercise of
any of the rights of purchase aforesaid are irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares of Common
Stock as shall be required for such purpose. The Company agrees that all shares
of Common Stock issued upon exercise of the Warrants shall be, at the time of
delivery of the certificates of such shares, validly issued and outstanding,
fully paid and non-assessable and listed on any national securities exchange or
NASDAQ Market System upon which the other shares of Common Stock are then
listed. The Company will keep a copy of this Agreement on file with the transfer
agent for the shares of Common Stock and with every subsequent transfer agent
for any shares of the Company's Common Stock issuable upon the exercise of the
rights of purchase represented by the Warrants. The Warrant Agent is irrevocably
authorized to requisition from time to time from such transfer agent stock
certificates required to honor outstanding Warrants. The Company will supply
such transfer agent with duly executed stock certificates for that purpose. All
Warrants surrendered in the exercise of the rights thereby evidenced shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company,
and such cancelled Warrants shall constitute sufficient evidence of the number
of shares of Common Stock which have been issued upon the exercise of such
Warrants. Promptly after the date of expiration of the Warrants, the Warrant
Agent shall certify to the Company the total aggregate amount of Warrants then
outstanding, and thereafter no shares of Common Stock shall be subject to
reservation in respect of such Warrants which shall have expired.
Section 9. Warrant Price: Adjustments.
(a) The warrant price at which Common Stock shall be purchasable upon
the exercise of the Warrants shall be Six and 00/100 Dollars ($6.00)
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at any time following the Effective Date, until the Expiration Date or after
adjustment as provided in this Section, shall be such price as so adjusted
(the 'Warrant Price').
(b) The Warrant Price shall be subject to adjustment from time to time
as follows:
(i) In case the Company shall at any time after the date hereof pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, then upon such dividend or distribution the Warrant Price in effect
immediately prior to such dividend or distribution shall forthwith be reduced to
a price determined by dividing:
(A) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Warrant Price in effect immediately prior to such dividend or distribution, by
(B) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this clause (i), the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution.
(ii) In case the Company shall at any time subdivide or combine the
outstanding Common Stock, the Warrant Price shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination to
the nearest one cent. Any such adjustment shall become effective at the time
such subdivision or combination shall become effective.
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(C) Notwithstanding anything contained herein to the contrary, no
adjustment of the Warrant Price shall be made if the amount of such adjustment
shall be less than $.05, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to not less than $.05.
(c) In the event that the number of outstanding shares of Common
Stock is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the time at
which the adjusted Warrant Price becomes effective pursuant to paragraph (b) of
this Section by reason of such dividend or subdivision, the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased in
proportion to such increase in outstanding shares. In the event that the number
of shares of Common Stock outstanding is decreased by a combination of the
outstanding Common Stock, then, from and after the time at which the adjusted
Warrant Price becomes effective pursuant to paragraph (b) of this Section by
reason of such combination, the number of shares of Common Stock issuable upon
the exercise of each Warrant shall be decreased in proportion to such decrease
in the outstanding shares of Common Stock.
(d) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the holder of each Warrant then outstanding shall thereafter have the
right to purchase the kind and amount of shares of Common
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Stock and other securities and property receivable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock which the holder of such Warrant shall
then be entitled to purchase; such adjustment shall apply with respect to all
such changes occurring between the date of this Warrant Agreement and the
date of exercise of such Warrant.
(e) Subject to the provisions of this Section 9, in case the Company
shall, at any time prior to the exercise of the Warrants, make any distribution
of its assets to holders of its Common Stock as a liquidating or a partial
liquidating dividend, then the holder of Warrants who exercises this Warrants
after the record date for the determination of those holders of Common Stock
entitled to such distribution of assets as a liquidating or partial liquidating
dividend shall be entitled to receive for the Warrant Price per Warrant, in
addition to each share of Common Stock, the amount of such distribution (or, at
the option of the Company, a sum equal to the value of any such assets at the
time of such distribution as determined by the Board of Directors of the Company
in good faith), which would have been payable to such holder had he been the
holder of record of the Common Stock receivable upon exercise of his Warrant on
the record date for the determination of those entitled to such distribution.
(f) In case of the dissolution, liquidation or winding-up of the
Company, all rights under the Warrants shall terminate on a date fixed by the
Company, such date to be no earlier than ten (10) days prior to the
effectiveness of such dissolution, liquidation or winding-up and not later than
five (5) days prior to such effectiveness. Notice of such termination of
purchase rights shall be given to the last registered holder of the Warrants, as
the same shall appear on the books of the Company maintained by the Warrant
Agent, by registered mail at least thirty (30) days prior to such termination
date.
(g) Any adjustment pursuant to the aforesaid provisions shall be made
on the basis of the number of shares of Common Stock which the holder thereof
would have been entitled to acquire by the exercise of the Warrant immediately
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prior to the event giving rise to such adjustment.
(h) Irrespective of any adjustments in the Warrant Price or the
number or kind of shares purchasable upon exercise of the Warrants, Warrants
previously or thereafter issued may continue to express the same price and
number and kind of shares as are state,d in the similar Warrants initially
issuable pursuant to this Warrant Agreement.
(i) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make any
computation required under this Section, and any certificate setting forth such
computation signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
(j) If at any time, as a result of an adjustment made pursuant to
paragraph (d) above, the holders of a Warrant or Warrants shall become entitled
to purchase any securities other than shares of Common Stock, thereafter the
number of such securities so purchasable upon exercise of each Warrant and the
Warrant Price for such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs (b) and (c).
(k) Anything hereinabove to the contrary notwithstanding, no
adjustment shall be made pursuant to paragraph 9(a) to the Warrant Price, or to
the number of shares of Common Stock purchasable upon the exercise of any
Warrant, upon:
(i) The issuance or sale by the Company of any shares of Common
Stock or options pursuant to (A) the Warrants subject to this Agreement, (B) the
Underwriter's Warrants granted in connection with the IPO, including shares of
Common Stock issuable upon the exercise of the warrants underlying the warrants
purchased pursuant to the Underwriter's Warrants, (C) the Company's stock
option plans, and (D) the underwriting agreement referred to in the above
mentioned Registration Statement;
(ii) The issuance or sale of shares of Common Stock pursuant to
the exercise of options or conversion or exchange of convertible securities
hereinafter issued for which an adjustment has been made (or was not required to
be made) pursuant to the provisions of this Section 9 hereof;
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(iii) The increase in the number of shares of Common Stock
subject to any option or convertible security referred to in subsections (i) and
(ii) hereof pursuant to the provisions of such options or convertible securities
designed to protect against dilution.
(iv) The increase in the number of shares of Common Stock issued
upon the exercise of Warrants pursuant to the Bridge Financing.
(l) The form of Warrant need not be changed because of any change
pursuant to this Section 9, and Warrants issued after such change may state the
same Warrant Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this Agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrant that the Company may deem appropriate and that does not affect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
Section 10. Fractional Interests. The Warrants may only be exercised to
purchase full shares of Common Stock and the Company shall not be required to
issue fractions of shares of Common Stock on the exercise of Warrants. However,
if a Warrantholder exercises all Warrants then owned of record by him and such
exercise would result in the issuance of a fractional share, the Company will
pay to such Warrantholder, in lieu of the issuance of any fractional share
otherwise issuable, an amount of cash based on the market value of the Common
Stock of the Company on the last trading day prior to the exercise date.
Section 11. Notices to Warrantholders.
(a) Upon any adjustment of the Warrant Price and the number of shares of
Common Stock issuable upon exercise of a Warrant, then and in each such case,
the Company shall give written notice thereof to the Warrant Agent, which notice
shall state the Warrant Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. The Company
shall also mail such notice to the holders of the Warrants at their respective
addresses appearing in the Warrant register. Failure to give or mail such
notice, or any defect therein, shall not affect the validity of the adjustments.
(b) In case at any time:
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(i) the Company shall pay dividends payable in stock upon its Common
Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock; or
(ii) the Company shall offer for subscription pro rata to all of the
holders of its Common Stock any additional shares of stock of any class or other
rights; or
(iii) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with, or sale of substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then in any one or more of such cases,
the Company shall give written notice in the manner set forth in paragraph (a)
of Section 11 of the date on which (A) a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale dissolution,
liquidation or winding-up as the case may be. Such notice shall be given at
least thirty (30) days prior to the action in question and not less than thirty
(30) days prior to the record date in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth in this Section 11(b).
(c) The Company shall cause copies of its annual report to be sent by
first-class mail, postage prepaid, on the date of mailing to such stockholders,
to each registered holder of Warrants at his address appearing in the Warrant
register as of the record date for the determination of the stockholders
entitled to such documents.
Section 12. Redemption of Warrants. Until 5:00 P.M. Eastern time on the
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Expiration Date, the Warrants are subject to earlier redemption as follows: If
the average of the closing bid prices of the Common Stock (if the Common Stock
is then traded in the over-the-counter market) or the average of the closing bid
prices of the Common Stock (if the Common Stock is then traded on a national
securities exchange or the NASDAQ National Market System or SmallCap Market
System) exceeds $6.00 for any consecutive 20 trading days, then upon at least 30
days prior written notice, given within 60 days of the period, the Company will
be able to call all (but not less than all) of the Warrants for redemption at a
price of $.05 per Warrant. The redemption notice shall be mailed to the holders
of the Warrants at their respective addresses appearing in the Warrant register.
Holders of the Warrants will have exercise rights until the close of business on
the date fixed for redemption.
Section 13. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation or company which may succeed to the business of the Warrant Agent by
any merger or consolidation or otherwise shall be the successor to the Warrant
Agent hereunder without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided that such corporation would
be eligible for appointment as a successor Warrant Agent under the provisions of
Section 16 of this Agreement. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement, any of the Warrants
shall have been countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original Warrant Agent and
deliver such Warrants so countersigned.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrants shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrants so countersigned. In all such cases such Warrants shall have
the full force provided in the Warrants and in the Agreement.
Section 14. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements of act and recitals contained herein and in the
Warrants shall be taken as statements of the Company, and the Warrant Agent
assumes no responsibility for the correctness of any of the same except as such
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrants
except as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any failure of the
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Company to comply with any of the covenants in this Agreement or in the Warrants
to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all reasonable expenses,
taxes and Governmental charges and other charges incurred by the Warrant Agent
in the execution of this Agreement and to indemnify the Warrant Agent and save
it harmless against any and all liabilities, including judgment, costs and
reasonable counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement except as a result of the Warrant Agent's
negligence, wilful misconduct or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expenses unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnify for any costs
and expenses which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrants, as their respective rights and interests
may appear.
(g) The Warrant Agent and any stockholder, director, officer, partner or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or othelwise act as fully and freely as though it were not the Warrant
Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal entity.
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(h) The Warrant Agent shall act hereunder solely as agent and its duties
shall be determined solely by the provisions hereof.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys, agents or employees.
(j) Any request, direction, election, order or demand of the Company
shall be sufficiently evidenced by an instrument signed in the name of the
Company by its President or a Vice President or its Secretary or an Assistant
Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in
respect thereof be herein specifically prescribed); and any resolution of the
Board of Directors may be evidenced to the Warrant Agent by a copy thereof
certified by the Secretary or an Assistant Secretary of the Company.
Section 15. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company sixty
(60) days written notice, and to the holders of the Warrants notice by mailing
such notice to the holders at their respective addresses appearing on the
Warrant register, of such resignation, specifying a date when such resignation
shall take effect. The Warrant Agent may be removed by thirty (30) days written
notice to the Warrant Agent from the Company and the like mailing of notice to
the holders of the Warrants. If the Warrant Agent shall resign or be removed or
shall otherwise become incapable of action, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after such removal or after it
has been notified in writing of such resignation or incapacity by the resigning
or incapacitated Warrant Agent or after the Company has received such notice
from a registered holder of a Warrant (who shall, with such notice, submit his
Warrant for inspection by the Company), then the registered holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed
by the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under New York or federal law. After appointment, the
successor Warrant Agent shall be vested with substantially the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed and the former Warrant Agent shall
deliver and transfer to the successor Warrant Agent all cancelled Warrants,
records and property at the time held by it hereunder, and execute and deliver
any further assurance or conveyance necessary for the purpose. Failure to file
or mail any notice provided for in this Section, however, or any defect therein,
shall not affect the validity of the resignation or removal of the Warrant Agent
or the appointment of the successor Warrant Agent, as the case may be.
Section 16. Identity of Transfer Agent. Forthwith upon the appointment
of any
14
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<PAGE>
transfer agent for the shares Common Stock or of any subsequent transfer agent
for the shares of Common Stock or other shares of the Company's Common Stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.
Section 17. Notices. Any notice pursuant to this Agreement to be given by
the Warrant Agent, or by the registered holder of any Warrant to the Company,
shall be sufficiently given if sent by first-class mail, postage prepaid,
addressed (until another is filed in writing by the Company with the Warrant
Agent) as follows:
Paravant Computer Systems, Inc.
780 South Apollo Boulevard, Atrium One
Melbourne, Florida 32901
Attn: Richard P. McNeight, President
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant to the Warrant Agent shall be sufficiently
given if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
Paravant Computer Systems, Inc.
780 South Apollo Boulevard, Atrium One
Melbourne, Florida 32901
Attn: Richard P. McNeight, President
15
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<PAGE>
Section 18. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interest of the holders of Warrants.
Section 19. New York Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and shall be construed in accordance with the laws of New York
applicable to agreements to be performed wholly within New York.
Section 20. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent, and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent, and the registered
holders of the Warrants.
Section 21. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
PARAVANT COMPUTER SYSTEMS, INC.
By: ..................................
Mr. Richard P. McNeight, President
16
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
By: ..................................
17
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<PAGE>
EXHIBIT A
TO WARRANT
AGENT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT THERETO UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE COMPANY THAT AN EXEMPTION FROM REGISTRATION FOR SUCH SALE, OFFER, TRANSFER,
HYPOTHECATION OR OTHER ASSIGNMENT IS AVAILABLE UNDER SUCH ACT.
No.
NOT EXERCISABLE AFTER , 2001
WARRANT CERTIFICATE
PARAVANT COMPUTER SYSTEMS, INC.
THIS CERTIFIES that
, or registered assigns, is the registered owner of the number of warrants set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Warrant Agent Agreement dated as of
(the 'Warrant Agreement') between Paravant Computer Systems, Inc., a
corporation organized under the laws of the State of Florida ('PCS'), and PCS,
in its capacity as warrant agent, (the 'Warrant Agent'), to purchase or receive
from PCS at any time after , 1996 and prior to 5:00 P.M. (New York City
time) on , 2001 at the principal office of the Warrant Agent, or its
successors as Warrant Agent, the number of shares of common stock, par value
$.045 per share, of PCS ('PCS Common Stock') represented hereby to be purchased
at $6 per share of PCS Common Stock (the 'Exercise Price'), in each case upon
presentation and surrender of this Warrant Certificate with the Form of Election
to Purchase duly executed. The number of PCS Warrants evidenced by this Warrant
Certificate (and the number of shares of PCS Commoon Stock which may be
purchased upon exercise thereof) set forth above and the Exercise Price set
forth above are the number and Exercise Price as of , based on the
shares of PCS Common Stock as constituted at such date. As provided in the
Warrant Agreement, the Exercise Price and the number of shares of PCS Common
Stock which may be purchased upon the exercise of the PCS Warrants evidenced by
this Warrant Certificate are subject to modification and adjustment upon the
occurrence of certain events.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Warrant Agent, PCS and the holders of the Warrant Certificates. Copies of the
Warrant Agreement are on file at the above-mentioned office of the Warrant
Agent.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Warrant Agent, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing PCS Warrants entitling the holder to purchase a like aggregate number
of shares of PCS Common Stock, in each case as the PCS Warrants evidenced by the
Warrant Certificate or Warrant Certificates surrendered shall have entitled such
holder to purchase or receive. If this Warrant Certificate shall be exercised in
part, the holder hereof shall be entitled to receive upon surrender hereof
another Warrant Certificate or Warrant Certificates for the number of PCS
Warrants not exercised.
PCS shall make a cash payment in lieu of issuing fractional PCS Warrants or
fractional shares of PCS Common Stock, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote, receive
dividends or distributions on, or be deemed for any purpose the holder of, PCS
Common Stock or of any other securities of PCS which may at any time be issuable
on the exercise hereof, nor shall anything contained in the Warrant Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of PCS or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Warrant
Agreement), or to receive dividends or subscription rights, or otherwise, until
the PCS Warrants evidenced by this Warrant Certificate shall hqave been
exercised as provided in the Warrant Agreement.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signature of the proper officers of PCS and its
corporate seal.
Dated:
ATTEST:
WILLIAM R. CRAVEN
Secretary
[SEAL]
PARAVANT COMPUTER SYSTEMS, INC.
By:
KRISHAN K. JOSHI
Chairman and Chief Executive Officer
Countersigned:
By
PARAVANT COMPUTER SYSTEMS, INC.
As Warrant Agent
Authorized Signature
<PAGE>
<PAGE>
ELECTION TO PURCHASE
(To be executed if Holder desires to
exercise the Warrant Certificate.)
The undersigned hereby elects to exercise _________________________________
PCS Warrants represented by this Warrant Certificate to purchase the shares of
PCS Common Stock issuable upon the exercise of such PCS Warrants and requests
that Certificates for such shares be issued in the name of and delivered to:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
[ ]
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of PCS Warrants shall not be all PCS Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
PCS Warrants shall be registered in the name of and delivered to:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
[ ]
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: _______________________________
______________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on face of this Warrant
Certificate)
Signature Guaranteed:
ASSIGNMENT
(To be executed by the Reigstered Holder if such Holder
desires to transfer the Warrant Certificates)
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto
Name: __________________________________________________________________________
(please typewrite or print in block letters)
Address: _______________________________________________________________________
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
_____________________________________________________________________, Attorney,
to transfer the within Warrant Certificate the same on the books of the Company,
with full power of substitution in the premises.
Dated ______________________________ X __________________________________
Signature Guaranteed
____________________________________
Notice: The signature to the
foregoing assignment must correspond
to the name as written upon the face
of this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
<PAGE>
EXHIBIT 10.24
PAID IN FULL AS OF 9-30-94 [NAME] 11-8-94
Promissory Note
February 19, 1993
For value received, the undersigned promises to pay to the order of Paravant
Computer Systems, Inc. at 780 South Apollo Boulevard, Atrium One, Melbourne,
Florida 32901 or such other address that the Holder of this note may specify in
writing, from time to time, the principal amount shown as of the date shown
below on the Schedule:
SCHEDULE
<TABLE>
<CAPTION>
DATE AMOUNT ADVANCED PRINCIPAL AMOUNT
<S> <C> <C>
2-19-93 $1,600.00 $1,600.00
3-05-93 400.00 2,000.00
3-19-93 400.00 2,400.00
4-02-93 400.00 2,800.00
4-16-93 400.00 3,200.00
4-30-93 400.00 3,600.00
5-14-93 400.00 4,000.00
5-28-93 400.00 4,400.00
6-11-93 400.00 4,800.00
6-25-93 400.00 5,200.00
7-09-93 400.00 5,600.00
7-23-93 400.00 6,000.00
8-06-93 400.00 6,400.00
8-20-93 400.00 6,800.00
9-03-93 400.00 7,200.00
9-17-93 400.00 7,600.00
</TABLE>
The principal amount is payable in lawful money of the United States as follows:
Payable on Demand.
If termination of employment occurs, for any reason, before the loan is repaid
in full, the balance of the Note, at the option of the holder, becomes due
immediately, and any funds owed by the undersigned such as wages, commissions,
bonuses, vacation pay or expense report reimbursements will be used to satisfy
this Note. Any balance not satisfied by amounts withheld from the undersigned
become immediately due, payable and collectible immediately and while in
default, this Note shall accrue interest at the annualized rate of 12%.
The maker of this Note further agrees to waive demand, notice of non-payment and
protest. If it is necessary to institute litigation for collection of
enforcement of this Note, then the holder shall recover all costs of litigation,
including a reasonable attorney's fee, including fees incurred for the
preservation of this obligation in bankruptcy.
<TABLE>
<S> <C>
MARY L. DWIGHT RICHARD P. MCNEIGHT
__________________________________ _________________________________________
Witness Richard P. McNeight
__________________________________ _________________________________________
Witness Teresa McNeight
</TABLE>
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
PARAVANT COMPUTER SYSTEMS, INC.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 33-91426) of our report dated February 19, 1996 (except as to Note 18
which is as of May 15, 1996) on our audits of the financial statements of
Paravant Computer Systems, Inc. We also consent to the reference to our firm
under the headings 'Experts' and 'Selected Financial Data' in the prospectus.
KPMG PEAT MARWICK LLP
Orlando, Florida
May 29, 1996
II-8
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