PARAVANT COMPUTER SYSTEMS INC /FL/, POS AM, 1997-09-02

PARAVANT COMPUTER SYSTEMS INC /FL/
POS AM, 1997-09-02
ELECTRONIC COMPUTERS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997
REGISTRATION NO. 33-91426
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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PARAVANT COMPUTER SYSTEMS, INC.
(Name of small business issuer 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 No.)
</TABLE>
1615A WEST NASA BOULEVARD
MELBOURNE, FLORIDA 32901
(407) 727-3672
(Address and telephone number of principal executive
offices and principal place of business or intended principal place of business)

RICHARD P. McNEIGHT
PRESIDENT AND CHIEF OPERATING OFFICER
PARAVANT COMPUTER SYSTEMS, INC.
1615A WEST NASA BOULEVARD
MELBOURNE, FLORIDA 32901
(407) 727-3672
(Name, address and telephone number of agent for service)

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COPIES TO:
JAMES MARTIN KAPLAN, Esq.
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, New York 10022
Telephone No.: (212) 486-1700
Facsimile No.: (212) 223-1151

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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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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, 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. [ ]

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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 300,000 $2.00 $600,000 $181.82
$.015 per share(1)
- ------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants, each
to purchase one share of 420,000 $.04 $16,800 $5.09
Common Stock(2)
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Common Stock, par value 420,000 $2.00 $840,000 $254.55
$.015 per share(3)
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Common Stock, par value 300,000 $3.25(5) $975,000(5) $295.45
$.015 per share (4)
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Redeemable Warrants, each
to purchase one share of 420,000 $1.34375(7) $564,375(7) $171.02
Common Stock(6)
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Common Stock, par value 420,000 $3.25(5) $1,365,000(5) $413.64
$.015 per share (8)
- ------------------------------------------------------------------------------------------------------------------------
Total Registration Fee $1,321.57(9)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Issuable upon exercise of the Underwriter's Warrants.

(2) Issuable upon exercise of the Underwriter's Warrants.

(3) Issuable upon exercise of the warrants underlying the Underwriter's
Warrants.

(4) Represents shares which may be acquired by the Selling Securityholders upon
exercise of the Underwriter's Warrants and resold pursuant to this
Registration Statement.

(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended (the
"Act"), based on the average of the high and low prices of the Common Stock
on August 26, 1997, which was $3.25.

(6) Represents warrants which may be acquired by the Selling Securityholders
upon exercise of the Underwriter's Warrants and resold pursuant to this
Registration Statement.

(7) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Act, based on the average of the high and
low prices of the Warrants on August 26, 1997, which was $1.34375.

(8) Represents shares which may be acquired by the Selling Securityholders upon
exercise of the warrants underlying the Underwriter's Warrants and resold
pursuant to this Registration Statement.

(9) An aggregate of $441.46 of such registration fee has previously been paid.

Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional indeterminate number of
shares of Common Stock and Warrants as may become issuable by reason of stock
splits, dividends and similar adjustments in accordance with the antidilution
provisions of the Underwriter's Warrants and the Warrants underlying the
Underwriter's Warrants.

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.
================================================================================

PARAVANT COMPUTER SYSTEMS, INC.
CROSS REFERENCE SHEET

Item in Form SB-2 Caption or Location in Prospectus
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<S> <C>
1. Front of Registration Statement and Outside Front Cover
Page of Prospectus............................................ Facing Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus....... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds............................................... Use of Proceeds
5. Determination of Offering Price............................... Outside Front Cover Page; Risk Factors; Underwriting
6. Dilution...................................................... Risk Factors; Dilution
7. Selling Security Holders...................................... Selling Securityholders and Plan of Distribution
8. Plan of Distribution.......................................... Outside Front and Outside Back Cover Pages of
Prospectus; Selling Securityholders and Plan of
Distribution
9. Legal Proceedings............................................. Business
10. Directors, Executive Officers, Promoters and Control
Persons....................................................... Management
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.................................... *
15. Organization Within Last Five Years........................... Prospectus Summary; Management's Discussion and
Analysis or Plan of Operation; Business; Certain
Transactions
16. Description of Business....................................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis or Plan of
Operations.................................................... Operation
18. Description of Property....................................... Business
19. Certain Relationships and Related Transactions................ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters....................................................... Outside Front Cover Page of Prospectus; Risk Factors;
Certain Market Information Description of Securities;
Shares Eligible for Future Sale; Underwriting
21. Executive Compensation........................................ Management
22. Financial Statements.......................................... Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure........................... *

</TABLE>

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*Not applicable or answer is negative.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities 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.

PRELIMINARY PROSPECTUS DATED SEPTEMBER 2, 1997
SUBJECT TO COMPLETION

PARAVANT COMPUTER SYSTEMS, INC.

720,000 SHARES OF COMMON STOCK AND
420,000 REDEEMABLE WARRANTS TO PURCHASE SHARES OF COMMON STOCK

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This Prospectus relates to the issuance of (i) up to 300,000 shares of
common stock, par value $.015 per share (the "Common Stock"), of Paravant
Computer Systems, Inc. (the "Company," "Paravant" or "PCS") issuable upon the
exercise of warrants (the "Underwriter's Warrants") originally sold to Duke &
Co., Inc. (the "Underwriter") in connection with the Company's 1996 initial
public offering of securities (the "IPO") and/or (ii) up to 420,000 redeemable
warrants to purchase Common Stock ("Warrants") issuable upon the exercise of the
Underwriter's Warrants, and up to 420,000 shares of Common Stock issuable upon
the exercise of the 420,000 Warrants underlying the Underwriter's Warrants. The
Underwriter's Warrants entitle the holders thereof to purchase, in the
aggregate, up to 300,000 shares of Common Stock at an exercise price of $2.00
per share and up to 420,000 Warrants at an exercise price of $.04 per Warrant.
The Underwriter's Warrants are exercisable during the four-year period
commencing June 3, 1997.

Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of $2.00, subject to adjustment in certain
circumstances, for a period of five years commencing November 30, 1997. The
Warrants are redeemable by the Company at any time commencing November 30, 1997
upon notice of not less than 30 days, at a price of $.0167 per Warrant, provided
that the closing bid quotation of the Common Stock on the Nasdaq National Market
("Nasdaq") has exceeded $2.83 per share (subject to adjustment) for a period of
30 consecutive trading days during the period in which the Warrants are
exercisable. The holders of Warrants will have the right to exercise their
Warrants until the close of business on the date fixed for redemption. See
"Description of Securities."

This prospectus also relates to the offer and sale by the Underwriter
and certain of the Underwriter's employees and equity holders (collectively, the
"Selling Securityholders") of (i) up to 300,000 shares of Common Stock
underlying the Underwriter's Warrants and (ii) up to 420,000 Warrants underlying
the Underwriter's Warrants or, in the event any or all of the Warrants are
exercised by the Selling Securityholders, up to 420,000 shares of Common Stock
underlying such Warrants. It is anticipated that such securities will be offered
and sold by the Selling Securityholders, or by pledgees, donees, transferees or
other successors in interest thereof, from time to time in transactions (which
may include block transactions) on Nasdaq, in the over-the-counter market, in
private sales or in negotiated transactions, through the writing of options, or
a combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Company will not receive
any of the proceeds from the sales by the Selling Securityholders of any of such
securities. See "Selling Securityholders and Plan of Distribution."

The Common Stock and Warrants are traded on Nasdaq under the symbols
"PVAT" and "PVATW," respectively. On August 26, 1997, the closing sale price of
the Common Stock and Warrants on Nasdaq was $3.50 and $1.4375, respectively.
See "Certain Market Information."

THE SECURITIES OFFERED HEREBY 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. SEE "RISK FACTORS"
(COMMENCING ON PAGE 7) AND "DILUTION."

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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.

THE DATE OF THIS PROSPECTUS IS ____________, 1997

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered by this Prospectus.
This Prospectus, filed as part of such Registration Statement, does not contain
all of the information set forth in, or annexed as exhibits to, the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and this offering, reference is made to the Registration Statement
including the exhibits filed therewith. The Registration Statement may be
inspected and copies may be obtained from the Public Reference Section at the
Commission's principal office, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the New York Regional Office, 7 World Trade
Center, New York, New York 10048, upon payment of the fees prescribed by the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and where the contract
or other document has been filed as an exhibit to the Registration Statement,
each such statement is qualified in all respects by such reference to the
applicable document filed with the Commission.

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports, proxy statements and other information
with the Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; at its New York Regional Office, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661-2511, and copies of such material can be obtained from the
Commission's Public Reference Section at prescribed rates. The Company furnishes
its shareholders with annual reports containing audited financial statements and
such other periodic reports as the Company deems appropriate or as may be
required by law.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, the
information set forth in this Prospectus gives effect to a three-for-one stock
split of the Company's common stock, par value $.045 per share ("Old Common
Stock"), which was effected on July 25, 1996 (the "Stock Split"). Pursuant to
the Stock Split, each holder of record of Common Stock on July 22, 1996 received
two additional shares of Old Common Stock for each share held on such date. In
connection with the Stock Split, the Company amended its Articles of
Incorporation to decrease the par value of its common stock from $.045 per share
to $.015 per share, as a result of which each share of Old Common Stock was
converted into a share of common stock, par value $.015 per share ("Common
Stock"). In addition, in connection with the Stock Split, the Company elected to
effect a three-for-one split of the Warrants (the "Warrant Split"), which
Warrants originally represented the right to purchase one share of Common Stock
at an exercise price of $6.00 per share. As a result of the Warrant Split,
effective July 25, 1996, each holder of a Warrant thereafter held, in lieu of
one Warrant to purchase one share of Common Stock at an exercise price of $6.00
per share, three Warrants, each to purchase one share of Common Stock at an
exercise price of $2.00 per share. Unless otherwise indicated, the information
set forth in this Prospectus gives effect to the Warrant Split.

THE COMPANY

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, oil exploration,
governmental inspections, medical testing and support and construction projects.

The Company believes that it has several competitive advantages over
other companies selling similar products. Specifically, the Company believes
that, 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, 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 allows 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, is able to place more computing power or communications capability
into smaller and lighter configurations. See "Risk Factors", generally and "Risk
Factors -- Competition".

Unlike PCS, PCS's competition 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 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, 1996, 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 97% 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 has sold its products
to the U.S. Environmental Protection Agency, the U.S. Forestry Service, state
Departments of Transportation 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. Such
commercial customers include, among others, 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.

The Company is currently in the process of designing and developing a
portable computer to be sold to manufacturers of certain types of medical
devices. The computer would serve as a medical reprogramming device which would
be used to communicate with, and thereby reprogram, programmable pumps (e.g.,
pacemakers, defibrillators, drug pumps and electroneurostimulation implants)
which have been developed by such medical device manufacturers and surgically
implanted in patients. Although the Company believes that, based on the
reputation and experience it has developed in the military market, it will be
able to penetrate the medical market by targeting medical device manufacturers
who, like the Company's military customers, require expert electrical and
mechanical engineering capabilities, strict documentation control, adherence to
multiple specifications and configuration control management, there can be no
assurance of such or that any medicalrelated computers will be developed by the
Company or, if developed, will meet with broad market acceptance.

The Company was incorporated under the laws of the State of Florida in
June 1982. In June 1996, the Company consummated an initial public offering (the
"IPO") of Common Stock and Warrants.

The Company's principal executive offices are located at 1615A West Nasa
Boulevard, Melbourne, Florida 32901 and its telephone number is (407) 727-3672.

THE OFFERING

SECURITIES OFFERED.............. Up to (i) 300,000 shares of Common Stock
reserved for issuance upon exercise of
warrants (the "Underwriter's Warrants")
originally sold to Duke & Co., Inc. (the
"Underwriter") in connection with the IPO,
and/or (ii) 420,000 Warrants reserved for
issuance upon exercise of the Underwriter's
Warrants, and up to 420,000 shares of Common
Stock reserved for issuance upon exercise of
such Warrants. See "Description of
Securities."

COMMON STOCK OUTSTANDING
Before the Offering (1)...... 7,993,652 shares
After the Offering (1)(2).... 8,713,652 shares

WARRANTS
Warrants Outstanding
Before the Offering........ 4,830,000 Warrants
After the Offering (3)..... 5,250,000 Warrants
Exercise terms............... Exercisable for a period of five years
commencing November 30, 1997, each to purchase
one share of Common Stock for $2.00, subject
to adjustment in certain circumstances. See
"Description of Securities -- Redeemable
Warrants."
Expiration date.............. November 30, 2002.
Redemption................... Redeemable by the Company at any time
commencing on November 30, 1996, upon notice
of not less than 30 days, at a price of $.0167
per Warrant, provided that the closing bid
quotation of the Common Stock on Nasdaq has
exceeded $2.83 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 net proceeds, if any, received by the
Company upon exercise of the Underwriter's
Warrants and the Warrants included therein
will be utilized for working capital and
general corporate purposes. The Company will
not receive any of the proceeds from sales by
the Selling Securityholders of any of the
securities to be issued to them upon exercise
of the Underwriter's Warrants or upon exercise
of the Warrants underlying the Underwriter's
Warrants. See "Use of Proceeds."

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. See "Risk
Factors" and "Dilution."

NASDAQ SYMBOLS................. Common Stock - "PVAT".
Warrants - "PVATW".

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(1) Does not include (i) 1,201,884 shares of Common Stock reserved for
issuance upon exercise of stock options granted under the Company's
Incentive Stock Option Plan (the "Incentive Plan"); (ii) 497,000 shares
of Common Stock reserved for issuance upon exercise of options available
for future grant under the Incentive Plan; (iii) 30,000 shares of Common
Stock reserved for issuance upon exercise of options

granted under the Company's Nonemployee Directors' Stock Option Plan
(the "Directors' Plan"); (iv) 15,000 shares of Common Stock reserved for
issuance upon exercise of options available for future grant under the
Directors' Plan; (v) 257,833 shares of Common Stock reserved for
issuance upon exercise of options granted under a non-qualified stock
option plan previously maintained by the Company, which has been
cancelled; (vi) 480,000 shares of Common Stock issuable upon exercise of
warrants (the "Bridge Warrants") issued in connection with a bridge
financing in August 1995 (the "1995 Bridge Financing"); and (vii)
1,610,000 shares of Common Stock reserved for issuance upon exercise of
Warrants issued to the public in the IPO.

(2) Assumes (i) the exercise of Underwriter's Warrants to purchase 300,000
shares of Common Stock and 420,000 Warrants and (ii) the exercise of all
420,000 Warrants received upon exercise of the Underwriter's Warrants,
although there can be no assurance that any of the foregoing will be
exercised.

(3) Assumes the exercise of all Underwriter's Warrants but not of the
Warrants issuable upon exercise of the Underwriter's Warrants. There can
be no assurance that any of the Underwriter's Warrants will be
exercised.

SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from the
historical financial statements of the Company included elsewhere in this
Prospectus. Such information should be read in conjunction with such financial
statements, including the notes thereto.

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, (2) SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues ...................................... $8,196,533 $3,682,110 $10,495,063 $8,652,553
Net Income (loss) ............................. $351,675 $(784,938) $702,153 $581,415
Earnings (loss) per share (1) ................. $.04 $(.16) $.10 $.13
Weighted average number of .................... 12,806,956 4,883,333 7,652,320 4,500,000
shares outstanding (1)

BALANCE SHEET DATA:
Working capital ............................... $6,236,526 $4,865,900 $6,836,348 $1,850,408
Total assets .................................. $9,571,805 $8,232,586 $10,988,658 $9,449,715
Total liabilities ............................. $2,154,054 $2,676,608 $3,942,814 $7,442,544
Total stockholders' equity .................... $7,417,751 $5,555,978 $7,045,844 $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) Typically, a substantial portion of the Company's revenue is generated
in the Company's fourth 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 or Plan of Operation."

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"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical information
provided herein are forward-looking statements and may contain information about
financial results, economic conditions, trends and known uncertainties. 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 budgetary and appropriations
policies of the Company's governmental customers, the competitive environment
for the Company's products and services, the timing of new orders and the degree
of market penetration of the Company's new products.

Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis, judgment,
belief or expectation only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. In addition to the disclosure
contained herein, readers should carefully review any disclosure of risks and
uncertainties contained in other documents the Company files or has filed from
time to time with the Securities and Exchange Commission pursuant to the
Exchange Act.

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, 1996 and 1995 and for the
nine months ended June 30, 1997 and 1996, direct and indirect sales of the
Company's products to the U.S. Department of Defense and foreign governments
represented approximately 96%, 96%, 96% and 97%, 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 four years, the uncertain defense budget situation
has caused delays in contract awards and reduced funding for various military
programs. Management expects that these downward trends will continue through
1999. Notwithstanding the foregoing, most of PCS's 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, although to date the Company has generally not been
adversely affected by delays in contract awards or reductions in spending, there
can be no assurance that any future delays or reductions will not have a
material adverse effect on the Company's business. See "Business -- Industry
Background" and "Customers".

Recent announcements from the U.S. Congress and Defense
Department indicate that overall defense spending may stabilize or increase
modestly; however, 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, the Company 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".

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 five-step process: (i) training and selection of a steering
committee; (ii) review of existing quality procedures and developing better
procedures and statements of general goals; (iii) preparation of specific
written quality procedures; (iv) implementation and testing of such procedures;
and (v) 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 three stages and is currently involved
in meeting its goals for phase four. It is estimated that within twelve 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 substantially dependent on a relatively
small number of customers and DoD programs. In the fiscal years ended September
30, 1996 and September 30, 1995, Raytheon Company (49% and 47%, respectively),
Lockheed Martin Corporation (21% and 25%, respectively), STN Atlas Electronics
(15% and 13%, respectively) and Texas Instruments (10% and 1%, respectively)
accounted for an aggregate of 95% and 86%, respectively, of PCS's total 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 recent
years, there have been a number of consolidations of various prime contractors
serving the defense industry. To date, the Company has not been adversely
affected by any such consolidations and the Company does not anticipate that
consolidations of contractors will negatively impact the Company, although there
can be no assurance of such. See "Business -- Customers".

As of June 30, 1997, the Company's backlog was $9,099,394, 87% of
which was represented by large orders from three customers: Lockheed Martin
Corporation (59%), Raytheon Company (23%) and Harris Corp. (8%). The remaining
13% of such backlog represented orders from approximately ten 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 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 as well as
to ensure that spare parts and trained personnel will be able 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. Likewise, in
the medical market, the Company believes that, while it may be under pressure to
introduce new products which incorporate recent technology, the Company's
medical customers will seek to purchase "proven" technology and will not wish to
experience changes in the products selected. 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 acceptance 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 nine months ended June 30, 1997 and 1996 and the fiscal
years ended September 30, 1996 and 1995, the Company derived approximately 1%,
16%, 18% and 20% 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. 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.

In addition, the Company will also experience a lengthy sales
cycle with respect to its medical-related computer products, primarily due to
the length of time required to obtain approval of such products from the Food
and Drug Administration (the "FDA"). In developing reprogramming devices for its
medical customers, the Company must first design each particular reprogrammer
based on the unique specifications of the particular customer with respect to
its programmable medical device. Once the reprogrammer has been tested and
approved by the customer, the customer must thereafter submit the complete
programmable device, including the Company's reprogrammer, for FDA approval,
which can take from three to eighteen months. Any delays in obtaining FDA
approval for any such devices, whether resulting from the portion of the device
relating to the Company's reprogramming computer or from the portion of the
device developed by the customer, could have a material adverse effect on the
Company's business and operations.

Consequently, the Company can and does invest heavily in time,
money and manpower to obtain subcontracts for military production runs on its
products and will invest heavily in time, money and manpower to design and
implement its medical computer products. In the final analysis, such investments
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 will not be the lowest-priced bidder.

Because a large portion of PCS's business is military-related, a
procurement procedure for militarized computers -- i.e., 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".

In the medical market, the Company believes that many medical
device manufacturers either design and produce their own medical support devices
such as reprogrammers or hire a design consultant to design such devices and
contract with a third party to manufacture the devices. Although the Company
believes that it will compete based on its ability to offer a full design and
production service to medical device manufacturers, there can be no assurance of
such, or that the Company will be able to compete successfully with other
computer manufacturers who provide similar design and production services to
medical device manufacturers.

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, PCS's Chairman and Chief Executive Officer, has 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, Rhinehart 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 or
Plan of Operation" and "Business -- Supply and Manufacturing".

POSSIBLE PRODUCT LIABILITY

The risk that the Company's products may malfunction and cause a
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.

In connection with any products developed by the Company for sale
in the medical market, the Company currently anticipates that the Company's
contracts with its medical device customers will include provisions requiring
such customers to indemnify the Company or provide insurance for any claims
brought against the Company as a result of any malfunctions in the programmable
devices sold by such customers. There

can be no assurance that any such indemnification or insurance will be obtained
or, if obtained, will be adequate to satisfy future claims, if any.

POSSIBLE NEED FOR ADDITIONAL FINANCING

The Company anticipates that the proceeds of this offering,
together with the Company's existing working capital and anticipated cash flow
from the Company's operations, will be sufficient to satisfy the Company's cash
requirements for at least twelve months. In the event the Company's plans change
(due to unanticipated expenses or difficulties or otherwise), or if the proceeds
of this offering and projected cash flow otherwise prove insufficient to fund
operations, the Company could be required to seek additional financing sooner
than currently anticipated. Except for the Company's current bank loans, the
Company has no current arrangements with respect to, or sources of, additional
financing. Accordingly, there can be no assurance that additional financing will
be available to the Company when needed, on commercially reasonable terms, or at
all. The Company's inability to obtain such additional financing could have a
material adverse effect on the Company's long-term liquidity and on the proposed
business expansion plans of the Company. See "Use of Proceeds" and "Management's
Discussion and Analysis or Plan of Operation".

MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS

The proceeds to the Company from the exercise of the
Underwriter's Warrants and the Warrants included therein, net of expenses of
this offering, will be approximately $1,351,800 assuming that all such
Underwriter's Warrants and Warrants included therein are exercised. The Company
has been advised by the holders of the Underwriter's Warrants that they
currently intend to exercise all of the Underwriter's Warrants at such time as
the Underwriter's Warrants become exercisable, thereby resulting in proceeds to
the Company (before deducting expenses) of $768,000. Management anticipates that
the proceeds of this offering, if any, will be allocated to working capital and
general corporate purposes. Accordingly, the Company's management will have
broad discretion as to the application of such proceeds. The Company will not
receive any of the proceeds from sales by the Selling Securityholders of any of
the securities to be issued to them upon exercise of the Underwriter's Warrants
or upon exercise of the Warrants underlying the Underwriter's Warrants. See "Use
of Proceeds."

CONCENTRATION OF OWNERSHIP

As of the date of this Prospectus, 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, beneficially own
approximately 28.0%, 11.4% and 6.0%, respectively, of the outstanding shares of
Common Stock of the Company (assuming no exercise of the Underwriter's Warrants
or the Warrants included therein or of options or warrants held by persons other
than Messrs. Joshi, McNeight and Craven). Although such stockholders do not
hold, in the aggregate, a majority of the voting securities of the Company,
their significant beneficial holdings enable them to exercise substantial
influence over the Company. See "Principal Shareholders".

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".

NO 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".

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.

The Common Stock and Warrants are quoted on the Nasdaq National
Market. 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. In addition, Nasdaq has proposed increasing the Nasdaq
National Market maintenance criteria by requiring a company to have, among other
things, either (i) $4,000,000 in net tangible assets, a public float of at least
750,000 shares with a market value of at least $5,000,000 and a minimum bid
price of $1.00 per share or, alternatively, (ii) a market capitalization of
$50,000,000 or total assets and total revenues of $50,000,000, a public float of
at least 1,100,000 shares with a market value of at least $15,000,000 and a
minimum bid price of $5.00. 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.

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. In connection with the IPO, the Company agreed with
the Underwriter that, for a period of two years commencing May 30, 1996, 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 which preceded the IPO, 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
8,713,652 shares of Common Stock outstanding (assuming no exercise of
outstanding options or warrants other than the Underwriter's Warrants and the
Warrants included therein), of which 3,450,000 shares will be freely tradeable
without restriction or further registration under the Securities Act. All of the
remaining 5,263,652 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, directors, officers and securityholders of the
Company beneficially owning approximately 56% of the 7,993,652 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
commencing May 30, 1996, 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. See
"Underwriting".

USE OF PROCEEDS

The proceeds received by the Company upon exercise of the
Underwriter's Warrants and the Warrants included therein, net of expenses of the
offering, will be $1,351,800, assuming that all of such Underwriter's Warrants
and Warrants included therein are exercised. Although the Company has been
advised by the holders of the Underwriter's Warrants that they currently intend
to exercise all of the Underwriter's

Warrants at such time as such Underwriter's Warrants become exercisable, there
can be no assurance as to the number of Warrants, if any, or Underwriter's
Warrants or Warrants included therein, if any, which will be exercised.
Management anticipates that the net proceeds of this offering, if any, will be
allocated to working capital and general corporate purposes and will be applied,
to the extent necessary, to the Company's current operations. The Company will
not receive any of the proceeds from sales by the Selling Securityholders of any
of the securities to be issued to them upon exercise of the Underwriter's
Warrants or upon exercise of the Warrants underlying the Underwriter's Warrants.

CERTAIN MARKET INFORMATION

The shares of Common Stock of the Company commenced trading on
the Nasdaq Stock Market National Market under the symbol "PVAT" on June 13,
1996. The range of high and low reported closing sales prices for the Common
Stock as reported by Nasdaq since the commencement of trading were as follows:
<TABLE>
<CAPTION>

High (1) Low (1)
------- -------
<S> <C> <C>
FISCAL YEAR 1996
June 3, 1996 to June 30, 1996 ...................... $5 3/8 $1 7/8
Fourth Quarter ..................................... $6 3/8 $4 5/8
FISCAL YEAR 1997
First Quarter ...................................... $8 $4 15/16
Second Quarter ..................................... $7 3/4 $5
Third Quarter ...................................... $7 5/8 $2 7/8
</TABLE>

- --------

(1) All share prices with respect to dates prior to the Stock Split have
been adjusted to give effect to the Stock Split.

The prices set forth above reflect inter dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

On August 25, 1997, as reported by the Company's transfer agent, shares
of Common Stock were held by 69 persons, based on the number of record holders,
including several holders who are nominees for an undetermined number of
beneficial owners.

DILUTION

The difference between the exercise price of the Warrants and the
adjusted net tangible book value per share of Common Stock after this offering,
assuming exercise for cash of all Underwriter's Warrants and Warrants included
therein, constitutes the dilution to investors in this offering. Net tangible
book value per share on any given date is determined by dividing the net
tangible book value (total tangible assets less total liabilities) of the
Company on such date by the number of shares of Common Stock outstanding on such
date.

At June 30, 1997, the net tangible book value of the Company was
$7,345,001, or $.92 per share of Common Stock. After giving effect to the sale
by the Company of 300,000 shares of Common Stock upon the exercise of the
Underwriter's Warrants and 420,000 shares of Common Stock upon the exercise of
the Warrants underlying the Underwriter's Warrants, and the receipt of the net
proceeds therefrom, the net tangible book value at June 30, 1997 would have been
$8,696,801, or $1.00 per share of Common Stock, representing an immediate
increase in net tangible book value of $.08 per share to existing shareholders
and an immediate dilution of $1.00 (50%) per share to those who exercise
Warrants. The following table illustrates the foregoing information with respect
to dilution on a per share basis:

<TABLE>

<S> <C> <C>
Public offering price per share of Common Stock upon exercise of
Underwriter's Warrants and Warrants........................................ $2.00
Net tangible book value per share before offering........................ $.92
Increase per share attributable to investors in this offering (1)........ $.08
Adjusted net tangible book value after offering............................. $1.00
-----
Dilution to investors in this offering...................................... $1.00
=====
</TABLE>

- ----------

(1) Assumes no exercise of any outstanding options or warrants other
than the Underwriter's Warrants and the Warrants underlying the Underwriter's
Warrants.

CAPITALIZATION

The following table sets forth, as of June 30, 1997, the capitalization
of the Company (i) on a historical basis and (ii) as adjusted to give
retroactive effect to the issuance and sale of the securities offered hereby and
the anticipated application of the estimated net proceeds therefrom. This
information should be read in conjunction with the Company's financial
statements and related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Actual As Adjusted
------ -----------
June 30, 1997
-------------
(unaudited)
<S> <C> <C>
Indebtedness:
Short-Term Debt, including current portion of long-term debt and
capital lease obligation.................................................. $ 304,537 $ 304,537
Long-Term Debt and capital lease obligation................................. 133,033 133,033
Stockholders' Equity:
Preferred Stock, par value $.01 per share; 2,000,000 shares authorized;
none issued............................................................... -- --
Common Stock, par value $.015 per share; 30,000,000 shares authorized;
7,993,652 shares issued and outstanding at June 30, 1997; 8,713,652
shares issued and outstanding as adjusted for this Offering (1)........... 119,449 130,249
Capital in Excess of Par Value.............................................. 5,066,068 6,400,054
Retained Earnings........................................................... 2,232,234 2,232,234
---------- ----------
Total Stockholders' Equity............................................. 7,417,751 8,762,537
---------- ----------
Total Capitalization................................................... $9,200,077 $9,200,077
---------- ----------
---------- ----------
</TABLE>

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

(1) Does not include (i) 1,201,884 shares of Common Stock reserved for
issuance upon exercise of stock options granted under the Incentive Plan;
(ii) 497,000 shares of Common Stock reserved for issuance upon exercise
of options available for future grant under the Incentive Plan; (iii)
30,000 shares of Common Stock reserved for issuance upon exercise of
stock options granted under the Directors' Plan; (iv) 15,000 shares of
Common Stock reserved for issuance upon exercise of stock options
available for future grant under the Directors' Plan; (v) 257,833 shares
of Common Stock reserved for issuance upon exercise of options granted
under a non-qualified stock option plan previously maintained by the
Company, which has been cancelled; (vi) 480,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants; and (vii) 1,610,000 shares
of Common Stock reserved for issuance upon exercise of Warrants issued to
the public in the IPO.

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 or Plan of
Operation, which are included elsewhere in this Prospectus. The data as of and
for the years ended September 30, 1996 and 1995 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 nine months ended June 30,
1997 and 1996 has been derived from the Company's unaudited interim financial
statements. In the opinion of management, such interim financial data reflects
all adjustments necessary for a fair presentation of financial position, results
of operations and cash flows. Operating results for the nine-month period ended
June 30, 1997 are not necessarily indicative of the results that may be attained
for the entire fiscal year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
------------------- ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues .................................... $8,196,533 $3,682,110 $10,495,063 $8,652,553
Cost of Revenues ............................ 4,377,275 2,253,864 5,818,010 4,680,661
Gross Profit ............................ 3,819,258 1,428,246 4,677,053 3,971,892
Selling and administrative expense .......... 3,216,759 2,315,082 3,247,385 2,668,320
Income (loss) from operations ........... 602,499 (886,836) 1,429,668 1,303,572
Other income (expense):
Interest expense ........................ (83,245) (329,225) (362,956) (392,589)
Miscellaneous income (expense) .......... 23,120 (32,646) 11,257 (50,711)
---------- ---------- ----------- ----------
Income (loss) before income taxes .... 542,374 (1,248,707) 1,077,969 860,272
Income tax expense (benefit) ............ (190,699) 463,769 375,816 278,857
---------- ---------- ----------- ----------
Net income (loss) .................... $ 351,675 $ (784,938) $ 702,153 $ 581,415
========== ========== =========== ==========
Earnings (loss) per share ....................... $ .04 $ (.16) $ 0.10 $ 0.13

BALANCE SHEET DATA:

Cash and cash equivalents ................... $ 424,742 $ 76,722 $ 65,069 $ 211,426
Working Capital.............................. 6,236,526 4,865,900 6,836,348 1,850,408
Total assets................................. 9,571,805 8,232,586 10,988,658 9,449,715
Long-term obligations, less current portion.. 133,003 681,809 686,932 806,388
Total Stockholders' equity .................. $7,417,751 $5,555,978 $ 7,045,844 $2,007,171
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION

The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction with
the financial statements of the Company included elsewhere in this Prospectus
and the related notes thereto.

RESULTS OF OPERATIONS

Nine-Month Period Ended June 30, 1997 Compared to the Nine-Month Period Ended
June 30, 1996

Revenues for the nine months ended June 30, 1997 were $8,196,533, an
increase of $4,514,423 or 123% over the nine months ended June 30, 1996 revenues
of $3,682,110. This increase is primarily due to the Company's strong backlog
($9,099,394 at June 30, 1997) and continued full scale production deliveries to
Raytheon in support of the U.S. Marine Corps HAWK/AVENGER Air Defense missile
system upgrade and additional requirements of Lockheed Martin's Enhanced
Diagnostic Aid ("EDNA") systems for use by U.S. Air Force on F-16 Fighter
Aircraft.

Gross profit was $3,819,258 for the nine months ended June 30, 1997, or 47%
of sales, compared to $1,428,246 or 39% of sales in the nine months ended June
30, 1996, a total increase of $2,391,012 or 167%. This increase in gross
profitability results primarily from the increased revenues discussed above.

Selling and administrative expenses of $3,216,759 in the nine months ended
June 30, 1997 increased by $901,667 or 39% from the nine months ended June 30,
1996 expenses of $2,315,082. As a percentage of sales, selling and
administrative expenses were 39% and 63% in the nine months ended June 30, 1997
and 1996, respectively. The increased selling and administrative costs are due
primarily related to increased sales commissions directly attributable to the
increased sales discussed earlier herein, increased professional fees and
increased expenditures for research and development.

Income from operations improved to $602,499 for the nine months ended June
30, 1997 from a loss of $(886,836) in the nine months ended June 30, 1996, an
improvement of $1,489,335. As a percentage of sales, income from operations
improved to 7% in the nine months ended June 30, 1997 from a loss of (24%) in
the nine months ended June 30, 1996. The improvement in income/(loss) from
operations overall resulted primarily from increased revenues and gross profits,
offset in part by increased selling and administrative expenses as discussed
above.

Interest expense for the nine months ended June 30, 1997 was reduced by
$245,980, or 75%, to $83,245 compared to $329,225 in the nine months ended June
30, 1996. As a percentage of sales, interest expense decreased to 1% in the nine
months ended June 30, 1997 from 9% in the nine months ended June 30, 1996. This
decrease is due to a significant decline in outstanding credit balances made
possible by the proceeds of the Company's IPO in June 1996.

As a result, the Company's net income improved by 141% to $351,675 in the
nine months ended June 30, 1997 when compared to a net loss of $(784,938) in
1996, an increase of 1,136,613 in total. Net income as a percentage of sales was
4% in the nine months ended June 30, 1997 and net loss as a percentage of sales
was (21%) in the nine months ended June 30, 1996. The improvement in net income
overall resulted primarily from increased revenue and gross profits and reduced
interest expense, offset in part by increased selling and administrative
expenses as discussed above.

Fiscal Year 1996 Compared to Fiscal Year 1995

Revenues for fiscal 1996 were $10,495,063, an increase of $1,842,510 or 21%
over 1995 sales of $8,652,553. This increase is primarily due to Paravant's full
scale production deliveries to Raytheon in support of the U.S. Marine Corps
HAWK/AVENGER Air Defense Missile Systems upgrade and expanded requirements of
Texas Instruments under the Harm Missile Systems program.

Gross profit was $4,677,053 in 1996, or 45% of sales, compared to $3,971,892
or 46% in 1995, a total increase of $705,161 or 18%.

Selling and administrative expenses of $3,247,385 in 1996 increased by
$579,065, or 22%, from 1995 expenses of $2,668,320. As a percentage of sales,
selling and administrative expenses remained unchanged at 31% in 1995 and 1994.
The increased selling and administrative costs are attributable primarily to
increased salaries, professional fees and sales commissions of approximately
$198,000, $196,000 and $142,000, respectively.

Income from operations grew to $1,429,668 in 1996 from $1,303,572 in 1995,
an increase of $126,096 or 10%. As a percentage of sales, income from operations
declined to 14% in 1996 from 15% in 1995. The increase in income from operations
overall benefited primarily from increased sales volume and gross profits,
offset in part by increased selling and administrative expenses as discussed
above.

Expenses for interest were reduced by $29,633, or 8%, to $362,956 compared
to $392,589 in 1995. As a percentage of sales, interest expense decreased to 4%
in 1996 from 5% in 1995. This decrease is due to a significant decline in
outstanding credit balances made possible by the application of the proceeds of
the Company's IPO in June 1996.

As a result, the Company's net income grew by 21% to $702,153 in 1996 when
compared to $581,415 in 1995. Net income as a percentage of sales was 7% in 1996
and 1995.

LIQUIDITY AND CAPITAL RESOURCES

In June 1996, the Company completed its IPO, resulting in aggregate net
proceeds of $4,594,332 to the Company after deducting certain commissions,
expenses and offering costs. The Company used a portion of the net proceeds of
the IPO to repay certain loans referred to below in the aggregate principal
amount of $1,102,294, and paid approximately $88,000 of the net proceeds of the
IPO to reimburse UES, Inc., an affiliate of the Company which is controlled by
Krishan K. Joshi, the Company's Chairman ("UES"), for certain health insurance
and other expenses paid on the Company's behalf. Substantially all of the
remaining balance of the net proceeds of the IPO were utilized to reduce
indebtedness then outstanding under the Company's revolving credit arrangement
with National City Bank in Dayton, Ohio described below, resulting in increased
availability under the credit arrangement for working capital needs and general
corporate purposes.

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 the prime rate or 30 or 60 day LIBOR rates
plus 2.70%. All borrowings are collateralized by accounts receivable, inventory
and equipment. As of June 30, 1997, there were no amounts outstanding under this
arrangement. The Company intends to maintain this arrangement with the Bank for
the foreseeable future, although there can be no assurance that the Bank will
not in the future demand repayment of any amounts then outstanding under its
loan arrangement. The Company also has a secured term loan provided by the Bank
bearing interest at a rate adjusted monthly to prime plus 1.5% at June 30, 1997.
Monthly principal payments of $9,167 are due through October 1998. All
borrowings thereunder are secured by a lien on accounts receivable, inventory
and equipment. As of June 30, 1997, there was approximately $146,652 outstanding
under this arrangement with the Bank. The Company also has capital lease
obligations of $248,545 at June 30, 1997. These capital lease obligations bear
interest rates of 1.25% to 1.50% over the prime rate and are expected to be
satisfied within three years.

On April 22, 1997, the Company prepaid a note payable to the Bank in an
aggregate principal amount of $500,000. Such note bore interest at the prime
rate, and was scheduled to be due and payable in March 1998.

In August 1995, the Company borrowed $400,000 pursuant to bridge notes
("Bridge Notes") from a group of private investors at an annual interest rate of
6%. In addition, the Company sold to the same investors the Bridge Warrants to
purchase 480,000 shares of Common Stock, exercisable until June 3, 2001 at an
exercise price of $2.00 per share. The Bridge Notes, which bear interest at 6%,
had an outstanding principal balance of $50,000 at June 30, 1997.

In connection with certain sales of shares of common stock in March 1996 by
UES Florida, Inc. (a subsidiary of UES), Richard P. McNeight, the President and
Chief Operating Officer of the Company, William R. Craven, the Vice President of
Marketing of the Company, and another shareholder, such shareholders 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
loans, plus accrued interest thereon in an aggregate amount of $8,681, were
repaid in June 1996 in accordance with their terms from a portion of the net
proceeds of the IPO.

The Company 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
the Company. The gross margin contributions of the Company's major customers are
not generally different from those of its other customers as a whole.

The Company's operating cash flow was $2,103,467 for the nine months ended
June 30, 1997. The improvement in the Company's operating cash flow resulted
primarily from improved net income as more fully described herein for the nine
months ended June 30, 1997 and improved working capital as more fully presented
in the Condensed Statements of Cash Flows for the same period. Negative cash
flows for the years ended September 30, 1996 and 1995, $(1,426,090) and
$(298,577), respectively, 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 annual revenues from $4,621,527 in fiscal 1993 to $10,495,063 in
fiscal 1996, an increase of almost 127%. In addition, the Company invested
$347,805 in the nine months ended June 30, 1997, $127,352 in fiscal 1996 and
$60,350 in fiscal 1995 to acquire manufacturing equipment also in support of
these expanded operating levels.

Due to the Company's orders related to the U.S. Department of Defense
procurements, the operations of the Company have been cyclical and have
historically resulted in a significant increase in deliveries and revenues in
the fourth quarter of its fiscal year ending on September 30. Due to the
Company's strong backlog and increased revenues, this cycle is less significant
in the first nine months of the current fiscal year, resulting in a significant
improvement in cash provided from operations, as discussed earlier herein, and
less significant changes in inventory levels than the prior period.

As of the date hereof, 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, the Company's major customer, Raytheon,
has traditionally averaged approximately 80 to 100 days in satisfaction of
outstanding accounts receivable balances. This situation is improving through
negotiation with Raytheon, and management believes that average outstanding
balances will be reduced in the future to more traditional levels approximating
45 days, although there can be no assurance of such. The Company's total
outstanding account receivable balance of $3,536,841 at June 30, 1997 has been
subsequently reduced by approximately $1,695,000 in cash collections as of
August 25, 1997. 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 June 30, 1997 are likely
to be uncollectible.

As of June 30, 1997 and 1996, the Company's backlog was $9,099,394 and
$4,507,747, 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 presently expects to manufacture and deliver most of the products in
backlog within the next twelve months.

additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. The Company's inability to obtain such
additional financing could have a material adverse effect on the Company's
long-term liquidity and on the proposed business expansion plans of the Company.

BUSINESS

GENERAL

The Company is a manufacturer of ruggedized, portable computers and
communications interfaces utilized in outdoor settings. Paravant also offers
extensive customization services to modify its standard products to the specific
needs of 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 U.S. and foreign military establishments, other government
agencies and commercial enterprises.

HISTORY

In early 1983, the Company commenced its business operations and offered
only 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.

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, PCS was producing its RHC-88 hand-held
computer and selling it to the U.S. Army and the electric utility industry.
Subsequently, the Company designed and produced other computer-related products.

By late 1989, UES, under the control of Krishan K. Joshi (presently the
Company's Chairman), purchased a 51% equity interest in the Company through its
wholly owned subsidiary, UES Florida, Inc. ("UES Florida"). 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.

The Company was incorporated under the laws of the State of Florida in June
1982. In June 1996, the Company consummated the IPO, pursuant to which it issued
to the public 3,450,000 shares of Common Stock and 4,830,000 Warrants.

INDUSTRY BACKGROUND -- MILITARY MARKET

Traditionally, the U.S. Department of Defense 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 DoD 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 further decreases of
overall spending, but slight increases in spending on defense electronics, will
occur during the remaining portion of this decade.

The 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 less expensive 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 consist of 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 standard 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 hazards are
usually weather-related or climatic in nature and can encompass temperature
extremes ranging from -30 to +145 degrees Fahrenheit, as well as severe moisture
and humidity conditions and the infiltration by flying or wind-borne debris,
such as sand, dust or other particles. These adverse conditions occur outdoors,
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.
These operational hazards are, in all likelihood, greater in outdoor military
settings 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 related 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 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 "-- 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, 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 most of 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. The Company also applies SMT to the
fabrication of most 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. To address price concerns by some customers, the
Company has introduced a new rugged notebook line of products, which combine
Paravant's rugged outer case design and expertise in sealing the unit with
off-the-shelf commercial electronics products provided by a third-party
supplier.

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 militarized computer is
a dedicated system computer. This type of processor is typically 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. The equipment sits in large racks with specified
dimensions and can be installed within trailers or vehicles.

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 portable 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.

PRODUCTS

General. The Company currently offers its customers a line of rugged,
portable computers that includes two types of hand-held processors, four types
of laptops and a rackmount system. In terms of performance, PCS's portable
computers 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-Windows or MS-DOS operating systems.

Most of the Company's portable 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.

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 3" 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 certain 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 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.

In the government and commercial areas, PCS's products collect, store,
process and communicate data generally and are used specifically in such
applications as environmental studies and testing, land mapping and surveys, oil
exploration, governmental inspections, medical testing and support and
construction projects.

Military Applications. 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 September 30, 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 Raytheon Laptop Portable Fire Controller
Missile Systems

LANTIRN Low Altitude Navigation Lockheed Martin Hand-held Maintenance Data Recording
System Device

HARM Missile System Texas Instrument Laptop Mission Loading and
Electronic Diagnostics

F-16 Fighter Lockheed Martin Laptop Electronic Diagnostics
and Mission Loading Check
</TABLE>

In September 1996, PCS was awarded a contract by Raytheon Company under
which PCS will provide enhanced remote terminal units used as part of an air
defense command and control system which Raytheon supplies to the U.S. Army
Missile Command in Huntsville, Alabama. Deliveries of the units began in the
fourth quarter of fiscal 1996 and are expected to continue throughout 1997 and
into 1998. Also in October 1996, PCS was awarded a contract to provide Sanders,
a Lockheed Martin company, with hardware elements for Enhanced Diagnostic
Aid ("EDNA") systems for use by the U.S. Air Force on F-16 fighter aircraft.
Deliveries began in April 1997 and are expected to continue through 1998.
The contract is a continuation of a program started three years ago with
Lockheed Fort Worth under which EDNA systems were shipped to the U.S. Air Force
for both the F-16 and B-2 aircraft programs and for selected military programs.
The EDNA system is used by Air Force maintenance personnel on the flightline to
quickly diagnose the condition of various sub-systems on the aircraft and to
program certain electronic devices. The compact EDNA system can replace a large
number of support boxes on the flightline and is considerably less expensive to
purchase and faster to use than current systems employed by the Air Force.

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 and medical markets
involve varying degrees of customization while only a small portion of computers
sold to its non-military government and non-medical 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.

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, the Company
facilitates the marketing of PCS's products especially since certain of its
competitors typically do not offer any customization of the electronics. In the
fiscal years ended September 30, 1996 and 1995, revenue from engineering
services represented approximately 5% and 11% of the Company's total sales,
respectively. Management anticipates, due to governmental budgetary constraints
and the anticipated continuing desire of DoD customers to procure commercial
"off-the-shelf" products, a continued reduction in the number of programs
pursuant to which customization services will be funded. Nevertheless,
management believes that such customization services are of significant value to
Paravant's customers and, accordingly, intends to continue to offer such
services on a reduced or no-charge basis.

NEW PRODUCTS

Because of its expertise in miniaturization and its efforts to
incorporate 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 developed and successfully tested a solid-state,
miniaturized electronic chiller or heat pump, which has been incorporated as a
significant component in the Company's product offering. 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 Company has, until recently, only sold portable computers and
communications interfaces; it has not provided a broad range of standard
computer peripherals. In September 1996, the Company secured a contract to
supply its first rack-mounted computers to Harris RF of Rochester, New York. In
connection with this contract, Paravant has developed a new type of rack-mounted
computer, which is a fully-sealed air-cooled computer incorporating many of
Paravant's electronics designs, for use by a foreign army in a desert
environment. By offering rack-mounted products, the Company believes it may
expand its market opportunities beyond those relating solely to ruggedized
portable computers, although there can be no assurance of such.

The Company also completed development of a ruggedized notebook in 1996
that, in terms of size, weight and capabilities, fits between the Company's
current hand-held and laptop products. This notebook computer is now available
for sale, primarily to military and government customers.

SUPPLY AND MANUFACTURING

The Company designs and engineers substantially 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
for its computers (other than for the Company's notebook, as to which commercial
electronics boards from other manufacturers are utilized), the electronics or
printed circuit board, which is the most important, sophisticated and complex
element thereof. At times, the 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, the Company believes, operate on a turn-key
basis with their board fabricators, who handle the design, testing and 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.

The Company anticipates that it 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 allows the Company's products to receive the benefit of the latest
technological development at an acceptable 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 its 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.

PCS utilizes modern equipment for the design, engineering, assembly and
testing of its products. The Company has utilized a portion of the funds from
the IPO in June 1996 to acquire additional equipment to enhance its operating
efficiency in such areas and to increase its capacity in order to facilitate
increased production, when and if required, as well as to obtain better control
of quality, inventory and order processing.

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.

Except as set forth above, 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, such as Distec, Xcel, Rhinehart and HiTech. PCS has also licensed
its software from sole sources, including Microsoft, Phoenix Technology,
Magnavox and JFK Associates. 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
Melbourne, Florida. These facilities comply with certain U.S. military
specifications necessary for the manufacture and assembly of products supplied
to it. The Company's facilities have also been registered with the U.S. Food and
Drug Administration to produce certain non-intrusive medical devices. 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 twelve months. Some measures, such as the installation of a new
business computer system, have been taken by the Company to qualify under such
standards. However, meeting these criteria involves a long complicated process
of new planning, documentation and other factors. Such qualification should
improve the Company's marketing opportunities in the 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 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.

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 33
manufacturers' representatives in the United States and approximately 25
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's manufacturers' representative contracts are
subject to certain other terms and conditions.

PCS's manufacturers' representatives and distributors do not purchase
for their own account, but merely sell such computer products on PCS's behalf.
Forty manufacturers' representatives and distributors accounted for an aggregate
of approximately 36% of the Company's 1996 annual sales. 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 international
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. The Company has also
recently developed a site on the World Wide Web which can be accessed by
potential customers. The Web site lists the Company's products and provides
specifications with respect thereto. PCS does little advertising in trade
periodicals. Management believes that, to date, most of the Company's sales
leads have been generated by trade shows and word-of-mouth referrals. The
Company intends to expand its sales and marketing efforts in all of its markets
as follows: (i) increase its presence at trade shows with larger booths and more
extensive exhibits; (ii) increase the number of trade shows in which Company
personnel attend and products are presented; (iii) hold additional seminars at
military bases and other prime locations; (iv) hire additional sales personnel
and consultants to gather leads and promote sales; (v) expand sales and
marketing activities in the medical markets; and (vi) invest in research and
development in order to increase its product offering.

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 sales cycle in the non-military 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.

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, certain state departments of transportation,
surveying and engineering concerns and medical device manufacturers.

The principal customers of the Company are DoD contractors who are
subject to federal budgetary constraints. For the fiscal years ended September
30, 1996 and September 30, 1995, Raytheon's Missile Systems Division accounted
for 49% and 47% of the Company's total sales, respectively. For those same
periods, Lockheed Martin, STN Atlas Electronics and Texas Instruments accounted
for 21% and 25%, 15% and 13%, and 10% and 1%, respectively. The loss of any of
these customers could have a material adverse impact on PCS's business.

In recent years, there have been a number of consolidations of various
prime contractors serving the defense industry. To date, the Company has not
been adversely affected by any such consolidations and the Company does not
anticipate that consolidations of contractors will negatively impact the
Company, although there can be no assurance of such.

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.

With respect to its hand-held business, the Company encounters
competition from Litton Data Systems, Phoenix 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 Litton Data
Systems, Miltope, Cyberchron and NAI Technologies (CODAR) in the military and
non-military areas. Certain large manufacturers of commercial notebook computers
such as Panasonic, Amrel and IBM have introduced commercial notebooks that have
been sealed and ruggedized to some extent and are presently offering such
products at prices ranging from approximately one-third to one-half of the
Company's more rugged versions. Management believes that the Company's ability
to increase market penetration in the commercial sector will be limited
substantially by the entry of such manufacturers into the ruggedized computer
market.

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 form strategic alliances with larger military
contractors having large resources or qualify for certain exceptions to IDIQ
arrangements, it may suffer adverse material consequences in its continuing
quest for military business. For the last five years, the Company has made
military sales of its computers because they fall into product categories not
currently covered by IDIQ requirements.

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 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 sometimes 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.

compete based on its ability to offer a full design and production service to
medical device manufacturers, there can be no assurance of such, or that the
Company will be able to compete successfully with other computer manufacturers
who provide similar design and production services to medical device
manufacturers.

BACKLOG

As of June 30, 1997, the Company's backlog was $9,099,394, as compared
with backlog of $14,617,253 as of September 30, 1996. Three customers accounted
for approximately 59%, 23% and 8% of such backlog as of June 30, 1997. The
Company 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 purchase
orders executed by the customer. 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

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 15 pounds, it will have a full-size display and
same type of keyboard as a laptop, a Pentium processor and PC card expansion
capabilities. Management believes that there is a market for this kind of
ruggedized computer in the military area. The Company expects to continue to
expend funds on the expansion and enhancement of its rugged notebook product
line. As part of a continuing effort to upgrade its products, the Company is
also working to develop high speed processor boards for some of its older
products. See "Management's Discussion and Analysis or Plan of Operation."

Research and development expenditures during the fiscal years ended
September 30, 1996 and 1995 were $382,750 and $480,951, respectively, and
represented 3.7% and 5.6% 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.

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 the
Company's employees have signed confidentiality agreements regarding its
proprietary information nor have any employees other than Messrs. McNeight and
Craven signed any non-competition agreements.

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 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 direct 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, the Company does not have any contracts so
conditioned. See "-- Competition".

The contracts for sale of the Company's computers are generally
fixed-priced contracts, as to which 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.

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. These
restrictions may hamper the Company in its marketing efforts abroad.

In connection with the development and future manufacture of its medical
products, the Company is and will be subject to various regulations, including
regulations promulgated by the Food and Drug Administration. Such FDA
regulations relate to, among other things, the quality of the components
included within the Company's products, as well as standards governing
manufacturing procedures, workmanship, materials, and the condition of the
Company's facilities. In addition, in the event any medical products developed
by the Company in the future are sold outside of the United States, the Company
may also become subject to foreign regulations promulgated by foreign medical
regulatory bodies.

PCS's manufacturing operations are subject to various federal, state and
local laws, including those restricting or regulating the discharge of materials
into, or otherwise relating to the 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, and will not in the future inhibit or limit, the Company's ability to
enter into material contracts in either the miliary market or the medical
market.

EMPLOYEES

As of June 30, 1997, the Company had 71 full time employees including
its officers, of whom 29 were engaged in manufacturing and repair services, 9 in
administration and financial control, 22 in engineering and research and
development, and 11 in marketing and sales.

None of the Company's 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.

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 IPO. 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. Plaintiff has filed a motion to
increase its claims for legal services from approximately $365,000 to
approximately $415,000, claiming there is a balance due of $280,882 for legal
services. 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.

On September 18, 1996, a former controller of PCS filed an action in the
Circuit Court of the State of Florida, Brevard County, entitled Christopher R.
Exley v. Paravant Computer Systems, Inc., Richard P. McNeight, William R.
Craven, UES of Florida, Inc. and Krishan K. Joshi (Case No. 96-15091 CA),
against the Company and certain of its officers, directors and principal
stockholders, alleging, among other things, retaliatory personnel actions by the
defendants. Plaintiff is seeking damages in the amount of approximately $1
million, plus punitive damages, fees and costs. Plaintiff alleges that he was
improperly terminated in December 1994 as a result of his refusal to account for
certain transactions in a specified manner. The Company has filed a motion to
dismiss the complaint.

The Company will vigorously defend itself in these matters. Management
of the Company believes that the ultimate resolution of these matters will not
have a material adverse effect on the Company.

The Company is not a party to or involved in any other pending legal
proceedings.

PROPERTY

On September 1, 1996, the Company entered into a lease relating to
approximately 17,300 square feet of space located at 1615a West Nasa Boulevard,
Suite E, Melbourne, Florida 32901. This space is utilized by the Company as its
principal corporate headquarters and manufacturing plant. The lease for this
space expires December 31, 2001, and provides for monthly rental payments of
$1,500 per month through February 1997, increasing to $3,000 per month through
August 1997 and, thereafter, to $9,855 per month through December 2001. These
amounts include the Company's proportionate cost of utilities, repairs,
cleaning, taxes and insurance. The Company commenced operations at this new
facility in late December 1996.

Management believes that its new facility will meet its operational
needs for the foreseeable future.

MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Krishan K. Joshi 60 Chairman of the Board, Chief Executive Officer and Director

Richard P. McNeight 47 President, Chief Operating Officer and Director

William R. Craven 49 Vice President of Marketing, Secretary and Director

Kevin J. Bartczak 44 Vice President, Treasurer and Chief Financial Officer

Lary J. Beaulieu 50 Vice President of Engineering

James E. Clifford 60 Director

Michael F. Maguire 70 Director
</TABLE>

Krishan K. Joshi. From 1976 to date, Mr. Joshi has served as founder,
chairman and president of UES, a technology development company. Following the
acquisition of a controlling interest in the Company by UES in December of 1989,
he became Chairman, Chief Executive Officer and President of the Company.
However, in April 1994, he resigned as President of the Company and continues to
serve as Chairman and Chief Executive Officer. Mr. Joshi 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
the Company 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 products, from 1971 until 1979. Mr.
Craven holds a Bachelor of Science degree in Physics and Mathematics from
Birmingham Southern College.

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
was subsequently liquidated. Mr. Bartczak 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.

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.

James E. Clifford. From 1989 to date, Mr. Clifford has served as
President and Director of Engineering Development Laboratories, Inc., a
manufacturer of aircraft avionics and flight control electronics. From 1983 to
1989, Mr. Clifford served as President of Signal Technology Laboratories, Inc.
("STL"), a manufacturer and developer of militarized electronic defense systems,
and continues to serve as a director of STL. Mr. Clifford 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. Since 1986, Mr. Maguire has been employed as
President of Maguire Investment Management, Inc., a consulting firm founded by
him. From 1973 through 1986, he was an officer of Harris Corp., a computer
manufacturer, attaining the position of senior vice president. From 1962 to
1973, Mr. Maguire served in various capacities with Perken Elmer, a manufacturer
of analytical instruments and life-science systems, including 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 General
Electric, Pratt & Whitney, and Sperry Rand companies. He is currently a director
of Harris Computer Systems Corp., Concurrent Computer Systems Corp. and
Cyberguard Corp. Mr. Maguire also previously served as a director of OMI. In
1950, he received a Bachelor of Science degree in electrical engineering from
Rensselear Polytechnic Institute and in 1955 a Masters of Science degree from
the University of Connecticut.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information regarding the
compensation in each of the last three fiscal years of the person who served as
the Company's Chief Executive Officer during the fiscal year ended September 30,
1996, and the three other highest paid executive officers who were serving as
officers at September 30, 1996 (collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ----------------------- ----------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND PRINCIPAL FISCAL SATION AWARD(S) OPTIONS/ PAYOUTS(1) SATION
POSITION YEAR SALARY ($) BONUS ($) ($) ($) SARS(#) ($) ($)
- ----------------------- ----- ---------- --------- ----- ----- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Krishan K. Joshi(2) ........... 1996 52,000 -0- -0- -0- -0- -0- -0-
Chairman and Chief 1995 45,200 -0- -0- -0- -0- -0- -0-
Executive Officer 1994 28,800 -0- -0- -0- -0- -0- -0-

Richard P. McNeight(3) ........ 1996 139,500 18,000 -0- -0- 90,000 1,665 -0-
President and 1995 124,241 -0- -0- -0- 120,000 -0- -0-
Chief Operating Officer 1994 113,896 3,000 -0- -0- 188,049 723 -0-

William R. Craven ............. 1996 118,038 14,000 -0- -0- 45,000 1,369 -0-
Vice President of Marketing 1995 106,616 -0- -0- -0- 15,000 -0- -0-
1994 90,964 1,000 -0- -0- 5,031 832 -0-

Lary J. Beaulieu .............. 1996 97,490 10,000 -0- -0- 30,000 1,205 -0-
Vice President of 1995 98,560 -0- -0- -0- 15,000 -0- -0-
Engineering 1994 96,615 9,109 -0- -0- 5,031 894 -0-
</TABLE>

- ---------

(1) Represents Company matching funds for 401(k) Profit Sharing Plan.
(2) Reflects compensation for Mr. Joshi's part-time work for the Company.
(3) Excludes personal use of Company automobile and computer equipment
estimated at $5,000 per year.

OPTION/SAR GRANTS DURING FISCAL YEAR 1996

The following table provides information related to options granted
to the Named Executive Officers during the fiscal year ended September 30, 1996.
No stock appreciation rights were issued by the Company during fiscal 1996.

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(1) DATE
- ---- ------------- ----------- --------- ----
<S> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief Executive Officer.... -- -- -- --
Richard P. McNeight,
President and Chief Operating Officer (2) 90,000 25.0% 1.4667 11/16/00
William R. Craven,
Vice President of Marketing (2)......... 45,000 12.5% 1.3333 11/16/05
Lary J. Beaulieu,
Vice President of Engineering (2)....... 30,000 8.3% 1.3333 11/16/05
</TABLE>

- --------------
(1) All share numbers and exercise prices have been adjusted to give effect to
the Stock Split. The right to exercise the options is vested over a
three-year period from the date of grant in November 1995, with one-third
of the options subject to grant to become vested (and consequently
exercisable) on each of the first three anniversaries of the date of grant.

(2) Excludes options for 40,000 shares, 25,000 shares and 15,000 shares of
Common Stock granted in November 1996 to Messrs. McNeight, Craven and
Beaulieu, respectively, under the Company's Incentive Plan at an exercise
price of $5.00 per share.

AGGREGATED OPTION/SAR EXERCISES DURING FISCAL YEAR 1996 AND FISCAL 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, 1996
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, 1996.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE OPTIONS/SARS AT FY-END(1) AT FY-END($)(2)
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief Executive Officer ... -- -- 445,848 -0- $2,441,464 $ -0-
Richard P. McNeight,
President and Chief Operating Officer .. -- -- 446,667 100,000 1,795,772 443,030
William R. Craven,
Vice President of Marketing ............ -- -- 327,262 35,000 1,768,173 153,293
Lary J. Beaulieu,
Vice President of Engineering .......... -- -- 25,031 25,000 119,077 110,376

</TABLE>

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

(1) All share numbers have been adjusted to give effect to the Stock Split.

(2) The values of Unexercised-In-the-Money Options/SARs represents the
aggregate amount of the excess of $5.625, the closing sales price for a
share of Common Stock (as adjusted to give effect to the Stock Split) on
September 30, 1996, over the relevant exercise price of all "in-the-money"
options held on such date. Excludes options for 40,000 shares, 25,000
shares and 15,000 shares of Common Stock granted in November 1996 to
Messrs. McNeight, Craven and Beaulieu, respectively, under the Company's
Incentive Plan at an exercise price of $5.00 per share.

INCENTIVE STOCK OPTION PLAN

Under the Company's Incentive Plan, options to purchase a maximum of
1,455,000 shares of its Common Stock may be granted to officers, directors and
other key employees of the Company. Options granted under the Incentive Plan are
intended to qualify as incentive stock options as defined in the Internal
Revenue Code of 1986, as amended (the "Code").

The Incentive Plan is administered by the Board of Directors and the
Stock Option Committee, which determines which persons are to receive options,
the number of options granted and the exercise prices thereof. In the event an
optionee voluntarily terminates his employment with the Company, the optionee
generally has the right to exercise his accrued options within five days of such
termination. If an optionee's employment is involuntarily terminated, other than
because of death, he has the right to exercise his accrued option within thirty
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 generally 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 the Company's 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. The Company may redeem any
accrued but unexercised option held by an optionee by paying him the difference
between the option exercise price and the then 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 January 27, 1997, options to
acquire an aggregate of 958,000 shares of the Company's Common Stock at exercise
prices ranging from $0.72 per share to $5.00 per share had been granted under
the Incentive Plan to key employees and directors (including options to purchase
120,000 shares of Common Stock at an exercise price of $0.79 per share, 90,000
shares of Common Stock at an exercise price of $1.47 per share, and 40,000
shares of Common Stock at an exercise price of $5.00 per share, granted to Mr.
McNeight; options to purchase 15,000 shares of Common Stock at an exercise price
of $0.72 per share, 45,000 shares of Common Stock at an exercise price of $1.33
per share and 25,000 shares of Common Stock at an exercise price of $5.00 per
share, granted to Mr. Craven; and options to purchase 15,000 shares of Common
Stock at an exercise price of $0.72 per share, 30,000 shares of Common Stock at
an exercise price of $1.33 per share and 15,000 shares of Common Stock at an
exercise price of $5.00 per share, granted to Mr. Beaulieu). In the case of
options granted under the Incentive Plan to employees, such options vest and are
exercisable at a rate no greater than 33 1/3% each continuous year in which the
employee is employed on a full time basis by 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 Directors'
Plan, pursuant to which stock options covering an aggregate of 45,000 shares of
the Company's Common Stock may be granted to such non-employee directors.

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 will receive,
as of the date of each such election or re-election, options to purchase 7,500
shares of the Company's Common Stock. In addition, each Non-employee Director
will receive options to purchase 7,500 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, were each granted in May 1996 non-incentive options to
purchase 7,500 shares of Common Stock at an exercise price of $1.67 per share
and in February 1997 non-incentive options to purchase 7,500 shares of Common
Stock at an exercise price of $6.00 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 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 in an amount up to 15% of their compensation per
annum, not to exceed $9,500 in each of 1996 and 1997. In addition, the Company,
in its discretion, may make contributions to this plan of up to 1% of the
participant's annual compensation. Participating employees are entitled to full
distribution of their share of the Company's contribution under this plan upon
their death or total disability or when they reach retirement age (i.e., 65
years of age). If a participating employee's employment is terminated earlier,
such employee's share of the Company's contributions will depend upon the
employee's 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.

DESCRIPTION OF EMPLOYMENT AGREEMENTS, SEVERANCE ARRANGEMENTS AND CHANGE OF
CONTROL ARRANGEMENTS

Richard P. McNeight is serving as the Company's President pursuant to a
three-year employment agreement which commenced on January 1, 1995. The
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.

William R. Craven entered into a three-year employment contract with the
Company which commenced on January 1, 1995. The agreement provides for an
initial annual compensation of $110,000, unspecified bonuses, a 10% increase per
annum in each of the second and third years, and a similar two-year
non-competition covenant.

In February 1995, the Company entered into a three-year employment
agreement with Kevin J. Bartczak which provides for his employment as Vice
President and Chief Financial Officer. This agreement established 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 of options to
purchase up to 60,000 shares of Common Stock, subject to certain conditions. 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.

ELIMINATION OF LIABILITY OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation, as amended, eliminates the
liability of a director of the Company for monetary damages for breach of duty
as a director, subject to certain exceptions. In addition, the Certificate of
Incorporation, as amended, provides for the Company to indemnify, under certain
conditions, directors and officers of the Company against all expenses,
liabilities and losses reasonably incurred by such persons in connection
therewith. The foregoing provisions may reduce the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from suing directors for breaches of their duty of care, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders.

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of the date of the Prospectus, the
beneficial ownership of shares of Common Stock by (i) each person who is known
by the Company to own more than 5% of the outstanding shares of Common Stock,
(ii) each director of the Company and each executive officer of the Company
listed in the Summary Compensation Table and (iii) all of the Company's officers
and directors as a group:

<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE OF OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) OWNED(3)
- --------------------------------------- ----------------------- --------
<S> <C> <C>
Krishan K. Joshi(4)(5) 2,235,468 28.0%
Richard P. McNeight(5) 947,810 11.4%
William R. Craven(5) 483,649 6.0%
James E. Clifford(5) 28,500 * %
Michael F. Maguire(5) 28,500 * %
Lary J. Beaulieu(5) 206,201 2.6%
All officers and directors as a group (7 persons)(4)(5) 3,509,280 41.8%
</TABLE>

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

* Less than 1%

(1) The address of each such person is c/o Paravant Computer Systems, Inc.,
1615A West Nasa Blvd., Melbourne, Florida 32901.

(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) Based on 7,993,652 shares of Common Stock outstanding on the date of this
Prospectus.

(4) Includes 2,191,854 shares of Common Stock held by UES Florida. Mr. Joshi,
Chairman and Chief Executive Officer of the Company, is the Chairman and a
director of UES, of which he owns 58% of the shares of its common stock and
which, as a result, he controls. With respect to the 2,191,854 shares held
by UES Florida, 445,848 of such shares are subject to an option granted by
UES Florida to Mr. Joshi. Both UES and UES Florida have offices at 4402
Dayton-Xenia Road, Dayton, OH 45432.

(5) Includes options obtained from UES Florida covering 148,617 shares for Mr.
McNeight, 297,231 shares for Mr. Craven and 445,848 shares for Mr. Joshi.
Includes options granted under the Company's Incentive Plan covering
110,000 shares for Mr. McNeight, 25,000 shares for Mr. Craven, 4,000 shares
for each of Messrs. Clifford and Maguire, 20,000 shares for Mr. Beaulieu
and 25,000 shares for other officers and directors, options for 188,049
shares of Common Stock granted to Mr. McNeight and 5,031 shares of Common
Stock granted to each of Mr. Craven and Mr. Beaulieu under a non-qualified
stock option plan which plan has been terminated and options granted under
the Directors' Plan covering 15,000 shares for each of Messrs. Clifford and
Maguire, all of which options are currently exercisable. Excludes options
granted under the Incentive Plan covering 140,000 shares for Mr. McNeight,
60,000 shares for Mr. Craven, 40,000 shares for Mr. Beaulieu and 35,000
shares for other officers and directors, all of which options are not
exercisable within 60 days of the date of this Prospectus.

CERTAIN TRANSACTIONS

Under the Company's $4,000,000 line of credit with National City Bank in
Dayton, Ohio, Krishan K. Joshi, the Company's Chairman, and UES, a company
controlled by Mr. Joshi which presently indirectly owns approximately 27.5% of
the Company's outstanding Common Stock, each guaranteed all amounts outstanding
under such line of credit. Similar guarantees involving Mr. Joshi and UES were
required for earlier loan arrangements between the Company and such bank. Upon
completion of the IPO, such guarantees were terminated. Mr. Joshi and UES may be
deemed to have benefitted from the elimination of such guarantees.

At September 30, 1995, the Company was a guarantor of certain debt of
UES. The debt included a $1,250,000 line of credit with a bank that was due on
demand and bore interest at the prime rate. The amount outstanding under the
agreement at September 30, 1995 was $779,715. The debt also included 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 were 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 was
$845,235. Prior to the completion of the Company's IPO, the bank released the
Company from its guarantee.

Beaver Creek Enterprises, an Ohio partnership among certain UES
employees, including Mr. Joshi, owns a three bedroom residential condominium in
Melbourne, Florida, consisting of approximately 1,450 square feet. The
partnership rents this apartment to the Company at $1,000 per month ($750 per
month until July 1, 1996), which includes its apportioned real estate taxes,
pursuant to a month to month lease arrangement. For the fiscal years ended
September 30, 1996 and 1995, the Company paid such partnership $9,750 and
$9,000, respectively, for the use of such condominium. This apartment is used to
house the Company's executives, including Messrs. Craven and Joshi, when they
are visiting the Company's headquarters, as well as select customers.

In December 1991, Messrs. McNeight, Craven and Joshi were granted
options covering 148,617 shares, 297,231 shares and 445,848 shares,
respectively, of the Company's Common Stock held by UES Florida, a subsidiary of
UES and an affiliate of the Company, each at an adjusted exercise price of $.15
per share. In November 1993, Mr. McNeight was granted options to purchase 5,032
shares of the Company's Common Stock at an adjusted exercise price of $0.24 per
share under a non-qualified stock option plan previously maintained by the
Company, which has since been terminated, and, in November 1994, Mr. McNeight
was granted options under such plan to purchase 183,018 shares of the Company's
Common Stock at an adjusted exercise price of $3.20 per share. The exercise
prices of the foregoing options granted in 1991, 1993 and 1994 approximated the
estimated market value of the shares of Common Stock on the date of grant.

The Company had a payable to UES of $0 and $87,294 at September 30, 1996
and 1995, respectively, for reimbursement of accrued health insurance costs paid
by UES.

In March 1996, UES Florida and Messrs. McNeight and Craven and another
shareholder sold an aggregate of 925,743 shares of Common Stock to private
investors at a purchase price of $1.33 per share ("March 1996 Stock Purchase").
(Of the shares sold, UES Florida and Messrs. McNeight and Craven sold 745,743,
90,000, and 30,000 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, were repaid following the consummation
of the IPO with a portion of the IPO proceeds. At or following the time of the
March 1996 Stock Purchase, the private investors purchased an additional 155,322
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 1,081,065 shares of Common Stock
acquired by the private investors were included in the registration statement
relating to the IPO.

DESCRIPTION OF SECURITIES

GENERAL

As of the date of this Prospectus, the authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, par value $.015 per
share, of which 7,993,652 shares are outstanding, and 2,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"), none of which
shares are outstanding. The following description of the securities of the
Company and certain provisions of the Company's Certificate of Incorporation and
By-Laws, each as amended, is a summary and is qualified in its entirety by the
provisions of the Certificate of Incorporation and By-Laws as currently in
effect. As of August 25, 1997, the Company's Common Stock was held of record by
69 shareholders.

COMMON STOCK

Holders of 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 held of record. The Certificate of Incorporation, as amended, does not
provide for preemptive rights or for cumulative voting for the election of
directors. Holders of Common Stock will be entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, and will be entitled to
receive, pro rata, all assets of the Company available for distribution to such
holders upon liquidation. Holders of Common Stock have no preemptive,
subscription or redemption rights. All outstanding shares of Common Stock are,
and the Common Stock offered hereby, upon issuance and sale, will be, fully paid
and nonassessable.

PREFERRED STOCK

The Company is authorized to issue 2,000,000 shares of Preferred Stock
from time to time in one or more series, which may rank senior to the Common
Stock with respect to payment of dividends and in the event of the liquidation,
dissolution or winding up of the Company. The Board of Directors has the power,
without stockholder approval, to issue shares of one or more series of Preferred
Stock, at any time, for such consideration and with such relative rights,
privileges, preferences and other terms as the Board may determine (including,
but not limited to, terms relating to dividend rates, redemption rates,
liquidation preferences and voting, sinking fund and conversion or other
rights). The rights and terms relating to any new series of Preferred Stock
could adversely affect the voting power or other rights of the holders of the
Common Stock or could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.

The Company has no plans to issue or sell shares of Preferred Stock in
the foreseeable future. For a period of two years commencing May 30, 1996, the
issuance of Common Stock or any warrants, options or other rights to purchase
Common Stock is subject to the prior consent of the Underwriter, which may not
be unreasonably withheld. Accordingly, such restriction could limit 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 entitles the registered holder thereof (the "Warrant
Holders") to purchase one share of Common Stock at a price of $2.00, subject to
adjustment in certain circumstances, for a period of five years commencing on
November 30, 1997 until 5:00 p.m., Eastern Time, on November 30, 2002.

The Warrants are redeemable by the Company at any time commencing on
November 30, 1997, upon notice of not less than 30 days, at a price of $.0167
per Warrant, provided that the closing bid quotation of the Common Stock on
Nasdaq or last sale price if quoted on a national securities exchange has
exceeded $2.83 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 have been issued (and
any Warrants issued upon exercise of the Underwriter's 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 Nasdaq. 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 reasonable
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 WARRANTS

In connection with the 1995 Bridge Financing, the Company borrowed
$400,000 pursuant to the Bridge Notes from a group of private investors at an
annual interest rate of 6%. As of the date hereof, the Bridge Notes had an
outstanding principal balance of $50,000. In addition, as part of the 1995
Bridge Financing, the Company sold to the same investors the Bridge Warrants to
purchase 480,000 shares of Common Stock. Each Bridge Warrant represents the
right to purchase one share of Common Stock at an exercise price of $2.00 per
share at any time until June 3, 2001. After the expiration of such exercise
period, the Bridge Warrants will be void and of no value.

The Bridge 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 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 Market) exceeds $2.00 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 Bridge Warrants for redemption at a price of
$.0167 per Bridge Warrant.

The Bridge 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. 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 Bridge Warrant will not possess any rights as a
stockholder of the Company unless he exercises his Bridge Warrant. See "Risk
Factors -- Possible Contingent Liability."

DIVIDENDS

The Company has not declared or paid a cash dividend on its Common Stock
since its inception. The payment by the Company of dividends, if any, is within
the discretion of the Board of Directors and will depend on the Company's
earnings, if any, its capital requirements and financial condition, as well as
other relevant factors. The Board of Directors does not intend to declare any
dividends in the foreseeable future, but instead intends to retain earnings, if
any, for use in the Company's business operations.

REGISTRATION RIGHTS

In connection with the IPO, the Company granted to the Underwriter
certain demand and piggyback registration rights with respect to the
Underwriter's Warrants, the 300,000 shares of Common Stock and 420,000 Warrants
issuable upon exercise of the Underwriter's Warrants and the 420,000 shares of
Common Stock issuable upon the exercise of the Warrants included in the
Underwriter's Warrants. All 720,000 shares of Common Stock and 420,000 Warrants
underlying the Underwriter's Warrants have been included in the Registration
Statement of which this Prospectus forms a part.

NASDAQ LISTING

The Common Stock and Warrants are listed on Nasdaq. In order to continue
to be listed on Nasdaq, however, the Company must maintain $2,000,000 in total
assets, a $200,000 market value of the public float and $1,000,000 in total
capital and surplus. In addition, continued inclusion requires two market-makers
and a minimum bid price of $1.00 per share; provided, however, that if the
Company falls below such minimum bid price, it will remain eligible for
continued inclusion in Nasdaq if the market value of the public float is at
least $1,000,000 and the Company has $2,000,000 in capital and surplus. In
addition, Nasdaq has proposed increasing the Nasdaq National Market maintenance
criteria by requiring a company to have, among other things, either (i)
$4,000,000 in net tangible assets, a public float of at least 750,000 shares
with a market value of at least $5,000,000 and a minimum bid price of $1.00 per
share or, alternatively, (ii) a market capitalization of $50,000,000 or total
assets and total revenues of $50,000,000, a public float of at least 1,100,000
shares with a market value of at least $15,000,000 and a minimum bid price of
$5.00. The failure to meet these maintenance criteria in the future may result
in the delisting of the Company's securities from Nasdaq. In such event,
trading, if any, in the Units, Common Stock and Warrants would thereafter be
conducted in the over-the-counter markets through the so-called "pink sheets" or
the NASD's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, difficulty in obtaining accurate quotations as to the market value
of the securities and reductions in the security analysts' and the news media's
coverage of the Company. Delisting of the Company's securities may result in
lower prices for the Company's securities than might otherwise prevail.

TRANSFER AGENT AND REGISTRAR

The Company's Transfer Agent and Registrar is Continental Stock Transfer
& Trust Company, 2 Broadway, New York, New York 10004.

REPORTS TO SHAREHOLDERS

The Company has registered the Common Stock and Warrants under the
provisions of Sections 12(b) and 12(g) of the Exchange Act. Such registration
requires the Company to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of this offering, the Company will have 8,713,652
shares of Common Stock outstanding, of which 3,450,000 shares of Common Stock
will be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an affiliate of the Company
(in general, a person who has a control relationship with the Company), which
shares will be subject to the resale limitations of Rule 144 under the
Securities Act. All of the remaining 5,263,652 shares of Common Stock are deemed
to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were issued and sold
by the Company in private transactions not involving a public offering 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, or
pursuant to another exemption under the Securities Act.

In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned restricted
shares of Common Stock beneficially for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares

of the same class or, if the shares of Common Stock are quoted on Nasdaq, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned shares of
Common Stock for at least two years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above.

Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of the IPO are entitled to sell
such shares after the 90th day following the date of the IPO in reliance on Rule
144, without having to comply with the holding period requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitations or notice provisions of Rule 144.

All of the Company's officers and directors and certain stockholders of
the Company have agreed not to sell or otherwise dispose of their shares of
Common Stock (an aggregate of 4,495,279 shares) for a period of eighteen months
commencing May 30, 1996 (other than pursuant to private transfers) without the
prior written consent of the Underwriter.

SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION

The shares of Common Stock and Warrants offered hereby for sale by the
Selling Securityholders will be acquired by the Selling Securityholders upon
exercise of Underwriter's Warrants to purchase up to 300,000 shares of Common
Stock and up to 420,000 Warrants. The Underwriter's Warrants were sold to the
Underwriter for an aggregate purchase price of $10.00 in connection with the
Company's June 1996 IPO as part of their underwriting compensation. The
Underwriter's Warrants, which are exercisable during the four-year period
commencing June 3, 1997, entitle the holders thereof to purchase, in the
aggregate, up to 300,000 shares of Common Stock at an exercise price of $2.00
per share and up to 420,000 Warrants at an exercise price of $.04 per Warrant.

The number of shares of Common Stock and Warrants owned beneficially by
each of the Selling Securityholders as of the date of this Prospectus, the
number of shares of Common Stock Warrants which may be offered by each of the
Selling Securityholders pursuant to this Prospectus and the amount and
percentage of shares of Common Stock and Warrants to be owned by each of the
Selling Securityholders assuming the sale of all such shares and Warrants are as
follows:

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK TO BE
OWNED AFTER SALE OF SHARES
SHARES OF REGISTERED FOR RESALE
COMMON STOCK SHARES OF COMMON ------------------------------
BENEFICIALLY STOCK BEING PERCENT OF
NAME OF SELLING SECURITYHOLDER OWNED(1) REGISTERED FOR RESALE AMOUNT OUTSTANDING (2)
- ------------------------------ -------- --------------------- ------ ---------------
<S> <C> <C> <C> <C>
Duke & Co., Inc. 603,024 603,024 -- --
Michael Metter 20,994 20,994 -- --
Kenneth Orr 95,982 95,982 -- --
</TABLE>

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

(1) Assumes the exercise by each of the Selling Securityholders of all
Underwriter's Warrants held by such Selling Securityholder and of all
Warrants received by the Selling Securityholder upon exercise of such
Underwriter's Warrants.

(2) Based on 8,713,652 shares of Common Stock outstanding.

<TABLE>
<CAPTION>
WARRANTS TO BE OWNED AFTER SALE
OF WARRANTS REGISTERED FOR RESALE
WARRANTS ---------------------------------
BENEFICIALLY WARRANTS BEING PERCENT OF
NAME OF SELLING SECURITYHOLDER OWNED(1) REGISTERED FOR RESALE AMOUNT OUTSTANDING (2)
- ------------------------------ -------- --------------------- ------ ---------------
<S> <C> <C> <C> <C>
Duke & Co., Inc. 363,024 363,024 -- --
Michael Metter 8,994 8,994 -- --
Kenneth Orr 47,982 47,982 -- --
</TABLE>

- --------------
(1) Assumes (i) the exercise by each of the Selling Securityholders of all
Underwriter's Warrants held by such Selling Securityholder and (ii) no
exercise by any of the Selling Securityholders of Warrants received by the
Selling Securityholder upon exercise of such Underwriter's Warrants.

(2) Based on 5,250,000 Warrants outstanding.

The shares of Common Stock and Warrants to be acquired by the Selling
Securityholders upon exercise of the Underwriter's Warrants may be sold from
time to time by the Selling Securityholders, or by pledgees, donees, tranferees
or other successors in interest thereof, should the Selling Securityholders or
any such other parties determine to make such sales. The Company is unable to
predict whether or when the Selling Securityholders or any such other parties
will determine to proceed with sales of Common Stock and/or Warrants, as such
determination will be made by the Selling Securityholders or such other parties.
The sale of Common Stock and/or Warrants by the Selling Securityholders, or by
pledgees, donees, transferees or other successors in interest thereof, may be
effected from time to time in transactions (which may include block
transactions) on the Nasdaq National Market, the over-the-counter market, in
private sales or in negotiated transactions, through the writing of options on
Common Stock or Warrants, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices. The
Selling Securityholders or such other parties may effect such transactions by
selling Common Stock or Warrants to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of Common
Stock and/or Warrants for whom such broker-dealers may act as agent or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). In addition, any
Common Stock or Warrants covered by this Prospectus which qualify for sale
pursuant to Rule 144 promulgated under the Securities Act ("Rule 144") may be
sold under Rule 144 rather than pursuant to this Prospectus.

The Selling Securityholders and any broker-dealers that act in connection
with the sale of Common Stock and/or Warrants hereunder might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions received by them and any profit on the resale of Common Stock or
Warrants as principal might be deemed to be underwriting discounts and
commissions under the Securities Act.

The Company has agreed to pay all expenses of registration incurred in
connection herewith; provided, however, that all selling and other expenses
incurred by the Selling Securityholders will be borne by the Selling
Securityholders.

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, 1996 and 1995
appearing in this Prospectus and in the Registration Statement of which this
Prospectus forms a part 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 any
adverse opinion or disclaimer, or qualification as to uncertainty, audit scope
or accounting principles.

PARAVANT COMPUTER SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
FINANCIAL STATEMENT AT SEPTEMBER 30, 1996 AND
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Independent Auditor's Report...................................................... F-2
Balance Sheet............................................................... 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 - F-16

FINANCIAL STATEMENT AT JUNE 30, 1997 AND
FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
Condensed Balance Sheet - June 30, 1997..................................... F-17
Condensed Statements of Earnings for the three
months ended June 30, 1997 and 1996........................................ F-19
Condensed Statements of Earnings for the nine
months ended June 30, 1997 and 1996........................................ F-20
Condensed Statements of Cash Flows for the nine
months ended June 30, 1997 and 1996........................................ F-21
Notes to Condensed Financial Statements..................................... F-23 - F-25
</TABLE>

F-1

<PAGE>
<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, 1996 and 1995, 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, 1996 and 1995, 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

November 22, 1996

F-2

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 65,069 $ 211,426
Accounts receivable, net (notes 7, 9 and 18).................................... 7,161,192 5,295,106
Employee receivables and advances............................................... 73,502 65,707
Costs and estimated earnings in excess of billings on uncompleted contracts
(note 6)....................................................................... -- 322,071
Inventory (notes 2, 7 and 9).................................................... 2,503,892 2,411,834
Prepaid expenses................................................................ 141,191 51,441
Deferred income taxes (note 14)................................................. 139,727 128,979
----------- ----------
Total current assets....................................................... 10,084,573 8,486,564
----------- ----------
Property, plant and equipment, net (notes 3, 7 and 9)................................ 517,515 462,447
Intangible assets, net (note 4)...................................................... 89,125 117,625
Demonstration pool and custom mold, net (note 5)..................................... 281,309 67,787
Capitalized offering costs........................................................... -- 257,812
Other assets......................................................................... 16,136 25,330
Deferred income taxes (note 14)...................................................... -- 32,150
----------- ----------
Total assets............................................................... $10,988,658 $9,449,715
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank (note 7).................................................. $ 540,000 $2,960,000
Other notes payable (note 8).................................................... 100,000 400,000
Current maturities of long-term debt (note 9)................................... 110,004 110,004
Current maturities of capital lease obligations (note 10)....................... 99,346 67,685
Accounts payable................................................................ 1,043,731 1,334,631
Amounts due to affiliate........................................................ -- 87,294
Accrued commissions............................................................. 449,251 514,240
Accrued expenses................................................................ 430,900 844,637
Accrued incentive compensation.................................................. 140,000 --
Income taxes payable............................................................ 334,993 317,665
----------- ----------
Total current liabilities.................................................. 3,248,225 6,636,156
Long-term debt, less current maturities (note 9)..................................... 619,151 729,155
Capital lease obligations, less current maturities (note 10)......................... 67,781 77,233
Deferred income taxes (note 14)...................................................... 7,657 --
----------- ----------
Total liabilities.......................................................... 3,942,814 7,442,544
----------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued......................................................................... -- --
Common stock, par value $.015 per share. Authorized 30,000,000 shares; issued
and outstanding 7,956,038 shares at September 30, 1996 and 4,500,000 shares at
September 30, 1995 (notes 11 and 12)........................................... 118,943 67,500
Additional paid-in capital...................................................... 5,046,342 761,265
Retained earnings............................................................... 1,880,559 1,178,406
Commitments and contingencies (notes 10 and 17)......................................
----------- ----------
Total stockholders' equity................................................. 7,045,844 2,007,171
----------- ----------
$10,988,658 $9,449,715
----------- ----------
----------- ----------
</TABLE>

See accompanying notes to financial statements.

F-3

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- ----------

<S> <C> <C>
Revenues (note 18)................................................................... $10,495,063 $8,652,553
Cost of revenues..................................................................... 5,818,010 4,680,661
----------- ----------
Gross profit.................................................................... 4,677,053 3,971,892
Selling and administrative expense................................................... 3,247,385 2,668,320
----------- ----------
Income from operations..................................................... 1,429,668 1,303,572
Other income (expense):
Interest expense................................................................ (362,956) (392,589)
Miscellaneous income (expense).................................................. 11,257 (50,711)
----------- ----------
Income before income taxes................................................. 1,077,969 860,272
Income tax expense (note 14)......................................................... 375,816 278,857
----------- ----------
Net income................................................................. $ 702,153 $ 581,415
----------- ----------
----------- ----------
Weighted average number of shares outstanding........................................ 7,652,320 4,500,000
----------- ----------
----------- ----------
Earnings per share................................................................... $.10 $.13
</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, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
-------------------- ADDITIONAL --------------------
NUMBER PAR PAID-IN RETAINED NUMBER
OF SHARES VALUE CAPITAL EARNINGS OF SHARES COST
--------- -------- ---------- ---------- --------- --------

<S> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1994................... 4,737,667 $ 71,065 $ 796,498 $ 596,991 79,234 $(38,798)
Retirement of treasury stock................... (237,667) (3,565) (35,233) -- (79,234) 38,798
Net income for the year ended September 30,
1995......................................... -- -- -- 581,415 -- --
--------- -------- ---------- ---------- --------- --------
Balances, September 30, 1995................... 4,500,000 67,500 761,265 1,178,406 -- --
Issuance of common stock, net of offering
costs........................................ 3,450,000 51,352 4,283,722 -- -- --
Exercise of common stock options............... 6,038 91 1,355 -- -- --
Net income for the year ended September 30,
1996......................................... -- -- -- 702,153 -- --
--------- -------- ---------- ---------- --------- --------
Balances, September 30, 1996................... 7,956,038 $118,943 $5,046,342 $1,880,559 -- $ --
--------- -------- ---------- ---------- --------- --------
--------- -------- ---------- ---------- --------- --------

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balances, September 30, 1994................... $ 1,425,756
Retirement of treasury stock................... --
Net income for the year ended September 30,
1995......................................... 581,415
-------------
Balances, September 30, 1995................... 2,007,171
Issuance of common stock, net of offering
costs........................................ 4,335,074
Exercise of common stock options............... 1,446
Net income for the year ended September 30,
1996......................................... 702,153
-------------
Balances, September 30, 1996................... $ 7,045,844
-------------
-------------
</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, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 702,153 $ 581,415
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................. 266,714 220,005
Deferred income taxes..................................................... 29,059 (36,819)
Increase (decrease) in cash caused by changes in:
Accounts receivable.................................................. (1,866,086) (1,907,770)
Employee receivables and advances.................................... (7,795) (31,086)
Inventory............................................................ (92,058) (195,965)
Costs and estimated earnings in excess of billings on uncompleted
contracts......................................................... 322,071 (95,394)
Prepaid expenses..................................................... (89,750) 31,126
Other assets......................................................... 9,194 (12,861)
Accounts payable..................................................... (290,900) 370,003
Amounts due to affiliate............................................. (87,294) 87,294
Accrued commissions.................................................. (64,989) 266,947
Accrued expenses..................................................... (413,737) 302,949
Accrued incentive compensation....................................... 140,000 --
Income taxes payable................................................. 17,328 121,579
----------- -----------
Net cash used in operating activities........................... (1,426,090) (298,577)
----------- -----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.................................. (127,352) (60,350)
Acquisitions of demonstration pool and custom mold............................. (254,979) (16,556)
----------- -----------
Net cash used in investing activities........................... (382,331) (76,906)
----------- -----------
Cash flows from financing activities:
Net proceeds from (repayments on) notes payable to bank........................ (2,420,000) 562,000
Proceeds from other notes payable.............................................. -- 400,000
Repayments on other notes payable.............................................. (300,000) --
Repayments on long-term debt................................................... (110,004) (110,004)
Repayments on capital lease obligations........................................ (102,264) (62,081)
Proceeds from sale of common stock............................................. 5,103,161 --
Payment of offering costs...................................................... (508,829) (207,812)
----------- -----------
Net cash provided by financing activities....................... 1,662,064 582,103
----------- -----------
Net increase (decrease) in cash and cash equivalents............ (146,357) 206,620
Cash and cash equivalents at beginning of year...................................... 211,426 4,806
----------- -----------
Cash and cash equivalents at end of year............................................ $ 65,069 $ 211,426
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 385,748 $ 365,918
----------- -----------
----------- -----------
Income taxes.............................................................. $ 358,488 $ 182,469
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and financing activities:
The Company entered into capital lease agreements for office equipment
totaling $124,473 and $62,450 for the years ended September 30, 1996 and
1995, respectively.
</TABLE>

See accompanying notes to financial statements.

F-6

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995

(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 sales of computer and communication systems,
specializing in rugged, hand-held and laptop computer products. The principal
customers of the Company are United States Department of Defense contractors who
are subject to Federal budgetary implications. The work is performed under
general purchase orders, fixed-price contracts and on a general production
basis.

(B) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less.

Management has provided an allowance for doubtful accounts receivable in
the amount of $12,353 and $31,600 as of September 30, 1996 and 1995,
respectively.

(D) INVENTORY

Inventory is stated at the lower of cost or market using the weighted
average cost method. The Company provides an obsolescence reserve for inventory
as it becomes unusable or obsolete.

(E) 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. Intangible assets include exclusive rights to a printed
circuit board and certain software and are being amortized over the estimated
useful lives of the technology of five to ten years. The Company also has a
custom mold which is amortized on a units-of-production basis.

(F) REVENUE AND COST RECOGNITION

The Company recognizes revenues on product sales when the customer accepts
title, which typically occurs upon shipment. At September 30, 1996 and 1995, the
Company had product sales of $4,144,207 and $2,744,124, respectively, for which
title had been transferred to a customer although physical product remained on
Company premises at the convenience of the customer. The Company allows
customers to return products under warranty for up to one year for repair and
accrues a reserve for future warranty costs at the time of product sales. The
warranty reserve was $54,505 and $99,804 as of September 30, 1996 and 1995,
respectively.

Revenues 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. 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, in the accompanying balance sheets.

(G) 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

F-7

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be 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.

(H) 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, 1996, if any, 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, 1996 and 1995 reflects the effects of a
4.472-for-1 reverse common stock split and a 3-for-1 common stock split
authorized on April 12, 1995 and July 25, 1996, respectively, by the Board of
Directors.

Common equivalent shares included in the computation represent shares
issueable upon assumed exercise of stock options and warrants. Fully diluted
earnings per common share amounts did not differ from amounts computed under the
primary computation for the years ended September 30, 1996 and 1995.

(I) 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.

(J) FUTURE APPLICATION OF ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board issued SFAS 123,
'Accounting for Stock-Based Compensation,' effective for financial statements
with fiscal years beginning after December 15, 1995. Among other provisions,
SFAS 123 establishes a new, alternative method, based on fair values, for
accounting for stock-based compensation arrangements with employees. In
addition, if an entity does not adopt the new, alternative method, the statement
requires disclosure in the footnotes of proforma net income and earnings per
share as if the fair value method had been adopted. For the fiscal year ending
September 30, 1997 and interim periods, the Company has determined that it will
not apply the new method of accounting to employee stock options, but will
provide the related footnote disclosures.

(2) INVENTORY

The following is a summary of inventory at September 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
---------- ----------

<S> <C> <C>
Raw materials........................................... $1,835,286 $1,369,675
Work in process......................................... 474,940 930,677
Finished goods.......................................... 269,243 262,042
---------- ----------
2,579,469 2,562,394
Reserve for obsolete inventory.......................... (75,577) (150,560)
---------- ----------
$2,503,892 $2,411,834
---------- ----------
---------- ----------
</TABLE>

F-8

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

General and administrative costs amounted to $3,270,311 and $2,715,097 for
the years ended September 30, 1996 and 1995, respectively. Of these amounts,
general and administrative costs capitalized in inventory were $22,926 and
$46,777 as of September 30, 1996 and 1995, respectively.

(3) PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment at September
30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Office equipment.......................................... $ 930,332 $ 715,425
Factory equipment......................................... 209,833 198,516
Leasehold improvements.................................... 14,307 14,267
--------- ---------
Total cost...................................... 1,154,472 928,208
Less accumulated depreciation............................. (636,957) (465,761)
--------- ---------
$ 517,515 $ 462,447
--------- ---------
--------- ---------
</TABLE>

Depreciation and amortization expense on these assets amounted to $196,757
and $89,111 for the years ended September 30, 1996 and 1995, respectively.

(4) INTANGIBLE ASSETS

These assets consist of exclusive rights to a printed circuit board and
certain software. Cost and accumulated amortization of these assets at September
30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Cost...................................................... $ 267,500 $ 267,500
Accumulated amortization.................................. (178,375) (149,875)
--------- ---------
$ 89,125 $ 117,625
--------- ---------
--------- ---------
</TABLE>

Total amortization expense on these assets was $28,500 for each of the
years ended September 30, 1996 and 1995.

(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,
1996 and 1995, are as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Cost...................................................... $ 699,723 $ 449,343
Accumulated amortization.................................. (418,414) (381,556)
--------- ---------
$ 281,309 $ 67,787
--------- ---------
--------- ---------
</TABLE>

Total amortization expense on these assets was $41,457 and $102,394 for the
years ended September 30, 1996 and 1995, respectively.

F-9

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

(6) UNCOMPLETED CONTRACTS

The status of contracts which were incomplete at September 30, 1996 and
1995 was as follows:

<TABLE>
<CAPTION>
1996 1995
--------- -----------

<S> <C> <C>
Costs and estimated earnings incurred on uncompleted
contracts............................................. $ -- $ 2,664,923
Billings on uncompleted contracts....................... -- (2,342,852)
--------- -----------
Net..................................................... $ -- $ 322,071
--------- -----------
--------- -----------
</TABLE>

These balances are included under the caption costs and estimated earnings
in excess of billings on uncompleted contracts in the accompanying balance
sheets.

(7) NOTES PAYABLE TO BANK

The Company has a line of credit with a bank totaling $4,000,000
($3,000,000 in 1995) which is due on demand and, at September 30, 1996, bears
interest at the prime rate plus .50% for secured borrowings under prescribed
levels and the prime rate plus 1.00% for other borrowings. Secured borrowings
are collateralized by accounts receivable, inventory and equipment. The amount
outstanding under these credit agreements at September 30, 1996 and 1995 was
$540,000 and $2,960,000, respectively. The credit agreements do not contain any
material financial covenants. Subsequent to September 30, 1996, the Company
renegotiated the interest rate on this agreement to the prime rate for secured
borrowings under prescribed levels and the prime rate plus .50% for other
borrowings.

(8) OTHER NOTES PAYABLE

In August 1995, the Company issued subordinated, convertible promissory
notes payable ('Notes') in the principal amount of $400,000. The Notes also had
warrants attached for $.003 per warrant exercisable at $2.00 per share. A
portion of these notes totaling approximately $98,000 were manditorily
convertible into 120,000 shares of the Company's common stock at a conversion
price of $.82 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%, have an outstanding balance of $100,000 at September 30,
1996, which is expected to be satisfied by December 31, 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 liability 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.

F-10

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

(9) LONG-TERM DEBT

The following is a summary of long-term debt at September 30, 1996 and
1995:

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Note payable to bank bearing an initial interest rate of 7.25%;
interest rate adjusted monthly to 1.50% 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..... $ 229,155 $ 339,159
Note payable to bank bearing interest at the prime rate plus .50%;
interest due monthly, principal balance due March 31, 1998;
secured by accounts receivable, inventory and equipment,
subsequent to September 30, 1996, the Company renegotiated the
interest rate on this note to the prime rate...................... 500,000 500,000
Less current maturities............................................. (110,004) (110,004)
--------- ---------
Long-term debt, less current maturities........................ $ 619,151 $ 729,155
--------- ---------
--------- ---------
</TABLE>

Scheduled principal payments for future periods are as follows:

<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- --------------------------------------------------------------

The carrying amount of the Company's long-term debt approximates fair value
because the debt bears interest at borrowing rates currently available to the
Company for bank loans with similar terms and maturities.

(10) LEASES

The Company is obligated under various capital leases for equipment. At
September 30, 1996 and 1995, respectively, property, plant and equipment
included net capital lease assets of $197,423 and $72,950.

The Company also has several noncancellable operating leases. Under these
arrangements, the Company leases its current office facilities at a rate of
$12,365 per month. The Company's future office facilities will be leased at a
rate of $9,176 per month. In addition, the Company leases a residential unit
from a related partnership under a month-to-month lease at a rate of $1,000 per
month. The Company also leases automobiles and equipment with lease terms into
June of 1999. Rent expense under operating lease agreements totaled $151,924 and
$143,795 for the years ended September 30, 1996 and 1995, respectively.

F-11

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

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, 1996:

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ---------------------------------------------------------------------- -------- ---------

<S> <C> <C>
1997.................................................................. $113,394 $ 128,974
1998.................................................................. 65,696 123,272
1999.................................................................. 7,449 115,081
2000.................................................................. -- 113,427
2001.................................................................. -- 110,117
-------- ---------
Total minimum lease payments................................ 186,539 $ 590,871
---------
---------
Less amounts representing interest.................................... 19,412
--------
Present value of net minimum lease payments................. 167,127
Less current maturities............................................... 99,346
--------
Capital lease obligations............................................. $ 67,781
--------
--------
</TABLE>

(11) STOCKHOLDERS' EQUITY

Common stock authorized, issued and outstanding as of September 30, 1996
and 1995 reflects the effects of a 4.472-for-1 reverse common stock split
effected on April 12, 1995 by the Board of Directors and a 3-for-1 common stock
split effected on July 25, 1996 by the Board of Directors.

The Company entered into an agreement with an underwriter in connection
with its initial public offering ('IPO') which was consummated in June 1996. The
agreement provides for monthly consulting fees for the underwriter of $3,500 per
month. The agreement also provides a 5.00% fee to be paid to the underwriter on
any merger and acquisition for a period extending two years subsequent to the
IPO date.

(12) STOCK OPTIONS AND WARRANTS

Common stock options and warrants and related exercise prices have been
adjusted, where applicable, to reflect the effects of the aforementioned
4.472-for-1 reverse common stock split and the 3-for-1 common stock split
effected on April 12, 1995 and July 25, 1996, respectively.

On December 22, 1993, the Company granted options under a nonqualified
stock option plan ('nonqualified plan') to employees to purchase 74,799 shares
of the Company's common stock at an exercise price of $.012 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.
During the fiscal year ended September 30, 1996, the Company issued 6,038 common
shares to various employees under the nonqualified plan.

On November 22, 1994, the Company granted options to a key officer to
purchase 182,977 shares of the Company's common stock at an exercise price of
$.72 per share. The terms of these options provide that the options are
exercisable through November 22, 2004. The exercise price of these options
approximated the estimated market value of the shares on the issuance date.

On November 22, 1994, the Company reserved 900,000 shares of common stock
for its qualified incentive stock option plan ('qualified plan'). On March 14,
1996 the Company increased the options reserved under the qualified plan from
900,000 to 1,455,000. It also reserved 45,000 shares under a plan to benefit the
nonemployee directors under terms similar to the qualified plan. On November 22,
1994 and March 2, 1995, the Company granted options to employees to purchase
345,000 and 45,000 shares,

F-12

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

respectively, of the Company's common stock at exercise prices ranging from $.72
to $.79 per share which approximated 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.

On November 16, 1995, the Company granted options to selected employees to
purchase 360,000 shares of the Company's common stock at exercise prices ranging
from $1.33 to $1.47 per share, which approximated the market price of the shares
at the date of issuance.

On August 9, 1996, the Company granted options to an employee to purchase
6,000 shares of the Company's common stock at an exercise price of $5.94 per
share, which approximated the market price of the shares at the date of
issuance.

In connection with the Company's IPO of common stock in June of 1996, the
Company issued 4,830,000 warrants exercisable for a period of five years
commencing November 30, 1997 at an exercise price of $2.00 per share, subject to
adjustment in certain circumstances. The Company, at its option during the
exercise period of the warrants, may redeem the warrants, after November 30,
1997, upon notice of not less than 30 days, at a price of $.0167 per warrant
provided that the last sale price of the Company's common stock on the Nasdaq
National Market has exceeded $2.83 per share (subject to adjustment) for a
period of 30 consecutive trading days. As of September 30, 1996, no warrants
have been exercised. In addition, in connection with the IPO, the Company
issued underwriter's warrants to purchase up to 300,000 shares of common stock
at $2.00 per share and up to 420,000 warrants at $.04 per warrant. The
underwriter's warrants are exercisable during the four-year period commencing
June 3, 1997.

(13) RESEARCH AND DEVELOPMENT

Research and development costs are expensed when incurred and are included
in selling and administrative expense. The amounts charged to expense were
$382,750 and $480,951 for the years ended September 30, 1996 and 1995,
respectively.

(14) INCOME TAXES

The components of income tax expense for the years ended September 30, 1996
and 1995 are as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------

<S> <C> <C> <C>
1996:
Federal............................................. $292,008 $ 26,620 $318,628
State............................................... 54,749 2,439 57,188
-------- -------- --------
$346,757 $ 29,059 $375,816
-------- -------- --------
-------- -------- --------
1995:
Federal............................................. $266,225 $(38,119) $228,106
State............................................... 49,451 1,300 50,751
-------- -------- --------
$315,676 $(36,819) $278,857
-------- -------- --------
-------- -------- --------
</TABLE>

F-13

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

Following is a reconciliation of the expected income tax expense computed
by applying the U.S. federal income tax rate of 34% to income before income
taxes and the actual income tax provision for the years ended September 30, 1996
and 1995:

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Computed 'expected' tax expense..................................... $ 366,509 $ 292,492
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit.......... 36,134 31,897
Nondeductible meals and entertainment expense.................. 6,270 5,645
Research and experimentation credit............................ (12,372) (14,698)
Change in valuation allowance.................................. -- (15,000)
Other, net..................................................... (20,725) (21,479)
--------- ---------
$ 375,816 $ 278,857
--------- ---------
--------- ---------
</TABLE>

Deferred income taxes as of September 30, 1996 and 1995 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, 1996 and 1995.

<TABLE>
<CAPTION>
1996 1995
--------- ---------

<S> <C> <C>
Gross deferred tax liabilities:
Accumulated depreciation....................................... $ (46,426) $ (32,271)
Gross deferred tax assets:
Inventory...................................................... 61,972 61,927
Warranty expense............................................... 20,510 37,556
Accrued vacation............................................... 45,956 29,496
Accrued incentive compensation................................. 11,289 --
Net operating loss carryforwards............................... 1,554 14,834
Research credits............................................... 37,215 49,587
--------- ---------
Total gross deferred tax assets........................... 178,496 193,400
--------- ---------
Total net deferred tax assets............................. $ 132,070 $ 161,129
--------- ---------
--------- ---------
</TABLE>

A valuation allowance for deferred tax assets is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Realization is dependent upon the generation of future taxable income.
As of September 30, 1996 and 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.

At September 30, 1996, the Company has net operating loss carryforwards of
approximately $4,000 for federal and state income tax purposes, which are
available to offset future taxable income. These loss carryforwards expire in
various years from 1998 through 2010.

(15) RETIREMENT PLAN

The Company has a defined contribution retirement plan covering
substantially all employees. Retirement expense incurred was $19,098 and $10,344
for the years ended September 30, 1996 and 1995, respectively.

F-14

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

(16) RELATED PARTY TRANSACTIONS

The Company had a payable to an affiliate, Universal Energy Systems, Inc.
('UES'), of $-0- and $87,294 at September 30, 1996 and 1995, respectively, for
accrued health insurance costs paid by UES which is included in amounts due to
affiliate in the accompanying balance sheets.

In March 1996, prior to the 3-for-1 common stock split authorized on July
25, 1996 by the Board of Directors, 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, were 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. All
amounts borrowed by the Company under these promissory notes were repaid prior
to September 30, 1996.

At September 30, 1995 the Company was a guarantor of certain debt of UES.
The debt included a $1,250,000 line of credit with a bank that was due on demand
and bore interest at the prime rate. The amount outstanding under the agreement
at September 30, 1995 was $779,715. The debt also included 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 were 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 was $845,235. Prior to
the completion of the Company's IPO, the bank released the Company from its
guarantee.

(17) CONTINGENCIES

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 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 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.

In September 1996, a former Company employee filed an action against the
Company and certain other defendants alleging retaliatory personnel actions
instituted by the defendants against the plaintiff. Plaintiff is seeking from
the defendants an amount of $950,000 plus punitive damages, interest, cost and
attorneys fees. The Company has filed a motion to dismiss the complaint and
intends to vigorously defend this lawsuit.

Management, after consultation with counsel, is of the opinion that the
ultimate resolution of these matters will not have a material adverse effect on
future operations of the Company. Management has not accrued any liability
relating to the tortious portion of these lawsuits as it believes the Company
will prevail. In the event a court finds in favor of the plaintiffs, additional
costs will be incurred.

(18) CONCENTRATION OF CREDIT RISK

The Company has a high concentration of sales to four customers who
accounted for 95% and 85% of revenue for the years ended September 30, 1996 and
1995, respectively. A summary of sales and

F-15

<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996 AND 1995

accounts receivable to the customers that exceed 10% of sales or accounts
receivable for the years ended September 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
SALES % TOTAL SALES % TOTAL
---------- ------- ---------- -------

<S> <C> <C> <C> <C>
Customer A............................................. $5,094,104 49% $4,055,907 47%
Customer B............................................. 2,255,433 21 2,502,997 25
Customer C............................................. 1,609,725 15 1,109,825 13
Customer D............................................. 1,079,408 10 -- --
</TABLE>

<TABLE>
<CAPTION>
ACCOUNTS ACCOUNTS
RECEIVABLE % TOTAL RECEIVABLE % TOTAL
---------- ------- ---------- -------

<S> <C> <C> <C> <C>
Customer A............................................. $4,982,408 70% $2,912,231 55%
Customer B............................................. 1,009,630 14 1,079,567 20
Customer C............................................. 906,966 13 585,273 11
</TABLE>

(19) FOURTH QUARTER RESULTS

Adjustments were made to increase inventory during the fourth quarter of
the years ended September 30, 1996 and 1995 in the amounts of $433,000 and
$125,293, respectively, before related income taxes. These adjustments were made
to adjust perpetual records to physical counts. The Company was not able to
determine the amount of the adjustments that related to the fourth quarter or
the prior quarters.

In addition, another adjustment was made in the fourth quarter of the year
ended September 30, 1996 to record accrued incentive compensation in the amount
of $140,000, before related taxes. The accrued compensation was discretionary
and was substantially related to fourth quarter sales.

F-16

PARAVANT COMPUTER SYSTEMS, INC.

Condensed Balance Sheet

June 30, 1997
(UNAUDITED)

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 424,742
Accounts receivable, net 3,536,841
Employee receivables and advances 21,815
Inventory (note 2) 3,985,306
Prepaid expenses 114,169
Deferred income taxes 167,047
------------
Total current assets 8,249,920

Property, plant and equipment, net 790,501

Intangible assets, net 72,750

Demonstration pool and custom mold, net 357,635

Other assets 100,999

------------
$ 9,571,805
------------
------------
</TABLE>

See accompanying notes to condensed financial statements

F-17

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)

<S> <C>
Current liabilities:
Other note payable $ 50,000
Current maturities of long-term debt 110,004
Current maturities of capital lease obligations 144,533
Accounts payable 613,468
Accrued commissions 339,616
Accrued expenses 573,913
Accrued incentive compensation 136,488
Income taxes payable 45,372
-----------
Total current liabilities 2,013,394

Long-term debt, less current maturities 36,648
Capital lease obligations, less current maturities 96,355
Deferred income taxes 7,657
-----------
Total liabilities 2,154,054
-----------

Stockholders' equity:

Preferred stock, par value $.01 per share. Authorized 2,000,000
shares, none issued -
Common stock, par value $.015 per share. Authorized 30,000,000
shares, issued and outstanding 7,993,652 shares 119,449
Additional paid-in capital 5,066,068
Retained earnings 2,232,234
------------
Total stockholders' equity 7,417,751

------------
$ 9,571,805
------------
------------
</TABLE>

F-18

PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Earnings

For the three months ended June 30, 1997 and 1996

<TABLE>
<CAPTION>
(UNAUDITED)
1997 1996
---- ----
<S> <C> <C>
Revenues $ 3,069,223 1,957,228

Cost of revenues 1,657,386 1,121,953
----------- ---------
Gross profit 1,411,837 835,275

Selling and administrative expense 1,048,838 906,425
----------- ---------
Income (loss) from operations 362,999 (71,150)

Other income (expense):

Interest expense (17,952) (107,023)
Miscellaneous 4,897 (30,640)
----------- ----------
Income (loss) before income taxes 349,944 (208,813)

Income tax benefit (expense) (123,618) 72,701
----------- ----------
Net income (loss) $ 226,326 (136,112)
----------- ----------
----------- ----------

Weighted average number of shares outstanding 12,806,956 4,883,333
----------- ----------
----------- ----------
Earnings (loss) per share $ .03 (.03)
----------- ----------
----------- ----------
</TABLE>

See accompanying notes to condensed financial statements.

F-19

PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Earnings

For the nine months ended June 30, 1997 and 1996

<TABLE>
<CAPTION>
(UNAUDITED)
1997 1996
---- ----

<S> <C> <C>
Revenues $ 8,196,533 3,682,110

Cost of revenues 4,377,275 2,253,864
----------- ---------
Gross profit 3,819,258 1,428,246

Selling and administrative expense 3,216,759 2,315,082
----------- ---------
Income (loss) from operations 602,499 (886,836)

Other income (expense):

Interest expense (83,245) (329,225)
Miscellaneous 23,120 (32,646)
----------- ----------
Income (loss) before income taxes 542,374 (1,248,707)

Income tax benefit (expense) (190,699) 463,769
----------- ----------
Net income (loss) $ 351,675 (784,938)
----------- ----------
----------- ----------

Weighted average number of shares outstanding 12,806,956 4,883,333
----------- ----------
----------- ----------
Earnings (loss) per share $ .04 (.16)
----------- ----------
----------- ----------
</TABLE>

See accompanying notes to condensed financial statements.

F-20

PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Cash Flows

For the nine months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>

(UNAUDITED)
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 351,675 (784,938)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:

Depreciation and amortization 332,347 165,671
Deferred income taxes (27,320) (463,769)
Increase (decrease) in cash caused by change in:
Accounts receivable 3,624,351 2,384,843
Employee receivables and advances 51,687 2,851
Inventory (1,481,414) (1,438,312)
Costs and estimated earnings in excess of billings on
uncompleted contracts - 322,071
Prepaid expenses 27,022 12,685
Income taxes receivable - (11,017)
Other assets (84,863) (6,172)
Accounts payable (430,263) (805,188)
Accrued commissions (109,635) (169,951)
Accrued expenses 143,013 (132,622)
Accrued incentive compensation (3,512) -
Income taxes payable (289,621) (317,665)
--------- ---------
Net cash provided by (used in) operating activities 2,103,467 (1,241,513)
--------- ---------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (347,805) (57,617)
Acquisitions of demonstration pool and custom mold (117,725) (59,249)
Acquisition of rights (5,000) -
-------- --------
Net cash used in investing activities (470,530) (116,866)
-------- --------
(Continued)
</TABLE>

F-21

PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
(UNAUDITED)
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
Repayments on long-term debt (582,503) (82,692)
Repayments on other note payable (50,000) (275,000)
Repayments of note payable to bank (540,000) (2,960,000)
Repayments on capital lease obligations (120,992) (50,189)
Proceeds from sale of common stock 20,231 4,591,556
----------- ---------
Net cash provided by (used in) financing activities (1,273,264) 1,223,675
----------- ---------
Net increase (decrease) in cash and cash equivalents 359,673 (134,704)

Cash and cash equivalents at beginning of the period 65,069 211,426
----------- ---------
Cash and cash equivalents at end of the period $ 424,742 76,722
----------- ---------
----------- ---------

Supplemental disclosures of cash flow information:
Cash paid during the period for:

Interest $ 85,663 329,225
----------- ---------
----------- ---------
Income taxes $ 460,327 28,406
----------- ---------
----------- ---------
Supplemental disclosure of noncash investing and financing
activities:

The Company entered into capital lease agreements for
office equipment and furniture totaling $194,753 and
$27,371 during the nine months ended June 30, 1997
and 1996, respectively.

The Company converted $500,000 of its notes payable to
bank to long-term debt during the nine months ended
June 30, 1996.
</TABLE>

See accompanying notes to condensed financial statements.

F-22

PARAVANT COMPUTER SYSTEMS, INC.

Notes to Condensed Financial Statements

June 30, 1997 and 1996

(1) BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements of Paravant
Computer Systems, Inc. (the "Company" or "Paravant") 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
(consisting of normal recurring accruals) considered 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.

These condensed financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal
years ending September 30, 1996 and 1995 included in the Company's Annual
Report on Form 10-KSB as filed with the Securities and Exchange
Commission. The accounting principles used in preparing these condensed
financial statements are the same as those described in such statements.

(2) INVENTORY

The following is a summary of inventory at June 30, 1997:

Raw materials $2,618,244
Work in process 1,188,130
Finished goods 254,509
----------
4,060,883
Reserve for obsolete inventory (75,577)
----------
$3,985,306
----------
----------

(Continued)

F-23

PARAVANT COMPUTER SYSTEMS, INC.

Notes to Condensed Financial Statements

(3) NOTE PAYABLE TO BANK

In April 1997, the Company renegotiated the terms of its line of credit
arrangement with a bank. Under the new terms, all borrowings bear interest
at the bank's prime rate, or at the 30 or 60 day LIBOR plus 2.70%.

(4) STOCK OPTIONS

On November 29, 1996, the Company granted options under its incentive
stock option plan to employees to purchase 208,000 shares of the Company's
common stock at an exercise price of $5.125 per share, which was the
market price of the shares at the date of issuance.

On February 27, 1997, the Company granted options under its nonemployee
director stock option plan to purchase 15,000 shares of the Company's
common stock at an exercise price of $6.00 per share, which was the market
price of the shares at the date of issuance.

(5) EARNINGS (LOSS) PER SHARE

Earnings (loss) per share have been computed by dividing net income (loss)
by the weighted average number of common shares outstanding. The weighted
average number of shares outstanding have been determined assuming shares
and options issued subsequent to June 30, 1997 were outstanding for the
periods presented. When dilutive, stock options and warrants are included
as common share equivalents using the treasury stock method. Fully diluted
earnings per common share amounts did not differ from amounts computed
under the primary computation for the periods ended June 30, 1997 and
1996.

(Continued)

F-24

PARAVANT COMPUTER SYSTEMS, INC.

Notes to Condensed Financial Statements

(6) FUTURE APPLICATION OF ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share".
Statement No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and
specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Statement 128 was issued to simplify the
computation of EPS. It requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.

Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. After adoption, all prior EPS data presented shall be restated
to conform with Statement 128. The Company does not expect the adoption of
Statement 128 to have a material impact on the EPS data that has been
presented.

F-25

=================================== =======================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PAGE

<S> <C>
Prospectus Summary...............................................3
Risk Factors.....................................................7
Use of Proceeds.................................................14
Certain Market Information......................................15
Dilution........................................................15
Capitalization..................................................16
Selected Financial Data.........................................17
Management's Discussion and Analysis
or Plan of Operation...........................................18
Business........................................................22
Management......................................................35
Principal Shareholders..........................................41
Certain Transactions............................................42
Description of Securities.......................................43
Shares Eligible for Future Sale.................................45
Selling Securityholders and Plan of
Distribution...................................................46
Legal Matters...................................................47
Experts.........................................................48
Index to Financial Statements..................................F-1
</TABLE>

PARAVANT COMPUTER
SYSTEMS, INC.

720,000 SHARES OF COMMON STOCK

420,000 REDEEMABLE WARRANTS
TO PURCHASE SHARES OF COMMON STOCK

----------

PROSPECTUS

----------

___________,1997

=================================== =======================================

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

(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;

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 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;

(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

II-2

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
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.

II-3

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses to be incurred in connection with the offering are as
follows:
<TABLE>

<S> <C>
SEC registration fee................................ $ 880.11
Legal fees and expenses............................. 65,000.00
Blue Sky expenses and legal fees.................... 5,000.00
Printing expenses................................... 10,000.00
Registrar and transfer agent fees and expenses...... 2,000.00
Accounting fees and expenses........................ 12,500.00
Miscellaneous fees and expenses..................... 9,619.89
-----------
TOTAL.......................................... $105,000.00
===========
</TABLE>

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 480,000 shares of Common Stock. As of the date hereof, such
notes have an outstanding principal balance of $50,000. 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 (the
"Securities Act"), 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.

Since the consummation of the Registrant's June 1996 initial public
offering (the "IPO"), the Registrant has issued an aggregate of 41,416 shares of
Common Stock upon exercise of options granted by the Registrant to certain of
its officers and employees prior to the IPO under the Registrant's Incentive
Stock Option Plan and a non-qualified option plan which has been terminated by
the Registrant. The shares issued upon exercise of such options, which had
exercise prices ranging from $.25 to $1.33, had an aggregate purchase price of
approximately $23,334. The sales of such shares of Common Stock were made in
reliance upon the exemption from the registration provisions of the Securities
Act afforded by Rule 701 promulgated thereunder, as sales of securities pursuant
to written compensatory benefit plans made after the Registrant became subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, in consummation of offers made pursuant to such written
compensatory benefit plans prior to the Registrant's becoming subject to such
reporting requirements.

ITEM 27. EXHIBITS

The following exhibits are filed as part of this registration statement:

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
3.1 Articles of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-QSB for the quarterly period ended
June 30, 1996).

3.2 Amended and Restated By-laws of the Registrant, as amended
(incorporated by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-QSB for the quarterly period ended
June 30, 1996).

II-4

4.1 Specimen Common Stock Certificate of Registrant (incorporated by
reference to Exhibit 4.1 to Amendment No. 4 to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-91426),
as filed with the Securities and Exchange Commission on May 16,
1996 ("Amendment No. 4")).

4.2 Specimen Warrant of Registrant (incorporated by reference to
Exhibit 4.2 to Amendment No. 4).

4.3 Warrant Agreement between Registrant, Duke & Co., Inc. and
Warrant Agent (incorporated by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-QSB for the quarterly
period ended June 30, 1996).

4.4 Form of Lock-Up Agreement (incorporated by reference to Exhibit
4.4 to Amendment No. 3 to the Registrant's Registration Statement
on Form SB-2 (Registration No. 33- 91426), as filed with the
Securities and Exchange Commission on March 20, 1996 ("Amendment
No. 3")).

4.5 Underwriter's Warrant issued to Duke & Co., Inc. (incorporated by
reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended June 30, 1996).

5.1 Opinion of Zimet, Haines, Friedman & Kaplan.

10.1 Employment Agreement between the Registrant and Richard P.
McNeight (incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form SB-2 (Registration
No. 33-91426), as filed with the Securities and Exchange
Commission on April 21, 1995) ("Registration Statement on Form
SB-2")).

10.2 Employment Agreement between the Registrant and William R. Craven
(incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form SB-2).

10.3 Incentive Stock Option Plan and form of Stock Option Agreement
(incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form SB-2).

10.3A Amendment No. 1 to the Incentive Stock Option Plan (incorporated
by reference to Exhibit 10.3A to Amendment No. 3).

10.4 Original Office Lease and Amendment between the Registrant and
Atrium Professional Centre (incorporated by reference to Exhibit
10.4 to the Registration Statement on Form SB-2).

10.5 Form of Registrant's Manufacturer's Representative Agreement
(incorporated by reference to Exhibit 10.5 to the Registration
Statement on Form SB-2).

10.6 Form of Registrant's Distributor's Agreement (incorporated by
reference to Exhibit 10.6 to the Registration Statement on Form
SB-2).

10.7 Amended Licensing Agreement between the Registrant and MicroSoft
Corporation (incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form SB-2).

10.8 Licensing Agreement between the Registrant and Phoenix
Technologies, Ltd. (incorporated by reference to Exhibit 10.8 to
the Registration Statement on Form SB-2).

10.9 Joint Development Agreement between the Registrant and MES, Inc.
(incorporated by reference to Exhibit 10.9 to the Registration
Statement on Form SB-2).

10.10 Joint Marketing Agreement between the Registrant and Texas
Instrument Corporation (incorporated by reference to Exhibit
10.10 to the Registration Statement on Form SB-2).

10.11 Joint Marketing Agreement between the Registrant and Raytheon
Company (incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form SB-2).

II-5

10.12 Licensing Agreement between Registrant and Grid Systems
Corporation (incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form SB-2).

10.13 Forms of (revised) Subscription Agreement and Subordinated
Convertible Promissory Note (incorporated by reference to Exhibit
10.13 to Amendment No. 2 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 33-91426), as filed with
the Securities and Exchange Commission on October 4, 1995)).

10.14 Nonemployee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.14 to Amendment No. 3).

10.15 Employment Agreement between the Registrant and Kevin J. Bartczak
(incorporated by reference to Exhibit 10.15 to Amendment No. 3).

10.16 Letter agreements between the Registrant and National City Bank
(incorporated by reference to Exhibit 10.16 to Amendment No. 3).

10.17 Commercial demand note by Registrant in favor of National City
Bank (incorporated by reference to Exhibit 10.17 to Amendment No.
3).

10.18 Security agreement (accounts receivable) by Registrant in favor
of National City Bank (incorporated by reference to Exhibit 10.18
to Amendment No. 3).

10.19 Security agreement (equipment) by Registrant in favor of National
City Bank (incorporated by reference to Exhibit 10.19 to
Amendment No. 3).

10.20 Form of promissory note of Registrant issued in connection with
stockholder loans made in April 1996 (incorporated by reference
to Exhibit 10.20 to Amendment No. 4).

10.20A Form of Common Stock Purchase Agreement for purchase of shares by
selling security holders (incorporated by reference to Exhibit
10.20A to Amendment No. 5 to Registrant's Registration Statement
on Form SB-2 (Registration No. 33-91426), as filed with the
Securities and Exchange Commission on May 29, 1996 ("Amendment
No. 5")).

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 (incorporated by reference to Exhibit 10.21
to Amendment No. 4).

10.22 Option Agreement dated as of November 23, 1994 with Richard P.
McNeight. (incorporated by reference to Exhibit 10.22 to
Amendment No. 4).

10.23 Warrant Agent Agreement and Warrant relating to August 1995
bridge financing (incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1996.).

10.24 Promissory Note dated February 19, 1993 by Richard P. McNeight
(incorporated by reference to Exhibit 10.24 to Amendment No. 5).

10.25 Underwriting Agreement between Registrant and Duke & Co., Inc.
(incorporated by reference to Exhibit 1 to the Registrant's
Quarterly Report on Form 10-QSB for the quarterly period ended
June 30, 1996).

10.26 Financial Advisory and Investment Banking Agreement (incorporated
by reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended June 30, 1996).

10.28 Lease Agreement dated September 1, 1996 between Registrant and
California Microwave, Inc. and related agreement dated November
15, 1996 with Symetrics Industries Inc. (incorporated

II-6

by reference to Exhibit 10.28 to the Registrant's Annual Report
on form 10-KSB for the fiscal year ended September 30, 1996).

10.29 Commercial Note of Registrant dated November 20, 1996 in favor of
National City Bank of Dayton (incorporated by reference to
Exhibit 10.29 to the Registrant's Annual Report on form 10-KSB
for the fiscal year ended September 30, 1996).

10.30 Security Agreement (All Personal Property and Fixtures) dated
November 20, 1996 by Registrant in favor of National City Bank of
Dayton (incorporated by reference to Exhibit 10.30 to the
Registrant's Annual Report on form 10-KSB for the fiscal year
ended September 30, 1996).

10.31 Letter agreement dated April 18, 1997 between the Registrant and
National City Bank, Dayton (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997).

23.1 Consent of Zimet, Haines, Friedman & Kaplan (included in
its opinion filed as Exhibit 5.1).

23.2 Consent of KPMG Peat Marwick LLP.

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes to:

(1) file, during any period in which it offers of 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; notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and

(iii) include any additional or changed material information on
the plan of distribution;

(2) for determining liability under the Act, treat such
post-effective amendment as a new registration 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.

Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as express 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 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.

II-7

The Registrant hereby undertakes to provide to the Underwriter 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.

II-8

SIGNATURES

In accordance with the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and has authorized this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned in the City of Melbourne, Florida on September 2,
1997.

PARAVANT COMPUTER SYSTEMS, INC.

By: /s/ Krishan K. Joshi
-------------------------------
Chairman of the Board and
Chief Executive Officer

In accordance with the requirements of the Securities Act of
1933, this Post-Effective Amendment No. 1 to the Registration Statement on Form
SB-2 has been signed below by the following persons in the capacities and on the
dates stated:

NAME TITLE DATE
<S> <C> <C>

/s/ Krishan K. Joshi
- ----------------------------- Chairman, Chief Executive September 2, 1997
KRISHAN K. JOSHI Officer and Director
(Principal Executive Officer)

/s/ Richard P. McNeight
- ----------------------------- President and Director September 2, 1997
RICHARD P. McNEIGHT

/s/ William R. Craven
- ----------------------------- Vice President, Director and September 2, 1997
WILLIAM R. CRAVEN Secretary

/s/ Kevin Bartczak
- ----------------------------- Treasurer, Vice President and September 2, 1997
KEVIN BARTCZAK Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)

/s/ James E. Clifford
- ----------------------------- Director September 2, 1997
JAMES E. CLIFFORD

/s/ Michael Maguire
- ----------------------------- Director September 2, 1997
MICHAEL MAGUIRE

</TABLE>

II-9

<PAGE>

[LETTERHEAD OF ZIMET, HAINES, FRIEDMAN & KAPLAN]

September 2, 1997

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Paravant Computer Systems, Inc.
Post-Effective Amendment No. l to
Registration Statement on Form SB-2
(Registration No. 33-91426)

Gentlemen:

We have been requested by Paravant Computer Systems, Inc., a Florida
corporation (the "Company"), to furnish to you our opinion as to the matters set
forth below in connection with the preparation and filing of Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form SB-2
(Registration No. 33-91426) (the "Registration Statement") relating to the
registration under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, of the sale by the Company of (a) up to 300,000 shares
(the "Underwriter's Warrant Shares") of Common Stock, par value $.015 per share,
of the Company ("Common Stock") issuable upon exercise of warrants (the
"Underwriter's Warrants") originally sold to Duke & Co., Inc. (the
"Underwriter") in connection with the Company's 1996 initial public offering of
securities; (b) up to 420,000 warrants, each to purchase one share of Common
Stock at an exercise price of $2.00 (the "Underwriter's Warrant Warrants"),
issuable upon exercise of the Underwriter's Warrants; and (c) up to 420,000
shares of Common Stock (the "Underwriter's Warrant Warrant Shares") issuable
upon exercise of the Underwriter's Warrant Warrants.

We have examined the proceedings taken in connection with the incorporation
of the Company under the laws of the State of Florida, including the certificate
of incorporation of the Company and any amendments thereto which have been
filed. We

<PAGE>

-2-

have also examined (i) the by-laws of the Company and any amendments
thereto, (ii) the Registration Statement, (iii) the Warrant Agreement, dated as
of June 30, 1996 (the "Warrant Agreement"), among the Company, the Underwriter
and Continental Stock Transfer & Trust Company, Inc. and (iv) the Underwriter's
Warrants, dated June 10, 1996, issued by the Company to the Underwriter, as
amended September 27, 1996. We have also examined such other documents, records,
certificates of public officials, certificates and/or statements of officers and
representatives of the Company and matters of law as we have considered
relevant. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of documents submitted to us as certified or
photostatic copies and the authenticity of the originals of such latter
documents. As to all questions of fact material to this opinion that have not
been independently established, we have relied upon certificates and/or
statements of officers and representatives of the Company.

Based upon the foregoing, and subject to the qualifications stated herein
(and assuming that the securities referred to herein will be issued or sold
according to the Registration Statement at a time when such is effective and
that they will be in compliance with all applicable securities laws involved in
those states in which said securities may be sold), we are of the opinion that
(i) the Underwriter's Warrant Shares and the Underwriter's Warrant Warrant
Shares have been duly authorized and (ii) the Underwriter's Warrant Shares, when
issued and paid for upon exercise of the Underwriter's Warrants in accordance
with the terms thereof, and the Underwriter's Warrant Warrant Shares, when
issued and paid for pursuant to the terms of the Warrant Agreement, will be
validly issued, fully-paid and non-assessable.

We are admitted to practice law only in the State of New York and we are
expert in, and express opinions only as to, the laws of the State of New York
and federal laws of the United States.

We consent to the use and filing of this opinion in connection with the
Registration Statement and to the use of our name in the Registration Statement
under the caption "Legal Matters".

Very truly yours,

/s/ Zimet, Haines, Friedman & Kaplan

ZIMET, HAINES, FRIEDMAN & KAPLAN

<PAGE>

Board of Directors
Paravant Computer Systems, Inc.:

We consent to the inclusion in this Post-Effective Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 33-91426) of our report dated
November 22, 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.

/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG PEAT MARWICK LLP
Orlando, Florida
September 2, 1997

<PAGE>