<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period___________ to _____________
Commission file number: 0-28114
PARAVANT COMPUTER SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 59-2209179
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1615A West Nasa Boulevard
Melbourne, Florida 32901
(Address of Principal Executive Offices)
407-727-3672
(Issuer's Telephone Number)
PARAVANT COMPUTER SYSTEMS, INC.
780 South Apollo Boulevard
Melbourne, FL 32901
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At February 11, 1997, there were outstanding
7,984,325 shares of Common Stock, $.015 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheet - December 31, 1996..................................................3
Condensed Statements of Earnings for the three months ended December 31,
1996 and 1995..............................................................................5
Condensed Statements of Cash Flows for the three months
ended December 31, 1996 and 1995...........................................................6
Notes to Condensed Financial Statements......................................................8
Item 2. Management's Discussion and Analysis of Operations...........................10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................14
SIGNATURES..................................................................................15
</TABLE>
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Balance Sheet
December 31, 1996
ASSETS
-----
(Unaudited)
---------
Current assets:
Cash and cash equivalents $ 222,209
Accounts receivable, net 6,237,772
Employee receivables and advances 4,196
Inventory (note 2) 3,263,290
Prepaid expenses 121,749
Deferred income taxes 197,297
---------
Total current assets 10,046,513
Property, plant and equipment, net 574,219
Intangible assets, net 82,000
Demonstration pool and custom mold, net 310,358
Other assets 19,775
-------------
Total assets $ 11,032,865
-------------
See accompanying notes to condensed financial statements.
3
<PAGE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------
<TABLE>
<S> <C>
(Unaudited)
---------
Current liabilities:
Notes payable to bank $ 1,480,000
Other notes payable 50,000
Current maturities of long-term debt 110,004
Current maturities of capital lease obligations 137,560
Accounts payable 747,580
Accrued commissions 340,875
Accrued expenses 477,270
Accrued incentive compensation 46,488
-----------
Total current liabilities 3,389,777
Long-term debt, less current maturities 591,650
Capital lease obligations, less current maturities 91,708
Deferred income taxes 7,657
-----------
Total liabilities 4,080,792
-----------
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 7,959,886 shares 119,289
Additional paid-in capital 5,059,784
Retained earnings 1,773,000
-----------
Total stockholders' equity 6,952,073
-----------
$11,032,865
-----------
</TABLE>
4
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Earnings
For the three months ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
(Unaudited)
-------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $ 1,931,092 765,274
Cost of revenues 1,054,127 306,179
------------ ------------
Gross profit 876,965 459,095
Selling and administrative expense 997,983 926,469
------------ ------------
Loss from operations (121,018) (467,374)
Other income (expense):
Interest expense (44,213) (125,145)
Miscellaneous 102 (1,259)
------------ ------------
Loss before income taxes (165,129) (593,778)
Income tax benefit 57,570 223,439
------------ ------------
Net loss $ (107,559) (370,339)
------------ ------------
Weighted average number of shares outstanding 12,825,364 4,500,000
------------ ------------
Loss per share $ (.01) (.08)
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows
For the three months ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
(Unaudited)
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (107,559) $ (370,339)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 97,449 68,799
Deferred income taxes (57,570) --
Increase (decrease) in cash caused by changes in:
Accounts receivable 923,420 3,100,256
Employee receivables and advances 69,307 23,580
Inventory (759,398) (503,369)
Costs and estimated earnings in excess of billings on
uncompleted contracts -- (115,470)
Prepaid expenses 19,442 (14,101)
Other assets (3,639) (170,728)
Accounts payable (296,151) (1,045,008)
Accrued commissions (108,376) (365,310)
Accrued expenses 46,370 34,680
Accrued incentive compensation (93,512) --
Income taxes payable (334,993) (480,439)
---------- ------------
Net cash provided by (used in) operating activities (605,210) 162,551
---------- ------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (16,533) (8,077)
Acquisitions of demonstration pool and custom mold (42,847) --
---------- ------------
Net cash used in investing activities (59,380) (8,077)
---------- ------------
(Continued)
</TABLE>
6
<PAGE>
<PAGE>
2
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from (repayments on) notes payable to bank 940,000 --
Repayments on other notes payable (50,000) --
Repayments on long-term debt (27,501) (9,167)
Repayments on capital lease obligations (54,554) (9,384)
Proceeds from sale of common stock 13,785 --
--------- ---------
Net cash provided by (used in) financing activities 821,730 (18,551)
--------- ---------
Net increase in cash and cash equivalents 157,140 135,923
Cash and cash equivalents at beginning of period 65,069 211,426
--------- ---------
Cash and cash equivalents at end of period $ 222,209 $ 347,349
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 39,099 $ 125,145
--------- ---------
Income taxes $ 315,000 $ 257,000
--------- ---------
Supplemental disclosure of noncash investing and financing
activities:
The Company entered into a capital lease agreement
for office equipment totaling $116,695 for the period
ended December 31, 1996
</TABLE>
See accompanying notes to condensed financial statements.
7
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements
December 31, 1996 and 1995
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Paravant
Computer Systems, Inc. (the "Company"), 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 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 year.
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 December 31, 1996:
Raw materials $ 1,790,351
Work in process 1,367,895
Finished goods 180,621
------------
3,338,867
Reserve for obsolete inventory (75,577)
------------
$ 3,263,290
------------
(3) 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 approximated
the market price of the shares at the date of issuance.
(Continued)
8
<PAGE>
<PAGE>
-2-
PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements
(4) LOSS PER SHARE
Loss per share have been computed by dividing net 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 December 31, 1996 were outstanding for the periods
presented. When dilutive, stock options and warrants are included as 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 December 31, 1996 and 1995.
9
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Operations
RESULTS OF OPERATIONS
Three Months ended December 31, 1996 vs. December 31, 1995
Revenues for the quarter ended December 31, 1996 were $1,931,092, an
increase of $1,165,818 or 152% over the quarter ended December 31, 1995 revenues
of $765,274. This increase is primarily due to Paravant's 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 the U.S.
Air Force on F-16 Fighter Aircraft.
Gross profit was $876,965 for the quarter ended December 31, 1996, or
45% of sales, compared to $459,095 or 60% in the quarter ended December 31,
1995, a total increase of $417,870 or 91%.
Selling and administrative expenses of $997,983 in the quarter ended
December 31, 1996, increased by $71,514 or 8% from the quarter ended December
31, 1995 expenses of $926,469. As a percentage of sales, selling and
administrative expenses were 52% and 121% in the quarters ended December 31,
1996 and 1995, respectively. The increased selling and administrative costs are
due primarily to increased sales commissions directly attributable to the
increased sales discussed earlier herein.
Loss from operations improved to $(121,018) for the quarter ended
December 31, 1996 from $(467,374) in the quarter ended December 31, 1995, an
improvement of $346,356. As a percentage of sales, income from operations
improved to (6%) in the quarter ended December 31, 1996 from (61%) in the
quarter ended December 31, 1995. The improvement in 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 quarter ended December 31, 1996 was reduced by
$80,932 or 65% to $44,213 compared to $125,145 in the quarter ended December 31,
1995. As a percentage of sales, interest expense decreased to 2% in the quarter
ended December 31, 1996 from 16% in the quarter ended December 31, 1995. This
decrease is due to a significant decline in outstanding credit balances made
possible by application of a portion of the proceeds of the Company's initial
public offering of securities in June, 1996 ("IPO").
As a result, the Company's net loss improved by 71% to $(107,559) in the
quarter ended December 31, 1996 when compared to $(370,339) in 1995. Net loss as
a percentage of sales was (6%) in the quarter ended December 31, 1996 and (48%)
in the quarter ended December 31, 1995. The improvement in net loss overall,
resulted primarily from increased revenues and gross profits, offset in part by
increased selling and administrative expenses as discussed above.
10
<PAGE>
<PAGE>
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 for secured borrowings and
prime rate plus 0.5% for undersecured borrowings. All borrowings are
collateralized by accounts receivable, inventory and equipment. Such arrangement
is subject to a borrowing base formula involving certain accounts receivable,
inventory and equipment. As of December 31, 1996, an aggregate of $1,480,000 was
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 December 31, 1996. 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 December 31, 1996, there was
approximately $201,650 outstanding under this arrangement with the Bank. The
Company also has capital lease obligations of $229,268 at December 31, 1996.
These capital lease obligations bear interest rates of 1.25% to 1.50% over the
prime rate and are expected to be satisfied within 3 years.
The Company also has a note payable to the Bank in an aggregate principal
amount of $500,000, bearing interest at the prime rate, which note is due and
payable in March 1998.
In August 1995, the Company borrowed $400,000 pursuant to bridge notes
("Notes") from a group of private investors at an annual interest rate of 6%. In
addition, the Company sold to the same investors warrants to purchase 480,000
shares of Common Stock, exercisable until June 3, 2001 at an exercise price of
$2.00 per share. The Notes, which bear interest at 6%, have an outstanding
balance of $50,000 at December 31, 1996.
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 than those from its other customers as a whole.
11
<PAGE>
<PAGE>
The Company's operating cash flow was negative $(605,210) for the quarter
ended December 31, 1996, negative $(1,426,090) for fiscal 1996, and negative
$(298,577) in fiscal 1995. These cash outflows were primarily associated with
general increases in inventory levels and temporary increases associated with
accounts receivable, all in support of the Company's rapid increase in
operations reflected by the growth in 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 $16,533 in the quarter ended December 31, 1996, $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 U.S. Department of Defense
procurements, the operations of the Company have been cyclical and generally
result in a significant increase in deliveries and revenues in the fourth
quarter of its fiscal year ending on September 30. Accordingly, a significant
increase in inventory occurs late in the third quarter and continues through the
fourth quarter of each fiscal year. This increase in inventory is followed by a
corresponding increase in accounts receivable. Inventory and accounts receivable
levels then return to lower levels in the first and second quarter of the next
fiscal year.
Revenues in the fourth quarter of each fiscal year are significantly higher
than the first three quarters. Inventory balances are greatest in the third
quarter in support of the significantly increased deliveries related to the
Company's fourth quarter higher revenues level due to the lead-time requirements
necessary to procure, manufacture, and assemble the components for fourth
quarter deliveries. This uneven cycle results in severe liquidity pressures
during the periods of increased inventory and accounts receivable balances which
management of the Company has attempted to address with equity funding provided
by the IPO. As of December 31, 1996, management believes inventory balances are
not in excess of requirements for deliveries and normal minimum stocking levels.
Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, it may be the case that the collection of
accounts receivable are delayed due to the delayed finalization of a prime
contractor's contract with the Government, which results in an extended
collection period for the Company. Notwithstanding this condition, the Company
has not been required to write off any significant bad debt in the past, and
management does not believe that any significant accounts receivable at December
31, 1996 are likely to be uncollectible.
As of December 31, 1996 and 1995, the Company's backlog was $12,633,229 and
$1,316,111, 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 12 months.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the proceeds of the IPO, which was
consummated in June 1996, together with estimated working capital from
operations and other sources of funds, will be adequate to sustain operations
for at least a 24-month period after the IPO, and anticipates that such proceeds
will be expended over the first 18 months following the IPO. As the Company
continues to grow, additional bank borrowings, other debt placements and equity
offerings may be considered, in part or in combination, as the situation
warrants. In addition, in the event the Company's plans change or its
assumptions change or prove to be inaccurate, or if projected cash flow
otherwise proves insufficient to fund operations, the Company might need to seek
other sources of financing to conduct its operations. There can be no assurance
that any such other sources of financing would be available when needed, on
commercially reasonable terms, or at all.
12
<PAGE>
<PAGE>
CAUTIONARY STATEMENT
This Quarterly Report of Form 10-QSB contains certain forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of various factors, 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.
13
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
11 Statement re: computation of per share earnings (not required because the relevant
computation can be clearly determined from material contained in the financial
statements).
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the thirteen
weeks ended December 31, 1996.
14
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARAVANT COMPUTER SYSTEMS, INC.
Date: February 13, 1996 By /s/ Kevin J. Bartczak
--------------------------
Kevin J. Bartczak Vice
President, Treasurer and
Chief Financial Officer
(as both a duly authorized
officer of Registrant and
as principal financial
officer of Registrant)
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF
PARAVANT COMPUTER SYSTEMS, INC. AS OF DECEMBER 31, 1996 AND THE RELATED
STATEMENTS OF EARNINGS AND CASH FLOWS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 222,209
<SECURITIES> 0
<RECEIVABLES> 6,241,968
<ALLOWANCES> 0
<INVENTORY> 3,263,290
<CURRENT-ASSETS> 10,046,513
<PP&E> 1,287,700
<DEPRECIATION> 713,481
<TOTAL-ASSETS> 11,032,865
<CURRENT-LIABILITIES> 3,389,777
<BONDS> 591,650
<COMMON> 119,289
0
0
<OTHER-SE> 6,832,784
<TOTAL-LIABILITY-AND-EQUITY> 11,032,865
<SALES> 1,931,092
<TOTAL-REVENUES> 1,931,092
<CGS> 1,054,127
<TOTAL-COSTS> 1,054,127
<OTHER-EXPENSES> 997,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,213
<INCOME-PRETAX> (165,129)
<INCOME-TAX> (57,570)
<INCOME-CONTINUING> (107,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,559)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
