<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, 1997
[ ] 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)
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 6, 1998, there were outstanding
8,002,710 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, 1997.................................... 3
Condensed Statements of Operations for the three months ended December 31,
1997 and 1996.................................................................. 5
Condensed Statements of Cash Flows for the three months
ended December 31, 1997 and 1996............................................... 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, 1997
<TABLE>
<CAPTION>
Assets (Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $ 2,608,526
Accounts receivable, net 2,813,899
Employee receivables and advances 8,500
Inventory, net (note 2) 3,563,335
Prepaid expenses 103,219
Deferred income taxes 426,263
-----------
Total current assets 9,523,742
Prepaid expenses 226,787
Property, plant and equipment, net 869,002
Intangible assets, net 57,750
Demonstration pool and custom molds, net 268,049
Other assets 452,424
-----------
Total assets $11,397,754
------------
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<S> <C>
Current liabilities:
Current maturities of long-term debt $ 91,650
Current maturities of capital lease obligations 102,847
Accounts payable 938,409
Accrued commissions 545,253
Accrued expenses 936,724
Income taxes payable 236,395
----------
Total current liabilities 2,851,278
Capital lease obligations, less current maturities 58,783
Deferred income taxes, net 78,820
----------
Total liabilities 2,988,881
----------
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 8,002,710 shares 120,041
Additional paid-in capital 5,069,323
Retained earnings 3,219,509
----------
Total stockholders' equity 8,408,873
----------
Total liabilities and stockholders' equity $11,397,754
============
</TABLE>
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Operations
For the three months ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Revenues $ 3,597,965 1,931,092
Cost of revenues 1,975,269 1,054,127
---------- ----------
Gross profit 1,622,696 876,965
Selling and administrative expense 1,346,220 997,983
---------- -----------
Income (loss) from operations 276,476 (121,018)
Other income (expense):
Interest expense (6,363) (44,213)
Miscellaneous 27,886 102
---------- -----------
Income (loss) before income taxes 297,999 (165,129)
Income tax expense (benefit) 100,840 (57,570)
---------- -----------
Net income (loss) $ 197,159 (107,559)
---------- -----------
Basic earnings (loss) per share $ .025 (.014)
Diluted earnings (loss) per share $ .017 (.014)
Weighted average number of common
shares outstanding 7,995,865 7,968,330
Weighted average number of commom
shares and dilutive potential
common shares outstanding 11,862,288 12,729,131
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows
For the three months ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 197,159 (107,559)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 107,113 97,449
Writedown on leasehold improvements 11,311 --
Deferred income taxes -- (57,570)
Increase (decrease) in cash caused by changes in:
Accounts receivable 1,269,016 923,420
Employee receivables and advances 19,621 69,307
Inventory (101,562) (759,398)
Prepaid expenses (5,634) 19,442
Other assets (360,231) (3,639)
Accounts payable 343,042 (296,151)
Accrued commissions (25,306) (108,376)
Accrued expenses (64,820) (47,142)
Income taxes payable (262,560) (334,993)
----------- ----------
Net cash provided by (used in)
operating activities 1,127,149 (605,210)
----------- ----------
Cash flows fiom investing activities:
Acquisitions of property, plant and equipment (52,062) (16,533)
Acquisitions of demonstration pool and custom molds (19,327) (42,847)
---------- ----------
Net cash used in investing activities (71,389) (59,380)
---------- ----------
</TABLE>
(Continued)
<PAGE>
<PAGE>
-2-
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
---- ----
<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) (27,501)
Repayments on capital lease obligations (34,561) (54,554)
Proceeds from sale of common stock 2,201 13,785
----------- -----------
Net cash provided by (used in) financing activities (59,861) 821,730
----------- ----------
Net increase in cash and cash equivalents 995,899 157,140
Cash and cash equivalents at beginning of the period 1,612,627 65,069
----------- -----------
Cash and cash equivalents at end of the period $ 2,608,526 222,209
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,708 39,099
============ ===========
Income taxes $ 363,400 315,000
============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements
December 31, 1997 and 1996
(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 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, 1997 and 1996 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, 1997:
Raw materials $ 2,116,869
Work in progress 1,888,231
Finished goods --
------------
4,005,100
Reserve for obsolete inventory (441,765)
------------
$ 3,563,335
============
(Continued)
<PAGE>
<PAGE>
-2-
PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements
(3) Basic and Diluted Earnings (Loss) Per Share
On October 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS
No. 128 superseded APB Opinion No. 15, "Earnings Per Share", and specifies
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock or potential common
stock. It also requires that prior period earnings per share be restated
to conform to the requirements of SFAS No. 128.
Basic earnings (loss) per share for the three months ended December 31, 1997
and 1996 have been computed by dividing net income (loss) by the weighted
average number of common shares outstanding. Diluted earnings per share for
the three months ended December 31, 1997 have been computed by dividing net
income by the weighted average number of common shares and dilutive
potential common shares outstanding. Diluted loss per share for the three
months ended December 31, 1996 is the same as basic loss per share because
of the antidilutive impact of potential common shares.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Operations
RESULTS OF OPERATIONS
Three Months ended December 31, 1997 vs. December 31, 1996
Revenues for the quarter ended December 31, 1997 were $3,597,965, an
increase of $1,666,873 or 86% over the quarter ended December 31, 1996 revenues
of $1,931,092. This increase is primarily due to Paravant's strong backlog
($12,667,941 at December 31, 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 the U.S. Air Force on F-16
Fighter Aircraft and the F-117A Stealth Fighter.
Gross profit was $1,622,696 for the quarter ended December 31, 1997 or
45% of sales, compared to $876,965 or 45% in the quarter ended December 31,
1996, a total increase of $745,731 or 85%. This increase in gross profitability
results primarily from the increased revenues discussed above.
Selling and administrative expenses of $1,346,220 in the quarter ended
December 31, 1997, increased by $348,237 or 35% from the quarter ended
December 31, 1996 expenses of $997,983. As a percentage of sales, selling and
administrative expenses decreased by 15% to 37% for the quarter ended
December 31, 1997 compared to 52% for the quarter ended December 31, 1996.
The increased selling and administrative costs are due primarily to increased
sales commissions directly attributable to the increased sales discussed earlier
herein as well as increased employee benefit expenditures and increased
professional fees.
Income from operations was $276,476 for the quarter ended December 31,
1997 compared to a loss from operations of $(121,018) in the quarter ended
December 31, 1996, an improvement of $397,494. As a percentage of sales, income
from operations improved to 8% in the quarter ended December 31, 1997 from (6%)
in the quarter ended December 31, 1996. The improvement to income 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, 1997 was reduced by
$37,850 or 86% to $6,363 compared to $44,213 in the quarter ended December 31,
1996. As a percentage of sales, interest expense decreased to 0.2% in the
quarter ended December 31, 1997 from 2% in the quarter ended December 31, 1996.
This decrease is due to a significant decline in outstanding debt 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 income improved by 283% to $197,159 in
the quarter ended December 31, 1997 compared to a net loss of $(107,559) in
1996. Net income as a percentage of sales was 5% in the quarter ended December
31, 1997 compared to a net loss as a percentage of sales of (6%) in the quarter
ended December 31, 1996. The improvement in net income overall, resulted
primarily from increased revenues and gross profits, offset in part by increased
selling and administrative expenses as discussed above.
<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, 1997, there were no borrowings
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, 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 December 31, 1997, there was
approximately $91,650 outstanding under this arrangement with the Bank. The
Company also has capital lease obligations of $161,630 at December 31, 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 3 years.
On April 22, 1997, the Company retired a note payable to the Bank in an
aggregate principal amount of $500,000, bearing interest at the prime rate,
which note was 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 were paid in full on August 8, 1997.
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.
<PAGE>
<PAGE>
The Company's operating cash flow was $1,127,149 for the quarter ended
December 31, 1997, $3,448,740 for fiscal 1997, and negative $(1,426,090) in
fiscal 1996. The improvement in the Company's operating cash flow results
primarily from improved net income as discussed above and improved working
capital as more fully presented in the Condensed Statements of Cash Flows for
the quarter ended December 31, 1997. Negative cash flow for the year ended
September 30, 1996 was 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%.
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. Due to the Company's strong
backlog and increased revenues, this cycle is less significant in the current
quarter, 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. This change is evidenced by an increase
in first quarter revenues and operating cash flows.
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 to more traditional levels approximating 45 days, in
the future although there can be no assurance of such. The Company's total
outstanding accounts receivable balance of $2,813,899 at December 31, 1997 has
been subsequently reduced by approximately $1,141,703 in cash collections.
We have provided a reserve for certain older balances of $141,497. This
reserve is believed to be more than sufficient to address any uncollectible
balances outstanding as of December 31, 1997.
As of December 31, 1997 and 1996, the Company's backlog was $12,667,941
and $12,633,229, 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 $7,168,578 of the
products in backlog within the next 12 months. The remaining $5,499,363 of
products in backlog will be completed over the next 36 months.
In October of 1997, the Company announced that it entered into
negotiations related to an acquisition. The terms of the acquisition, including
price and acquisition date, have not yet been determined.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the proceeds of the IPO and ongoing
stock offerings, together with the Company's existing working capital and
anticipated cash flows from the Company's operations, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. 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.
<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.
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1997.
<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 6, 1998 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)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY OF PARAVANT
COMPUTER SYSTEMS, INC. AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,608,526
<SECURITIES> 0
<RECEIVABLES> 2,963,896
<ALLOWANCES> 141,497
<INVENTORY> 3,563,335
<CURRENT-ASSETS> 9,523,742
<PP&E> 1,828,439
<DEPRECIATION> 959,437
<TOTAL-ASSETS> 11,397,754
<CURRENT-LIABILITIES> 2,851,278
<BONDS> 0
<COMMON> 120,041
0
0
<OTHER-SE> 8,288,832
<TOTAL-LIABILITY-AND-EQUITY> 11,397,754
<SALES> 3,597,965
<TOTAL-REVENUES> 3,597,965
<CGS> 1,975,269
<TOTAL-COSTS> 1,975,269
<OTHER-EXPENSES> 1,346,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 297,999
<INCOME-TAX> 100,840
<INCOME-CONTINUING> 197,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,159
<EPS-PRIMARY> .025
<EPS-DILUTED> .017
</TABLE>
