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PROSPECTUS
PARAVANT COMPUTER SYSTEMS, INC.
5,089,803 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF REDEEMABLE WARRANTS
288,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF UNDERWRITER'S WARRANTS
47,982 REDEEMABLE WARRANTS
ISSUABLE UPON EXERCISE OF UNDERWRITER'S WARRANTS
47,982 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF REDEEMABLE WARRANTS
UNDERLYING UNDERWRITER'S WARRANTS
This Prospectus relates to (i) up to 5,089,803 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
redeemable warrants, each warrant to purchase one share of Common Stock (each, a
"Warrant"), issued in connection with the Company's June 1996 initial public
offering of securities (the "IPO"), (ii) up to 288,000 shares of Common Stock
issuable upon the exercise of warrants (the "Underwriter's Warrants") issued to
Duke & Co., Inc., the underwriter engaged by the Company in connection with the
IPO (the "Underwriter"), and certain of its designees, (iii) up to 47,982
Warrants issuable upon exercise of Underwriter's Warrants and (iv) up to 47,982
shares of Common Stock issuable upon the exercise of the Warrants underlying the
Underwriter's Warrants.
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, during the period of five years which commenced on November 30,
1997. The Warrants are redeemable by the Company at any time 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 the redemption. The Underwriter's
Warrants entitle the holders thereof to purchase up to 288,000 shares of Common
Stock at an exercise price of $2.00 per share and up to 47,982 Warrants at an
exercise price of $.04 per Warrant. The Underwriter's Warrants are exercisable
during the four-year period which commenced on June 3, 1997. Only holders of
Warrants and/or Underwriter's Warrants residing in states where the issuance of
the Common Stock underlying such Warrants and/or Underwriter's Warrants, as the
case may be, has been registered or qualified, or is exempt from registration or
qualification, under the securities laws of such states may exercise such
securities.
The Common Stock and Warrants are traded on Nasdaq under the symbols
"PVAT" and "PVATW," respectively. On September 23, 1998, the closing sale price
of the Common Stock and Warrants on Nasdaq was $1.1875 and $.40625,
respectively.
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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 8) AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is September 23, 1998
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AVAILABLE INFORMATION
Pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), the Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all amendments
and exhibits thereto, the "Registration Statement") of which this Prospectus is
a part. This Prospectus does not contain all the information set forth in the
Registration Statement, to which reference is hereby made for further
information. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. 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.
The Company is subject to the 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
Commission. Such reports, proxy statements and other information filed with the
Commission by the Company can be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
or at the Regional Offices of the Commission located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information which have been filed
electronically with the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated into
this Registration Statement by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1997;
(b) The Company's Quarterly Report on Form 10-QSB for the period ended
December 31, 1997;
(c) The Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998;
(d) The Company's Quarterly Report on Form 10-QSB for the period ended
June 30, 1998;
(e) The description of the Company's Common Stock, par value $.015 per
share, contained in the Company's Registration Statement on Form SB-2
(Registration No. 333-38279) filed with the Commission on October 20, 1997;
(f) The Company's Proxy Statement and Notice of Meeting relating to the
Special Meeting of Shareholders to be held on September 17, 1998, as filed with
the Commission on August 11, 1998; and
(g) All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since September 30, 1997.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the sale of all of the securities offered hereunder or the deregistration of all
such securities then remaining unsold, shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of any of the Common Stock, to whom a copy of this Prospectus
has been delivered, upon the written or oral request of such person, a copy of
any and all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus. Requests for such copies of any
document should be directed to William R. Craven, Secretary, 1615A West Nasa
Boulevard, Melbourne, Florida 32901, telephone number (407) 727-3672.
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PROSPECTUS SUMMARY
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 (the
"Warrant Split") of the Company's publicly traded redeemable warrants (the
"Warrants"), 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") is
a manufacturer of ruggedized, portable computers and communications interfaces
utilized in outdoor and medical 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 systems are designed and built to
function in adverse environments under harsh weather, climate and operational
conditions. Because the Company's products are insulated from temperature
extremes, flying debris, shock, vibration, moisture and humidity, they are able
to achieve 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. In addition, the Company
has entered the medical market by selling to manufacturers of certain types of
implantable medical devices a computer device known as a "programmer," which
enables the implanted device to be externally reprogrammed.
MILITARY AND OTHER COMMERCIAL MARKETS. 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, land mapping and
surveys, oil exploration and medical testing.
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 or provide complete integration of a variety of different
interfaces required for a specific application. Moreover, PCS's ability to
incorporate 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 do not provide
customization services, and furnish only limited communication capabilities for
their products, if at all. 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."
For the fiscal year ended September 30, 1997 and the nine months ended
June 30, 1998, approximately 95% and 97%, respectively, of PCS's total sales
were made, directly or indirectly, to the military market in the United States
and abroad. The remaining 5% and 3%, respectively, of its sales for such periods
were made to the government and commercial markets. Approximately 1% and 3%,
respectively, 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 Company, Lockheed Martin
Corporation 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.
While the general trend in defense spending is toward reductions of
overall expenditures, current trends in U.S. military procurement and budgeting
policies appear to be favorable to the Company. In its attempt to economize,
the U.S. military tends to avoid expenditures on new large weapon systems and
special-function
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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
effects on the Company's future business. See "Risk Factors."
THE MEDICAL MARKET. The Company has begun designing and developing
computer devices known as "programmers" to be sold to manufacturers of certain
types of implantable medical devices, including drug delivery devices,
electroneurostimulators, defibrillators and ventricular assist devices.
Increasingly, such implantable devices are capable of being reprogrammed
externally by a programmer via a telemetry link, thereby enabling the physician
to alter the drug delivery rate or dispensing of medication. The Company
believes that many manufacturers of implantable devices would prefer to
outsource the design and production of these programmers, since the skills and
resources required to develop such programmers do not necessarily align with the
core competencies of the manufacturer -- i.e., the implant. To date, the Company
has secured development contracts with four manufacturers of implantable medical
devices in the implantable categories of drug pumps, neurostimulators,
defibrillators and ventricular assist devices. Although the Company believes
that, based on the reputation and experience it has developed in the military
market, it will be able to further 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 programmers will be
successfully 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.
RECENT DEVELOPMENTS
NAME CHANGE. Consistent with the long range plans of the Board of
Directors to further diversify the business activities of the Company in the
defense, communications and related electronics industry, the Board
recommended a change in the name of the Company from Paravant Computer Systems,
Inc. to Paravant Inc. in order to present a corporate identity which is not
limited solely to the Company's present core business. The proposal to change
the name of the Company was approved at a special meeting of the Company's
shareholders held on September 17, 1998 (the "Special Meeting of Shareholders").
The Company will effect the name change by filing a name change amendment to
the Company's articles of incorporation. It is currently anticipated that such
name change amendment will be filed within thirty days after the date of the
Special Meeting of Shareholders.
PROPOSED ACQUISITION. On March 31, 1998, the Company announced that it
had entered into an agreement (the "Acquisition Agreement") to acquire
Engineering Development Laboratories, Incorporated ("EDL") and Signal Technology
Laboratories, Inc., EDL's majority-owned subsidiary ("STL" and, together with
EDL, "EDL-STL"). These privately-held affiliated companies are engaged in the
business of designing, developing and producing equipment to meet U.S. and
foreign government requirements. On September 17, 1998, at the Special Meeting
of Shareholders, the Acquisition Agreement was approved by the Company's
shareholders. Pursuant to such agreement, which is subject to certain conditions
set forth therein, the Company will acquire all of the outstanding capital stock
of EDL and substantially all of the business and assets of STL, in consideration
for which stock and assets the Company will pay an aggregate consideration
consisting of (i) approximately $8.7 million in cash, (ii) three-year, $4.8
million notes bearing interest at the rate of 8% and (iii) 3,950,000 shares of
Common Stock (the "EDL-STL Acquisition"). In addition, in connection with the
EDL-STL Acquisition, a contingent cash earn-out will be payable by the Company
under specified circumstances over a period of up to five years based on
EDL-STL's future profits and, if paid, will be recorded as additional
compensation expense for the fiscal years ending September 30, 2000 to September
30, 2003. EDL, whose primary customers include the U.S. Air Force, U.S. Navy and
U.S. Marines and allied military forces, specializes in designing, developing
and producing avionics equipment used to modify the airborne platforms employed
by Special Operations forces. STL, whose customers include several U.S.
government agencies and government prime contractors, designs and produces
digital signal processing hardware, digital switch matrices for signal routing
purposes, and other products for signal enhancement and modification. It is
currently anticipated that the EDL-STL Acquisition, which is subject to certain
conditions set forth in the Acquisition Agreement, will be consummated
on or about October 1, 1998; provided, however, that the parties to the EDL-STL
Acquisition have agreed that, by mutual agreement, the closing date may be
extended to a date not later than October 30, 1998 or, if necessary to comply
with certain regulatory requirements, to a date not later than thirty-two days
thereafter. Under the Acquisition Agreement, if the shareholders of EDL-STL or
the Company do not perform their respective obligations to consummate the
EDL-STL Acquisition, the non-performing party or parties would be obligated to
pay the other party liquidated damages of $1,000,000 plus certain costs and
expenses. There can be no assurance that the EDL-STL Acquisition will be
consummated or, if consummated, that it will be consummated as currently
scheduled on October 1, 1998.
The Company intends to finance the cash portion of the consideration to
be paid by the Company in connection with the EDL-STL Acquisition. The Company
has received a conditional commitment from National City Bank, Dayton, Ohio for
floating rate financing in an amount up to $14,000,000 (the "EDL-STL Acquisition
Financing") under a revolving line of credit with a maturity date of December
31, 2001, convertible thereafter to five year term debt. Pursuant to the
conditional commitment, the rate of interest would be determined at a rate equal
to the Bank's prime rate, the federal funds rate or the LIBOR rate plus a margin
which ranges from 1.5% to 2% based on the debt to tangible net worth ratio at
the beginning of the applicable LIBOR rate contract period. The Company may
elect among the rates based upon conditions on the dates upon which funds are
drawn. The EDL-STL
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Acquisition Financing would be secured by a first security interest in accounts,
contract rights, inventory, equipment and other security reasonably requested by
the lender. It is anticipated that the loan agreement applicable to the EDL-STL
Acquisition Financing will include various loan covenants and restrictions of a
customary nature. Such covenants and restrictions, while the EDL-STL Acquisition
Financing is outstanding, under certain circumstances, may limit the ability of
the Company to pay cash dividends, undertake additional acquisitions, make
certain changes in the Company's management, or otherwise limit obligations
undertaken by, or operations of, the Company. The Company anticipates obtaining
the line of credit immediately preceding the closing of the EDL-STL Acquisition.
The ability of the Company to close the EDL-STL Acquisition is dependent upon
the Company's obtaining the EDL-STL Acquisition Financing or other financing in
a comparable amount from another source. Under the terms of the acquisition
agreement relating to the EDL-STL Acquisition, the availability of the EDL-STL
Acquisition Financing is not a condition to the Company's obligation to close
the transaction.
In the event the EDL-STL Acquisition is consummated, the Company's
operations will become subject to certain additional risk factors related
thereto, which risk factors are described herein under "Risk Factors --
Additional Risks Related to the Proposed EDL-STL Acquisition."
A copy of the Acquisition Agreement has been included as an exhibit to
this Registration Statement, and the foregoing summary of certain terms and
provisions of the Acquisition Agreement is qualified in its entirety by
reference to the full text of the Acquisition Agreement. In addition, a more
detailed description of the EDL-STL Acquisition (including, without limitation,
a description of the background of and reasons for the EDL-STL Acquisition as
well as a description of the business of each of EDL and STL) is set forth in
the Company's Proxy Statement relating to the Special Meeting of the
Shareholders, which was filed with the Commission on August 11, 1998. Copies of
such Proxy Statement may be obtained from the Commission in the manner described
under the heading "Available Information."
ISO-9001 CERTIFICATION. On March 27, 1998, the Company's manufacturing
and assembly facilities and procedures were certified as being in compliance
with the quality and assurance standards of ISO-9001, an international standard
promulgated by the International Organization for Standardization, a worldwide
federation of standards bodies from approximately 100 countries. 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 and the U.S.
Food and Drug Administration (the "FDA"). The Company believes that such
certification will enable it to increase its marketing opportunities in the
domestic and international military markets for ruggedized computers as well as
in the medical market for the Company's "programmers," although there can be no
assurance of such.
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THE OFFERING
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Securities Offered................................... Up to (i) 5,089,803 shares of Common Stock issuable upon
the exercise of outstanding Warrants, (ii) 288,000 shares of
Common Stock issuable upon the exercise of Underwriter's
Warrants issued in connection with the IPO, (iii) up to 47,982
Warrants issuable upon exercise of the Underwriter's
Warrants and (iv) up to 47,982 shares of Common Stock
issuable upon the exercise of the Warrants underlying the
Underwriter's Warrants.
Common Stock Outstanding
Before the Offering................................ 8,343,928 shares (1)
After the Offering................................. 13,769,713 shares (2)
Warrants
Warrants Outstanding
Before the Offering.............................. 5,089,803 Warrants (3)
After the Offering............................... 5,137,785 Warrants (4)
Exercise Terms..................................... Exercisable during the five-year period which commenced on
November 30, 1997, each to purchase one share of Common
Stock for $2.00, subject to adjustment in certain
circumstances.
Expiration Date.................................... November 30, 2002.
Redemption......................................... Redeemable by the Company at any time 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.
Use of Proceeds...................................... Except as otherwise set forth herein, the net proceeds, if any,
received by the Company upon the exercise of the Warrants,
the Underwriter's Warrants and the Warrants underlying the
Underwriter's Warrants will be utilized for working capital
and general corporate purposes; the Company may also use
a portion of such proceeds to repay any indebtedness
outstanding under the Company's secured line of credit
arrangement at the time such proceeds become available to
the Company. In connection with (and subject to completion
of) the proposed EDL-STL Acquisition, the Company has
agreed that if any Warrants are called by the Company for
redemption, cancellation, exercise or conversion, the
Company shall (unless prohibited under the terms of any
applicable warrant agreement or credit agreement) apply
fifteen percent of the net proceeds, if any, received by the
Company (after deduction of any directly related expenses)
as a lump sum payment to reduce the principal amount of the
promissory notes issuable by the Company in connection with
the EDL-STL Acquisition.
Risk Factors......................................... The securities offered hereby are speculative and involve a
high degree of risk and should not be purchased by investors
who cannot afford the loss of their entire investment. See
"Risk Factors."
Nasdaq symbols....................................... Common Stock -- "PVAT." Warrants -- "PVATW."
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(1) Based on the number of shares outstanding as of September 23, 1998. Does
not include (i) 1,269,050 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) 1,652,357 shares of Common Stock
reserved for issuance upon exercise of options available for future grant
under the Incentive Plan; (iii) 43,500 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) 78,000 shares of
Common Stock reserved for issuance upon exercise of options available for
future grant under the Directors' Plan; (v) 22,143 shares of Common Stock
reserved for issuance upon exercise of options granted under a
non-qualified stock option plan
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previously maintained by the Company, which has been cancelled; (vi)
25,000 shares of Common Stock reserved for issuance upon exercise of
options granted pursuant to certain Special Non-Qualified Non-Plan Stock
Option Agreements (the "Option Agreements"); (vii) 480,000 shares of Common
Stock issuable upon exercise of warrants (the "Bridge Warrants") issued in
connection with the Company's August 1995 bridge financing (the "1995
Bridge Financing"); (viii) 288,000 shares of Common Stock reserved for
issuance upon exercise of the Underwriter's Warrants; (ix) 47,982 shares of
Common Stock reserved for issuance upon exercise of the Warrants underlying
the Underwriter's Warrants; and (x) 5,089,803 shares of Common Stock
reserved for issuance upon exercise of currently outstanding Warrants. Also
excludes an aggregate of 3,950,000 shares of Common Stock to be issued
pursuant to the Acquisition Agreement in the event the EDL-STL Acquisition
is consummated.
(2) Assumes (i) the exercise of all 5,089,803 Warrants issued to the public in
the IPO and (ii) the exercise of Underwriter's Warrants to purchase 288,000
shares of Common Stock and 47,982 Warrants and (iii) the exercise of all
47,982 Warrants received upon exercise of the Underwriter's Warrants,
although there can be no assurance that any of the foregoing will be
exercised. Does not include any of the shares of Common Stock referred to
in clauses (i) through (vii) of Note 1 above.
(3) Based on the number of Warrants outstanding as of September 1, 1998. Does
not include the 480,000 Bridge Warrants issued in connection with the 1995
Bridge Financing.
(4) Assumes the exercise of Underwriter's Warrants to purchase 47,982 Warrants
but not the exercise of such 47,982 Warrants issuable upon exercise of the
Underwriter's Warrants or of any of the 5,089,803 currently outstanding
Warrants. There can be no assurance that any of the Underwriter's Warrants
will be exercised.
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RISK FACTORS
An investment in the securities offered hereby is speculative in
nature, involves a high degree of risk and should only be made by investors who
can afford the loss of their entire investment. Prospective investors should
give careful attention to these risk factors, as well as to the other
information described elsewhere in this Prospectus, including the financial
statements and notes thereto, in evaluating the Company, its business and
management before making a decision to purchase the Common Stock. 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, 1997 and 1996 and for the
nine months ended June 30, 1998 and 1997, direct and indirect sales of the
Company's products to the U.S. Department of Defense and foreign governments
represented approximately 95%, 96%, 97% and 95%, respectively, of its sales.
Attempts to reduce military expenditures have commenced worldwide for a
multitude of reasons, including budget deficit reduction and a perceived easing
of global tensions.
For the past several 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 digitization 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.
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
Martin Corporation as part of that company's upgraded electronic maintenance
systems for F-16's actually increased in 1997 and 1998. 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 systems will, in all likelihood,
decrease.
In an effort to reduce expenses, the U.S. military has increased its
efforts to purchase commercial off-the-shelf computers for all applications,
including certain of the applications served by the Company's ruggedized
computers. Although management believes that the U.S. military will continue to
have a need for the Company's customized and ruggedized computer products, there
can be no assurance of such. Rather, the U.S. military may elect to purchase
off-the-shelf products exclusively or substantially reduce its purchases of
ruggedized computers. Any such elimination or substantial reduction of purchases
by the U.S. military of the Company's ruggedized
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computers would have a material adverse effect on the Company's primary market
and would therefore have a significant adverse effect on the Company's business
and prospects.
COMPLIANCE WITH REGULATORY OPERATIONAL STANDARDS
The Company's manufacturing and assembly facilities and procedures
have been certified as being in compliance with the quality and assurance
standards of ISO-9001, an international standard promulgated by the
International Organization for Standardization, a worldwide federation of
standards bodies from approximately 100 countries. These standards have been
adopted by the European Economic Community as their preferred quality standard
and, to some degree, by the U.S. Department of Defense and the FDA. The Company
has also obtained approval from the FDA to function as a contract manufacturer
for manufacturers of certain medical products. The Company believes that its
ISO-9001 certification will enable the Company to increase its marketing
opportunities in the domestic and international military markets for ruggedized
computers as well as in the medical market for the Company's "programmers,"
although there can be no assurance of such. Any failure by the Company to
maintain its compliance with such standards could prevent its expansion in such
markets and could have a material adverse effect on its direct and indirect
sales to the U.S. military as well as to certain foreign customers. Likewise,
any failure by the Company to maintain its FDA approval could materially and
adversely affect its sales in the medical market and its ability to expand into
such market.
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."
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, 1997 and 1996 and the nine months ended June 30, 1998, Raytheon Company's
Missile Systems Division (46%, 49% and 49%, respectively) and Lockheed Martin
Corporation (36%, 21% and 28%, respectively) accounted for an aggregate of 82%,
70% and 77%, 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.
As of June 30, 1998, the Company's backlog was $9,367,564, consisting
of firm fixed price purchase orders, 77% of which was represented by large
orders from two customers: Medtronic, Inc. (61%), Raytheon Company (16%). The
remaining 23% of such backlog represented orders from approximately 9 other
customers. The Company currently expects to manufacture and deliver $7,913,503
of the products in backlog within the next 12 months, and to complete the
remaining $1,454,061 of products in backlog over the next 24 months. Although
all of the purchase orders included in the Company's backlog are expected to
generate profits within the Company's historical levels, there can be no
assurance of such. In addition, although the Company believes that the
completion of the orders constituting its backlog, and any new orders which may
be accepted by the Company in the future, should not result in additional
liquidity pressures that cannot be addressed in a manner consistent with the
Company's past practices, there can be no assurance that such completion of the
Company's backlog will not have a material adverse effect on the Company's
liquidity or financial condition. Likewise, the loss or diminution of orders
from any large customer or group of customers could have a substantial adverse
effect on the Company's business and prospects.
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
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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, since 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, 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.
RISKS OF FOREIGN SALES
For the fiscal years ended September 30, 1997 and 1996 and the nine
months ended June 30, 1998 and 1997, the Company derived approximately 1%, 18%,
3% and 1% of its total sales, respectively, from foreign markets. Although
foreign sales do not currently represent a significant portion of the Company's
revenue, such sales may represent a greater portion of the Company's future
revenues, although there can be no assurance of such. In addition, foreign sales
of Paravant products by both Raytheon and Lockheed Martin represent an important
percentage of their past and present sales opportunities. 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.
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. Although at times PCS has experienced strains on, and shortages of,
working capital resulting from such seasonality, the impact of such seasonality
has been significantly reduced in the fiscal years ending September 30, 1997 and
1998 as a result of the Company's increased backlog and revenues. However, there
can be no assurance that the adverse impact on the Company's working capital and
other resources resulting from the seasonality associated with U.S. military and
government purchases will not recur in the future.
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
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 FDA. In
developing programmers for implantable medical device manufacturers, the Company
must first design each
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particular programmer based on the unique specifications of the particular
manufacturer with respect to its implantable medical device. Once the programmer
has been tested and approved by the manufacturer, the manufacturer must
thereafter submit the complete implantable device, including the Company's
programmer, 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 programmer or from the
portion of the device developed by the manufacturer of the implantable device,
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.
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, the
procurement procedure for militarized computers -- i.e., Indefinite Delivery,
Indefinite Quantity ("IDIQ") contracts -- could have a material adverse impact
on the Company's efforts to sell its computers to the U.S. military. 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 unless other means to avoid the impact of IDIQ's
are found. For the last five years, the Company has been able to sell its
computers to the U.S. military notwithstanding the IDIQ requirements because
such computers fall into product categories not currently covered by IDIQ
requirements. However, there can be no assurance that such IDIQ requirements
will not in the future have a material adverse effect on the Company's ability
to sell its computers to the U.S. military.
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 the Company
may have difficulty complying. In most cases, the Company tends to be the high
priced bidder for military bids since, among other reasons, the Company designs
its computers on an overall basis to assure their ruggedness and use in the
worst circumstances and, therefore, employs more expensive components than its
competitors and makes extensive modifications and refinements of its computers
to meet the specifications and special needs of its customers. As a result, the
Company is occasionally one of only a few companies whose products meet the
required specifications designated by such customers.
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. The Company has entered
into an employment contract with him effective through December 31, 1999. The
Company has also obtained "key-man" term insurance in the amount of $1,500,000
on his life. The loss of Mr. McNeight's services to the Company could materially
and adversely affect its business and operations.
In recent years, as PCS's business has improved and Mr. McNeight has
assumed more day-to-day management responsibilities, Krishan K. Joshi, PCS's
Chairman and Chief Executive Officer, has spent considerably more of his time
managing the Company's acquisition opportunities. Management believes that Mr.
Joshi's diminished role with respect to the day-to-day operations of the Company
has not had, and will not have in the future, any adverse effects on the
Company's operations or financial condition.
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 PCS
will be successful in this regard or, if successful, that the services of such
personnel can be secured on terms deemed favorable to it.
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RELIANCE ON SUB-CONTRACTORS AND SUPPLIERS
The Company subcontracts the fabrication of its computer boards to a
few third party manufacturers. It purchases the metal cases, hard disk drives,
brackets, window panels and the keyboards for its portable computers from sole
sources such as Distec, Xcel and HiTech. PCS also licenses its software from
sole sources, including MicroSoft, Phoenix Technology, Magnavox and JFK
Associates. Many of its other components are furnished by outside suppliers.
Except for its software suppliers, it does not have written agreements with any
of these subcontractors or suppliers. This reliance on a few subcontractors,
sole sources and other suppliers can result, and has in the past resulted, in
some delays in deliveries as well as quality control and production problems. 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 the
Company's suppliers could have a material adverse effect on its business.
Although management believes that in nearly every case alternative 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.
Accordingly, any such interruption, suspension or termination of component
deliveries could have a material adverse effect on the Company's business.
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. In
addition, although management believes that the Company's technology does not
infringe patents or other rights owned by others, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or be successful in asserting such claims, as a result of which the
Company could be put in a position where it would be unable to license such
technology at a reasonable cost.
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 products developed by the Company for sale in the
medical market, the Company requires that its contracts with its medical device
customers 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 satisfy future
claims, if any. In addition, there can be no assurance that the Company will be
able to secure such provisions in future contracts with medical device
manufacturers or any future medical industry customers.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company anticipates that the Company's existing working capital
and anticipated cash flow from the Company's operations, together with the
proceeds from the exercise of any Affiliate Options or other outstanding options
or warrants and the proceeds of the EDL-STL Acquisition Financing (or similar
financing) to fund the cash portion of the EDL-STL Acquisition and the future
operations of the acquired companies, 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 Company's existing working capital 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 and the EDL-STL Acquisition Financing, 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.
ADDITIONAL RISKS RELATED TO THE PROPOSED EDL-STL ACQUISITION
As described elsewhere herein, the Company has entered into the
Acquisition Agreement, pursuant to which, subject to certain conditions set
forth in the Acquisition Agreement, the Company will purchase all of the
outstanding capital stock of EDL, a privately-held company which specializes
in designing, developing and producing avionics equipment used to modify the
airborne platforms employed by Special Operations forces, and substantially all
of the business and assets of STL, a privately-held company and majority-owned
subsidiary of EDL which designs and produces digital signal processing hardware,
digital switch matrices for signal routing purposes and other products for
signal enhancement and modification. It
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is currently anticipated that the EDL-STL Acquisition will be consummated on or
about October 1, 1998; however, there can be no assurance that the
EDL-STL Acquisition will be consummated or, if consummated, that it will be
consummated as currently scheduled on October 1, 1998. In the event the EDL-STL
Acquisition is consummated, the Company's future operations will become subject
to certain additional risk factors related thereto, including the following: (i)
the fact that, during recent periods, the revenue and earnings of EDL and STL
were materially higher than those of earlier periods and that, in evaluating the
results of operations for such recent periods in relation to those of prior
periods and reasonable expectations for periods following the consummation of
the EDL-STL Acquisition, management may not have adequately discounted its
evaluation of recent periods, with the result that the EDL-STL Acquisition could
be less favorable to the Company and its shareholders than anticipated by
management; (ii) following the consummation of the EDL-STL Acquisition, the
Company may not be able to obtain the required consent of third parties to
transfer a major portion of the customers and business of STL to the Company;
(iii) the continuing successful operation of the businesses of EDL and STL
following the consummation of the EDL-STL Acquisition will largely depend on the
Company's retaining key management personnel of EDL and STL; (iv) the Company
may experience difficulties in assimilating the acquired businesses into its
business, and the process of combining the acquired businesses may cause an
interruption of, or a loss of momentum in, the Company's business; (v) the
issuance by the Company of 3,950,000 shares of Common Stock to the shareholders
of EDL and STL in connection with the EDL-STL Acquisition will cause dilution in
the ownership interest of the Company's existing shareholders, and the ownership
of such shares of Common Stock by the shareholders of EDL and STL following the
consummation of the EDL-STL Acquisition will provide them with the ability to
exercise substantial influence in the election of directors and other matters
submitted for approval by the Company's shareholders; and (vi) the EDL-STL
Acquisition may have a dilutive effect on the future book value per share and
earnings per share of the Company in the event the results achieved by the
Company following the acquisition of EDL and STL are less favorable than the
results which could have been achieved by the Company on a stand-alone basis.
RISKS ASSOCIATED WITH POSSIBLE FUTURE ACQUISITIONS
In addition to its internal growth strategies, the Company intends to
evaluate, on an ongoing basis, potential acquisitions of, or investments in,
businesses or assets which the Company believes will complement or enhance its
existing business and operations. While the Company regularly evaluates possible
acquisition opportunities, as of the date of this Prospectus the Company has no
current agreements, commitments, understandings or arrangements with respect to
any potential acquisition other than the EDL-STL Acquisition. There can be no
assurance that the EDL-STL Acquisition or any future acquisitions by the Company
will be successful or improve the Company's operating results. In addition, the
Company's ability to complete acquisitions will depend on the availability of
both suitable target businesses and acceptable financing. Any future
acquisitions, including the EDL-STL Acquisition, may result in a potentially
dilutive issuance of additional equity securities, the incurrence of additional
debt or increased working capital requirements. Any such acquisition may also
result in earnings dilution, the amortization of goodwill and other intangible
assets or other charges to operations, any of which could have a material
adverse effect on the Company's business, financial condition or results of
operations. Such acquisitions could involve numerous risks, including, without
limitation, difficulties in the assimilation of the operations, products,
services and personnel of any acquired company and the diversion of management's
attention from other business concerns. Although the Company will endeavor to
evaluate the risks inherent in a particular acquisition, there can be no
assurance that the Company will properly ascertain or assess all significant
risk factors prior to consummating any acquisition.
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its computer
systems to identify any systems that could be affected by the "Year 2000" issue.
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using '00' as the year 1900 rather
than the year 2000. This could result in a major systems failure or
miscalculations. The Company has determined the Year 2000 problem will not pose
any operational problems for the Company's computer systems or result in any
material expense for the Company, as all programs currently being used have
already been modified or converted. However, the Company is still in the process
of assessing the potential effect on the Company should a significant vendor,
supplier or customer not be Year 2000 compliant in a timely manner.
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS
The proceeds to the Company from the exercise of the Warrants, the
Underwriter's Warrants and the Warrants underlying the Underwriter's Warrants,
net of expenses of this offering, will be approximately $10,819,489 assuming
that all such Warrants, Underwriter's Warrants and Warrants included therein are
exercised. There can be no assurance, however, as to the number of Warrants,
Underwriter's Warrants or Warrants included therein, if any, that will be
exercised. Management anticipates that, except as otherwise set forth herein,
the net proceeds of this offering, if any, will be allocated to working capital
and general corporate purposes; the Company may also use a portion of the
proceeds of this offering to repay any indebtedness which may be outstanding
under the Company's secured line of credit arrangement at the time such proceeds
become available to the Company. In addition, in connection with (and subject to
completion of) the proposed EDL-STL Acquisition, the Company has agreed that if
any Warrants are called by the Company for redemption, cancellation, exercise or
conversion, the Company shall
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(unless prohibited under the terms of any applicable warrant agreement or credit
agreement) apply fifteen percent of the net proceeds, if any, received by the
Company (after deduction of any directly related expenses) as a lump sum payment
to reduce the principal amount of the promissory notes issuable by the Company
in connection with the EDL-STL Acquisition. Accordingly, the Company's
management will have broad discretion with respect to the application of all or
a substantial portion of the net proceeds of this offering.
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 23.2%,
12.1% and 6.0%, respectively, of the outstanding shares of Common Stock of the
Company (assuming no exercise 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.
NO DIVIDENDS
The Company has not paid any dividends on its shares of Common Stock
and intends to follow a policy of retaining any earnings to finance the
development and growth of its business. Accordingly, it does not anticipate the
payment of cash dividends in the foreseeable future. However, the payment of
dividends, if any, rests within the discretion of the Board of Directors and
will depend upon, among other things, the Company's earnings, its capital
requirements and its overall financial condition.
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 must 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 each, 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
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<PAGE>
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. 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.
OUTSTANDING OPTIONS, WARRANTS, UNDERWRITER'S WARRANTS AND BRIDGE WARRANTS
As of September 23, 1998, the Company had outstanding options to
purchase an aggregate of 1,359,693 shares of Common Stock at exercise prices
ranging from $0.243 to $6.00. The Company also had outstanding Warrants,
Underwriter's Warrants and Bridge Warrants to purchase an aggregate of
5,089,803, 288,000 and 480,000 shares of Common Stock at exercise prices of
$2.00, $2.00 and $2.00, respectively. Exercise of any of the foregoing options
or warrants will have a dilutive effect on the Company's shareholders.
Furthermore, the terms upon which the Company may be able to obtain additional
equity financing may be adversely effected, since the holders of the options and
warrants can be expected to exercise them, if at all, at a time when the Company
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company than those provided in the options and warrants.
INABILITY TO EXERCISE WARRANTS
The Company intends to qualify the sale of the securities offered
hereby in a limited number of states. Although certain exemptions in the
securities laws of certain states might permit Warrants to be transferred to
purchasers in states other than those in which the Warrants were initially
qualified, the Company will be prevented from issuing Common Stock in such other
states upon the exercise of the Warrants unless an exemption from qualification
is available or unless the issuance of Common Stock upon exercise of the
Warrants is qualified. Although the Company has agreed to use reasonable efforts
to obtain appropriate approvals or registrations under state securities laws
with respect to such Common Stock, the Company may not be able to obtain
qualification of the issuance of such Common Stock in all of the states in which
the ultimate purchasers of the Warrants reside. In such a case, the Warrants
held will expire and have no value if such Warrants cannot be sold. Accordingly,
the market for the Warrants may be limited because of these restrictions.
Further, a current prospectus covering the Common Stock issuable upon exercise
of the Warrants must be in effect before the Company may accept Warrant
exercises. There can be no assurance the Company will be able to have a
prospectus in effect when this Prospectus is no longer current, notwithstanding
the Company's commitment to use its reasonable best efforts to do so. See
"Description of Securities -- Redeemable Warrants."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants may be redeemed 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 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. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Warrants at the then-current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities -- Redeemable
Warrants."
EXERCISE PRICE ARBITRARILY DETERMINED
The exercise price and other terms of the Warrants were determined by
negotiation between the Company and the Underwriter and are not necessarily
related to the Company's assets, book value or financial condition, and may not
be indicative of the actual value of the Company.
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VOLATILITY OF STOCK AND WARRANT PRICES
The Company's Common Stock and Warrants have experienced substantial
price fluctuations since the IPO in June 1996. In addition, the stock market has
experienced significant price and volume fluctuations that have affected the
market prices of equity securities of many companies and that often have been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common Stock
and Warrants. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, operating results and
financial condition.
POSSIBLE CONTINGENT LIABILITY
In connection with the 1995 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. 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.
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 13,769,713
shares of Common Stock outstanding (assuming no exercise of outstanding options
or warrants other than the Warrants, Underwriter's Warrants and the Warrants
underlying the Underwriter's Warrants), of which 10,405,422 shares will be
freely tradeable without restriction or further registration under the
Securities Act. All of the remaining 3,364,291 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 (including, without limitation,
certain volume limitations and holding period requirements thereof) or pursuant
to another exemption under the Securities Act. In addition, the Company has
agreed to register under the Securities Act the sale by holders of the Bridge
Warrants of the 480,000 aggregate shares of Common Stock issuable upon exercise
of the Bridge Warrants and, accordingly, once issued, such shares will be freely
tradeable without restriction or further registration under the Securities Act
(provided that the registration statement relating thereto is in effect at the
time of such issuance).
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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 Warrants, Underwriter's Warrants and Warrants
underlying the Underwriter's Warrants, 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, 1998, the net tangible book value of the Company was
$9,130,952, or $1.09 per share of Common Stock. After giving effect to the sale
by the Company of (i) 5,089,803 shares of Common Stock upon the exercise of
outstanding Warrants, (ii) 288,000 shares of Common Stock upon the exercise of
the Underwriter's Warrants and (iii) 47,982 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, 1998
would have been $19,950,441, or $1.45 per share of Common Stock, representing an
immediate increase in net tangible book value of $.36 per share to existing
shareholders and an immediate dilution of $.55 (28%) 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 Warrants and
Underwriter's Warrants...................................................................... $2.00
Net tangible book value per share before offering................................. $1.09
Increase per share attributable to investors in this offering(1).................. $ .36
-----
Adjusted net tangible book value after offering............................................. $1.45
-----
Dilution to investors in this offering...................................................... $ .55
=====
</TABLE>
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(1) Assumes no exercise of any outstanding options or warrants other than the
Warrants, the Underwriter's Warrants and the Warrants underlying the
Underwriter's Warrants.
USE OF PROCEEDS
The proceeds received by the Company upon exercise of the Warrants,
the Underwriter's Warrants and the Warrants underlying the Underwriter's
Warrants, net of expenses of the offering, will be approximately $10,819,489,
assuming that all of such Warrants, Underwriter's Warrants and Warrants included
therein are exercised. There can be no assurance as to the number of Warrants,
if any, or Underwriter's Warrants or Warrants included therein, if any, that
will be exercised. Management anticipates that, except as otherwise set forth
herein, the net proceeds of this offering, if any, will be allocated to working
capital and general corporate purposes; the Company may also use a portion of
the proceeds of this offering to repay any indebtedness which may be outstanding
under the Company's secured line of credit arrangement at the time such proceeds
become available to the Company. In connection with (and subject to completion
of) the proposed EDL-STL Acquisition, the Company has agreed that if any
Warrants are called by the Company for redemption, cancellation, exercise or
conversion, the Company shall (unless prohibited under the terms of any
applicable warrant agreement or credit agreement) apply fifteen percent of the
net proceeds, if any, received by the Company (after deduction of any directly
related expenses) as a lump sum payment to reduce the principal amount of the
promissory notes issuable by the Company in connection with the EDL-STL
Acquisition.
PLAN OF DISTRIBUTION
The securities offered hereby are being offered on a continuous basis
pursuant to Rule 415 of the Securities Act during the period of time that the
Registration Statement to which this Prospectus relates is kept current. Of the
securities being offered hereby, an aggregate of 5,089,803 shares of Common
Stock are issuable upon the exercise of currently outstanding Warrants. Each
Warrant entitles the holder to purchase one share of Common Stock at a price of
$2.00, subject to adjustment in certain circumstances, during the five-year
period which commenced on November 30, 1997. The Warrants are redeemable by the
Company, under certain conditions, upon notice of not less than 30 days, at a
price of $.0167 per Warrant. See "Description of Securities -- Redeemable
Warrants."
The securities being offered hereby also include (i) up to 288,000
shares of Common Stock issuable upon the exercise of Underwriter's Warrants
issued in connection with the IPO, (ii) up to 47,982 Warrants issuable upon the
exercise of the Underwriter's Warrants and (iii) up to 47,982 shares of Common
Stock issuable upon the exercise of the Warrants underlying the Underwriter's
Warrants. The Underwriter's Warrants entitle the holder thereof to purchase up
to 288,000 shares of Common Stock at an exercise price of $2.00 per share and up
to 47,982 Warrants
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at an exercise price of $.04 per Warrant. The Underwriter's Warrants are
exercisable during the four-year period which commenced on June 3, 1997.
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 8,343,928 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 September 23, 1998, the Company's Common Stock was held of record
by 100 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.
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 the period of five years which
commenced 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
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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%. The Bridge Notes have been paid in full. 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 holders of the
Underwriter's Warrants certain demand and piggyback registration rights with
respect to the Underwriter's Warrants, the shares of Common Stock and Warrants
issuable upon exercise of the Underwriter's Warrants and the shares of Common
Stock issuable upon exercise of the Warrants included in the Underwriter's
Warrants. All 288,000 shares of Common Stock and 47,982 Warrants issuable upon
exercise of the currently outstanding Underwriter's Warrants, as well as all
47,982 shares of Common Stock issuable upon exercise of the Warrants included in
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, for continued listing, a company must
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
each, 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.
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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.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Board of Directors of the Company has authorized the Company to
provide a general indemnification to its officers, directors and employees
regarding any claims or liabilities incurred in the course of their employment.
In addition, the Florida Business Corporation Act (i.e., the corporation law of
the Company's state of incorporation) provides that each officer and director of
the Company shall be indemnified by the Company against certain costs, expenses
and liabilities which he or she may incur in his or her capacity as such.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
EXPERTS
The financial statements of the Company as of and for the years ended
September 30, 1997 and 1996 appearing in the Company's Annual Report on Form
10-KSB have been incorporated by reference herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the Shares has been passed upon by Tenzer Greenblatt
LLP, 405 Lexington Avenue, New York, New York 10174.
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================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..........................................................2
Documents Incorporated By Reference............................................2
Prospectus Summary.............................................................3
Risk Factors...................................................................8
Dilution......................................................................17
Use of Proceeds...............................................................17
Plan of Distribution..........................................................17
Description of Securities.....................................................18
Indemnification for Securities Act Liabilities................................20
Experts.......................................................................20
Legal Matters.................................................................20
</TABLE>
PARAVANT COMPUTER
SYSTEMS, INC.
5,089,803 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF REDEEMABLE WARRANTS
288,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF UNDERWRITER'S WARRANTS
47,982 REDEEMABLE WARRANTS
ISSUABLE UPON EXERCISE OF UNDERWRITER'S WARRANTS
47,982 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF REDEEMABLE WARRANTS
UNDERLYING UNDERWRITER'S WARRANTS
----------
PROSPECTUS
----------
September 23, 1998
================================================================================
