<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No.2)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 8, 1998
PARAVANT INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Florida 0-28114 59-2209179
------- ------- ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
1615A West Nasa Boulevard, Melbourne, Florida 32901
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 727-3672
-----------------------
Paravant Computer Systems, Inc.
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
<PAGE>
Paravant Inc. (the "Company") hereby amends Items 7(a) of its current
report on Form 8-K filed with the Securities and Exchange Commission on October
23, 1998, as amended on December 22, 1998, with respect to the acquisition of
the stock of Engineering Development Laboratories, Incorporated ("EDL"), and
substantially all of the business and assets of Signal Technology Laboratories,
Inc. ("STL"), solely to substitute the correct addressee of the independent
auditors' report and a typographical error in footnote 7 in the Engineering
Development Laboratories, Incorporated and Signal Technology Laboratories,
Inc. Combined Financial Statements as of and for the year ended September 30,
1998 and the nine-month period ended October 4, 1997.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired. The following financial
statements of EDL and STL are filed as an exhibit hereto and are incorporated
herein by reference:
Engineering Development Laboratories, Incorporated and Signal
Technology Laboratories, Inc. Combined Financial Statements as of and
for the year ended September 30, 1998 and the nine-month period ended
October 4, 1997.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------ -----------
<S> <C>
2.1* Acquisition Agreement dated as of March 31, 1998 (as
amended August 6, 1998) by and among Paravant Computer
Systems, Inc., Engineering Development Laboratories,
Incorporated, Signal Technology Laboratories, Inc., James
E. Clifford, Edward W. Stefanko, C. David Lambertson,
C. Hyland Schooley, Peter Oberbeck and Leo S. Torresani.
99.1 Engineering Development Laboratories, Incorporated and
Signal Technology Laboratories, Inc. Combined Financial
Statements as of and for the year ended September 30, 1998
and the nine-month period ended October 4, 1997.
99.2** Paravant Inc. Pro Forma Consolidated Balance Sheet and
Income Statement as of and for the year ended September 30,
1998.
</TABLE>
- ---------------
* This exhibit has been previously filed with the Company's Form 8-K filed on
October 23, 1998, and is incorporated herein by reference.
** This exhibit has been previously filed with the Company's Form 8-K/A filed
on December 22, 1998, and is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 23, 1998 PARAVANT INC.
(Registrant)
By: /s/ Kevin J. Bartczak
------------------------------
Kevin J. Bartczak
Vice President
1
<PAGE>
<PAGE>
EXHIBIT INDEX
PARAVANT INC.
<TABLE>
<CAPTION>
Exhibit
No. Description
------ -----------
<S> <C>
2.1* Acquisition Agreement dated as of March 31, 1998 (as
amended August 6, 1998) by and among Paravant Computer
Systems, Inc., Engineering Development Laboratories,
Incorporated, Signal Technology Laboratories, Inc., James
E. Clifford, Edward W. Stefanko, C. David Lambertson,
C. Hyland Schooley, Peter Oberbeck and Leo S. Torresani.
99.1 Engineering Development Laboratories, Incorporated and
Signal Technology Laboratories, Inc. Combined Financial
Statements as of and for the year ended September 30, 1998
and the nine-month period ended October 4, 1997.
99.2** Paravant Inc. Pro Forma Consolidated Balance Sheet and
Income Statement as of and for the year ended September 30,
1998.
</TABLE>
- ---------------
* This exhibit has been previously filed with the Company's Form 8-K filed on
October 23, 1998, and is incorporated herein by reference.
** This exhibit has been previously filed with the Company's Form 8-K/A filed
on December 22, 1998, and is incorporated herein by reference.
2
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Combined Financial Statements
September 30, 1998 and October 4, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
<PAGE>
Independent Auditors' Report
Boards of Directors
Engineering Development Laboratories, Incorporated and Signal Technology
Laboratories, Inc.
We have audited the accompanying combined balance sheet of Engineering
Development Laboratories, Incorporated and Signal Technology Laboratories, Inc.
as of September 30, 1998, and the combined statements of income, changes in
stockholders' equity and cash flows for the year then ended and for the nine
month period ended October 4, 1997. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Engineering
Development Laboratories, Incorporated and Signal Technology Laboratories, Inc.
at September 30, 1998 and the results of their operations and their cash flows
for the year ended September 30, 1998 and for the nine month period ended
October 4, 1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Orlando, Florida
October 29, 1998
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
Independent Auditors' Report 1
Financial Statements:
Combined Balance Sheet 2
Combined Statements of Income 3
Combined Statements of Changes in Stockholders' Equity 4
Combined Statements of Cash Flows 5
Notes to Combined Financial Statements 6-15
</TABLE>
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Combined Balance Sheet
September 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,712,054
Accounts receivable 1,684,403
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,868,433
Inventory 216,146
Prepaid expenses and other assets 8,375
Deferred income taxes 67,143
-------------
Total current asset 15,556,554
Property and equipment, net 433,486
Other assets 1,660
-------------
$ 15,991,700
=============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank $ 225,000
Accounts payable 347,310
Accrued liabilities 799,513
Accrued incentive compensation 303,614
Billings in excess of costs and estimated earnings on
uncompleted contracts 78,994
Reserve for losses on contracts in process 425,235
Income taxes payable 1,392,167
-------------
Total current liabilities 3,571,833
Deferred income taxes 20,036
-------------
Total liabilities 3,591,869
-------------
Stockholders' equity:
Common stock, EDL, 750 shares authorized and issued, 492 shares
outstanding 300,912
Common stock, STL, 1,365 shares authorized, issued and outstanding 391,633
Retained earnings 12,115,397
Treasury stock, 258 shares, at cost (408,111)
-------------
Total stockholders' equity 12,399,831
Commitments and contingencies (Notes 4, 5 and 12)
-------------
$ 15,991,700
=============
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Combined Statements of Income
For the Year ended September 30, 1998
and for the nine month period ended October 4, 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -------------------
<S> <C> <C>
Contract revenues $35,744,176 23,453,050
Cost of contract revenues 13,734,406 10,142,620
----------------- -------------------
Gross profit 22,009,770 13,310,430
General and administrative expenses 4,344,961 2,573,632
----------------- -------------------
Income from operations 17,664,809 10,736,798
Other income (expense)
Interest income 274,037 20,136
Royalty income 54,200 --
Interest expense (25,469) (58,491)
Other income (expense) 50,200 (6,422)
----------------- -------------------
Total other income (expense) 352,968 (44,777)
----------------- -------------------
Income before income taxes 18,017,777 10,692,021
Income tax expense 5,385,590 3,742,778
----------------- -------------------
Net income 12,632,187 6,949,243
================= ===================
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Combined Statements of Changes in Stockholders' Equity
For the Year ended September 30, 1998 and for the nine month period ended
October 4, 1997
<TABLE>
<CAPTION>
Net
unrealized
EDL STL holding gains
----------------- ----------------- Retained (losses) on Treasury
Shares Amount Shares Amount earnings investments stock Total
-------- --------- -------- ------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1996 750 $100,912 1,365 $391,633 $ 3,840,967 $ 2,050 $(408,111) $ 3,927,451
Net income -- -- -- -- 6,949,243 -- -- 6,949,243
Distributions to stockholders -- -- -- -- (6,444,000) -- -- (6,444,000)
Unrealized holding gains on
investment securities
available for sale,
net of deferred income
taxes -- -- -- -- -- 19,911 -- 19,911
-------- --------- ------ -------- ----------- --------- ---------- ----------
Balances at October 4, 1997 750 100,912 1,365 391,633 4,346,210 21,961 (408,111) 4,452,605
Net income -- -- -- -- 12,632,187 -- -- 12,632,187
Distributions to
stockholders -- -- -- -- (4,863,000) -- -- (4,863,000)
Stockholder contribution -- 200,000 -- -- -- -- -- 200,000
Unrealized holding losses
on investment securities
available for sale,
net of deferred
income taxes -- -- -- -- -- (21,961) -- (21,961)
-------- --------- ------ -------- ----------- --------------- ---------- -----------
Balances at September 30,
1998 750 $300,912 1,365 $391,633 $12,115,397 $ -- $(408,111) $12,399,831
======== ========= ======= ========= =========== =============== ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Combined Statements of Cash Flows
For the Year ended September 30, 1998 and for the nine month period ended
October 4, 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,632,187 6,949,243
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 94,243 56,071
Deferred income taxes (1,980) 76,149
Gains on investments (13,353) --
Increase (decrease) in cash caused by changes in:
Accounts receivable 944,319 (258,607)
Contracts in progress 1,192,011 (2,990,174)
Inventory (129,918) (48,462)
Prepaid expenses and other assets 17,431 20,748
Accounts payable (982,918) 613,751
Accrued liabilities and incentive compensation (47,279) 556,753
Income taxes payable (1,233,731) 1,369,628
----------- -----------
Net cash provided by operating activities 12,471,012 6,345,100
----------- -----------
Cash flows from investing activities:
Proceeds from sales of investments 619,346 --
Purchase of investments (271,349) (307,421)
Purchases of property and equipment (278,430) (125,574)
----------- -----------
Net cash provided by (used in) investing activities 69,567 (432,995)
----------- -----------
Cash flows from financing activities:
Proceeds from note payable to bank 225,000 --
Stockholder contribution 200,000 --
Distributions to shareholders (4,863,000) (6,440,000)
----------- -----------
Net cash used in financing activities (4,438,000) (6,440,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 8,102,579 (527,895)
Cash and cash equivalents at beginning of period 609,475 1,137,370
----------- -----------
Cash and cash equivalents at end of period $ 8,712,054 609,475
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 21,588 1,941
=========== ===========
Income taxes $ 6,618,942 2,297,999
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
(1) Description of Business and Summary of Significant Accounting Policies
(a) Reporting Entity
The accompanying combined financial statements include the accounts
of Engineering Development Laboratories, Incorporated ("EDL") and
Signal Technology Laboratories, Inc. ("STL"). EDL is a closely-held
corporation with three stockholders. EDL owns 56% of the voting
common shares of STL, with the remaining shares of STL owned by
three other stockholders. EDL, STL and their stockholders
are partners to an acquisition agreement (see Note 12) with Paravant
Inc. whereby EDL and the business operations of STL are being sold to
Paravant Inc. The accompanying financial statements have been
prepared on a combined basis rather than consolidated since the
minority stockholders in STL are also parties to the acquisition
agreement. The intercompany transactions and balances between EDL and
STL have been eliminated in the accompanying financial statements.
(b) Business
EDL designs, develops and produces military electronic hardware,
primarily related to airborne and avionics systems for the United
States Department of Defense. STL designs, develops, and produces
hardware, primarily related to electronic signal conditioning and
analysis, for foreign and domestic intelligence agencies.
The principal customers of EDL and STL are United States Government
agencies and contractors who are subject to federal budgetary
implications.
During 1997, EDL and STL changed their fiscal year end from the
Saturday nearest to December 31, to the Saturday nearest to
September 30, using a 52-53 week year. During 1998, EDL and STL
changed their fiscal year end to September 30.
(c) Cash and Cash Equivalents
For purposes of the combined statements of cash flows, all highly
liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
(d) Revenue Recognition
EDL and STL use the percentage-of-completion method of accounting
for fixed price contracts in progress. Accordingly, revenues are
recognized in the ratio that contract costs incurred are to estimated
total contract costs. Losses expected to be incurred on contracts are
charged to operations in the period such losses are determined.
(Continued)
6
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
Federal government contracts costs, including indirect expenses, are
subject to audit and adjustment by the Defense Contract Audit Agency
("DCAA"). Contract revenues have been recorded in amounts which are
expected to be realized upon final settlement. In management's
opinion, adjustments resulting from any DCAA audit for 1998 or years
prior to 1997 will not have a material adverse effect on the
combined financial position or the results of operations.
(e) Inventory
Inventory is stated at the lower of cost or market using the
first-in, first-out (FIFO) cost method.
(f) Investments
Investments are classified into one of three categories which
determines their carrying value. These categories are as follows:
Held-to-maturity - securities for which there is the positive
intent and ability to hold to maturity are carried at amortized
cost.
Trading - securities that are purchased and held for the purpose
of selling in the near term and generating profits on short-term
differences in price are carried at estimated fair value and any
unrealized gains and losses are recognized in the combined
statements of income.
Available-for-sale - all other securities not classified as
held-to-maturity or trading securities are carried at estimated
fair value and any unrealized holding gains and losses are
recorded as a net amount in a separate component of equity, net
of related deferred income taxes, until realized.
For the year ended September 30, 1998 and for the nine month period
ended October 4, 1997, all investments were classified as
available-for-sale.
(Continued)
7
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
(g) Property and Equipment
Property and equipment is stated at cost and is depreciated over the
estimated useful lives of the assets using the straight-line method.
(h) Income Taxes
EDL has elected treatment as a small business corporation under the
S-Corporation provisions of the Internal Revenue Code. No provision
for income taxes has been included in the accompanying statement of
income for the operations of EDL since the S-Corporation earnings are
included in the individual income tax returns of EDL's
stockholders. However, STL is taxed as a Subchapter C corporation and
therefore accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(Continued)
8
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
(2) Costs and Estimated Earnings on Uncompleted Contracts
Contracts in progress and advance billings on such contracts consist of
the following as of September 30, 1998:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $ 18,517,028
Estimated earnings thereon 10,656,855
---------------------
29,173,883
Billings to date 24,809,679
---------------------
$ 4,364,204
=====================
</TABLE>
The above amount is included in the accompanying combined balance sheet
under the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts $ 4,868,433
Billings in excess of costs and estimated earnings
on uncompleted contracts 78,994
Reserve for losses on contracts in process 425,235
---------------------
$ 4,364,204
=====================
</TABLE>
(Continued)
9
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
(3) Property and Equipment
Property and equipment consists of the following at September 30, 1998:
<TABLE>
<CAPTION>
Estimated
useful lives
--------------
<S> <C> <C>
Leasehold improvements $ 6,497 2 years
Laboratory equipment 65,826 5 years
Test equipment 303,078 5 years
Demonstration equipment 103,678 3 years
Computer equipment 353,483 5 years
Office furniture and equipment 95,058 5-7 years
---------------
Total property and equipment 927,620
Less accumulated depreciation (494,134)
---------------
Net property and equipment $ 433,486
===============
</TABLE>
(4) Note Payable to Bank
EDL has a secured $1,500,000 revolving line of credit available with a
bank. Unpaid balances bear interest at .25% above the bank's prime rate
(7.5% at September 30, 1998). Collateral related to this line of credit
includes accounts receivable, inventory, equipment, and furniture and
fixtures. The line of credit agreement contains restrictive covenants
and reporting requirements which include net worth and debt to equity
ratio minimums. As of September 30, 1998, borrowings outstanding under
this line of credit totaled $225,000 (see Note 13).
(Continued)
10
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
(5) Leases
EDL and STL have operating leases for office and manufacturing space with
initial terms of three years. The leases provide for the lease terms to be
extended to five years, with an option for an additional three years at a
two percent rate escalation. Total rent expense under operating leases was
approximately $196,000 and $186,000 for the year ended September 30, 1998
and for the nine month period ended October 4, 1997, respectively. Future
minimum lease payments under the operating leases are $188,000 and $21,000
for the years ending September 30, 1999 and 2000, respectively.
In June 1998, EDL and STL entered into a mutual commitment to build and
lease additional office and manufacturing space under new terms which
become effective upon completion of the construction. The minimum lease
payments under the new agreement will be as follows:
<TABLE>
<S> <C>
Year one $294,000
Year two 318,000
Year three 343,000
Year four 350,000
Year five 357,000
</TABLE>
(6) Income Taxes
Income tax expense for the year ended September 30, 1998 and for the nine
month period ended October 4, 1997 consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
1998:
<S> <C> <C> <C>
Federal $ 4,725,450 1,980 4,727,430
State 658,160 -- 658,160
-------- ------ --------
$ 5,383,610 1,980 5,385,590
========= ====== =========
1997:
Federal $ 2,815,482 58,382 2,873,864
State 851,147 17,767 868,914
-------- ------ --------
$ 3,666,629 76,149 3,742,778
========= ====== =========
</TABLE>
(Continued)
11
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
Following is a reconciliation of the expected income tax expense computed
by applying the U.S. federal income tax rate of 34% to income before
income taxes to the actual income tax provision for the year ended
September 30, 1998 and for the nine month period ended October 4, 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Computed "expected" tax expense $ 6,126,044 3,635,287
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit 314,703 573,483
S-Corporation earnings not subject to income taxes (1,088,899) (486,158)
Other, net 33,742 20,166
-------- --------
$ 5,385,590 3,742,778
========= =========
</TABLE>
Deferred income taxes as of September 30, 1998 reflect the impact of
"temporary differences" between amounts of assets and liabilities for
financial statement purposes and such amounts as measured by tax laws. The
temporary differences give rise to deferred tax assets and liabilities
which are summarized below as of September 30, 1998:
<TABLE>
<S> <C>
Gross deferred tax assets:
Accrued vacation and benefits 67,143
Gross deferred tax liabilities:
Accumulated depreciation (20,036)
------
Total net deferred tax assets $ 47,107
======
</TABLE>
(Continued)
12
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
A valuation allowance for deferred tax assets is provided when it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. Realization is dependent upon the generation of future
taxable income or the reversal of deferred tax liabilities during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this
assessment. As of September 30, 1998, no valuation allowance has been
recognized in the accompanying combined financial statements for the
deferred tax assets because management believes that sufficient
projected future taxable income will be generated to fully utilize the
benefits of these deductible amounts.
(7) Concentration of Credit Risk
EDL and STL have a high concentration of revenues from a few customers who
accounted for 99% and 71% of revenues for the year ended September 30,
1998 and for the nine month period ended October 4, 1997, respectively. A
summary of revenues from customers exceeding 5% of revenues for the year
ended September 30, 1998 and for the nine month period ended October 4,
1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
Revenues % Total Revenues % Total
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Customer A $14,724,954 41% $ 6,783,589 29%
Customer B 5,223,048 15% 6,323,101 27%
Customer C 4,606,907 13% -- --
Customer D 3,146,958 9% -- --
Customer E 2,867,366 8% 2,248,928 10%
Customer F 2,467,770 7% -- --
Customer G 2,283,800 6% -- --
Customer H -- -- 1,118,246 5%
</TABLE>
(Continued)
13
<PAGE>
<PAGE>
ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998
A summary of accounts receivable from customers that exceed 5% of accounts
receivable as of September 30, 1998 is as follows:
<TABLE>
<CAPTION>
Accounts receivable % Total
------------------ --------
<S> <C> <C>
Customer A $ 119,192 7%
Customer B 162,058 10%
Customer C 186,138 11%
Customer G 488,211 29%
Customer I 273,000 16%
Customer J 171,145 10%
Customer K 92,359 5%
</TABLE>
(8) Benefit Plans
EDL and STL have defined contribution 401(k) plans that cover all
full-time employees 18 years or older. EDL and STL currently match 50%
of employee contributions up to 10% of compensation. EDL and STL provided
matching contributions of approximately $131,000 and $73,000 for the year
ended September 30, 1998 and for the nine month period ended October 4,
1997, respectively.
EDL and STL have also established deferred compensation plans for certain
employees. EDL has two plans whose provisions provide deferred
compensation equal to 50% of base salary for certain employees and 12% of
base salary for certain other employees. No employee contributions are
required for the EDL plans. STL has a plan whereby the employees can defer
up to 10% of their base salary. STL will then match any deferrals on a 3
for 1 basis. The amount expensed by EDL and STL was approximately $443,000
and $289,000 for the year ended September 30, 1998 and for the nine month
period ended October 4, 1997, respectively. Amounts are payable upon
retirement, termination of employment, death or disability. Substantially
all of the amounts expensed by EDL and STL were disbursed prior to
September 30, 1998.
(9) Stock Redemption Agreement
EDL and STL have stock redemption agreements with their stockholders
whereby if the stockholder desires to sell their stock the stock must
first be offered for sale to the Company. The agreements provide for a
price based upon book value as stated in the latest interim financial
report. The Company, however, may decide not to purchase the stock and the
holder may then offer it to any potential buyer.
(Continued)
14
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ENGINEERING DEVELOPMENT LABORATORIES, INCORPORATED
AND SIGNAL TECHNOLOGY LABORATORIES, INC.
Notes to Combined Financial Statements
September 30, 1998 and October 4, 1997
(10) Product Warranties
EDL and STL have warranted certain items in their contracts with the United
States Government. Management believes it has sufficient residual material
available to provide any needed parts and an employee is available on
site to provide needed service. Management has provided for estimated
future warranty costs as part of contract costs.
(11) Disclosures About Fair Value of Financial Instruments
The carrying amounts of EDL and STL's receivables, current liabilities and
deferred compensation approximates their fair value because of the short
maturity of those instruments.
(12) Subsequent Events
On March 31, 1998, STL and the stockholders of EDL entered into an
agreement ("Acquisition Agreement") to sell the common stock of EDL and
substantially all of the business and operating assets of STL to Paravant
Inc. ("Paravant").
The Acquisition Agreement was subsequently approved by the shareholders of
Paravant. On October 8, 1998, EDL distributed its shares in STL to EDL
stockholders. Paravant purchased all of the outstanding voting common
shares of EDL and STL of Ohio ("New STL"), a wholly owned subsidiary of
Paravant, purchased substantially all of STL's operating assets, excluding
certain cash, accounts receivable and unbilled work-in-progress on active
contracts of STL. STL simultaneously entered into an agreement to
subcontract the completion of its active contracts with New STL. The
subcontract agreement provides for New STL to pay STL a management fee of
2% of subcontract revenues.
On October 8, 1998, under the terms of the Acquisition Agreement, STL and
the stockholders of EDL received approximately $8.7 million in
cash, an 8% three year $4.8 million note, 3,950,000 shares of
Paravant's common stock and a contingent cash earn-out payable over
five years based on the future profits of EDL and New STL.
In connection with the Acquisition Agreement, the line of credit was
repaid and cancelled. Paravant simultaneously entered into an agreemenet
with its primary lender to enable Paravant, EDL and New STL to
collectively borrow up to $14 million at a variable rate of interest tied
to the prime rate, which at October 8, 1998 was 7.5%.
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