<PAGE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ______ to ______
Commission file number: 0-28114
PARAVANT COMPUTER SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 59-2209179
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1615A West Nasa Boulevard
Melbourne. Florida 32901
(Address of Principal Executive Offices)
407-727-3672
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At August 7, 1998, there were outstanding
8,340,238 shares of Common Stock, $.015 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS. INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheet -- June 30, 1998.................................... 3
Condensed Statements of Operations for the
three months ended June 30, 1998 and 1997................................... 5
Condensed Statements of Operations for the
nine months ended June 30, 1998 and 1997.................................... 6
Condensed Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997.................................... 7
Notes to Condensed Financial Statements..................................... 9
Item 2. Management's Discussion and Analysis of Operations.................. 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 16
SIGNATURES.................................................................. 17
Index to Exhibits Filed with Form 10-QSB dated August 13, 1998.............. 20
Page 2
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
ASSETS
------
(Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $ 2,565,471
Accounts receivable, net 2,932,817
Employee receivables and advances 33,206
Inventory, net (note 2) 3,390,741
Income taxes receivable 167,077
Prepaid expenses 75,070
Other current assets 128,175
Deferred income taxes 426,263
-----------
Total current assets 9,718,820
Employee note receivable (note 3) 215,685
Prepaid expenses 278,765
Property, plant and equipment, net 860,526
Intangible assets, net 43,500
Demonstration pool and custom molds, net 267,790
Other assets 637,232
-----------
Total assets $12,022,318
===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
<S> <C>
Current liabilities:
Current maturities of long-term debt $ 36,648
Current maturities of capital lease obligations 64,593
Accounts payable 646,773
Accrued commissions 568,966
Accrued expenses 718,737
Accrued incentive compensation 181,886
-----------
Total current liabilities 2,217,603
Capital lease obligations, less current maturities 36,919
Deferred income taxes, net 78,820
-----------
Total liabilities 2,333,342
-----------
Stockholders' equity:
Preferred stock, par value $.01 per share.
Authorized 2,000,000 shares, none issued --
Common stock, par value $.015 per share.
Authorized 30,000,000 shares,
issued and outstanding 8,340,238 shares 125,104
Additional paid-in capital 5,729,422
Retained earnings 3,834,450
-----------
Total stockholders' equity 9,688,976
Commitments and contingencies (Note 5)
-----------
Total liabilities and stockholders' equity $12,022,318
===========
</TABLE>
Page 4
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Operations
For the three months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues $4,170,160 3,069,223
Cost of revenues 2,076,775 1,657,386
---------- ----------
Gross profit 2,093,385 1,411,837
Selling and administrative expense 1,680,637 1,048,838
---------- ----------
Income from operations 412,748 362,999
Other income (expense):
Interest expense (4,056) (17,952)
Miscellaneous 22,768 4,897
---------- ----------
Income before income taxes 431,460 349,944
Income tax expense (147,688) (123,618)
---------- ----------
Net income $ 283,772 226,326
========== ==========
Basic earnings per share $ 0.034 0.028
========== ==========
Diluted earnings per share $ 0.025 0.018
========== ==========
Weighted average number of common shares outstanding 8,281,882 7,986,882
========== ==========
Weighted average number of common shares and dilutive
potential common shares outstanding 11,410,060 12,638,563
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
Page 5
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Operations
For the nine months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Revenues $11,818,513 8,196,533
Cost of revenues 6,080,088 4,377,275
----------- ----------
Gross profit 5,738,425 3,819,258
Selling and administrative expense 4,564,570 3,216,759
----------- ----------
Income from operations 1,173,855 602,499
Other income (expense):
Interest expense (15,517) (83,245)
Miscellaneous 76,419 23,120
----------- ----------
Income before income taxes 1,234,757 542,374
Income tax expense (422,657) (190,699)
----------- ----------
Net income $ 812,100 351,675
=========== ==========
Basic earnings per share $ 0.100 0.044
=========== ==========
Diluted earnings per share $ 0.074 0.028
=========== ==========
Weighted average number of common shares outstanding 8,117,302 7,974,454
=========== ==========
Weighted average number of common shares and dilutive
potential common shares outstanding 10,973,091 12,506,601
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
Page 6
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows
For the nine months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 812,100 351,675
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 355,275 332,347
Deferred income taxes -- (27,320)
Increase (decrease) in cash caused by changes in:
Accounts receivable 1,150,098 3,624,351
Employee receivables and advances (5,085) 51,687
Inventory 71,032 (1,481,414)
Income taxes receivable (167,077) --
Prepaid expenses (256,250) 27,022
Other assets (233,732) (84,863)
Accounts payable 51,406 (430,263)
Accrued commissions (1,593) (109,635)
Accrued expenses (20,521) 143,013
Accrued incentive compensation (80,400) (3,512)
Income taxes payable 50,136 (289,621)
----------- -----------
Net cash provided by operating activities 1,725,389 2,103,467
----------- -----------
Cash flows fiom investing activities:
Issuance of employee note receivable (215,685) --
Acquisitions of property, plant and equipment (238,587) (347,805)
Acquisitions of demonstration pool and custom molds (46,668) (117,725)
Acquisition of rights -- (5,000)
Payment of EDL acquisition costs (514,524) --
----------- -----------
Net cash used in investing activities (1,015,464) (470,530)
----------- -----------
(Continued)
</TABLE>
Page 7
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<PAGE>
-2-
PARAVANT COMPUTER SYSTEMS, INC.
Condensed Statements of Cash Flows, (Continued)
<TABLE>
<CAPTION>
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Repayments on notes payable to bank $ -- (540,000)
Repayments on other notes payable -- (50,000)
Repayments on long-term debt (82,503) (582,503)
Repayments on capital lease obligations (94,679) (120,992)
Proceeds from issuance of common stock 158,580 20,231
Proceeds from issuance of warrants 261,521 --
---------- ----------
Net cash provided by (used in) financing activities 242,919 (1,273,264)
---------- ----------
Net increase in cash and cash equivalents 952,844 359,673
Cash and cash equivalents at beginning of the period 1,612,627 65,069
---------- ----------
Cash and cash equivalents at end of the period $2,565,471 424,742
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,929 85,663
========== ==========
Income taxes $ 539,598 460,327
========== ==========
</TABLE>
Supplemental disclosure of noncash investing
and financing activities:
The Company entered into capital lease agreements for
office equipment and furniture totaling $194,753
during the nine months ended June 30, 1997.
See accompanying notes to condensed financial statements.
Page 8
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PARAVANT COMPUTER SYSTEMS, INC
Notes to Condensed Financial Statements
June 30, 1998 and 1997
(1) Basis of Presentation
The accompanying unaudited condensed financial statements of Paravant
Computer Systems, Inc. (the "Company"), have been prepared in accordance
with the instructions and requirements of Form 10-QSB and Regulation S-B
and, therefore, do not include all information and footnotes necessary for
a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management, such financial statements, reflect all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
statement of financial position, results of operations and cash flows for
the interim periods presented. Operating results for the interim periods
are not necessarily indicative of the results that may be expected for the
full fiscal years.
These condensed financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal
year ending September 30, 1997 included in the Company's Annual Report on
Form 10-KSB as filed with the Securities and Exchange Commission. The
accounting principles used in preparing these condensed financial
statements are the same as those described in such statements.
(2) Inventory
The following is a summary of inventory at June 30, 1998:
<TABLE>
<S> <C>
Raw materials $2,794,385
Work in process 864,816
Finished goods 173,305
----------
3,832,506
Reserve for obsolete inventory (441,765)
----------
$3,390,741
==========
(Continued)
</TABLE>
Page 9
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PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements (Continued)
(3) Employee Note Receivable
The Company holds a note receivable of $215,685 from an officer and
director of the company. The note was originated in June, 1998, bears
interest at the rate of interest equal to the rate of interest then
applicable for borrowings by the Company under the Company's then
existing line of credit or other primary lending arrangement with
its then primary lender and matures in June, 2003.
(4) Basic and Diluted Earnings Per Share
On October 1, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS
No. 128 superseded APB Opinion No. 15, "Earnings Per Share", and specifies
the computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock or potential common
stock. It also requires that prior period earnings per share be restated to
conform to the requirements of SFAS No. 128.
Basic earnings per share for the three and nine months ended June 30, 1998
and 1997 have been computed by dividing net income by the weighted average
number of common shares outstanding. Diluted earnings per share for the
three and nine months ended June 30, 1998 and 1997 have been computed by
dividing net income by the weighted average number of common shares and
dilutive potential common shares outstanding.
(5) Commitment
On March 31, 1998, the Company entered into an acquisition agreement to
purchase the common stock of Engineering Development Laboratories,
Incorporated ("EDL") and substantially all of the business and operating
assets of Signal Technology Laboratories, Inc. ("STL"). Under the terms of
the agreement, the Company would pay approximately $8.7 million in cash,
8%, three year notes aggregating $4.8 million, 3,950,000 shares of the
Company's common stock and a cash earn-out payable over five years based on
EDL/STL's future profits. The acquisition is subject to the approval of the
Company's shareholders and certain other conditions.
The Company has received a conditional commitment from a bank for floating
rate financing which would increase the Company's revolving line of credit
to $14,000,000 with a maturity date of December 31, 2000 convertible
thereafter to five year term debt. The line of credit would be secured by a
first security interest in accounts, contract rights, inventory, equipment
and other security reasonably requested by the lender.
(6) Subsequent Event
On July 2, 1998, the Company entered into a loan agreement with
UES, Inc. ("UES"), an affiliate of the Company which is controlled
by the Company's Chairman. The loan agreement, which expires on
(Continued)
Page 10
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
Notes to Condensed Financial Statements (Continued)
December 31, 1998, totals $750,000, is due on demand on and bears interest
at 7%, payable monthly. The note is personally guaranteed by the Company's
Chairman and is collateralized by UES, Inc.'s shares of the Company in the
amount of approximately 1,448,775 common shares.
Page 11
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Operations
RESULTS OF OPERATIONS
Three Months ended June 30, 1998 vs. June 30, 1997
Revenues for the quarter ended June 30, 1998 were $4,170,160, an
increase of $1,100,937 or 36% over the quarter ended June 30, 1997 revenues of
$3,069,223. This increase is primarily due to Paravant's strong backlog
($9,367,564 at June 30, 1998) and continued full scale production deliveries to
Raytheon in support of the U.S. Marine Corps AVENGER Air Defense missile system.
In addition, significant sales were made to the U. S. Navy of an integrated
test and maintenance system for the Phalanx Gun System.
Gross profit was $2,093,385 for the quarter ended June 30, 1998 or
50% of sales, compared to $1,411,837 or 46% of sales in the quarter ended June
30, 1997, a total increase of $681,548 or 48%. This increase in gross
profitability results primarily from the increased revenues discussed above.
Selling and administrative expenses of $1,680,637 in the quarter
ended June 30, 1998, increased by $631,799 or 60% from the quarter ended June
30, 1997 expenses of $1,048,838. As a percentage of sales, selling and
administrative expenses were 40% and 34% in the quarters ended June 30, 1998 and
1997, respectively. The increased selling and administrative expenses are due
primarily to increased sales commissions directly attributable to the increased
sales discussed earlier herein, on-going research and development projects and
material purchases required to begin production of products with
medical applications.
Income from operations was $412,748 for the quarter ended June 30,
1998 compared to $362,999 in the quarter ended June 30, 1997, an improvement of
$49,749. As a percentage of sales, income from operations decreased to 10% in
the quarter ended June 30, 1998 from 12% in the quarter ended June 30, 1997. The
improvement to income from operations overall resulted primarily from increased
revenues and gross profits, offset in part by increased selling and
administrative expenses as discussed above.
Interest expense for the quarter ended June 30, 1998 was reduced by
$13,896 or 77% to $4,056 compared to $17,952 in the quarter ended June 30, 1997.
As a percentage of sales, interest expense decreased to less than 0.1% in the
quarter ended June 30, 1998 from 1% in the quarter ended June 30, 1997. This
decrease is due to a continued decline in outstanding credit balances made
possible by continued growth in revenues and gross profits, offset in part by
increased selling and administrative expenses as discussed above.
As a result, the Company's net income improved by 25% to $283,772 in
the quarter ended June 30, 1998 compared to $226,326 in 1997. Net income as a
percentage of sales was 7% in the quarters ended June 30, 1998 and June 30,
1997. The improvement in net income overall, resulted primarily from increased
revenues and gross profits, offset in part by increased selling and
administrative expenses as discussed above.
Page 12
<PAGE>
<PAGE>
Nine Months ended June 30, 1998 vs. June 30, 1997
Revenues for the nine months ended June 30, 1998 were $11,818,513, an
increase of $3,621,980 or 44% over the nine months ended June 30, 1997 revenues
of $8,196,533. This increase is primarily due to Paravant's strong backlog
($9,367,564 at June 30, 1998) and continued full scale production deliveries to
Raytheon in support of the U.S. Marine Corps AVENGER Air Defense missile system
upgrade and additional requirements of Lockheed Martin's Enhanced Diagnostic Aid
("EDNA") systems for use by the U.S. Air Force on F-16 Fighter Aircraft and the
F-117A Stealth Fighter. In addition, significant sales were made to the U. S.
Navy of an integrated test and maintenance system for the Phalanx Gun System.
Gross profit was $5,738,425 for the nine months ended June 30, 1998
or 49% of sales, compared to $3,819,258 or 47% in the nine months ended June 30,
1997, a total increase of $1,919,167 or 50%. This increase in gross
profitability results primarily from the increased revenues discussed above.
Selling and administrative expenses of $4,564,570 in the nine months
ended June 30, 1998, increased by $1,347,811 or 42% from the nine months ended
June 30, 1997 expenses of $3,216,759. As a percentage of sales, selling and
administrative expenses were 39% and 39% in the nine months ended June 30, 1998
and 1997, respectively. The increased selling and administrative expenses are
due primarily to increased sales commissions directly attributable to the
increased sales discussed earlier herein, on-going research and development
projects and material purchases required to begin production of
products with medical applications.
Income from operations was $1,173,855 for the nine months ended June
30, 1998 compared to $602,499 in the nine months ended June 30, 1997, an
improvement of $571,356. As a percentage of sales, income from operations
improved to 10% in the nine months ended June 30, 1998 from 7% in the nine
months ended June 30, 1997. The improvement to income from operations overall
resulted primarily from increased revenues and gross profits, offset in part by
increased selling and administrative expenses as discussed above.
Interest expense for the nine months ended June 30, 1998 was reduced
by $67,728 or 81% to $15,517 compared to $83,245 in the nine months ended June
30, 1997. As a percentage of sales, interest expense decreased to 0.1% in the
nine months ended June 30, 1998 from 1% in the nine months ended June 30, 1997.
This decrease is due to a significant decline in outstanding credit balances
made possible by continued growth in revenues and gross profits, offset in part
by increased selling and administrative expenses as discussed above.
As a result, the Company's net income improved by 131% to $812,100 in
the nine months ended June 30, 1998 compared to $351,675 in 1997. Net income as
a percentage of sales was 7% in the nine months ended June 30, 1998 compared to
4% in the nine months ended June 30, 1997. The improvement in net income
overall, resulted primarily from increased revenues and gross profits, offset in
part by increased selling and administrative expenses as discussed above.
Page 13
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has a secured revolving credit arrangement with National
City Bank in Dayton, Ohio (the "Bank") for a credit line of up to $4,000,000
that is due on demand and bears interest at the prime rate for secured
borrowings under prescribed levels or the 30 or 60 day LIBOR rates plus 2.7% and
prime rate plus 0.5% for undersecured borrowings. All borrowings are
collateralized by accounts receivable, inventory and equipment. Such arrangement
is subject to a borrowing base formula involving certain accounts receivable,
inventory and equipment. As of June 30, 1998, there were no borrowings
outstanding under this arrangement. The Company intends to maintain this
arrangement with the Bank for the foreseeable future, although there can be no
assurance that the Bank will not in the future demand repayment of any amounts
then outstanding under its loan arrangement. The Company also has a secured term
loan provided by the Bank bearing interest at a rate adjusted monthly to prime
plus 1.5% at June 30, 1998. Monthly principal payments of $9,167 are due through
October 1998. All borrowings thereunder are secured by a lien on accounts
receivable, inventory and equipment. As of June 30, 1998, there was $36,648
outstanding under this arrangement with the Bank. The Company also has capital
lease obligations of $101,512 at June 30, 1998. These capital lease obligations
bear interest rates of 1.25% to 1.5% over the prime rate and are expected to be
satisfied within 3 years.
On April 22, 1997, the Company retired a note payable to the Bank in
an aggregate principal amount of $500,000, bearing interest at the prime rate,
which note was due and payable in March 1998.
In August 1995, the Company borrowed $400,000 pursuant to bridge
notes ("Notes") from a group of private investors at an annual interest rate of
6%. In addition, the Company sold to the same investors warrants to purchase
480,000 shares of Common Stock, exercisable until June 3, 2001 at an exercise
price of $2.00 per share. The Notes were paid in full on August 8, 1997.
The Company has, and continues to have, a dependence upon a few major
customers for a significant portion of its revenues. This dependence for
revenues has not been responsible for any unusual fluctuations in operating
results in the past, and management does not believe this concentration will
generate fluctuations in operating results in the future. However, the potential
impact of losing a major customer without securing offsetting and equivalent
orders could result in a significant negative impact to the operating results of
the Company. The gross margin contributions of the Company's major customers are
not generally different than those from its other customers as a whole.
The Company's operating cash flow was $1,725,389 and $2,103,467 for
the nine months ended June 30, 1998 and 1997, respectively, and $3,448,740 for
fiscal 1997. The improvement in the Company's operating cash flow results
primarily from improved net income as discussed above and improved working
capital as more fully presented in the Condensed Statements of Cash Flows for
the nine months ended June 30, 1998.
Page 14
<PAGE>
<PAGE>
Due to the Company's orders related to U.S. Department of Defense
procurements, the operations of the Company have been cyclical and generally
result in a significant increase in deliveries and revenues in the fourth
quarter of its fiscal year ending on September 30. Due to the Company's strong
backlog and increased revenues, this cycle is less significant in the current
and prior quarters, resulting in a significant improvement in cash provided from
operations, as discussed earlier herein and less significant changes in
inventory levels than the prior period. This change is evidenced by an increase
in first, second and third quarter revenues and operating cash flows.
Generally, accounts receivable at the end of each quarter are
collected within the following quarter. However, the Company's major customer,
Raytheon, has traditionally averaged approximately 80 to 100 days in
satisfaction of outstanding accounts receivable balances. This situation is
improving through negotiation with Raytheon, and Management believes that
average outstanding balances will be reduced to more traditional levels
approximating 45 days in the future although there can be no assurance of such.
The Company's total outstanding accounts receivable balance of $2,932,817 at
June 30, 1998 has been subsequently reduced by approximately $560,000 in cash
collections. We have provided a reserve for certain older balances of $235,990.
This reserve is believed to be more than sufficient to address any uncollectible
balances outstanding as of June 30, 1998.
On June 3, 1998, the Company entered into a loan agreement with an
officer and director of the Company. The note receivable of $215,685 bears
interest at the rate of interest equal to the rate of interest then applicable
for borrowings by the Company under the Company's then existing line of credit
or other primary lending arrangement with its then primary lender, with interest
payable annually, and matures on June 3, 2003.
As of June 30, 1998 and 1997, the Company's backlog was $9,367,564
and $9,099,394, respectively, consisting of firm fixed price purchase orders.
All of these purchase orders are expected to generate profits within the
Company's historical levels and the Company believes that the completion of the
orders comprising its backlog, and any new orders which may be accepted by the
Company in the future, should not result in additional liquidity pressures which
cannot be addressed in a manner consistent with the Company's past practices.
The Company presently expects to manufacture and deliver $7,913,503 of the
products in backlog within the next 12 months. The remaining $1,454,061 of
products in backlog will be completed over the next 24 months.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the proceeds of the IPO and ongoing
stock offerings, together with the Company's existing working capital and
anticipated cash flows from the Company's operations, will be sufficient to
satisfy the Company's cash requirements for at least twelve months. As the
Company continues to grow, additional bank borrowings, other debt placements and
equity offerings may be considered, in part or in combination, as the situation
warrants. In addition, in the event the Company's plans change or its
assumptions change or prove to be inaccurate, or if projected cash flow
otherwise proves insufficient to fund operations, the Company might need to seek
other sources of financing to conduct its operations. There can be no assurance
that any such other sources of financing would be available when needed, on
commercially reasonable terms, or at all.
Page 15
<PAGE>
<PAGE>
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.
On March 31, 1998 the Company signed a definitive agreement to
acquire two privately-held, affiliated companies, Engineering Development
Laboratories, Incorporated ("EDL"), in a stock sale, and Signal Technology
Laboratories, Inc. ("STL"), in an asset sale, for approximately $8.7 million in
cash, 8%, three-year notes aggregating $4.8 million, 3,950,000 shares of the
Company's common stock and a cash earn-out payable over five years based on
EDL-STL's future profits. The Company intends to finance the cash portion of the
consideration to be paid by the Company at the closing. The Company has received
a conditional commitment from National City Bank, Dayton, Ohio for floating rate
financing which would increase the Company's revolving line of credit to
$14,000,000 with a maturity date of December 31, 2000 convertible thereafter to
five year term debt. The line of credit would be secured by a first security
interest in accounts, contract rights, inventory, equipment and other security
reasonably requested by the lender.
On July 2, 1998, the company entered into a loan agreement with UES,
Inc. ("UES"), an affiliate of the Company, which is controlled by the Company's
Chairman. The note receivable of $750,000 is due on demand on December 31, 1998
and bears interest at 7% payable monthly. The note is personally guaranteed by
the Company's Chairman and is collateralized by UES, Inc.'s shares of the
Company in the amount of approximately 1,448,775 common shares.
Page 16
<PAGE>
<PAGE>
CAUTIONARY STATEMENT
This Quarterly Report of Form 10-QSB contains certain forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of various factors, including but not
limited to the budgetary and appropriations policies of the Company's
governmental customers, the competitive environment for the Company's products
and services, the timing of new orders and the degree of market penetration of
the Company's new products.
Page 17
<PAGE>
<PAGE>
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8 K
(a) Exhibits
<TABLE>
<S> <C>
10.32 Agreement Granting Special Stock Option between the Registrant
and John P. Singleton dated as of June 18, 1998.
10.33 Agreement Clarifying Prior Grant of Stock Options between the
Registrant and Michael F. Maguire dated as of June 18, 1998.
10.34 Promissory Note to Registrant from Richard P. McNeight dated
June 3, 1998.
10.35 Promissory Note to Registrant from UES, Inc. dated July 2,
1998. The note is personally guaranteed by Krishan K. Joshi.
11 Statement re: computation of per share earnings (not required
because the relevant computation can be clearly determined
from material contained in the financial statements).
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
Form 8-K, dated March 31, 1998, was filed on April 28,1998 reporting
under Item 5 an acquisition agreement 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.
Page 18
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARAVANT COMPUTER SYSTEMS, INC.
Date: August 13, 1998 By /s/ Kevin J. Bartczak
---------------------------
Kevin J. Bartczak
Vice President, Treasurer and
Chief Financial Officer
(as both a duly authorized
officer of Registrant and
as principal financial
officer of Registrant)
Page 19
<PAGE>
<PAGE>
Paravant Computer Systems, Inc.
Index to Exhibits filed with Form 10-QSB dated August 13, 1998
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
10.32 Agreement Granting Special Stock Option between the
Registrant and John P. Singleton dated as of June 18, 1998.
10.33 Agreement Clarifying Prior Grant of Stock Options between the
Registrant and Michael F. Maguire dated as of June 18, 1998.
10.34 Promissory Note to Registrant from Richard P. McNeight dated
June 3, 1998.
10.35 Promissory Note to Registrant from UES, Inc. dated July
2, 1998.
27 Financial Data Schedule
</TABLE>
Page 20
<PAGE>
<PAGE>
Exhibit 10.32
PARAVANT COMPUTER SYSTEMS, INC.
NONEMPLOYEE DIRECTOR
AGREEMENT GRANTING SPECIAL STOCK OPTION
This Nonemployee Director Agreement Granting Special Stock Option (this
"Agreement") evidences and sets forth the terms of the special stock option
granted by Paravant Computer Systems, Inc. (the "Company") to John P. Singleton,
a nonemployee director of the Company (the "Grantee") by action of the Company's
Board of Directors on June 18, 1998 (the "Grant Date").
1. Option. As of the Grant Date the Company has granted to the Grantee
an option for the purchase of up to nine thousand (9,000) shares of common
stock, par value $0.15 per share (the "Option") at the exercise price of $1.72
per share (the "Option Price") subject to the terms and conditions hereinafter
set forth.
2. Provisions Incorporated by Reference from Existing Nonemployee
Directors' Stock Option Plan. Although the Option is not granted under the
Company's currently existing Nonemployee Directors' Stock Option Plan (the
"NDSOP"), the following provisions of the NSDOP are hereby incorporated by
reference as terms of the Option:
(i) Status of Option. As set forth in Section 2 of the NDSOP,
the Option shall not constitute an incentive stock option.
(ii) Interpretation of the Option. The interpretation of the
terms of the Option shall be as interpreted by the Committee referred to in
Section 5 of the NDSOP.
(iii) Medium and Time of Payment of Option Price. The
conditions with respect to the medium and time of payment of the Option Price
required to exercise the Option shall be as set forth in subsection (b) of
Section 7 of the NDSOP.
(iv) Term and Exercise of Option. The conditions with respect
to the term and exercise of the Option shall be as set forth in subsection (c)
of Section 7 of the NDSOP.
(v) Transferability. The conditions with respect to
transferability of the Option shall be as set forth in subsection (d) of Section
7 of the NDSOP.
(vi) Investment Purpose. The exercise of the Option shall be
subject to the investment purpose requirements set forth in subsection (e) of
Section 7 of the NDSOP.
(vii) Adjustment of Number of Shares. The number of shares
subject to the Option shall be adjusted for the events and in the manner set
forth in Section 8 of the NDSOP.
Page 21
<PAGE>
<PAGE>
3. Assumption of No Requirement of Shareholder Approval. The Board of
Directors of the Company has granted the Option based upon its understanding
that, because of the limited number of shares covered by the Option, shareholder
approval of the grant is not required under the requirements of Nasdaq or any
applicable federal or state statute, rule or regulation. In the event that it is
determined that such shareholder approval is required and such shareholder
approval is not obtained within twelve (12) months from the Grant Date the
Option shall be deemed to be rescinded, void ab initio, and of no further force
and effect. Any exercise of the Option shall be subject to the receipt by the
Company of an opinion of its legal counsel that no such shareholder approval is
required, or if required, that such shareholder approval has been obtained.
4. Purpose. The Option is granted to provide motivation and incentive
to the Grantee to continue his service as a nonemployee director of the Company
and to motivate him, in such capacity, to exert his best efforts on behalf of
the Company by enlarging his personal stake in the Company. The Option is, and
shall be, in addition to any director's fees, other stock options under the
NDSOP or any other plan or award, or any other compensation or benefits made
available to or paid to the Grantee by the Company or any other party in
consideration of the Grantee's service to the Company as a nonemployee director
or in any other capacity.
IN WITNESS WHEREOF, the Company and the Grantee have executed and
delivered this Agreement as of the Grant Date.
The Company:
Paravant Computer Systems, Inc.
By: s/Richard P. McNeight
-----------------------
Richard P. McNeight, President
Grantee:
s/John P. Singleton
--------------------------
John P. Singleton
Page 22
<PAGE>
<PAGE>
Exhibit 10.33
PARAVANT COMPUTER SYSTEMS, INC.
AGREEMENT CLARIFYING PRIOR GRANT OF STOCK OPTION
This Agreement dated as of June 18, 1998 (this "Agreement") by and
between Paravant Computer Systems, Inc. (the "Company") and Michael F. Maguire
(the "Optionee") has been entered into by the parties for the purpose of
clarifying a prior grant of a stock option by the Company to the Optionee.
Whereas, the Company, as of March 2, 1995 (the "Grant Date") granted to
the Optionee an option (the "Option") the under the Company's then existing
Incentive Stock Option Plan (the "Grant Date ISOP") for the purchase, at any
time during the period of ten years from the Grant Date, of 6,000 shares of
common stock of the Company at a purchase price of $0.717 per share (such number
of shares and the purchase price, in each case, stated herein as adjusted for
the Company's 3 for 1 stock split, effective July 25, 1996) and evidenced the
Option by the execution and delivery to the Optionee of an agreement with
respect thereto; and
Whereas, since the grant of the Option the Company has determined that,
notwithstanding the intention of the parties that the Option was to have been
granted under, and governed by the Grant Date ISOP, the Option could not have
been granted to the Optionee under the Grant Date ISOP because the Optionee,
although then actively serving as a member of the Board of Directors, was not an
employee of the Company at the time the Option was granted; and
Whereas, the parties acknowledge that until the date of this Agreement
the Company and the Optionee mistakenly believed that the Option had been
granted under, and was governed by, the Grant Date ISOP, that the Optionee had
continued to serve as a director motivated, at least in part, by the incentive
of the potential value which he might realize under the Option, that the Company
utilized his services as a director in the belief that such incentive was valid;
and
Whereas, based upon the foregoing, the Board of Directors of the
Company ratified, confirmed and clarified the Company's grant of the Option as
set forth in this Agreement so that the Option, rather than having been granted
under the Grant Date ISOP as an incentive stock option ("ISO") under the then
existing Section 422A of the Internal Revenue Code of 1986, as amended (the
"Code"), has been granted as an option which is not qualified as an ISO (a
"non-qualified option") within the meaning of Section 83 of the Code under
substantially all of the same terms and conditions which would have been
applicable if the Option had been an ISO granted under the Grant Date ISOP other
than those applicable only to ISO's:
Now, therefore, in consideration of the foregoing, and for other
valuable consideration the receipt and sufficiency whereof is hereby
acknowledged, the parties have agreed as follows:
1. Ratification, Confirmation and Clarification of Existing Option. The
Company and the Optionee, each on its own behalf and with respect to itself,
agree that the Company granted the Option as hereinbefore described, that the
Option is currently in existence, that the determinations, intentions and
actions of the parties with respect thereto as hereinbefore described are true
and accurate, and that as a result, that the Option is currently in existence,
and that the terms and conditions thereof are as hereinafter set forth.
2. Terms and Conditions of the Option; Number of Shares, Term and
Option Price. The number of shares subject to the Option, the term of the
Option, and the purchase price per share are as hereinbefore set forth.
Page 23
<PAGE>
<PAGE>
3. Other Terms and Conditions of the Option Incorporated by Reference
from Incentive Stock Option Plan. The Option was granted on the Grant Date as a
special non-qualified stock option, which, only because the Company's Incentive
Stock Option Plan as in effect on the Grant Date (the "Grant Date ISOP") did not
permit the granting of non-qualified stock options, was not granted under the
Grant Date ISOP. Notwithstanding that the Option was not granted under the Grant
Date ISOP, the terms and conditions of the Option include the following terms
and conditions which are incorporated by reference therein from the Grant Date
ISOP:
(i) Interpretation of the Option. In accordance with Section 2
of the Grant Date ISOP (except to the extent any provision of this Agreement may
be to the contrary), the interpretation and construction of this Agreement, the
Option, and any prior agreement evidencing the Option shall be determined the
Committee appointed for the purpose of administering the Grant Date ISOP, which
determination shall be final unless otherwise determined by the Board of
Directors.
(ii) Medium and Time of Payment. Terms and conditions of the
Option with respect to the medium and time of payment are the terms and
conditions set forth in paragraph (C) of Section 5 of the Grant Date ISOP.
(iii) Exercise of Option. The prohibition against transfer set
forth in paragraph (D) of Section 5 of the Grant Date ISOP is applicable to the
Option.
(iv) Termination of Service; Death of Optionee. The provisions
of paragraphs (E) and (F) of Section 5 of the Grant Date ISOP, provided,
however, that the terms "employment" and "employ" with respect to the Optionee
shall be deemed to mean and refer to the Optionee's service as a director of the
Company.
(v) Adjustment of Shares; Rights as a Shareholder; and
Investment Purpose. The Option is subject to the terms and conditions of the
Grant Date ISOP as set forth in paragraphs (G), (H) and (J) thereof.
4. Other Terms and Conditions of the Option. Except to the extent that
any of the terms and conditions of the Option as granted on the Grant Date have
been ratified, confirmed and/or clarified in this Agreement to the contrary, all
of the terms of the Option as granted on the Grant Date, including but not
limited to those set forth in any agreement evidencing the Option which was
entered into between the parties prior to the date of this Agreement, continue
in existence applicable to the Option.
IN WITNESS WHEREOF, the Company and the Optionee have executed and
delivered this Agreement as of the date first above written.
The Company:
Paravant Computer Systems, Inc.
By: s/Richard P. McNeight
-----------------------
Richard P. McNeight, President
Optionee:
s/Michael F. Maguire
---------------------------
Michael F. Maguire
Page 24
<PAGE>
<PAGE>
Exhibit 10.34
PROMISSORY NOTE
$215,685.00 June 3, 1998
FOR VALUE RECEIVED, RICHARD P. MCNEIGHT, whose residence address is 146
Windward Way, Indian Harbour Beach, Florida 32937 (the "Maker"), promises to pay
to the order of PARAVANT COMPUTER SYSTEMS, INC., a Florida corporation (the
"Payee"), in the manner hereinafter set forth, the principal sum of Two Hundred
Fifteen Thousand Six Hundred Eighty-Five Dollars ($215,685.00).
The entire principal amount of this Note shall be payable in full on June
2, 2003 (the "Maturity Date"). In addition to the aforementioned principal
amount, the Maker shall pay to the Payee interest on the unpaid principal amount
as hereinafter set forth at the rate of interest equal to the rate of interest
then applicable for borrowings by the Maker under the Maker's then
existing line of credit or other primary lending arrangement with its then
primary lender. As of the date of this Note such primary lender is National City
Bank, Dayton, Ohio. From the date hereof until the Maturity Date accrued
interest shall be due and payable as follows:
For the period from the date hereof through September 30, 1998 accrued
interest shall be due and payable by not later than December 30, 1998;
For the period from October 1, 1998 through September 30, 1999 accrued
interest shall be due and payable by not later than December 30, 1999;
For the period from October 1, 1999 through September 30, 2000 accrued
interest shall be due and payable by not later than December 30, 2000;
For the period from October 1, 2000 through September 30, 2001 accrued
interest shall be due and payable by not later than December 30, 2001;
For the period from October 1, 2001 through September 30, 2002 accrued
interest shall be due and payable by not later than December 30, 2002;
and
For the period from October 1, 2002 through the Maturity Date accrued
interest shall be due and payable by not later than June 30, 2003.
Not less than ten (10) days prior to date on which any payment of accrued
interest shall be due and payable from the Maker the Payee shall notify the
Maker in writing of the amount of interest which has accrued during the period
for which such interest is to be payable.
<PAGE>
<PAGE>
Payments to be made under this Note shall be made to the order of the Payee
at 1615A West Nasa Boulevard, Melbourne, Florida 32901, or at such other place
as the Payee may designate to the Maker in writing. All payments required hereby
shall be made in lawful money of the United States of America.
The Maker shall have the right to prepay this Note in whole or in part at
any time without penalty.
Any failure of the Maker to make any payment required hereunder by not
later than ten (10) days after the same shall be due shall constitute an Event
of Default. Upon the occurrence of any Event of Default, the holder hereof shall
have the right, after written notice to the Maker of such Event of Default, and
the failure of the Maker to cure such Event of Default within thirty (30) days
after Maker's receipt of such notice, to declare a Default under this Note and
to accelerate all principal and interest due hereunder. Following the occurrence
of any Default, the holder hereof also shall have the right to exercise any
remedies that it may have hereunder. If it becomes necessary for the holder
hereof to enforce this Note, the Maker shall pay the holder any and all costs,
expenses and reasonable attorneys' and paralegals' fees and expenses incurred
by such holder in connection with such proceedings and any associated
administrative, appellate or bankruptcy proceedings.
The Maker hereby waives presentment for payment, demand, protest, notice of
protest and notice of dishonor and expressly agrees to remain and continue
bound for the payment of the principal and interest provided for by the terms
of this Note, notwithstanding any extension or extensions of time of, or for the
payment of said principal or interest.
This Note shall be governed and construed in accordance with the laws of
the State of Florida. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
IN WITNESS WHEREOF, the Maker has executed this Note as of the date first
above written.
"MAKER"
s/ Richard P. McNeight
----------------------------
Richard P. McNeight
<PAGE>
<PAGE>
Exhibit 10.35
COMMERCIAL DEMAND NOTE
<TABLE>
<S> <C> <C> <C>
- ------------------- ------------------- ------------------ ------------------
Amount City, State Date Debtor Name
$750,000 Dayton, Ohio July 2, 1998 UES, Inc.
- ------------------- ------------------- ------------------ ------------------
</TABLE>
Term: Demand on December 31, 1998, unless extended, in writing, by mutual
agreement.
ON DEMAND, for value received, the undersigned ("Debtor") promises to pay to
the order of PARAVANT COMPUTER SYSTEMS INC. which has its principal place of
business in MELBOURNE, FLORIDA. $750,000.00 Dollars in lawful money of the
United States, together with interest payable commencing on July 2, 1998, and
monthly thereafter and on demand. Prior to demand, principal and any overdue
interest shall bear interest computed daily (on the basis of a 360-day year and
actual days elapsed) at a rate which is 7 percent per annum.
If Debtor fails to pay any amount due hereunder, or any fee in connection
herewith, in full within ten (10) days after its due date or the date of demand
therefore, whichever is applicable, Debtor, in each case will incur and shall
pay a late fee equal to the greater of twenty dollars ($20.00) or five percent
(5%) of the unpaid amount. The payment of a late charge will not impair any
holder's right to demand repayment of this note.
Except as otherwise agreed in writing, payments will be applied first to
accrued but unpaid interest and fees, in that order, on an invoice by invoice
basis in the order of their respective due dates, until paid in full, then to
late charges and then to principal.
If this note is not paid in full on demand, the interest rate otherwise in
effect hereunder shall be increased by three percent (3%) annum, provided that
in no event shall the principal of and interest on this note bear interest
after demand at a rate less than the interest rate actually in effect hereunder
immediately after demand.
Debtor and the undersigned guarantors, if any, hereby authorize Paravant
Computer Systems Inc. to share all credit and financial information relating to
Debtor and the undersigned guarantors, if any, with any subsidiary or affiliate
company of Paravant Computer Systems Inc. or Paravant Computer Systems Inc.'s
parent company.
In no event shall the interest rate in effect on this note exceed the maximum
rate permissible under the law governing this note.
If debtor consists of more than one Person, Debtor shall be jointly and
severally liable on this note.
Any holder's delay or omission in the exercise of any right under this note
shall not operate as a waiver of that right or of any other right under this
note.
If any provision of this note is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable provision were not
contained herein.
During the term of this note and until the obligation is satisfied in full,
UES, Inc. grants and Paravant Computer Systems Inc. shall retain as
collateral, UES, Inc. shares of Paravant Computer Systems Inc. in the
amount of approximately 1,448,775 common shares. UES, Inc.'s certificate
for the aforementioned shares shall be retained in the possession of Paravant
Computer Systems Inc. pending satisfaction in full of this note.
This note and the Related Writings set forth the entire agreement between the
parties regarding the transactions contemplated hereby, and supersede all prior
agreements, commitments, discussions, representations and understandings,
whether written or oral, and any and all contemporaneous oral agreements,
commitments, discussions, representation, and understandings between the
parties relating to the subject matter hereof.
No amendment, modification, or supplement to this note or Related Writings
shall be binding unless executed in writing by all parties thereto, and this
provision shall not be subject to waiver by any party and shall be strictly
enforced.
Page 25
<PAGE>
<PAGE>
This note shall be governed by the law of the state in which Paravant Computer
Systems Inc. has its principal place of business.
Debtor and the undersigned guarantors, if any jointly and severally authorize
any attorney-at-law to appear in any state or federal court of record in the
United States after demand; to waive the issuance and service of process; to
confess judgment against Debtor and/or any undersigned guarantor in favor of
the holder of this note for the amount then appearing due, together with
interest and costs of suit; and to release all errors and waive all rights of
appeal and stay of execution. If any judgment against Debtor and/or any
undersigned guarantor is vacated for any reason, this warrant of attorney may
be used to obtain additional judgments.
UES. Inc.
By: s/Krishan K. Joshi
----------------------
Krishan K. Joshi, Chairman
FOR VALUE RECEIVED, each undersigned guarantor (a) consents to the provision of
the note, including, without limitation, the warrant of attorney; (b)
Guarantees, absolutely and unconditionally, and jointly and severally with
other undersigned guarantors, if any, the prompt payment in full of the note
(and any extensions thereof in whole or in part) when due and whether or not
the holder of the note shall resort or shall have resorted to any other Obligor
or to security, if any; (c) waives presentment, demand for payment, notice of
dishonor and every other find of notice to which the undersigned guarantor
might be entitled but for this waiver; and (d) waives any and all claims,
rights or remedies the undersigned guarantor may now have or hereafter acquire
against Debtor that arises from the undersigned guarantor's performance
hereunder or is in any way related hereto, including without limitation,
subrogation, reimbursement, contribution or indemnification, whether direct or
indirect or arising by contract, law, equity or otherwise; and (e) agrees that
the liability of the undersigned guarantor(s) shall not be affected by any act,
omission or course of dealing on the part of the holder including, without
limitation, any extension of time, any release or exchange of security
(irrespective of the consideration, if any, received therefore) or any other
indulgence granted to any Obligor, in each case whether with nor without notice
to the undersigned guarantor(s).
By: s/Krishan K. Joshi
----------------------
Krishan K. Joshi, Individually
Page 26
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF PARAVANT COMPUTER SYSTEMS, INC. AS OF JUNE 30, 1998 AND THE RELATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,565,471
<SECURITIES> 0
<RECEIVABLES> 3,202,013
<ALLOWANCES> 235,990
<INVENTORY> 3,390,741
<CURRENT-ASSETS> 9,718,820
<PP&E> 2,014,962
<DEPRECIATION> 1,154,436
<TOTAL-ASSETS> 12,022,318
<CURRENT-LIABILITIES> 2,217,603
<BONDS> 0
<COMMON> 125,104
0
0
<OTHER-SE> 9,563,872
<TOTAL-LIABILITY-AND-EQUITY> 12,022,318
<SALES> 4,170,160
<TOTAL-REVENUES> 4,170,160
<CGS> 2,076,775
<TOTAL-COSTS> 2,076,775
<OTHER-EXPENSES> 1,578,099
<LOSS-PROVISION> 102,538
<INTEREST-EXPENSE> 4,056
<INCOME-PRETAX> 431,460
<INCOME-TAX> 147,688
<INCOME-CONTINUING> 283,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,772
<EPS-PRIMARY> 0.034
<EPS-DILUTED> 0.025
</TABLE>
