<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, 2000
[ ] 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 INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Florida 59-2209179
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
89 Headquarters Plaza North, Suite 1421
Morristown, New Jersey 07960
(Address of Principal Executive Offices)
973-631-6190
(Issuer's Telephone Number)
</TABLE>
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 9, 2000, there were outstanding
17,167,371 shares of Common Stock, $.015 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
PARAVANT INC.
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet - June 30, 2000............................2
Condensed Consolidated Statements of Operations for the three
months ended June 30, 2000 and 1999........................................4
Condensed Consolidated Statements of Operations for the nine
months ended June 30, 2000 and 1999........................................5
Condensed Consolidated Statements of Cash Flows for the nine months
ended June 30, 2000 and 1999...............................................6
Notes to Condensed Consolidated Financial Statements............................9
Item 2. Management's Discussion and Analysis of Operations.....................13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................18
SIGNATURES......................................................................19
Index to Exhibits Filed with Form 10-QSB dated August 11, 2000..................20
</TABLE>
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $ 281,746
Marketable securities 1,092,356
Accounts receivable 4,770,095
Costs and estimated earnings in excess of billings on
uncompleted contracts 5,921,499
Inventories 6,526,230
Deferred income taxes 1,290,905
Other current assets 193,673
-----------
Total current assets 20,076,504
-----------
Property, plant and equipment, net 4,110,878
Demonstration pool and custom molds, net 489,261
Employee note receivable 215,685
Other assets 1,685,661
Intangible assets, net 4,661,587
Goodwill, net 16,049,079
-----------
Total assets $47,288,655
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 2
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Current liabilities:
Current installments of notes payable to related parties $ 1,235,000
Current installments of capital lease obligations 56,812
Accounts payable 1,776,228
Billings in excess of costs and estimated earnings on
uncompleted contracts 93,879
Accrued expenses 2,009,339
Provision for estimated losses on uncompleted contracts 494,870
Deferred revenue 104,136
-----------
Total current liabilities 5,770,264
-----------
Notes payable to related parties, excluding current installments 794,094
Capital lease obligations, excluding current installments 15,447
Borrowings under revolving line of credit agreement 5,636,528
Mortgage payable 1,756,710
Deferred compensation 1,136,825
Deferred income taxes 127,324
-----------
Total liabilities 15,237,192
-----------
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 17,672,975 and outstanding
17,152,371 shares 267,896
Additional paid-in capital 21,955,498
Retained earnings 11,290,387
-----------
33,513,781
Less treasury stock, 520,604 shares at cost (1,462,318)
-----------
Total stockholders' equity 32,051,463
-----------
Commitments and contingencies
Total liabilities and stockholders' equity $47,288,655
===========
</TABLE>
Page 3
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PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Revenues $ 8,067,336 9,958,690
Cost of revenues 4,532,498 4,586,497
----------- ----------
Gross profit 3,534,838 5,372,193
Sales and marketing 518,822 615,426
Research, development & engineering 563,462 534,740
General and administrative 1,384,578 1,034,562
Amortization 527,119 493,833
----------- ----------
2,993,981 2,678,561
----------- ----------
Income from operations 540,857 2,693,632
Other income (expense):
Investment income (expense) (14,425) 40,462
Interest expense (73,371) (203,315)
Miscellaneous 1,636 20,034
----------- ----------
Income before income taxes 454,697 2,550,813
Income tax expense 217,345 1,007,571
----------- ----------
Net income $ 237,352 1,543,242
=========== ==========
Basic earnings per share $ .01 .11
=========== ==========
Diluted earnings per share $ .01 .11
=========== ==========
Weighted average number of common shares outstanding 17,370,986 13,837,059
=========== ==========
Weighted average number of common and equivalent
shares outstanding 17,795,903 14,384,143
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Revenues $23,667,171 30,738,716
Cost of revenues 12,696,153 14,318,630
----------- ----------
Gross profit 10,971,018 16,420,086
Sales and marketing 1,515,438 1,640,030
Research, development & engineering 1,649,461 1,759,278
General and administrative 3,884,049 3,480,446
Amortization 1,543,482 1,473,667
Non-recurring expense 685,813 -
----------- ----------
9,278,243 8,353,421
----------- ----------
Income from operations 1,692,775 8,066,665
Other income (expense):
Investment income 231,539 93,702
Interest expense (167,262) (689,988)
Miscellaneous 10,756 41,968
----------- ----------
Income before income taxes 1,767,808 7,512,347
Income tax expense 845,012 2,967,377
----------- ----------
Net income $ 922,796 4,544,970
=========== ==========
Basic earnings per share $ .05 .36
=========== ==========
Diluted earnings per share $ .05 .34
=========== ==========
Weighted average number of common shares outstanding 17,492,587 12,796,423
=========== ==========
Weighted average number of common and equivalent
shares outstanding 17,954,570 13,213,631
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 922,796 4,544,970
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 2,188,590 1,990,368
Loss on sale of fixed assets 206 -
Unrealized appreciation of marketable securities (169,417) -
Non-recurring expense 685,813 -
Increase (decrease) in cash caused by changes in:
Marketable securities (493,627) -
Accounts receivable 5,256,113 (3,451,907)
Due from related party - (67,192)
Contracts in progress (1,981,814) (2,523,253)
Inventories (1,237,635) (2,661,707)
Other assets (556,540) (12,181)
Accounts payable (300,062) 2,982,584
Accrued expenses (650,038) (203,577)
Deferred revenue 11,766 32,146
Deferred compensation 291,165 381,523
Income taxes payable (1,145,863) (446,170)
---------- ----------
Net cash provided by operating activities 2,821,453 565,604
---------- ----------
Cash flows from investing activities:
Payments for acquired subsidiaries, net of cash acquired of
$201,414 and $ 0 in 2000 and 1999, respectively (5,940,994) (9,003,843)
Acquisitions of property, plant and equipment (2,859,539) (512,536)
Proceeds from sale of property, plant and equipment 2,900 -
Proceeds from collection of note receivable - 750,000
---------- ----------
Net cash used by investing activities (8,797,633) (8,766,379)
---------- ----------
</TABLE>
(Continued)
Page 6
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, (Continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Repayments on long-term debt (738,750) (2,346,647)
Repayments on capital lease obligations (63,449) (54,536)
Net proceeds on revolving line of credit 5,636,528 (225,000)
Proceeds on mortgage payable 1,756,710 -
Proceeds from issuance of common stock 74,711 13,020
Proceeds from exercise of warrants 10,251,874
Payments for redemption of warrants (570)
Stock registration fees - (22,440)
Payments for retirement of underwriters' warrants - (50,000)
Payments for purchase of treasury stock (1,357,238) -
---------- ----------
Net cash provided by financing activities 5,308,512 7,565,701
---------- ----------
Net decrease in cash and cash equivalents (667,668) (635,074)
Cash and cash equivalents at beginning of the period 949,414 1,187,788
---------- ----------
Cash and cash equivalents at end of the period $ 281,746 552,714
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, excluding capitalized interest of $34,651 for 2000. $ 182,588 699,560
========== ==========
Income taxes $1,990,875 2,779,650
========== ==========
Supplemental disclosure of noncash investing and financing activities:
The Company issued stock through a cashless exercise of
stock options and received 1,746 shares of treasury stock $ 4,584 -
========== ==========
</TABLE>
(Continued)
Page 7
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, (Continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
During the nine months ended June 30, 2000 and 1999 the Company
completed purchase business combinations as follows:
Fair value of assets acquired $1,793,135 8,557,873
Goodwill 5,439,222 12,842,796
Liabilities assumed (818,163) (1,671,826)
---------- -----------
Total 6,414,194 19,728,843
Notes issued to sellers (250,000) (4,800,000)
Common stock issued to seller - (5,925,00)
Common stock warrants issued to seller (223,200) -
---------- ----------
Cash paid, net of cash acquired $5,940,994 9,003,843
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 8
<PAGE>
PARAVANT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Paravant Inc. and subsidiaries (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 consolidated financial statements and footnotes should
be read in conjunction with the Company's audited financial statements for
the year ended September 30, 1999 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 consolidated
financial statements are the same as those described in such statements, or
as discussed below.
(B) BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share for the three and nine months ended June 30,
2000 and 1999 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, 2000 and 1999 have been computed by
dividing net income by the weighted average number of common and equivalent
shares outstanding.
A reconciliation of the weighted average number of shares outstanding
used in the computation of basic and diluted earnings per share is as
follows:
<TABLE>
<CAPTION>
Three months ended June 30
--------------------------
2000 1999
---- ----
<S> <C> <C>
Basic:
Weighted average number of common
shares outstanding 17,370,986 13,837,059
========== ==========
Diluted:
Weighted average number of common
shares outstanding 17,370,986 13,837,059
Dilutive stock options 403,624 529,079
Dilutive warrants 21,293 18,005
---------- ----------
17,795,903 14,384,143
========== ==========
</TABLE>
Page 9
<PAGE>
<TABLE>
<CAPTION>
Nine months ended June 30
-------------------------
2000 1999
---- ----
<S> <C> <C>
Basic:
Weighted average number of common
shares outstanding 17,492,587 12,796,423
========== ==========
Diluted:
Weighted average number of common
shares outstanding 17,492,587 12,796,423
Dilutive stock options 434,596 411,691
Dilutive warrants 27,387 5,517
---------- ----------
17,954,570 13,213,631
========== ==========
</TABLE>
Options and warrants to purchase 855,800 and 670,100 shares of common
stock were excluded from the calculation of diluted earnings per share for
the three months ended June 30, 2000 and 1999, respectively, because their
exercise prices exceeded the average market price of common shares for the
period. Options and warrants to purchase 690,800 and 770,100 shares of
common stock were excluded from the calculation of diluted earnings per
share for the nine months ended June 30, 2000 and 1999, respectively,
because their exercise prices exceeded the average market price of common
shares for the period.
(C) RECLASSIFICATION
Certain amounts included in the statement of operations for the three
and nine months ended June 30, 1999 have been reclassified to conform to the
current year presentation.
(2) ACQUISITIONS
On May 26, 2000 the Company completed a purchase business combination
(the "Triplex Acquisition") of all outstanding common stock of Triplex
Systems Corporation ("Triplex") located in Columbia, Maryland. Triplex
designs, manufactures and distributes various products for the signal
intelligence community. The Company paid consideration consisting of (i)
approximately $5.9 million in cash, (ii) $250,000 in six-month notes
payable, issued on July 26, 2000 and bearing interest at prime, and (iii)
warrants to purchase 120,000 shares of the Company's common stock at $2.75
per share. The warrants were valued using the Black-Scholes option pricing
model at $1.86 per share, or an aggregate value of $223,200 which has been
recorded as goodwill and additional paid-in capital. The assumptions used in
the pricing model include a risk-free interest rate of 6.3%, a stock price
volatility of .78, and a 5 year expected life for the warrants. In addition,
a contingent, performance-based cash earn-out, based upon Triplex's earnings
before interest and taxes for a two year period, may be payable by the
Company. Any future contingent consideration paid by the Company will be
recorded as additional goodwill. Management intends to maintain the
Columbia, Maryland based facility for this business. The cash portion of the
consideration paid by the Company was funded by operating cash flow and
borrowings under its current line of credit with National City Bank.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and Triplex as if the
acquisition had occurred as of October 1, 1999 and 1998, after giving effect
to certain adjustments, including amortization of goodwill, additional
depreciation expense, increased interest expense on debt related to the
acquisition, and related income tax effects. The pro forma financial
information does not necessarily reflect the results of operations
Page 10
<PAGE>
that would have occurred had the Company and Triplex constituted a single
entity during such periods.
<TABLE>
<CAPTION>
Three months ended June 30
--------------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net revenues $ 9,096,679 11,116,585
=========== ==========
Net income $ 373,156 1,665,384
=========== ==========
Basic earnings per share $ .02 .12
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended June 30
-------------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Net revenues $27,160,156 34,190,185
=========== ==========
Net income $ 1,235,529 4,855,347
=========== ==========
Basic earnings per share $ .07 .38
=========== ==========
</TABLE>
(3) CONTRACTS
Contracts in progress and advance billings on such contracts consist of
the following as of June 30, 2000:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts $10,640,308
Estimated earnings thereon 1,307,820
-----------
11,948,128
Billings to date (6,615,378)
-----------
$ 5,332,750
===========
</TABLE>
The above amount is included in the accompanying condensed consolidated
balance sheet under the following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 5,921,499
Billings in excess of costs and estimated earnings
on uncompleted contracts (93,879)
Provision for estimated losses on uncompleted contracts (494,870)
-----------
$ 5,332,750
===========
</TABLE>
Page 11
<PAGE>
(4) INVENTORIES
The following is a summary of inventories as of June 30, 2000:
<TABLE>
<S> <C>
Raw materials $5,191,813
Work in process 1,290,155
Finished goods 614,414
----------
7,096,382
Provision for obsolete inventory (570,152)
----------
$6,526,230
==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment as of
June 30, 2000:
<TABLE>
<S> <C>
Land $ 420,330
Office equipment 2,603,439
Factory equipment 732,782
Leasehold improvements 320,481
Vehicles 88,229
Construction-in-progress 1,858,438
-----------
6,023,699
Accumulated depreciation (1,912,821)
-----------
$ 4,110,878
===========
</TABLE>
(6) SUBSEQUENT EVENT
On July 11, 2000, the Company completed a purchase business
combination, effective July 1, 2000, of all outstanding common stock of
Catalina Systems Research, Inc. ("CRI") located in Colorado Springs,
Colorado. CRI designs and builds digital signal processor chips and board
products that are used for signal intelligence, radar and electronic
intelligence applications as well as satellite ground station processing
systems. The consideration paid at the closing for the acquisition was (a)
$13,800,000 in cash and (b) up to $2,500,000 in 8% subordinated promissory
notes covering a contingent cash earn-out payable over thirty-nine months
based upon the earnings of the acquired business. The Company also paid
$100,000 to each seller in exchange for certain covenants not to compete.
Under the terms of the stock purchase agreement among the parties, the
Company may pay additional amounts to the sellers after the closing as a
purchase price adjustment based on CRI's adjusted net working capital as of
the effective date. The cash portion of consideration paid by the Company
was funded through borrowings under its current line of credit with National
City Bank.
Page 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS. JUNE 30, 1999
Revenues for the quarter ended June 30, 2000 were $8,067,336, a decrease of
$1,891,354 or 19% from the quarter ended June 30, 1999 revenues of $9,958,690.
The decrease was due to a decline of approximately $4 million, or 60%, in
revenue from the Company's signal intelligence products which resulted from a
change in purchasing habits of a significant customer of the Company's STL
subsidiary, and a decline of approximately $1.1 million, or 98%, from the
Company's medical products business, which the Company is exiting. The declines
were partially offset by an increase of approximately $3.2 million, or 140%,
from the Company's command, control, communications and computers ("C4")
products, due primarily to revenue recognized under a $13 million military
contract.
Gross profit was $3,534,838 for the quarter ended June 30, 2000 or 44% of
revenues, compared to $5,372,193 or 54% of revenues for the quarter ended June
30, 1999, a total decrease of $1,837,355 or 34%. This decrease in gross
profitability was primarily a result of the decreased revenues and related
product mix discussed above.
Sales and marketing expenses of $518,822 for the quarter ended June 30,
2000 decreased by $96,604 or 16% from the quarter ended June 30, 1999 expenses
of $615,426. As a percentage of revenues, sales and marketing expenses were
approximately 6% in each of the quarters ended June 30, 2000 and 1999.
Research, development and engineering expenses of $563,462 for the quarter
ended June 30, 2000 increased by $28,722 or 5% from the quarter ended June 30,
1999 expenses of $534,740. As a percentage of revenues, research, development
and engineering expenses were 7% and 5% for the quarters ended June 30, 2000 and
1999, respectively.
General and administrative expenses of $1,384,578 for the quarter ended
June 30, 2000 increased by $350,016 or 34% from the quarter ended June 30, 1999
expenses of $1,034,562. As a percentage of revenues, general and administrative
expenses were 17% and 10% for the quarters ended June 30, 2000 and 1999,
respectively. The increase in general and administrative expenses was due
primarily to increases in recruiting, salaries and investor relations expenses.
Amortization expense was $527,119 or 6% of revenues for the quarter ended
June 30, 2000 compared to $493,833 or 4% of revenues for the quarter ended June
30, 1999. The increase was primarily attributable to amortization of the
goodwill recorded as a result of the Triplex purchase business combination.
Income from operations was $540,857 for the quarter ended June 30, 2000
compared to $2,693,632 in the quarter ended June 30, 1999, a decrease of
$2,152,775. As a percentage of revenues, the income from operations for the
quarter ended June 30, 2000 was 7% of revenues compared to the quarter ended
June 30, 1999 which was 27% of revenues. The reduction in income from operations
resulted primarily from decreased revenues and gross profits, as discussed
above.
Investment expense for the quarter ended June 30, 2000 was $14,425 compared
to investment income of $40,462 for the quarter ended June 30, 1999. This
decrease was due to a decline of $51,880 in fair value of the Company's
marketable securities associated with the Company's deferred compensation plan,
offset by interest income of $37,455.
Page 13
<PAGE>
Interest expense for the quarter ended June 30, 2000 was decreased by
$129,944 to $73,371 compared to $203,315 in the quarter ended June 30, 1999.
This decrease was due to a reduction in outstanding credit balances for the
period ended June 30, 2000.
Income tax expense was $217,345 or 47% of pre-tax income for the quarter
ended June 30, 2000 compared to $1,007,571 or 39% of pre-tax income for the
quarter ended June 30, 1999. The increase in the Company's effective tax rate is
primarily attributable to the proportional increase of non-deductible goodwill
amortization expense relative to pre-tax income for the current fiscal year.
The Company's net income was $237,352 for the quarter ended June 30, 2000
compared to $1,543,242 in 1999. Net income as a percentage of revenues decreased
to 3% in the quarter ended June 30, 2000 from 15% for the quarter ended June 30,
1999. The reduction in net income overall resulted from decreased revenues and
gross profits, as discussed above.
The Company's basic earnings per share were $0.01 ($0.01 diluted) for the
quarter ended June 30, 2000 compared to $0.11 ($0.11 diluted) in 1999. The
reduction in earnings per share was due in part to the reduced net income, but
was also affected by the increase in shares outstanding from the exercise of
outstanding warrants following the warrant call which took place in June 1999.
Basic shares outstanding increased to 17,370,986 from 13,837,059 for the three
months ended June 30, 2000 and 1999, respectively, and diluted shares
outstanding increased to 17,795,903 from 14,384,143 for the three months ended
June 30, 2000 and 1999, respectively.
NINE MONTHS ENDED JUNE 30, 2000 VS. JUNE 30, 1999
Revenues for the nine months ended June 30, 2000 were $23,667,171, a
decrease of $7,071,545 or 23% from the nine months ended June 30, 1999 revenues
of $30,738,716. The decrease was due to a decline of approximately $11.9
million, or 56%, in revenue from signal intelligence products, which primarily
resulted from a change in purchasing habits of significant customer of the
Company's STL subsidiary. This decrease was partially offset by an increase of
approximately $4.8 million, or 48%, in command, control, communications and
computers ("C4") due primarily to revenue recoginzed under a $13 million
military contract.
Gross profit was $10,971,018 for the nine months ended June 30, 2000 or 46% of
revenues, compared to $16,420,086 or 53% of revenues in the nine months ended
June 30, 1999, a total decrease of $5,449,068 or 33%. This decrease in gross
profitability was a direct result of the decreased revenues and the related
product mix, as discussed above. In addition, the Company made a change in
accounting estimate during the quarter ended March 31, 2000 totaling $150,000
due to a change in the estimated useful life of certain tooling and engineering
assets related to the Company's medical products. The Company will reach the end
of the estimated useful life of these assets with the anticipated completion of
its last remaining medical contract in the fourth quarter of 2000.
Sales and marketing expenses of $1,515,438 for the nine months ended June
30, 2000 decreased by $124,592 or 8% from the nine months ended June 30, 1999
expenses of $1,640,030. As a percentage of revenues, sales and marketing
expenses were approximately 6% and 5% in the nine months ended June 30, 2000 and
1999, respectively.
Research, development and engineering expenses of $1,649,461 for the nine
months ended June 30, 2000 decreased by $109,817 or 6% from the nine months
ended June 30, 1999 expenses of $1,759,278. As a percentage of revenues,
research, development and engineering expenses were 7% and 6% for the nine
months ended June 30, 2000 and 1999, respectively. The decreased research,
development and
Page 14
<PAGE>
engineering expenses were due primarily to the Company's completion of work on a
large proposal during the quarter ended March 31, 2000, which was subsequently
awarded to the Company.
General and administrative expenses of $3,884,049 for the nine months ended
June 30, 2000 increased by $403,603 or 12% from the nine months ended June 30,
1999 expenses of $3,480,446. As a percentage of revenues, general and
administrative expenses were 16% and 11% in the nine months ended June 30, 2000
and 1999, respectively. The increase in general and administrative expenses was
due primarily to increases in recruiting, salaries, and investor relations
expenses and an increase in amounts due under deferred compensation
arrangements. The deferred compensation arrangements are related to the
Company's investment in marketable securities whereby increases or decreases in
the fair value of these investments have a corresponding increase or decrease in
deferred compensation. Accordingly, there is no effect on income before taxes.
Amortization expense was $1,543,482 or 6% of revenues for the nine months
ended June 30, 2000 compared to $1,473,667 or 4% of revenues for the nine months
ended June 30, 1999. The increase was primarily attributable to amortization of
the goodwill recorded as a result of the Triplex purchase business combination.
Non-recurring expense was $685,813 for the nine months ended June 30,2000
compared to $0 for the nine months ended June 30, 1999. The non-recurring
expense relates to the amendment of and/or separation negotiations related to
certain employment agreements during the quarter ended March 31, 2000.
Income from operations was $1,692,775 for the nine months ended June 30,
2000 compared to $8,066,665 for the nine months ended June 30, 1999, a decrease
of $6,373,890. As a percentage of revenues, income from operations decreased to
7% for the nine months ended June 30, 2000 from 26% for the nine months ended
June 30, 1999. The reduction in income from operations overall resulted
primarily from decreased revenues and gross profits, increased general and
administrative expenses and non-recurring expense as discussed above.
Investment income for the nine months ended June 30, 2000 increased by
$137,837 to $231,539 compared to $93,702 for the nine months ended June 30,
1999. This increase was primarily due to the increase in fair value of the
Company's marketable securities classified as trading securities of $169,417,
which are associated with the Company's deferred compensation plan, as discussed
above under general and administrative expenses.
Interest expense for the nine months ended June 30, 2000 decreased by
$522,726 to $167,262 compared to $689,988 for the nine months ended June 30,
1999. This decrease was due to a reduction in outstanding credit balances for
the nine months ended June 30, 2000.
Income tax expense was $845,012 or 47% of pre-tax income for the nine
months ended June 30, 2000 compared to $2,967,377 or 39% of pre-tax income for
the nine months ended June 30, 1999. The increase in the Company's effective tax
rate is primarily attributable to the proportional increase of non-deductible
goodwill amortization expense relative to pre-tax income for the current fiscal
year.
The Company's net income was $922,796 for the nine months ended June 30,
2000 compared to $4,544,970 for the nine months ended June 30, 1999. Net income
as a percentage of revenues decreased to 4% in the nine months ended June 30,
2000 from 15% in the nine months ended June 30, 1999. The reduction in net
income overall resulted primarily from decreased revenues and gross profits and
the non-recurring expense, as discussed above.
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The Company's basic earnings per share were $0.05 ($0.05 diluted) for the
nine months ended June 30, 2000 compared to $0.36 ($0.34 diluted) for 1999. The
reduction in earnings per share was due in part to the reduced net income, but
was also affected by the increase in shares outstanding from the exercise of
outstanding warrants following the warrant call which took place in June 1999.
Basic shares outstanding increased to 17,492,587 from 12,796,423 for the nine
months ended June 30, 2000 and 1999, respectively, and diluted shares
outstanding increased to 17,954,570 for the nine months ended June 30, 2000 from
13,213,631 for the nine months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has floating rate financing with National City Bank (the
"Bank") in an amount up to $23,000,000 under a revolving line of credit with a
maturity date of December 31, 2002, convertible thereafter to five year term
debt. The loan agreement includes various loan covenants and restrictions of a
customary nature which may, under certain circumstances, 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. As of June 30, 2000, the Company
had borrowings of $5,636,528 outstanding under this arrangement with the Bank.
The Company has subordinated notes, payable to each of the previous
shareholders of EDL and STL, aggregating $1,723,750 as of June 30, 2000. These
notes bear interest at 8%, are payable in quarterly payments which began April
1, 1999 and mature on January 1, 2002. These notes are subordinate to the rights
of the Bank. In addition, the Company has notes payable to each of the former
shareholders of Triplex aggregating of $250,000. These notes bear interest at
the Wall Street Journal prime rate and principal and accrued interest are due on
January 26, 2001.
During the nine months ended June 30, 2000, the Company incurred $2,278,768
of costs, including capitalized interest of $34,651, related to the acquisition
of land and initial build-out of a new manufacturing facility in Melbourne,
Florida. The first phase of the build-out was completed during the quarter ended
June 30, 2000. The acquisition and subsequent build-out was financed by a
mortgage note payable with First Union National Bank ("First Union"). The
mortgage note payable provides up to $3,200,000 with a variable interest rate
based on the one month LIBOR plus 1.65%. Payments of interest only will be made
through December 2001 after which monthly payments of principal and interest
will be made until note matures on December 1, 2016.
The Company has a dependence upon a few major customers for a significant
portion of its revenues. 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. Management believes this
concentration will not adversely effect operating results in the future. The
gross margin contributions of the Company's major customers are not generally
different from those from its other customers as a whole.
The Company's operating cash flow was $2,821,453 for the nine months ended
June 30, 2000 compared to a $565,604 for the nine month period ended June 30,
1999. This resulted primarily from decreases in accounts receivable offset by
increases in inventories, accounts payable and accrued expenses for the nine
months ended June 30, 2000.
As of June 30, 2000, management believes inventory balances are not in
excess of requirements for deliveries and normal minimum stocking levels.
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<PAGE>
The Company had accounts receivable of $4,832,824 at June 30, 2000.
Generally, accounts receivable at the end of each quarter are collected within
the following quarter. The Company has provided an allowance for certain older
balances of $62,729. This allowance is believed to be sufficient to address any
uncollectible balances outstanding as of June 30, 2000.
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 then applicable for borrowings by the Company under the
Company's then-existing line of credit or other primary lending arrangement with
its primary lender, with interest payable annually, and matures on June 3, 2003.
As of June 30, 2000 and 1999, the Company's backlog was approximately $22.8
million and $15.5 million, respectively, consisting of firm fixed price purchase
orders. These purchase orders are expected to generate profits, 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 currently expects to manufacture
and deliver substantially all of the products in backlog within the next 12
months. In addition to the firm fixed price purchase orders, the Company has
approximately $13.8 million in unfunded deliverables from an indefinite
delivery, indefinite quantity ("IDIQ") contract to be completed over the next 48
months.
On November 2, 1999, the Board of Directors authorized the Company to
repurchase up to 1,000,000 of its outstanding shares of common stock within the
twelve month period following such date for a maximum purchase price, including
commissions, not to exceed $3,500,000 in the aggregate. During the nine months
ended June 30, 2000, the Company repurchased 481,873 shares of its common stock
for a total cost of $1,357,238 at an average purchase price of $2.82 per share.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that 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, such as
under the revolving line of credit, as previously described, 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.
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements that involve a number of risks and uncertainties. Such
forward-looking statements are within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities Act of
1934, as amended. Factors that could cause actual results to differ materially
from those projected in such forward-looking statements include the following:
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. The words "believe," "estimate," "expect," "intend," "anticipate,"
"will," "could," "may," and similar expressions and variations thereof identify
certain of such forward-looking statements, which speak only as of the dates on
which they were made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise. Readers are cautioned that any such forward-looking
statements are not guarantees of future
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<PAGE>
performance and involve risks and uncertainties, and that actual results may
differ materially from those indicated in the forward-looking statements as a
result of various factors. Readers are cautioned not to place undue reliance on
these forward-looking statements.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
The following exhibits are filed as part of this Quarterly Report on
Form 10-QSB:
<TABLE>
<S> <C>
2.2 Stock Purchase Agreement dated as of May 26, 2000, by and among
Paravant Inc., Harry J. Binck, David E. Bowles and John B. Dillon
(incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated May 26, 2000).
2.3 Stock Purchase Agreement dated as of July 11, 2000, by and among
Paravant Inc., Jay Perry and Lawrence J. Scally (incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated July 11, 2000).
3(i) Amended and Restated Articles of Incorporation (incorporated by
reference from the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1998).
4.2 Amended and Restated Bylaws (incorporated by reference from Exhibit 4.2
of the Registrant's Registration Statement on Form S-3 dated July 9,
1999).
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 May 26, 2000 was filed on June 7, 2000 reporting under
Item 2 a stock purchase agreement by and among Paravant Inc., Harry J.
Binck, David E. Bowles and John B. Dillon.
Form 8-K dated July 11, 2000 was filed on July 14, 2000 reporting under
Item 2 a stock purchase agreement by and among Paravant Inc., Jay Perry and
Lawrence J. Scally.
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<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 INC.
By /s/ John C. Zisko
--------------------------------
John C. Zisko,
Vice President, Treasurer and Chief
Financial Officer (as both a duly
authorized officer of Registrant
and as principal financial
officer of Registrant)
Date: August 11, 2000
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<PAGE>
PARAVANT INC.
INDEX TO EXHIBITS FILED WITH FORM 10-QSB DATED AUGUST 11, 2000
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
2.2 Stock Purchase Agreement dated as of May 26, 2000, by and among
Paravant Inc., Harry J. Binck, David E. Bowles and John B. Dillon
(incorporated by reference to Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated May 26, 2000).
2.3 Stock Purchase Agreement dated as of July 11, 2000, by and among
Paravant Inc., Jay Perry and Lawrence J. Scally (incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated July 11, 2000).
3(i) Amended and Restated Articles of Incorporation (incorporated by
reference from the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1998).
4.2 Amended and Restated Bylaws (incorporated by reference from Exhibit 4.2
of the Registrant's Registration Statement on S-3 dated July 9, 1999).
27 Financial Data Schedule.
</TABLE>
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