<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 11, 2000
PARAVANT INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Florida 0-28114 59-2209179
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
89 Headquarters Plaza North, Suite 1421, Morristown, NJ 07960
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 631-6190
(Former name or former address, if changed since last report)
<PAGE>
Paravant Inc. ("Paravant") hereby amends Items 7(a) and 7(b) of its
current report on Form 8-K filed with the Securities and Exchange Commission on
July 17, 2000 with respect to the acquisition of all of the outstanding shares
of capital stock of Catalina Systems Research, Inc., a Colorado corporation
("CRI"), from Jay Perry and Lawrence J. Scally, to supply certain financial
statements and pro forma financial information that were not available at the
time of filing.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. The following
financial statements of CRI are included herein:
Catalina Systems Research, Inc. Financial Statements as of and
for the six months ended June 30, 2000 and 1999 (unaudited)
and the year ended December 31, 1999 (audited) (included as
pages F-1 to F-10 of this Form 8-K/A Amendment No. 1).
(b) Pro Forma Financial Information. The following pro forma financial
information is included herein:
Paravant Inc. Unaudited Pro Forma Condensed Combined Balance
Sheet as of June 30, 2000 and Income Statements for the year
ended September 30, 1999 and nine months ended June 30, 2000
(included as pages F-11 to F-18 of this Form 8-K/A Amendment
No. 1).
(c) Exhibits. The following Exhibits are filed as a part of this
report:
2.1 Stock Purchase Agreement dated as of July 11, 2000,
by and among Paravant Inc., Jay Perry and Lawrence
J. Scally (incorporated by reference to Item 2.1 of
Paravant's Form 8-K filed on July 17, 2000).
23.1 Consent of KPMG LLP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 25, 2000 PARAVANT INC.
(Registrant)
By: /s/ John C. Zisko
--------------------------
John C. Zisko
Vice President and
Chief Financial Officer
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
FINANCIAL STATEMENTS:
<S> <C>
Catalina Systems Research, Inc.:
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited) F-2
Statements of Income for the year ended December 31, 1999 and for the
six months ended June 30, 1999 and 2000 (unaudited) F-3
Statements of Stockholders' Equity for the year ended December 31, 1999 and
for the six months ended June 30, 2000 (unaudited) F-4
Statements of Cash Flows for the year ended December 31, 1999 and for the
six months ended June 30, 1999 and 2000 (unaudited) F-5
Notes to Financial Statements F-6 - F-10
PRO FORMA FINANCIAL INFORMATION:
Unaudited Pro Forma Condensed Combined Financial Information F-11
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2000 F-12 - F-13
Unaudited Pro Forma Condensed Combined Statement of Income for the
Year Ended September 30, 1999 F-14
Unaudited Pro Forma Condensed Combined Statement of Income for the
Nine months Ended June 30, 2000 F-15
Unaudited Notes to Pro Forma Condensed Combined Financial Statements F-16 - F-18
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Catalina Systems Research, Inc.:
We have audited the accompanying balance sheet of Catalina Systems Research,
Inc. as of December 31, 1999, and the related statements of income,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Catalina Systems Research, Inc.
as of December 31, 1999, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
August 18, 2000
F-1
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1999 2000
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,688,944 $1,018,605
Accounts receivable 1,453,886 750,473
Inventories (note 2) 560,891 592,432
Prepaid expenses and other current assets 123,512 42,892
---------- ----------
Total current assets 3,827,233 2,404,402
Property and equipment, net (note 3) 749,021 530,889
---------- ----------
Total assets $4,576,254 $2,935,291
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 96,033 $ 343,550
Accrued expenses:
Compensation and benefits 284,492 114,303
Other 300 38,074
Distribution payable -- 186,748
Notes payable to bank (note 4) 14,199 --
---------- ----------
Total current liabilities 395,024 682,675
Notes payable to bank, excluding current installments (note 4) 55,281 --
---------- ----------
Total liabilities 450,305 682,675
---------- ----------
Stockholders' equity:
Common stock, $.15 par value; 100,000 shares authorized;
20,000 shares issued and outstanding 3,000 3,000
Additional paid-in capital 3,750 3,750
Retained earnings 4,119,199 2,245,866
---------- ----------
Total stockholders' equity 4,125,949 2,252,616
---------- ----------
Commitments and contingencies (notes 5 and 7)
---------- ----------
Total liabilities and stockholders' equity $4,576,254 $2,935,291
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Statements of Income
<TABLE>
<CAPTION>
Year ended Six months ended June 30,
December 31, ----------------------------
1999 1999 2000
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Product sales $ 6,238,123 $ 3,213,099 $ 2,272,156
Services 1,890,242 1,066,200 1,013,649
----------- ----------- -----------
Total revenues 8,128,365 4,279,299 3,285,805
Cost of products and services 3,435,774 1,822,638 1,529,869
----------- ----------- -----------
Gross profit 4,692,591 2,456,661 1,755,936
----------- ----------- -----------
Operating expenses:
Research and development 592,309 207,043 301,052
Selling, general and administrative 2,205,510 893,730 1,159,416
----------- ----------- -----------
Total operating expenses 2,797,819 1,100,773 1,460,468
----------- ----------- -----------
Income from operations 1,894,772 1,355,888 295,468
----------- ----------- -----------
Other income (expense):
Interest income 50,823 20,254 33,154
Interest expense (3,946) (611) (3,169)
Other income (expense) 61,059 29,384 (42,969)
----------- ----------- -----------
107,936 49,027 (12,984)
----------- ----------- -----------
Net income $ 2,002,708 $ 1,404,915 $ 282,484
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common paid-in Retained
stock capital earnings Total
------- ----- --------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 3,000 3,750 2,498,491 2,505,241
Net income -- -- 2,002,708 2,002,708
Distributions to stockholders -- -- (382,000) (382,000)
------- ----- --------- ---------
Balance at December 31, 1999 3,000 3,750 4,119,199 4,125,949
Net income (unaudited) -- -- 282,484 282,484
Distributions to stockholders (unaudited) -- -- (2,155,817) (2,155,817)
------- ----- --------- ---------
Balance at June 30, 2000 (unaudited) $ 3,000 3,750 2,245,866 2,252,616
======= ===== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Six months ended June 30,
December 31, --------------------------
1999 1999 2000
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,002,708 $1,404,915 $ 282,484
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization 298,570 140,980 219,948
Gain on sale of investments (60,936) -- --
Unrealized gain on investments -- (30,289) --
Proceeds from sale of trading securities 388,116 -- --
Increase (decrease) in cash caused by changes in:
Accounts receivable (625,268) (20,699) 703,413
Inventories 704,907 221,143 (31,541)
Prepaid expenses and other current assets (11,952) 66,311 80,620
Accounts payable (298,062) (195,931) 247,517
Accrued expenses (439,760) (636,523) (132,415)
Distribution payable -- -- 186,748
Deferred revenue (570,000) (570,000) --
---------- ---------- ----------
Net cash provided by operating activities 1,388,323 379,907 1,556,774
---------- ---------- ----------
Cash flows from investing activity:
Purchases of property and equipment (175,556) (151,517) (62,674)
---------- ---------- ----------
Net cash used by investing activities (175,556) (151,517) (62,674)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings under long-term debt 76,131 76,131 --
Payments on long-term debt (6,651) -- (69,480)
Distributions to shareholders (382,000) (146,493) (2,094,959)
---------- ---------- ----------
Net cash used by financing activities (312,520) (70,362) (2,164,439)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 900,247 158,028 (670,339)
Cash and cash equivalents at beginning of period 788,697 788,697 1,688,944
---------- ---------- ----------
Cash and cash equivalents at end of period $1,688,944 $ 946,725 $ 1,018,605
========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 3,946 $ 611 $ 3,169
========== ========== ==========
Supplemental schedule of noncash investing and
financing activities:
Noncash distribution of vehicles to shareholders $ -- $ -- $ 60,858
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS AND OPERATIONS
Catalina Systems Research, Inc. ("CRI" or the "Company"), founded
in 1990, designs and markets real-time, high bandwidth, low
latency digital signal processing solutions for highly
sophisticated commercial and military markets. The Company,
located in Colorado Springs, Colorado, believes that all of its
material operations are part of the digital signal processing
environment and it currently reports a single industry segment.
Major customers include Raytheon Range Systems, Lockheed Martin
and STL of Ohio.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include interest earning deposits with
original maturities of 90 days or less.
(c) INVESTMENT SECURITIES
Investment securities consist of mutual funds. The Company
classifies its mutual funds as trading securities. Trading
securities are bought and held principally for the purpose of
selling them in the near future. Trading securities are recorded
at fair value.
(d) INVENTORIES
Inventories are stated at the lower of cost or market, determined
on a weighted average cost. The Company provides an allowance for
obsolescence as inventories become unusable or obsolete.
(e) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over the estimated useful
lives of the related assets ranging from three to seven years.
(f) REVENUE RECOGNITION
The Company recognizes revenue when an order has been received,
the product has been shipped or services have been rendered,
pricing is fixed and collectibility is reasonably assured.
Contracts to design and develop complex digital signal processing
hardware and software to buyer's specification or to provide
services related to the performance of such contracts are
accounted for using the percentage-of-completion method of
accounting. Accordingly, revenues are recognized in the ratio that
contract costs incurred are to estimated total contract costs.
Losses expected to be incurred on contracts are charged to
operations in the period that such losses are determined.
(g) RESEARCH AND DEVELOPMENT
Costs and expenses incurred in research and development are
expensed in the period incurred.
F-6
(Continued)
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Notes to Financial Statements
December 31, 1999
(h) INCOME TAXES
The Company has elected by unanimous consent of its shareholders
to be taxed under the provisions of Subchapter S of the Internal
Revenue Code. Under such election, the Company's federal and state
taxable income or loss are reportable by shareholders on their
individual income tax returns. Therefore, no provision or
liability for income tax has been included in these financial
statements.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair
value due to the short-term maturities of these assets and
liabilities. The carrying amount of the notes payable approximates
fair value since the effective interest rate applicable to such
obligation approximates current market interest rates.
(k) CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are subject to
concentrations of credit risk consist primarily of cash
equivalents and trade accounts receivable which are generally not
collateralized. The Company's policy is to place its cash and cash
equivalents with high credit quality financial institutions in
order to limit the amount of credit exposure. The Company extends
credit to its customers primarily in the government intelligence
industry on an unsecured basis on terms it establishes for
individual customers.
(l) INTERIM FINANCIAL INFORMATION
The financial statements for the six months ended June 30, 1999
and 2000 are unaudited but reflect only normal and recurring
adjustments which are, in the opinion of management, necessary for
the fair presentation of financial position and results of
operations. Operating results for the six months ended June 30,
1999 and 2000 are not necessarily indicative of the results that
may be expected for the full year.
F-7
(Continued)
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Notes to Financial Statements
December 31, 1999
(m) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB
issued SFAS No. 137, which amended the implementation date for
SFAS No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. This statement is not
expected to affect the Company as the Company currently does not
have any derivative instruments.
(2) INVENTORIES
Inventories as of December 31, 1999 and June 30, 2000 consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
Raw materials $289,649 $452,130
Work in process 72,182 72,986
Finished goods 199,060 67,316
----------- ----------
$560,891 $592,432
=========== ==========
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and June 30, 2000 consists
of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures $ 22,652 $ 23,965
Vehicles 81,144 --
Computer software 599,704 602,129
Equipment 970,509 1,029,445
---------- ----------
1,674,009 1,655,539
Less accumulated depreciation 924,988 1,124,650
----------- ----------
Property and equipment, net 749,021 530,889
=========== ==========
</TABLE>
(Continued)
F-8
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Notes to Financial Statements
December 31, 1999
(4) NOTES PAYABLE TO BANK
Notes payable to bank as of December 31, 1999 consists of:
<TABLE>
<S> <C>
7.98% note payable to bank, payable in monthly installments
of $802.61, including interest, through April 2004; secured
by a vehicle. $34,740
7.98% note payable to bank, payable in monthly installments of
$802.61, including interest, through April 2004; secured by
a vehicle. 34,740
-------
69,480
Less current installments of long-term debt 14,199
-------
Long term debt, excluding of current installments $55,281
========
</TABLE>
On June 30, 2000, both notes payable were paid off in full.
(5) LEASES
The Company leases its office space in Colorado Springs under a
noncancelable operating lease. Future minimum lease commitments for the
years ended December 31 are as follows:
<TABLE>
<S> <C>
2000 $122,009
2001 122,009
2002 122,009
2003 122,009
2004 50,837
--------
$538,873
========
</TABLE>
Total rental expense was approximately $126,000 for the year ended
December 31, 1999 and approximately $64,000 (unaudited) and $62,000
(unaudited) for the six months ended June 30, 1999 and 2000,
respectively.
(6) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan (the "Plan") for all full time employees of
the Company. The Company may make discretionary contributions to the Plan
on behalf of employees that meet certain contribution eligibility
requirements defined under the terms of the Plan. There were no
expenditures related to the Plan for the year ended December 31, 1999,
the six months ended June 30, 1999 or 2000 (unaudited).
(Continued)
F-9
<PAGE>
CATALINA SYSTEMS RESEARCH, INC.
Notes to Financial Statements
December 31, 1999
(7) CONTINGENCIES
In the ordinary course of business, the Company is party to certain legal
proceedings. Based upon information presently available, management
believes the ultimate resolution of all legal matters of which it is
currently aware will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
(8) SUBSEQUENT EVENT
On July 11, 2000, the Company entered into an agreement to sell its
common stock to Paravant, Inc. Under the terms of the agreement, the
shareholders of Catalina would receive approximately $13.8 million in
cash, up to $2,500,000 notes payable under a contingent earn-out
agreement payable over 39 months, and a $100,000 covenant-not-to-compete
paid to each of the two sellers.
F-10
<PAGE>
PARAVANT INC.
Unaudited Pro Forma Condensed Combined Financial Information
The accompanying unaudited pro forma condensed combined financial information
provides information about the impact of the acquisition of Catalina Systems
Research, Inc. ("CRI" or "Catalina") by Paravant Inc. (the "Company") on July
11, 2000 as if the transaction had been consummated on June 30, 2000 for
purposes of the unaudited pro forma condensed combined balance sheet as of June
30, 2000 and on October 1, 1998 for purposes of the unaudited pro forma
condensed combined statements of income for the periods ended September 30, 1999
and June 30, 2000.
F-11
<PAGE>
PARAVANT INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2000
<TABLE>
<CAPTION>
Historical
---------------------- Pro forma
Assets Company Catalina adjustments Pro forma
----------------------------------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 281,746 1,018,605 -- 1,300,351
Marketable securities 1,092,356 -- -- 1,092,356
Accounts receivable, net 4,770,095 750,473 -- 5,520,568
Costs and estimated earnings in excess
of billings on uncompleted contracts 5,921,499 -- -- 5,921,499
Inventories 6,526,230 592,432 -- 7,118,662
Prepaid expenses and other current assets 193,673 42,892 -- 236,565
Deferred income taxes 1,290,905 -- -- 1,290,905
----------- --------- -------- -----------
Total current assets 20,076,504 2,404,402 -- 22,480,906
Property and equipment, net 4,110,878 530,889 -- 4,641,767
Demonstration pool and custom molds 489,261 -- -- 489,261
Intangible assets, net 4,661,587 -- 200,000 3a 4,861,587
Employee note receivable 215,685 -- -- 215,685
Other assets 1,685,661 -- -- 1,685,661
Goodwill 16,049,079 -- 11,947,384 3a 27,996,463
----------- --------- ----------- -----------
Total assets $47,288,655 2,935,291 12,147,384 62,371,330
=========== ========= =========== ===========
</TABLE>
F-12
<PAGE>
PARAVANT INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2000
<TABLE>
<CAPTION>
Historical
----------------------------- Pro forma
Liabilities and Equity Company Catalina adjustments Pro forma
--------------------------------------------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Current liabilities:
Revolving line of credit $ -- -- 13,800,000 3b 13,800,000
Current maturities of notes payable to
related parties 1,235,000 -- -- 1,235,000
Current maturities of capital lease
obligations 56,812 -- -- 56,812
Current maturities of long-term debt -- -- -- --
Accounts payable 1,776,228 343,550 600,000 3c 2,719,778
Billings in excess of costs and estimated
earnings on uncompleted contracts 93,879 -- -- 93,879
Provision for losses on contracts in process 494,870 -- -- 494,870
Accrued expenses and other current liabilities 2,113,475 339,125 -- 2,452,600
------------ --------- ---------- ----------
Total current liabilities 5,770,264 682,675 14,400,000 20,852,939
Revolving line of credit 5,636,530 -- -- 5,636,530
Notes payable to related parties, excluding
current installments 794,094 -- -- 794,094
Capital lease obligations, excluding
current installments 15,447 -- -- 15,447
Long-term debt, excluding current
installments 1,756,709 -- -- 1,756,709
Deferred compensation 1,136,824 -- -- 1,136,824
Deferred income taxes 127,324 -- -- 127,324
------------ --------- ---------- ----------
Total liabilities 15,237,192 682,675 14,400,000 30,319,867
------------ --------- ---------- ----------
Stockholders' equity:
Common stock 267,896 3,000 (3,000) 3d 267,896
Additional paid-in capital 21,955,498 3,750 (3,750) 3d 21,955,498
Retained earnings 11,290,387 2,245,866 (2,245,866) 3d 11,290,387
------------ --------- ---------- ----------
33,513,781 2,252,616 (2,252,616) 33,513,781
Less treasury stock, at cost (1,462,318) -- -- (1,462,318)
------------ --------- ---------- ----------
Total stockholders' equity 32,051,463 2,252,616 (2,252,616) 32,051,463
------------ --------- ---------- ----------
Total liabilities and stockholders' equity $ 47,288,655 2,935,291 12,147,384 62,371,330
============ ========= ========== ==========
</TABLE>
F-13
<PAGE>
PARAVANT INC.
Unaudited Pro Forma Condensed Combined Statement of Income
Year ended September 30, 1999
<TABLE>
<CAPTION>
Historical
--------------------------
Pro forma
Company Catalina adjustments Pro forma
------------ ---------- -------------- ------------
<S> <C> <C> <C> <C>
Contract revenues $ 42,279,478 8,128,365 -- 50,407,843
Costs of contract revenues 20,840,615 3,435,774 -- 24,276,389
------------ --------- ------------ ----------
Gross profit 21,438,863 4,692,591 -- 26,131,454
------------ --------- ------------ ----------
Sales and marketing 2,296,097 -- -- 2,296,097
Research, development, and engineering 2,536,530 592,309 -- 3,128,839
General and administrative expenses 4,400,561 2,205,510 -- 6,606,071
Amortization expense 1,968,649 -- 1,261,405 4a 3,230,054
------------ --------- ----------- ----------
Total selling and administrative expense 11,201,837 2,797,819 1,261,405 15,261,061
------------ --------- ----------- ----------
Income from operations 10,237,026 1,894,772 (1,261,405) 10,870,393
Other income (expense):
Interest expense (777,076) (3,946) (1,159,200)4b (1,940,222)
Interest income 60,416 50,823 -- 111,239
Miscellaneous 159,234 61,059 -- 220,293
------------ --------- ---------- ----------
Income before income taxes 9,679,600 2,002,708 (2,420,605) 9,261,703
Income taxes 3,793,958 -- (162,980)4c 3,630,978
------------ --------- ---------- ----------
Net income $ 5,885,642 2,002,708 (2,257,625) 5,630,725
============ ========= ========== ==========
Basic earnings per share $ 0.42 0.40
============ ==========
Diluted earnings per share $ 0.41 0.39
============ ==========
Weighted average number of common
shares outstanding 13,978,583 13,978,583
Plus incremental shares from assumed
conversion of options and warrants 413,669 413,669
------------ ----------
Weighted average number of common
shares outstanding and dilutive
potential common shares outstanding 14,392,252 14,392,252
============ ==========
</TABLE>
F-14
<PAGE>
PARAVANT INC.
Unaudited Pro Forma Condensed Combined Statement of Income
Nine months ended June 30, 2000
<TABLE>
<CAPTION>
Historical
---------------------------- Pro forma
Company Catalina adjustments Pro forma
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Contract revenues $ 23,667,171 5,383,108 -- 29,050,279
Costs of contract revenues 12,696,153 2,366,242 -- 15,062,395
------------ ----------- ----------- ------------
Gross profit 10,971,018 3,016,866 -- 13,987,884
------------ ----------- ----------- ------------
Sales and marketing 1,515,438 -- -- 1,515,438
Research, development, and engineering 1,649,461 367,107 -- 2,016,568
General and administrative expenses 3,884,049 2,111,441 -- 5,995,490
Amortization expense 1,543,482 -- 946,054 4a 2,489,536
Non-recurring expenses 685,813 -- -- 685,813
------------ ----------- ----------- ------------
Total selling and administrative expense 9,278,243 2,478,548 946,054 12,702,845
------------ ----------- ----------- ------------
Income from operations 1,692,775 538,318 (946,054) 1,285,039
Other income (expense):
Interest expense (167,262) (4,132) (869,400) 4b (1,040,794)
Interest income 231,539 51,346 -- 282,885
Miscellaneous 10,757 (9,435) -- 1,322
------------ ----------- ----------- ------------
Income before income taxes 1,767,809 576,097 (1,815,454) 528,452
Income taxes 845,012 -- (483,349) 4c 361,663
------------ ----------- ----------- ------------
Net income $ 922,797 576,097 (1,332,105) 166,789
============ =========== =========== ============
Basic earnings per share $ 0.05 0.01
============ ============
Diluted earnings per share $ 0.05 0.01
============ ============
Weighted average number of common
shares outstanding 17,492,587 17,492,587
Plus incremental shares from assumed
conversion of options and warrants 461,983 461,983
------------- ------------
Weighted average number of common
shares outstanding and dilutive
potential common shares outstanding 17,954,570 17,954,570
============ ============
</TABLE>
F-15
<PAGE>
PARAVANT INC.
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
(1) BASIS OF PRESENTATION
The pro forma condensed consolidated financial statements are unaudited
and give effect to the acquisition of Catalina Systems Research, Inc.
("CRI" or "Catalina") on July 11, 2000 by Paravant Inc. (the "Company").
The unaudited pro forma condensed combined financial statements are based
on the historical financial statements of the Company and CRI giving
effect to the transactions under the purchase method of accounting and
the assumptions and adjustments discussed below. The Company has made
preliminary estimates of fair value for the net assets acquired from CRI
and has allocated the purchase price using these estimates. These
unaudited pro forma condensed combined financial statements may not be
indicative of the financial position or results of operations that
actually would have occurred if the combination had been in effect on
October 1, 1998 or June 30, 2000 or which may be obtained in the future.
The pro forma financial statements should be read in conjunction with the
audited financial statements of the Company, contained in the Company's
Form 10-K for the year ended September 30, 1999, and Form 10-Q for the
nine months ended June 30, 2000, and the financial statements of CRI
contained elsewhere herein.
The Company's fiscal year ends on September 30, while CRI's fiscal year
ends on December 31. The unaudited pro forma condensed combined balance
sheet includes the June 30, 2000 balance sheet for each company. The
unaudited pro forma condensed consolidated statement of income for the
year ended September 30, 1999 includes the statement of income for the
year ended September 30, 1999 for the Company and the year ended December
31, 1999 for CRI. The unaudited pro forma condensed combined statement of
income for the nine months ended June 30, 2000 includes the statement of
income for the nine months ended June 30, 2000 for both companies.
(2) ACQUISITION OF CRI
On July 11, 2000, the Company acquired all the outstanding common stock
of CRI. The purchase price consisted of (i) $13,800,000 in cash (financed
through the Company's existing line of credit), (ii) $2,500,000 in
subordinated promissory notes payable under a contingent cash earn-out
agreement payable over 39 months, with interest payable at 8%, and (iii)
a $100,000 covenant not to compete paid to each of the two sellers. Under
the earnout agreement, as additional consideration for the CRI shares, in
the event that CRI's earnings before income taxes ("EBIT") for the
fifteen-month period ending September 30, 2001 exceeds $4,000,000, the
CRI's shareholders will receive 90% of the excess, up to $4,500,000. In
the event that CRI's EBIT for the fiscal year ending September 30, 2002
exceeds $3,500,000, the CRI's shareholders will receive 90% of the
excess, up to $4,000,000. In the event that CRI's EBIT for the fiscal
year ending September 30, 2003 exceeds $4,200,000, the CRI's shareholders
will receive the sum of (i) 90% of the excess, up to $5,200,000, plus
(ii) 45% of the excess over $5,200,000, up to $6,200,000.
The transaction will be accounted for as an asset purchase for tax
purposes. Accordingly, there are no deferred taxes in the opening balance
sheet of the acquired company.
(Continued)
F-16
<PAGE>
PARAVANT INC.
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
(3) ADJUSTMENTS TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following describes the pro forma adjustments made to arrive at the
pro forma consolidated balance sheet as of June 30, 2000 as if the
acquisition was consummated on such date.
(a) Record excess of purchase price over estimated fair value of net
assets acquired and non-competition agreements as follows:
<TABLE>
<S> <C>
Purchase price:
Cash paid with line of credit borrowings $13,800,000
Transaction costs 400,000
Non-competition agreements 200,000
-----------
14,400,000
Estimated fair value of net assets acquired as of June 30, 2000 (2,252,616)
-----------
Excess of purchase price over estimated fair value of net assets $12,147,384
===========
Non-competition agreements $ 200,000
Goodwill 11,947,384
-----------
$12,147,384
===========
</TABLE>
(b) Record payment of cash of $13,800,000, financed through the Company's
existing line of credit.
(c) Record $400,000 of transaction costs and non-competition agreements of
$200,000.
(d) Remove historical amounts of CRI stockholders equity.
(4) ADJUSTMENTS TO PRO FORMA STATEMENTS OF INCOME
The following describes the pro forma adjustments included in the
unaudited pro forma condensed combined statements of income for the year
ended September 30, 1999 and nine months ended June 30, 2000 as if the
acquisition was consummated on October 1, 1998.
(a) Record amortization of goodwill ($1,194,738 in 1999 and $896,054 in
2000) over a 10 year period and intangible non-competition
agreements ($66,667 in 1999 and $50,000 in 2000) over a 3 year
period.
F-17
(Continued)
<PAGE>
PARAVANT INC.
Notes to Unaudited Pro Forma Condensed
Combined Financial Statements
(b) Record interest expense associated with line of credit ($13,800,000 at
8.4%, or $1,159,200 in 1999 and $869,400 in 2000).
(c) Record income taxes at 39% associated with CRI changing from an S
corporation to a C corporation, net of deductions for amortization and
interest recorded in (a) and (b) above.
F-18
<PAGE>
PARAVANT INC.
INDEX TO EXHIBITS FILED WITH FORM 8-K
<TABLE>
<Caption
Exhibit Description of Exhibit
<S> <C>
2.1 Stock Purchase Agreement dated as of July 11, 2000, by and among Paravant
Inc., Jay Perry and Lawrence J. Scally (incorporated by reference to Item
2.1 of Paravant's Form 8-K filed on July 17, 2000).
23.1 Consent of KPMG LLP.
</TABLE>
