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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: December 31, 1999
[ ] 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>
Florida 59-2209179
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
</TABLE>
1615A West Nasa Boulevard
Melbourne, Florida 32901
(Address of Principal Executive Offices)
321-727-3672
(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 February 3, 2000, there were outstanding
17,562,413 shares of Common Stock, $.015 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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PARAVANT INC.
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet - December 31, 1999........................2
Condensed Consolidated Statements of Operations for the three
months ended December 31, 1999 and 1998....................................4
Condensed Consolidated Statements of Cash Flows for the three months
ended December 31, 1999 and 1998...........................................5
Notes to Condensed Consolidated Financial Statements............................7
Item 2. Management's Discussion and Analysis of Operations.....................10
PART II - OTHER INFORMATION
Item 5. Other Information......................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................14
SIGNATURES......................................................................15
Index to Exhibits Filed with Form 10-QSB dated February 4, 2000.................16
</TABLE>
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PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
ASSETS
(Unaudited)
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Current assets:
Cash and cash equivalents $ 4,791,703
Marketable securities 556,213
Accounts receivable 5,773,324
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,487,216
Inventory 4,211,638
Deferred income taxes 1,307,905
Other current assets 169,589
-----------
Total current assets 20,297,588
-----------
Property, plant and equipment, net 1,570,306
Demonstration pool and custom molds, net 591,753
Employee note receivable 215,685
Other assets 962,820
Intangible assets, net 5,022,219
Goodwill, net 11,284,525
-----------
Total assets $39,944,896
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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LIABILITIES AND STOCKHOLDERS' EQUITY
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(Unaudited)
<S> <C>
Current liabilities:
Current maturities of notes payable to related parties $ 985,000
Current maturities of capital lease obligations 41,192
Accounts payable 1,179,649
Billings in excess of costs and estimated earnings on
uncompleted contracts 319,870
Reserve for future losses on uncompleted contracts 173,927
Accrued expenses 1,393,790
Income taxes payable 1,057,277
-----------
Total current liabilities 5,150,705
-----------
Notes payable to related parties, net of current maturities 1,231,250
Capital lease obligations, net of current maturities 55,268
Deferred compensation 685,757
Deferred income taxes 127,324
-----------
Total liabilities 7,250,304
-----------
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 17,610,174 and outstanding
17,516,270 shares 264,154
Additional paid-in capital 21,682,162
Unrealized gain on available-for-sale securities 10,797
Retained earnings 10,993,509
-----------
32,950,622
Less treasury stock, at cost, 93,904 shares (256,030)
-----------
Total stockholders' equity 32,694,592
-----------
Commitments and contingencies
Total liabilities and stockholders' equity $39,944,896
===========
</TABLE>
Page 3
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PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
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<CAPTION>
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenues $ 7,705,029 8,482,293
Cost of revenues 3,691,564 4,107,869
------------ ----------
Gross profit 4,013,465 4,374,424
Sales and marketing 504,228 510,615
Research, development & engineering 749,665 635,306
General and administrative 1,037,555 1,011,063
Amortization of goodwill and intangible assets 494,981 486,385
------------ ----------
Total selling and administrative expense 2,786,429 2,643,369
------------ ----------
Income from operations 1,227,036 1,731,055
Other income (expense):
Interest expense (47,427) (246,944)
Interest income 13,104 57,009
Miscellaneous 6,368 1,975
------------ -----------
Income before income taxes 1,199,081 1,543,095
Income tax expense 573,161 609,523
------------ -----------
Net income $ 625,920 933,572
============ ===========
Basic earnings per share $ .04 .08
============ ===========
Diluted earnings per share $ .03 .07
============ ===========
Weighted average number of common shares outstanding 17,547,610 12,252,837
============ ===========
Weighted average number of common shares and dilutive
potential common shares outstanding 17,989,580 12,563,376
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
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PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
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<CAPTION>
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 625,920 933,572
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 707,777 646,626
Deferred income taxes (17,000) (43,965)
Increase (decrease) in cash caused by changes in:
Accounts receivable 3,395,019 905,905
Contracts in progress 357,517 (3,621,998)
Inventory 404,851 (568,919)
Other assets 27,116 288,753
Accounts payable (748,944) 1,043,756
Amounts due to related party - (152,906)
Accrued expenses (1,057,179) (477,643)
Deferred compensation 162,340 109,911
Income taxes payable 573,161 (45,009)
----------- ----------
Net cash provided by operating activities 4,430,578 (981,917)
----------- ----------
Cash flows from investing activities:
Payments for acquired subsidiaries, net of cash acquired of $850,000 - (8,713,817)
Purchases of marketable securities (116,104) -
Acquisitions of property, plant and equipment (72,739) (165,318)
Proceeds from collection of note receivable - 750,000
----------- ----------
Net cash used in investing activities (188,843) (8,129,135)
----------- ---------
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(Continued)
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PARAVANT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
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<CAPTION>
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net proceeds on revolving line of credit -- 8,230,984
Repayments on long-term debt (246,250) (9,147)
Payments for purchase of treasury stock (150,951) --
Repayments on capital lease obligations (23,078) (24,985)
Proceeds from issuance of common stock 20,833 1,719
Payments for retirement of underwriters' warrants -- (50,000)
----------- -----------
Net cash provided by (used in) financing activities (399,446) 8,148,571
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,842,289 (962,481)
Cash and cash equivalents at beginning of the period 949,414 1,187,788
----------- -----------
Cash and cash equivalents at end of the period $ 4,791,703 225,307
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 52,903 158,572
=========== ===========
Income taxes $ -- 460,491
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
The Company issued stock through a cashless exercise of
stock options and received treasury stock $ 4,583 --
=========== ===========
The Company entered into notes payable agreements with
related parties totaling $4,800,000 and issued
common stock totaling $5,925,000 in connection with the
purchase business combination during the three months
ended December 31, 1998.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PARAVANT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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 fiscal 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 months ended December 31, 1999
and 1998 have been computed by dividing net income by the weighted average
number of common shares outstanding. Diluted earnings per share for the
three months ended December 31, 1999 and 1998 have been computed by
dividing net income by the weighted average number of common shares and
dilutive potential common 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:
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<CAPTION>
Three Months Ended December 31
------------------------------
1999 1998
---- ----
<S> <C> <C>
Basic:
Weighted average number of common
shares outstanding 17,547,610 12,252,837
=========== ==========
Diluted:
Weighted average number of common
shares outstanding 17,547,610 12,252,837
Dilutive stock options 422,458 310,359
Dilutive warrants 19,512 -
----------- ----------
17,989,580 12,563,376
=========== ==========
</TABLE>
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PARAVANT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Options and warrants to purchase 970,100 and 6,774,285 shares of common
stock were excluded from the calculation of diluted earnings per share for
the three months ended December 31, 1999 and 1998, respectively, because
their exercise prices exceeded the average market price of common shares
for the period.
(2) ACQUISITION
On October 8, 1998 the Company consummated a purchase business
combination (the "Acquisition"), effective October 1, 1998, of all of the
outstanding common stock of Engineering Development Laboratories,
Incorporated, Inc. ("EDL") and substantially all of the assets of Signal
Technology Laboratories, Inc. ("STL"), EDL's majority-owned subsidiary.
Pursuant to the Acquisition Agreement the Company paid an aggregate
consideration consisting of (i) $8.7 million in cash, (ii) three-year $4.8
million notes bearing interest at the rate of 8% and (iii) 3,950,000 shares
of Common Stock. In connection with the Acquisition a contingent cash
earn-out will be payable by the Company under specified circumstances over
a period of up to five years based on future profits of the acquired
operation. The earn-out will be recorded as additional consideration,
increasing the amount of goodwill, which will be amortized over the
remaining life of the asset. The cash portion of the consideration paid by
the Company in connection with the Acquisition was financed using floating
rate financing obtained through National City Bank in Dayton, Ohio (the
"Bank") in an amount up to $14,000,000 under a revolving line of credit
with a maturity date of December 31, 2001, convertible thereafter to five
year term debt.
(3) CONTRACTS
Contracts in progress and advance billings on such contracts consist of
the following as of December 31, 1999:
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Costs incurred on uncompleted contracts $ 8,009,534
Estimated earnings thereon 5,594,974
-----------
13,604,508
Billings to date (10,611,089)
-----------
$ 2,993,419
===========
</TABLE>
The above amount is included in the accompanying condensed
consolidated balance sheet under the following captions:
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<S> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 3,487,216
Billings in excess of costs and estimated earnings
on uncompleted contracts (319,870)
Reserve for future losses on uncompleted contracts (173,927)
-----------
$ 2,993,419
===========
</TABLE>
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PARAVANT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(4) INVENTORY
The following is a summary of inventory at December 31, 1999:
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<S> <C>
Raw materials $ 4,100,037
Work in process 451,787
Finished goods 229,964
-----------
4,781,788
Provision for obsolete inventory (570,150)
-----------
$ 4,211,638
===========
</TABLE>
Page 9
<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 DECEMBER 31, 1999 VS. DECEMBER 31, 1998
Revenues for the quarter ended December 31, 1999 were $7,705,029, a
decrease of $777,264 or 9% from the quarter ended December 31, 1998 revenues of
$8,482,293. This decrease in revenues is primarily due to a decrease of
approximately 30% in signal intelligence products revenue which was partially
offset by an increase of approximately 24% in command, control and
communications ("C3") products revenue in this quarter. Signal intelligence
revenues declined due to a decrease in orders from a single, large customer.
The Company expects these trends to continue through the balance of the fiscal
year.
Gross profit was $4,013,465 for the quarter ended December 31, 1999 or 52%
of revenues, compared to $4,374,424 or 52% of revenues in the quarter ended
December 31, 1998, a total decrease of $360,959 or 8%. This decrease in gross
profitability is a direct result of the decreased revenues discussed above.
Sales and marketing expenses of $504,228 in the quarter ended December 31,
1999 decreased by $6,387 or 1% from the quarter ended December 31, 1998 expenses
of $510,615. As a percentage of revenues, sales and marketing expenses were
approximately 6% in both quarters ended December 31, 1999 and 1998. Sales and
marketing expense were substantially unchanged between the periods.
Research, development and engineering expenses of $749,665 in the quarter
ended December 31, 1999 increased by $114,359 or 18% from the quarter ended
December 31, 1998 expenses of $635,306. As a percentage of revenues, research,
development and engineering expenses were 10% and 8% in the quarters ended
December 31, 1999 and 1998, respectively. The increased research, development
and engineering expenses are due primarily to the Company's continued work on a
large proposal.
General and administrative expenses of $1,037,555 in the quarter ended
December 31, 1999 increased by $26,492 or 3% from the quarter ended December 31,
1998 expenses of $1,011,063. As a percentage of revenues, general and
administrative expenses were 13% and 12% in the quarters ended December 31, 1999
and 1998, respectively. General and administrative expense were substantially
unchanged between the periods.
Income from operations was $1,227,036 for the quarter ended December 31,
1999 compared to $1,731,055 in the quarter ended December 31, 1998, a decrease
of $504,019. As a percentage of revenues, income from operations decreased to
16% in the quarter ended December 31, 1999 from 20% in the quarter ended
December 31, 1998. The reduction in income from operations overall resulted
primarily from decreased revenues and gross profits and increased research,
development and engineering expenses as discussed above.
Interest expense for the quarter ended December 31, 1999 was decreased by
$199,517 to $47,427 compared to $246,944 in the quarter ended December 31, 1998.
This decrease is due to a reduction in outstanding credit balances for the
period ended December 31, 1999.
The Company's net income was $625,920 in the quarter ended December 31,
1999 compared to $933,572 in 1998. Net income as a percentage of revenues
decreased to 8% in the quarter ended December 31, 1999 from 11% in the quarter
ended December 31, 1998. The reduction in net income overall resulted
Page 10
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primarily from decreased revenues and gross profits and increased research,
development and engineering expenses, as discussed above.
The Company's basic earnings per share was $0.04 ($0.03 fully diluted) in
the quarter ended December 31, 1999 compared to $0.08 ($0.07 fully diluted) in
1998. 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 17,567,610 from 12,252,837 for
the three months ended December 31, 1999 and 1998, respectively, and fully
diluted shares outstanding increased to 17,989,580 from 12,563,376 for the three
months ended December 31, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has floating rate financing with the Bank in an amount up to
$14,000,000 under a revolving line of credit with a maturity date of December
31, 2001, 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 December 31, 1999, there were no borrowings
outstanding under this arrangement with the Bank.
In addition, the Company has subordinated notes, payable to each of the
previous shareholders of EDL and STL, aggregating $2,216,250, as of December 31,
1999. 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.
The Company has 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 from
those from its other customers as a whole.
The Company's operating cash flow was $4,430,578 for the three months ended
December 31, 1999 compared to a $981,917 use of net cash in operating activities
during the three month period ended December 31, 1998. This resulted primarily
from decreases in accounts receivable, contracts in progress and inventory,
offset by a decrease in accounts payable for the three months ended December 31,
1999.
As of December 31, 1999, management believes inventory balances are not in
excess of requirements for deliveries and normal minimum stocking levels.
Generally, accounts receivable at the end of each quarter are collected
within the following quarter. The Company's total outstanding accounts
receivable balance of $5,773,324 at December 31, 1999 has been subsequently
reduced by approximately $3,620,000 in cash collections. The Company has
provided an allowance for certain older balances of $79,495. This allowance is
believed to be sufficient to address any uncollectible balances outstanding as
of December 31, 1999.
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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 December 31, 1999 and 1998, the Company's backlog was approximately $7.7
million and $26.6 million, 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 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 $9.4 million in unfunded
deliverables from an indefinite delivery, indefinite quantity ("IDIQ") contract
to be completed over the next 48 months. Approximately $2.7 million of the
decrease in backlog between December 31, 1999 and 1998 is due to the Company's
decision to withdraw from the medical business. The remaining difference is due
primarily to an 83% reduction in firm fixed price purchase orders for signal
intelligence products as of December 31, 1999 compared to 1998. This reduction
in backlog may result in reduced revenues and net income for the fiscal year
ending September 30, 2000.
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 period ended
December 31, 1999, the Company repurchased 55,173 shares of its common stock for
a total cost of $150,951 at an average purchase price of $2.736 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.
YEAR 2000 COMPLIANCE
The Company recognized that year 2000 issues could have resulted in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company engaged in an evaluation of its year 2000 readiness concerning
various aspects of its business. Specifically, the Company focused on its
information technology and non-information technology systems. In addition, the
Company analyzed its production processes and products. The Company analyzed
year 2000 issues relating to third parties with whom the Company has a business
relationship. The current status of the Company's efforts as of December 31,
1999 were as follows:
Information Technology Systems: The Company's accounting software
provider and operating system provider advised the Company that such
software is year 2000 compliant.
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Non-Information Technology Systems: Although the Company did not
believe that non-information technology systems are material to its
business, the Company reviewed and tested such systems. The Company did
not incur any material costs in connection with the review and testing
of such systems.
Products: The Company's products are date sensitive. Engineering
accomplished a review of Paravant products and published a list by
product as to whether the product meets year 2000 readiness
requirements, and if not, what must be accomplished for the product to
meet these requirements. In these incidences, the worst case scenario
is the product operator would, after 0001 hours January 1, 2000, enter
the time and date into the product's set up and reboot the product. The
Company does not believe it has any material exposure with regard to
its products as a result of the year 2000 issue and as of February 4,
2000 has not received any complaints on these products.
Suppliers: Certain products purchased by the Company are obtained from
a limited group of suppliers. The Company surveyed such suppliers in
1998 and again in 1999 regarding their year 2000 status. Absent
widespread difficulties affecting several major vendors, the Company
did not anticipate that vendors' year 2000 issues would have a material
adverse effect on the Company, and as of February 4, 2000 has not
incurred any problems with suppliers.
Outside Services: The Company was not aware of the year 2000 readiness
of certain outside services companies. However, as of February 4, 2000
the Company has not incurred any problems with any outside service
companies.
Customers: Because the customer base is expected to change from year to
year, the Company was unable to predict the identity of all of its
major customers in the year 2000 and thereafter. However, the Company
had surveyed its significant customers as to whether the customers'
computer driven payment or purchasing processes were year 2000
compliant and they indicated they had adequate plans in place to
mitigate any anticipated difficulties. A customer's year 2000 issues
could have caused delays in receipt of purchase orders or in payment.
If year 2000 issues were widespread among the Company's customers, the
Company's revenues and cash flow could be materially affected. However,
as of February 4, 2000 the Company has not incurred any problems with
any customers.
Costs: Management has determined that the costs to implement this plan
have been less than $100,000 and the Company does not anticipate any
material additional costs to be incurred.
As of February 4, 2000, the Company has not experienced any adverse results
or significant business disruptions related to the year 2000 issue. No
additional spending has been required to remedy any year 2000 problems. The
Company has not experienced any material effects on its business due to failures
by customers, suppliers or outside service companies to address year 2000
issues. Year 2000 problems may yet arise. At this time the Company has no
indications that such problems will arise, but the Company intends to continue
to monitor the year 2000 issue for any problems during the current year.
SUBSEQUENT EVENT
On January 26, 2000, the Company completed the purchase of a building and
approximately 10 acres of land, which will become the new headquarters of
Paravant Computer Systems, Inc. The property was purchased for $558,656 and
renovations were begun immediately. The total estimated cost to complete this
project is $1.5 million. Initial renovations are expected to be completed by May
2000. The Company expects financing for this project to be in accordance with
it's existing banking relations.
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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 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 5. Other Information
Ed Stefanko resigned as EDL's President and Chief Executive Officer
effective January 21, 2000 for personal reasons. The Company appointed Brian
Kirby as President of EDL effective January 24, 2000.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) EXHIBITS
The following exhibits are filed as part of this Quarterly Report on
Form 10-QSB:
3(i) Amended and Restated Articles of Incorporation.*
4.2 Amended and Restated Bylaws.**
10.55 Lease Agreement between Beavercreek Enterprises and STL of Ohio, Inc.,
dated September 1, 1999.
10.56 Lease Agreement between Beavercreek Enterprises and Engineering
Development Laboratories, Incorporated, dated September 1, 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.
* Incorporated by reference from the Registrant's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1998.
</TABLE>
Page 14
<PAGE>
** Incorporated by reference from Exhibit 4.2 of the Registrant's
Registration Statement on Form S-3 dated July 9, 1999.
(b) REPORTS ON FORM 8-K:
Form 8-K dated December 10, 1999 was filed on December 22, 1999
reporting under Item 5 the appointment of William R. Craven as President
and Chief Operating Officer of the Company, effective January 1, 2000 and
the resignation of Edward Stefanko from the Board of Directors, effective
December 10, 1999.
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/ 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)
Date: February 4, 2000
Page 15
<PAGE>
PARAVANT INC.
INDEX TO EXHIBITS FILED WITH FORM 10-QSB DATED FEBRUARY 4, 2000
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
3(i) Amended and Restated Articles of Incorporation.*
4.2 Amended and Restated Bylaws.**
10.55 Lease Agreement between Beavercreek Enterprises and STL of Ohio, Inc.,
dated September 1, 1999.
10.56 Lease Agreement between Beavercreek Enterprises and Engineering
Development Laboratories, Incorporated, dated September 1, 1999.
27 Financial Data Schedule.
* Incorporated by reference from the Registrant's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1999.
** Incorporated by reference from Exhibit 4.2 of the Registrant's
Registration Statement on S-3 dated July 9, 1999.
</TABLE>
Page 16
<PAGE>
EXHIBIT 10.55
LEASE AGREEMENT
This Lease made as of the 1st day of September 1999, between Beavercreek
Enterprises, 4401 Dayton-Xenia Road, Dayton, Ohio 45432-1894 (hereinafter
called the Lessor), and STL of Ohio, Inc. (hereinafter called the Lessee).
WITNESSETH: That the Lessor does hereby demise and let unto the Lessee the
following described Premises, to wit:
Approximately 13,701 square feet of offices, storage (400 sq. ft. in lower
level), and light electronic fabrication space in Lessor's Building 3
located at 4393 Dayton-Xenia Road, Dayton, Ohio 45432.
TO HAVE AND TO HOLD the same with the appurtenances, thereunto belonging
unto the said Lessee for and during the term of five (5) years beginning on
the 1st day of September 1999 and ending on the 31st day of August 2004.
BASE MONTHLY RENT: Yielding and paying therefore, payable in monthly
installments due on the 1st of each month, as follows:
12 payments of $13,759 commencing September 1999 through August 2000.
12 payments of $14,030 commencing September 2000 through August 2001.
12 payments of $14,307 commencing September 2001 through August 2002.
12 payments of $14,589 commencing September 2002 through August 2003.
12 payments of $14,877 commencing September 2003 through August 2004.
OPTION PERIOD: The lessee at its option may continue the lease for an
additional three years at an escalation of 2% per year.
COVENANTS OF LESSEE:
1. And said Lessee does hereby covenant and agree with said Lessor that
it will:
(a) pay said rent at the times and place in the manner aforesaid;
(b) use and occupy said premises in a careful and proper manner;
(c) make no alterations, changes in interior design and colors,
or additions in or to said premises;
(d) by execution of this Lease accept and agree to abide by the
building and parking area rules and regulations;
(e) throughout the term of this lease and any renewal or
extension thereof, keep the interior of the demised premises
and fixtures in good condition. Lessor, at its sole
discretion, shall repair all damage or injury to the premises
and fixtures resulting from the carelessness, omission,
neglect or other cause of Lessee, its servants, employees,
agents, visitors or licenses and the cost thereof shall
become collectible as additional rent hereunder and shall be
paid by Lessee within the 10 days after presentation of
statement thereof. Lessee shall not perform acts or carry on
any practices which may injure the building or the premises,
or be a nuisance or menace to other tenants in the building
in which the demised premises are a part;
(f) promptly surrender the demised premises at the end of the
term provided for above; and
Page 1 of 3
<PAGE>
(g) be responsible to comply with all EPA regulations regarding
the storage and disposal of hazardous materials and
chemicals and remove all such material at end of lease.
COVENANTS OF LESSOR:
2. And the Lessor on its part covenants and agrees with the Lessee that
it will:
(a) provide all utilities including heat, light, and electrical
power for use by the Lessee (telephone equipment and service
will not be provided by Lessor);
(b) provide janitorial and waste removal services in the Lessee's
offices, lab space, kitchen and restrooms;
(c) maintain the demised premises in good repair and tenantable
condition during the continuance of this Lease, expect in
case of damage arising from the negligence of the Lessee or
its agents or employees;
(d) provide fire and hazard insurance for the leased offices (but
not including any furniture, equipment, or other property of
the lessee) and provide liability coverage for the leased
office space and premises, the lessee employees and invited
guests against injury or loss caused by hazard or lessor
neglect arising out of occupancy of the leased facility;
(e) provide use of rest rooms and vending machines;
(f) provide one unassigned parking space in the rear of Building
3 for each 200 square feet of leased space and Lessee visitor
parking as available;
MUTUAL COVENANTS:
3. It is mutually agreed by and between the Lessor and the Lessee that:
(a) if Lessee shall pay the rent as herein provided, and shall
keep, observe and perform all of the other covenants of this
Lease by it to be kept, performed and observed, the Lessee
shall and may, peaceably and quietly, have, hold and enjoy
the said premises for the term aforesaid;
(b) upon notice at least sixty (60) days prior to the termination
of the lease, Lessee may elect to extend the lease for an
additional two (2) years under the same terms and conditions
except the monthly payments will be increased by two percent
(2.0%) each year.
(c) any notice, demand, request, or other instrument which may be
or are required to be given under this Lease shall be
delivered in Person or sent by United States Certified Mail,
postage prepaid, and shall be addressed (1) if to the Lessor,
at the address first herein above given or at such other
address as the Lessor may designate by written notice, and
(2) if to the Lessee, attention:
STL of Ohio, Inc.
ATTN: C. Hyland Schooley
4391 Dayton-Xenia Rd
Dayton, OH 45432
or any such other address as the Lessee shall designate by
written notice;
(e) this lease supercedes any previous lease between the two
parties and all obligations of either party under any
previous lease are hereby cancelled.
Page 2 of 3
<PAGE>
LESSOR: LESSEE:
Beavercreek Enterprises STL of Ohio, Inc.
/s/ Krishan K. Joshi /s/ C. Hyland Schooley
- ----------------------- -------------------------
Krishan K. Joshi C. Hyland Schooley
General Partner President
Page 3 of 3
<PAGE>
EXHIBIT 10.56
LEASE AGREEMENT
This Lease made as of the 1st day of September 1999, between Beavercreek
Enterprises, 4401 Dayton-Xenia Road, Dayton, Ohio 45432-1894 (hereinafter
called the Lessor), and Engineering Development Labs, Inc (hereinafter
called the Lessee).
WITNESSETH: That the Lessor does hereby demise and let unto the Lessee the
following described Premises, to wit:
Approximately 13,332 square feet of offices, storage, and light electronic
fabrication space in Lessor's Building 3 located at 4393 Dayton-Xenia Road,
Dayton, Ohio 45432.
TO HAVE AND TO HOLD the same with the appurtenances, thereunto belonging
unto the said Lessee for and during the term of five (5) years beginning on
the 1st day of September 1999 and ending on the 31st day of August 2004.
BASE MONTHLY RENT: Yielding and paying therefore, payable in monthly
installments due on the 1st of each month, as follows:
12 payments of $10,938 commencing September 1999 through August 2000.
12 payments of $12,665 commencing September 2000 through August 2001.
12 payments of $14,449 commencing September 2001 through August 2002.
12 payments of $14,738 commencing September 2002 through August 2003.
12 payments of $15,032 commencing September 2003 through August 2004.
OPTION PERIOD: The lessee at its option may continue the lease for an
additional three years at an escalation of 2% per year.
COVENANTS OF LESSEE:
1. And said Lessee does hereby covenant and agree with said Lessor that
it will:
(a) pay said rent at the times and place in the manner aforesaid;
(b) arrange for Lessee employees to have proper DoD security
clearances in conformance with UES facility security
procedures. All security activities will be coordinated
through the UES Security Officer.
(c) use and occupy said premises in a careful and proper manner;
(d) make no alterations, changes in interior design and colors,
or additions in or to said premises;
(e) by execution of this Lease accept and agree to abide by the
building and parking area rules and regulations;
(f) throughout the term of this lease and any renewal or
extension thereof, at its expense, keep the interior of the
demised premises and fixtures in good condition. Lessor, at
its sole discretion, shall repair all damage or injury to the
premises and fixtures resulting from the carelessness,
omission, neglect or other cause of Lessee, its servants,
employees, agents, visitors or licenses and the cost thereof
shall become collectible as additional rent hereunder and
shall be paid by Lessee within the 10 days after presentation
of statement thereof. Lessee shall not perform acts or carry
on any
Page 1 of 3
<PAGE>
practices which may injure the building or the premises, or
be a nuisance or menace to other tenants in the building in
which the demised premises are a part;
(g) be responsible to comply with all EPA regulations regarding
the storage and disposal of hazardous materials and chemicals
and remove all such material at end of lease;
(h) promptly surrender the demised premises at the end of the
term provided for above.
COVENANTS OF LESSOR:
2. And the Lessor on its part covenants and agrees with the Lessee that
it will:
(a) provide all utilities including heat, light, and electrical
power for use by the Lessee (telephone equipment and service
will not be provided by Lessor);
(b) provide UES dumpster for waste removal;
(c) maintain the demised premises in good repair and tenantable
condition during the continuance of this Lease, expect in
case of damage arising from the negligence of the Lessee or
its agents or employees;
(d) provide fire and hazard insurance for the leased offices (but
not including any furniture, equipment, or other property of
the lessee) and provide liability coverage for the leased
office space and premises, the lessee employees and invited
guests against injury or loss caused by hazard or lessor
neglect arising out of occupancy of the leased facility;
(e) provide use of rest rooms, vending machines, electrical room
for generator, limited use of janitor's room.
(f) provide one unassigned parking space in the rear of Building
3 for each 200 square feet of leased space and Lessee visitor
parking as available;
MUTUAL COVENANTS:
3. It is mutually agreed by and between the Lessor and the Lessee that:
(a) if Lessee shall pay the rent as herein provided, and shall
keep, observe and perform all of the other covenants of this
Lease by it to be kept, performed and observed, the Lessee
shall and may, peaceably and quietly, have, hold and enjoy
the said premises for the term aforesaid;
(b) upon notice at least sixty (60) days prior to the termination
of the lease, Lessee may elect to extend the lease for an
additional two (2) years under the same terms and conditions
except the monthly payments will be increased by two percent
(2.0%) each year.
(c) upon seven (7) day written notice, the Lessor will provide
janitorial services for the leased space for an increase in
the monthly rent payments of fifty (50) cents per square foot
of rented space.
(d) any notice, demand, request, or other instrument which may be
or are required to be given under this Lease shall be
delivered in Person or sent by United States Certified Mail,
postage prepaid, and shall be addressed (1) if to the Lessor,
at the address first herein above given or at such other
address as the Lessor may designate by written notice, and
(2) if to the Lessee, attention:
Engineering Development Labs, Inc.
ATTN: Bryce W. Skinn
4391 Dayton-Xenia Road
Dayton, Ohio 45432
Page 2 of 3
<PAGE>
or any such other address as the Lessee shall designate by
written notice;
(g) this lease supersedes any previous lease between the two
parties and all obligations of either party under any
previous lease are hereby canceled.
LESSOR: LESSEE:
Beavercreek Enterprises Engineering Development Labs, Inc.
/s/ Krishan K. Joshi /s/ Bryce W. Skinn
- ----------------------- -------------------------------
Krishan K. Joshi Bryce W. Skinn
General Partner Executive Vice President
Page 3 of 3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF PARAVANT INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1999 AND
THE RELATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,791,703
<SECURITIES> 556,213
<RECEIVABLES> 5,840,286
<ALLOWANCES> 66,962
<INVENTORY> 7,698,854
<CURRENT-ASSETS> 20,297,588
<PP&E> 2,862,661
<DEPRECIATION> 1,292,355
<TOTAL-ASSETS> 39,944,896
<CURRENT-LIABILITIES> 5,150,705
<BONDS> 2,216,250
<COMMON> 264,154
0
0
<OTHER-SE> 32,430,438
<TOTAL-LIABILITY-AND-EQUITY> 39,944,896
<SALES> 7,705,029
<TOTAL-REVENUES> 7,705,029
<CGS> 3,691,564
<TOTAL-COSTS> 3,691,564
<OTHER-EXPENSES> 2,788,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,427
<INCOME-PRETAX> 1,199,081
<INCOME-TAX> 573,161
<INCOME-CONTINUING> 625,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625,920
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.03
</TABLE>
