<PAGE>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ----------------------
                                   FORM 10-KSB

                 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

                                       OR

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM             TO           .

                         COMMISSION FILE NUMBER: 0-28114

                         PARAVANT COMPUTER SYSTEMS, INC.
              (EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

               FLORIDA                                   59-2209179
       (State of incorporation)             (I.R.S. Employer Identification No.)

1615A WEST NASA BOULEVARD, MELBOURNE, FL                    32901
(Address of principal executive offices)                 (Zip Code)

         ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 727-3672

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          Common Stock, $.015 par value
                                (Title of Class)

                  Redeemable Warrants to Purchase Common Stock
                                (Title of Class)

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. Yes [X] No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendments to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were $10,495,063.

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
registrant on December 23, 1996 was approximately $28,703,587. On such date, the
closing price of the issuer's common stock was $5.875  per share. Solely for the
purposes of this calculation,  shares beneficially owned by directors, executive
officers and  stockholders of the issuer that  beneficially own more than 10% of
the issuer's voting stock have been excluded,  except such shares,  if any, with
respect to which such directors and officers disclaim beneficial ownership. Such
exclusion  should not be deemed a determination  or admission by the issuer that
such individuals are, in fact, affiliates of the registrant.

The  number  of shares  of the  registrant's  Common  Stock,  $.015  par  value,
outstanding on December 23, 1996 was 7,959,886.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Company's  Proxy Statement in connection with its Annual Meeting
scheduled to be held on February 27, 1997 are  incorporated by reference in Part
III. The Company's Proxy Statement will be filed within 120 days after September
30, 1996.

Transitional Small Business Disclosure Format (check one) Yes [ ] No [ X ]






<PAGE>
<PAGE>



                         PARAVANT COMPUTER SYSTEMS, INC.

                          Annual Report on Form 10-KSB
                  For the Fiscal Year Ended September 30, 1996

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
PART I
<S>          <C>                                                                                                 <C>
   Item 1.   Description of Business............................................................................  3
   Item 2.   Description of Property............................................................................ 18
   Item 3.   Legal Proceedings.................................................................................. 18
   Item 4.   Submission of Matters to a Vote of Security Holders................................................ 19

PART II

   Item 5.   Market for Common Equity and Related Stockholder Matters........................................... 20
   Item 6.   Management's Discussion and Analysis or Plan of Operation.......................................... 21
   Item 7.   Financial Statements............................................................................... 24
   Item 8.   Changes in and Disagreements with
             Accountants on Accounting and Financial Disclosure................................................. 24

PART III

   Item 9.   Directors, Executive Officers, Promoters and Control
             Persons; Compliance with Section 16(a) of the Exchange Act......................................... 25
   Item 10.  Executive Compensation............................................................................. 25
   Item 11.  Security Ownership of Certain Beneficial Owners and Management..................................... 25
   Item 12.  Certain Relationships and Related Transactions..................................................... 25
   Item 13.  Exhibits and Reports on Form 8-K................................................................... 26

</TABLE>

                                        2






<PAGE>
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                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

GENERAL

                  Paravant Computer Systems, Inc. (the "Company",  "Paravant" or
"PCS") is a manufacturer of ruggedized,  portable  computers and  communications
interfaces  utilized  in  outdoor  settings.   Paravant  also  offers  extensive
customization  services to modify its standard products to the specific needs of
end-users.  The Company's laptop and hand-held processors are designed and built
to function in adverse environments under harsh weather, climate and operational
conditions.   Insulated  from  temperature   extremes,   flying  debris,  shock,
vibration,  moisture and humidity, its products have a reputation for high-level
performance and reliability in difficult  circumstances.  The Company's products
are sold to U.S. and foreign military establishments,  other government agencies
and commercial enterprises.

HISTORY

                  In early 1983, the Company  commenced its business  operations
and offered only engineering services for computer applications. In this initial
period, PCS modified computer hardware and other equipment and developed special
software  applications  for its  customers.  It  also  served  as a  value-added
reseller for a Japanese manufacturer of portable computers.

                  In the mid 1980's,  the  Company  began  developing  its first
rugged computer under a special grant from the U.S.  Department of Defense Small
Business  Innovative  Research  Program.  By 1987,  PCS was producing its RHC-88
hand-held  computer  and selling it to the U.S.  Army and the  electric  utility
industry. Subsequently, the Company designed and produced other computer-related
products.

                  By late 1989, UES, Inc., under the control of Krishan K. Joshi
(presently  the  Company's  Chairman),  purchased  a 51% equity  interest in the
Company through its wholly owned subsidiary,  UES Florida, Inc. Previously,  PCS
and UES had worked together on a joint development project. By mid 1990, four of
its  original  five  founders  had left PCS's  employ and sold all their  equity
interest in it. Of this group, only Richard P. McNeight, its President, remains.
For a while after the acquisition of control of PCS, UES and Mr. Joshi played an
active and substantial role in its day-to-day management and operations.  In the
Fall of 1991, William R. Craven joined the Company and became its Vice President
of Marketing. Since that time, UES and Mr. Joshi have devoted much less time and
effort to the management of the Company's affairs.

                  The  Company,  which  was  incorporated  under the laws of the
State of  Florida  in June  1982,  consummated  in June 1996 an  initial  public
offering  (the "IPO") of 1,150,000  shares  (before  giving  effect to the Stock
Split (as defined  below)) of common stock,  par value $.045 per share  ("Common
Stock"),  and 1,610,000 redeemable warrants (before giving effect to the Warrant
Split (as  defined  below)),  each to  purchase  one share of Common  Stock (the
"Warrants").

                  On July 25, 1996, the Company  effected a three-for-one  stock
split (the "Stock  Split").  In  connection  with the Stock  Split,  the Company
amended its Articles of Incorporation to decrease the


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par value of the Common  Stock from $.045 per share to $.015 per share.  Also in
connection  with the Stock  Split,  each Warrant to purchase one share of Common
Stock at an exercise price of $6.00 per share was converted into three Warrants,
each to purchase  one share of Common  Stock at an  exercise  price of $2.00 per
share,  and the  redemption  price of the  Warrants  was  reduced  to $.0167 per
Warrant (the "Warrant  Split").  Unless  otherwise  noted, all references to the
Common Stock and the Warrants  contained  herein are after giving  effect to the
Stock Split and the Warrant Split.

INDUSTRY BACKGROUND -- MILITARY MARKET

                  Traditionally,  the U.S.  Department  of Defense  ("DoD")  has
retained  military  contractors  to develop  computer  technology  for  specific
missions that meet extensive  military  specifications.  This approach has often
taken  longer from  development  through  production,  and tends to be much more
expensive,  than similar technology  available in the commercial sector.  Unlike
other scientific  areas,  the rapid advances made in computer  technology in the
commercial  market have often exceeded and driven those  developed  specifically
for the  military.  Consequently,  when the U.S.  military  has pursued the more
costly and  time-consuming  procurement  procedures,  its  computers  have still
lagged behind the comparable commercial technology in terms of capabilities.

                  Due to these factors, the DoD began in the mid 1980's to shift
from its  over-dependence  on  computers  meeting full  military  specifications
("Mil-Spec")  to  acquiring  commercially  available  computers  that  have been
modified  for   environmental   and   operational   realities  of  the  military
applications  in  question.  While the U.S.  military  still  procures  Mil-Spec
computers,  this  transition  to the  more  commercially  oriented  systems  has
resulted in its realization of the desired benefits and savings.

                  Given the  dismantling  of the former Soviet Union and related
budgetary considerations,  there has been a concerted effort on the part of U.S.
Congress  since 1990 to downsize the  military.  Over the same time frame,  U.S.
military  spending has  gradually  declined.  The Company  believes that further
decreases  of overall  spending,  but slight  increases  in  spending on defense
electronics, will occur during the remaining portion of this decade.

                  The  downward  trend in overall  defense  spending  has been a
positive development for sales to the U.S. military in recent years of less than
full   Mil-Spec   militarized   computers   in  general  and  rugged   computers
specifically. This is the case because such computers have produced cost savings
and certain  operational  benefits in meeting the military's  need for computing
capabilities.  In one sense, they have proven less expensive and, in some cases,
better than the full Mil-Spec  computers.  In another sense,  they have extended
the  longevity  of older  weapons  and related  systems  while  enhancing  their
technological  capabilities.  In  this  manner,  they  have  played  a  role  in
facilitating the upgrading or retrofitting of existing weapons.  Moreover,  they
have caused the dissemination and utilization of computer technology  throughout
the military structure,  especially at the lower echelons.  This has resulted in
greater tactical usage of such technology in the battlefield context.

                  Despite such benefits, certain negative implications in regard
to the market  prospects  for rugged  computers may arise in the longer run as a
consequence  of less overall  military  spending.  In any event,  lower military
spending may  eventually  serve as a  constraint  on the growth of sales of such
computers.

                  Only a portion of militarized  computers consist of ruggedized
versions.  "Ruggedization" or "rugged" or "ruggedized  computers" are terms used
to describe computers that are built to withstand



                                        4






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<PAGE>



certain  environmental  and operational  hazards with which standard  commercial
computers   functioning  indoors  would  not  typically  have  to  contend.  The
ruggedization of the computer is an attempt to protect or insulate it fully from
such hazards or at least  minimize  their adverse impact so that it functions to
accomplish  the  task  at  hand  or  complete  the  mission.   From  a  strictly
environmental  point of view,  these  hazards  are  usually  weather-related  or
climatic in nature and can encompass  temperature  extremes  ranging from -30 to
+145 degrees Fahrenheit,  as well as severe moisture and humidity conditions and
the  infiltration  by flying or wind-borne  debris,  such as sand, dust or other
particles.  These adverse  conditions  occur outdoors,  particularly in deserts,
jungles, arctic regions or at sea.

                  In the operational area, the hazards involve strong vibrations
and shocks  that  result  from  rapid  ascents  and  descents,  rough  handling,
transportation  and  explosions  as well as  electric  interference  or internal
thermal  conditions.  In the former  situations,  the  signals  emitted by other
electronic  equipment may interfere  with and distort the proper  functioning of
computers.  Also, as more and more computing power is inserted into small spaces
and  containers,  the heat  generated  by the  computer  itself  may  cause  the
processor  to  malfunction  or  fail.  These  operational  hazards  are,  in all
likelihood,  greater  in  outdoor  military  settings  than  in  normal  outdoor
applications.

                  Computers  are  ruggedized  by the  selection  and mounting of
certain components, the design,  configuration and fabrication of enclosures and
electronics  and  the  application  of  special  seals  and  coatings.  Computer
components  generally fall within three broad categories:  Mil-Spec,  industrial
and commercial.  Mil-Spec components are at the far end of the continuum when it
comes to the  degree  of  ruggedization.  This  category  fulfills  the  highest
requirements for withstanding adverse factors. Mil-Spec and industrial parts for
computers  tend to be of higher  quality and composed of better  materials  than
commercial components. They are usually made on production lines using different
approaches than their commercial counterparts.

                  Consequently,  components  made for  Mil-Spec  and  industrial
usage tend to be much more expensive than comparable  commercial ones due to the
raw materials and methods employed in their manufacture. Mil-Spec components are
even more  costly  than  similar  industrial  parts.  In  addition,  because the
production runs in Mil-Spec and industrial  applications rarely reach the volume
levels of  commercial  production,  there are no or few  economies  of scale and
related cost reductions that are achievable.

                  Commercial components are lower in price initially and tend to
cost even less over time due to economies of scale and production  efficiencies.
Such components,  however,  offer little  protection from the adverse effects of
harsh  environmental  or operational  conditions.  Cost and pricing  differences
between  commercial  and   industrial/Mil-Spec   items  for  both  electric  and
mechanical  components are substantial and industrial and Mil-Spec  products may
cost from three to ten times more than commercial ones.

                  For most of its  requirements,  the U.S.  Military  takes  the
position that  Mil-Spec  standards for computers are too expensive and excessive
for the degree of protection actually needed.  Accordingly, if the equipment can
survive and operate satisfactorily under the same conditions that humans can, it
will usually be appropriate for its mission.  Mil-Spec items are being gradually
phased out of military procurement programs.

                  The use of the  newer  surface  mount  technology  ("SMT")  to
attach  components to the computer boards enhances its durability and ruggedness
over the older mounting technology. In SMT,



                                        5






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<PAGE>



the  components are glued to the board by means of a chemical  adhesion  process
and are then  soldered  instead  of being  inserted  into holes in the board and
soldered.  SMT is a more  precise  manufacturing  technique  and  offers  better
insulation against vibration and shock. See "-- SUPPLY AND MANUFACTURING".

                  Parts'  selections,  board  design and proper case and sealing
materials can reduce the ill-effects of electronic-magnetic interference ("EMI")
from other equipment and internal thermal generation. The design and fabrication
of the computer encasement and keyboard with tougher materials, full closure and
special  sealants  also protect it against  moisture,  humidity,  particles  and
temperature extremes.

                  Typically,  the  companies  that  market  and sell  ruggedized
computers  are  repackagers  having  little  or no input in the  design of their
electronics  and the selection  and mounting of  components  on printed  circuit
boards.  They usually purchase the computer boards and  sub-assemblies in an "as
is" condition  from  commercial  manufacturers.  The major  contribution  of the
repackagers  to the  protection  of the  computer  is a tougher box in which the
computer is housed.  Because it is usually  air-breathing  in nature,  even this
stronger  covering  fails to shield the computer from the  penetration  of rain,
snow,   fog,   dust  or  other   particles.   In  contrast,   the  Company  uses
industrial-type  or  highly  selected  commercial  components  for  most  of its
computers  rather  than  strictly  ordinary  commercial  ones  as do many of its
competitors.  This selection allows it to provide better quality and more rugged
parts but at  cheaper  prices  than  full  Mil-Spec  which  tend to be much more
costly.  The Company also applies SMT to the fabrication of most of its computer
boards.  In  addition,  PCS designs  such  boards,  the  computer's  outer case,
keyboards, sub-assemblies and other elements in order to maximize the ruggedness
of its products,  to furnish  customization  of electronics  and software and to
give the customer greater control over configuration and components.  To address
price  concerns  by some  customers,  the Company  has  introduced  a new rugged
notebook line of products, which combine Paravant's rugged outer case design and
expertise in sealing the unit with off-the-shelf commercial electronics products
provided by a third-party supplier.

                  Militarized   computers,   including  rugged  computers,   are
available  in many  different  types,  sizes and  configurations.  They may also
bridge or overlap  product  categories  in certain  instances.  One  category of
militarized  computer is a dedicated system computer.  This type of processor is
typically  installed and integrated into specific  command and control  systems,
weapons or other equipment.  Rack-mounted  computers are an example of this type
of computer. They are usually an integral part of such equipment, are not easily
detached  from it and  weigh in excess of 30 lbs.  The  equipment  sits in large
racks  with  specified  dimensions  and  can be  installed  within  trailers  or
vehicles.

                  Another category involves transportable computers that are not
fixed in place and may be deployed in different  applications.  Typically,  they
are  stand-alone   units  and  are   characterized  by  desktop   computers  and
workstations.  These computers weigh between 30 and 60 lbs. and require external
power sources.

                  A third  category  of  militarized  computer  is the  portable
computer, which includes laptops and hand-helds, as well as the newer notebooks.
Often carried and used in the field,  these computers are  self-contained  units
that may be  employed  in  conjunction  with other  systems or on a  stand-alone
basis.  They usually  operate on  battery-power  but may, in certain  cases,  be
plugged into an external power source. Such computers usually weigh less than 20
lbs.



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                  A substantial portion of the market for militarized computers,
including rugged computers, covers the first two categories, namely -- dedicated
systems and  transportable  computers.  The market for portables in the military
area is considerably  smaller than either of the first two categories and only a
portion of that market is ruggedized.

                  In  addition,   many  of  the  companies  that  sell  portable
computers also market  computers from more than one category as well as standard
computer  peripherals  such as  printers,  mass storage  devices,  communication
terminals and displays.

PRODUCTS

                  The Company  currently  offers its customers a line of rugged,
portable  computers  that  includes two types of hand-held  processors  and four
types of laptops.  In terms of  performance,  PCS's portables have the computing
power  of,  and are  compatible  with,  IBM PC's and are  designed  with an open
architecture  configuration for maximum flexibility.  All its portable computers
possess  substantial memory  capabilities for their size. The Company's software
is based on MS-Windows or MS-DOS operating systems.

                  Most of the Company's portable computers are  battery-powered,
contain  back-up  power  packs  and have a  longevity  of 8 to 16 hours  for its
hand-held  and 3 to 12 hours for its laptops.  However,  its  computers are also
designed  to be  plugged  into  either AC  (alternating  current)  or DC (direct
current), external power sources in vehicles or other systems.

                  All PCS's computers have expansion capabilities with slots for
additional  expansion  boards  and/or PCMCIA cards (credit card sized memory and
interface  cards) and, for most of its laptops,  optional  removable  hard drive
and/or floppy discs are also  available.  The monitor or display  aspects of the
Company's  computers  offer  high-resolution,  monochrome  LCD  (Liquid  Crystal
Devices)  selected  specifically  for sunlight  visibility and wide  temperature
ranges. The standard display also features,  as optional,  a white back-light or
secure  back-light for use in low ambient light. In laptops,  color displays are
offered if desired.

                  Like other elements of its computers,  the Company's keyboards
are arranged for  operational  ease in hostile  environments  and under  adverse
conditions.  In its hand-held computers,  the keyboard has tactile feedback keys
and alpha-numeric  keypads designed with wide spacing for glove-hand use by non-
typists.  As far as its laptops are  concerned,  the keyboards are either of the
membrane variety or standard,  full-travel keyboards, both featuring the regular
QWERTY key arrangement,  generally used by typists, word processors and computer
users.  Each  laptop  has a sealed  mouse  that  serves as a pointer to move the
cursor  and  select  functions.  Although  such a  standard  keyboard  has  been
ruggedized to be relatively water and dust-proof,  the membrane type offers even
greater  impermeability.  It may be  drenched  or hosed  with  water  and  still
function  adequately.  As an option,  membrane  keypads are also  available with
back-lights for use in darkness or low-light circumstances.

                  In size, PCS's hand-held models are 9.4" and 10" by about 6.5"
with  thicknesses  varying from 1.5" to 2.6";  they weigh either 2.7 lbs. or 4.5
lbs. In contrast, its laptop range in size from 14" to 17" by 7.5" to 10.5" with
thicknesses varying from 3" to 7.25".  Weights of its laptop run from 12 lbs. to
23 lbs.



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                  The  Company's  computers  are  designed  to meet  and  exceed
certain  military  specifications  for operation in harsh  environments  and for
insulation  from EMI. The reliability and performance of its products in extreme
environmental  and operational  situations  relate directly to PCS's fundamental
electrical and mechanical  designs,  its  specification  and selection of proper
components,  its  manufacturing  techniques  and the  extensive  testing that it
employs at various phases.

                  Like many of its  competitors,  the  Company's  computers  are
available with standard serial and parallel communications  capabilities.  These
capabilities  allow PCS's computers to transmit and receive  electronic  signals
and messages to and from other electronic systems.  Its standard  communications
interfaces  may be made  operational  in military,  governmental  and commercial
applications.  However,  unlike  certain of its  competitors,  the Company  also
offers specialized  communication interfaces for military applications that meet
certain  military  specifications.  These  interfaces link up all the electronic
devices in one system so that they can exchange critical  information  necessary
for the performance and mission of that system. In addition, PCS has developed a
tactical  communication  interface that connects different  electronics  systems
operating on the battlefield with one another.  Communication with these various
interfaces can be achieved electronically, by radio or other means.

                  In the military area,  typical  applications  of the Company's
computers  entail  aircraft and shipboard  diagnostic,  testing and  maintenance
systems,  controller  and  radar  displays  for  missile  systems,   performance
recorders in training exercises, mission loaders and verifiers of data and field
command control systems.

                  As of September  30, 1996,  the following  table  represents a
substantial  portion of the Company's  current  military  business  covering its
three primary  applications  (Maintenance & Support,  Training,  and Battlefield
Communications), the identity of its customer, the type of computer involved and
the application concerned:

<TABLE>
<CAPTION>
                                                                     TYPE OF
DESCRIPTION OF PROGRAM                      NAME OF CUSTOMER         COMPUTER           APPLICATION
----------------------                      ----------------         --------           -----------
<S>                                         <C>                      <C>                <C>
HAWK/AVENGER Air Defense                    Raytheon                 Laptop             Portable Fire Controller
  Missile Systems

LANTIRN Low Altitude Navigation             Lockheed Martin          Hand-held          Maintenance Data Recording
System                                                                                  Device

HARM Missile System                         Texas Instrument         Laptop             Mission Loading and
                                                                                        Electronic Diagnostics

F-16 Fighter                                Lockheed Martin          Laptop             Electronic Diagnostics Check
 and Mission Loading
</TABLE>

                  In  September  1996,  PCS was  awarded a contract  by Raytheon
Company under which PCS will provide enhanced remote terminal units used as part
of an air defense command and control system which Raytheon supplies to the U.S.
Army Missile  Command in Huntsville,  Alabama.  Deliveries of the units began in
the fourth quarter of fiscal 1996 and are expected to continue  throughout  1997
and into  1998.  Also in October  1996,  PCS was  awarded a contract  to provide
Sanders,  a  Lockheed  Martin  company,  with  hardware  elements  for  Enhanced
Diagnostic Aid ("EDNA") systems for use by the U.S.



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Air Force on F-16 fighter  aircraft.  Deliveries  are expected to begin in April
1997 and are expected to continue  through 1998.  The contract is a continuation
of a program  started  three years ago with Lockheed Fort Worth under which EDNA
systems  were  shipped to the U.S.  Air Force for both the F-16 and B-2 aircraft
programs  and for  selected  military  programs.  The EDNA system is used by Air
Force maintenance  personnel on the flightline to quickly diagnose the condition
of  various  sub-systems  on the  aircraft  and to  program  certain  electronic
devices.  The compact EDNA system can replace a large number of support boxes on
the flightline and is considerably  less expensive to purchase and faster to use
than current systems employed by the Air Force.

                  In  the  government  and  commercial  areas,   PCS's  products
collect, store, process and communicate data generally and are used specifically
in such applications as state highway department  surveying,  timber and logging
operations, environmental and forestry studies and testing.

CUSTOMIZATION

                  The  Company   provides  its  customers  and  end-users   with
engineering  services  that modify or adjust its  standard  portable  computers,
related  software  and  communication  interfaces  to their  specific  needs and
requirements. A substantial portion of its product sales to the military involve
varying degrees of customization while only a small portion of computers sold to
its non-military  government and commercial  customers  require such engineering
modifications.

                  The range of  engineering  services  furnished by PCS includes
special rugged packaging design, miniaturization of electronics,  development of
ultra-low power systems and improvements in communications  capabilities.  There
are many examples of specific  situations  where PCS has rendered such services,
and the following modifications of its products are representative only:

                  --       The  development of special  communication  interface
                           modules   and  cards  to  permit  the   computer   to
                           communicate with aircraft or a weapon system.

                  --       The  design of special  connectors  to  computers  to
                           allow the use of the customer's existing cable set-up
                           contained in other equipment.

                  --       The expansion of environmental  testing  capabilities
                           so that  computers may be made  impervious to certain
                           chemicals or wider  temperature  ranges in accordance
                           with program requirements.

                  --       The  addition of a fail-safe  mechanical  switch to a
                           weapon firing system.

                  --       The installation of application  software package for
                           special data collection and processing.

                  In the early phase of a military program,  PCS is often called
upon to design, engineer and fabricate the prototype.  Once this is successfully
done, it is generally in a better position to obtain the full production run for
that  specific  program.  The Company  also  engages in system  integration  and
post-sale  services to assist the customer in attaining  operational  status for
the systems or in correcting any problems.



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                  Management  believes that by providing  engineering  services,
the Company facilitates the marketing of PCS's products especially since certain
of its competitors  typically do not offer any customization of the electronics.
In the fiscal years ended September 30, 1996 and 1995,  revenue from engineering
services  represented  approximately  5% and 11% of the  Company's  total sales,
respectively.  Management anticipates, due to governmental budgetary constraints
and the  anticipated  continuing  desire of DoD customers to procure  commercial
"off-the-shelf"  products,  a  continued  reduction  in the  number of  programs
pursuant  to  which  customization   services  will  be  funded.   Nevertheless,
management believes that such customization services are of significant value to
Paravant's  customers  and,  accordingly,  intends  to  continue  to offer  such
services on a reduced or no-charge basis.

NEW PRODUCTS

                  Because of its expertise in miniaturization and its efforts to
incorporate more computing power into smaller, completely sealed enclosures, the
Company has continually experimented with heat reduction methods. As a result of
these  efforts,  PCS  has  developed  and  successfully  tested  a  solid-state,
miniaturized  electronic  chiller or heat pump, which has been incorporated as a
significant  component in the Company's product offering.  This device will more
efficiently  lower  temperatures  and absorb heat  generated  by the  electronic
components of PCS's computers.  Accordingly,  this development  should allow the
placement of more powerful,  higher  temperature  microprocessors  in its sealed
containers.

                  The Company has, until recently,  only sold portable computers
and  communications  interfaces;  it has not  provided a broad range of standard
computer  peripherals.  In  September  1996,  the Company  secured a contract to
supply its first rack-mounted computers to Harris RF of Rochester, New York. The
contract  requires that Paravant  provide a new type of  rack-mounted  computer,
which is a fully-sealed  air-cooled  computer  incorporating  many of Paravant's
electronics  designs,  for use by a  foreign  army in a desert  environment.  By
offering  rack-mounted  products,  the Company believes it may expand its market
opportunities  beyond those relating to solely to ruggedized portable computers,
although there can be no assurance of such.

                  The  Company  also  completed   development  of  a  ruggedized
notebook in 1996 that, in terms of size, weight and  capabilities,  fits between
its  current  hand-held  and laptop  products.  This  notebook  computer  is now
available for sale, primarily to military and government customers.

SUPPLY AND MANUFACTURING

                  The  Company  designs  and  engineers  substantially  all  its
portable computers, purchases their components from third parties and then tests
and assembles the final  products.  As part of this  process,  PCS  specifically
designs for its computers  (other than for the Company's  notebook,  as to which
commercial  electronics  boards  from other  manufacturers  are  utilized),  the
electronics or printed circuit board, which is the most important, sophisticated
and complex element  thereof.  At times, the board can be composed of as many as
twelve layers.  The Company also  fabricates the prototype of such board,  tests
it, purchases all the necessary  components for the board and then provides them
in kit form to specialized board fabricators for both pilot and production runs.

                  This  approach to  outsourcing  differs from that  followed by
most other rugged computer manufacturers which, the Company believes, operate on
a turn-key basis with their board  fabricators,  who handle the design,  testing
and purchase of all components themselves and then furnish the manufacturer with
the completed boards. In contrast,  the Company's  approach to board fabrication
allows it to



                                       10






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<PAGE>



maintain  better control of the quality and delivery of such boards,  especially
because it is designing the boards and selecting the parts. In addition, its own
personnel  serve as on-site  inspectors at the plants of the board  fabricators.
Each of the fabricators  employed by PCS applies surface mount technology in the
fabrication of its printed circuit boards.

                  The Company  anticipates  that it will  continue to  outsource
board fabrication.  Given the rapid changes in computer  technology,  PCS is not
capable  of  keeping  abreast  of  the  costly  purchase  requirements  for  new
production equipment necessary in the precise placement of electronic components
on boards.  Outsourcing  allows the Company's products to receive the benefit of
the latest technological  development at an acceptable cost. Once the boards are
completed,  they are tested by the fabricator and, upon satisfactory  completion
of such tests, are shipped to the Company. When delivered, PCS further tests the
completed  boards and other  components and then assembles the computers.  Apart
from the printed circuit boards, the components that PCS purchases from external
sources include chassis, wire harnesses, computer chips, keyboards, displays and
metal cases.

                  With its new ruggedized notebook, the Company has selected the
commercial  electronics  boards of one manufacturer.  Certain components will be
attached to the boards in a more secure fashion and some wiring  connectors will
be replaced to improve shock and vibration performance.  The electronics will be
packaged in a sealed  container  designed by the Company and, where required,  a
solid state  miniaturized  heat pump will be installed to enhance the  operating
range of the commercial electronics.

                  The Company  does not  assemble  its  products on a continuous
mass-production  basis.  Instead, its computers are usually assembled on a batch
basis in which  products  move  irregularly  from station to station.  Tests are
performed at various  stages of the process  according to PCS's  standards or as
requested  by specific  customers.  Further  testing of  products  is  generally
accomplished at the end of the assembly  process.  The Company's  manufacture of
computers is done pursuant to specific  purchase orders or for general inventory
purposes.

                  PCS utilizes  modern  equipment  for the design,  engineering,
assembly and testing of its products.  The Company has utilized a portion of the
funds from  the IPO in June 1996 to acquire additional  equipment to enhance its
operating  efficiency  in such areas and to  increase  its  capacity in order to
facilitate  increased  production,  when and if  required,  as well as to obtain
better control of quality, inventory and order processing.

                  Generally,  PCS is not a party to any formal written  contract
regarding  the  deliveries  of its  hardware,  supplies and  components or their
fabrication. It usually purchases such items pursuant to written purchase orders
of both individual and blanket  variety.  Blanket purchase orders usually entail
the  purchase  of a larger  amount of items at fixed  prices  for  delivery  and
payment on specific dates.

                  Except as set forth above, the Company  relies on a few  board
fabricators  of  different sizes  and  capabilities   located  within  the  same
geographical area as its headquarters. Certain components  used in its computers
are obtained from sole sources, such as  Distec,  Xcel  and HiTech. PCS has also
licensed  its  software  from  sole  sources,   including   Microsoft,   Phoenix
Technology, Magnavox and JFK Associates. PCS has occasionally experienced delays
in deliveries of components and may experience  similar  problems in the future.
In an attempt to minimize such problems, the Company has developed  and keeps an
inventory of  parts  that are generally more difficult to obtain.  However,  any
interruption,   suspension  or  termination of component  deliveries  from PCS's
suppliers could have a material adverse effect on its business.



                                       11






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<PAGE>



                  Although   management  believes  that  in  nearly  every  case
alternate sources of supply can be located,  inevitably a certain amount of time
would be required to find substitutes. During any such interruption in supplies,
the Company may have to curtail the  production and sale of its computers for an
indefinite period.

                  The Company's design,  engineering and assembly facilities are
located in  Melbourne,  Florida.  These  facilities  comply  with  certain  U.S.
military  specifications  necessary for the manufacture and assembly of products
supplied  to it. PCS is seeking to  qualify  its  facility  in order to meet the
quality   management  and  assurance   standards  of  an  international   rating
organization  (ISO-9001) within the next eighteen months. Some measures, such as
the  installation  of a new  business  computer  system,  have been taken by the
Company to qualify under such standards. However, meeting these criteria involve
a long  complicated  process of new planning,  documentation  and other factors.
Such qualification  should improve the Company's marketing  opportunities in the
international  military  markets  for  rugged  computers.  However,  there is no
assurance  that PCS can achieve such standards or that it will match or increase
such sales of its products abroad in the future even if such standards are met.

                  The  Company  has  entered  into  licensing  arrangements  for
certain  hardware and software  elements  contained  in, or used in  conjunction
with, its computers.  These  agreements are usually  non-exclusive,  provide for
minimum  fees and  royalties  related to sales to be paid by the  Company to the
particular  licensor,  run for a limited  term and are  subject to other  terms,
conditions and restrictions.

                  PCS receives its basic  operating  software system MS-DOS with
various  Window  versions  from  Microsoft,  Inc.  pursuant  to  such  licensing
arrangements.  It also obtains from Phoenix  Technologies,  Inc. its BIOS (Basic
Input/Output  System)  pursuant to a separate  license  agreement.  Under either
arrangement,  the Company may modify such software and  occasionally  alters the
BIOS for special situations. The termination, suspension or curtailment of these
or other  licensing  arrangements  to which  the  Company  is a party may have a
material adverse impact on its business and operations.

WARRANTY AND CUSTOMER SERVICE

                  The Company usually  provides  one-year  warranties on all its
products  covering  both parts and labor  although  extended  warranties  may be
purchased by customers. At its option, PCS repairs or replaces products that are
defective  during  the  warranty  period  if the  proper  usage  and  preventive
maintenance  procedures  have been followed by its  customers.  Repairs that are
necessitated  by misuse of such  products or are  required  beyond the  warranty
period are not covered by its normal warranty.

                  In cases of defective products, the customer typically returns
them to PCS's  facility.  Its  service  personnel  then  replace  or repair  the
defective items and ship them back to the customer.  Generally, all servicing is
done at the  Company's  plant,  and it  charges  its  customers  a fee for those
service  items  that  are not  covered  by  warranty.  Except  for its  extended
warranties,  it  does  not  offer  its  customers  any  formal  written  service
contracts.

                  Some  personnel  in its  customer  service  area often  answer
technical  questions  from  customers  and  offer  solutions  to their  specific
applications problems. In certain instances, other personnel receive and process
orders for product  demonstrations,  disseminate  pricing information and accept
purchase orders for computers.



                                       12






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<PAGE>



MARKETING AND SALES

                  The Company markets and sells its computer products through an
internal  sales  force  of  four   individuals  and  several  of  its  officers,
approximately  33  manufacturers'  representatives  in  the  United  States  and
approximately 25 distributors abroad. Its manufacturers'  representatives  cover
approximately   39  states,   including   Washington,   D.C.,  and  its  foreign
distributors operate in nearly 37 countries,  including England,  France, Japan,
Australia and Germany.

                  PCS's relationship with its manufacturers' representatives are
generally  governed by a written contract,  terminable on 30 days' prior notice.
These  contracts   usually   provide  for  exclusive   territorial  and  product
representation  and  commissions  of 8% of the net  invoice  price  on  standard
products.  In some cases,  the commission will decline from 8% to 4% on standard
products as sales rise above certain dollar levels.  Commissions on non-standard
products and custom  engineering are usually subject to negotiation  between the
parties in  accordance  with the terms of the  contract.  However,  they tend to
range from 6% to 8% in  practice.  The Company  lowered the  commissions  of its
manufacturers'  representatives  on standard  products  from 10% to a flat 8% in
October 1994. The Company's manufacturers'  representative contracts are subject
to certain other terms and conditions.

                  PCS's  manufacturers'  representatives and distributors do not
purchase for their own account,  but merely sell such computer products on PCS's
behalf. Forty manufacturers'  representatives and distributors  accounted for an
aggregate of  approximately  36% of the Company's 1996 annual sales. The loss of
certain of such  representatives  may have a material  negative  effect on PCS's
business.

                  Sales  of  the  Company's  products  or  services  to  foreign
distributors are also generally made pursuant to written  contracts.  Under such
contracts,  the  distributor  is granted  either an exclusive  or  non-exclusive
territorial  and product  representation  as well as discounts based on the list
price ranging from 20% to 35%, depending on the type or amount of products sold.
In some cases, there are minimum order requirements. Due to the custom nature of
PCS's products,  its foreign distributors generally do not keep its computers in
their inventory until specific orders are obtained. The term of these agreements
generally run from 1 to 3 years but are  terminable on 60 days' advance  notice.
Payment is due in U.S.  dollars within 30 days after  delivery.  These contracts
are subject to other terms and conditions. The Company has a primary distributor
for Asia and  another  primary  distributor  for  Europe.  No one  international
distributor  accounts for more than 5% of its total sales in any period referred
to above.

                  The  Company  promotes  its  computer   products  through  the
dissemination of product  literature,  attendance and exhibition at trade shows,
conduct  of  seminars  and  the   distribution   of  news  releases  on  special
developments to trade  magazines and newsletters to an extensive  customer list.
PCS does little advertising in trade periodicals.  Management  believes that, to
date,  most of the Company's  sales leads have been generated by trade shows and
word-of-mouth  referrals.  The Company intends to expand its sales and marketing
efforts in all of its markets as follows:  (i)  increase  its  presence at trade
shows with larger booths and more extensive  exhibits;  (ii) increase the number
of trade shows in which  Company  personnel  attend and products are  presented;
(iii) hold additional seminars at military bases and other prime locations; (iv)
hire  additional  sales  personnel and  consultants  to gather leads and promote
sales;  (v) expand sales and marketing  activities in the medical  markets;  and
(vi)  invest in  research  and  development  in order to  increase  its  product
offering.



                                       13






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<PAGE>



                  The  Company has entered  into a joint  marketing  arrangement
with IDP of  Gaithersburg,  Maryland ("IDP") with respect to the manufacture and
distribution of the new ruggedized  notebook in the military  marketplace.  This
arrangement  allows PCS to increase its market exposure under the sponsorship of
a better-known  name in the defense  industry.  In turn, IDP utilizes  Company's
products and its expertise in ruggedizing  computers.  While management believes
that the marketing  arrangement  with IDP may be important in the future,  it is
not presently material to the operations of the Company.

                  In the  military  market,  the sales  cycle for the  Company's
products  usually  entails a number of  complicated  steps and can take from one
year to five  years.  The  sales  cycle  in the  non-  military  government  and
commercial markets is generally not as complex or time consuming,  but still may
take as long as two years.  Sales to the  military  and  government  markets are
greatly  influenced by special budgetary and spending factors pertinent to these
organizations and are usually seasonal in nature.

CUSTOMERS

                  The Company sells its products, directly or indirectly, to the
U.S.  and  foreign  military   establishments,   large  aerospace  and  military
contractors  supplying  these  establishments,  government  agencies  regulating
environmental, geologic and forestry  matters, certain  state   departments   of
transportation, forest products companies, surveying and engineering concerns.

                  The principal customers of the Company are DoD contractors who
are  subject to  federal  budgetary  constraints.  For the  fiscal  years  ended
September 30, 1996 and September 30, 1995,  Raytheon's  Missile Systems Division
accounted for 49% and 47% of the Company's total sales, respectively.  For those
same periods,  Lockheed  Martin,  STN Atlas  Electronics  and Texas  Instruments
accounted for 21% and 25%, 15% and 13%, and 10% and 1%,  respectively.  The loss
of any of  these  customers  could  have a  material  adverse  impact  on  PCS's
business.

                  In recent years, there have been a number of consolidations of
various prime contractors serving the defense industry. To date, the Company has
not been adversely affected by any such  consolidations and the Company does not
anticipate  that  consolidations  of  contractors  will  negatively  impact  the
Company, although there can be no assurance of such.

COMPETITION

                  The Company competes in the rugged portable  computer business
with a wide variety of computer manufacturers and repackagers, many of which are
larger,   better  known  and  have  more   resources  in  finance,   technology,
manufacturing  and  marketing.  PCS  competes  on  the  basis  of  customization
capabilities,  price, performance, delivery and quality. In many situations, the
Company is the highest-priced bidder by a wide margin.

                  With respect to its hand-held business, the Company encounters
competition  from Litton  Data  Systems,  SAIC,  Tadiran and Miltope in military
applications;  Husky Computer Company in both military and non-military markets;
and CMT, Micro Palm and DAP in non-military applications.  As far as its laptops
are concerned,  PCS faces competition from SAIC,  Miltope,  Cyberchron and North
American  Industries  (CODAR) in the military and  non-military  areas.  Certain
large  manufacturers of commercial  notebook computers such as Panasonic,  Amrel
and  IBM  have  introduced  commercial  notebooks  that  have  been  sealed  and
ruggedized  to some extent and are  presently  offering  such products at prices
ranging from  approximately  one-third to one-half of the Company's  more rugged
versions.



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Management believes that the Company's ability to increase market penetration in
the  commercial  sector  will be  limited  substantially  by the  entry  of such
manufacturers into the ruggedized computer market.

                  Certain military  procurement  policies requiring purchases of
computers  for the  military  under  Indefinite  Delivery,  Indefinite  Quantity
("IDIQ")  contracts could result in seriously  restricting the Company's efforts
to sell its computers to the U.S. military.  These IDIQ contracts  encourage big
purchases of such  computers  amounting to many hundreds of millions of dollars.
Such  procurement  policies clearly favor large companies with resources of that
magnitude.  Unless  PCS  can  form  strategic  alliances  with  larger  military
contractors  having large  resources or qualify for certain  exceptions  to IDIQ
arrangements,  it may suffer  adverse  material  consequences  in its continuing
quest for  military  business.  For the last five  years,  the  Company has made
military  sales of its computers  because they fall into product  categories not
currently covered by IDIQ requirements.

                  In the military and government markets, the Company will often
be engaged, directly or indirectly, in the process of seeking competitive bid or
negotiated contracts with government departments and agencies.  These government
contracts are subject to specific rules and regulations  with which PCS may have
difficulty  complying.  However, PCS is occasionally one of only a few companies
whose products meet the required specifications designated by such customers.

                  In most  cases,  PCS tends to be the high priced  bidder.  The
reasons for this situation are numerous. The Company designs its computers on an
overall  basis to assure their  ruggedness  and use in the worst  circumstances.
Accordingly,   it  generally   employs  more  expensive   components   than  its
competitors.  These generally more expensive components consist of industrial or
higher-level  commercial type instead of ordinary commercially  available parts.
The Company's computers are enclosed in sealed containers.  Moreover,  PCS makes
extensive  modifications  and  refinements  of its  computers  for its customers
pursuant to their  specifications  and special needs.  As a  consequence,  PCS's
products  generally  function at a higher level of performance  and  reliability
than its competitors.

                  For  those  applications  in  which  harsh  environmental  and
operational  conditions  prevail,  customers are sometimes willing to pay higher
prices,  especially where few, if any, other companies offer similar devices. In
those less  demanding  circumstances,  the  Company's  products sell at a severe
competitive disadvantage and often are not purchased because the applications do
not  justify  its higher  prices.  Since PCS sells its  computer  products  into
segments of the commercial market and has a history of resale pricing, under DoD
regulations such commercial  pricing  information may be utilized to support the
prices that it charges in the military marketplace.

BACKLOG

                  As  of  September  30,  1996,   the   Company's   backlog  was
$14,617,253,  as compared  with backlog of  $1,606,505 as of September 30, 1995.
Three customers  accounted for approximately  46%, 46% and 3% of such backlog as
of September  30,  1996.  As of December 15,  1996,  the  Company's  backlog was
approximately $13,950,000,  and the Company presently expects to manufacture and
deliver most of the products in backlog within the next 12 months.

                  Substantially  all the Company's  backlog figures are based on
purchase   orders   executed  by  the  customer.   All  orders  are  subject  to
cancellation. However, in that event, PCS is generally entitled to reimbursement
of its cost and negotiated profits,  provided that such contract would have been
profitable.



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<PAGE>




RESEARCH AND DEVELOPMENT

                  The  markets  served  by  the   Company  are  characterized by
rapid technological advances, changes in customer requirements and  frequent new
product  introductions and enhancements.  PCS's  business  requires  substantial
ongoing  research  and  development  efforts and expenditures,  and  its  future
success  will  depend  in  large  measure  on its ability to enhance its current
products  and  develop   and   introduce   new  products  that  keep  pace  with
technological  developments  in  response to evolving customer requirements. The
Company's   research  and  development   activities   involves:  (i)  its   sole
activities;   (ii)  joint  efforts between it and another  enterprise; and (iii)
endeavors of third party  contractors  retained by it. A  substantial portion of
its research and development is accomplished on an in-house basis.

                  The Company has designed a new rugged  notebook.  This product
is intended to fit between  its  laptops and its  hand-held  computers  in size,
weight and  price.  Weighing  approximately  15 lbs.,  it will have a  full-size
display and same type of keyboard as a laptop,  a Pentium  processor and PC card
expansion capabilities. Management believes that there is a market for this kind
of ruggedized  computer in the military area. The Company expects to continue to
expend a portion of the net  proceeds  of the IPO in June 1996 on the  expansion
and  enhancement  of its rugged  notebook  product line. As part of a continuing
effort to upgrade  its  products,  the Company is also  working to develop  high
speed  processor  boards  for  some of its  older  products.  See  "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

                  Research and development  expenditures during the fiscal years
ended September 30, 1996 and 1995 were $382,750 and $480,951,  respectively, and
represented 3.7% and 5.6% of total sales, respectively. A substantial portion of
such  expenditures for those fiscal years were applied to the development of the
rugged notebook,  the RLT 410, an Intel 80486 based ruggedized  laptop,  the RLT
410 Model D, a larger laptop  capable of accepting both full-size ISA and PC/104
miniaturized expansion boards, and the early development of a Pentium based main
board for the RLT product line.

INTELLECTUAL PROPERTY

                  Proprietary  information  and  know-how  are  important to the
Company's  commercial  success.  PCS  holds no  patents  or  copyrights  but has
trademark  protection for the Paravant name and logo.  There can be no assurance
that  others  will  not  either  develop   independently  the  same  or  similar
information  or  obtain  and use  proprietary  information  of the  Company.  In
addition, none of its employees have signed confidentiality agreements regarding
its proprietary  information nor have any employees  signed any  non-competition
agreements other than Messrs. McNeight and Craven.

                  Management  believes  that its  products do not  infringe  the
proprietary rights of third parties.  There can be no assurance,  however,  that
third parties will not assert infringement claims against it in the future or be
successful in asserting such claims.

GOVERNMENT REGULATIONS AND CONTRACTS

                  Due to the nature of the products  designed,  manufactured and
sold by PCS for military applications, it is subject to certain DoD regulations.
In addition, commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special  risks such as  dependence  on  government  appropriations,  termination
without cause,  contract  renegotiation  and  competition  for the available DoD
business. PCS has no material direct DoD contracts, however, that are subject to
renegotiation  in the  foreseeable  future and is not aware of any proceeding to
terminate  material DoD  contracts in which it may be  indirectly  involved.  In
addition,  many of the  Company's  contracts  provide for the right to audit its
cost records and are subject to  regulations  providing for price  reductions if
inaccurate cost information was submitted by PCS.



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                  Government  contracts  governing  the  Company's  products are
often  subject  to  termination,  negotiation  or  modification  in the event of
changes in the government's requirements or budgetary constraints. Products sold
by PCS for government  applications  are primarily  sold to companies  acting as
contractors  or  subcontractors   and  not  directly  to  government   entities.
Agreements with such contractors or subcontractors generally are not conditioned
upon completion of the contract by the prime contractor. To the extent that such
contracts  are so  conditioned,  a failure  of  completion  may have a  material
adverse  effect  on the  Company's  business.  Currently,  it does  not have any
contracts so conditioned. See "-- COMPETITION".

                  The  contracts  for  sale  of  the  Company's   computers  are
generally  fixed-priced  contracts,  as to which the price is set in advance and
generally  may not be varied.  Such  contracts  require  the Company to properly
estimate its costs and other  factors  prior to  commitment  in order to achieve
profitability  and  compliance.  The  Company's  failure  to do so may result in
unreimbursable cost overruns, late deliveries or other events of non-compliance.

                  Under  certain  circumstances,  PCS is also subject to certain
U.S. State  Department and U.S.  Department of Commerce  requirements  involving
prior  clearance of foreign  sales.  Such export  control  laws and  regulations
either ban the sale of certain equipment to specified  countries or require U.S.
manufacturers  and others to obtain necessary federal  government  approvals and
licenses  prior to export.  As a part of this  process,  the  Company  generally
requires its foreign  distributors to provide  documents which indicate that the
equipment is not being transferred to, or used by, unauthorized parties abroad.

                  The  Company   and  its  agents  are  also   governed  by  the
restrictions of the Foreign Corrupt  Practices Act of 1977, as amended ("FCPA"),
which  prohibits  the promise or payments  of any money,  remuneration  or other
items of value to foreign government officials,  public office holder, political
parties  and  others  with  regard to the  obtaining  or  preserving  commercial
contracts or orders.  These restrictions may hamper the Company in its marketing
efforts abroad.

                  PCS's manufacturing operations are subject to various federal,
state and local laws, including those restricting or regulating the discharge of
materials into, or otherwise relating to the protection of, the environment. The
Company is not  involved in any pending or  threatened  proceedings  which would
require  curtailment  of, or otherwise  restrict its operations  because of such
regulations,  and compliance  with applicable  environmental  laws has not had a
material effect upon its capital expenditures, financial condition or results of
operations.

                  Management  believes that although  compliance with applicable
federal laws and  regulations  involves  certain  additional  procedures  by the
Company that would not otherwise be required,  such compliance has not generally
inhibited or limited the Company's ability to enter into material contracts.

EMPLOYEES

                  As of  December  15,  1996,  the  Company  had  64  full  time
employees  including its officers,  of whom 24 were engaged in manufacturing and
repair services,  8 in administration and financial  control,  21 in engineering
and research and development, and 11 in marketing and sales.

                  None of its employees  are covered by a collective  bargaining
agreement or are  represented by a labor union.  PCS considers its  relationship
with its employees to be satisfactory.



                                       17






<PAGE>
<PAGE>




                  The design and manufacture of the Company's equipment requires
substantial technical  capabilities in many disparate disciplines from mechanics
and computer science to electronics and mathematics.  While management  believes
that the capability and experience of its technical employees compares favorably
with other similar  manufacturers,  there can be no assurance that it can retain
existing  employees or attract and hire the highly capable  technical  employees
necessary in the future on terms deemed favorable to it, if at all.

ITEM 2.           DESCRIPTION OF PROPERTY

                  On  September  1,  1996,  the  Company  entered  into a  lease
relating to  approximately  17,300  square feet of space located at 1615 W. Nasa
Blvd.,  Suite E, Melbourne,  Florida 32901.  This space is to be utilized by the
Company as its principal  corporate  headquarters and  manufacturing  plant. The
lease for this space expires  December 31, 2001, and provides for a monthly rent
payments of $1,500 per month through  February  1997,  and then $3,000 per month
through  August 1997,  increasing to $9,855 per month in September  1997.  These
amounts  include  the  Company's  proportionate  cost  of  utilities,   repairs,
cleaning, taxes and insurance. The Company anticipates that its occupancy at the
new facility will commence in late December 1996.

                  The Company's former principal  executive  offices are located
at 780 South Apollo  Boulevard,  Atrium One,  Melbourne,  FL 32901. The lease on
this space will  terminate  effective in  September  30, 1997 and provides for a
fixed annual rent of $140,658 for 1996 and $148,376 (subject to reduction in the
event the  landlord  obtains a new  tenant) for 1997,  payable in equal  monthly
installments.   These  amounts  include  the  Company's  proportionate  cost  of
utilities, repairs, cleaning, taxes and insurance.

                  Management  believes  that  its new  facility  will  meet  its
operational needs for the foreseeable future.

ITEM 3.           LEGAL PROCEEDINGS

                  In March 1996, the Company's  former counsel,  Cascone & Cole,
rendered an invoice to the Company in the amount of  approximately  $365,000 for
legal  fees and  expenses  to which  such  counsel  claimed  to be  entitled  in
connection  with its  representation  of the Company for both general  corporate
services  and  services  relating  to the IPO.  As the  Company  had made  prior
payments  to such  counsel of  $130,000,  the net  amount  claimed to be due was
approximately  $235,000.  The Company has  contested  the invoice and accrued an
estimate for the settlement, if any, of these fees. On March 27, 1996, Cascone &
Cole filed an action in the  Supreme  Court of the State of New York,  County of
New York, entitled Cascone & Cole v. Paravant Computer Systems,  Inc., Victor M.
Wang, Duke & Company,  Inc., Dean Petkanas and Eagle Group  Incorporated  (Index
No. 96601634) against the Company, the Underwriter and certain other defendants,
alleging, among other things, breach of contract, failure to pay attorneys fees,
fraud,  copyright  infringement and defamation by the Company in connection with
the aforementioned  services, as well as claiming a finder's fee with respect to
the Underwriter's relationship with the Company. Plaintiff is seeking damages in
the amount of approximately $28 million from the Company.  Plaintiff has filed a
motion to increase its claims for legal services from approximately  $365,000 to
approximately  $415,000,  claiming  there is a balance due of $280,882 for legal
services.  The  Company  has filed an answer  denying  the  allegations  made by
plaintiff and has asserted defenses and



                                       18






<PAGE>
<PAGE>



counterclaims  against the plaintiff  seeking,  among other things,  recovery of
amounts paid to plaintiff as well as punitive damages and court costs.

                  On September  18, 1996,  a former  controller  of PCS filed an
action in the Circuit Court of the State of Florida,  Brevard County,  entitled,
Christopher R. Exley v. Paravant  Computer Systems,  Inc.,  Richard P. McNeight,
William R. Craven, UES of Florida,  Inc. and Krishan K. Joshi (Case No. 96-15091
CA),  against the Company and certain of its  officers,  directors and principal
stockholders, alleging, among other things, retaliatory personnel actions by the
defendants.  Plaintiff  is seeking  damages in the  amount of  approximately  $1
million,  plus punitive damages,  fees and costs.  Plaintiff alleges that he was
improperly terminated in December 1994 as a result of his refusal to account for
certain  transactions in a specified  manner.  The Company has filed a motion to
dismiss the complaint.

                  The Company will  vigorously  defend itself in these  matters.
Management of the Company believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company.

                  The Company is not a party to or involved in any other pending
legal proceedings.

                  The  Company  did  not  submit  any  matters  to the  vote  of
securityholders during the fourth quarter of the fiscal year ended September 30,
1996.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  The  Company  did  not  submit  any  matters  to the  vote  of
securityholders during the fourth quarter of the fiscal year ended September 30,
1996.



                                       19






<PAGE>
<PAGE>



                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                  A.       Market Information.

                  The shares of Common Stock of the Company commenced trading on
the Nasdaq Stock Market National Market under the symbol "PVAT" on June 3, 1996.
The range of high and low reported  closing sales prices for the Common Stock as
reported by Nasdaq since the commencement of trading were as follows:

<TABLE>
<CAPTION>
                                                               High                      Low
                                                               ----                      ---
<S>                                                           <C>                        <C>
June 3, 1996 to June 30, 1996(1)                              $5 3/8                     $1 7/8

July 1, 1996 to September 30, 1996(1)                         $6 3/8                     $4 5/8

October 1, 1996 to December 15, 1996                           $8                        $4 15/16
</TABLE>


---------------
    (1)  On July 25, 1996, the Company effected the Stock Split. Pursuant to the
         Stock  Split,  each  holder of record of Common  Stock on July 22, 1996
         received two  additional  shares of Common Stock for each share held on
         such date. In connection with the Stock Split, each outstanding Warrant
         to purchase one share of Common Stock at an exercise price of $6.00 per
         share was converted into three Warrants,  each to purchase one share of
         Common Stock at an exercise price of $2.00 per share.  All share prices
         listed above are after giving effect to the Stock Split.

         The prices set forth above reflect inter dealer prices,  without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions.

         B.       Holders.

                  On December 23, 1996,  as reported by the  Company's  transfer
agent,  shares of Common  Stock were held by 47 persons,  based on the number of
record holders,  including  several holders who are nominees for an undetermined
number of beneficial owners.

         C.       Dividends.

                  The Company has not paid any dividends on its shares of Common
Stock and intends to follow a policy of  retaining  any  earnings to finance the
development and growth of its business.  Accordingly, it does not anticipate the
payment of cash dividends in the  foreseeable  future.  However,  the payment of
dividends,  if any,  rests within the  discretion  of the Board of Directors and
will depend  upon,  among other  things,  the  Company's  earnings,  its capital
requirements and its overall financial condition.



                                       20






<PAGE>
<PAGE>



ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                  The following discussion and analysis of the Company's results
of operations,  liquidity and financial  condition should be read in conjunction
with the Financial Statements of the Company and related notes thereto.

RESULTS OF OPERATIONS

Fiscal Year ended September 30, 1996 vs. September 30, 1995

                  Revenues  for fiscal  1996 were  $10,495,063,  an  increase of
$1,842,510 or 21% over 1995 sales of $8,652,553.  This increase is primarily due
to  Paravant's  full scale  production  deliveries to Raytheon in support of the
U.S. Marine Corps  HAWK/AVENGER Air Defense Missile Systems upgrade and expanded
requirements of Texas Instruments under the Harm Missile Systems program.

                  Gross profit was $4,677,053 in 1996, or 45% of sales, compared
to $3,971,892 or 46% in 1995, a total increase of $705,161 or 18%.

                  Selling  and  administrative  expenses of  $3,247,385  in 1996
increased by $579,065 or 22% from 1995 expenses of  $2,668,320.  As a percentage
of sales, selling and administrative  expenses remained unchanged at 31% in 1995
and 1994.  The  increased  selling  and  administrative  costs are  attributable
primarily to increased  salaries,  professional  fees and sales  commissions  of
approximately $198,000, $196,000 and $142,000, respectively.

                  Income  from  operations  grew  to  $1,429,668  in  1996  from
$1,303,572  in 1995,  an increase of $126,096 or 10%. As a percentage  of sales,
income from operations declined to 14% in 1996 from 15% in 1995. The increase in
income from operations  overall benefited  primarily from increased sales volume
and  gross  profits,  offset in part by  increased  selling  and  administrative
expenses as discussed above.

                  Expenses  for  interest  were  reduced  by  $29,633  or  8% to
$362,956  compared to  $392,589  in 1995.  As a  percentage  of sales,  interest
expense  decreased  to 4% in 1996  from 5% in 1995.  This  decrease  is due to a
significant  decline  in  outstanding  credit  balances  made  possible  by  the
application of the proceeds of the Company's IPO in June 1996.

                  As a result,  the Company's net income grew by 21% to $702,153
in 1996 when  compared to $581,415 in 1995.  Net income as a percentage of sales
was 7% in 1996 and 1995.

LIQUIDITY AND CAPITAL RESOURCES

                  In June 1996,  the Company  completed  its IPO,  resulting  in
aggregate  net proceeds of $4,594,332  to the Company  after  deducting  certain
commissions,  expenses and offering costs. The Company used a portion of the net
proceeds of the IPO to repay  certain  loans  referred to below in the aggregate
principal  amount  of  $1,102,294,  and paid  approximately  $88,000  of the net
proceeds of the IPO to reimburse UES, Inc., an affiliate of the Company which is
controlled by Krishan K. Joshi,  the  Company's  Chairman  ("UES"),  for certain
health insurance and other expenses paid on the Company's behalf.  Substantially
all of the  remaining  balance of the net  proceeds of the IPO were  utilized to
reduce  indebtedness  then  outstanding  under the  Company's  revolving  credit
arrangement with National City Bank



                                       21






<PAGE>
<PAGE>



in Dayton, Ohio described below,  resulting in increased  availability under the
credit arrangement for working capital needs and general corporate purposes.

                  The Company has a secured  revolving  credit  arrangement with
National  City Bank in  Dayton,  Ohio (the  "Bank")  for a credit  line of up to
$4,000,000  that is due on demand  and  bears  interest  at the  prime  rate for
secured  borrowings and prime rate plus 0.5% for  undersecured  borrowings.  All
borrowings are collateralized by accounts  receivable,  inventory and equipment.
Such  arrangement  is subject to a  borrowing  base  formula  involving  certain
accounts  receivable,  inventory  and  equipment.  As of September  30, 1996, an
aggregate  of  $540,000  was  outstanding  under this  arrangement.  The Company
intends to maintain this arrangement  with the Bank for the foreseeable  future,
although  there can be no assurance  that the Bank will not in the future demand
repayment  of any  amounts  then  outstanding  under its loan  arrangement.  The
Company also has a secured term loan provided by the Bank bearing  interest at a
rate  adjusted  monthly  to prime  plus  1.5% at  September  30,  1996.  Monthly
principal  payments of  $9,167  are  due  through  October 1998.  All borrowings
thereunder  are  secured  by  a  lien  on  accounts  receivable,  inventory  and
equipment.   As  of  September  30,  1996,  there  was  approximately   $339,159
outstanding  under this  arrangement with the Bank. The Company also has capital
lease obligations, including interest, of  approximately  $186,539  at September
30, 1996. These capital lease  obligations bear interest rates of 1.25% to 1.50%
over the prime rate and are expected to be satisfied within 3 years. The Company
also  has  a  note  payable  to  the  Bank  in  an aggregate principal amount of
$500,000, bearing interest at the prime rate, which note is due and  payable  in
March 1998.
                  In August  1995,  the Company  borrowed  $400,000  pursuant to
bridge notes  ("Notes") from a group of private  investors at an annual interest
rate of 6%. In  addition,  the Company  sold to the same  investors  warrants to
purchase  480,000 shares of Common Stock,  exercisable  until June 3, 2001 at an
exercise price of $2.00 per share. The Notes, which bear interest at 6%, have an
outstanding  balance of $100,000 at September 30, 1996,  which is expected to be
satisfied by December 31, 1996.

                  In connection  with certain sales of shares of Common stock in
March 1996 by UES Florida, Inc. (a subsidiary of UES), Richard P. McNeight,  the
President and Chief  Operating  Officer of the Company,  William R. Craven,  the
Vice  President  of  Marketing of the  Company,  and another  shareholder,  such
shareholders  loaned to the Company in April 1996, for working capital purposes,
the  sums  of  $646,294;  $78,000;  $26,000  and  $52,000,  respectively,  or an
aggregate of $802,294 of the proceeds  realized from such sales,  at an interest
rate of 6% per annum.  Such loans, plus accrued interest thereon in an aggregate
amount of $8,681, were repaid in June 1996 in accordance with their terms from a
portion of the net proceeds of the IPO.

                  The Company  has, and  continues to have, a dependence  upon a
few major customers for a significant  portion of its revenues.  This dependence
for revenues has not been responsible for any unusual  fluctuations in operating
results in the past, and  management  does not believe this  concentration  will
generate fluctuations in operating results in the future. However, the potential
impact of losing a major  customer  without  securing  offsetting and equivalent
orders could result in a significant negative impact to the operating results of
the Company. The gross margin contributions of the Company's major customers are
not generally different than those from its other customers as a whole.

                  The Company's  operating  cash flow was negative  $(1,426,090)
for fiscal 1996. The Company's  operating  cash flow was negative  $(298,577) in
fiscal 1995 and negative  $(562,740)  in fiscal 1994.  These cash  outflows were
primarily  associated with general  increases in inventory  levels and temporary
increases associated with accounts  receivable,  all in support of the Company's
rapid increase in operations reflected by the growth in revenues from $4,621,527
in fiscal 1993 to $10,495,063 in fiscal



                                       22






<PAGE>
<PAGE>



1996, an increase of almost 127%. In addition,  the Company invested $127,352 in
fiscal  1996,  $60,350  in fiscal  1995 and  $99,547  in fiscal  1994 to acquire
manufacturing equipment also in support of these expanded operating levels.

                  Due to the Company's orders related to DoD  procurements,  the
operations  of  the  Company  have  been  cyclical  and  generally  result  in a
significant  increase in  deliveries  and revenues in the fourth  quarter of its
fiscal year ending on  September  30.  Accordingly,  a  significant  increase in
inventory  occurs  late in the third  quarter and  continues  through the fourth
quarter of each  fiscal  year.  This  increase  in  inventory  is  followed by a
corresponding increase in accounts receivable. Inventory and accounts receivable
levels then return to lower  levels in the first and second  quarter of the next
fiscal year.

                  Revenues  in the  fourth  quarter  of  each  fiscal  year  are
significantly  higher  than the first three  quarters.  Inventory  balances  are
greatest  in  the  third  quarter  in  support  of the  significantly  increased
deliveries  related to the Company's fourth quarter higher revenues level due to
the lead-time requirements necessary to procure,  manufacture,  and assemble the
components  for fourth quarter  deliveries.  This uneven cycle results in severe
liquidity  pressures  during the periods of  increased  inventory  and  accounts
receivable  balances  which  management  of the Company has attempted to address
with equity  funding  provided by the IPO. As of September 30, 1996,  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.  However,  it may be the case that the
collection of accounts receivable are delayed due to the delayed finalization of
a prime contractor's contract with the Government,  which results in an extended
collection period for the Company.  Notwithstanding this condition,  the Company
has not been  required to write off any  significant  bad debt in the past,  and
management  does  not  believe  that  any  significant  accounts  receivable  at
September 30, 1996 are likely to be uncollectible.

                  As of September 30, 1996 and 1995,  the Company's  backlog was
$14,617,253  and  $1,606,505,  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. As of December 15, 1996, the Company's backlog was approximately
$13,950,000,  and the Company  presently expects to manufacture and deliver most
of the products in backlog within the next 12 months.

                  The Company anticipates, based on its currently proposed plans
and assumptions relating to its operations,  that the proceeds of the IPO, which
was  consummated  in June 1996,  together with  estimated  working  capital from
operations  and other sources of funds,  will be adequate to sustain  operations
for at least a 24-month period after the IPO, and anticipates that such proceeds
will be  expended  over the first 18 months  following  the IPO.  As the Company
continues to grow, additional bank borrowings,  other debt placements and equity
offerings  may be  considered,  in  part  or in  combination,  as the  situation
warrants.  In  addition,  in  the  event  the  Company's  plans  change  or  its
assumptions  change  or  prove  to be  inaccurate,  or if  projected  cash  flow
otherwise proves insufficient to fund operations, the Company might need to seek
other sources of financing to conduct its operations.  There can be no assurance
that any such other  sources of  financing  would be available  when needed,  on
commercially reasonable terms, or at all.



                                       23






<PAGE>
<PAGE>





CAUTIONARY STATEMENT

                  This   Annual   Report  of  Form   10-KSB   contains   certain
forward-looking  statements.  Actual results could differ  materially from those
projected  in the  forward-looking  statements  as a result of various  factors,
including but not limited to the budgetary  and  appropriations  policies of the
Company's governmental customers,  the competitive environment for the Company's
products  and  services,  the  timing  of new  orders  and the  degree of market
penetration of the Company's new products.

ITEM 7.           FINANCIAL STATEMENTS

                  The  financial  statements  of the  Company are set forth in a
separate  section of this Annual Report on Form 10-KSB.  See "Item 13.  Exhibits
and Reports on Form 8-K" and the Financial  Statements  commencing  on  page F-1
of this Annual Report on Form 10-KSB.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH

                        ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

                  None.



                                       24






<PAGE>
<PAGE>



                                    PART III

Item 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL

         PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         See the  section  captioned  "Election  of  Directors"  included in the
Company's Proxy Statement in connection with its Annual Meeting  scheduled to be
held on February 27, 1997, which section is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

         See the  section  captioned  "Executive  Compensation"  included in the
Company's Proxy Statement in connection with its Annual Meeting  scheduled to be
held on February 27, 1997, which section is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)  Security Ownership of Certain Beneficial Owners

         See the  section  captioned  "Principal  Shareholders  of the  Company"
included in the Company's  Proxy Statement in connection with its Annual Meeting
scheduled to be held on February 27, 1997, which section is incorporated  herein
by reference.

         (b)  Security Ownership of Directors and Officers

         See the  section  captioned  "Principal  Shareholders  of the  Company"
included in the Company's  Proxy Statement in connection with its Annual Meeting
scheduled to be held on February 27, 1997, which section is incorporated  herein
by reference.

         (c)  Changes in Control

         The  Company  knows of no  contractual  arrangements  which  may,  at a
subsequent date, result in a change of control of the Company.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         See  the  section  captioned  "Certain  Transactions"  included  in the
Company's Proxy Statement in connection with its Annual Meeting  scheduled to be
held on February 27, 1997, which section is incorporated herein by reference.



                                       25






<PAGE>
<PAGE>



 ITEM 13.         EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

         (1) See the financial  statements of the Company and the report thereon
         included in Item 7 of Part II of this Annual Report on Form 10-KSB.

         (2) The  following  exhibits  are  being  filed as part of this  Annual
Report on Form 10-KSB.

<TABLE>
<CAPTION>
Exhibit
Number           Description of Document
<S>              <C>                                                                                     
   3.1           Articles of Incorporation of the Registrant, as amended (incorporated by reference to
                 Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly
                 period ended June 30, 1996).

   3.2           Amended and Restated By-laws of the Registrant, as amended (incorporated by
                 reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-QSB for the
                 quarterly period ended June 30, 1996).

   4.1           Specimen Common Stock Certificate of Registrant (incorporated by reference to
                 Exhibit 4.1 to Amendment No. 4 to the Registrant's Registration Statement on Form
                 SB-2 (Registration No. 33-91426), as filed with the Securities and Exchange
                 Commission on May 16, 1996 ("Amendment No. 4")).

   4.2           Specimen Warrant of Registrant (incorporated by reference to Exhibit 4.2 to
                 Amendment No. 4).

   4.3           Warrant Agreement between Registrant, Duke & Co., Inc. and Warrant Agent
                 (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form

                 10-QSB for the quarterly period ended June 30, 1996).

   4.4           Form of Lock-Up Agreement (incorporated by reference to Exhibit 4.4 to Amendment
                 No. 3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 33-
                 91426), as filed with the Securities and Exchange Commission on March 20, 1996
                 ("Amendment No. 3")).

   4.5           Underwriter's Warrant issued to Duke & Co., Inc. (incorporated by reference to
                 Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly

                 period ended June 30, 1996).

  10.1           Employment  Agreement  between  the  Registrant  and Richard P.
                 McNeight  (incorporated  by  reference  to Exhibit  10.1 to the
                 Registrant's  Registration Statement on Form SB-2 (Registration
                 No.  33-91426),  as filed  with  the  Securities  and  Exchange
                 Commission on April 21, 1995) ("Registration  Statement on Form
                 SB-2")).

  10.2           Employment Agreement between the Registrant and William R. Craven (incorporated
                 by reference to Exhibit 10.2 to the Registration Statement on Form SB-2).

  10.3           Incentive Stock Option Plan and form of Stock Option  Agreement
                 (incorporated  by reference to Exhibit 10.3 to the Registration
                 Statement on Form SB-2).

</TABLE>


                                       26






<PAGE>
<PAGE>




<TABLE>
<CAPTION>
Exhibit
Number           Description of Document
<S>              <C>                                                                                     

  10.3A          Amendment No. 1 to the Incentive Stock Option Plan (incorporated by reference to
                 Exhibit 10.3A to Amendment No. 3).

  10.4           Original Office Lease and Amendment between the Registrant and Atrium Professional
                 Centre (incorporated by reference to Exhibit 10.4 to the Registration Statement on
                 Form SB-2).

  10.5           Form of Registrant's  Manufacturer's  Representative  Agreement
                 (incorporated  by reference to Exhibit 10.5 to the Registration
                 Statement on Form SB-2).

  10.6           Form of Registrant's Distributor's Agreement (incorporated by reference to
                 Exhibit 10.6 to the Registration Statement on Form SB-2).

  10.7           Amended   Licensing   Agreement   between  the  Registrant  and
                 MicroSoft  Corporation  (incorporated  by  reference to Exhibit
                 10.7 to the Registration Statement on Form SB-2).

  10.8           Licensing Agreement between the Registrant and Phoenix Technologies, Ltd.
                 (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form

                 SB-2).

  10.9           Joint Development Agreement between the Registrant and MES, Inc. (incorporated by
                 reference to Exhibit 10.9 to the Registration Statement on Form SB-2).

  10.10          Joint Marketing Agreement between the Registrant and Texas Instrument Corporation
                 (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form
                 SB-2).

  10.11          Joint Marketing Agreement between the Registrant and Raytheon Company
                 (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form
                 SB-2).

  10.12          Licensing   Agreement  between   Registrant  and  Grid  Systems
                 Corporation  (incorporated by reference to Exhibit 10.12 to the
                 Registration Statement on Form SB-2).

  10.13          Forms of (revised) Subscription Agreement and Subordinated Convertible Promissory
                 Note (incorporated by reference to Exhibit 10.13 to Amendment No. 2 to the
                 Registrant's Registration Statement on Form SB-2 (Registration No. 33-91426), as
                 filed with the Securities and Exchange Commission on October 4, 1995)).

  10.14          Nonemployee Directors' Stock Option Plan (incorporated by reference to
                 Exhibit 10.14 to Amendment No. 3).

  10.15          Employment Agreement between the Registrant and Kevin J. Bartczak (incorporated
                 by reference to Exhibit 10.15 to Amendment No. 3).

  10.16          Letter agreements between the Registrant and National City Bank (incorporated by
                 reference to Exhibit 10.16 to Amendment No. 3).

  10.17          Commercial demand note by Registrant in favor of National City Bank (incorporated
                 by reference to Exhibit 10.17 to Amendment No. 3).

</TABLE>


                                       27






<PAGE>
<PAGE>




<TABLE>
<CAPTION>
Exhibit
Number           Description of Document
<S>              <C>                                                                                     
  10.18          Security agreement (accounts receivable) by Registrant in favor of National City Bank
                 (incorporated by reference to Exhibit 10.18 to Amendment No. 3).

  10.19          Security agreement (equipment) by Registrant in favor of National City Bank
                 (incorporated by reference to Exhibit 10.19 to Amendment No. 3).

  10.20          Form of promissory note of Registrant issued in connection with stockholder loans
                 made in April 1996 (incorporated by reference to Exhibit 10.20 to Amendment
                 No. 4).

  10.20A         Form of Common Stock Purchase Agreement for purchase of shares by selling
                 security holders (incorporated by reference to Exhibit 10.20A to Amendment No. 5 to
                 Registrant's Registration Statement on Form SB-2 (Registration No. 33-91426), as
                 filed with the Securities and Exchange Commission on May 29, 1996 ("Amendment

                 No. 5")).

  10.21          Option Agreements dated as of December 16, 1991 between UES Florida, Inc. and
                 each of Krishan K. Joshi, Richard P. McNeight and William R. Craven (incorporated
                 by reference to Exhibit 10.21 to Amendment No. 4).

  10.22          Option Agreement dated as of November 23, 1994 with Richard P. McNeight.
                 (incorporated by reference to Exhibit 10.22 to Amendment No. 4).

  10.23          Warrant Agent Agreement and Warrant relating to August 1995 bridge financing
                 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on
                 Form 10-QSB for the quarterly period ended June 30, 1996.).

  10.24          Promissory Note dated February 19, 1993 by Richard P. McNeight (incorporated by
                 reference to Exhibit 10.24 to Amendment No. 5).

  10.25          Underwriting Agreement between Registrant and Duke & Co., Inc. (incorporated by
                 reference to Exhibit 1 to the Registrant's Quarterly Report on Form 10-QSB for the

                 quarterly period ended June 30, 1996).

  10.26          Financial Advisory and Investment Banking Agreement (incorporated by reference to
                 Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-QSB for the quarterly
                 period ended June 30, 1996).

  10.28          Lease Agreement dated September 1, 1996 between Registrant and California
                 Microwave, Inc. and related agreement dated November 15, 1996 with Symetrics

                 Industries Inc.

  10.29          Commercial Note of Registrant dated November 20, 1996 in favor of National City
                 Bank of Dayton.

  10.30          Security Agreement (All Personal Property and Fixtures) dated November 20, 1996 by
                 Registrant in favor of National City Bank of Dayton.

   27            Financial Data Schedule.

</TABLE>


                                       28






<PAGE>
<PAGE>




         (b)  Reports on Form 8-K

                  The  Company  did not file any  Reports on Form 8-K during the
         fourth quarter of the fiscal year ended September 30, 1996.



                                       29






<PAGE>
<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
NAME                               TITLE                                  DATE

<S>                                <C>                                    <C>
 /s/ Krishan K. Joshi              Chairman, Chief Executive              December 23, 1996
------------------------           Officer and Director
 Krishan K. Joshi                  (Principal Executive Officer)

 /s/ Richard P. McNeight           President and Director                 December 23, 1996
------------------------
 Richard P. McNeight

 /s/ William R. Craven             Vice President, Director and           December 23, 1996
------------------------           Secretary
 William R. Craven

 /s/ Kevin Bartczak                Treasurer, Vice President and          December 23, 1996
------------------------           Chief Financial Officer
 Kevin Bartczak                    (Principal Financial Officer
                                   and Principal Accounting
                                   Officer)

 /s/ James E. Clifford             Director                               December 23, 1996
------------------------           
 James E. Clifford

 /s/ Michael Maguire               Director                               December 23, 1996
------------------------
 Michael Maguire

</TABLE>

                                       30


<PAGE>
<PAGE>



                         PARAVANT COMPUTER SYSTEMS, INC.

                              Financial Statements

                           September 30, 1996 and 1995

                    With Independent Auditors' Report Thereon




<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.


                                Table of Contents




<TABLE>
<CAPTION>

                                                                                         PAGE
                                                                                        -----
<S>                                                                                     <C>
Independent Auditors' Report                                                                   F-2

Financial Statements:
    Balance Sheets                                                                       F-3 - F-4
    Statements of Income                                                                       F-5
    Statements of Changes in Stockholders' Equity                                              F-6
    Statements of Cash Flows                                                             F-7 - F-8

Notes to Financial Statements                                                           F-9 - F-23
</TABLE>

                                      F-1
<PAGE>
<PAGE>










                          INDEPENDENT AUDITORS' REPORT
                           --------------------------


Board of Directors:
Paravant Computer Systems, Inc.:


We have audited the accompanying  balance sheets of Paravant  Computer  Systems,
Inc. as of September  30, 1996 and 1995,  and the related  statements of income,
changes in stockholders'  equity and cash flows for the years 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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Paravant Computer Systems, Inc.
as of September  30, 1996 and 1995,  and the results of its  operations  and its
cash  flows for the years  then  ended in  conformity  with  generally  accepted
accounting principles.




KPMG PEAT MARWICK LLP


November 22, 1996

                                      F-2


<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                                 Balance Sheets

                           September 30, 1996 and 1995

<TABLE>
<CAPTION>
                  ASSETS                                             1996            1995
                  -----                                              ----            ----
<S>                                                            <C>                   <C>    
Current assets:
  Cash and cash equivalents                                       $    65,069        211,426
  Accounts receivable, net (notes 7, 9 and 18)                      7,161,192      5,295,106
  Employee receivables and advances                                    73,502         65,707
  Costs and estimated earnings in excess of billings on
     uncompleted contracts (note 6)                                  -               322,071
  Inventory (notes 2, 7 and 9)                                      2,503,892      2,411,834
  Prepaid expenses                                                    141,191         51,441
  Deferred income taxes (note 14)                                     139,727        128,979
                                                                    ---------       --------
             Total current assets                                  10,084,573      8,486,564
                                                                    ---------       --------
Property, plant and equipment, net (notes 3, 7 and 9)                 517,515        462,447

Intangible assets, net (note 4)                                        89,125        117,625

Demonstration pool and custom mold, net (note 5)                      281,309         67,787

Capitalized offering costs                                           -               257,812

Other assets                                                           16,136         25,330

Deferred income taxes (note 14)                                      -                32,150











                                                                    ---------       --------
             Total assets                                         $10,988,658      9,449,715
                                                                   ==========      =========
</TABLE>

See accompanying notes to financial statements.

                                      F-3

<PAGE>
<PAGE>








<TABLE>
<CAPTION>

    LIABILITIES AND STOCKHOLDERS' EQUITY                                1996           1995
    -------------------------------                                     ----           ----
<S>                                                              <C>                 <C>      
Current liabilities:
    Notes payable to bank (note 7)                                   $   540,000     2,960,000
    Other notes payable (note 8)                                         100,000       400,000
    Current maturities of long-term debt (note 9)                        110,004       110,004
    Current maturities of capital lease obligations (note 10)             99,346        67,685
    Accounts payable                                                   1,043,731     1,334,631
    Amounts due to affiliate                                            -               87,294
    Accrued commissions                                                  449,251       514,240
    Accrued expenses                                                     430,900       844,637
    Accrued incentive compensation                                       140,000      -
    Income taxes payable                                                 334,993       317,665
                                                                       ---------      --------
               Total current liabilities                               3,248,225     6,636,156

Long-term debt, less current maturities (note 9)                         619,151       729,155
Capital lease obligations, less current maturities (note 10)              67,781        77,233
Deferred income taxes (note 14)                                            7,657      -
                                                                       ---------      --------
               Total liabilities                                       3,942,814     7,442,544
                                                                       ---------      --------

Stockholders' equity:
    Preferred stock, par value $.01 per share.  Authorized
       2,000,000 shares, none issued                                    -             -
    Common stock, par value $.015 per share.  Authorized
       30,000,000 shares; issued and outstanding 7,956,038
       shares at September 30, 1996 and 4,500,000 shares at
       September 30, 1995 (notes 11 and 12)                              118,943        67,500
    Additional paid-in capital                                         5,046,342       761,265
    Retained earnings                                                  1,880,559     1,178,406

Commitments and contingencies (notes 10 and 17)
                                                                       ---------      --------
               Total stockholders' equity                              7,045,844     2,007,171
                                                                       ---------      --------
                                                                     $10,988,658     9,449,715
                                                                      ==========     =========
</TABLE>

                                      F-4

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                              Statements of Income

                 For the years ended September 30, 1996 and 1995



<TABLE>
<CAPTION>
                                                                        1996           1995
                                                                        ----           ----
<S>                                                               <C>                <C>      
Revenues (note 18)                                                   $10,495,063     8,652,553

Cost of revenues                                                       5,818,010     4,680,661
                                                                       ---------      --------
               Gross profit                                            4,677,053     3,971,892

Selling and administrative expense                                     3,247,385     2,668,320
                                                                       ---------      --------
               Income from operations                                  1,429,668     1,303,572

Other income (expense):
    Interest expense                                                    (362,956)     (392,589)
    Miscellaneous income (expense)                                        11,257       (50,711)
                                                                       ---------      --------
               Income before income taxes                              1,077,969       860,272

Income tax expense (note 14)                                             375,816       278,857
                                                                       ---------      --------
               Net income                                            $   702,153       581,415
                                                                       =========     =========

Weighted average number of shares outstanding                          7,652,320     4,500,000
                                                                       =========     =========
Earnings per share                                                   $      .10           .13
                                                                       =========     =========
</TABLE>





See accompanying notes to financial statements.

                                      F-5

<PAGE>
<PAGE>




                         PARAVANT COMPUTER SYSTEMS, INC.

                  Statements of Changes in Stockholders' Equity

                 For the years ended September 30, 1996 and 1995


<TABLE>
<CAPTION>
                                    COMMON STOCK                                          TREASURY STOCK
                                 ---------------------     ADDITIONAL                  --------------------          TOTAL
                                  NUMBER          PAR        PAID-IN     RETAINED       NUMBER                  STOCKHOLDERS'
                                 OF SHARES       VALUE       CAPITAL     EARNINGS      OF SHARES       COST         EQUITY
                                 -------         -----       ------     --------       --------        ----         -----
<S>                               <C>        <C>              <C>           <C>           <C>         <C>           <C>      
Balances, September 30, 1994      4,737,667    $ 71,065       796,498       596,991       79,234      (38,798)      1,425,756

Retirement  of treasury stock      (237,667)     (3,565)      (35,233)        -          (79,234)      38,798         -

Net income for the year
   ended September 30, 1995        -              -           -             581,415        -             -            581,415
                                  ---------     -------       -------      --------      -------       ------        --------
Balances, September 30, 1995      4,500,000      67,500       761,265     1,178,406        -             -          2,007,171

Issuance of common stock,
   net of offering costs          3,450,000      51,352     4,283,722         -            -             -          4,335,074

Exercise of common stock
   options                            6,038          91         1,355         -            -             -              1,446

Net income for the year
   ended September 30, 1996        -             -           -              702,153        -             -            702,153
                                  ---------     -------      --------      --------      -------       ------        --------
Balances, September 30, 1996      7,956,038    $118,943     5,046,342     1,880,559        -            -           7,045,844
                                  =========     =======     =========     =========      =======       ======       =========
</TABLE>

See accompanying notes to financial statements.

                                      F-6

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                            Statements of Cash Flows

                 For the years ended September 30, 1996 and 1995



<TABLE>
<CAPTION>
                                                                        1996           1995
                                                                        ----           ----
<S>                                                                     <C>            <C>    
Cash flows from operating activities:
    Net income                                                       $   702,153       581,415
    Adjustments to reconcile net income to net cash used in
       operating activities:
         Depreciation and amortization                                   266,714       220,005
         Deferred income taxes                                            29,059       (36,819)
         Increase (decrease) in cash caused by changes in:
            Accounts receivable                                       (1,866,086)   (1,907,770)
            Employee receivables and advances                             (7,795)      (31,086)
            Inventory                                                    (92,058)     (195,965)
            Costs and estimated earnings in excess of billings on
               uncompleted contracts                                     322,071       (95,394)
            Prepaid expenses                                             (89,750)       31,126
            Other assets                                                   9,194       (12,861)
            Accounts payable                                            (290,900)      370,003
            Amounts due to affiliate                                     (87,294)       87,294
            Accrued commissions                                          (64,989)      266,947
            Accrued expenses                                            (413,737)      302,949
            Accrued incentive compensation                               140,000      -
            Income taxes payable                                          17,328       121,579
                                                                        --------     ---------
               Net cash used in operating activities                  (1,426,090)     (298,577)
                                                                        --------     ---------
Cash flows from investing activities:
    Acquisitions of property, plant and equipment                       (127,352)      (60,350)
    Acquisitions of demonstration pool and custom mold                  (254,979)      (16,556)
                                                                        --------     ---------
               Net cash used in investing activities                    (382,331)      (76,906)
                                                                        --------     ---------
                                                                        (Continued)

</TABLE>

                                      F-7

<PAGE>
<PAGE>

                                       2

                         PARAVANT COMPUTER SYSTEMS, INC.

                       Statements of Cash Flows, Continued




<TABLE>
<CAPTION>
                                                                        1996           1995
                                                                        ----           ----
<S>                                                                   <C>              <C>    
Cash flows from financing activities:
    Net proceeds from (repayments on)  notes payable to bank          (2,420,000)      562,000
    Proceeds from other notes payable                                   -              400,000
    Repayments on other notes payable                                   (300,000)     -
    Repayments on long-term debt                                        (110,004)     (110,004)
    Repayments on capital lease obligations                             (102,264)      (62,081)
    Proceeds from sale of common stock                                 5,103,161      -
    Payment of offering costs                                           (508,829)     (207,812)
                                                                        --------     ---------
               Net cash provided by financing activities               1,662,064       582,103
                                                                        --------     ---------
               Net increase (decrease) in cash and cash
                 equivalents                                            (146,357)      206,620

Cash and cash equivalents at beginning of year                           211,426         4,806
                                                                        --------     ---------
Cash and cash equivalents at end of year                             $    65,069       211,426
                                                                        ========     =========

Supplemental  disclosures  of cash flow  information:
  Cash paid during the year for:
       Interest                                                      $   385,748       365,918
                                                                        ========     =========
       Income taxes                                                  $   358,488       182,469
                                                                        ========     =========
Supplemental disclosure of noncash investing and financing activities:
       The Company  entered into capital lease  agreements
         for office  equipment totaling  $124,473 and $62,450
         for the years ended  September  30, 1996 and 1995,
         respectively.
</TABLE>


See accompanying notes to financial statements.

                                      F-8

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements

                           September 30, 1996 and 1995




(1)   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a)  BUSINESS

           Paravant  Computer  Systems,  Inc., (the "Company") is engaged in the
           design,   development,   production   and  sales  of   computer   and
           communication systems,  specializing in rugged,  hand-held and laptop
           computer products.  The principal customers of the Company are United
           States  Department of Defense  contractors who are subject to Federal
           budgetary implications.  The work is performed under general purchase
           orders, fixed-price contracts and on a general production basis.

      (b)  CASH AND CASH EQUIVALENTS

           Cash and cash equivalents  include all highly liquid debt instruments
           purchased with a maturity of three months or less.

      (c)  ACCOUNTS RECEIVABLE

           Management has provided an allowance for doubtful accounts receivable
           in the amount of $12,353  and  $31,600 as of  September  30, 1996 and
           1995, respectively.

      (d)  INVENTORY

           Inventory is stated at the lower of cost or market using the weighted
           average cost method. The Company provides an obsolescence reserve for
           inventory as it becomes unusable or obsolete.

      (e)  DEPRECIATION AND AMORTIZATION

           The cost of property,  plant and  equipment is  depreciated  over the
           estimated  useful  lives of the related  assets  ranging  from 5 to 7
           years  using the  straight-line  method.  Intangible  assets  include
           exclusive  rights to a printed circuit board and certain software and
           are being amortized over the estimated useful lives of the technology
           of five to ten years.  The  Company  also has a custom  mold which is
           amortized on a units-of-production basis.


                                                                     (Continued)

                                      F-9

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




      (f)  REVENUE AND COST RECOGNITION

           The Company  recognizes  revenues on product  sales when the customer
           accepts title, which typically occurs upon shipment. At September 30,
           1996 and 1995,  the  Company  had  product  sales of  $4,144,207  and
           $2,744,124,  respectively,  for which title had been transferred to a
           customer  although  physical  product remained on Company premises at
           the  convenience  of the customer.  The Company  allows  customers to
           return  products  under  warranty  for up to one year for  repair and
           accrues a reserve  for future  warranty  costs at the time of product
           sales.  The warranty  reserve was $54,505 and $99,804 as of September
           30, 1996 and 1995, respectively.

           Revenues  from  fixed-price  contracts for  engineering  services are
           recognized on the  percentage-of-completion  method,  measured by the
           percentage of total costs incurred to date to total  estimated  costs
           for each contract.  This method is used because management  considers
           total expended costs to be the best available  measure of progress on
           these contracts.  Any losses on fixed-price  contracts are accrued at
           such time as those losses become determinable. The aggregate of costs
           and estimated earnings on uncompleted  contracts in excess of related
           billings is shown as a current  asset,  and the aggregate of billings
           on  uncompleted  contracts in excess of related  costs and  estimated
           earnings is shown as a current liability, in the accompanying balance
           sheets.

      (g)  INCOME TAXES

           The Company  accounts for income taxes using the asset and  liability
           method.  Deferred tax assets and  liabilities  are recognized for the
           future tax  consequences  attributable  to  differences  between  the
           financial   statement   carrying   amounts  of  existing  assets  and
           liabilities and their respective tax bases and operating loss and tax
           credit  carryforwards.   Deferred  tax  assets  and  liabilities  are
           measured  using enacted tax rates expected to apply to taxable income
           in the years in which those temporary  differences are expected to be
           recovered  or  settled.   The  effect  on  deferred  tax  assets  and
           liabilities  of a change in tax rates is  recognized in income in the
           period that includes the enactment date.


                                                                     (Continued)

                                      F-10

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




      (h)  EARNINGS PER SHARE

           Earnings  per share have been  computed by dividing net income by the
           weighted  average number of common shares  outstanding.  The weighted
           average number of shares  outstanding  has been  determined  assuming
           shares and options  issued  subsequent to September 30, 1996, if any,
           were  outstanding  for the periods  presented.  When dilutive,  stock
           options are included as share  equivalents  using the treasury  stock
           method.  Common  stock  authorized,  issued  and  outstanding  as  of
           September  30, 1996 and 1995  reflects  the effects of a  4.472-for-1
           reverse   common  stock  split  and  a  3-for-1  common  stock  split
           authorized on April 12, 1995 and July 25, 1996, respectively,  by the
           Board of Directors.

           Common equivalent shares included in the computation represent shares
           issueable upon assumed exercise of stock options and warrants.  Fully
           diluted earnings per common share amounts did not differ from amounts
           computed under the primary  computation for the years ended September
           30, 1996 and 1995.

       (i) USE OF ESTIMATES IN FINANCIAL STATEMENT PRESENTATION

           The presentation 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)  FUTURE APPLICATION OF ACCOUNTING STANDARDS

           In October 1995, the Financial Accounting Standards Board issued SFAS
           123,  "Accounting  for  Stock-Based   Compensation,"   effective  for
           financial  statements  with fiscal years beginning after December 15,
           1995. Among other provisions, SFAS 123 establishes a new, alternative
           method,   based  on  fair  values,  for  accounting  for  stock-based
           compensation  arrangements with employees.  In addition, if an entity
           does not adopt the new,  alternative  method,  the statement requires
           disclosure  in the  footnotes of proforma net income and earnings per
           share as if the fair value  method had been  adopted.  For the fiscal
           year ending September 30, 1997 and interim  periods,  the Company has
           determined  that it will not apply the new  method of  accounting  to
           employee  stock  options,  but  will  provide  the  related  footnote
           disclosures.


                                                                     (Continued)

                                      F-11

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements



(2)   INVENTORY

      The following is a summary of inventory at September 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                      1996            1995
                                                                      ----            ----
<S>                                                             <C>                 <C>      
           Raw materials                                           $1,835,286       1,369,675
           Work in process                                            474,940         930,677
           Finished goods                                             269,243         262,042
                                                                     --------        --------
                                                                    2,579,469       2,562,394
           Reserve for obsolete inventory                             (75,577)       (150,560)
                                                                     --------        --------
                                                                   $2,503,892       2,411,834
                                                                    =========       =========
</TABLE>

      General and administrative costs amounted to $3,270,311 and $2,715,097 for
      the  years  ended  September  30,  1996 and 1995,  respectively.  Of these
      amounts,  general and  administrative  costs capitalized in inventory were
      $22,926 and $46,777 as of September 30, 1996 and 1995, respectively.


(3)   PROPERTY, PLANT AND EQUIPMENT

      The  following is a summary of property,  plant and equipment at September
30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                       1996             1995
                                                                       ----             ----
<S>                                                               <C>                  <C>    
           Office equipment                                         $  930,332         715,425
           Factory equipment                                           209,833         198,516
           Leasehold improvements                                       14,307          14,267
                                                                      --------        --------
                  Total cost                                         1,154,472         928,208
           Less accumulated depreciation                              (636,957)       (465,761)
                                                                      --------        --------
                                                                    $  517,515         462,447
                                                                     =========        ========
</TABLE>

      Depreciation and amortization expense on these assets amounted to $196,757
      and $89,111 for the years ended September 30, 1996 and 1995, respectively.

                                                                     (Continued)

                                      F-12

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




(4)   INTANGIBLE ASSETS

      These assets  consist of exclusive  rights to a printed  circuit board and
      certain  software.  Cost and  accumulated  amortization of these assets at
      September 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                         1996        1995
                                                                         ----        ----
<S>                                                                  <C>            <C>    
           Cost                                                        $ 267,500    267,500
           Accumulated amortization                                     (178,375)  (149,875)
                                                                         -------    -------
                                                                       $  89,125    117,625
                                                                         =======    =======
</TABLE>

      Total  amortization  expense on these  assets was  $28,500 for each of the
      years ended September 30, 1996 and 1995.


(5)   DEMONSTRATION POOL AND CUSTOM MOLD

      These assets  consist of equipment  held in the  demonstration  pool and a
      custom  mold.  Cost  and  accumulated  amortization  of  these  assets  at
      September 30, 1996 and 1995, are as follows:

<TABLE>
<CAPTION>
                                                                         1996        1995
                                                                         ----        ----
<S>                                                                  <C>            <C>    
           Cost                                                        $ 699,723    449,343
           Accumulated amortization                                     (418,414)  (381,556)
                                                                         -------    -------
                                                                       $ 281,309     67,787
                                                                         =======    =======
</TABLE>

Total  amortization  expense  on  these  assets was  $41,457  and  $102,394  for
the years  ended September 30, 1996 and 1995, respectively.




                                                                     (Continued)

                                      F-13

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements



(6)   UNCOMPLETED CONTRACTS

      The status of contracts  which were  incomplete  at September 30, 1996 and
1995 was as follows:

<TABLE>
<CAPTION>
                                                                        1996       1995
                                                                        ----       ----
<S>                                                                 <C>          <C>      
           Costs and estimated earnings incurred on
              uncompleted contracts                                 $   -        2,664,923
           Billings on uncompleted contracts                            -       (2,342,852)
                                                                       -----     ---------
                  Net                                               $   -          322,071
                                                                       =====     =========
</TABLE>

      These balances are included under the caption costs and estimated earnings
      in excess of billings on uncompleted contracts in the accompanying balance
      sheets.


(7)   NOTES PAYABLE TO BANK

      The  Company  has a  line  of  credit  with  a  bank  totaling  $4,000,000
      ($3,000,000  in 1995) which is due on demand and, at  September  30, 1996,
      bears  interest at the prime rate plus .50% for secured  borrowings  under
      prescribed  levels  and the prime  rate plus  1.00% for other  borrowings.
      Secured  borrowings are collateralized by accounts  receivable,  inventory
      and equipment.  The amount  outstanding  under these credit  agreements at
      September 30, 1996 and 1995 was $540,000 and $2,960,000, respectively. The
      credit  agreements  do  not  contain  any  material  financial  covenants.
      Subsequent to September 30, 1996,  the Company  renegotiated  the interest
      rate on this  agreement  to the prime rate for  secured  borrowings  under
      prescribed levels and the prime rate plus .50% for other borrowings.


(8)   OTHER NOTES PAYABLE

      In August 1995, the Company issued  subordinated,  convertible  promissory
      notes  payable  ("Notes") in the principal  amount of $400,000.  The Notes
      also had warrants attached for $.003 per warrant  exercisable at $2.00 per
      share.  A portion  of these  notes  totaling  approximately  $98,000  were
      manditorily  convertible into 120,000 shares of the Company's common stock
      at a conversion price of $.82 in the event the Company  completed a public
      offering of its common stock prior to January 1, 1996. The Company did not
      complete the public  offering  prior to January 1, 1996 and the conversion
      feature expired. The Notes, which bear interest at 6%, have an outstanding
      balance of  $100,000  at  September  30,  1996,  which is  expected  to be
      satisfied by December 31, 1996.

                                                                     (Continued)

                                      F-14

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements


      In  regard  to the  above  financing,  the  Company  may be deemed to have
      incurred a technical  violation  of a provision of the  Securities  Act of
      1933,  as  amended.  Accordingly,  there  may  be a  contingent  liability
      associated  with such  matter.  The maximum  amount of such  liability  is
      estimated  at the amount of converted  debt in such  financing of $98,000.
      However,  management  believes  that there was no such  violation  and the
      possibility of such related liability is remote.


(9)   LONG-TERM DEBT

      The  following  is a summary of long-term  debt at September  30, 1996 and
1995:

<TABLE>
<CAPTION>
                                                                                       1996         1995
                                                                                       ----         ----
<S>                                                                                <C>             <C>    
      Note payable to bank bearing an initial  interest rate of 7.25%;  interest
         rate  adjusted  monthly to 1.50%  above the prime  rate;  interest  and
         principal  due in sixty  monthly  installments  including  principal of
         $9,167 per  payment;  final  payment  due  October of 1998;  secured by
         accounts receivable, inventory and equipment                                $ 229,155     339,159

      Note  payable  to bank  bearing  interest  at the prime  rate  plus  .50%;
         interest due monthly,  principal balance due March 31, 1998; secured by
         accounts receivable,  inventory and equipment,  subsequent to September
         30, 1996, the Company renegotiated the interest rate on this
         note to the prime rate                                                        500,000     500,000

      Less current maturities                                                         (110,004)   (110,004)
                                                                                       -------     -------
                  Long-term debt, less current maturities                            $ 619,151     729,155
                                                                                       =======     =======
</TABLE>

      Scheduled principal payments for future periods are as follows:

<TABLE>
<CAPTION>
         YEAR ENDING SEPTEMBER 30,
         ------------------------
<S>                                                                 <C>        
                1997                                                   $110,004
                1998                                                    610,004
                1999                                                      9,147
                                                                        -------
                                                                       $729,155
                                                                        =======
</TABLE>

                                                                     (Continued)

                                      F-15

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements


      The carrying  amount of the Company's  long-term  debt  approximates  fair
      value  because  the debt  bears  interest  at  borrowing  rates  currently
      available to the Company for bank loans with similar terms and maturities.


(10)  LEASES

      The Company is obligated  under various  capital leases for equipment.  At
      September 30, 1996 and 1995,  respectively,  property, plant and equipment
      included net capital lease assets of $197,423 and $72,950.

      The Company also has several noncancellable  operating leases. Under these
      arrangements,  the Company leases its current office  facilities at a rate
      of $12,365 per month.  The  Company's  future  office  facilities  will be
      leased at a rate of $9,176 per month.  In addition,  the Company  leases a
      residential unit from a related  partnership under a month-to-month  lease
      at a rate of $1,000 per month.  The Company  also leases  automobiles  and
      equipment with lease terms into June of 1999. Rent expense under operating
      lease  agreements  totaled  $151,924  and  $143,795  for the  years  ended
      September 30, 1996 and 1995, respectively.

      The  following  is a schedule by years of future  minimum  lease  payments
      under capital and operating  leases together with the present value of the
      net minimum lease payments as of September 30, 1996:

<TABLE>
<CAPTION>
                                                                        CAPITAL      OPERATING
             YEAR ENDING SEPTEMBER 30,                                   LEASES         LEASES
             ------------------------                                    -----          -----
<S>                                                                  <C>               <C>    
                      1997                                              $113,394       128,974
                      1998                                                65,696       123,272
                      1999                                                 7,449       115,081
                      2000                                                -            113,427
                      2001                                                -            110,117
                                                                         -------       -------
                         Total minimum lease payments                    186,539       590,871
                                                                                       =======
               Less amounts representing interest                         19,412
                                                                         -------
                         Present value of net minimum
                              lease payments                             167,127

               Less current maturities                                    99,346
                                                                         -------
               Capital lease obligations                                $ 67,781
                                                                         =======
</TABLE>

                                                                     (Continued)

                                      F-16

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements


(11)  STOCKHOLDERS' EQUITY

      Common stock  authorized,  issued and outstanding as of September 30, 1996
      and 1995 reflects the effects of a 4.472-for-1  reverse common stock split
      effected on April 12, 1995 by the Board of Directors and a 3-for-1  common
      stock split effected on July 25, 1996 by the Board of Directors.

      The Company  entered into an agreement  with an  underwriter in connection
      with its initial  public  offering  ("IPO") which was  consummated in June
      1996.  The  agreement   provides  for  monthly  consulting  fees  for  the
      underwriter  of $3,500 per month.  The agreement also provides a 5.00% fee
      to be paid to the  underwriter on any merger and  acquisition for a period
      extending two years subsequent to the IPO date.


(12)  STOCK OPTIONS AND WARRANTS

      Common stock  options and warrants and related  exercise  prices have been
      adjusted,  where applicable,  to reflect the effects of the aforementioned
      4.472-for-1  reverse common stock split and the 3-for-1 common stock split
      effected on April 12, 1995 and July 25, 1996, respectively.

      On December 22, 1993,  the Company  granted  options under a  nonqualified
      stock option plan  ("nonqualified  plan") to employees to purchase  74,799
      shares of the  Company's  common  stock at an exercise  price of $.012 per
      share.  The  terms of  these  options  provide  that  the  options  may be
      exercised during a period beginning December 22, 1994 and ending six years
      from the  date the  options  were  granted.  The  Company  terminated  the
      nonqualified  plan on  November  22,  1994.  During the fiscal  year ended
      September  30, 1996,  the Company  issued  6,038 common  shares to various
      employees under the nonqualified plan.

      On November  22,  1994,  the Company  granted  options to a key officer to
      purchase 182,977 shares of the Company's common stock at an exercise price
      of $.72 per share. The terms of these options provide that the options are
      exercisable through November 22, 2004. The exercise price of these options
      approximated  the  estimated  market  value of the shares on the  issuance
      date.

      On November 22, 1994, the Company  reserved 900,000 shares of common stock
      for its qualified incentive stock option plan ("qualified plan"). On March
      14, 1996 the Company  increased the options  reserved  under the qualified
      plan from 900,000 to  1,455,000.  It also  reserved  45,000 shares under a
      plan to benefit  the  nonemployee  directors  under  terms  similar to the
      qualified  plan.  On  November  22,  1994 and March 2, 1995,  the  Company
      granted  options to  employees  to  purchase  345,000  and 45,000  shares,
      respectively,  of the Company's  common stock at exercise  prices  ranging
      from $.72 to $.79 per share which  approximated the estimated market value
      of the shares on that date.  The terms of these  options  provide that the
      options  may be  exercised  beginning  one year  after date of grant for a
      period of nine years.
                                                                     (Continued)

                                      F-17

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




      On November 16, 1995, the Company granted options to selected employees to
      purchase  360,000 shares of the Company's  common stock at exercise prices
      ranging from $1.33 to $1.47 per share, which approximated the market price
      of the shares at the date of issuance.

      On August 9, 1996, the Company  granted options to an employee to purchase
      6,000 shares of the Company's  common stock at an exercise  price of $5.94
      per share,  which  approximated the market price of the shares at the date
      of issuance.

      In connection  with the Company's IPO of common stock in June of 1996, the
      Company issued 4,830,000  warrants  exercisable for a period of five years
      commencing  November  30,  1997 at an  exercise  price of $2.00 per share,
      subject to adjustment in certain circumstances. The Company, at its option
      during the exercise period of the warrants, may redeem the warrants, after
      November  30,  1997,  upon notice of not less than 30 days,  at a price of
      $.0167 per  warrant  provided  that the last sale  price of the  Company's
      common stock on the Nasdaq  National  Market has exceeded  $2.83 per share
      (subject to adjustment) for a period of 30 consecutive trading days. As of
      September 30, 1996, no warrants have been exercised.


(13)  RESEARCH AND DEVELOPMENT

      Research and development costs are expensed when incurred and are included
      in selling and administrative expense. The amounts charged to expense were
      $382,750  and $480,951  for the years ended  September  30, 1996 and 1995,
      respectively.



                                                                     (Continued)

                                      F-18

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




(14)  INCOME TAXES

The components of income tax expense for the years ended  September 30, 1996 and
1995 are as follows:

<TABLE>
<CAPTION>
                                                CURRENT           DEFERRED          TOTAL
                                                --------          ---------         ------
<S>                                            <C>                  <C>             <C>    
         1996:
           Federal                               $292,008           26,620          318,628
           State                                   54,749            2,439           57,188
                                                  -------           ------          -------
                                                 $346,757           29,059          375,816
                                                  =======           ======          =======
         1995:
           Federal                                266,225          (38,119)         228,106
           State                                   49,451            1,300           50,751
                                                  -------           ------          -------
                                                 $315,676          (36,819)         278,857
                                                  =======           ======          =======
</TABLE>

      Following is a reconciliation  of the expected income tax expense computed
      by  applying  the U.S.  federal  income  tax rate of 34% to income  before
      income  taxes and the actual  income  tax  provision  for the years  ended
      September 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                         1996           1995
                                                                         ----           ----
<S>                                                                  <C>               <C>    
         Computed "expected" tax expense                                $366,509       292,492
         Increase (decrease) in income taxes resulting from:
            State income taxes, net of federal income tax benefit         36,134        31,897
            Nondeductible meals and entertainment expense                  6,270         5,645
            Research and experimentation credit                          (12,372)      (14,698)
            Change in valuation allowance                                 -            (15,000)
            Other, net                                                   (20,725)      (21,479)
                                                                         -------       -------
                                                                        $375,816       278,857
                                                                         =======       =======
                                                                                          (Continued)
</TABLE>

                                      F-19

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements



      Deferred income taxes as of September 30, 1996 and 1995 reflect the impact
      of "temporary  differences"  between amounts of assets and liabilities for
      financial statement purposes and such amounts as measured by tax laws. The
      temporary  differences  give rise to deferred  tax assets and  liabilities
      which are summarized below as of September 30, 1996 and 1995.

<TABLE>
<CAPTION>
                                                                 1996         1995
                                                                 ----         ----
<S>                                                          <C>             <C>     
           Gross deferred tax liabilities:
              Accumulated depreciation                         $(46,426)     (32,271)
                                                                -------      -------
           Gross deferred tax assets:
              Inventory                                          61,972       61,927
              Warranty expense                                   20,510       37,556
              Accrued vacation                                   45,956       29,496
              Accrued incentive compensation                     11,289       -
              Net operating loss carryforwards                    1,554       14,834
              Research credits                                   37,215       49,587
                                                                -------      -------
                  Total gross deferred tax assets               178,496      193,400
                                                                -------      -------
                  Total net deferred tax assets                $132,070      161,129
                                                                =======      =======
</TABLE>

      A valuation  allowance for deferred tax assets is provided when it is more
      likely than not that some  portion or all of the  deferred tax assets will
      not be realized.  Realization  is dependent  upon the generation of future
      taxable income. As of September 30, 1996 and 1995, no valuation  allowance
      has been  recognized  in the  accompanying  financial  statements  for the
      deferred tax assets because the Company  believes that sufficient  taxable
      income will be generated in future years to fully utilize such amounts.

      At September 30, 1996, the Company has net operating loss carryforwards of
      approximately $4,000 for federal and state income tax purposes,  which are
      available to offset future taxable income. These loss carryforwards expire
      in various years from 1998 through 2010.


(15)  RETIREMENT PLAN

      The  Company  has  a  defined   contribution   retirement   plan  covering
      substantially all employees.  Retirement  expense incurred was $19,098 and
      $10,344 for the years ended September 30, 1996 and 1995, respectively.

                                                                     (Continued)

                                      F-20

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements


(16)  RELATED PARTY TRANSACTIONS

      The Company had a payable to an affiliate,  Universal Energy Systems, Inc.
      ("UES"), of $-0- and $87,294 at September 30, 1996 and 1995, respectively,
      for  accrued  health  insurance  costs  paid by UES which is  included  in
      amounts due to affiliate in the accompanying balance sheets.

      In March 1996,  prior to the 3-for-1 common stock split authorized on July
      25, 1996 by the Board of Directors,  certain  stockholders  of the Company
      sold an aggregate of 308,581  shares of common stock to private  investors
      at a purchase  price of $4 per share. A portion of the proceeds from these
      sales totaling $802,294 was advanced to the Company in April 1996 pursuant
      to promissory notes having an interest rate of 6% per annum. Such amounts,
      plus  accrued  interest  thereon,  were due and  payable on the earlier of
      April 15, 1997 or the date which is ten days after the consummation of the
      Company's  initial public  offering.  All amounts  borrowed by the Company
      under these promissory notes were repaid prior to September 30, 1996.

      At September  30, 1995 the Company was a guarantor of certain debt of UES.
      The debt included a $1,250,000  line of credit with a bank that was due on
      demand and bore interest at the prime rate. The amount  outstanding  under
      the agreement at September 30, 1995 was $779,715. The debt also included a
      commercial note payable to the same bank bearing an initial  interest rate
      of 8.75%  adjusted  monthly to 1.50%  above the prime rate.  Interest  and
      principal   payments  on  this  note  were  due  in  eighty-four   monthly
      installments including principal of $11,905 per payment with final payment
      due in September  2001. The amount  outstanding  under the commercial note
      payable at September 30, 1995 was $845,235. Prior to the completion of the
      Company's IPO, the bank released the Company from its guarantee.


(17)  CONTINGENCIES

      In March 1996,  the Company's  former  counsel  rendered an invoice to the
      Company  totaling  approximately  $365,000  for  legal  fees and  expenses
      representing both general corporate  services as well as services relating
      to the  Company's  initial  public  offering.  The Company  contested  the
      invoice and accrued an estimate for the settlement, if any, of these fees.
      In March 1996,  the Company's  former  counsel filed an action against the
      Company,  its current underwriter and certain other defendants,  alleging,
      among other things,  breach of contract,  failure to pay  attorneys  fees,
      fraud,  copyright infringement and defamation by the Company in connection
      with the  aforementioned  services as well as claiming a finder's fee with
      respect to the underwriter's  relationship with the Company.  Plaintiff is
      seeking damages of approximately $28,000,000 from the Company. The Company
      filed an answer denying the claims  asserted by plaintiff and has asserted
      defenses  and  counterclaims  against the  plaintiff  seeking  recovery of
      amounts paid to the plaintiff, plus punitive damages and court costs.

                                                                     (Continued)

                                      F-21

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




      In September  1996, a former Company  employee filed an action against the
      Company  and  certain  other  defendants  alleging  retaliatory  personnel
      actions instituted by the defendants  against the plaintiff.  Plaintiff is
      seeking from the  defendants an amount of $950,000 plus punitive  damages,
      interest,  cost and  attorneys  fees.  The  Company  has filed a motion to
      dismiss the complaint and intends to vigorously defend this lawsuit.

      Management,  after  consultation with counsel,  is of the opinion that the
      ultimate  resolution  of these  matters  will not have a material  adverse
      effect on future operations of the Company. Management has not accrued any
      liability  relating  to the  tortious  portion  of  these  lawsuits  as it
      believes the Company will prevail.  In the event a court finds in favor of
      the plaintiffs, additional costs will be incurred.


(18)  CONCENTRATION OF CREDIT RISK

      The  Company  has a high  concentration  of  sales to four  customers  who
      accounted  for 95% and 85% of revenue  for the years ended  September  30,
      1996 and 1995, respectively. A summary of sales and accounts receivable to
      the  customers  that  exceed 10% of sales or accounts  receivable  for the
      years ended September 30, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                             1996                              1995
                                    ----------------------             --------------------
                                      SALES       % TOTAL               SALES       % TOTAL
                                      ----        -------               ----        -------
<S>                               <C>                <C>            <C>                 <C>
           Customer A              $5,094,104        49%              $4,055,907        47%
           Customer B               2,255,433        21                2,502,997        25
           Customer C               1,609,725        15                1,109,825        13
           Customer D               1,079,408        10                    -             -
</TABLE>

<TABLE>
<CAPTION>
                                     ACCOUNTS                          ACCOUNTS
                                    RECEIVABLE    % TOTAL             RECEIVABLE    % TOTAL
                                    ---------     -------             ---------     -------
<S>                               <C>                <C>            <C>                 <C>
           Customer A              $4,982,408        70%              $2,912,231        55%
           Customer B               1,009,630        14                1,079,567        20
           Customer C                 906,966        13                  585,273        11
</TABLE>


                                                                     (Continued)

                                      F-22

<PAGE>
<PAGE>


                         PARAVANT COMPUTER SYSTEMS, INC.

                          Notes to Financial Statements




(19)  FOURTH QUARTER RESULTS

      Adjustments  were made to increase  inventory during the fourth quarter of
      the years ended September 30, 1996 and 1995 in the amounts of $433,000 and
      $125,293,  respectively,  before related income taxes.  These  adjustments
      were made to adjust perpetual records to physical counts.  The Company was
      not able to determine  the amount of the  adjustments  that related to the
      fourth quarter or the prior quarters.

      In addition, another adjustment was made in the fourth quarter of the year
      ended September 30, 1996 to record accrued  incentive  compensation in the
      amount of $140,000,  before related taxes.  The accrued  compensation  was
      discretionary and was substantially related to fourth quarter sales.


                                      F-23

<PAGE>