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===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
                                    FORM 10-K

                        [x] ANNUAL REPORT FOR ANNUAL AND
              TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

                                       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 INC.
             (Exact name of registrant as specified in its charter)

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           <S>                                              <C>
                     Florida                                            59-2209179
            (State of incorporation)                        (I.R.S. Employer Identification No.)

  89 Headquarters Plaza North, Suite 1421  Morristown, NJ                  07960
         (Address of principal executive offices)                        (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (973) 631-6190
                               ------------------
           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)

                               ------------------

         Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained
herein, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. [x]

         The market value of the voting and non-voting common equity, held by
non-affiliates of the registrant on December 7, 2001 was approximately
$33,706,979. On such date, the closing price of the issuer's common stock was
$2.55 per share.

         The number of shares of the registrant's common stock, $.015 par value,
outstanding on December 7, 2001 was 17,120,167.

                      Documents Incorporated By Reference:

         Portions of the Company's Proxy Statement in connection with its Annual
Meeting scheduled to be held on March 21, 2002 are incorporated by reference in
Part III. The Company's Proxy Statement will be filed within 120 days after
September 30, 2001.


===============================================================================








<PAGE>



                                  PARAVANT INC.

                           Annual Report on Form 10-K
                  For the Fiscal Year Ended September 30, 2001



                                Table Of Contents

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                                                                                                        Page
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   <S>                                                                                                <C>
     PART I
           Item   1.  Description of Business...........................................................   3
           Item   2.  Description of Properties.........................................................  13
           Item   3.  Legal Proceedings.................................................................  14
           Item   4.  Submission of Matters to a Vote of Security Holders...............................  15


     PART II

           Item   5.  Market for Common Equity and Related Stockholder Matters..........................  15
           Item   6.  Selected Financial Data...........................................................  16
           Item   7.  Management's Discussion and Analysis of Financial Condition and
                      Results of Operation..............................................................  16
           Item   7A. Quantitative and Qualitative Disclosures about Market Risk........................  28
           Item   8.  Financial Statements and Supplementary Data.......................................  28
           Item   9.  Changes in and Disagreements with Accountants on Accounting and
                      Financial Disclosure..............................................................  28

     PART III
           Item   10. Directors, Executive Officers, Promoters and Control Persons; Compliance
                      with Section 16(a) of the Exchange Act............................................  29
           Item   11. Executive Compensation............................................................  29
           Item   12. Security Ownership of Certain Beneficial Owners and Management....................  29
           Item   13. Certain Relationships and Related Transactions....................................  29

     Part  IV
           Item   14. Exhibits and Reports on Form 8-K..................................................  29
</TABLE>


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<PAGE>


                                     PART I

Item 1. Description of Business

General

     Paravant Inc. (the "Company" or "Paravant") serves the defense and national
security industry with a range of electronic commercial off-the shelf ("COTS")
products engineered to meet applications within aircraft support, fire control,
communications, radar and signal intelligence. Paravant also offers software
design and integration services and extensive customization services to modify
its standard products to the specific needs of end users. The Company's products
include rugged computers, digital signal processing ("DSP") boards, DSP
application specific integrated circuits ("ASIC"), telecommunications recording
and storage systems, signal processing hardware and custom designed helicopter
subsystems. Its products have a reputation for high-level performance and
reliability in difficult circumstances. The Company's products are sold
primarily to U.S. and foreign military establishments and government prime
contractors. The Company operates its business through its five wholly owned
subsidiaries, Paravant Computer Systems, Inc. ("PCS"), Engineering Development
Laboratories, Incorporated ("EDL"), STL of Ohio, Inc. ("STL"), Tri-Plex Systems
Corporation ("Tri-Plex") and Catalina Research, Inc. ("CRI").

History

     The Company, which was incorporated in Florida as Paravant Computer
Systems, Inc. in June 1982, consummated an initial public offering of common
stock and redeemable warrants in June 1996.

      In 1996 the Company began to focus on providing the medical market with a
line of programmer products to provide programming information to medical pumps,
and related devices that are surgically implanted into the human body.
Management has since elected to discontinue the medical product line. In early
2000 the Company's medical resources were directed into opportunities to serve
Command, Control, Communications, Computers and Intelligence ("C4I") initiatives
put in place by the U.S. Army in an effort to better leverage its skills in the
marketing of products to the military and its ability to serve the U.S.
Department of Defense ("DoD").

      Consistent with the long range plans of the Board of Directors to further
diversify the business activities of the Company in the defense, intelligence
and related electronics industry, in 1998 the Company changed its name from
Paravant Computer Systems, Inc. to Paravant Inc. Shortly after the corporate
name change the Company established its Command, Control, Communications and
Computers ("C4") operations as a wholly owned subsidiary under the name Paravant
Computer Systems, Inc.

     Effective as of October 1, 1998, Paravant completed the acquisition
("EDL-STL Acquisition") of two related defense electronics companies, EDL and
the assets of STL, EDL's majority-owned subsidiary (with EDL, "EDL-STL") of
Dayton, Ohio. STL is a designer and producer of signal processing equipment used
in the signal intelligence community to process gathered signals. EDL provides
the DoD and allies of the U.S. with upgrades to primarily rotary aircraft
including multiple control panels and flight controls, among other products. EDL
engineers these upgrades as required and provides complete installation services
when requested.

     On January 1, 2000 Mr. William R. Craven was appointed President and Chief
Operating Officer of the Company. On December 7, 2000 Mr. Craven was appointed
Chief Executive Officer, a position previously held by Mr. Krishan K. Joshi. Mr.
Joshi continues to serve as non-executive Chairman of the Company.

     Effective as of May 27, 2000, Paravant completed the acquisition ("Tri-Plex
Acquisition") of Tri-Plex, located in Columbia, Maryland. Tri-Plex engineers and
produces specialized telecommunication interfaces and recorders utilized in the
signal intelligence industry.


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<PAGE>


     Effective as of June 30, 2000, Paravant completed the acquisition ("CRI
Acquisition") of CRI, located in Colorado Springs, Colorado. CRI designs and
produces digital signal processers ("DSP"), ASIC, system and board level
products utilized in signal intelligence, radar, electronic intelligence and
satellite ground station applications.

Industry Background -  Tactical Systems

     Traditionally, the DoD has retained military contractors to develop
electronics and 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 and electronic devices were still
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
dependence on electronics meeting full military specifications ("Mil-Spec") to
acquiring commercially available components that have been modified for
environmental and operational realities of the military applications in
question. While the U.S. military still procures products with Mil-Spec
components, this transition to 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
to downsize the military, and U.S. military spending declined. The Company
believes, however, that increases in spending on defense electronics will occur
during the next five years, to help stop terrorism since the events of
September 11, 2001.

     The downward trend in overall defense spending was a positive development
for some sales to the U.S. military in recent years in the following three
general areas: (1) less than full Mil-Spec militarized computers in general and
rugged computers specifically; (2) the upgrading of older weapons and aircraft
systems that could not be replaced due to budget restraints; and (3) the
upgrading of signal intelligence data collection systems intended to gather data
in certain countries which have experienced destabilization related to the
break-up of the former Soviet Union.

     Management believes that as military budgets are increased the Company will
benefit as it has repositioned itself to take advantage of the purchase of newer
C4 systems. These systems will be required as part of the Army's digitization
initiatives by which it seeks to upgrade the entire communications
infrastructure from the foxhole to the command centers. This new communications
infrastructure will enable broad bandwidth communications such as those required
for large data packets and for video signals. By focusing in this high growth
area for new product development and investment in prototypes as well as seeking
additional acquisition partners, management believes it will experience
continued growth as such systems are purchased and installed. In 2000, the
Company secured a sub-contract with TRW for a key part of the digital
battlefield with its Applique rugged vehicle system. Management hopes that
continued focus on this area will allow its position in the Applique program to
be broadened into other programs related to the Army digitization effort.

Industry Background -  Intelligence Systems

     In recent years, accurate and comprehensive information regarding foreign
affairs has become increasingly important to the U.S. Government. The reduction
in U.S. military tactical forces overseas has heightened the need of the U.S.
Government and its allies to quickly assess military risks, particularly in
areas of instability as they develop around the world. The breakup of the Soviet
Union and civil unrest in certain nations in Eastern Europe, the Middle East,
Africa, and South America indicate an increase in geographic areas that might
require monitoring. Since September 11, 2001, the U.S. Govenment has heightened
its desire to gather information about certain groups that might support
terrorism. In addition, the U.S. Government requires information regarding
overseas activities to conduct drug interdiction operations.


                                       4








<PAGE>


     As part of its efforts to obtain information, the U.S. Government collects
and analyzes some telecommunication signals emanating from foreign countries. In
recent years, the use of established telecommunication technologies has
increased throughout the world and new telecommunication technologies,
supplementing rather than replacing prior technologies, have been developed and
commercialized. These trends have led to a significant increase in the overall
volume of information communicated and an increase in the density of signals
transmitted throughout the radio frequency spectrum. This increase can be seen
in the proliferation of facsimile, cellular, and digital signal
telecommunications equipment and the global information network (World Wide Web)
in the last decade, resulting in a significant increase in the amount of
information being communicated. These trends have required the development of
signal reconnaissance equipment capable of collecting and processing a wider
bandwidth of signals and an increased volume of signals and encoding variations
of signals.

     Traditionally, organizations within the U.S. Government have satisfied
their signal reconnaissance needs by first identifying their specific
requirements and then contracting with government prime contractors to provide
equipment. Contractors typically designed and built custom signal processing
systems optimized to satisfy the particular needs of various agencies.
Development of custom systems usually required many years of effort and involved
great expense. The time required to develop these systems often meant that new
telecommunications technologies that had evolved during the development process
were not addressed in the final product. These factors, combined with growing
budgetary constraints, have caused many agencies to search for more flexible and
cost-effective signal reconnaissance solutions that can be deployed promptly,
with a focus on COTS solutions.

     As former Soviet Union affiliated states continue the change process from
centrally controlled economic and political systems toward locally controlled
systems over the next decade, the need to monitor those states, particularly
those with nuclear arsenals or the ability to disrupt world commerce, will
remain high. Management feels that Paravant, through its experience in the DSP
arena, will be able to continue to serve this vital strategic need for
intelligence.

Products

     The Company's rugged computer products include hand-held devices, laptops,
and portable systems used on the flight line, on the battlefield, outdoor
man-portable applications and in vehicles. Products also included DSP systems
and equipment that are used to collect and process data files in intelligence
applications, and avionics related equipment.

     The Company's computers are designed to meet and exceed certain military
specifications for operation in harsh battlefield environments and for
insulation from electromagnetic interference. The reliability and performance of
its products in extreme environmental and operational situations relate directly
to Paravant'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 of the production process.
The computer systems are designed with an open architecture configuration for
maximum flexibility. Most of the Company's software is based on MS-Windows or
MS-DOS operating systems, although the Company provides other operating systems
to meet customer needs.

     The Company's computers are available with standard serial and parallel
communications capabilities, which allow Paravant's computers to transmit and
receive electronic signals and messages to and from other electronic systems.
These 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 allow Paravant products to interface to a wide range
of weapons platforms and battlefield communications systems. These interfaces
can be made to link 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, Paravant has developed a tactical communication interface
that connects different communications systems operating


                                       5








<PAGE>


on the battlefield with one another.

     Typical applications of the Company's computers include 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 battlefield command and control
systems.

     In the DSP area, the Company designs and produces more than thirty
products, which are marketed to the military and intelligence organizations of
the U.S. Government. These products can generally be separated into the
following four categories: routing and switching; data reformatting; data
processing; and recording.

     Signal routing and switching systems is a major portion of the Company's
signal processing products. In modern signal processing systems, it is often
required to reconfigure the data to accommodate a different architecture. The
Company's products switch and route serial and parallel buses in multiple
channel configurations. As the requirements have evolved, the Company has
developed larger systems that perform this switching/routing function at higher
speeds with more input and output signals.

     With the development of faster and more powerful computers, dedicated
processing hardware is not always cost effective. To use these faster computers
it is often necessary to reformat the data to make it available to the computer
in the most efficient format for the computers to process. The Company has
developed instruments that reformat data and interface it to the more powerful
modern computers for efficient processing of the data.

     Modern DSP technology involves both specialized hardware and software. The
Company produces several instruments that employ modern digital signal
processing techniques to enhance signal-to-noise ratios of desired signals.
These devices range from complex ASIC's to very complex systems. The Company
typically works with other prime government contractors to develop these
instruments. The prime contractors generally write the end application software
with Paravant engineers designing or providing the hardware and the Application
Programmer Interface ("API") software to control the developed instruments.

     The Company works to maintain a close liaison with its technical customers
to become aware of new requirements, and in response, to develop new products.
These new developments range from modification of existing products, which the
Company works to continually upgrade for both performance and capability, to
designing new products. Most new product developments tend to involve higher
speed clock rates. Some developments are customer funded while others are
supported by internal research and development funds.

     In the avionics area, the Company has unique knowledge of flight control
systems. The Company has, and continues to develop, innovative products which
enhance aircraft reliability and maintainability ("R & M upgrades") and/or
provide enhanced capabilities. Typical solutions are based upon a combination of
analog and digital designs with firmware-controlled logic. The Company works
toward designs that utilize existing and mature off-the-shelf components and
equipment. The two most important aspects of this approach are low cost
practical solutions and Quick Reaction Capability ("QRC").

     The Company's avionics products include an Altitude Hold and Hover
Stabilization ("AHHS") System which reduces pilot workload and increases safety
during low altitude and low speed aircraft operations by providing the pilot
with a variety of altitude hold and stabilized hover/low speed control modes.
Currently, the AHHS System is installed on over one hundred U.S. Air Force
("USAF") H-60's, including all Special Operations helicopters. Among other
items, the Company has developed and manufactured multiple night vision
compatible control panels (NVIS compatible), beacon rings, solid-state control
modules, transformers, aircraft landing lights, mission commander color LCD
monitor, and aircraft compatible videocassette recorders ("ACVCR"). The Company
currently has a depot repair contract for both the AHHS System and the ACVCR
with the USAF.


                                       6








<PAGE>




     In the avionics area, the Company provides the software development and
integration activities for the H-60 helicopter as a subcontractor to major
government prime contractors and in support of the Warner Robins Air Logistics
Center. The Company has been expanding its system integration activities, which
include the following: embedded software development; Windows simulation/
development support programs; aircraft modification design and kit fabrication;
and development of training and support systems to enhance aircraft
troubleshooting.

     The Company worked as a subcontractor to a major government prime
contractor for the Interactive Defensive Avionics System-Multi-Mission Advanced
Tactical Terminal ("IDAS/MATT") program for the MH-53J helicopter. The Company
currently has employees in the field supporting this system. In addition, the
Company offers equipment, in conjunction with a major prime contractor that is
designed to provide electronic diagnostic capability for certain advanced
aircraft such as the F-16 Fighter Aircraft, B-2 Aircraft and F-117 Stealth
Fighter.

     The Company works to maintain a close liaison with its technical customers
to become aware of new requirements, and in response, to develop new products.
These new developments range from modification of existing products, which the
Company works to continually upgrade for both performance and capability, to
designing new products. Most new product developments tend to involve higher
speed clock rates. Some developments are customer funded while others are
supported by internal research and development funds.



Customization

     The Company provides its customers and end-users with engineering services
that modify or adjust its standard products to meet their specific needs and
requirements. Virtually all of the avionics-related business involves
customization for upgrades of older aircraft. Substantial portions of the
product sales involve varying degrees of customization.

     The range of engineering services furnished by Paravant includes special
rugged packaging design, miniaturization of electronics, development of
ultra-low power systems, DSP board design, ASIC design, DSP system design,
communication design. There are many examples of specific situations where
Paravant has rendered such services, and the following modifications of its
products are representative only:

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

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

     It is very common for customers to need small changes to standard products.
In most cases, these changes can be accommodated through circuit board and
software upgrades. This ability enhances and extends the life of the product
line.

     In the early phase of a military program, Paravant will often design,
engineer, and fabricate a prototype. Once this is successfully done, the Company
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.

     Management believes that by providing custom engineering services and
producing prototypes the Company facilitates the marketing of Paravant's
products and enables the Company to increase its margins by offering higher
value added services. While engineering services represent a low percentage of
total sales, the Company believes these efforts still lead to significant
production contracts. Customization services are of significant value to
Paravant's customers and, accordingly, management intends to continue to offer
such services on a reduced or no-charge basis, where offering such services


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will lead to production orders.


New Products

     The Company has new products in development targeted to its historical
customer base. The products can generally be said to be faster, more powerful
and more portable and lower cost than existing products. The Company also has an
ongoing effort to upgrade the capability of its DSP systems to simultaneously
process more input signals. Any enhanced capability is typically made part of
the standard product line.

     The Company continually updates its understanding of its customer
requirements and focuses its new product development projects on meeting
specific requirements. Among products recently introduced or in the final stages
of completion are:

         -  A new handheld soldiers computer device that enables a real time
            satellite information link between commanders and soldiers in the
            battlefield, and integrates Mil-GPS location and mapping information
            and a laser rangefinder.

         -  A new line of PCI based DSP processing modules, which are user
            reconfigurable and based on the newest FPGA's.

         -  The Eagle (Brand) and product derivatives, the world's fastest
            production data recorder for telecommunications.

         -  A new color, multi-function display for the MH-53M helicopter
            (CMFD).

         -  A new product series for both helicopters and fixed wing aircraft,
            which integrates the intelligence receivers and navigation systems
            with the moving (pilots) map.

     The company is also funding activities in the area of new, higher speed
Cheetah (Brand) DSP products, which will maintain Paravant's position as
producer of the world's highest speed, low latency DSP devices.


Supply And Manufacturing

     The Company designs and engineers substantially all of its products,
purchases their components from third parties and then tests and assembles the
final products. As part of this process, Paravant has the ability to either
design or purchase the printed circuit boards depending on a customer's
performance needs and price point. The Company can also fabricate prototypes for
testing.

     For certain computer customers requiring "configuration control" or the
ability to identify the precise lot number of every component for future problem
tracking, the Company then purchases all the necessary components for the board
and provides them in kit form to specialized board fabricators for both pilot
and production runs.

     The Company anticipates that it will continue to outsource board
fabrication and assembly. Given the rapid changes in board production
technology, management believes its subcontractors best serve its needs in this
specialized area. Outsourcing allows the Company's products to receive the
benefit of the latest technological developments in board production at an
acceptable cost.

     Once the boards are completed, they are tested by the fabricator and, upon
satisfactory completion of


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such tests, are shipped to the Company. When delivered, Paravant further tests
the completed boards and other components and then assembles the computers.
Apart from the printed circuit boards, the components that Paravant purchases
from external sources include chassis, wire harnesses, computer chips,
keyboards, displays and cases.

     With the exception of a small number of major programs such as Applique,
the Company does not assemble its products on a continuous mass-production
basis. Instead, its products are usually assembled on a batch basis in which
products move from station to station. Tests are performed at various stages of
the process according to Paravant'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 products is usually done
pursuant to specific purchase orders.

     Paravant utilizes modern equipment for the design, engineering, assembly
and testing of its products. In recent years, the Company has acquired
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, Paravant 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.

     The Company's design, engineering and assembly facilities are located in
Palm Bay, Florida, Dayton, Ohio, Columbia, Maryland, and Colorado Springs,
Colorado. Certain of these facilities comply with certain U.S. military
specifications necessary for the manufacture and assembly of products supplied
to it. In addition, on March 27, 1998, the Company's Florida manufacturing and
assembly facilities were certified as being in compliance with the quality
management and assurance standards of ISO-9001, an international standard
promulgated by the International Organization of Standardization, a worldwide
federation of standards bodies from approximately 100 countries. These standards
have been adopted by the European Economic Community as their preferred quality
standards and, to some degree, by the DoD. The Company believes that such
certification will enable it to increase its marketing opportunities in the
domestic and international military markets for ruggedized computers.

     The Company has entered into licensing arrangements for certain hardware
and software elements contained in, or used in conjunction with, its devices.
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.

     Paravant receives its basic operating software systems, MS-DOS, and 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

     For both computer products and signal intelligence equipment, the Company
usually provides either 90-day or one-year warranties covering both parts and
labor, although customers may purchase extended warranties. Concerning the
avionics related equipment, there is generally no warranty unless it is
separately purchased. At its option, Paravant 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.


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<PAGE>


     In cases of defective products, the customer typically returns them to a
Paravant facility. The Company's 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 facilities, and it charges its customers a fee for those
service items that are not covered by warranty.

     Some personnel in the Company's customer service area and from engineering
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 equipment.

Marketing and Sales

     The Company markets its products and services through an internal sales
force, manufacturers' representatives in the U.S. and a small number of
distributors abroad. Its foreign distributors serve in several countries,
including England, France, Japan, Australia, and Germany. However, direct sales
to foreign customers for the years ended September 30, 2001 and 2000 were only
3% and 5% of total sales, respectively.

     Sales of the Company's products or services to foreign distributors are
generally made pursuant to written contracts. Under such contracts, the
distributor is granted either an exclusive or non-exclusive territorial or
product representation right as well as discounts based on the list price, which
vary based on the type or amount of products sold. In some cases, there are
minimum order requirements. Due to the custom nature of Paravant's products, its
foreign distributors generally do not keep its products in their inventory until
specific orders are obtained. The term of these agreements generally run from 1
to 3 years but are terminable on short (30-90 days) 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 products through the dissemination of product
literature, exhibition at trade shows, web pages, seminars, news releases, and
newsletters. Paravant does little advertising in trade periodicals. A
significant portion of the Company's sales leads has historically been
generated by referrals.

     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 three years.
Sales to the military and government markets are greatly influenced by special
budgetary and spending factors pertinent to these organizations.

Customers

     The Company sells its products and services, directly or indirectly, to the
U.S. and foreign military establishments, large aerospace and military
contractors supplying these establishments, and government agencies. The
principal customers of the Company are the U.S. Government and DoD contractors,
which are subject to federal budgetary constraints. For the fiscal years ended
September 30, 2001, 2000, and 1999, TRW accounted for 39%, 30%, and 0% of the
Company's total sales, respectively. For those same periods, Raytheon accounted
for 13%, 15% and 8% of the Company's total sales, respectively. (See note 20 in
notes to financial statements). The loss of any significant customers could have
a material adverse impact on Paravant's business.

Competition

     The military electronics products market is highly competitive and the
Company expects that competition will continue to be strong in the future. Some
of the Company's current and potential competitors have significantly greater
technical, manufacturing, financial, and marketing resources than the Company.
Substantial competition could have a material adverse effect on the Company's
results of operations.


                                       10








<PAGE>


     With respect to its computer business, the Company encounters competition
from Northrop Grumman, CDC (division of General Dynamics) and
Miltope in military applications along with Dolch, General Electric, Cyberchron,
Kontron, Panasonic, Fieldworks, and DRS (formerly CODAR). 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. Management believes that the Company's ability to increase market
penetration into the commercial sector is limited by the entry of such
manufacturers into the ruggedized computer market. However, Paravant makes
extensive modifications and refinements of its computers for its military
customers pursuant to their specifications and special needs. Consequently,
Paravant's products often function at a higher level of performance and
reliability than its competitors.

     In the avionics equipment business, the primary competition is with a wide
variety of organizations ranging from the largest aerospace corporations such as
Lockheed Martin and Sikorsky Aircraft, to small 8-A (disadvantaged and
minority-owned, as defined by the DoD) companies. The Company's ability to win
competitive procurements is based upon technical competence in selected areas, a
demonstration of low risk to the program schedule and a reasonable cost basis.

     In the DSP business, the Company often competes with internal project
engineers of primary government contractors, who make decisions to provide
internally developed solutions or to outsource their requirements to the
Company. The Company also competes with Mercury Computer Systems, CSPI, and
Annapolis Systems.

     Paravant engages in both competitive bid contracts and sole source
contracts. The competition for competitively bid contracts differs from the
competition for sole source contracts. Companies vying for competitive bid
contracts prepare bids and proposals in response to a commercial or government
request and typically compete on price. Potential suppliers compete informally
for sole source contracts through R&D investment and marketing efforts.

     Companies' competing for sole source contracts attempt to identify the
customer's requirements early and invest in solutions so that they can
demonstrate a distinguishing expertise or technology promptly after the customer
has identified a requirement. The principal factors of competition for sole
source contracts include investment in R&D; the ability to respond to customer
needs promptly; and product price relative to performance, quality, and customer
support. Management believes the Company competes favorably in each of these
factors.

Backlog

     As of September 30, 2001, the Company's backlog of firm, fixed price
purchase orders was approximately $ 23.6 million. The Company's backlog as of
September 30, 2000 was approximately $27.1 million. The Company currently
expects to manufacture and deliver substantially all of the products in backlog
within the next 12 months. In addition to the firm fixed price purchase orders,
the Company has $7.2 million in unfunded, deliverables from an Indefinite
Delivery, Indefinite Quantity ("IDIQ") contract. This additional $7.2 million of
products in backlog should be completed over the next 36 months.

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

Research, Development and Engineering

     The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. Paravant's business requires ongoing research
and development efforts. Future success will depend on the Company's ability to
enhance its current products, and develop and introduce new products that keep
pace with


                                       11








<PAGE>


technological developments in response to evolving customer requirements. The
Company's research, development and engineering activities are primarily
accomplished on an in-house basis.

     Research, development and engineering expenses during the fiscal years
ended September 30, 2001, 2000 and 1999 were $ 4,336,148, $2,848,566 and
$2,536,530, and represented 8%, 7% and 6% of total sales, respectively. These
amounts do not include research and development funded by customers, which is
included in the cost of sales of certain products to those customers. This
allows Paravant to invest in new developments for specific customers, and these
additional expenditures enable Paravant to meet specific customer demands.


Intellectual Property

     Proprietary information and expertise are important to the Company's
commercial success. While the Company possesses extensive proprietary
information, Paravant 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. However, the majority of
Paravant employees have signed confidentiality agreements regarding Paravant's
proprietary information, but only certain senior executive officers and
subsidiary officers have signed non-competition agreements.

     The Company also has non-competition agreements with former principals of
its acquired subsidiaries who are not employed by the Company.

Government Regulations and Contracts

     Due to the nature of the products designed, manufactured, and sold by
Paravant 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 U.S. government are subject to special
risks. These risks include dependence on government appropriations, termination
without cause, contract renegotiations, loss of necessary security clearances
and competition for the available DoD business. In addition, many of the
Company's contracts provide for the right of the U.S. government to audit its
cost records and are subject to regulations providing for price reductions if
Paravant submitted inaccurate cost information.

     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 Paravant
for government applications are primarily sold to companies acting as
contractors or subcontractors and not directly to government entities. The prime
contractor generally does not condition agreements with such contractors or
subcontractors upon completion of the contract. To the extent that such
contracts are so conditioned, a failure of completion may have a material
adverse effect on the Company' business. Currently, it does not have any
contracts so conditioned. See "Competition".

     The contracts for sale of the Company's products are generally fixed-priced
contracts, in 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 before commitment in order to achieve profitability and compliance. The
Company's failure to do so may result in non-reimbursable cost overruns, late
deliveries, or other events of non-compliance.

     Under certain circumstances, Paravant 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


                                       12








<PAGE>


that 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.

     Paravant'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 that would
require curtailment of, or otherwise restrict its operations because of such
regulations. 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 November 30, 2001, the Company had 247 employees including its
officers, 78 of whom were engaged in manufacturing and repair services, 44 in
administration and financial control, 102 in research, development and
engineering and 23 in marketing and sales. The Company also employs temporary
employees to provide peak demand assistance. While the number of temporary
employees will vary from day to day, it normally includes 40 additional
employees.

     None of the Company's employees are covered by a collective bargaining
agreement or is represented by a labor union. Paravant considers its
relationship with its employees to be satisfactory.

     The Company places significant reliance upon its senior corporate
executives and subsidiary executives. The loss of one or more of these
individuals could have a material adverse impact on the Company. To address
these concerns, the Company has prepared a management succession plan that is
updated, as circumstances require.

     The design and manufacture of the Company's equipment requires substantial
technical capabilities in many disparate disciplines from mechanics and computer
science to software programming, 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

     The Company's principal executive offices are located in Morristown, New
Jersey. The following table sets forth certain information concerning the
Company's facilities:


                                       13








<PAGE>


<TABLE>
<CAPTION>
     -----------------------------------------------------------------------------------------------------------------
     Property                               Leased or Owned        Usage          Square Feet        Expiration
     --------                               ---------------        -----          -----------        ----------
     -----------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>                <C>              <C>
     Morristown, NJ....................         Leased           Corporate            500           June 30, 2002
                                                                Headquarters
     -----------------------------------------------------------------------------------------------------------------
     Dayton, OH(1).....................         Leased           Operating          27,033         August 31, 2004
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
     Columbia, MD(2) ..................         Leased           Operating          11,614        December 31, 2006
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
     Colorado Springs, CO..............         Leased           Operating          15,000         April 30, 2004
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
     Colorado Springs, CO(3)...........         Leased           Operating          21,600          June 30, 2011
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
     Palm Bay, FL(4)..................          Owned           Operating           53,500               N/a
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
     Melbourne, FL.....................         Leased           Operating          17,300        December 31, 2001
                                                                 Facility
     -----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  This space is leased from Beavercreek Enterprises, an entity controlled by
     Paravant's Chairman.

(2)  A new lease commenced on November 1, 2001 and will expire December 31,
     2006.

(3)  A new lease commenced on July 1, 2001 and will expire on June 30, 2011.

(4)  The Company acquired this facility during fiscal 2000 and has moved certain
     Melbourne operations to this facility. The Company has moved the remainder
     of its Melbourne operations to this facility during fiscal 2001. The
     acquisition of this facility and subsequent renovations were financed
     pursuant to a mortgage note payable to First Union National Bank providing
     for borrowings of up to $3,560,000 at a variable interest rate equal to one
     month LIBOR plus 1.65%. Effective April 1, 2002, the Company entered into
     an interest rate swap agreement to convert the interest rate to a fixed
     7.85% per annum. See "Management's Discussion and Analysis of Financial
     Condition and Results of Operation - Liquidity and Capital Resources."


Item 3.  Legal Proceedings

     On September 18, 1996, a former controller of Paravant 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 for approximately $1 million, plus 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. On March 7, 2000, the Court entered final partial summary judgment in
the Company's favor with respect to one of the two counts of the plaintiff's
amended complaint. The Company will continue to vigorously defend itself in this
matter. Management of the Company believes that the ultimate resolution of this
matter will not have a material adverse effect on the Company.

     On November 14, 2000, a former business development employee of Paravant
filed an action in the Circuit Court of the State of Florida, Brevard County,
entitled, William Langford v. Paravant Inc. (Case No. 05-2000-CA-18142), against
the Company alleging beach of contract. Plaintiff is seeking damages for
approximately $7.4 million, plus fees and costs. Plaintiff alleges that he was
improperly terminated in July 2000 in an effort by the Company to avoid paying
commissions due to plaintiff under an employment contract. The Company has filed
a motion to dismiss the complaint and will vigorously defend itself in this
matter. Management of the Company believes that the ultimate resolution of this
matter 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.


                                       14








<PAGE>



Item 4.  Submission of Matters to a Vote of Security Holders

       Not applicable

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

     (a) Market Information.

     The shares of common stock of the Company trade on the Nasdaq Stock Market
National Market under the symbol "PVAT". The range of high and low reported
closing sales prices for the common stock as reported by Nasdaq for the last two
fiscal years of trading were as follows:


<TABLE>
<CAPTION>
                                                                                 High         Low
                                                                                 ----         ---
  <S>                                                                         <C>          <C>
     October 1, 1999 to December 31, 1999....................................   $3 5/8       $2 7/32

     January 1, 2000 to March 31, 2000.......................................   $3 21/32     $2 17/32

     April 1, 2000 to June 30, 2000..........................................   $3           $2 1/8

     July 1, 2000 to September 30, 2000......................................   $3           $2 1/2

     October 1, 2000 to December 13, 2000....................................   $2 15/16     $2 1/8

     January 1, 2001 to March 31, 2001.......................................   $2 1/16      $1 17/32

     April 1, 2001 to June 30, 2001..........................................   $1.95        $1.51

     July 1, 2001 to September 30, 2001......................................   $2.37        $1.12
</TABLE>


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

     (b) Holders.

     On December 7, 2001, as reported by the Company's transfer agent, shares of
common stock were held by 203 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 near 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, its
overall financial condition and possible restrictions on the payment of
dividends included in the Company's credit agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources".


                                       15








<PAGE>


Item 6.  Selected Financial Data

         The table below summarizes selected financial data for the last five
fiscal years. All data is in thousands except for per common share data. The
Company paid no cash dividends in the periods listed below.


<TABLE>
<CAPTION>
                                                2001         2000         1999           1998           1997
                                                ----         ----         ----           ----           ----
<S>                                         <C>          <C>          <C>            <C>            <C>
        Net Sales                            $51,839      $40,410      $42,279        $15,508        $13,210
        Net Income                              $445       $1,584       $5,886         $1,460         $1,142
        Diluted Earnings per Share             $0.03        $0.09        $0.41          $0.14          $0.09
        Total Assets                         $61,875      $67,520      $42,973        $12,696        $11,270
        Long-Term Obligations                $21,065      $20,920       $1,478             $0             $9
</TABLE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operation

Overview

      Paravant Inc. is a defense electronics company engaged in the design,
development, production, and sale of electronic hardware for military and
intelligence applications. The products include C4 systems, specializing in
rugged, hand-held and laptop computer products primarily for military
applications; airborne and avionics systems for the U.S. DoD and allies of the
U.S.; and electronic signal conditioning and analysis systems for foreign and
domestic intelligence agencies.

     The principal customers of the Company are U.S. Government agencies,
governments of U.S. allies and contractors who are subject to federal budgetary
constraints. The work is generally performed under fixed price orders.

     The Company's revenues are almost entirely derived from fixed price
contracts, which provide that the Company perform a contract for a fixed price
and assume the risk of any cost overruns. Less than 1% of the Company's revenues
are derived from cost plus reimbursement contracts, which provide that the
Company receives the direct and indirect costs of performance plus a negotiated
profit.

     Under fixed price contracts, unexpected increases in the cost to develop or
manufacture a product, whether due to inaccurate estimates in the bidding
process, unanticipated increases in material costs, inefficiencies, or other
factors, are borne by the Company, and could have a material adverse effect on
the Company's results of operations.

     Revenues from fixed price contracts to design, develop and manufacture
complex electronic equipment to a buyer's specification or to provide services
related to the performance of such contracts are recognized using the
percentage-of-completion method of accounting. Under this method, revenues are
measured by the ratio of costs incurred to date to the estimated total costs to
complete each contract. This method is used because management believes costs
incurred to be the best measure of progress on these contracts. Profit
incentives are included in revenues when earned.

     Cost of revenues includes all direct costs and those indirect costs that
relate to contract performance or product or service delivery. Selling, general
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions and estimated
profitability, including


                                       16








<PAGE>



those arising from contract penalty provisions and final contract settlements,
may result in revisions to cost and income and are recognized in the period in
which the revisions are determined.

     The Company generally recognizes revenue on other products sales or
services when an order has been received, the product has been shipped or
services rendered, pricing is fixed or determinable, and collection is
reasonably assured. Cost of sales includes the Company's estimate of any
warranty, re-work, or other concessions the Company expects to incur in
connection with a sale.

     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, 2001 vs. September 30, 2000

     Revenues for 2001 were $51,838,593, an increase of $11,429,025 from 2000
revenues of $40,409,568. Revenues from the Company's tactical systems products
segment increased by $6,089,319 primarily due to $17,810,606 of revenue
recognized under a significant contract. An increase of $6,407,348 in revenues
from the Company's intelligence systems products segment was attributable to
increased revenues of $10,175,096 from operations that were acquired during the
third and fourth quarters of the Company's fiscal year ended September 30, 2000,
offset by a decrease in purchases from existing operations. Revenues from the
Company's medical products, a market which management has elected to exit,
decreased by $1,067,641.


     Cost of revenues was $30,281,537 in 2001, or 58% of revenues, compared to
$22,353,902 or 55% in 2000, a total increase of $7,927,635 or 35%. The increased
cost as a percentage of revenue resulted from a change in the sales mix toward
the Company's military products, which have higher material and production costs
than the Company's other products, and nil margins on the final medical sales.

     Sales and marketing expense of $2,723,329 in 2001 increased by $690,880 or
34% from 2000 expense of $2,032,449. As a percentage of revenues, sales and
marketing expense was 5% in both 2001 2000. The increase in sales and marketing
expense was due primarily to acquired operations in 2000.

     Research, development and engineering expense of $4,336,148 in 2001
increased by $1,487,582 or 52% from 2000 expense of $2,848,566. As a percentage
of revenues, research, development, and engineering expense was 8% and 7% in
2001 and 2000, respectively. Approximately $1.7 million of the increase is due
to acquired operations in 2000, offset by certain reduced engineering direct
costs charged directly to a significant contract.

     General and administrative expense of $7,321,705 in 2001 increased by
$710,898 or 11% from 2000 expense of $6,610,807. As a percentage of revenues,
general and administrative expense was14% and 16% in 2001 and 2000,
respectively. $1,775,481 of the increase is due to acquired operations,
partially offset by $857,772 in corporate general and administrative costs,
although as a percentage of revenues the amount has decreased in proportion to
increased sales, due to certain overall cost efficiencies.

     Amortization of goodwill and other intangible assets increased by
$1,310,611 or 53% to $3,801,711 in 2001 from a 2000 expense of $2,491,100. As a
percentage of revenues, amortization of goodwill and other intangible assets was
7% and 6% in 2001 and 2000, respectively. The increase is due to a full year of
amortization associated with goodwill and intangible assets recorded in 2000 as
result of the Tri-Plex and CRI acquisitions.

     In fiscal year 2000, the Company recorded a non-recurring expense of
$685,813 for employee separation costs.

     Income from operations was $3,374,163 for 2001, compared to $3,386,931 in
2000, a decline of


                                       17








<PAGE>


$12,768. As a percentage of revenues, income from operations decreased to 7% in
2001 from 8% in 2000 due mainly to higher amortization costs.

     Investment expense for 2001 increased to $472,994 compared to $244,161 of
investment income recorded in 2000. The change is primarily attributed to
$351,145 of unrealized losses on trading securities, as well as realized losses
of $366,011 on securities held on the deferred compensation plans, compared
to $160,219 of unrealized gains on trading securities recorded in 2000.

     Interest expense for 2001 increased by $1,115,025 or 185% to $1,716,579
from $601,554 in 2000. The increase is due to an increase in the average
outstanding balance on line of credit during the year as a result of the 2000
acquisitions, offset slightly by reduced interest rates on floating rate debt.

     Income tax expense as a percentage of earnings before income taxes
increased to 67% in 2001 from 48% in 2000. The increase in the effective tax
rate is due primarily to an increase in the proportion of non-deductible
goodwill amortization in 2001 relative to pre-tax net income.

     The Company's net income declined by 72% to $444,747 in 2001 from
$1,584,425 in 2000, a decrease of $1,139,678. Net income as a percentage of
revenues was 1% in 2001 compared to 4% in 2000. The decrease in net income
resulted primarily from increased amortization, investment, interest, and income
tax expenses, in addition to the factors noted above.

Fiscal Year Ended September 30, 2000 vs. September 30, 1999

     Revenues for 2000 were $40,409,568, a decrease of $1,869,910 or 4% from
1999 revenues of $42,279,478. This decrease was due to a $14.1 million decrease
in sales of its signal intelligence products primarily attributable to reduced
purchases of a significant customer. Sales of the Company's medical products, a
market which management has elected to exit, decreased by $2.0 million. The
decrease was offset by an increase of $10.7 million in sales of the Company's
tactical systems products due primarily to revenue recognized under a $13.6
million military contract and revenues of $3.5 million from acquired operations.

     Cost of revenues was $22,353,902 in 2000, or 55% of revenues, compared to
$20,840,615 or 45% in 1999, a total increase of $1,513,287 or 7%. The increase
resulted from a change in the sales mix toward the Company's military products,
which have higher material and production costs than the Company's other
products.

     Sales and marketing expense of $2,032,449 in 2000 decreased by $263,648 or
12% from 1999 expense of $2,296,097. As a percentage of revenues, sales and
marketing expense was 5% in both 2000 and 1999. The decrease in sales and
marketing expense is due primarily to decreased sales and commission expense.

     Research, development and engineering expense of $2,848,566 in 2000
increased by $312,036 or 12% from 1999 expense of $2,536,530. As a percentage of
revenues, research, development and engineering expense was 7% and 6% in 2000
and 1999, respectively. The increase is attributable to $543,948 from operations
acquired in 2000, offset by certain engineering direct costs charged to a
significant contract accounted for under the percentage-of-completion method of
accounting.

     General and administrative expense of $6,610,807 in 2000 increased by
$2,210,246 or 50% from 1999 expense of $4,400,561. As a percentage of revenues,
general and administrative expense was 16% and 10% in 2000 and 1999,
respectively. $857,911 of the increase is attributable to acquired operations.
The remaining increase is primarily due to increases in salaries, incentive
compensation, professional fees, and public relations expense.

     Amortization of goodwill and other intangible assets increased by $522,451
or 27% to $2,491,100 in 2000 from 1999 expense of $1,968,649. As a percentage of
revenues, amortization of goodwill and other intangible assets was 6% and 5% in
2000 and 1999, respectively. The increase is due to amortization of goodwill and
intangible assets recorded in 2000 as a result of the Tri-Plex and CRI
acquisitions.


                                       18








<PAGE>



     Non-recurring expenses of $685,813 in 2000 represent negotiated amendments
and separation agreements related to certain employment contracts during the
quarter ended March 31, 2000.

     Income from operations decreased to $3,386,930 for 2000 from $10,237,026 in
1999, a decline of $6,850,095 or 67%. As a percentage of revenues, income from
operations decreased to 8% in 2000 from 24% in 1999. The decrease in income from
operations overall resulted primarily from the decrease in revenues, increase in
cost of revenues, and increase in selling and administrative expense as
discussed above.

     Investment income for 2000 increased by $183,745 or 304% to $244,161 in
2000 from $60,416 in 1999. The increase is primarily due to unrealized net
appreciation of marketable securities of $160,219 recorded in 2000.

     Interest expense for 2000 decreased by $175,522 or 23% to $601,554 from
$777,076 in 1999. The decrease is due to a decrease in the average outstanding
credit balances during the year.

     Income tax expense as a percent of earnings before income taxes increased
to 48% in 2000 from 39% in 1999. The increase in the effective tax rate is due
primarily to an increase in the proportion of non-deductible goodwill
amortization in 2000 relative to pre-tax net income.

     The Company's net income declined by 73% to $1,584,425 in 2000 from
$5,885,642 in 1999, a decrease of $4,301,217. Net income as a percentage of
revenues was 4% in 2000 compared to 14% in 1999. The decrease in net income
resulted primarily from decreased revenues, increased cost of revenues, and
increased selling and administrative expenses, in addition to the factors noted
above.


Liquidity and Capital Resources

     The Company has floating rate financing with National City Bank in an
amount up to $23 million under a revolving line of credit with a maturity date
of May 1, 2003, with an annual renewable term thereafter. Pursuant to the loan
agreement, the rate of interest is to be determined at a rate equal to the
Bank's prime rate, the federal funds or LIBOR rate plus a margin which ranges
from 1.5% to 2% based on the debt to tangible net worth ratio at the beginning
of the applicable LIBOR rate contract period. The Company may elect among the
rates based upon conditions on the dates upon which funds are drawn. The line of
credit is secured by a first security interest in accounts receivable, contract
rights, inventory, equipment and other security reasonably requested by National
City Bank. The loan agreement includes various loan covenants and restrictions
of a customary nature which may, under certain circumstances, limit the ability
of the Company to pay cash dividends, undertake additional acquisitions, or
otherwise limit obligations undertaken by, or operations of, the Company. The
Company is in compliance with such covenants at September 30, 2001. As of
September 30, 2001, there were borrowings of $16,808,376 outstanding under
this arrangement with National City Bank. The available borrowings balance was
6,191,624 at September 30, 2001.

     The Company has subordinated notes, payable to each of the previous
shareholders of EDL and STL, aggregating $492,500, as of September 30, 2001.
These notes bear interest at 8%, are payable in quarterly payments which began
April 1, 1999 and mature on January 1, 2002. These notes are subordinate to the
rights of the Bank.

     During the year ended September 30, 2001, the Company completed the
acquisition and renovation of an office and manufacturing facility in its PCS
subsidiary in Palm Bay, Florida for a total cost of $4,926,004. The acquisition
and subsequent renovations were financed by cash and a mortgage note payable to
First Union National Bank ("First Union"). The mortgage note provided $3,560,000
at a variable interest rate equal to the one month LIBOR plus 1.65%. Effective
April 1, 2001, the Company entered into an interest rate swap agreement to
convert the interest rate to a fixed 7.85% per annum. At September 30, 2001,
there were borrowings of $3,495,965 under the mortgage note payable. The impact


                                       19








<PAGE>

of the fair value of the interest rate swap of $307,436 resulted in the total
mortgage value of $3,803,401 at September 30, 2001. Interest on the mortgage
note is payable monthly through December 2001, after which monthly principal and
interest payments will be made through December 1, 2016.

     The Company also has capital lease obligations of $846,110 at September 30,
2001. These capital lease obligations have interest rates of 1.25% to 1.50% over
the prime rate, as well as one that has a fixed interest rate of 10.13% and are
expected to be satisfied within three years.

     The Company has, and continues to have, a dependence upon a few major
customers for a significant portion of its revenues. The potential impact of
losing a major customer without securing offsetting and equivalent orders could
result in a significant negative impact to the operating results of the Company.
Management believes this concentration will not adversely affect operating
results in the future. The profit margin contributions of the Company's major
customers are not generally different from those of its other customers as a
whole.

     The Company's operating cash flow was $4,077,596 and $6,556,762 for 2001
and 2000, respectively. The decrease in the Company's operating cash flow
resulted primarily from a decrease in net income, an increase in accounts
receivable, offset by a decrease in accounts payable, contracts in progress and
inventory.

     Net cash used by investing activities during 2001 was $3,314,920 compared
with $25,365,140 in 2000. Investing activities in 2000 included $19,741,635
expended for the Triplex and CRI Acquisitions in 2000. Capital expenditures for
2001 and 2000 were $3,692,672 and $4,952,304, respectively. Capital expenditures
during 2001 were primarily for real estate, demonstration equipment and molds,
and office equipment and furniture. Capital expenditures during 2000 were
primarily for real estate, demonstration equipment and molds and office
equipment and furniture. Net sales marketable securities related to deferred
compensation agreements was $377,752 compared to purchases of $674,101 for 2000.

     During the fiscal year ended September 30, 2001, the Company repaid a net
amount of $1,091,079 in borrowings compared to net borrowings of $19,403,566 in
2000, which was due mainly to 2000 acquisitions.

     As of September 30, 2001, management believes inventory balances are not in
excess of requirements for deliveries and normal minimum stocking levels.

     Generally, accounts receivable at the end of each quarter are collected
within the following quarter. The Company's total outstanding accounts
receivable balance was $9,598,044 at September 30, 2001. The Company has
provided an allowance on older balances of $50,000. This allowance is believed
to be sufficient to address any uncollectible balances outstanding as of
September 30, 2001.

     On June 3, 1998, the Company entered into a loan agreement with an officer
and director of the Company. The note receivable of $215,684 bears interest at
the rate of interest then applicable for borrowings by the Company under the
Company's then-existing line of credit or other primary lending arrangement with
its primary lender, with interest payable annually, and matures on June 3, 2003.

     As of September 30, 2001, the Company's backlog was approximately $23.6
million, consisting of firm fixed price purchase orders. All of these purchase
orders are expected to generate profits within the Company's historical levels.
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 that cannot be addressed in a
manner consistent with the Company's past practices. The Company currently
expects to manufacture and deliver substantially all of the products in backlog
within the next 12 months. In addition to the firm fixed price orders, the
Company has $7.2 million in unfunded, deliverables from an IDIQ contract. This
additional $7.2 million of products in backlog will be completed over the next
36 months.

     On November 2, 1999, the Board of Directors authorized the Company to
repurchase up to 1,000,000 of its outstanding shares of common stock through
November 2, 2000 for a maximum purchase price,


                                       20








<PAGE>



including commissions, not to exceed $3,500,000 in the aggregate. During the
year ended September 30, 2000, the Company repurchased 640,681 shares of its
common stock for a total cost of $1,815,202 at an average purchase price of
$2.83 per share. During the year ended September 30, 2001, the Company
repurchased an additional 19,000 shares of its common stock for a total cost of
$22,906 at an average purchase price of $1.21.


     The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that the Company's existing working
capital and anticipated cash flows from the Company's operations will be
sufficient to satisfy the Company's cash requirements for at least twelve
months. As the Company continues to grow, additional bank borrowings, such as
under the revolving line of credit, as previously described, other debt
placements and equity offerings may be considered, in part or in combination, as
the situation warrants. In addition, in the event the Company's plans change or
its assumptions change or prove to be inaccurate, or if projected cash flow
otherwise proves insufficient to fund operations, the Company might need to seek
other sources of financing to conduct its operations. There can be no assurance
that any such other sources of financing would be available when needed, on
commercially reasonable terms, or at all.

Recently Issued Accounting Pronouncements

Goodwill and Other Intangible Assets

     In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated and completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 will also require
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated before July
1, 2001. The Company is obligated to adopt the standard either on October 1,
2001 (early adoption) or 2002. Furthermore, any goodwill and intangible assets
determined to have indefinite useful lives that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of Statement 142. The Company has elected to
adopt the provision statements as of October 1, 2001.

     Statement 141 will require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the


                                       21








<PAGE>


provisions of Statement 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.

     In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

      As of September 30, 2001, the Company has unamortized goodwill in the
amount of $24,281,319 and unamortized identifiable intangible assets in the
amount of $3,933,039, which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $3,042,710,
$1,770,919 and $1,278,384 for the years ended September 30, 2001, 2000, and 1999
respectively. This goodwill amortization will cease on October 1, 2001, while
intangible assets will continue to be amortized over their remaining useful
lives. Amortization expense related to intangible assets was $759,001, $720,181
and $690,264 for the years ended September 30, 2001, 2000 and 1999,
respectively. The Company has completed a preliminary transitional analysis to
determine the impact of adopting these Statements on the Company's financial
statements. Based on a preliminary analysis, the Company does not believe that
there will be an impairment charge relating to goodwill or intangible assets.

      In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 requires an enterprise to record the
fair value on an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets. Since the requirement is to recognize the obligation when
incurred, approaches that have been used in the past to accrue the asset
retirement obligation over the life of the asset are no longer acceptable. SFAS
143 also requires the enterprise to record the contra to the initial obligation
as an increase to the carrying amount of the related long-lived asset (i.e., the
associated asset retirement costs) to reflect the passage of time (i.e.,
accretion expense) and changes in the estimated future cash flows underlying the
initial fair value measurement. Enterprises are required to adopt Statement 143
for fiscal years beginning after June 15, 2002. The Company is in the process of
evaluating this SFAS and the effect it will have on our consolidated financial
statements and current impairment policy.


                                       22








<PAGE>


Cautionary Statement

     This Annual Report on Form 10-K contains certain forward-looking statements
that involve a number of risks and uncertainties. Such forward-looking
statements are within the meaning of that term in Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Act of 1934, as
amended. Factors that could cause actual results to differ materially from those
projected in such forward-looking statements include the following, as well as
those specifically enumerated in the following section: the budgetary and
appropriations policies of the Company's governmental customers; the competitive
environment for the Company's products and services; the timing of new orders;
and the degree of market penetration of the Company's new products. The words
"believe," "estimate," "expect," "intend," "anticipate," "will," "could," "may,"
"should", "plan", "potential", "predict", "forecast" and similar expressions and
variations thereof identify certain of such forward-looking statements, which
speak only as of the dates on which they were made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
because of new information, future events, or otherwise. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those indicated in the forward-looking statements because
of various factors. Readers are cautioned not to place undue reliance on these
forward-looking statements.

Summary of Business Considerations and Certain Factors that May Affect Future
Results of Operations  and/or Stock Price

     Our future operating results and stock price may be subject to volatility,
particularly on a quarterly basis, due to the following (references to "we,"
"us" or "our" in this subsection refer to Paravant):

     Our success depends upon military and intelligence community expenditures:
Most of our historical sales have been to the U.S. military, foreign allied
militaries, military suppliers or the intelligence community. Our future success
depends on the military's continued purchase of our portable computers or
equipment manufactured by others that contain our devices and the intelligence
community's continued purchase of our equipment. Many governments have attempted
to reduce military expenditures for a number of reasons, including budget
deficit reduction and a perceived easing of global tensions. For the past
several years, the uncertain defense budget situation has caused delays in
contract awards and reduced funding for various military programs. Although to
date we have generally not been adversely affected by delays in contract awards
or reductions in spending, any future delays or reductions may have a material
adverse effect on our business.

     Recent announcements from the National Security Agency have suggested
spending patterns within that agency may be shifted away from the data
collection and analysis products we provide and toward infrastructure products
(such as large scale information technology devices and systems), which we do
not provide. Such changes in buying patterns could reduce our revenues.

     A significant amount of our revenues comes from a few customers: Our
business substantially depends on a relatively small number of customers and DoD
programs. As of September 30, 2001, our backlog was approximately $23.6 million,
consisting of firm fixed price purchase orders, 57% of which was represented by
large orders from 5 customers. If we experience a loss or diminution of orders
from any of these customers, our results of operations or financial condition
could be materially and adversely affected. In addition, in recent years prime
contractors serving the defense industry have undergone consolidation. The
reduction in the number of defense contractors could negatively affect our
business.


                                       23








<PAGE>



     Our quarterly results fluctuate significantly: We have experienced
significant fluctuations in operating results from quarter to quarter and expect
that it will continue to experience such fluctuations in the future. These
fluctuations are caused by, among other factors, conditions inherent in
government contracting and our business, such as the timing of cost and expense
recognition for contracts and the U.S. Government contracting and budget cycles.
Fluctuations in quarterly results, shortfalls in revenues or earnings from
levels forecast by securities analysts, changes in estimates by analysts,
competition, or announcements of extraordinary events such as acquisitions or
litigation may cause the price of our common stock to fluctuate substantially.

     We may need additional financing: While we anticipate that our existing
working capital and anticipated cash flow from operations will be sufficient to
satisfy our cash requirements for at least twelve months, if our plans change or
existing working capital and projected cash flow are insufficient to fund
operations, we could be required to seek additional financing. Except for our
current line of credit, we have no current arrangements with respect to, or
sources of, additional financing. Accordingly, additional financing may not be
available to us when needed on acceptable terms, or at all. If we fail to obtain
additional financing, our long-term liquidity, and our expansion plans could be
materially and adversely affected.

     The completion of our backlog may not be profitable and could adversely
affect our liquidity: The purchase orders included in our backlog may not
generate profits within historical levels. In addition, the completion of the
orders constituting our backlog, and any new orders that may be accepted by us,
could result in additional liquidity pressures that cannot be addressed in a
manner consistent with our past practices. If we fail to obtain additional
purchase orders before completion of our backlog, our liquidity, results of
operations and financial condition could be materially and adversely affected.

     We must comply with regulatory operational standards to expand our sales:
Our manufacturing and assembly facility and procedures in Palm Bay have been
certified as compliant with the quality and assurance standards of ISO-9001, an
international standard promulgated by the International Organization for
Standardization, a worldwide federation of standards bodies which includes
approximately 100 countries. The European Economic Community has adopted this
standard as its preferred quality standard, as has, to some degree, the DoD. Our
other facilities are not so certified, nor do we intend to have those facilities
become ISO-certified at this time. If we fail to maintain compliance with these
standards, we may be unable to expand our presence in the domestic and
international military markets for ruggedized computers, which could have a
material adverse effect on our direct and indirect sales to the U.S. military as
well as to foreign customers.

     We are subject to government regulation and risks related to the terms of
government contracts: As a supplier of U.S. Government agencies, we must comply
with numerous regulations, including regulations governing security and
contracting practices. Failure to comply with these regulations could disqualify
us as a supplier of these agencies, which would have a material adverse affect
on our future results of operations and financial condition.

     Significant portions of our revenues are derived from fixed-price
contracts. Under fixed-price contracts, unexpected increases in the cost to
develop or manufacture a product, whether due to inaccurate estimates in the
bidding process, unanticipated increases in material costs, inefficiencies, or
other factors, are borne by us. We have experienced cost overruns in the past
that have resulted in losses on certain contracts. There can be no assurance
that we will not experience cost overruns in the future or that such overruns
will not have a material adverse effect on our future results of operations and
financial condition.

     As a supplier of equipment and services, directly or indirectly, to the
U.S. government, we are subject to risks of dependence on government
appropriations, termination of contracts without cause, contract renegotiations,
and competition for the available DoD business. In addition, many of our


                                       24








<PAGE>


government contracts provide the DoD the right to audit our cost records and are
subject to regulations providing for price reductions if we submit inaccurate
cost information. In addition, almost all of our contracts contain termination
clauses that permit contract termination upon our default or for the convenience
of the other contracting party. In either case, termination could adversely
affect our operating results. Although we have not experienced any material
contract terminations to date, there can be no assurance that such terminations
will not occur in the future.

     We must develop new products and enhance current products to keep up with
rapid technological change: Rapid advances in technology, changes in customer
requirements, and frequent new product introductions and enhancements
characterize our markets. Our business requires substantial ongoing research and
development efforts and expenditures, and our future success will depend in
large measure on our ability to enhance our current products and develop and
introduce new products that keep pace with technological developments in
response to evolving customer requirements. In addition, we may misgauge market
needs and introduce products that fail to gain the necessary market acceptance
due to a variety of factors, including pricing. There can be no assurance that
we will be able to anticipate or respond adequately to technological
developments and changing customer requirements, or that new products introduced
by others will not render our products or technologies noncompetitive or
obsolete.

     Our sales cycle is lengthy: On the military side of our business, we often
experience a lengthy sales cycle that, from beginning to end, may run for as
long as five years. There are generally a number of crucial points in this
cycle, including:

         o  identifying a product need in a military program;

         o  retaining the prime contractor;

         o  retaining the subcontractors for each element;

         o  assembling the elements for prototype systems;

         o  testing of the systems;

         o  funding for production runs of the systems; and

         o  executing the production contracts for the prime contractor and the
            sub-contractors.

     Not only is this cycle lengthy, but also it is susceptible to failure at
each crucial point.

     Consequently, we invest heavily in time, money and manpower to obtain
subcontracts for military production runs on our products. Delays in our sales
cycle could materially and adversely affect our results of operations and
financial condition. Further, our investments may yield no business at all or
may take so long to develop that our resources are strained or other more
profitable opportunities are missed.

     Our markets are highly competitive: The military and intelligence
electronics market is highly competitive and we expect competition will continue
to be strong in the future. Some of our current and potential competitors have
significantly greater technical, manufacturing, financial and marketing
resources than us. We compete based on customization capabilities, price,
performance, delivery, and quality. In many situations, we are the
highest-priced bidder by a large margin. For computer applications where harsh
environmental and operational conditions prevail, customers are sometimes
willing to pay our higher prices. However, in less demanding conditions, our
computer products are at a competitive disadvantage and our sales are adversely
affected. Substantial competition in any area of our business could have a
material adverse effect on our future results of operations and financial
condition.


                                       25








<PAGE>


     We rely on a few sub-contractors and suppliers for key components: Although
we procure most of our parts and components from multiple sources or believe
that these components are readily available from numerous other sources, certain
components are available only from sole sources or from a limited number of
sources. A number of our products contain critical components like our computer
boards and the electronic circuit boards for our DSP equipment. We subcontract
the fabrication of our computer boards to a few third party manufacturers. We
purchase the metal cases, hard disk drives, brackets, window panels, and the
keyboards for our portable computers from sole sources such as Distec, Xcel and
HiTech. We also license our software from sole sources, including Microsoft,
Phoenix Technology, Magnavox, and JFK Associates. We purchase board
manufacturing services from Dictaphone, who are involved in a bankruptcy
auction. Outside suppliers furnish many of the other components we use. Except
for our software suppliers, we do not have written agreements with any of these
subcontractors or suppliers. This reliance on a few subcontractors, sole sources
and other suppliers may result in delays in deliveries and may result in quality
control and production problems. During any interruption in supplies, we may
have to curtail the production and sale of our computers for an indefinite
period. Accordingly, any interruption, suspension, or termination of component
deliveries from our suppliers could have a material adverse effect on our
business.

     Protection of our intellectual property is limited: We have no patent or
copyright protection for our products. Our ability to compete effectively with
other companies depends on our ability to maintain the proprietary nature of our
technologies. We intend to rely substantially on unpatented proprietary
information and expertise. Others may develop this information and expertise
independently or otherwise obtain access to our technology, which could have a
material adverse effect on our business.

     In addition, although we do not believe that any of our technologies
infringes on the rights of others, we may face these claims in the future.
Infringement claims could result in substantial costs and diversion of our
resources. A claimant could obtain equitable relief preventing us from selling
the allegedly infringing product. In such a case, we could attempt to obtain a
license from the claimant covering the intellectual property, but the terms of
that license may not be acceptable.

     Product defects could result in liability: Our products may malfunction and
cause a loss of or error in data, loss of man hours, damage to, or destruction
of, equipment, or delays. Consequently, we may be subject to claims if
malfunctions or breakdowns occur. While we maintain product liability insurance,
our coverage may not be adequate to satisfy future claims. Liability for product
malfunctions or breakdowns in excess of our insurance coverage could have a
material adverse effect on our financial condition and results of operations.

     Risks associated with our acquisition strategy: We evaluate, on an ongoing
basis, potential acquisitions of, or investments in, businesses that complement
or expand our existing operations. We cannot assure that any future acquisitions
will be successful or improve our operating results. In addition, our ability to
complete acquisitions will depend on the availability of both suitable target
businesses and acceptable financing. Any future acquisitions may result in a
dilutive issuance of additional equity securities, the incurrence of additional
debt or increased working capital requirements. Any acquisition may also result
in earnings dilution, the amortization of goodwill and other intangible assets,
or other charges to operations, any of which could have a material adverse
effect on our business, financial condition, or results of operations. FAS 142
requires an annual test for the impairment of any assets underlying certain
goodwill. The Company could be required to write off substantial goodwill in a
single period if impairment occurs. Future acquisitions may divert management's
attention from our operations and entail difficulties assimilating the
operations, products, services, and personnel of any acquired company. Although
we attempt to evaluate the risks inherent in any particular acquisition, we may
not properly ascertain or assess all significant risks before consummating any
acquisition.


                                       26








<PAGE>

     Our directors and officers can exercise control through their ownership of
common stock: As of September 30, 2001, our directors and executive officers
beneficially owned approximately 23% of our common stock. Although they do not
hold, in the aggregate, a majority of our common stock, their ownership enables
them to substantially control the election of directors and the results of any
other matters submitted to a vote of stockholders.

     Our stock price and liquidity could be adversely affected if we fail to
meet the requirements of the Nasdaq National Market System: Our common stock is
quoted on the Nasdaq National Market System. To remain listed, we must have,
among other things, either

     o  $4,000,000 in net tangible assets, a public float of at least 750,000
        shares with a market value of at least $5,000,000 and a minimum bid
        price of $1.00 per share; or alternatively,

     o  a market capitalization of $50,000,000 or total assets and total
        revenues of $50,000,000 each, a public float of at least 1,100,000
        shares with a market value of at least $15,000,000 and a minimum bid
        price of $5.00.

     If we fail to satisfy the Nasdaq National Market's maintenance criteria in
the future, our common stock could be delisted. We would then seek to list its
securities on the Nasdaq SmallCap Market. However, if we were unsuccessful,
trading in our common stock would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the NASD's Electronic
Bulletin Board. A delisting would make it more difficult to dispose of or to
obtain quotations as to the price of our common stock.

     The issuance of preferred stock could adversely affect our stock price: Our
board may issue shares of preferred stock, without stockholder approval, on such
terms as it may determine. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. If we issue preferred stock, a
third party may find it more difficult to acquire, or may be discouraged from
acquiring, a majority of our common stock, even if our stockholders believe that
such an acquisition would be in their interests. This could prevent an increase
or cause a decline in the price of our common stock

     Our stock price may continue to be volatile: The price of our common stock
has fluctuated substantially since our IPO in June 1996 and may continue to do
so. In addition, the stock market has experienced significant price and volume
fluctuations that have affected the market prices of equity securities of many
companies and that often have been unrelated or disproportionately related to
the operating performance of these companies. These broad market fluctuations
may adversely affect the price of our common stock. Following periods of
volatility in stock prices, some companies have faced securities class action
litigation. If we were to face this type of litigation, which often results in
substantial costs and a diversion of management's attention and resources, our
business, operating results and financial condition could be materially and
adversely affected. In addition, there can be no assurance that an active
trading market will be sustained for our common stock.

     We must retain qualified employees and our key executives: The Company's
ability to execute its business plan is contingent upon successfully attracting
and retaining qualified employees. While we have not experienced any significant
difficulties in attracting and retaining sufficient personnel, there can be no
assurance that we will continue to be successful in this area. Failure to do so
could have a material adverse effect on our future results of operations and
financial condition.

     We are highly dependent on the services of our key executives. The loss of
the services of any of these executive officers could materially and adversely
affect our business and operations. To address these concerns, we have entered
into employment contracts with each of them. Each employment agreement has terms
expiring more than twelve months from September 30, 2001. In addition, the
Company has prepared a management succession plan that is updated as
circumstances require.


                                       27








<PAGE>


     Foreign sales entail unique risks: We derived approximately 3% and 5% of
our total sales from foreign markets for the fiscal years ended September 30,
2001 and 2000. We expect that foreign sales may represent a greater portion of
our revenues in the future. In addition, foreign sales of our products by both
Raytheon and Lockheed Martin represent an important percentage of their sales
opportunities. The following risks associated with foreign sales could
materially and adversely affect our business:

         o  political and economic instability;

         o  restrictive trade policies of foreign governments;

         o  inconsistent product regulation by foreign agencies or governments;

         o  currency valuation variations;

         o  exchange control problems;

         o  imposition of product tariffs; and

         o  burden of complying with a wide variety of international and U.S.
            export laws and differing regulatory requirements.

     To date, we have transacted our foreign sales in U.S. dollars, and payments
have generally been supported by letters of credit. If any future foreign sales
are transacted in a foreign currency or not supported by letters of credit, we
could face losses due to foreign currency fluctuations and difficulties
associated with collection of accounts receivable abroad. In the event any of
these risks occur, there could be a material adverse effect on our business,
financial condition or results of operations.

     We have not paid and do not anticipate paying any dividends: We have not
paid any dividends on our common stock and intend to follow a policy of
retaining any earnings to finance the development and growth of our business.
Accordingly, we do not anticipate the payment of cash dividends in the
foreseeable future. However, the payment of dividends rests within the
discretion of the board and will depend upon, among other things, our earnings,
capital requirements, overall financial condition, and any restrictions
appearing in our current loan agreements.

Item7A.  Quantitative and Qualitative Disclosures About Market Risk

                 The Company is subject to market risk from exposure to changes
in interest rates based on its financing activities. The principal credit
facility is a $23 million revolving credit facility with variable interest rates
ranging from 1.5% to 2.0% above Libor on the first $12 million borrowed and with
interest rates of1.5% to 2.0% over the Fed Funds rate on the balance up to the
$23 million facility cap. At September 30, 2001 borrowings under the agreement
were $16.8 million. A 50 basis point increase in interest rates with an average
annual outstanding balance of $16.8 million would result in increased annual
interest expense of $ 85 thousand. The company does not expect changes in
interest rates to have a material effect on income or cash flows in fiscal 2002,
although there can be no assurances that interest rates will not significantly
change.


Item 8.  Financial Statements

     The financial statements of the Company filed with this Report are set
forth in a separate section commencing on page F-1. (See Note 22 on page F-30
for 2001 quarterly financial data.)

Item 9. Changes In And Disagreements With Accountants On Accounting And
        Financial Disclosure

     None


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<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     See the section captioned "Election of Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act" included in the Company's Proxy
Statement in connection with its Annual Meeting scheduled to be held on March
21, 2002, which section is incorporated herein by reference.

Item 11.  Executive Compensation

     See the sections captioned "Executive Compensation" included in the
Company's Proxy Statement in connection with its Annual Meeting scheduled to be
held on March 21, 2002, which section is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     See the sections captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on March 22, 2001, which section is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

     See the sections captioned "Certain Transactions" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
March 21, 2002, which section is incorporated herein by reference.

                                     Part IV

Item 14.  Exhibits and Reports on Form 8-K

     (a) Exhibits The following exhibits are filed as part of this Annual Report
on Form 10-K. Cetain of the following exhibits designated with an asterisk (*)
after the description are filed herewith. The exhibits not so designated have
been previously filed with the Commission and are incorporated herein by
reference to the documents indicated in parentheses following the descriptions
of such exhibits.

<TABLE>
<CAPTION>
   Exhibit
    Number                                Description of Document
    ------                                -----------------------
<S>         <C>
     2.1      - Acquisition Agreement by and among Paravant Computer Systems,
                Inc., Engineering Development Laboratories, Incorporated, Signal
                Technology Laboratories, Inc., James E. Clifford, Edward W.
                Stefanko, C. David Lambertson, C. Hyland Schooley, Peter
                Oberbeck and Leo S. Torresani (incorporated by reference to
                Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
                October 8, 1998).

     2.2      - Stock Purchase Agreement by and among Paravant Inc., Harry J.
                Binck, David E. Bowles and John B. Dillon (incorporated by
                reference to Exhibit 2.2 to the Registrant's Current Report on
                Form 8-K dated May 26, 2000).

     2.3      - Stock Purchase Agreement by and among Paravant Inc., Jay Perry
                and Lawrence B. Scally (incorporated by reference to Exhibit 2.3
                to the Registrant's Current Report on Form 8-K dated July 11,
                2000).

     3(i)     - Amended and Restated Articles of Incorporation as filed with the
                Florida Department of State on December 8, 1998 (incorporated by
                reference to Exhibit 3(i) to the Registrant's Annual Report on
                Form 10-KSB for the fiscal year ended September 30, 1998).

     3(ii)    - Amended and Restated By-laws (incorporated by reference to
                Exhibit 3 (ii) to the Registrant's Annual Report on Form 10-KSB
                for the fiscal year ended September 30, 2000).
</TABLE>


                                       29








<PAGE>


<TABLE>
<S>           <C>
      4.1A    - Specimen Common stock Certificate as amended November 1, 1998
                (incorporated by reference to Exhibit 4.1A to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 1998).

     10.3B    - Incentive Stock Option Plan, as amended June 4, 1999
                (incorporated by reference to Exhibit 10.3B to the Registrant's
                Quarterly Report on Form 10-QSB for the period ended June 30,
                1999).

     10.32    - Agreements Granting Special Stock Option between the Registrant
                and John P. Singleton dated as of June 18, 1998 (incorporated by
                reference to Exhibit 10.32 to the Registrant's Quarterly Report
                on Form 10-QSB for the quarterly period ended June 30, 1998).

     10.33    - Agreements clarifying Prior Grant of Stock options between the
                Registrant and Michael F. Maguire dated as of June 18, 1998
                (incorporated by reference to Exhibit 10.33 to the Registrant's
                Quarterly Report on Form 10-QSB for the quarterly period ended
                June 30, 1998).

     10.34    - Promissory Note to Registrant from Richard P. McNeight dated
                June 3, 1998 (incorporated by reference to Exhibit 10.34 to the
                Registrant's Quarterly Report on Form 10-QSB for the quarterly
                period ended June 30, 1998).

     10.35    - Promissory Note to Registrant from UES, Inc. dated July 2, 1998
                (incorporated by reference to Exhibit 10.35 to the Registrant's
                Quarterly Report on Form 10-QSB for the quarterly period ended
                June 30, 1998). The note is personally guaranteed by Krishan K.
                Joshi.

     10.36   -  Credit Agreement by Registrant with National City Bank
                (incorporated by reference to Exhibit 10.36 to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 1998).

     10.37    - Commercial Note by Registrant with National City Bank
                (incorporated by reference to Exhibit 10.37 to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 1998).

     10.39    - Employment Agreement between Paravant Computer Systems, Inc. and
                C. Hyland Schooley dated October 1, 1998 (incorporated by
                reference to Exhibit 10.39 to the Registrant's Annual Report on
                Form 10-KSB for the fiscal year ended September 30, 1998).

     10.40    - Employment Agreement between Paravant Computer Systems, Inc. and
                James E. Clifford dated October 1, 1998 (incorporated by
                reference to Exhibit 10.40 to the Registrant's Annual Report on
                Form 10-KSB for the fiscal year ended September 30, 1998).

     10.41    - Non-Competition Agreement between Paravant Computer Systems,
                Inc. and C. Hyland Schooley dated October 1, 1998 (incorporated
                by reference to Exhibit 10.41 to the Registrant's Annual Report
                on Form 10-KSB for the fiscal year ended September 30, 1998).

     10.43    - Subordinated Note from Paravant Computer Systems, Inc. to Hyland
                Schooley dated October 1, 1998 (incorporated by reference to
                Exhibit 10.43 to the Registrant's Annual Report on Form 10-KSB
                for the fiscal year ended September 30, 1998).

     10.44    - Subordinated Note from Paravant Computer Systems, Inc. to James
                E. Clifford dated October 1, 1998 (incorporated by reference to
                Exhibit 10.44 to the Registrant's Annual Report on Form 10-KSB
                for the fiscal year ended September 30, 1998).

     10.49    - Non-employee Director's Stock Option Plan, as amended August 30,
                2001. *
</TABLE>


                                       30








<PAGE>


<TABLE>
<S>           <C>
     10.50    - Employment Agreement between Paravant Inc. and Richard P.
                McNeight (incorporated by reference to Exhibit 10.47 to the
                Registrant's Quarterly Report on Form 10-QSB for the period
                ended June 30, 1999).

     10.53    - Employment Agreement between Paravant Inc. and William R. Craven
                (incorporated by reference to Exhibit 10.53 to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 2000).

     10.54    - Agreements Granting Special Stock Option between the Registrant
                and John P. Singleton dated as of December 15, 1998
                (incorporated by reference to Exhibit 10.54 of the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 1999).

     10.55    - Lease Agreement between Beavercreek Enterprises and STL of Ohio,
                Inc. (incorporated by reference to Exhibit 10.55 to the
                Registrant's Quarterly Report on Form 10-QSB for the period
                ended December 31, 1999).

     10.56    - Lease Agreement between Beavercreek Enterprises and Engineering
                Development Laboratories, Incorporated (incorporated by
                reference to Exhibit 10.56 to the Registrant's Quarterly Report
                on Form 10-QSB for the period ended December 31, 1999).

     10.59    - Employment Agreement between Paravant, Inc. and Krishan K. Joshi
                (incorporated by reference to Exhibit 10.59 to the Registrant's
                Annual Report on Form 10-KSB for the fiscal year ended September
                30, 2000).

     10.60    - Paravant, Inc. Stock Incentive Plan, (incorporated by reference
                to Exhibit 10.60 to the Registrant's Quarterly Report on Form
                10-Q for the quarter ended March 31, 2001).

     10.61    - Paravant, Inc. Employee Stock Purchase Plan (incorporated by
                reference to the Registrant's Registration Statement on Form S-8
                (No. 333-63528) filed on June 21, 2001).

     11       - Statement re: computation of per share earnings (not required
                because the relevant computation can be clearly determined from
                material contained in the financial statements).

     21       - Subsidiaries of Paravant Inc.

     23.1     - Independent Auditors' Consent.
</TABLE>



     (b) Reports on Form 8-K

         None.


                                       31








<PAGE>



                                   SIGNATURES

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


                                           PARAVANT INC.


                                          By: /s/ WILLIAM R. CRAVEN
                                            ----------------------
                                                  William R. Craven,
                                        President and Chief Executive Officer

December 21, 2001

     Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
          Signature                                   Capacity                                   Date
          ---------                                   --------                                   ----
    <S>                                  <C>                                           <C>
     /s/ KRISHAN K. JOSHI                 Chairman and Director                            December 21, 2001
  -------------------------
         Krishan K. Joshi

   /s/ WILLIAM R. CRAVEN                  President, Chief Executive                       December 21, 2001
  -------------------------                Officer, and Director
       William R. Craven                   (Principal Executive Officer)


    /s/ JOHN C. ZISKO                     Vice President, Chief Financial                  December 21, 2001
  -------------------------                Officer, Treasurer (Principal
        John C. Zisko                      Financial Officer and Principal
                                           Accounting Officer)

    /s/ JAMES E. CLIFFORD                 Vice President, Mergers and                      December 21, 2001
  -------------------------                Acquisitions, Secretary and
        James E. Clifford                  Director

   /s/ RICHARD P. MCNEIGHT                 President, Paravant Computer                     December 21, 2001
  -------------------------                Systems, Inc., and Director
       Richard P. McNeight

   /s/ C. HYLAND SCHOOLEY                 Chairman, STL of Ohio, Inc. and                   December 21, 2001
  -------------------------                Director
       C. Hyland Schooley

   /s/ MICHAEL F. MAGUIRE                 Director                                         December 21, 2001
  -------------------------
       Michael F. Maguire


   /s/ JOHN P. SINGLETON                  Director                                         December 21, 2001
  -------------------------
       John P. Singleton


   /s/ PAUL E. BLACKWELL                  Director                                         December 21, 2001
  -------------------------
       Paul E. Blackwell

  /s/ DAVID P. MOLFENTER                   Director                                        December 21, 2001
  -------------------------
    David P. Molfenter
</TABLE>













<PAGE>


                         PARAVANT INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                       <C>
Independent Auditors' Report.........................................................       F-2

Financial Statements:
     Consolidated Balance Sheets.....................................................       F-3
     Consolidated Statements of Operations...........................................       F-5
     Consolidated Statements of Stockholders' Equity and Comprehensive Income........       F-6
     Consolidated Statements of Cash Flows...........................................       F-8
Notes to Consolidated Financial Statements...........................................      F-11
</TABLE>

                                       F-1









<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors:
PARAVANT INC.:

         We have audited the accompanying consolidated balance sheets of
Paravant Inc. and subsidiaries as of September 30, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the three-year
period ended September 30, 2001. In connectio with our audits, we also have
audited the financial statement schedule of valuation and qualifying accounts.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Paravant
Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period then ended September 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the
consolidated financial statements take as a whole, presents fairly in all
material respects, the information set forth therein.



                                  /s/ KPMG LLP



Short Hills, New Jersey
December 15, 2001


                                      F-2










<PAGE>


                         PARAVANT INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           September 30, 2001 and 2000

<TABLE>
<CAPTION>
                                  ASSETS                                        2001               2000
                                                                                ----               ----
<S>                                                                         <C>                   <C>
Current assets:
     Cash and cash equivalents                                              $     8,781           265,408
     Marketable securities                                                      523,430         1,263,633
     Accounts receivable, net of allowance for doubtful
         accounts of $50,000 in 2001 and $149,000 in 2000                     9,598,044         9,069,459
     Costs and estimated earnings in excess of
         billings on uncompleted contracts                                    6,000,520         8,079,427
     Inventories                                                              5,298,180         6,711,043
     Prepaid expenses                                                           349,218           314,076
     Deferred income taxes                                                      357,520         1,014,115
                                                                            -----------       -----------
             Total current assets                                            22,135,693        26,717,161
                                                                            -----------       -----------
Note receivable-related party                                                   215,684           215,684
Property, plant and equipment, net                                            9,759,957         7,466,821
Goodwill, net                                                                24,281,319        27,254,698
Intangible assets, net                                                        3,933,039         4,687,804
Other assets                                                                     79,595           114,631
Deferred income taxes                                                         1,469,939         1,063,632
                                                                            -----------       -----------
             Total assets                                                   $61,875,226        67,520,431
                                                                            ===========       ===========
</TABLE>



                                      F-3










<PAGE>




<TABLE>
<CAPTION>
                   LIABILITIES AND STOCKHOLDERS' EQUITY                         2001               2000
                                                                                ----               ----
<S>                                                                         <C>                <C>
Current liabilities:
     Notes payable                                                                    -           500,774
     Notes payable to related parties                                           492,500         1,235,000
     Current maturities of long-term obligations                                152,735            16,630
     Current maturities of capital lease obligations                            272,671            48,517
     Accounts payable                                                         2,986,537         5,735,830
     Billings in excess of costs and estimated
         earnings on uncompleted contracts                                      333,850           718,059
     Provision for future losses on uncompleted contracts                       488,761           657,909
     Income taxes payable                                                       284,616           749,131
     Accrued commissions                                                        184,189           306,033
     Accrued expenses                                                         1,726,832         2,180,437
     Accrued incentive compensation                                             718,411           734,221
     Deferred revenue                                                            72,452            76,540
                                                                            ------------      -----------
             Total current liabilities                                        7,713,554        12,959,081
                                                                            ------------      -----------
Notes payable to related parties                                                      -           492,500
Long-term obligations, net of current maturities                             20,492,530        20,427,279
Capital lease obligations, net of current maturities                            573,439             2,066
Deferred compensation                                                           607,208         1,315,342
                                                                            ------------      -----------
             Total liabilities                                               29,386,731        35,196,268
                                                                            ------------      -----------
Stockholders' equity:
     Preferred stock, par value $.01 per share.
        Authorized 2,000,000 shares, none issued                                      -                 -
     Common stock, par value $.015 per share.
        Authorized 30,000,000 shares, issued 17,856,319
         and outstanding 17,112,668 shares
         in 2001 and issued 17,764,029 and
         outstanding 17,039,378 shares in 2000                                  267,845           266,460
     Additional paid-in capital                                              22,210,229        22,161,687
     Other comprehensive loss                                                  (307,436)                -
     Retained earnings                                                       12,396,761        11,952,014
                                                                             ----------      ------------
                                                                             34,567,399        34,380,161
     Less treasury stock, at cost, 743,651 shares in 2001 and
         724,651 shares in 2000                                              (2,078,904)       (2,055,998)
                                                                            ------------      -----------
             Total stockholders' equity                                      32,488,495        32,324,163
     Commitments and contingencies                                                    -                 -
             Total liabilities and stockholders' equity                     $61,875,226       $67,520,431
                                                                            ===========       ===========
</TABLE>


           See accompanying notes to consolidated financial statements.




                                      F-4










<PAGE>


                         PARAVANT INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years ended September 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                           2001              2000                1999
                                                                           ----              ----                ----
<S>                                                                    <C>                <C>                 <C>
Revenues                                                               $51,838,593        40,409,568          42,279,478

Cost of revenues                                                        30,281,537        22,353,902          20,840,615
Sales and marketing                                                      2,723,329         2,032,449           2,296,097
Research, development & engineering                                      4,336,148         2,848,566           2,536,530
General and administrative                                               7,321,705         6,610,807           4,400,561
Amortization of goodwill and intangible assets                           3,801,711         2,491,100           1,968,649
Non-recurring expense                                                            -           685,813                   -
                                                                       -----------       -----------         -----------
     Total costs and expenses                                           48,464,430        37,022,637          32,042,452
                                                                       -----------       -----------         -----------
         Income from operations                                          3,374,163         3,386,931          10,237,026
Other income (expense):
     Investment (expense) income                                          (472,994)          244,161              60,416
     Interest expense                                                   (1,716,579)         (601,554)           (777,076)
     Miscellaneous                                                         150,158            17,433             159,234
                                                                       -----------       -----------         -----------
         Income before income taxes                                      1,334,748         3,046,971           9,679,600
Income tax expense                                                         890,001         1,462,546           3,793,958
                                                                       -----------       -----------         -----------
         Net income                                                    $   444,747         1,584,425           5,885,642
                                                                       ===========       ===========         ===========
Basic earnings per share                                               $       .03               .09                 .42
                                                                       ===========       ===========         ===========
Diluted earnings per share                                             $       .03               .09                 .41
                                                                       ===========       ===========         ===========
Weighted average number of shares:
     Basic                                                              17,114,804        17,409,377          13,978,583
                                                                       ===========       ===========         ===========
     Diluted                                                            17,286,752        17,847,296          14,392,252
                                                                       ===========       ===========         ===========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-5










<PAGE>


                         PARAVANT INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                Years ended September 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                        Common stock
                                                                                      Accumulated
                                                            Additional                   other                      Total
                                     Number         Par      paid-in       Retained  comprehensive    Treasury   stockholders'
                                    of shares      value     capital       earnings  Income (loss)      stock        equity
                                    ---------      -----     -------       --------  -------------      -----        ------
<S>                               <C>         <C>          <C>           <C>          <C>            <C>        <C>
Balances, September 30, 1998       8,343,928   $ 125,159    5,628,649     4,481,947          -               -   $10,235,755
Issuance of common stock for
     acquisition                   3,950,000      59,250    5,865,750             -          -               -     5,925,000
Exercise of warrants               5,125,937      76,889   10,141,764             -          -               -    10,218,653
Exercise of options for 161,328
     shares of common stock for
     cash of $24,371 and 36,985
     shares of treasury stock        124,343       2,420      122,447             -          -        (100,496)       24,371
Retirement of underwriter's
     warrants                              -           -      (50,000)            -          -               -       (50,000)
Registration costs related to
     stock options and warrants            -           -      (47,662)            -          -               -       (47,662)
Warrant redemption                         -           -         (569)            -          -               -          (569)
Comprehensive income:
Net income                                 -           -            -     5,885,642          -               -     5,885,642
Unrealized gain on securities,
     net of tax                            -           -            -             -     10,797               -        10,797
                                                                                                                 -----------
Total comprehensive income                 -           -            -             -          -               -     5,896,439
                                  ----------   ---------   ---------     ----------    -------      ----------   -----------
Balances, September 30, 1999      17,544,208   $ 263,718   21,660,379    10,367,589     10,797        (100,496)  $32,201,987
Issuance of common stock                   -           -      223,200             -          -               -       223,200
     warrants for acquisition
Exercise of options for 182,836
     shares of common stock for
     cash of $120,360 and 46,985
     shares of treasury stock        135,851       2,742      257,918             -          -       (140,300)       120,360
Tax benefit of exercise of
     nonqualified stock options            -           -       20,190             -          -               -        20,190
Purchases of treaury stock          (640,681)          -            -             -                 (1,815,202)   (1,815,202)
Comprehensive income:
Net income                                 -           -            -      1,584,425         -               -     1,584,425
Unrealized loss on securities,
     net of tax                            -           -            -             -    (10,797)              -       (10,797)
                                                                                                                 -----------
Total comprehensive income                 -           -            -             -          -               -     1,573,628
                                  ----------   ---------   ----------    ----------    -------      ----------   -----------
Balances, September 30, 2000      17,039,378   $ 266,460   22,161,687    11,952,014          -      (2,055,998)  $32,324,163
</TABLE>




                                      F-6










<PAGE>



<TABLE>
<CAPTION>
                                        Common stock
                                                                                      Accumulated
                                                            Additional                   other                      Total
                                     Number         Par      paid-in       Retained  comprehensive    Treasury   stockholders'
                                    of shares      value     capital       earnings  Income (loss)      stock        equity
                                    ---------      -----     -------       --------  -------------      -----        ------
<S>                               <C>            <C>          <C>           <C>          <C>            <C>        <C>
Exercise of options for 140,300
     shares of common stock for       92,290      1,385       48,542             -            -                         49,927
     cash of $49,927 and 48,010
     of treasury stock and
     subsequent retirement
Purchases of Treasury Stock          (19,000)         -            -             -            -        (22,906)        (22,906)
Comprehensive income:
Net income                                 -          -            -       444,747            -              -         444,747
Impact of Interest Rate Swap               -          -            -             -     (307,436)             -        (307,436)
                                                                                       --------                    -----------
Total comprehensive income                 -          -            -             -            -              -         137,311
                                  ----------    -------   ----------    ----------     --------     ----------     -----------
Balances, September 30,2001       17,112,668    267,845   22,210,229    12,396,761     (307,436)    (2,078,904)     32,488,495
                                  ----------    -------   ----------    ----------     --------     ----------     -----------
</TABLE>

          See accompanying notes to consolidated financial statements.




                                      F-7








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended
                        September 30, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                          2001              2000               1999
                                                                          ----              ----               ----
<S>                                                                     <C>               <C>                <C>
Cash flows from operating activities:
     Net income                                                       $   444,747         1,584,425          5,885,642
     Adjustments to reconcile net income to net cash
         provided by operating activities:
          Depreciation and amortization                                 5,127,680         3,538,513          2,795,970
          Deferred income taxes                                           250,288          (914,166)          (888,028)
          Unrealized appreciation (depreciation) of marketable            362,451          (160,219)                 -
          securities
          Non-recurring expense                                                 -           685,813                  -
          Increase (decrease) in cash caused by changes in:
             Accounts receivable                                         (528,586)        1,707,224         (4,762,778)
             Contracts in progress                                      1,525,550        (3,352,523)        (1,893,473)
             Inventories                                                1,412,863          (845,016)        (1,239,772)
             Prepaid expenses                                             (35,141)           33,508           (147,043)
             Other assets                                                  35,036           262,738            808,734
             Accounts payable                                          (2,749,293)        3,315,990          1,432,633
             Income taxes payable                                        (464,515)          285,204           (238,194)
             Accrued commissions                                         (121,844)         (263,323)            29,916
             Accrued expenses                                            (453,606)          359,696           (481,262)
             Accrued incentive compensation                               (15,810)         (134,956)           514,370
             Deferred revenue                                              (4,089)          469,683                  -
             Deferred compensation                                       (708,135)          (15,829)           523,417
                                                                       ----------         ---------          ---------
                  Net cash provided by operating activities             4,077,596         6,556,762          2,340,132
                                                                       ----------         ---------          ---------
</TABLE>



                                      F-8










<PAGE>



<TABLE>
<CAPTION>
                                                                              2001               2000                1999
                                                                              ----               ----                ----
<S>                                                                    <C>                 <C>                  <C>
Cash flows from investing activities:
     Payments for acquired subsidiaries, net of cash acquired of                 -          (19,741,635)         (9,046,377)
         $1,220,000 in 2000 and $850,000 in 1999
     Purchase (sales)  of marketable securities                            377,752             (674,101)           (488,670)
     Proceeds from sale of property, plant and equipment                                          2,900                   -
     Acquisitions of property, plant and equipment                      (3,692,672)          (4,952,304)        (1,377,227)
     Proceeds from sale of investments                                           -                    -              59,358
     Proceeds from collection of note receivable                                 -                    -             750,000
                                                                        ----------          -----------          ----------
             Net cash used by investing activities                      (3,314,920)         (25,365,140)        (10,057,916)
                                                                        ----------          -----------          ----------
Cash flows from financing activities:
     Net proceeds (repayments) of note payable                            (500,774)             500,774                   -
     Borrowings under long-term obligations                             29,535,039           20,393,847                   -
     Repayments under long-term obligations                            (30,876,117)            (990,281)         (2,571,647)
     Proceeds (repayments) on capital lease obligations                    795,528              (85,126)            (97,062)
     Proceeds from exercise of common stock options                         49,927              120,360              27,697
     Proceeds from exercise of warrants                                          -                    -          10,218,653
     Payments for redemption of warrants                                         -                    -                (569)
     Stock registration fees                                                     -                    -             (47,662)
     Payment for retirement of underwriters' warrants                            -                    -             (50,000)
     Payments for purchase of treasury stock                               (22,906)          (1,815,202)                  -
                                                                        ----------          -----------          ----------
             Net cash provided (used) by financing activities           (1,019,303)          18,124,372           7,479,410
                                                                        ----------          -----------          ----------
                  Net decrease in cash and cash equivalents               (256,627)            (684,006)          (238,374)
Cash and cash equivalents at beginning of year                             265,408              949,414           1,187,788
                                                                        ----------          -----------          ----------
Cash and cash equivalents at end of the period                          $    8,781          $   265,408          $  949,414
                                                                        ==========          ===========          ==========

Supplemental disclosures of cash flow information:
    Cash paid during the period for:
         Interest                                                       $1,677,906          $   613,522          $  806,143
                                                                        ==========          ===========          ==========
         Income taxes                                                   $1,354,517          $ 2,098,235          $3,400,255
                                                                        ==========          ===========          ==========
Supplemental disclosure of noncash investing and financing activities:
     The Company entered into capital lease agreements for
         factory and office equipment                                   $        -         $      6,558          $  125,859
                                                                        ==========          ===========          ==========
     The Company had a fair value adjustment to securities held
         for sale                                                       $        -         $    (10,797)         $   10,797
                                                                        ==========          ===========          ==========
     The Company entered into notes payable agreements with related
         parties totaling $250,000 and issued common stock warrants
         totaling $223,200 in connection with a purchase business
         combination during the year ended September 30, 2000.
</TABLE>





                                      F-9











<PAGE>


<TABLE>
<CAPTION>
                                                                              2001               2000                1999
                                                                              ----               ----                ----
<S>                                                                    <C>                 <C>                  <C>
     The Company entered into notes payable agreements with related
         parties totaling $4,800,000 and issued common stock totaling
         $5,925,000 in connection with the purchase business
         combination during the year ended September 30, 1999.
     Impact of interest  rate swap on mortgage  note  payable at
         PCS facility.                                                   $(307,436)            $      -             $     -
                                                                         =========             ========             =======
Supplemental disclosure of noncash financing activities:
     The  Company  had a tax  benefit  through  the  exercise of
         nonqualified stock options                                      $       -             $ 20,190             $     -
                                                                         =========             ========             =======
     The Company  issued  stock  through a cashless  exercise of
         stock options and received treasury stock                       $                     $140,300              97,170
                                                                         =========             ========             =======
</TABLE>


          See accompanying notes to consolidated financial statements.




                                      F-10










<PAGE>

                         PARAVANT INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                           September 30, 2001 and 2000


(1) Description of Business and Summary of Significant Accounting Policies

(a) Description of Business

         The Company is engaged in the design, development, production and sale
of military electronic hardware. The products include computer and communication
systems, specializing in rugged, hand-held and laptop computer products with
primarily military applications, airborne and avionics systems for the U.S.
Department of Defense ("DoD") and electronic signal conditioning and analysis
systems for foreign and domestic intelligence agencies.

         The principal customers of the Company are U.S. Government agencies and
contractors who are subject to federal budgetary implications. The work is
generally performed under fixed price orders and on a general production basis.

(b) Principles of Consolidation

         The accompanying consolidated financial statements of Paravant Inc.
(the "Company" or "Paravant") include the financial statements of its wholly
owned subsidiaries, Paravant Computer Systems, Inc. ("PCS"), Engineering
Development Laboratories, Incorporated ("EDL"), STL of Ohio, Inc. ("STL"),
Tri-Plex Systems Corporation ("Tri-Plex") and Catalina Systems Research, Inc.
("CRI"). Intercompany transactions and accounts have been eliminated upon
consolidation.

(c) Cash Equivalents

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

(d) Marketable Securities

         Marketable securities consist of mutual funds related to the Company's
deferred compensation plan. The Company classifies these marketable securities
as trading securities and records them at fair value.

(e) Inventories

         Inventories are stated at the lower of cost or market using the
weighted average cost method. The Company provides a provision for inventory as
it becomes unusable or obsolete.

(f) Property, Plant and Equipment

         Property, plant and equipment are stated at cost. Property, plant and
equipment under capital leases are stated at the present value of the minimum
lease payments. Depreciation of property, plant and equipment is calculated on
the straight-line method over the estimated useful lives of the related assets
ranging from three to thirty years or relating to leased assets over the shorter
of the useful lives or the term of the lease.

(g) Goodwill and Intangible Assets

         Goodwill, representing the excess of cost over the net tangible and
identifiable intangible assets of the Company's wholly-owned subsidiaries, is
stated at cost and is being amortized over the estimated future periods to be
benefited of ten years using the straight-line method. Intangible assets include
the exclusive rights to a printed circuit board and certain software, and
non-compete agreements and are being amortized over the estimated useful lives
of the technology of five to ten years and the estimated lives of the
non-compete agreements of three to eight and one-half years using the
straight-line method.



                                      F-11











<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


(h) Revenue and Cost Recognition

         Revenues from fixed price contracts to design, develop and manufacture
complex electronic equipment to a buyer's specification or to provide services
related to the performance of such contracts are recognized using the
percentage-of-completion method of accounting. Under this method, revenues are
measured by the ratio of costs incurred to date to the estimated total costs to
complete each contract. This method is used because management believes costs
incurred to be the best measure of progress on these contracts. Profit
incentives are included in revenues when earned.

         Cost of revenues includes all direct costs and those indirect costs
that relate to contract performance or product or service delivery. Selling,
general and administrative costs are charged to expense as incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions and final contract settlements, may result in revisions to cost and
income and are recognized in the period in which the revisions are determined.

         The asset "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenue recognized in excess of amounts billed
under these types of contracts. The liability "Billings in excess of costs and
estimated earnings on uncompleted contracts" represents billings in excess of
revenues recognized.

         The Company generally recognizes revenue on other products sales or
services when an order has been received, the product has been shipped or
services rendered, pricing is fixed or determinable, and collection is
reasonably assured. Cost of sales includes the Company's estimate of any
warranty, re-work, or other concessions the Company expects to incur in
connection with a sale.

         At September 30, 2000 and 1999, the Company had sales of $642,467 and
$3,524,063, respectively, for which title had been transferred to a customer
although the physical product remained on Company premises at the convenience of
the customer. The Company follows the guidance of Staff Accounting Bulletin No.
101 in accounting for such "bill and hold" transactions. At September 30, 2001,
the Company had no such transactions.

         The warranty provision related to product sales was $83,826 as of
September 30, 2001 and 2000, respectively and $84,142 as of September 30, 1999.

(i) Income Taxes

         Income taxes are accounted for under 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.

(j) Stock-Based Compensation

         The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000, to
account for its fixed option plans. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. Statement of Financial




                                      F-12










<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 123.

(k) Basic and Diluted Earnings Per Share

         Basic earnings per share has been computed by dividing net income by
the weighted average number of common shares outstanding. Diluted earnings per
share has been computed by dividing net income by the weighted average number of
common shares and dilutive potential common shares outstanding.

         A reconciliation of the weighted average number of shares outstanding
used in the computation of basic and diluted earnings per share is as follows:

<TABLE>
<CAPTION>
                                                                  2001              2000              1999
                                                                  ----              ----              ----
  <S>                                                          <C>                <C>               <C>
  Basic:
       Weighted average number of common
           shares outstanding                                   17,114,804        17,409,377        13,978,583
                                                                ==========        ==========        ==========

  Diluted:
       Weighted average number of common                        17,114,804        17,409,377        13,978,583
           shares outstanding
       Dilutive stock options                                      171,948           410,056           398,834
       Dilutive warrants                                                 -            27,863            14,835
                                                                ----------        ----------        ----------
                                                                17,286,752        17,847,296        14,392,252
                                                                ==========        ==========        ==========
</TABLE>

         Options to purchase 1,529,900, 645,584 and 625,100 shares of common
stock were excluded from the calculation of diluted earnings per share for the
years ended September 30, 2001, 2000 and 1999, respectively, because their
exercise prices exceeded the average market price of common shares for the
period.

Warrants to purchase 250,982, 0, and 45,000 shares of common stock were excluded
from the calculation of diluted earnings per share for the years ended September
30, 2001, 2000, and 1999 respectively because their exercise prices exceeded the
average market price of common shares for the period.

         (l) Accounting for Derivative Instrument and Hedging Activities

         In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities. In June 2000, the FASB
issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an Amendment of SFAS 133. SFAS No. 133 and SFAS No. 138
require that all derivatives instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or Stockholder's Equity
(as a component of other comprehensive income), depending on whether the
derivative is being used to hedge changes in fair value or cash flows. Changes
in the fair value of derivative financial instruments not qualifying as SFAS No.
133 hedges are recognized in income. The Company adoption of SFAS No. 133 and
SFAS No. 138 was effective beginning October 1, 2000.



                                      F-13










<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


         On March 1, 2000, the Company entered into a $3,560,000 15-year
mortgage payable with First Union for the construction of the Paravant Computer
Systems ("PCS") facility located in Palm Bay, Florida. The debt obligation
carries a variable interest rate at one month LIBOR plus 1.65 percent. As a
result, the Company was exposed to variability in cash flows relating to
forecasted interest payments.

         To mitigate its interest rate exposure and to lock into fixed interest
cash outflows, the Company entered into a 15-year interest rate swap with a
notional amount of $3,560,000 to receive interest at a variable rate equal to
LIBOR and to pay interest at a fixed rate of 7.85 percent. The combination of
the swap and the debt obligation results in a net cash outflow equal to 7.85
percent. Repricing dates of the swap match those of the mortgage note. The fixed
rate of 7.85% will remain the same throughout the swap transaction and the
variable rate is LIBOR. The Company has evaluated the terms and conditions of
the swap and determined the instrument qualifies a s a hedge pursuant to SFAS
No. 133. Accordingly, the fair value of the swap, $307,436 is included in other
comprehensive loss in the accompanying September 30, 2001 balance sheet.


(m) Accounting for Goodwill and Other Intangible Assets

         In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated and completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

         The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior to July
1, 2001. The Company is obligated to adopt the standard either on October 1,
2001 (early adoption) or 2002. Furthermore, any goodwill and intangible assets
determined to have indefinite useful lives that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of Statement 142. The Company has elected to
adopt the provision statements as of October 1, 2001.

         Statement 141 will require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any




                                      F-14










<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


impairment loss will be measured as of the date of adoption and recognized as
the cumulative effect of a change in accounting principle in the first interim
period.

         In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

         As of September 30, 2001, the Company has unamortized goodwill in the
amount of $24,281,319 and unamortized identifiable intangible assets in the
amount of $3,933,039, which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $3,042,710,
$1,770,919 and $1,278,384 for the years ended September 30, 2001, 2000, and 1999
respectively. This goodwill amortization will cease on October 1, 2001, while
intangible assets will continue to be amortized over their remaining useful
lives. Amortization expense related to intangible assets was $759,001, $720,181
and $690,264 for the years ended September 30, 2001, 2000 and 1999,
respectively. The Company has completed a preliminary transitional analysis to
determine the impact of adopting these Statements on the Company's financial
statements. Based on a preliminary analysis, the Company does not believe that
there will be an impairment charge relating to goodwill or intangible assets.

         In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 requires an enterprise to record the
fair value on an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets. Since the requirement is to recognize the obligation when
incurred, approaches that have been used in the past to accrue the asset
retirement obligation over the life of the asset are no longer acceptable. SFAS
143 also requires the enterprise to record the contra to the initial obligation
as an increase to the carrying amount of the related long-lived asset (i.e., the
associated asset retirement costs) to reflect the passage of time (i.e.,
accretion expense) and changes in the estimated future cash flows underlying the
initial fair value measurement. Enterprises are required to adopt Statement 143
for fiscal years beginning after June 15, 2002. We are in the process of
evaluating this SFAS and the effect it will have on our consolidated financial
statements and current impairment policy.




                                      F-15










<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


(n) Use of Estimates

         Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those estimates.

(o) Financial Instruments

         The Company believes the fair values of cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate their carrying
amounts due to the short maturity of those instruments. The Company believes the
fair values of notes receivable, long-term debt and capital lease obligations
approximate their carrying amounts because these financial instruments bear
interest at borrowing rates currently available to the Company for similar
issues or leases with similar terms and maturities.

(p) Impairment of Long-lived Assets and Assets to be Disposed Of

         The Company accounts for long-lived assets in accordance with the
provision of SFAS No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of". This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount of fair value less costs to sell.


(2) Acquisitions

         On May 26, 2000 the Company consummated a purchase business combination
of all outstanding common stock of Tri-Plex Systems Corporation ("Tri-Plex").
Pursuant to the acquisition agreement the Company paid an aggregate
consideration consisting of (i) $6,300,000 in cash, (ii) $250,000 of notes
payable, due January 26, 2001 and bearing interest at prime and (iii) Warrants
to purchase 120,000 shares of the Company's common stock valued at
$223,200, using the Black-Scholes option pricing model. In connection with the
acquisition a contingent cash earn-out may be payable by the Company under
specified circumstances based on future profits of the acquired operation over a
two-year period. The earn-out, if any, will be recorded as additional goodwill
and will be amortized over the remaining life of the asset. The cash portion of
the consideration paid by the Company was financed by borrowings under a
revolving line of credit agreement with National City Bank.

         The aggregate purchase price of approximately $7,057,300, including
related acquisition costs of approximately $284,100, was allocated as follows:

<TABLE>
    <S>                                                        <C>
    Cash                                                         $  201,400
    Current assets                                                1,549,000
    Equipment                                                       229,000
    Goodwill                                                      5,495,000
    Current liabilities                                            (345,600)
    Non-current liabilities                                         (71,500)
                                                                 ----------
                                                                 $7,057,300
                                                                 ==========
</TABLE>




                                      F-16










<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


         On July 11, 2000 the Company consummated a purchase business
combination, effective July 1, 2000, of all outstanding common stock of Catalina
Systems Research, Inc. ("CRI"). Pursuant to the acquisition agreement the
Company paid an aggregate consideration of (i) $13,800,000 in cash and (ii) up
to $2,500,000 in subordianated promissory notes covering a contingent earn-out
based on future earnings of the acquired operation over a thirty-nine month
period. The earn-out, if any, will be recorded as additional goodwill and
amortized over the remaining life of the asset. The Company also paid $200,000
to the selling shareholders for certain covenants not to compete. (See note 7).
The cash portion of the consideration paid by the Company was financed by
borrowings under a revolving line of credit agreement with National City Bank.

         The aggregate purchase price of $14,376,300, including related
acquisition costs of approximately $376,300, was allocated as follows:

<TABLE>
   <S>                                                        <C>
   Cash                                                        $ 1,018,600
   Current assets                                                1,385,800
          Equipment                                                530,900
   Non-competition agreements                                      200,000
   Goodwill                                                     11,923,700
   Current liabilities                                            (682,700)
                                                               -----------
                                                               $14,376,300
                                                               ===========
</TABLE>


         The following unaudited pro forma financial information presents the
combined results of operations of the Company, Tri-Plex and CRI as if the
acquisitions had occurred as of October 1, 1999 and 1998, after giving effect to
certain adjustments, including amortization of goodwill and intangible assets,
increased interest expense on debt related to the acquisition, and related
income tax effects. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Company,
Tri-Plex and CRI constituted a single entity during such periods.


<TABLE>
<CAPTION>
                                                      Years Ended September 30,
                                                      -------------------------
                                                      2000                  1999
                                                      ----                  ----
    <S>                                          <C>                    <C>
    Net revenues                                  $49,285,661            55,606,451
                                                  ===========            ==========
    Net income                                    $ 1,201,036             6,182,568
                                                  ===========            ==========
    Basic earnings per share                      $       .07                   .44
                                                  ===========            ==========
    Diluted earnings per share                    $       .07                   .43
                                                  ===========            ==========
</TABLE>




                                      F-17











<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


(3) Marketable Securities

         The cost basis, gross unrealized gains, gross unrealized losses and
fair value for trading securities are as shown below. Realized gains (losses)
for the securities are included in investment income (loss) on the accompanying
statement of operations.



<TABLE>
<CAPTION>
                                             2001              2000
                                             ----              ----
<S>                                        <C>               <C>
   Mutual funds:
        Cost basis                         $ 885,881         1,103,414
        Gross unrealized gains                     -           170,259
        Gross unrealized losses             (362,451)          (10,040)
                                           ---------         ---------
        Fair value                         $ 523,430         1,263,633
                                           =========         =========
</TABLE>


(4) Note Receivable- Related Party

     On June 3, 1998, the Company entered into a loan agreement with an officer
     and director of the Company. The note receivable of $215,684 bears interest
     at the rate of interest then applicable for borrowings by the Company under
     the Company's then-existing line of credit or other primary lending
     arrangement with its primary lender, with interest payable annually, and
     matures on June 3, 2003.


(5) Costs and Estimated Earnings on Uncompleted Contracts

         Costs and estimated earnings on uncompleted contracts consist of the
following:

<TABLE>
<CAPTION>
                                                                  2001              2000
                                                                  ----              ----
     <S>                                                     <C>                <C>
     Costs incurred on uncompleted contracts                  $31,992,850        17,075,232
     Estimated earnings thereon                                 5,895,517         1,522,471
                                                              -----------         ---------
                                                               37,888,367        18,597,704
     Billings to date                                          32,710,458        11,894,245
                                                              -----------        ----------
                                                              $ 5,177,909         6,703,459
                                                              ===========        =========
</TABLE>

     The above amount is included in the accompanying consolidated balance sheet
under the following captions:

<TABLE>
<CAPTION>
                                                                  2001             2000
                                                                  ----             ----
     <S>                                                     <C>                <C>
     Costs and estimated earnings in excess of billings
         on uncompleted contracts                              $6,000,520        $8,079,427
     Billings in excess of costs and estimated earnings
         on uncompleted contracts                               (333,850)          (718,059)
     Provision for future losses on uncompleted
         contracts                                              (488,761)          (657,909)
                                                              ----------         ----------
                                                              $5,177,909         $6,703,459
                                                              ==========         ==========
</TABLE>




                                      F-18











<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


(6) Inventories

     Inventories consist of:

<TABLE>
<CAPTION>
                                                                         2001               2000
                                                                         ----               ----
             <S>                                                    <C>               <C>
             Raw materials                                           $ 4,066,634        $  5,070,340
             Work in process                                             795,520             741,827
             Finished goods                                            1,070,193           1,540,707
                                                                     -----------        ------------
                                                                       5,932,347           7,352,874
             Reserve for obsolete inventory                             (634,167)           (641,831)
                                                                     -----------        ------------
                                                                     $ 5,298,180        $  6,711,043
                                                                     ===========        ============
</TABLE>


(7) Property, Plant and Equipment

         Property, plant and equipment consists of:

<TABLE>
<CAPTION>
                                                                          2001                2000
                                                                          ----                ----
             <S>                                                     <C>                     <C>
             Land                                                    $   420,330             420,330
             Building                                                  4,505,675           2,005,889
             Office equipment                                          4,974,116           4,158,694
             Factory equipment                                         1,340,842           1,128,517
             Leasehold improvements                                      195,185             320,481
             Vehicles                                                     88,230              88,230
             Demonstration pool and custom molds                      2,654,4943           2,718,352
             Construction in progress                                          -            452,627
                                                                     -----------        ------------
                 Total costs                                          14,178,871          11,293,120
             Less accumulated depreciation                            (4,418,914)         (3,826,299)
                                                                     -----------        ------------
                                                                     $ 9,759,957        $  7,466,821
                                                                     ===========        ============
</TABLE>

         Depreciation and amortization expense on property, plant and equipment
was $1,325,969 in 2001, $1,047,206 in 2000 and $794,447 in 1999.


(8) Goodwill

         Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets of the Company's wholly owned subsidiaries.
Goodwill consists of:

<TABLE>
<CAPTION>
                                                                        2001               2000
                                                                        ----               ----
            <S>                                                    <C>                 <C>
             Goodwill                                                $30,368,402         30,304,001
             Accumulated amortization                                 (6,087,083)        (3,049,303)
                                                                     -----------        ----------
                                                                     $24,281,319        $27,254,698
                                                                     ===========        ===========
</TABLE>

         Total amortization expense on goodwill was $3,042,710 in 2001,
$1,770,919 in 2000 and $1,278,384 in 1999.





                                      F-19










<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)
                           September 30, 2001 and 2000


(9) Intangible Assets

         Intangible assets consist of exclusive rights to a printed circuit
board, and non-compete agreements. Intangible assets consist of:

<TABLE>
<CAPTION>
                                                               2001                2000
                                                               ----                ----
             <S>                                          <C>                <C>
             Non-compete agreements                           6.067,250          6,067,250
             License rights                                     295,000            285,000
             Accumulated amortization                        (2,429,211)        (1,664,446)
                                                            -----------        -----------
                                                            $ 3,933,039        $ 4,687,804
                                                            ===========        ===========
</TABLE>


         Total amortization expense on intangible assets was $759,001 in 2001,
$720,181 in 2000, and $690,264 in 1999.



(10) Notes Payable

         Notes payable consisted of:

<TABLE>
<CAPTION>
                                                                                            2001              2000
                                                                                            ----              ----
      <S>                                                                                <C>               <C>
       Notes payable to related parties bearing interest at prime  rate;
           principal and interest due January 26, 2001.                                        -            250,000
       Note  payable to bank, secured by furniture and equipment, bearing
           interest at a variable rate equal to the one month LIBOR rate plus
           1.75% (8.37 % at September 30, 2000); interest payable monthly
           through March, 2001. Principal and interest due April 30, 2001.
           Converted to capital lease in September 2001.                                       -            500,774
                                                                                                            -------
                                                                                          $    -            750,774
                                                                                          ======            =======
</TABLE>




(11) Long-term Obligations

         Long-term obligations consist of:

<TABLE>
<CAPTION>

                                                                                            2001              2000
                                                                                            ----              ----
       <S>                                                                             <C>                <C>
       Notes payable to related parties bearing a fixed rate of interest of 8%;
           interest and principal due in quarterly installments beginning April
           1, 1999; final payment due January 1, 2002. These notes are
           subordinate to a revolving line of credit payable to Bank.                  $  492,500         1,477,500
</TABLE>






                                      F-20









<PAGE>


                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


<TABLE>
                                                                                            2001            2000
                                                                                            ----            ----
   <S>                                                                                <C>               <C>
       Borrowings under revolving line of credit agreement, secured by accounts
           receivable, inventory, and contract rights, bearing interest (5.41%
           at September 30, 2001) at a rate equal to a stated rate (the lender's
           prime rate, the federal funds rate, or the one month LIBOR rate) plus
           a margin ranging from 1.5%-2% (2.0% at September 30, 2001) based on
           the ratio of debt to tangible net worth at the beginning of the
           applicable LIBOR rate contract period. The agreement matures May 1,
           2003, with an annual renewable term thereafter.                               16,808,376      18,448,847

       Mortgage note payable to bank, secured by real estate,  bearing interest
           originally at a rate equal to one month LIBOR plus 1.65%. Effective
           April 1, 2001, the Company entered into an interest rate swap
           agreement to convert the interest rate to a fixed 7.85% per annum.
           Interest payable monthly through November 2001. Principal and
           interest payable monthly beginning December 1, 2001 through December
           1, 2016. Included in the mortgage note payable is $307,436
           which represents the fair value of the interest rate swap.                     3,803,400       1,945,000

       Notes payable to bank, secured by vehicles, bearing interest at 7.25%;
           principal and interest of $1,642 payable monthly through July 20,
           2003.                                                                             33,489          50,062
                                                                                        -----------      ----------

                                                                                         21,137,765      21,921,409
       Less current maturities                                                             (645,235)     (1,001,630)
                                                                                        -----------     -----------
       Long-term obligations, less current maturities                                   $20,492,530      20,919,779
                                                                                        ===========      ==========
</TABLE>


         The following is a schedule of maturities of long-term obligations as
of September 30, 2000:

<TABLE>
<CAPTION>
           Year Ending September 30,
           -------------------------
         <S>                                       <C>
           2002                                       $   645,235
           2003                                        16,969,865
           2004                                           157,727
           2005                                           170,565
           2006                                           184,446
           Thereafter                                   3,009,927
                                                      -----------
                                                      $21,137,765
                                                      ===========
</TABLE>


The loan agreement on the $23 million dollar revolving line of credit with
National City Bank includes various loan covenants and restrictions. These
include limiting the ability to pay cash dividends, undertaking acquisitions, or
otherwise limiting obligations undertaken by, or operations of, the Company. The
Company is in compliance with debt covenants on the credit facility as of
September 30, 2001.


                                      F-21








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000



(12) Leases

     The Company is obligated under various capital leases for office equipment
and building improvements. At September 30, 2001, and 2000, respectively,
property, plant and equipment included net capital lease assets of $849,387, and
$241,147.

     The Company also has several non-cancellable operating leases for office
and manufacturing facilities, vehicles and equipment, including office and
manufacturing facilities in Dayton Ohio that are owned by Beavercreek
Enterprises, an affiliated company of which the Chairman of the Company is the
majority owner. Rent expense under operating lease agreements totaled $724,406,
$536,018 and $382,858 for the years ended September 30, 2001 and 2000 and 1999
respectively.

     The following is a schedule of future minimum lease payments under capital
and operating leases together with the present value of the net minimum lease
payments for capital lease obligations as of September 30, 2001:


<TABLE>
<CAPTION>
                                                            Capital              Operating
        Year Ending September 30,                           Leases                Leases
        -------------------------                           ------                ------
     <S>                                                  <C>                  <C>
        2002                                              $  350,591           $  959,515
        2003                                                 341,011              959,647
        2004                                                 341,011              913,377
        2005                                                     -                443,729
        2006                                                     -                445,697
        Thereafter                                               -              1,549,800
                                                          ----------           ----------
                 Total minimum lease payments              1,032,613            5,271,765
                                                                               ==========
        Less amounts representing interest (10.13%
        fixed interest rate)                                (186,503)
                                                          ----------
           Present value of net minimum lease payments       846,110
        Less current maturities                              272,671
                                                          ----------
        Capital lease obligations, net of current
        maturities                                        $  573,439
                                                          ==========
</TABLE>


(13) Stock Options

     The Company has reserved 2,955,000 shares of common stock for grant under
its qualified incentive stock option plan ("qualified plan"). The terms of these
options provide that the options are exercisable at 33 percent per year and
expire ten years after the date of grant. The qualified plan is administered by
the Company's Board of Directors or a committee thereof. The qualified plan
gives broad powers to the Board of Directors to administer and interpret the
Plan, including the authority to select the individuals to be granted options
and to prescribe the particular form and conditions of each option granted. All
options are granted at an exercise price equal to the fair market value or 110
percent of the fair market value of the Company's common stock on the date of
the grant. Awards may be granted pursuant to the qualified plan through November
22, 2004. The qualified plan may be terminated earlier by the Board of Directors
at its sole discretion.

     The Company has reserved 225,000 shares under a plan to benefit the
nonemployee directors under terms similar to the qualified plan ("directors
nonqualified plan"). The terms of these options provide that the options are
exercisable on the date of grant and expire ten years after the date of grant.
The directors



                                      F-22








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000



nonqualified plan provides that each nonemployee director be granted options to
purchase 10,000 shares at the fair market value on the date of the director's
election to the Board and on the date of each of the Board's annual meetings
thereafter.

     On December 15, 1998, the Company granted special options to one
nonemployee director ("1998 special option plan") exercisable for ten years from
the date of issuance for the purchase of 11,000 shares at an exercise price of
$2.125 per share, which was the market price of the Company's common stock on
the date the grant. Although not issued under the existing directors'
nonqualified plan, the 1998 special option plan is subject to terms
substantially similar to those applicable to options granted under the
directors' nonqualified plan. The 1998 special options are evidenced by a stock
option agreement between the Company and the director.



     At September 30, 2001, there were 264,870 and 78,000 additional shares
available for grant under the qualified plan and directors nonqualified plan,
respectively. Using the Black Scholes option-pricing model, the per share
weighted-average fair value of stock options granted during 2001 where exercise
price equals the market price of the stock on the grant date was $2.06. During
2001, no options were granted where the exercise price did not equal the market
price of the stock on the grant date. The per share weighted-average fair value
of stock options granted during 2000 where exercise price equals the market
price of the stock on the grant date was $2.06.



         The following weighted average assumptions were used:

<TABLE>
<CAPTION>

                                                           2001        2000        1999
                                                           ----        ----        ----
<S>                                                    <C>          <C>         <C>
Exercise price equal to market price on grant date
     Expected risk-free interest rate                       5.82%        6.33%       4.52%
     Expected life                                      7.0 years    7.2 years   7.1 years
     Expected volatility                                    76.3%        80.6%      116.3%
     Expected dividend yield                                 0.0%        0.00        0.00
Exercise  price  greater  than market  price on grant
date
     Expected risk-free interest rate                         --           --        4.49%
     Expected life                                            --           --    5.0 years
     Expected volatility                                      --           --       116.9%
     Expected dividend yield                                  --           --        0.00%
</TABLE>


                                      F-23








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000



     The Company applies APB Opinion No. 25 in accounting for its option plans
and, accordingly, no compensation cost has been recognized in the financial
statements for stock options granted. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                            2001           2000           1999
                                                                            ----           ----           ----
<S>                                      <C>                           <C>            <C>             <C>
        Net income                          As reported                    444,747       1,584,425      5,885,642
                                            Pro forma                      141,139       1,029,860      4,813,262
        Basic earnings per share            As reported                        .03            0.09           0.42
                                            Pro forma                          .01            0.06           0.34
        Diluted earnings per share          As reported                        .03            0.09           0.41
                                            Pro forma                          .01            0.06           0.33
</TABLE>

     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                                  Number of         Weighted-average
                                                                                   Shares            exercise price
                                                                                   ------            --------------
        <S>                                                                       <C>                <C>
        Outstanding at September 30, 1998                                         1,386,543              $2.68
             Granted                                                                468,400               2.05
             Exercised                                                             (161,328)               .77
             Forfeited                                                              (11,600)              3.58
                                                                                  ---------
        Outstanding at September 30, 1999                                         1,682,015               2.68
                                                                                  =========
             Granted                                                                525,000               2.72
             Exercised                                                             (182,836)              1.43
             Forfeited                                                              (97,295)              3.77
                                                                                  ---------
        Outstanding at September 30, 2000                                         1,926,884              $2.75
                                                                                  =========
               Granted                                                              626,000               2.03
               Exercised                                                           (140,300)              1.30
                Forfeited                                                          (119,334)              2.78
                                                                                  ---------
        Outstanding at September 30, 2001                                         2,293,250              $2.63
                                                                                  =========              =====
</TABLE>

         At September 30, 2001, the range of exercise prices and
weighted-average remaining contractual lives of outstanding options was $.72 to
$1.34 for 318,450 shares; $1.45 to $2.13 for 473,400 shares; $2.16 to $2.63 for
775,350 shares; $2.81 to $4.25 for 407,500 shares and $4.68 to $6.00 for 318,550
shares at 4.0 years, 7.9 years, 7.9 years, 7.5 years and 5.2 years,
respectively.

     At September 30, 2001, 2000 and 1999, the number of options exercisable was
1,269,707, 1,109,935 and 914,190, respectively, and the weighted-average
exercise price of those options was $2.63, $2.77 and $2.37, respectively.

     The Company has reserved 2,700,000 shares of common stock for issuance
under awards pursuant to the Stock Incentive Plan approved by the shareholders
at the March 2001 annual meeting.


                                      F-24








<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000



     Effective August 30, 2001, the Company issued 1,380,000 performance based
stock options at exercise prices, which range between $3.50 and $4.50 per share,
for which compensation expense will be measured as the difference between the
fair value of our common stock, at the time the performance criteria is met and
the external price and will be immediately recorded as compensation expense.
These options are not included in the granted figures above as they are not
exercisable unless the performance measures are met.

 (14) Warrants

      On April 12, 1999, the Company called for redemption of its redeemable
common stock purchase warrants issued in connection with its initial public
offering in June 1996. On April 23, 1999, the Company called for redemption all
of its redeemable common stock purchase warrants issued in connection with its
August 1995 private placement offering. The redemption date for these warrants
was June 8, 1999, and the redemption price was $0.0167 per warrant; the exercise
price was $2.00 per share of common stock. Prior to the redemption date, a total
of 5,125,837 warrants were exercised, resulting in net proceeds to the Company
of $10,218,653 and increasing the number of shares of common stock outstanding
to 17,544,208 as of September 30, 1999. The Company used the net proceeds it
received from the exercise of the warrants (1) to reduce the indebtedness owed
to the former shareholders of EDL and STL (including Messrs. Stefanko, Clifford
and Schooley, directors of the Company) under promissory notes issued to them in
connection with the October 1998 acquisition of EDL and STL as required by the
acquisition agreement, and (2) to repay indebtedness to the Bank under the
revolving line of credit. The remainder of the net proceeds from the exercise of
the warrants was used for general corporate purposes, including working capital
requirements.


     On May 26, 2000, the Company issued warrants to purchase up to 120,000
shares of the Company's common stock to the shareholders of Tri-Plex as
consideration for the Tri-Plex Acquisition. These warrants are exercisable until
May 26, 2010 at an exercise price of $2.75 per share.


(15) Income Taxes

     The components of income tax expense (benefit) for the years ended
September 30, 2001, 2000 and 1999 are as follows:



<TABLE>
<CAPTION>
                                                 Current           Deferred          Total
                                                 -------           --------          -----
<S>                                            <C>                 <C>           <C>
        2001:
               Federal                          $  617,373          162,688        $  780,061
               State                                22,339           87,601           109,940
                                                -----------        --------        ----------
                                                $  639,712          250,289        $  890,001
                                                ==========         ========        ==========
        2000:
               Federal                          $2,064,915         (789,228)       $1,275,687
               State                               311,794         (124,935)          186,859
                                                ----------         --------        ----------
                                                $2,376,709         (914,163)       $1,462,546
                                                ==========         ========        ==========
        1999:
               Federal                          $4,119,391         (749,591)       $3,369,800
               State                               562,595         (138,437)          424,158
                                                ----------         --------        ----------
                                                $4,681,986         (888,028)       $3,793,958
                                                ==========         ========        ==========
</TABLE>


                                      F-25








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


     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,
2001, 2000, and 1999:

<TABLE>
<CAPTION>
                                                                         2001              2000               1999
                                                                         ----              ----               ----
<S>                                                                   <C>              <C>                <C>
        Computed "expected" tax expense                                $453,814         1,035,970          3,291,064
        Increase (decrease) in income taxes resulting
        from:
             State income taxes,  net of federal  income                 72,560           123,327            267,899
        tax benefit
             Nondeductible meals and entertainment                       16,732            11,922              9,311
        expense
             Research and experimentation credit                        (51,766)          (83,756)                 -
             Nondeductible goodwill                                     397,424           397,424            397,424
             Other, net                                                   1,237          (22,341)          (171,740)
                                                                          -----          --------          ---------
                                                                       $890,001         1,462,546          3,793,958
                                                                       ========         =========          =========
</TABLE>


Deferred income taxes as of September 30, 2001 and 2000 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, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                         2001              2000
                                                                         ----              ----

     <S>                                                            <C>              <C>
        Deferred tax liabilities:
             Other                                                   $  (68,480)       $  (90,415)
                                                                     ----------        ----------
                 Total deferred tax liabilities                         (68,480)          (90,415)
                                                                     ----------        ----------

        Deferred tax assets:
             Inventory reserve                                          257,662           337,940
             Accrued deferred compensation                              469,954           604,965
             Accrued vacation and sick leave                             80,575            60,967
             Accrued incentive compensation                                 -             196,723
             Capitalized costs                                           64,848           152,529
             Intangible assets                                          517,582           306,138
             Accrued contract costs                                     417,555           240,277
             Other                                                       87,763           268,623
                                                                      ---------        ----------
                 Total deferred tax assets                            1,895,939         2,168,162
                                                                      ---------        ----------

                 Total net deferred tax assets                       $1,827,459         2,077,747
                                                                     ==========        ==========
</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
or the reversal of deferred tax liabilities during the periods in which those


                                      F-26








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. As of September 30, 2001,and
2000, no valuation allowance has been recognized in the accompanying
consolidated financial statements for the deferred tax assets because the
Company believes that sufficient future taxable income will be generated to
fully utilize the benefits of these deductible amounts.


(16) Retirement Plans

     The Company has a defined contribution retirement plan covering
substantially all employees who have completed 1,000 hours of service.
Retirement plan expense was $433,355, $236,814, and $221,388 for the years ended
September 30, 2001, 2000 and 1999, respectively.

     The Company has deferred compensation agreements with certain executives
and key management employees. Under the provisions of the agreements, the
Company funds a percentage of each participants salary, as determined by the
Board of Directors, to an investment account which is used to purchase
marketable securities. These investments are a general asset of the Company and
as such are reported as trading securities in the accompanying financial
statements. For the year ended September 30, 2001, 2000, and 1999, deferred
compensation expense was 490,277, $559,975, and $291,763, respectively.


(17) Treasury Stock


     On November 2, 1999, the Board of Directors authorized the Company to
repurchase up to 1,000,000 of its outstanding shares of common stock through
November 2, 2000 for a maximum purchase price, including commissions, not to
exceed $3,500,000 in the aggregate. This repurchase plan has been extended
through November 2, 2002. During the year ended September 30, 2000, the Company
repurchased 640,681 shares of its common stock for a total cost of $1,815,202 at
an average purchase price of $2.83 per share. During the year ended September
30, 2001, the Company repurchased an additional 19,000 shares of its common
stock for a total cost of $22,906 at an average purchase price of $1.21.


(18) Non-recurring expense


     The Company incurred costs related to the renegotiation of certain
employment contracts and separation agreements as a result of management changes
during the year ended September 30, 2000. The costs were of a non-recurring
nature and thus have been reported as a non-recurring expense separate from
recurring operating costs on the accompanying 2000 consolidated statement of
operations. All amounts accrued have been paid in full.


(19) Contingencies

     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. The plaintiff is seeking
from the defendants an amount of $950,000 plus interest, related costs and
attorney's fees. On March 7, 2000 the Court entered final partial summary
judgment in the Company's favor with respect to one of the two counts of the
plaintiff's amended complaint. The Company will continue to vigorously defend
this lawsuit.

     In November 2000, a former Company employee filed an action against the
Company alleging breach of employment contract by the Company. The plaintiff is
seeking from the Company an amount of $7.4 million plus interest, related costs
and attorney's fees. The Company has filed a motion to dismiss the


                                      F-27








<PAGE>



                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


plaintiff's complaint and will 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
the Company's financial position, results of operations, or liquidity.
Management has not accrued any liability relating to the tortious portion of
these lawsuits, as it believes the Company will prevail.

     The Company has an incentive program for its employees, whereby employees
are entitled to bonuses, which are calculated based on the performance of the
Company, as defined in the incentive program agreement.

(20) Concentration of Credit Risk

     The Company has a high concentration of sales to a few customers who
accounted for 68%, 70% and 82% of revenues for the years ended September 30,
2001, 2000 and 1999, respectively. A summary of sales, accounts receivable and
costs in excess of billings for customers that exceed 10% of sales, accounts
receivable or costs in excess of billings as of or for the years ended September
30, 2001, 2000 and 1999 are as follows:


<TABLE>
<CAPTION>
                               2001                    2000                              1999

                                        %                      %                        %
                          Sales       Total       Sales      Total       Sales       Total
<S>                    <C>             <C>    <C>            <C>    <C>           <C>
     Customer A        $20,215,581       39%   $11,929,135      30%   $       -          0%

     Customer B          6,726,423       13%     6,183,349      15%     3,224,160        8%

     Customer C          3,659,154        7%        41,222      10%    17,542,370       41%

     Customer D          2,642,478        5%     4,137,329      10%     6,037,930       14%

     Customer E              -            0%     2,003,240       5%     3,197,064        8%

     Customer F          2,070,105        4%             -       0%     4,499,924       11%
</TABLE>



<TABLE>
<CAPTION>
                        Accounts                Accounts               Accounts
                                          %                      %                       %
                       Receivable     Total    Receivable    Total    Receivable     Total
<S>                   <C>             <C>     <C>            <C>     <C>            <C>
     Customer A         $2,812,126       29%    $2,584,598      28%             -        0%

     Customer B          2,444,763       25%       796,574       9%     1,156,300       13%

     Customer C            622,176        6%       300,000       3%     1,911,436       21%

     Customer D                  -        0%       573,837       6%     3,028,160       33%

     Customer E                  -        0%       987,949      11%     1,777,404       19%

     Customer F            455,554        5%             -       0%       176,726        2%
</TABLE>


                                      F-28








<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


<TABLE>
<CAPTION>
                           2001                           2000                              1999
                  ---------------------------------------------------------------------------------------------------
                          Cost            %       Cost           %        Cost           %
                         Billings     Total      Billings    Total      Billings     Total
                  ---------------------------------------------------------------------------------------------------
   <S>                 <C>             <C>     <C>            <C>     <C>            <C>
     Customer A         $3,984,187       66%    $5,375,724      67%   $         -       0%

     Customer B                           0%       232,716       3%       118,851        2%

     Customer C                           0%       705,766       9%     1,665,788       28%

     Customer D            115,727        2%       131,503       2%       247,970        4%

     Customer E                           0%            -        0%                      0%

     Customer F            830,245       14%            -        0%                      0%
</TABLE>


(21) Segment Data

         The Company operates in two segments, each of which are strategic
businesses that are managed separately because each business develops,
manufactures and sells distinct products and services. The segments and a
description of their business is as follows: (i) tactical systems which includes
two operating components, Paravant Computer Systems (PCS) and Engineering
Development Laboratories (EDL). They design, manufacture, integrate and service
products that are deployed into fixed wing and rotary aircraft . These products
are used for diagnostic, communication, navigation, and flight control purposes.
Both PCS and EDL service customers in the U.S. and foreign military
establishments, prime defense contractors and government agencies, (ii)
intelligence systems which is comprised of three operating components Signal
Technology Laboratories (STL), Triplex Systems Corporation (TPX) and Catalina
Research Incorporated (CRI). These operating components design, manufacture and
service high speed signal processing products that are utilized and integrated
primarily by the U.S. intelligence agencies. They are sometimes sold directly or
through prime defense contractors. These products are used to monitor, route,
enhance, process, store, and archive various electronic signals.

The Company evaluates performance of and allocates resources to the segments.
The accounting policies of the segments are substantially the same as those
described in the summary of significant accounting policies.


<TABLE>
<CAPTION>
                                    Tactical       Intelligence
                                    Systems          Systems         Medical        Corporate          Total
     Fiscal Year 2001:
<S>                                <C>              <C>             <C>            <C>              <C>
     External revenues             $30,517,866      $20,328,727     $992,000       $         -      $51,838,593

     Operating income               $2,950,713       $1,824,051            -       ($1,400,601)      $3,374,163

     Total assets                  $41,255,017      $17,259,326            -        $3,360,883      $61,875,226
</TABLE>


                                      F-29








<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000


<TABLE>
<CAPTION>
                                    Tactical       Intelligence
                                    Systems          Systems         Medical        Corporate          Total
     Fiscal Year 2000:
<S>                                <C>              <C>             <C>            <C>              <C>
     External revenues             $24,428,547      $13,921,380    $2,059,641                -      $40,409,568

     Operating income               $1,171,084       $4,746,640             -      ($2,530,794)      $3,386,930

     Total assets                  $49,090,082      $16,030,171      $985,400       $1,414,778      $67,520,431
</TABLE>


<TABLE>
<CAPTION>
                                    Tactical       Intelligence
                                    Systems          Systems         Medical        Corporate          Total
     Fiscal Year 1999:
<S>                                <C>              <C>             <C>            <C>              <C>
     External revenues             $13,347,872      $24,816,017    $4,115,589                -      $42,279,478

     Operating income              ($1,837,406)     $13,266,360      $515,930      ($1,707,858)     $10,237,026

     Total assets                  $31,365,865       $7,840,319    $1,664,568       $2,102,061      $42,972,813
</TABLE>

(22) Quarterly Financial Data (unaudited)

         The tables below summarize the Company's unaudited quarterly operating
results for fiscal years 2001 and 2000. All data is in thousands except for per
common share data.



<TABLE>
<CAPTION>
                                                              Three Months Ended
                          --------------------------------------------------------------------------------------
                                 December 31,      March 31,      June 30,      September 30,      Fiscal Year
                                    2000              2001          2001             2001              2001
                          --------------------------------------------------------------------------------------
<S>                                <C>              <C>           <C>             <C>               <C>
         Revenues                  $12,620          $11,293       $12,221         $15,704           $51,838

         Net income                    445             (578)          166             412               445

         Net income per
           common share:

             Basic                   $0.03           ($0.03)        $0.01           $0.02             $0.03

             Diluted                 $0.03           ($0.03)        $0.01           $0.02             $0.03
</TABLE>


                                      F-30







<PAGE>




                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000





<TABLE>
<CAPTION>
                                                              Three Months Ended
                          --------------------------------------------------------------------------------------
                                 December 31,      March 31,      June 30,      September 30,      Fiscal Year
                                    1999              2000          2000             2000              2000
                          --------------------------------------------------------------------------------------
<S>                                     <C>            <C>           <C>               <C>              <C>
         Revenues                       $7,705         $7,895        $8,067            $16,742          $40,409

         Net income                        626             60           237                662            1,585

         Net income per
           common share:

             Basic                       $0.04          $0.00         $0.01              $0.04            $0.09

             Diluted                     $0.04          $0.00         $0.01              $0.04            $0.09
</TABLE>


     The Company has at times experienced fluctuations in its quarterly results
due to both seasonal and non-seasonal factors inherent in its business.
Production and delivery requirements pertaining to long-term contracts, as well
as the level of research and development spending during any given quarter, fee
recognition on development contracts in the early phases of contract performance
where the financial risk is not entirely known until the contract is further
along in the development cycle, the U.S. Government and the timing of contract
awards. Management expects these fluctuations to continue into the future.



                                      F-31








<PAGE>





                         PARAVANT INC. AND SUBSIDIARIES

                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                           September 30, 2001 and 2000



                 Schedule II. Valuation and Qualifying Accounts
                 Years ended September 30, 1999, 2000, and 2001

<TABLE>
<CAPTION>
                                              Balance                                                                Balance
                                            at Beginning    Charged to Costs        Charged to                       at End
                                              of Year         and Expenses        Other Accounts     Deductions      of Year
                                              -------         ------------        --------------     ----------      -------
<S>                                        <C>              <C>              <C>                   <C>            <C>
Allowance for Inventory Obsolescence

         Year ended September 30, 1999        $429,000            -                     -            $(17,007)      $411,993

         Year ended September 30, 2000        $411,993         $229,838                 -                 -          641,831

         Year ended September 30, 2001        $641,831         $ 27,500                 -            $(35,164)       634,167
</TABLE>



<TABLE>
<CAPTION>
                                              Balance                                                                Balance
                                            at Beginning    Charged to Costs        Charged to                       at End
                                              of Year         and Expenses        Other Accounts     Deductions      of Year
                                              -------         ------------        --------------     ----------      -------
<S>                                        <C>              <C>              <C>                   <C>            <C>
Provision for Future Losses on Uncompleted Contracts

         Year ended September 30, 1999       $     -               -                 $150,000            -           $150,000

         Year ended September 30, 2000       $150,000              -                 $507,909            -           $657,909

         Year ended September 30, 2001       $657,909              -                $(169,148)           -           $488,761
</TABLE>



                                      F-32