DRS Tactical Systems Global Services, Inc. – ‘PRER14A’ on 6/19/98

As of:  Friday, 6/19/98   ·   Accession #:  950117-98-1218   ·   File #:  0-28114

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Revised Preliminary Proxy Solicitation Material   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRER14A     Paravant Computer Systems, Inc. PRER14A              108    580K 

Document Table of Contents

PRER14A
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SCHEDULE 14A INFORMATION

 Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)

Filed by the Registrant [X]                                                     

Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

[X]      Preliminary Proxy Statement                                            

[  ]     Confidential, for Use of the Commission Only (as permitted by          
Rule 14a-6(e)(2))                                             

[  ]     Definitive Proxy Statement                                             

[  ]     Definitive Additional Materials                                        

[  ]     Soliciting Material Proxy Pursuant to Section 240.14a-11(c) or         
Section 240.14a-12                                            

 Paravant Computer Systems, Inc.
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

[ ]     No fee required.                                                        

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.    

(1)      Title of each class of securities                    
   to which transaction applies:      Common Stock

(2)      Aggregate number of securities to                    
       which transaction applies:         3,950,000 Shares

  (3)      Per unit price or other underlying value of transaction
              computed pursuant to Exchange Act Rule 0-11 (Set forth the
                 amount on which the filing fee is calculated and state how it
was determined):                            

Consideration for acquisition:              

            Cash                       $ 8,700,000
            Notes                        4,800,000
                Shares                       7,900,000 (*)
                                       -----------
                                       $21,400,000
                                       -----------
                                       -----------

                  (*) 3,950,000 shares of the Registrant valued at $2 per share,
         the Nasdaq reported closing price for April 24, 1998.

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       (4)      Proposed maximum aggregate value of transaction: $21,400,000

(5)      Total fee paid:   $4,280                             

[X]      Fee paid previously with preliminary materials.                        

[ ]      Check box if any part of the fee is offset as provided by Exchange     
      Act Rule 0-11(a)(2) and identify the filing for which the offsetting
        fee was paid  previously. Identify the previous filing by registration
       statement number, or the Form or Schedule and the date of its filing.

(1)      Amount Previously Paid:                              
        ----------------------------------------------------------------------

(2)      Form, Schedule or Registration Statement No.:        
        ----------------------------------------------------------------------

(3)      Filing Party:                                        
        ----------------------------------------------------------------------

(4)      Date Filed:                                          
        ----------------------------------------------------------------------

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 PARAVANT COMPUTER SYSTEMS, INC.
 1615A West Nasa Boulevard
Melbourne, Florida 32901

 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS

 August 20, 1998

To the Shareholders:

  NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Paravant Computer Systems, Inc. (the "Company") will be held at the Melbourne   
Beach Hilton Oceanfront Hotel, 3003 U.S. Highway A1A, Indialantic, Florida      
32903, on August 20, 1998 at 10:00 A.M. (local time) for the following purposes:

       1. To consider and vote upon approval and adoption of an amendment to
the articles of incorporation to change the name of the Company from Paravant   
Computer Systems, Inc. to Paravant Inc.;                                        

         2. To consider and vote upon approval of the acquisition by the Company
of all of the capital stock of Engineering Development Laboratories,            
Incorporated ("EDL") and substantially all of the business and assets of Signal 
Technology Laboratories, Inc. ("STL") under the terms of the Acquisition        
Agreement dated March 31, 1998 (the "Acquisition Agreement") between the        
Company, EDL, STL, and the shareholders of EDL and STL; and                     

      3. To transact such other business as may properly be brought before
the meeting or any adjournment thereof.                                         

       The Board of Directors has fixed June 25, 1998 as the record date for
the determination of the shareholders entitled to notice of and to vote at such 
meeting or any adjournments or postponements thereof, and only shareholders of  
record at the close of business on that date are entitled to notice of and to   
vote at such meeting.                                                           

     You are cordially invited to attend the meeting. Whether or not you
plan to attend, you are urged to complete, date and sign the enclosed proxy and 
return it promptly. If you receive more than one form of proxy, it is an        
indication that your shares are registered in more than one account, and each   
such proxy must be completed and returned if you wish to vote all of your shares
eligible to be voted at the meeting.                                            

                                           By Order of the Board of Directors,

                         William R. Craven
                 Secretary
Melbourne, Florida                                                              

July 23, 1998                                                                   

 YOUR VOTE IS IMPORTANT.

THE ATTACHED PROXY STATEMENT SHOULD BE READ CAREFULLY. SHAREHOLDERS ARE URGED TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. NO
ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU MAY REVOKE   
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN NOTICE TO THE       
COMPANY. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON THOUGH YOU    
HAVE PREVIOUSLY SENT IN YOUR PROXY.                                             

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                                                 TABLE OF CONTENTS                                    

                                                                                                      
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS.................................................1 
VOTING SECURITIES AND SECURITY OWNERSHIP............................................................1 
                  Record Date and Voting Securities.................................................1 
                  Voting of Proxies.................................................................1 
                  Solicitation of Proxies...........................................................2 
                  Principal Shareholders of the Company.............................................2 
                  Shareholder Agreements............................................................3 
PROPOSAL 1: NAME CHANGE TO PARAVANT, INC............................................................3 
                  Reasons for the Proposal..........................................................3 
                  Approval by Shareholders..........................................................4 
                  Recommendation of the Company's Board of Directors................................4 
PROPOSAL 2: APPROVAL OF THE ACQUISITION.............................................................4 
                  Reasons for the Proposal..........................................................4 
                  Approval by Shareholders..........................................................5 
                  Recommendation of the Company's Board of Directors................................5 
                  Pro Forma Book Value and Earnings Per Share.......................................5 
         Summary of the Acquisition.................................................................6 
                  The Parties to the Transaction....................................................6 
                  How the Acquisition Will Be Completed.............................................7 
                  Fairness Opinion..................................................................8 
                  Financing the Acquisition.........................................................8 
                  Federal Income Tax Consequences of the Acquisition................................8 
                  Accounting Treatment of the Transaction...........................................9 
                  Resales of Common Stock...........................................................9 
                  Absence of Dissenters' Rights.....................................................9 
                  NASD Requirement for Shareholder Approval.........................................9 
                  Markets and Prices for the Shares of the Parties and Related                        
                  Shareholder Matters...............................................................9 
         Risk Factors Applicable to the Acquisition................................................10 
         The Acquisition...........................................................................12 
                  Background.......................................................................12 
                  Reasons for the Acquisition......................................................14 
                  Fairness Opinion.................................................................15 
                  Acquisition Financing............................................................17 
                  Promissory Notes.................................................................17 
                  Resales of Common Stock..........................................................17 
                  Lock-up of Common Stock..........................................................18 
                  Interest of Certain Persons in the Acquisition...................................18 
         The Acquisition Agreement.................................................................19 
                  General..........................................................................19 
                  Acquisition of the EDL Common Stock, the STL Purchased Assets and                   
                           the STL Shareholder Non-Competition Agreements..........................19 
                  STL Shareholder Non-Competition Agreements.......................................20 
                  Employment Agreements............................................................20 
                  Cash Earn-Out....................................................................21 
                  Representations and Warranties of the Parties....................................22 
                  Additional Covenants of the Parties..............................................22 
                  Indemnification Provisions.......................................................24 
                  Liquidated Damages...............................................................24 
                  Termination and Waiver...........................................................25 
                  Conditions Precedent to the Obligation of the Parties to Consummate                 
                            the Acquisition........................................................25 

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                  Conditions of the Closing............................................................25 
         Description of the Company....................................................................26 
                  General..............................................................................26 
                  Products.............................................................................27 
                  Customization Services...............................................................27 
                  Supply and Manufacturing.............................................................27 
                  Warranty and Customer Service........................................................27 
                  Marketing and Sales..................................................................28 
                  Customers............................................................................28 
                  Competition..........................................................................28 
                  Research and Development.............................................................29 
                  Intellectual Property................................................................29 
                  Government Regulations and Contracts.................................................29 
                  Employees............................................................................30 
                  Property.............................................................................31 
                  Legal Proceedings....................................................................31 
         Description of EDL and STL....................................................................31 
                  EDL..................................................................................31 
                  STL..................................................................................33 
         Exceptional Recent Earnings History of EDL and STL............................................35 
FINANCIAL STATEMENTS...................................................................................36 
         Unaudited Pro Forma Consolidated Financial Statements.........................................36 
                  Unaudited Pro Forma Consolidated Financial Information...............................37 
                  Unaudited Pro Forma Consolidated Balance Sheet (March 31, 1998)......................38 
                  Unaudited Pro Forma Consolidated Income Statement (Six Month Period ended               
                      March 31, 1998)..................................................................39 
                  Unaudited Pro Forma Consolidated Income Statement (September 30, 1997)...............40 
                  Notes and Management's Assumptions to Unaudited Pro Forma Consolidated Financial        
                      Statements.......................................................................41 
                  Management's Discussion and Analysis of Operations...................................43 
         Paravant Computer Systems, Inc. Financial Statements for the Years Ended September 30, 1997      
            and 1996...................................................................................46 
                  Independent Auditor's Report.........................................................47 
                  Financial Statements:                                                                   
                           Balance Sheets..............................................................48 
                           Statements of Income........................................................49 
                           Statements of Changes in Stockholders' Equity...............................50 
                           Statements of Cash Flows....................................................51 
                  Notes to Financial Statements........................................................52 
                  Management's Discussion and Analysis of Operations...................................62 
         Paravant Computer Systems, Inc. Unaudited Condensed Financial Statements                         
            for the Quarters Ended March 31, 1998 and 1997.............................................65 
                  Financial Statements - (Unaudited):                                                     
                  Condensed Balance Sheet - March 31, 1998.............................................66 
                  Condensed Statements of Operations for the three months ended                           
                     March 31, 1998 and 1997...........................................................67 
                  Condensed Statements of Operations for the six months ended                             
                     March 31, 1998 and 1997...........................................................68 
                  Condensed Statements of Cash Flows for the six months ended                             
                     March 31, 1998 and 1997...........................................................69 
                  Notes to Condensed Financial Statements..............................................70 
                  Management's Discussion and Analysis of Operations...................................72 
         Engineering Development Laboratories Inc. and Subsidiary Consolidated Financial                  
            Statements for the Nine Month Period Ended October 4, 1997 and the Year Ended                 
            December 28, 1998..........................................................................76 
                  Independent Auditor's Report.........................................................77 
                  Financial Statements:                                                                   
                          Consolidated Balance Sheets..................................................78 
                          Consolidated Statements of Income............................................79 
                          Consolidated Statements of Changes in Stockholders' Equity...................80 
                          Consolidated Statements of Cash Flows........................................81 
                  Notes to Consolidated Financial Statements...........................................82 
                  Management's Discussion and Analysis of Operations...................................92 
         Engineering Development Laboratories, Inc. and Subsidiary Unaudited Consolidated Condensed       
            Financial Statements for the Six Months Ended March 21, 1998 and March 22, 1997............94 
            Financial Statements - (Unaudited):                                                           
                  Condensed Consolidated Balance Sheet - March 21, 1998................................95 
                  Condensed Consolidated Statements of Income for the six months                          
                     ended March 21, 1998 and March 22, 1997...........................................96 
                  Condensed Consolidated Statements of Cash Flows for the six months                      
                     ended March 21, 1998 and March 22, 1997...........................................97 
                  Notes to Condensed Consolidated Financial Statements.................................98 
                  Management's Discussion and Analysis of Operations...................................99 
ADDITIONAL INFORMATION.................................................................................101
                  Cautionary Statement concerning Forward-Looking Statements...........................101
                  Additional Information About the Company.............................................101
INFORMATION CONCERNING INDEPENDENT AUDITORS............................................................101
SHAREHOLDER PROPOSALS..................................................................................102
OTHER MATTERS..........................................................................................102

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 PARAVANT COMPUTER SYSTEMS, INC.

 1615A West Nasa Boulevard
Melbourne, Florida 32901

 P R O X Y   S T A T E M E N T
 FOR SPECIAL MEETING OF SHAREHOLDERS

 August 20, 1998

         This Proxy Statement is being furnished to shareholders by the Board of
Directors of Paravant Computer Systems, Inc. (the "Company" or "PCS"), in       
connection with the solicitation of the accompanying proxy (each a "Proxy" and  
collectively, "Proxies") for use at the special meeting to be held at the time  
and place shown in the attached Notice of Special Meeting of Shareholders and at
any adjournments or postponements thereof (the "Special Meeting"). This Proxy   
Statement and the accompanying Proxy will first be sent or given to shareholders
on approximately July 23, 1998.                                                 

VOTING SECURITIES AND SECURITY OWNERSHIP

Record Date and Voting Securities                                               

       The record date for the determination of holders of common stock, par
value $0.015 per share, of the Company ("Common Stock") who are entitled to     
notice of and to vote at the Special Meeting is June 25, 1998 (the "Record      
Date"). As of the Record Date ___________ shares of Common Stock were           
outstanding. Holders of record of Common Stock as of the Record Date will be    
entitled to one vote for each share held on each matter to be acted upon. A     
majority of all shares of Common Stock issued, outstanding and entitled to vote 
at the Special Meeting, present in person or represented by proxy, shall        
constitute a quorum. For purposes of determining the presence of a quorum for   
transacting business, abstentions and broker "non-votes" (i.e., proxies from    
brokers or nominees indicating that such persons have not received instructions 
from the beneficial owners or other persons entitled to vote shares on a        
particular matter with respect to which brokers or nominees do not have         
discretionary power) will be treated as shares that are present but have not    
voted.                                                                          

Voting of Proxies                                                               

      Shares represented by properly executed Proxies, if returned in time
and not revoked, will be voted in accordance with the directions contained      
therein. If no direction is given in the Proxy, the shares represented thereby  
will be voted: (i) for approval of the amendment to the articles of             
incorporation to change the name of the Company to Paravant Inc. (the "name     
change"); (ii) for approval of the acquisition under the terms of the           
Acquisition Agreement (the "Acquisition"); and (iii) on any other matter that   
may properly be brought before the Special Meeting in accordance with the       
judgment of the person or persons voting such Proxies.                          

       The execution of a Proxy will in no way affect a shareholders's right
to attend the Special Meeting and to vote in person. Any Proxy executed and     
returned by a shareholder may be revoked at any time thereafter if written      
notice of revocation is given to the Secretary of the Company prior to the vote 
to be taken at the Special Meeting, or if the shareholder attends the Special   
Meeting and votes by ballot, except as to any matter or matters upon which a    
vote shall have been cast pursuant to the authority conferred by such Proxy     
prior to such revocation. Any later dated Proxies will revoke Proxies submitted 
earlier.                                                                        

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Solicitation of Proxies                                                         

      The cost of solicitation of the Proxies being solicited on behalf of
the Board of Directors will be borne by the Company. In addition to the use of  
the mail, proxy solicitation may be made by telephone, telegraph and personal   
interview by officers, directors and regular employees of the Company. The      
Company will, upon request, reimburse brokerage houses and persons holding      
Common Stock in the names of their nominees for their reasonable expenses in    
sending soliciting material to their principals.                                

Principal Shareholders of the Company                                           

     The following table sets forth, as of June 12, 1998, the beneficial
ownership of shares of Common Stock by (i) each person who is known to the      
Company to own more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company and each executive officer of the Company who served as 
the Company's Chief Executive Officer in its last fiscal year, the year ended   
September 30, 1997, and each of the other four most highly compensated executive
officers of the Company who were serving as executive officers at the end of the
last fiscal year and (iii) all of the Company's officers and directors as a     
group:                                                                          

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                                                                                      Percentage of   
                                                           Amount and Nature of     Outstanding Shares
Name and Address of Beneficial Owners(1)                  Beneficial Ownerships(2)      Owned(3)      
----------------------------------------                  ------------------------      --------      
Krishan K. Joshi(4)(5)                                             1,938,237             23.2%        
Richard P. McNeight(5)                                             1,031,145             12.1%        
William R. Craven(5)                                                 511,984              6.0%        
Michael F. Maguire(5)                                                 46,500               * %        
John P. Singleton(5)                                                  69,000               * %        
Lary J. Beaulieu(5)                                                  226,202              2.7%        
Kevin J. Bartczak(5)                                                  45,000                *%        
All officers and directors as a group (7 persons) (4)(5)           3,719,451             42.4%        

------------------------------                                                  
*        Less than 1%                                                           

(1)  The address of each such person is c/o Paravant Computer Systems, Inc.,    
1615A West Nasa Blvd., Melbourne, Florida 32901.                      

(2)  A person is deemed the beneficial owner of securities that can be acquired 
  by such person within 60 days from the date of this Proxy Statement upon
 the exercise of options or warrants. Each beneficial owner's percentage
    ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are 
    exercisable within 60 days from the date of this Proxy Statement have been
  exercised. Unless otherwise noted, the Company believes that all persons
  named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them.                

(3)  Based on 8,340,238 shares of Common Stock outstanding on June 12, 1998, and
  with respect to each holder of options or warrants exercisable within 60
days, the shares represented by such options or warrants. If the      
Acquisition is approved and consummated 3,950,000 additional shares of
Common Stock will be issued as consideration for the Acquisition which
    would have the effect of increasing the outstanding shares by 47.4%, to an
 aggregate of 12,290,238 shares, correspondingly reducing the percentage
     ownership of the persons listed in the table, resulting in the ownership of
more than 5% of the then outstanding Common Stock by each of four     
    shareholders of the entities being acquired, and increasing the then total
ownership by the then officers and directors of the Company to        
approximately 50%. See "Summary of the Acquisition - Parties to the   
Transaction - EDL/STL Shareholders Who Will Become More Than 5%       
Shareholders."                                                        

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(4)  Includes 1,448,775 shares of Common Stock held by UES Florida, Inc. ("UES  
Florida"), a wholly owned subsidiary of UES, Inc. ("UES"). Mr. Joshi, 
    Chairman and Chief Executive Officer of the Company, is the Chairman and a
     director of UES, of which he owns 58% of the shares of its common stock and
   which, as a result, he controls. Both UES and UES Florida have offices at
4402 Dayton-Xenia Road, Dayton, OH 45432.                             

(5)  Includes options obtained from UES Florida covering 148,617 shares for Mr. 
     Craven. Includes options granted under the Company's Incentive Stock Option
  Plan, as amended (the "Incentive Plan"), covering 193,334 shares for Mr.
    McNeight, 53,334 shares for Mr. Craven, 40,000 shares for Mr. Beaulieu and
  45,000 shares for Mr. Bartczak, options for 5,032 shares of Common Stock
   granted to each of Mr. Craven and Mr. Beaulieu under a nonqualified stock
option plan which plan has been terminated, options granted under the 
   Nonemployee Directors' Stock Option Plan (the "Directors' Plan") covering
  22,500 shares for Mr. Maguire and 15,000 shares for Mr. Singleton, other
nonqualified special stock options covering 8,000 shares for each of  
  Messrs. Maguire and Singleton granted on November 20, 1997, all of which
    options are currently exercisable and warrants held by Mr. Singleton which
     are presently exercisable for 25,000 shares. Excludes options granted under
   the Incentive Plan covering 84,666 shares for Mr. McNeight, 59,666 shares
for Mr. Craven, 38,000 shares for Mr. Beaulieu, 25,000 shares for Mr. 
   Bartczak and 30,000 shares for other officers and directors, all of which
options are not exercisable within 60 days of the date of this Proxy  
Statement.                                                            

Shareholder Agreements                                                          

        Each of Messrs. Joshi, McNeight and Craven have separately agreed with
Company to vote the shares of Common Stock as to which each of them has voting  
control (which in the case of Mr. Joshi includes the shares held by UES Florida)
in favor of the Acquisition to be presented at the Special Meeting. Each of them
has also indicated to the Company his intention to vote in favor of the name    
change proposal which is also to be considered at the Special Meeting. As of    
June 12, 1998 the shares under the voting control of Messrs. Joshi, McNeight and
Craven aggregated 3,081,049, or 36.9% of the outstanding Common Stock.          

PROPOSAL 1: NAME CHANGE TO PARAVANT INC.

         The Board of Directors has approved, and recommends to the shareholders
for approval, an amendment to the articles of incorporation which would change  
the corporate name of the Company from Paravant Computer Systems, Inc. to       
Paravant Inc.                                                                   

Reasons for the Proposal                                                        

   Consistent with the long range plans of the Board of Directors to
further diversify the business activities of the Company in the defense,        
communications and related electronics industry, the Board has recommended a    
change in the name of the Company from Paravant Computer Systems, Inc. to       
Paravant Inc. in order to present a corporate identity which is not limited     
solely to the Company's present core business. Currently, the Company's core    
business consists of design, manufacture, repair and sale of rugged and         
customized computer systems and medical computer assemblies. The Board plans to 
diversify the Company's business activities through expansion or acquisition.   
For example, if the acquisition proposal which is to be acted upon at the       
Special Meeting is approved and implemented, the Company will expand its        
activities by acquisition to include design, modification and marketing of      
avionics equipment for military use and design, modification and marketing of   
digital signal processing equipment for government intelligence and related     
operations. The proposal for the name change is not contingent upon approval of 
the acquisition proposal. It is the intention of the Board to pursue the        
diversification of the Company's business through acquisition or expansion      
whether or not the present proposal is approved.                                

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       The Board has selected and recommends to the shareholders approval of
the proposed name, Paravant Inc., based upon the Board's judgment that Paravant 
Inc. will present an identity which retains the Company's established reputation
for quality and performance in its current core business while, at the same     
time, not limiting its corporate identity to its present business. The trading  
symbols for the Company's securities, "PVAT" for the Common Stock, and "PVATW"  
for the Common Stock warrants would not be affected by the proposed change in   
the name of the Company and the currently outstanding share certificates bearing
the name Paravant Computer Systems, Inc. would continue to represent shares of  
the Company following the change in its name to Paravant Inc. If the proposal to
change the name of the Company is approved by the shareholders, the name change 
will be implemented by filing a name change amendment to the Company's articles 
of incorporation within thirty days after the Special Meeting.                  

Approval by Shareholders                                                        

  The affirmative vote of a majority of the shares of Common Stock
represented at the Special Meeting and entitled to vote thereon is required to  
approve the amendment to the articles of incorporation to change the name of the
Company from Paravant Computer Systems, Inc. to Paravant Inc. Shares of Common  
Stock that are designated to "abstain" and shares which are subject to broker   
non-votes with respect to approval of the name change will not be considered as 
votes cast with respect to approval of the name change.                         

Recommendation of the Company's Board of Directors                              

 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE NAME CHANGE.

 YOUR PROXY WILL BE VOTED "FOR" APPROVAL UNLESS YOU SPECIFY OTHERWISE.

 PROPOSAL 2: APPROVAL OF THE ACQUISITION

The Board of Directors has approved, and recommends that the  
shareholders approve, the acquisition (the "Acquisition") by the Company of all 
of the capital stock (the "EDL Common Stock") of Engineering Development        
Laboratories, Incorporated ("EDL") and substantially all of the business and    
operating assets (the "STL Purchased Assets") of Signal Technology Laboratories,
Inc. ("STL") under the terms of the Acquisition Agreement dated as of March 31, 
1998 (the "Acquisition Agreement") between the Company, EDL, STL, and the       
shareholders of EDL and STL, James E. Clifford, Edward W. Stefanko, C. David    
Lambertson, C. Hyland Schooley, Leo S. Torresani and Peter Oberbeck (Messrs.    
Clifford, Stefanko, Lambertson, Schooley and Torresani and Dr. Oberbeck,        
collectively, the "EDL/STL Shareholders"). The acquisitions of the EDL Common   
Stock and STL Purchased Assets will occur simultaneously at the closing under   
the Acquisition Agreement (the "Closing") and neither of such acquisitions will 
occur without the other.                                                        

        Shareholders of the Company should read the information concerning the
Acquisition which is included in this Proxy Statement following the statement of
the recommendation of the Board of Directors before deciding how to vote on the 
Acquisition proposal. See "Summary of the Acquisition," "Risk Factors Applicable
to the Acquisition," "The Acquisition," "The Acquisition Agreement,"            
"Description of EDL and STL," "Unaudited Pro Forma Consolidated Financial       
Information," and "Additional Information."                                     

Reasons for the Proposal                                                        

       The Board of Directors is committed to further diversify the business
activities of the Company in the defense, communications and related electronics
industry in the belief that such diversification can provide increased revenues 
and profitability and reduce the Company's dependence on revenues generated     
solely from its present customer base. The Board has further determined that any
such diversification is a logical expansion into a larger market which is       
distinguishable from, but compatible with its existing defense related business.
After its review of the business and prospects of EDL and STL during the initial
negotiations, and subsequently during the Company's due diligence               

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investigation, the Board unanimously approved the Acquisition. The Board        
believes that the Acquisition will result in a major expansion of the Company's 
customer base, increase the Company's revenues and profits, diversify the       
business of the Company and provide a basis for further related growth which    
will be in the best interests of the Company and its shareholders.              

Approval by Shareholders                                                        

  The affirmative vote of a majority of the shares of Common Stock
represented at the Special Meeting and entitled to vote thereon is required to  
approve the Acquisition Agreement and the acquisitions provided for therein     
(collectively, the "Acquisition"). Shares of Common Stock that are designated to
"abstain" and shares which are subject to broker non-votes with respect to      
approval of the Acquisition will not be considered as votes cast with respect to
approval of the Acquisition.                                                    

Recommendation of the Company's Board of Directors                              

    THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE ACQUISITION
AGREEMENT, AND THE ACQUISITION PROVIDED FOR THEREIN, BY THE UNANIMOUS WRITTEN   
CONSENT OF ALL OF THE DIRECTORS AND HAS DETERMINED THAT THE TERMS OF THE        
ACQUISITION AGREEMENT ARE FAIR TO, AND THAT THE ACQUISITION IS IN THE BEST      
INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.                                 

 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ACQUISITION.

 YOUR PROXY WILL BE VOTED "FOR" APPROVAL UNLESS YOU SPECIFY OTHERWISE.

 Pro Forma Book Value and Earnings Per Share

The following table sets forth certain historical per share data of Paravant and
EDL and combined per share data on an unaudited pro forma basis after giving    
effect to the Acquisition as a purchase transaction and assuming that 3,950,000 
shares of Paravant Common Stock will be issued under the Acquisition for all the
EDL Common Stock outstanding. This data should be read in conjunction with the  
separate historical financial statements of Paravant and separate historical    
consolidated financial statements of EDL included herein. The unaudited pro     
forma financial data is not necessarily indicative of the operating results that
would have been achieved had the transaction been in effect as of the beginning 
of the period presented and should not be construed as representative of future 
operations.                                                                     

                                                        [Enlarge/Download Table]

                                                       SEPTEMBER 30, 1997  MARCH 31, 1998
                                                       ------------------  --------------
                                                           PER SHARE         PER SHARE   
                                                       ------------------  --------------
                                                                                         
Historical - Paravant                                                                    
     Basic net income per share                            $     0.14       $     0.066  
     Diluted net income per share                          $     0.09       $     0.043  
     Book Value per share(1)                               $     1.03       $     1.126  

Historical - EDL                                                                         
     Basic net income per share                            $ 9,188.46       $ 9,338.717  
     Diluted net income per share                          $ 9,188.46       $ 9,338.717  
     Book Value per share(1)                               $ 5,659.04       $11,715.317  

Pro forma combined net income per share(2)                                               
     Basic pro forma net income per share                  $     0.65       $     0.522  
     Diluted pro forma net income per share                $     0.48       $     0.403  
     Equivalent pro forma net income per EDL share(3)      $ 3,832.37       $ 3,236.808  

Pro forma combined book value per share(4)                                               
     Pro forma book value per Paravant share                                $      3.78  
     Equivalent pro forma book value per EDL share(3)                       $ 30,329.01  

------------                                                                    
(1) The historical book value per share is computed by dividing stockholders'   
    equity by the number of shares of common stock outstanding at the end of the
period.                                                                 

(2) Basic net income per share is computed by dividing the pro forma net income 
   by the pro forma weighted average number of shares outstanding. Diluted net
    income per share is computed by dividing the pro forma net income by the pro
  forma weighted average number of shares outstanding and dilutive potential
shares outstanding. The pro forma weighted average number of shares     
outstanding has been calculated as if the shares issued for the EDL     
    Acquisition (3,950,000) were issued and outstanding at the beginning of each
period presented.                                                       

(3) The equivalent EDL pro forma share amounts are calculated by multiplying the
combined pro forma per share amounts by the conversion Ratio of 8,028.46
shares of Paravant Common Stock for each share of EDL Common Stock.     

(4) The pro forma book value per share data is computed by dividing pro forma   
stockholders' equity by the pro forma number of shares of common stock  
outstanding at the date indicated. The pro forma number of shares       
    outstanding was calculated as if the shares to be issued for the Acquisition
were outstanding at March 31, 1998.                                     

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Summary of the Acquisition                                                      

The Parties to the Transaction                                                  

       The Company. Paravant Computer Systems, Inc. will be the purchaser of
the EDL Common Stock and STL Purchased Assets under the terms of the Acquisition
Agreement. The Company is a Florida corporation, which is engaged in the        
business of design, manufacture, repair and sale of ruggedized, portable        
computers and communications interfaces utilized in outdoor and medical         
settings, customized computer systems and medical computer assemblies. The      
Company sells its products, directly or indirectly, to the U.S. and foreign     
military establishments, large aerospace and military contractors, government   
agencies regulating environmental, geologic and forestry matters, certain state 
departments of transportation, forest products companies, and medical device    
manufacturers. See "The Acquisition - Description of the Company."              

      In the Acquisition, through its acquisition of the EDL Common Stock,
the Company will acquire EDL as a wholly owned subsidiary. After the Acquisition
EDL will be operated as a wholly owned subsidiary of the Company. On January 30,
1998 the Company caused the incorporation of STL of Ohio, Inc. ("STL Ohio"), as 
an Ohio corporation and a wholly owned subsidiary of the Company, for the       
purpose of receiving the STL Purchased Assets in the Acquisition. In the        
Acquisition the STL Purchased Assets will be acquired by STL Ohio. After the    
Acquisition, STL Ohio will be operated as a wholly owned subsidiary of the      
Company.                                                                        

     The principal executive offices of the Company are located at 1615A
West Nasa Boulevard, Melbourne, Florida 32901 and its telephone number is (407) 
727-3672.                                                                       

     EDL. EDL is an Ohio corporation which is engaged in the business of
design, modification, and marketing avionics equipment for military use. EDL    
also owns approximately 56% of the capital stock of STL. See "The Acquisition - 
Description of EDL and STL."                                                    

       EDL is a privately held corporation. The EDL Common Stock is owned by
Messrs. Clifford, Stefanko and Lambertson. Mr. Clifford is a former director of 
the Company. Under the terms of the Acquisition Agreement the EDL Common Stock  
will be sold to the Company by Messrs. Clifford, Stefanko and Lambertson. The   
principal executive offices of EDL are located at 4391 Dayton-Xenia Road,       
Dayton, Ohio 45432 and its telephone number is (937) 429-7411.                  

     STL. STL is an Ohio corporation which is engaged in the business of
design, modification, and marketing digital signal processing equipment for     
government intelligence and related operations. See "The Acquisition -          
Description of EDL and STL."                                                    

        STL is a privately held corporation. EDL owns approximately 56% of the
capital stock of STL and the other shares are owned by Messrs. Schooley,        
Torresani and Dr. Oberbeck. Under the terms of the Acquisition Agreement, the   
STL Purchased Assets will be sold to the Company by STL and transferred to the  
Company's subsidiary, STL Ohio. In accordance with the Acquisition Agreement,   
and prior to the Acquisition, the shares of STL owned by EDL will be distributed
to the shareholders of EDL. The principal executive offices of STL are located  
at 4393 Dayton-Xenia Road, Dayton, Ohio 45432 and its telephone number is (937) 
429-7472.                                                                       

        The EDL/STL Shareholders. Each of the EDL/STL shareholders are parties
to the Acquisition Agreement. Under the terms of the Acquisition Agreement, upon
the Closing, the EDL/STL Shareholders will enter into the employment            

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agreements with the Company provided for in the Acquisition Agreement (the      
"Employment Agreements"), Messrs. Schooley, Torresani and Dr. Oberbeck will also
enter into the separate long-term non-competition agreements with the Company   
provided for in the Acquisition Agreement (the "STL Shareholder Non-Competition 
Agreements"), and Messrs. Clifford, Schooley and Stefanko will be appointed to  
the Company's Board of Directors.                                               

EDL/STL Shareholders Who Will Become Directors. The following 
paragraphs set forth information with regard to Messrs. Clifford, Schooley and  
Stefanko, who will be appointed as directors of the Company following the       
Closing under the terms of the Acquisition Agreement.                           

       Mr. Clifford, age 61, has served as President of EDL since 1989. From
1983 to 1989 he served as a vice president at Systems Research Laboratories.    
After 23 years of service specializing in Special Operations Forces, he retired 
from the U.S. Air Force at the rank of Colonel in 1983. Mr. Clifford holds      
Bachelor's and Master's of Science degrees in electrical engineering from       
Oklahoma State University. He served as a director of the Company from 1995     
until December, 1997. For the Acquisition, Mr. Clifford will receive 882,166    
shares of Common Stock. Mr. Clifford currently owns 13,500 shares of Common     
Stock.                                                                          

       Mr. Schooley, age 64, has served as President of STL since 1990. From
1962 to 1990 he served in various engineering and management capacities at      
Systems Research Laboratories. Mr. Schooley holds a Bachelor of Science degree  
in Electrical Engineering from the University of Missouri (Columbia). Mr.       
Schooley will receive 651,750 shares of Common Stock for the Acquisition. Mr.   
Schooley currently owns 1,000 shares of Common Stock.                           

         Mr. Stefanko, age 57, has served as Executive Vice President, Secretary
and Treasurer of EDL since 1988. From 1990 to 1998 he served as Secretary and   
Treasurer of STL. Mr. Stefanko holds a Bachelor of Science degree in Physics and
a Master of Business Administration from the University of Dayton. For the      
Acquisition, Mr. Stefanko will receive 882,167 shares of Common Stock.          

EDL/STL Shareholders Who Will Become More Than 5% Shareholders.                 

        As consideration for the Acquisition the Company will issue an aggregate
of 3,950,000 shares of Common Stock, 2,646,500 shares of which will be divided  
equally among Messrs. Clifford, Stefanko and Lambertson as EDL Common Stock Sale
Consideration and 1,303,500 shares of which will be divided among Messrs.       
Schooley and Torresani and Dr. Oberbeck, 1/2, 1/4 and 1/4, respectively, as STL 
Shareholder Non-Competition Agreement Consideration. As a result of the issuance
of the 3,950,000 shares for the Acquisition, and assuming that the otherwise    
outstanding shares of Common Stock as of that date was the same as the 8,340,238
shares which were outstanding on June 12, 1998, Messrs. Clifford, Lambertson,   
Stefanko and Schooley would then each become holders of more than 5% of the then
outstanding Common Stock. Each of such persons would then hold the following    
number of shares and percentage of total outstanding shares: (i) Mr. Clifford,  
895,616 shares (including 13,500 shares owned prior to the Acquisition), 7.3%;  
(ii) Mr. Lambertson, 882,166 shares, 7.2%; (iii) Mr. Stefanko, 882,166 shares,  
7.3%; Mr. Stefanko, 882,166 shares, 7.2%; and (iv) Mr. Schooley, 652,750 shares 
(including 1,000 shares owned prior to the Acquisition), 5.3%. Messrs. Clifford,
Stefanko and Schooley, the EDL/STL Shareholders who will be named as directors  
of the Company as a result of the Acquisition would hold an aggregate of        
2,430,533 shares, which together with the 3,719,451 shares held by the current  
officers and directors of the Company would aggregate 6,149,984 shares, or      
approximately 50% of the total then outstanding shares of the Company.          

How the Acquisition Will Be Completed                                           

At the Closing, the following will take place:                        

              Messrs.  Clifford,  Stefanko and  Lambertson  will deliver the EDL
              Common  Stock to the Company in exchange  for the EDL Common Stock
Sale Consideration consisting of the following:     

An aggregate of $4,650,000 in cash;                 

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       Promissory notes in the aggregate amount of $3,238,000; and

An aggregate of 2,646,500 shares of Common Stock;   

              STL will  deliver  the STL  Purchased  Assets  to the  Company  in
              exchange for the STL Purchased Assets Consideration  consisting of
the following:                                      

              The Assumption by the Company of the liabilities designated in the
              Acquisition  Agreement as the "Assumed  Liabilities,"  which as of
 June 12, 1998 were estimated to be nominal in amount;

$1,700,000 in cash; and                             

           The contingent future payment of the "Cash Earn-Out" as defined
in the Acquisition Agreement.                       

            Messrs. Schooley and Torresani and Dr. Oberbeck will deliver the
        STL Shareholder Non-Competition Agreements to the Company in
      exchange for the STL Shareholder Non-Competition Agreement
Consideration consisting of the following:          

An aggregate of $2,350,000 in cash;                 

       Promissory notes in the aggregate amount of $1,562,000; and

An aggregate of 1,303,500 shares of Common Stock.   

        The Company and the EDL/STL Shareholders will enter into and
deliver the Employment Agreements.                  

Fairness Opinion                                                                

In deciding to approve the Acquisition, the Company's Board of
Directors considered, among other things, opinions from RAS Securities Corp.,   
members of the National Association of Securities Dealers, Inc. (the "NASD") and
the American Stock Exchange, Inc. concerning the value of the Common Stock to be
issued as a portion of the consideration for the Acquisition and the fair market
value of the businesses and assets of EDL and STL to be acquired in the         
Acquisition. See "The Acquisition - Fairness Opinion."                          

Financing the Acquisition                                                       

         The Company intends to finance the cash portion of the consideration to
be paid by it in the Acquisition. See "The Acquisition - Acquisition Financing."

    The balance of the consideration to be paid by the Company for the
Acquisition will consist of promissory notes and Common Stock and the Cash      
Earn-Out to be paid from the revenues of the Company.                           

Federal Income Tax Consequences of the Acquisition                              

     The goodwill recorded by the Company for the acquisition of the STL
Purchase Assets is deductible over a fifteen year period. The goodwill recorded 
by the Company for the acquisition of the EDL Common Stock is not deductible for
tax purposes. The cost of the STL Shareholder Non-Competition Agreements is     
deductible over fifteen years.                                                  

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Accounting Treatment of the Transaction                                         

       The Acquisition will be accounted for using the purchase method under
generally accepted accounting principles for accounting and financial reporting 
purposes. The amounts allocated to the assets acquired are based on management's
estimate of their fair values with the excess of purchase price over fair value 
allocated to goodwill. The value of the Common Stock issued in connection with  
the Acquisition will be based on a separate valuation of the shares taking into 
consideration the effect of price fluctuations, quantities of shares traded and 
issuance costs. Additional compensation expense may be recorded by the Company  
for the Cash Earn-Out for the fiscal years ended September 30, 2000 to September
30, 2003 contingent upon the achievement of specified pre-tax earnings. Goodwill
will be amortized over a fifteen year period.                                   

Resales of Common Stock                                                         

        All of the shares of Common Stock to be issued in the Acquisition will
be considered "restricted securities" under federal securities laws and will be 
subject to the "lock-up" provision of the Acquisition Agreement. Consequently,  
the transferability of such shares by their holders will be limited following   
the Closing. See "The Acquisition-Resales of Common Stock" and "The Acquisition 
- Lock-Up of Shares."                                                           

Absence of Dissenters' Rights                                                   

       The Company is incorporated in the State of Florida, and accordingly,
is governed by the provisions of the Florida Business Corporation Act (the      
"FBCA"). Shareholders of the Company are not entitled to dissenters' rights to  
dissent from and obtain payment of the fair value of their shares under the FBCA
with respect to the Acquisition.                                                

NASD Requirement for Shareholder Approval                                       

         The By-Laws of the NASD require that the Company obtain the approval of
its shareholders in connection with a transaction, other than a public offering,
involving the sale or issuance by the Company of Common Stock (or securities    
convertible into, or exercisable for, Common Stock) equal to twenty percent or  
more of the Common Stock, or twenty percent or more of the voting power of the  
Company's securities, which were outstanding before the issuance of the Common  
Stock in the Acquisition. As a result, even though the Acquisition is not       
required to be approved by the shareholders of the Company under the terms of   
the FBCA, such shareholder approval is required under the terms of the By-Laws  
of the NASD to which the Company is subject.                                    

Markets and Prices for the Shares of the Parties and Related Shareholder Matters

         The shares of Common Stock commenced trading on the Nasdaq Stock Market
National Market under the symbol "PVAT" on June 3, 1996. The range of high and  
low reported closing sales prices for the Common Stock as reported by Nasdaq    
(reflecting inter dealer prices, without retail mark-up, markdown or commission 
and not necessarily representing actual transactions) since the commencement of 
trading were as follows:                                                        

                                                                [Download Table]

                                                               High      Low    
                                                               ----      ---    
                                                                                
June 3, 1996 to June 30, 1996(1)............................. $5-3/8    $1-7/8  
July 1, 1996 to September 30, 1996(1)........................ $6-3/8    $4-5/8  
October 1, 1996 to December 31, 1996......................... $8        $4-15/16
January 1, 1997 to March 31, 1997............................ $7-3/8    $5      
April 1, 1997 to June 30, 1997............................... $7        $3      
July 1, 1997 to September 30, 1997........................... $6-5/8    $3      
October 1, 1997 to December 31, 1997......................... $5-3/32   $3-3/8  
January 1, 1998 to March 31, 1998............................ $4        $2-11/16
April 1, 1998 to June 12, 1998............................... $2-31/32  $1-15/16

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

On March 30, 1998, the last trading day prior to the public   
announcement of the Acquisition, the sale prices for the Common Stock as        
reported by Nasdaq ranged from a high of $3 per share to a low of $2-11/16 per  
share.                                                                          

       On June 12, 1998, as reported by the Company's transfer agent, shares
of Common Stock were held by 93 record holders, including several holders who   
are nominees for an undetermined number of beneficial owners. Based upon past   
requests by nominee holders for materials to be forwarded to beneficial owners, 
the Company estimates that there are more than 1,200 beneficial owners of Common
Stock.                                                                          

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

         EDL and STL are each privately held corporations and there is no public
trading in the shares of either of such corporations.                           

Risk Factors Applicable to the Acquisition

        Each shareholder of the Company should carefully consider and evaluate
the following factors, among others, before voting on the Acquisition proposal. 

         Exceptional Earnings of EDL and STL. During recent periods,
       including the periods consisting of the fiscal year ended
               September 30, 1997 and the interim fiscal six months period ended
           March 31, 1998, the revenues and earnings of EDL and STL were
            materially higher than those of earlier periods. Management of
            the Company has attempted to realistically and fairly evaluate
           results of operations for these recent periods in relation to
            those of prior periods and reasonable expectations for periods
            following the Closing in determining to pursue the Acquisition
     and in determining the consideration to be paid for the
           Acquisition. Management's evaluation of the results of recent
             periods may not have been adequately discounted with the result
             that the Acquisition could be less favorable to the Company and
              its shareholders than anticipated by management when formulating
its recommendation for approval.                  

             Ability to Transition Business of STL. After the Closing, it is
            the intention of the parties to refer and transition customers
            and business of STL to STL Ohio. A major part of such business
               may not be transferable from STL without the consent of the other
             contracting party. There is no assurance that such consent will
be granted.                                       

            Dependence Upon Acquired Management. The continuing successful
              operation of the businesses to be acquired in the Acquisition is
              largely dependent upon the retention of the EDL/STL Shareholders
               and other key management personnel of EDL and STL as employees of
            EDL and STL Ohio following the Closing. Because the businesses
         being acquired represent a diversification of the Company's
           business functionally and geographically, the loss from a key
               management position of one or more of the EDL/STL Shareholders or
              of any other key management personnel from EDL or STL Ohio could
have an adverse                                   

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           effect on one or both of the acquired businesses and upon the
           realization of the benefits anticipated from the Acquisition.

             Integration of Operations: Management of Growth. In determining
               that the Acquisition is in the best interests of the Company, the
              Company's Board of Directors has assumed the continuation of the
            business of EDL, after it becomes a subsidiary of the Company,
     and the continuation of the business of STL after it is
    transferred to STL Ohio, and that such business can be
          assimilated into the operations of the Company with relative
              ease. Under the terms of the Employment Agreements to be entered
      into at the Closing, the Company will employ the EDL/STL
       Shareholders to continue their management of the acquired
               operations in a largely autonomous manner and with minimal direct
         oversight by the Company's Board of Directors and executive
         officers. The Employment Agreements are intended to provide
            consistent management of the acquired operations, however, the
               difficulties of assimilation may be increased by the necessity of
              coordinating geographically separated organizations, integrating
         personnel with disparate business backgrounds and combining
        different corporate cultures. The process of combining the
            acquired businesses may cause an interruption of, or a loss of
              momentum in, the Company's business, which could have an adverse
          effect on the revenues and operating results of the combined
             Company. There is no assurance that the combined entity will be
          able to retain all of its key management and other operating
           personnel or that the combined entity will realize any of the
other anticipated benefits of the Acquisition.    

              Dilution; Voting Control. The Company will issue an aggregate of
       3,950,000 shares of Common Stock as consideration for the
          Acquisition which would represent approximately 47.4% of the
               number of shares of Common Stock outstanding as of June 12, 1998.
  Accordingly, the Acquisition will have the effect of
          substantially reducing the percentage voting interest in the
            Company prior to the Acquisition. The substantial ownership of
             Common Stock by the EDL/STL Shareholders, as a group, after the
        Acquisition will provide them with the ability to exercise
          substantial influence in the election of directors and other
           matters submitted for approval by the Company's shareholders.
             Following the Acquisition, the ownership of Common Stock by the
              EDL/STL Shareholders who will become directors together with the
     present officers and directors of the Company and their
     affiliates will then represent approximately 50% of the
       outstanding shares of the Company. Such concentrations of
               ownership of the Common Stock may make it difficult or impossible
               for other shareholders of the Company to successfully advocate or
           oppose matters which may be submitted for shareholder action.
               Such ownership may also have the effect of delaying, deterring or
               preventing a change in control of the Company without the consent
               of such major shareholders. In addition, sales of Common Stock by
            such major shareholders could result in a change in control of
the Company.                                      

             Pro Forma Effect on Book Value and Earnings Per Share. On a pro
              forma basis, the Acquisition will have a dilutive effect on book
       value per share of the Company as of March 31, 1998 while
          increasing earnings per share. See "Pro Forma Book Value and
               Earnings Per Share." The extent of dilution or enhancement to the
          Company's shareholders with respect to future book value and
              earnings per share will depend on the actual results achieved by
        the Company following the Acquisition as compared with the
       results that could have been achieved by the Company on a
          stand-alone basis over the same period in the absence of the
               Acquisition transactions. There is no assurance as to such future
           results, and, accordingly, as to whether the Acquisition will
              ultimately be dilutive or accretive to the Company's future book
value per share or earnings per share.            

             Resales of Common Stock and Market Volatility. The Company will
          issue and deliver an aggregate of 3,950,000 shares of Common
         Stock as consideration for the Acquisition. Such additional
              shares would represent, in the aggregate, approximately 47.4% of
              the number of shares outstanding as of June 12, 1998. The shares
            to be issued in the Acquisition will be considered "restricted
            securities" under applicable securities laws, thereby limiting
           the resale of such shares into the public market. All of such
          shares will, however, become eligible for sale in the public
  market in accordance with SEC Rule 144 or 145 ("Rule

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           144 or 145") one year following the Closing with certain volume
       and manner of sale limitations continuing for only one year
        thereafter (except as to shares held by persons deemed to be
             affiliates of the Company). In addition, the Company has agreed o
          file a registration to register the shares with the SEC within
         twelve months after the Closing. Because such shares are also
              restricted by the lock-up provisions of the Acquisition Agreement,
            it is not anticipated that such shares would be offered for sale
             until at least 18 months after the  Closing. As of June 12, 1998,
              approximately 5,047,019 shares, or 60.5% of the outstanding shares
             of Common Stock, is held by nonaffiliates of the Company. Trading
            in the Common Stock has historically been limited, and there can
            be no assurance that a more active trading market for the Common
              Stock will develop or be sustained. Because of the limited trading
         liquidity in the Common Stock, the market price of the Common
             Stock has been vulnerable to significant fluctuations in response
              to very limited market trading in such shares. The market price of
            the Common Stock will remain subject to significant fluctuations
           in response to such factors as well as in response to operating
           results and other factors affecting the stock market generally.
             The stock market in recent years has experienced price and volume
              fluctuations that often have been unrelated or disproportionate to
            the operating performance of the issuers. These fluctuations, as
         well as general economic and market conditions, may adversely
      affect the market price of the Common Stock in the future.

         Government Regulation and Contracts. Commercial enterprises
             engaged primarily in supplying equipment and services, directly
           or indirectly, to the United States government (including the
        Company, EDL and STL) are subject to special risks such as
          dependence on government appropriations, termination without
             cause, contract renegotiation and competition for the available
           Department of Defense ("DoD") business. In the opinion of the
               respective managements of the Company, EDL and STL, none of their
              respective entities has a material amount of its business as DoD
            contracts that are subject to renegotiation in the foreseeable
             future and none of them is aware of any proceeding to terminate
              material DoD contracts in which their respective entities may be
              indirectly involved. Some of the Company's contracts provide for
    the right to audit its cost records and are subject to
regulations providing for price reductions.       

              Continuing Dependence Upon a Limited Customer Base; Competition.
               The Acquisition is expected to result in a diversification of the
            Company's business and a major expansion of its customer base.
               The respective businesses of EDL and STL are distinguishable from
               the Company's existing defense-related business, however, because
            the respective businesses of EDL and STL are also concentrated
        primarily in military and government-related business, the
          business of the Company after the Acquisition, although more
            diversified with an expanded customer base will continue to be
               subject to the risks related to such business and the competition
          for such business from other sources. See "the Acquisition -
description of EDL and STL."                      

 The Acquisition

Background                                                                    

  In order to increase the Company's access to capital markets and
enhance opportunities for further growth, the Company undertook and completed an
initial public offering of Common Stock in June, 1996. In connection with its   
determination to undertake the public offering, the Board of Directors          
determined to pursue, as a long-range goal, further expansion and               
diversification of the Company's business in the defense, communications and    
related electronics industry. The Board concluded that such diversification     
would most likely be achieved through the Company's acquisition of one or more  
established businesses. Any such businesses should be engaged in activities     
which would be distinguishable from, but compatible with, the existing business 
of the Company and should represent a logical expansion of the Company's        
business. It was also the intention of the Board that a significant portion of  
the acquisition price for any such acquisition should consist of Common Stock   
and that incentives be provided to retain the proven management personnel of any
such business.                                                                  

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      During the second quarter of 1997, Krishan K. Joshi, Chairman of the
Board of Directors of the Company, and Mr. Clifford, who at that time was a     
member of the Board of Directors of the Company, began to explore the mutual    
opportunities that might result from the acquisition by the Company of EDL. Mr. 
Clifford was, and is, a member of the Board of Directors, executive officer, and
major shareholder of EDL. Mr. Clifford serves as President of EDL and is the    
owner of 1/3 of the EDL Common Stock. Because of his association with Mr.       
Clifford as a director of the Company and his long personal and business        
friendship with Mr. Clifford, Mr. Joshi was generally knowledgeable about the   
business of EDL. Similarly, the other members of the Board of Directors of the  
Company, because of their association with Mr. Clifford as a director of the    
Company, had some knowledge concerning the business of EDL. In addition to his  
position as Chairman of the Board and Chief Executive Officer of the Company,   
Mr. Joshi's principal occupation is Chairman of the Board and Chief Executive   
Officer of UES, Inc., an Ohio corporation ("UES"). Mr. Joshi maintains his      
office in the principal executive offices of UES which are located at 4401      
Dayton-Xenia Road, Dayton, Ohio 45432. Mr. Clifford maintains his office in the 
principal executive offices of EDL, which are also located in the same building.

   After initial discussions between Messrs. Joshi and Clifford, and
between other members of the Board of the Company and Mr. Clifford, the Board   
concluded that the possible acquisition of EDL might be consistent with the     
diversification and expansion goals of the Board and that possible acquisition  
should be pursued further. STL is a majority owned subsidiary of EDL, which owns
approximately 56% of the STL capital stock. During subsequent discussions       
Messrs. Joshi and Clifford suggested that consideration also be given to the    
acquisition of minority interest in STL, which is owned by Messrs. Schooley and 
Torresani and Dr. Oberbeck. The principal executive offices of STL are located  
in the same building as those of EDL and UES and Messrs. Joshi and Clifford were
well acquainted with the management and operations of STL. After initial        
discussions between Mr. Joshi, Mr. Clifford and Messrs. Schooley and Torresani  
and Dr. Oberbeck, Mr. Joshi recommended, and the Company's Board of Directors   
agreed, to pursue the possible acquisition of the businesses of both EDL and    
STL.                                                                            

 On November 20, 1997 the Company's Board of Directors adopted a
resolution authorizing negotiations with EDL, STL and all of the EDL/STL        
Shareholders for the purpose of pursuing the terms of a letter of intent        
providing for the acquisition by the Company, after completion a satisfactory   
due diligence investigation by the parties. Mr. Clifford, as a director of the  
Company, abstained from the vote taken by the Company's Board of Directors.     
Following the November 20, 1997 meeting of the Company's Board, Mr. Joshi and   
the other executive officers of the Company devoted a substantial amount of time
and effort in conducting an initial due diligence investigation of EDL and STL  
and in the formulation of an initial acquisition proposal. During this period,  
the Company and EDL and STL mutually exchanged preliminary due diligence        
information. In order to assure a candid consideration of the merits of the     
proposed acquisitions, and to avoid any possible conflict with Mr. Clifford's   
duties as a member of the Company's Board in connection with the Board's        
consideration of the proposed acquisitions, Mr. Clifford resigned as a director 
of the Company on December 30, 1997.                                            

        Mr. Clifford has continued to serve as a director and President of EDL
and was directly involved in the formulation of EDL's negotiations with the     
Company toward the development of the initial and subsequent letters of intent  
and EDL's agreement to the terms of the Acquisition Agreement. Mr. Clifford, as 
an EDL/STL Shareholder, is also a party to the Acquisition Agreement and, as    
such, will be entitled to his pro rata share of the consideration to be paid for
the Acquisition, and will enter into an Employment Agreement with the Company   
upon consummation of the Acquisition transaction. After his resignation as a    
director of the Company, Mr. Clifford's negotiations directly with the Company  
concerning the proposed acquisitions were comparable to those of the other      
EDL/STL Shareholders. Edward W. Stefanko, a director, Executive Vice President, 
and a shareholder of EDL, served as the principal negotiator for EDL, STL and   
the EDL/STL Shareholders in the negotiations with the Company concerning the    
Acquisition.                                                                    

       On September 19, 1997, the Board of Directors of the Company approved
and agreed to the terms of a non-binding letter of intent providing for the     
drafting of a definitive acquisition agreement for the acquisition of EDL and   
STL. During the period from September 19, 1997 until January 23, 1998 several   
drafts of acquisition agreements were proposed by the parties and negotiations  
between the Company and EDL and STL continued. An amended letter of             

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intent was signed by the Company and the representative of EDL and STL on       
January 23, 1998. A further amended letter of intent was signed on February 13, 
1998. Following telephone conference meetings of the Board members and the      
executive officers of the Company, during which the executive officers provided 
the directors with information concerning the negotiations and discussions, due 
diligence and other information with respect to the determination of            
management's recommendation for approval, the Company's Board of Directors, in a
unanimous action by written consent, approved the acquisition agreement which   
was executed by the parties on March 31, 1998. On March 31, 1998 the Company    
issued a press release announcing the proposed Acquisition. On April 23, 1998   
the parties amended and restated the acquisition agreement as the Acquisition   
Agreement dated as of March 31, 1998 (the "Acquisition Agreement"). As of       
June 17, 1998 the parties further amended the Acquisition Agreement to change   
the latest closing date for the Acquisition transaction until September 30,     
1998. The parties have continued to exchange information and coordinate         
activities to prepare for the Company's Special Meeting of shareholders and for 
the anticipated consummation of the Acquisition.                                

    After approximately September 1, 1997, the Company was assisted by outside
legal counsel in its negotiations with EDL, STL and the EDL/STL Shareholders,   
and in the formulation and drafting of the letters of intent and the Acquisition
Agreement. The Board of Directors also engaged the services of RAS Securities   
Corp. to conduct a financial analysis of the proposed acquisitions and to render
an opinion as to the fairness of the terms of the proposed acquisition to the   
Company and its shareholders from a financial point of view.                    

During the period from September 19, 1997 through the signing of the  
Acquisition Agreement, EDL and STL were represented in negotiations with the    
Company by the direct involvement of their respective executive officers and the
EDL/STL Shareholders. As noted above, Mr. Clifford was instrumental in the      
initial consideration of the proposal and Mr. Stefanko subsequently served as   
the principal negotiator for EDL and STL and their respective shareholders. EDL 
and STL have been assisted by outside legal counsel throughout the negotiations.

Reasons for the Acquisition                                                     

   The Board of Directors and executive officers of the Company believe that
the terms of the Acquisition are fair to, and in the best interests of, the     
Company and the shareholders of the Company. In reaching its determination to   
approve the Acquisition, the Board identified and analyzed the following factors
and potential benefits, among others, relating to the Acquisition:              

  alternatives for growth in the defense and related electronics industry,
     including internal development, which the Board viewed as less advantageous
   due to the current full commitment of the Company's management to current
   business activities, concentration of the Company's management experience
in the Company's current business activities, the Company's limited   
development resources and the uncertainty of the success of such      
     development efforts, none of which appeared to present the opportunity that
the acquisition of EDL and STL presented;                             

    the strategic value of diversifying the business activities of the Company
by adding the military avionics business of EDL and the digital signal
processing business of STL;                                           

     the expectation that the businesses of EDL and STL will be compatible with,
    and complementary to, the Company's computer related business and that the
     Acquisition may be viewed favorably by investors as a logical expansion and
diversification of the Company's business;                            

     information concerning the Company's, EDL's and STL's respective prospects,
financial performance, financial condition, assets and operations;    

  the financial terms of the Acquisition and its possible effect on future
earnings;                                                             

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     the opinion of RAS Securities Corp. that the value of the EDL Common Stock,
     STL Purchased Assets, and the STL Shareholder Non-Competition Agreements is
     in excess of the value of the cash, promissory notes and Common Stock to be
paid by the Company as consideration for the Acquisition; and         

a review with the Company's outside legal counsel of the terms of the 
Acquisition Agreement.                                                

  Following its deliberations concerning such factors, the Company's Board
concluded that the Acquisition may increase the long-term prospects of the      
Company for continued growth, may increase stockholder value, and is in the best
interests of the Company and its shareholders financially and strategically.    

The Company's Board also considered a variety of potentially negative 
factors in its deliberations concerning the Acquisition, including (i) the      
recognition that the revenues and profits of EDL and STL in recent periods are  
probably in excess of those that may be expected after the Acquisition (ii) the 
possible dilutive effect of the issuance of the Common Stock in the Acquisition;
(iii) the additional debt of the Acquisition Financing to be incurred by the    
Company to carry out the Acquisition; (iv) the transaction costs and costs of   
integrating the businesses to be acquired in the Acquisition; (v) the risk that,
despite the obtaining of the Employment Agreements, key personnel of EDL and/or 
STL may not be retained by the Company causing an adverse effect on the         
continuing business operation acquired in the Acquisition; (vi) the risk that   
key business contracts or relationships of STL may not be transferred to STL    
Ohio in connection with the Acquisition reducing the realization of the value   
sought to be obtained by the Acquisition; and (vii) the risk that other benefits
sought to be obtained by the Acquisition might not be obtained.                 

     Given the variety of factors, both positive and negative, considered by the
Company's Board, the Board did not quantify or otherwise assign relative weights
to the specific factors considered. In addition, individual members of the      
Company's Board may have given different weights to the various factors         
considered. The Board of Directors was unanimous in its approval of the         
Acquisition under the terms of the Acquisition Agreement.                       

Fairness Opinion                                                                

 RAS Securities Corp. ("RAS") was requested by the Company to render its
opinion (the "Common Stock Value Opinion") as to the value and fairness (from a 
financial point of view) of the Common Stock which will be issued as a portion  
of the consideration to be paid by the Company in the Acquisition for the       
acquisition of the EDL Common Stock, the STL Purchased Assets, and the STL      
Shareholder Non-Competition Agreements under the terms of the Acquisition       
Agreement. The Company also requested the opinion (the "EDL/STL Value Opinion") 
of RAS as to the value and fairness (from a financial point of view) of the     
proposed acquisition of the EDL Common Stock, the STL Purchased Assets, and the 
STL Shareholder Non-Competition Agreements. The Company selected RAS from among 
a list of ten or more firms assimilated from recommendations of the Company's   
independent financial services firm and from research undertaken by the         
Company's executive officers. Based upon responses from among several of the    
listed firms solicited by the Company, management selected RAS based upon its   
experience in valuations through its own debt and/or equity public underwritings
and private placement offerings of its own clients, in providing valuations for 
offerings in the capacity of a qualified independent underwriter for several    
public underwriting offerings by another underwriter, and in the providing of   
fairness opinions for merger transactions.                                      

   In arriving at its Common Stock Value Opinion, RAS reviewed the Company's
Form 10-KSB for the fiscal year ended September 30, 1997 and the Company's Form 
10-QSB for the quarter ended December 31, 1997; reviewed the preliminary        
unaudited financial statements of EDL/STL for the year ended December 31, 1997  
and unaudited financial statements of EDL/STL for the year ended December 28,   
1996 (the "EDL/STL financial statements"); reviewed the acquisition agreement   
dated March 31, 1998 (the "Agreement"); reviewed all trading activity and the   
market maker activity for the Common Stock for the period from June 3, 1996     
through March 15, 1998; and reviewed and analyzed companies and trading activity
and transactions similar to the Acquisition. In rendering its opinion, RAS      
relied upon and assumed, without independent verification or investigation, the 
accuracy and completeness of the foregoing information, as well as the accuracy 
and completeness of all information provided to it by the Company and its       
employees, representatives and agents.                                          

 Based upon its review and its analysis of the foregoing information and
based upon the average closing bid price of the Common Stock for the sixty day  
period ending March 15, 1998, RAS expressed its opinion that the Common Stock to
be paid as a portion of the purchase price for the Acquisition, ascribing to it 
a value in the range of 40% to 50% of such average closing bid price, has a     
value of $1.40-1.76 per share, or approximately $1.58 per share. Such estimation

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takes into consideration, amongst other material things, (i) its illiquid and   
unregistered state; (ii) the relatively thin volume in the Common Stock compared
to the 3,950,000 shares to be issued for the Acquisition; (iii) the few large   
and consistent market-makers in the shares; and (iv) the restrictive nature of  
the shares in that none of the 3,950,000 shares will be free trading prior to   
the end of the eighteen month "lock-up."                                        

In arriving at its EDL/STL Value Opinion, RAS reviewed the Agreement; 
reviewed the EDL/STL financial statements; reviewed and analyzed transactions   
and companies similar to the Acquisition; reviewed comparable company           
acquisitions; the financial projections for EDL/STL (which were prepared by the 
Company consistent with the EDL/STL financial statements); and reviewed         
performance and valuations of small defense electronic companies that are       
publicly held. In rendering its opinion, RAS relied upon and assumed, without   
independent verification or investigation, the accuracy and completeness of the 
foregoing information, as well as the accuracy and completeness of all          
information provided to it by the Company and its employees, representatives and
agents.                                                                         

  RAS identified public companies that are similar in the type of business
and operation to EDL/STL (i.e., small defense electronic companies) ("comparable
companies") and calculated implied values from the harmonic mean averages of the
comparable companies using the market capitalization approach (i.e., the market 
value of the equity, plus long and short term debt, less cash and cash          
equivalents). The harmonic mean gives equal investment weight to each of the    
comparable companies. (For example, the harmonic mean of the comparable         
companies' price/earnings ratios ("p/e") is calculated as their average of      
earnings/price ratios ("e/p"). Price is in the denominator. Earnings are        
expressed as so much money per dollar of investment and equal weight is given to
an equal investment in each company. The arithmetic mean of the comparable      
companies' p/e's gives equal weight to each company's earnings and assumes that 
the investments in the companies are in proportion to their p/e ratios. Greater 
weight is given to higher p/e companies than to lower p/e companies.            

In the course of its review, RAS relied upon and assumed, without     
independent verification, the accuracy and completeness of the financial        
information provided to them. In arriving at its opinion, RAS did not perform or
obtain any independent appraisal of the assets and business of EDL/STL. In      
arriving at its conclusion, RAS relied most heavily on the comparison of EDL/STL
to its peer group of comparable companies. The peer group of comparable         
companies were considered to be (small capitalization public companies primarily
engaged in the business of designing, developing and/or manufacturing military  
electronic hardware and related products).                                      

   Based upon its foregoing review, RAS expressed its opinion that as of the
date of and immediately following the closing of the Acquisition (assuming such 
closing takes place in July of 1998) the "fair market value" of the business and
assets of EDL/STL as a going concern is substantially in excess of the          
consideration before the Cash Earn-Out (which may be substantial, see "The      
Acquisition Agreement--Cash Earn-Out") to be paid by the Company for the        
Acquisition.                                                                    

Based upon the Common Stock Value Opinion of $1.40-1.76 per share, the
aggregate value of the 3,950,000 shares of Common Stock to be issued for the    
Acquisition would be $5,530,000-6,952,000 and resulting aggregate value of the  
Common Stock together with the $8,700,000 in cash and $4,800,000 in promissory  
notes, the total Acquisition consideration to paid by the Company at the Closing
would be $19,030,000-20,452,000. Given the conclusion in the EDL/STL Value      
Opinion that the value of the business and assets of EDL/STL to be acquired is  
substantially in excess of the consideration, before the Cash Earn-Out (which   
may be substantial and would be paid from the EDL/STL earnings), to be paid by  
the Company, the Board of Directors of the Company has concluded that the       
Acquisition will be fair to the Company and its shareholders from a financial   
point of view.                                                                  

 The opinions of RAS are directed to fairness, from a financial point of
view, of the terms of the Acquisition to the Company and do not constitute a    
recommendation of the Acquisition over other courses of action that may be      
available to the Company or constitute a recommendation as to how any           
shareholder should vote with respect to approval of the Acquisition transaction.

RAS is a member of NASD and the American Stock Exchange and has its   
principal office at 50 Broadway, New York, New York 10004.                      

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The amount of consideration to be paid for the Acquisition was determined by    
the Company.                                                                    

Acquisition Financing                                                           

    The Company intends to finance the cash portion of the consideration to be
paid by the Company at the Closing. The Company has received a conditional      
commitment from National City Bank, Dayton, Ohio for floating rate financing in 
an amount up to $14,000,000 (the "Acquisition Financing") under a revolving line
of credit with a maturity date of December 31, 2000 convertible thereafter to   
five year term debt. Pursuant to the conditional commitment, the rate of        
interest would be determined at a rate equal to the Bank's prime rate, the      
federal funds rate or the 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 Acquisition  
Financing would be secured by a first security interest in accounts, contract   
rights, inventory, equipment and other security reasonably requested by the     
lender. It is anticipated that the loan agreement applicable to the Acquisition 
Financing will include various loan covenants and restrictions of a customary   
nature. Such covenants and restrictions, while the Acquisition Financing is     
outstanding, under certain circumstances, may limit the ability of the Company  
to pay cash dividends, undertake additional acquisitions, make certain changes  
in the Company's management, or otherwise limit obligations undertaken by, or   
operations of, the Company. The Company anticipates obtaining the line of credit
immediately preceeding the closing of the transaction.                          

The ability of the Company to close the Acquisition transaction is    
dependent upon the Company's obtaining the Acquisition Financing or other       
financing in a comparable amount from another source. Under the terms of the    
Acquisition Agreement, the availability of the Acquisition Financing is not a   
condition to the Company's obligation to close the Acquisition transaction.     

Promissory Notes                                                                

     A portion of the Acquisition consideration will consist of promissory notes
in the aggregate amount of $4,800,000. Each of the notes will be a subordinated 
note which is subordinate and junior to any indebtedness of the Company to      
National City Bank, Dayton, Ohio. Each of the notes will bear interest at 8% per
annum based upon a 365 day year and the principal amount of each such note will 
be payable in 12 equal quarterly payments, together with the interest thereon,  
with the first such quarterly payment to be due on October 1, 1998 and          
subsequent quarterly payments will be payable on January 1, 1999, April 1, 1999 
and July 1, 1999 and on each October 1, January 1, April 1, July 1 and October 1
thereafter until July 1, 2001, when the entire principal sum and all accrued    
interest will be due and payable in full. The notes may be prepaid at any time  
without penalty. Each of the notes also provides a right of set-off to the      
Company against the payee for amounts due the Company from the payee as damages 
under the Acquisition Agreement or of a covenant not to compete between the     
payee and the Company.                                                          

Resales of Common Stock                                                         

All of the shares of Common Stock to be issued in connection with the 
Acquisition will be deemed to be "restricted securities" as that term is defined
in Rule 144. As a consequence, such shares may not be sold, pledged or otherwise
transferred by the holders thereof except in transactions permitted by the      
resale provisions of Rules 144 and 145 or as otherwise permitted under the      
federal Securities Act of 1933, as amended (the "1933 Act"). Resales of Common  
Stock will also be restricted by the further restrictions on transferability    
included in the "lock-up" provision of the Acquisition Agreement referred to in 
the following section of this Proxy Statement. See "Risk Factors Applicable to  
Acquisition - Resales of Common Stock and Market Volatility."                   

  In general, under Rules 144 and 145, during the first year following the
closing of the Acquisition, any person receiving shares of Common Stock in the  
Acquisition would be able to sell or otherwise transfer such shares only        
pursuant to an effective registration statement under the 1933 Act or in        
compliance with an exemption from the registration requirements of the 1933 Act.
During the second year following the receipt of such shares, such person would  
be entitled to sell such shares only through unsolicited "brokers' transactions"
or in transactions directly with a "market maker" as such terms are defined in  
Rule 144. Additionally, the number of shares to be sold by such person          

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(together with certain related persons) within any three-month period for the   
purposes of Rules 144 and 145 could not exceed the greater of one percent of the
outstanding shares of Common Stock or the average weekly trading volume of such 
stock during the four calendar weeks preceding such sale. The Rules 144 and 145 
will remain available, however, if the Company remains current with its         
informational filings with the SEC under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). Two years after the closing of the Acquisition a      
person who received Common Stock in the Acquisition would be able to sell such  
Common Stock without such manner of sale or volume limitations, provided that   
the Company was then current with its 1934 Act informational filings and such   
person had not been an "affiliate" as defined in Rule 144, for at least three   
months prior to such sale. Persons who may be deemed to be affiliates of the    
Company generally include individuals or entities that control, are controlled  
by, or under common control with, the Company, and may include certain officers 
and directors of the Company as well as principal shareholders of the Company.  

     In order to help assure compliance with Rules 144 and 145 and the 1933 Act,
a provision of the Acquisition Agreement, to which each of the persons who will 
receive shares of Common Stock in the Acquisition is a party, includes the      
agreement of such persons to be bound by the transfer restrictions which are    
applicable to the shares as restricted securities, to also be bound by the      
lock-up, and to accept share certificates representing such shares bearing      
transfer restriction legends providing notice of such transfer restrictions.    

 Under the terms of the Acquisition Agreement, the Company has agreed to
file a registration statement to register the Common Stock issued for the       
Acquisition within 12 months of the Closing, and in no event later than the     
release of the "lock-up" of the shares.                                         

Lock-up of Common Stock                                                         

  Under the terms of the Acquisition Agreement, the shares of Common Stock
which are issued in the Acquisition may not be sold, transferred, hypothecated  
or pledged by the holder thereof for a period of eighteen months following the  
closing of the Acquisition unless such "lock-up" period is terminated by reason 
of the occurrence of a "Fundamental Event" as defined in the Acquisition        
Agreement. A Fundamental Event is generally defined to include certain          
transactions in which control of the Company might be transferred, more than    
twenty percent of the Company's interest in EDL or STL Ohio might be disposed of
by the Company, or either UES or Mr. Joshi disposes of more than a specified    
number of shares of Common Stock.                                               

Interest of Certain Persons in the Acquisition                                  

    Beaver Creek Enterprises, an Ohio partnership among certain UES employees,
including Mr. Joshi, owns the building located at 4391 Dayton-Xenia Road,       
Dayton, Ohio 45432 which is leased to UES. The principal executive offices of   
EDL and STL are located in this building and are rented under separate leases   
with UES. The offices of EDL are rented pursuant to a lease dated November 26,  
1996 between UES and EDL for a lease term beginning December 1, 1996 and ending 
on November 30, 1999. On December 1, 1997 rental payments under the lease       
increased from $9,780 per month to $10,000 per month. From December 1, 1998     
through November 30, 1999 rental payments will be $10,225 per month. For the one
year period ended September 30, 1997, EDL made lease payments to the partnership
in the aggregate amount of $117,360. The offices of STL are rented pursuant to a
lease between UES and STL dated August 1, 1996, as amended through October 1,   
1997. As amended, the lease provides for rental payments of $6,220 per month,   
for a lease term which continues through July 31, 1999 and includes an option to
renew for an additional three year period with a maximum additional rental cost 
of up to 3% for the three additional years. For the one year period ended       
September 30, 1997, STL made lease payments to the partnership in the aggregate 
amount of $54,450.                                                              

    Mr. Clifford, a director, executive officer and shareholder of EDL, served
as a director of Company until his resignation on December 30, 1997. See "The   
Acquisition - Background." Mr. Clifford is also a shareholder of EDL and a party
to the Acquisition Agreement. He will be entitled to consideration paid for the 
Acquisition and will enter into an Employment Agreement in accordance with the  
terms of the Acquisition Agreement.                                             

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   Under the terms of the Acquisition Agreement, upon the Closing, the Board
of Directors of the Company shall increase the number of directors constituting 
the Company's Board by three directors and shall appoint Messrs. Clifford,      
Stefanko and Schooley as directors of the Company to fill the vacancies created 
by such increase. Such appointed directors shall be appointed as directors of   
the Company to serve until the 1999 annual meeting of the Company's             
shareholders. The Board of Directors of the Company shall establish the number  
of directors to constitute the Board of Directors to be elected at the 1999     
annual meeting at eight directors and shall designate Messrs. Clifford, Stefanko
and Schooley as three of the management nominees for election as directors at   
the 1999 annual meeting.                                                        

 The Acquisition Agreement

General                                                                         

The Acquisition Agreement (which includes as Exhibits, the Employment 
Agreements and the STL Shareholder Non-Competition Agreements) is the legal     
document that governs the Acquisition. The Acquisition Agreement provides for   
the Acquisition by the Company of the EDL Common Stock, the Acquisition by the  
Company (through its subsidiary STL Ohio) of the STL Purchased Assets and       
delivery to the Company of the STL Shareholder Non-Competition Agreements, all  
in exchange for the assumption by the Company of certain liabilities of STL (the
"Assumed Liabilities"), the delivery by the Company of the aggregate of         
$8,700,000 in cash, the delivery by the Company of promissory notes in the      
aggregate amount of $4,800,000, the issuance delivered by the Company of an     
aggregate of 3,950,000 shares of Common Stock, and the undertaking by the       
Company of the obligations in the Acquisition Agreement, including, among       
others, the obligation to pay the Cash Earn-Out and to enter into the Employment
Agreements.                                                                     

     If the Acquisition proposal is approved by the shareholders of the Company,
the Closing of Acquisition transaction is expected to be consummated on August  
31, 1998, but the parties may mutually agree to extend the closing date to not  
later than September 30, 1998 or until not later than ninety days thereafter if 
required to comply with the requirements of the Hart-Scott Rodino Anti-Trust    
Improvements Act.                                                               

Acquisition of the EDL Common Stock, the STL Purchased Assets and the STL       
Shareholder Non-Competition Agreements                                          

  The EDL Common Stock will be acquired by the Company at the Closing from
Messrs. Clifford, Stefanko and Lambertson., each of whom shall receive a 1/3    
individual share of the EDL Common Stock Sale Consideration. The EDL Common     
Stock Sale Consideration shall consist of $4,650,000 in cash, promissory notes  
aggregating $3,238,000 and an aggregate of 2,646,500 shares of Common Stock.    

    The STL Purchased Assets shall include substantially all of the assets and
business of STL, including, but not limited to, fixed assets, inventory,        
intellectual property and goodwill, and cash and accounts receivable up to an   
aggregate amount of $850,000, and excluding cash in excess of the $850,000      
aggregate agreed upon amount of cash and receivables, contract backlog, funded  
deferred compensation and other income. The STL Purchased Assets will be        
acquired from STL by the Company through its subsidiary STL Ohio (referred to in
the Acquisition Agreement as "NewSTL") in exchange for the Company's payment to 
STL of the STL Purchased Assets Consideration. The STL Purchased Assets         
Consideration shall consist of the assumption of the Assumed Liabilities (which 
are expected to be nominal), the payment of $1,700,000 in cash, and the         
obligation, after the Closing, to pay the Cash Earn-Out to the extent, if any,  
that it is earned in accordance with the terms of the Acquisition Agreement. The
Cash Earn-Out, if any, will be paid by the Company to STL, which may assign its 
right to receive the Cash Earn-Out to the shareholders of STL (which at the time
of the Closing will include all of the EDL/STL Shareholders). STL's right to    
receive the Cash Earn-Out may be assigned to the shareholders of STL pro rata   
in accordance with their share ownership of STL.                                

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STL Shareholder Non-Competition Agreements                                      

At the Closing, the Company will enter into separate non-competition  
agreements (the "STL Shareholder Non-Competition Agreements") with Messrs.      
Schooley and Torresani and Dr. Oberbeck, each of whom was an individual         
shareholder of STL as of the date of the Acquisition Agreement. The STL         
Shareholder Non-Competition Agreements, in each case, preclude the agreeing     
party from competing for a period of 15 years from the date of the Closing with 
the Company or its subsidiaries throughout the United States of America or its  
possessions or territories or elsewhere throughout the world in the Company's   
business, EDL's business or the business of STL which was included in the STL   
Purchased Assets.                                                               

 The STL Shareholder Non-Competition Agreements will be delivered at the
Closing by Messrs. Schooley and Torresani and Dr. Oberbeck for the Company's    
payment of the STL Shareholder Non-Competition Agreement Consideration. The STL 
Shareholder Non-Competition Agreement Consideration shall consist of an         
aggregate of $2,350,000 in cash, promissory notes in the aggregate amount of    
$1,562,000 and an aggregate of 1,303,500 shares of Common Stock. The STL        
Shareholder Non-Competition Agreement Consideration shall be paid in a 1/2      
individual share to Mr. Schooley and 1/4 individual shares to each of Dr.       
Oberbeck and Mr. Torresani.                                                     

In an action to seek enforcement, a court having jurisdiction over the
matter may determine not to enforce, or to only partially enforce an STL        
shareholder Non-Competition Agreement in accordance with its terms.             

Employment Agreements                                                           

At the Closing, each of the EDL/STL Shareholders will enter into an   
Employment Agreement with the Company. The terms of each such Employment        
Agreement includes the agreement of the Company to employ such EDL/STL          
Shareholder (the "Employee") for a period of forty-two months and the Employee  
commits to be employed for a period ending no later than December 31, 2000. The 
Employee is entitled to terminate his employment at any time if he recommends a 
qualified replacement to perform his job responsibilities and the other EDL/STL 
Shareholders who are then employees of the Company approve, and the Company     
approves, such qualified replacement. If the Company's consent is unreasonably  
withheld, no damages would be payable, however, the Employee would be entitled  
to any Cash Earn-Out provided for in the Acquisition Agreement which should have
been paid as a performance bonus or additional compensation. If the Employee    
terminates his employment prior to December 31, 2000 (other than by reason of   
death or disability) without approval of the Company, he will forfeit his share 
of the Cash Earn-Out for any Cash Earn-Out period ending after the date on which
he terminates his employment. Each of the Employment Agreements provides for the
employment of the Employee in the same, or a substantially similar, position to 
that held by him in EDL or STL prior to the Acquisition except that Mr.         
Clifford, who has served as President of EDL, will become Executive Vice        
President, Secretary and Treasurer and Chief Operating Officer of STL Ohio and  
Mr. Stefanko, who has served as Executive Vice President, Secretary and         
Treasurer of EDL, will become President and Chief Executive Officer of EDL. The 
salary rates and other compensation and benefits under the Employment Agreements
are substantially the same as those provided to the EDL/STL Shareholders prior  
to the Acquisition. The salary rates payable under the Employment Agreements    
range from $126,700 to $169,300 per year. Each of the Employment Agreements also
includes a covenant pursuant to which the Employee agrees that during the term  
of employment and for a period of five years thereafter, he shall not (except on
behalf of the Company or a subsidiary of the Company while employed by the      
Company or a subsidiary, or otherwise in accordance with the Company's written  
consent) engage, directly or indirectly, in any business which competes in any  
manner within the United States of America with Company's business of design,   
manufacture, repair and sale of rugged and customized computer systems and      
medical computer assemblies or in any other business of design, development,    
manufacturing, sales or service engaged in or acquired by the Company or any    
subsidiary of the Company as of the date of the Employment Agreement or in which
the Company employs the Employee during his employment under the Employment     
Agreement.                                                                      

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In an action to seek enforcement, a court having jurisdiction over the
matter may determine not to enforce, or only partially enforce, the covenant not
to compete which is contained in the Employment Agreements.                     

Cash Earn-Out                                                                   

 The Cash Earn-Out which may be paid as part of the STL Purchased Assets
Consideration will be determined for each of the Company's fiscal years         
beginning with the fiscal year to be ended September 30, 1999 and ending with   
the fiscal year ending September 30, 2003 based upon the combined pre-tax       
earnings of EDL and STL Ohio to be calculated and distributed as provided in the
Acquisition Agreement. The combined pre-tax earnings of EDL and STL Ohio will be
calculated from the operating results of EDL and STL Ohio included in the       
financial statements of the Company prepared in accordance with General Accepted
Accounting Principals ("GAAP") and SEC Regulation S-X ("Regulation S-X") and    
subject to certain allocations of costs between the Company and EDL and STL Ohio
agreed upon by the parties.                                                     

     Under the terms of the Acquisition Agreement, the combined pre-tax earnings
of EDL and STL Ohio, to the extent they are earned, will be distributed among   
the Company and STL, or its assignees (in either case, referred to in the table 
as "STL"), as shown in the table below.                                         

                                                        [Enlarge/Download Table]


                                 Distribution of Pre-Tax Earnings                                 
                ----------------------------------------------------------------------------------

                                                                                                  
Cash                                                                                              
Recipient                                                                                         
                Period            Period            Period            Period            Period    
                Closing-          10/1/99 -         10/1/00 -         10/1/01 -         10/1/02 - 
                9/30/99           9/30/00           9/30/01           9/30/02           9/30/03   
--------------------------------------------------------------------------------------------------
Company         100%              First $7.5        First $7.5        First $6.8        First $8  
Only                              Million           Million           Million           Million   
--------------------------------------------------------------------------------------------------
STL             None              Next $2.5         Next $2.5         Next $1.7         Next $2   
Only                              Million           Million           Million           Million   
--------------------------------------------------------------------------------------------------
Split                             Then Split        Then Split        Then Split        Then Split
Company         None              40%               40%               50%               50%       
STL                               60%               60%               50%               50%       
--------------------------------------------------------------------------------------------------

     The Cash Earn-Out shall be accelerated upon the happening of a "Fundamental
Event" as defined in the Acquisition Agreement. Generally, the events included  
within the definition of a Fundamental Event involve a change of control of the 
Company resulting from the sale or merger of the Company, a disposition by the  
Company of more than twenty percent of either EDL or STL Ohio (based upon the   
then fair market value thereof), or the sale by UES and/or Mr. Joshi of an      
aggregate of more than 800,000 shares of Common Stock prior to January 1, 2000  
(excluding sales by UES to Mr. Joshi or other executive officers of the Company 
under presently outstanding options granted by UES to such persons). Upon the   
happening of a Fundamental Event, the Cash Earn-Out shall be accelerated as if  
the remaining Earn-Out Periods had been completed with pre-tax earnings for the 
year in which such acceleration occurred to be calculated as the greater of the 
actual pre-tax earnings to the date of acceleration or $10,000,000 paid         
thereafter for each of the other remaining uncompleted Earn-Out Periods, the    
Earn-Out shall be calculated as if such Earn-Out Period had been completed with 
pre-tax earnings of $10,000,000. In addition, any shares of the Company which   
are "locked-up" pursuant to the Lock-Up will be released from such lock-up as of
the date of such acceleration. With respect to the shares of Common Stock issued
as STL Purchased Assets Consideration or STL Shareholder Non-Competition        
Agreement Consideration, the party or parties entitled thereto, have the option 
prior to the Closing to elect to receive such Common Stock in its entirety at   
the Closing or in installments.                                                 

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   Warrants for the purchase of Common Stock have been issued by the Company
and are presently outstanding. If any of such warrants are called by the Company
for redemption, cancellation, exercise or conversion, the Company, unless       
prohibited under the terms of any applicable warrant agreement or credit        
agreement, shall apply fifteen percent of the net proceeds, if any, received by 
the Company (after deduction of any directly related expenses) as a lump sum    
payment to reduce the principal amount of the promissory notes issued by the    
Company in connection with the Acquisition.                                     

Representations and Warranties of the Parties                                   

The Acquisition Agreement contains certain customary comprehensive    
representations and warranties of EDL and its shareholders and of STL and its   
shareholders. Such representations and warranties include representations and   
warranties with respect to the corporate status, financial condition, business, 
operations, and assets of each of the entities and certain other matters with   
respect to the employees, employee benefit plans and employee relations of each 
of them. The liability of the shareholders of each of EDL and STL for breaches  
of representations and warranties given by them are subject, in each case, to   
the proration among such shareholders and, the further limitation of a "basket" 
of $66,667 below which, the case of each of EDL and STL, the parties giving such
representations and warranties will have no obligations for breaches thereof.   
With respect to any representational warranty applicable to the STL Purchased   
Assets, indemnification shall also be limited to damages for which a notice of  
claim shall have been delivered to the Company by not later than one year after 
the closing of the Acquisition transaction and shall not exceed an aggregate    
amount (exclusive of any amount payable under the Liquidated Damages provisions 
of the Acquisition Agreement). With respect to all claims for indemnification   
other than with respect to a representation of warranty applicable to the STL   
Purchased Assets, indemnification shall be limited to damages for which a notice
of claim shall have been delivered to the Company by not later than three years 
after the closing of the Acquisition transaction and shall not exceed an        
aggregate amount (exclusive of any amounts paid as STL Purchased Assets         
indemnification) of $1,500,000 and shall be recoverable solely as a set off     
against amounts otherwise payable to the indemnifying parties under the Cash    
Earn- Out or under the promissory notes given as consideration for the          
Acquisition. With respect to any claim against STL or any of the shareholders of
STL or EDL for failure to perform an obligation to consummate the closing of the
Acquisition, the Liquidated Damages provision referred to below shall be the    
sole and exclusive remedy available to the Company.                             

The Acquisition Agreement also contains certain customary purchaser   
representations and warranties of the Company with respect to the corporate     
status, capitalization, financial condition, business, operation and assets of  
the Company, reliability of the Company to the shareholders of EDL and STL and  
to STL for damages resulting from breaches of representations, warranties and   
agreements for the Company contained in the Acquisition Agreement is limited to 
damages for which a notice of claim shall have been delivered to the Company by 
not later than three years after the closing of the Acquisition transaction and 
shall not exceed the aggregate amount of $3,000,000 for damages for which a     
notice of claim shall have been delivered within one year from the closing of   
the Acquisition transaction. Thereafter, for the balance of the period until    
three years after the closing of the Acquisition transaction, such limitation   
shall be reduced to an aggregate amount of $1,500,000 less any amount of damages
previously paid by the Company.                                                 

Additional Covenants of the Parties                                             

The Acquisition Agreement, in addition to the covenants and agreements
contained in the representations and warranties given by the parties referred to
in the preceding sections of this Proxy Statement, also includes covenants of   
EDL, STL and the shareholders of EDL and STL to grant the Company access to the 
books and records, personnel and properties of EDL and STL and to cooperate with
the Company in the preparation of financial statements, proxy materials and any 
required regulatory filings which are necessary to implement the Acquisition.   
These covenants also include a covenant to conduct the business of EDL and STL  
only in the ordinary and usual course, to use best efforts to preserve each such
entity's business organization, staff and goodwill, to assure the continued     
accuracy of the representations and warranties given, and to refrain from       
negotiating with any party other than the Company for the                       

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possible acquisition of such entity during the period of time from the signing  
of the Acquisition Agreement until the Closing. During the same period, the     
Company also covenants to grant to EDL and STL and the EDL/STL Shareholders     
access to the books, records and property of the Company, to use its best       
efforts to assure that its representations and warranties continue to be true,  
that it will cause the incorporation of STL Ohio for the purpose of receiving   
the STL Purchased Assets at the Closing, and to refrain from any changes in the 
capitalization of the Company or the compensation of its officers and directors,
except as agreed upon by the parties.                                           

With respect to action occurring after the Closing, the Acquisition   
Agreement includes covenants of the EDL/STL Shareholders, and of STL as an      
entity, to the effect that such parties will cooperate and use their reasonable 
efforts to transition existing customers, consign work in progress and transfer 
specified inventory, assist in the transfer of employees and the transfer of    
assets and technology of STL to STL Ohio. Such covenants also relate to the     
referral of new business to STL Ohio, the subcontracting to STL Ohio of the     
existing business backlog of STL at an agreed upon discount and reimbursement   
rate, the grant to STL of a limited license for the use of required intellectual
property to complete certain orders of STL (which are not transferrable), and a 
covenant requiring the discontinuation, dissolution and liquidation of STL as   
soon as practicable after the Closing.                                          

    The covenants of the Company to be performed after the Closing include the
agreement to pay the Cash Earn-Out to the extent it may be earned under the     
provisions of the Acquisition Agreement to file a registration statement to     
register the Common Stock paid for the Acquisition within twelve months of the  
Closing, to appoint Messrs. Clifford, Schooley and Stefanko as directors of the 
Company to serve until the 1999 annual meeting of shareholders (and to designate
such persons as management nominees for election as directors at the 1999 annual
meeting), to provide health insurance coverage for the EDL/STL Shareholders     
until such persons are eligible for Medicare (which coverage is to be of equal  
value to the health insurance provided to such persons as employees of EDL or   
STL prior to the Closing) and to authorize the operation of EDL and STL Ohio as 
separate corporate entities with a prescribed autonomy and management until     
completion of the last Earn-Out Period provided for in the Acquisition          
Agreement.                                                                      

Generally, the autonomy and management covenants given by the Company 
provide that each of EDL and STL Ohio shall report to the Chief Executive       
Officer of the Company (the "CEO") and the Company's Board of Directors (the    
"BOD") and that it is not the intention of the parties that the CEO or BOD      
become involved in the day to day management, nor create a review and approval  
process for other than annual business plans of EDL and STL Ohio whereby either 
EDL or STL Ohio cannot conduct business in a meaningful way. Consistent with    
legal, regulatory, administrative and contractual requirements applicable to EDL
and STL Ohio, the CEO and BOD shall periodically review the business activities 
and performance of EDL and STL Ohio. The Company shall make available to EDL and
STL Ohio, solely for the use of EDL and STL Ohio, an operating line of credit in
an aggregate total maximum amount of $1,500,000, meaning that EDL and STL Ohio  
would share their liquidity positions as has been the past practice of EDL and  
STL. In the event that EDL and STL Ohio do not maintain an acceptable annual    
performance minimum of $7,000,000 of pre-tax earnings per year or fail to comply
with, or cause EDL or STL Ohio to fail to comply with, legal, regulatory,       
administrative or contractual requirements applicable to EDL and STL Ohio, the  
CEO and BOD may direct the management of EDL and STL Ohio to the extent required
so long as such deficiency in performance or non-compliance shall continue and  
no provision of the autonomy and management covenants shall restrict the        
authority of the BOD. Such covenants of the Company also shall permit EDL and   
STL Ohio to retain the employee benefit plans which were available to their     
respective employees prior to the Closing for a minimum of three years following
the Closing, preclude for a period of five years from the Closing of the moving 
of the aggregate principal operations of EDL and STL Ohio to any location       
outside a twenty mile radius from the incorporated limits of Dayton, Ohio       
without the consent of a majority of the EDL/STL Shareholders, permit the       
distribution of existing funding non-qualified executive deferred compensation  
plans of EDL and STL and authorize the establishment of similar plans for EDL   
and STL Ohio after the Closing at no less favorable terms or economic value. The
Company also covenants to employ (or cause STL Ohio to employ) the employees of 
STL at the levels agreed upon in the Acquisition Agreement and to grant such    
employee's credit for time worked at STL for purposes of vacation and other     
"fringe benefits" as if such employees had been employed by the Company (or STL 
Ohio) during such time.                                                         

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Indemnification Provisions                                                      

    Under the terms of the Acquisition Agreement, the EDL/STL Shareholders and
STL, as an entity (the "Company Indemnifying Parties"), have agreed to indemnify
the Company in each of its subsidiaries and each of its and their respective    
directors, officers, employees, agents, successors and assigns against damages  
imposed upon any of them by reason of any breach or representation, warranty,   
covenant or agreement made by any of the Company Indemnifying Parties or in     
connection with any liability of STL which is not among the Assumed Liabilities.
The representations and warranties and the covenants given by the Company       
Indemnifying Parties and limitations with respect to such indemnification are   
generally outlined above under "Representation and Warranties of the Parties."  
The Liquidated Damages provisions referred in a following paragraph of this     
section of the Proxy Statement also includes possible indemnification           
obligations of the Company Indemnifying Parties.                                

 Under the terms of the Acquisition Agreement, the Company has agreed to
indemnify the EDL/STL Shareholders and STL for damages imposed upon any of them 
by reason of any breach or representation, warranty, covenant or agreement made 
by the Company. The representations and warranties and the covenants given by   
the Company and limitations with respect to such indemnification are generally  
outlined above under "Representation and Warranties of the Parties". The        
Liquidated Damages provisions referred in a following paragraph of this section 
of the Proxy Statement also includes the possible indemnification obligations of
the Company.                                                                    

Liquidated Damages                                                              

    If the EDL/STL Shareholders or the Company do not perform their respective
obligations to consummate the Acquisition as required by the Acquisition        
Agreement, other than as a result of such party exercising its right to         
terminate the Acquisition Agreement in accordance with the terms of the         
Acquisition Agreement, such non-performing party or parties will be obligated to
pay the other party liquidated damages in the aggregate amount of $1,000,000.   
The parties to the Acquisition Agreement mutually agreed that such liquidated   
damages would be the sole and exclusive remedy for any such possible failure of 
a party to perform its respective obligation to consummate the Acquisition      
because (i) it was not possible on the date of the Acquisition Agreement to     
ascertain the damages which would result from a failure to consummate the       
Acquisition; and (ii) any such damages might reasonably be expected to be at    
least $1,000,000 given the inability to predict the value on the intended       
Closing date of either the consideration to be given by the Company for the     
Acquisition or the value of EDL or of the STL Purchased Assets as of that date. 

  If the Acquisition is not consummated because one or more of the EDL/STL
Shareholders does not carry out his respective obligation to consummate the     
closing as required by the Acquisition Agreement (other than because of reason  
which is not within his reasonable control) then the $1,000,000 liquidated      
damage amount together with reasonable collection fees, costs and expenses will 
be payable, jointly and severally, by such non-performing EDL/STL Shareholder,  
or EDL/STL Shareholders, to the Company.                                        

If the Acquisition is not consummated because (i) the Company does not
carry out his respective obligation to consummate the Closing as required by the
Acquisition Agreement (other than because of reason which is not within its     
reasonable control) or (ii) the Acquisition shall not have been approved by the 
shareholders of the Company pursuant to a vote in which any of Mr. Joshi or     
Richard P. McNeight, William R. Craven (each of whom is an executive officer,   
director and shareholder of the Company) or UES, Inc. or any of its subsidiaries
(which, in each case, are affiliates of Mr. Joshi) shall not have voted all of  
such person's or entity's shares for approval, the Company shall pay to the     
EDL/STL Shareholders then the aggregate $1,000,000 liquidated damage amount     
together with reasonable collection fees, costs and expenses. If payable by the 
Company, the aggregate liquidated damages amount will by payable in equal 1/6th 
individual shares to each of the EDL/STL Shareholders.                          

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Termination and Waiver                                                          

   In accordance with its terms, the Acquisition Agreement may be terminated
any time prior to the Closing by mutual consent of all of the parties to the    
Acquisition Agreement, solely by the Company if the conditions precedent to the 
Company's obligation to consummate the Acquisition have not been fulfilled on or
prior to the required Closing date, or by EDL, STL and all of the EDL/STL       
Shareholders if any of the conditions precedent to their obligation to          
consummate the Acquisition transaction shall not have been fulfilled prior to   
the required Closing date. In addition, either the Company or all of the EDL/STL
Shareholders may terminate the Acquisition Agreement if any legal action shall  
have been instituted or threatened seeking to restrain or otherwise affect the  
consummation of the Acquisition transaction which makes it inadvisable, in the  
judgment of the Company or all of the EDL/STL Shareholders, to consummate the   
Acquisition transaction.                                                        

  Any condition to the performance of the Company, EDL, STL or the EDL/STL
Shareholders may be waived in writing at any time on or prior to the Closing by 
the party entitled to the benefit of such condition.                            

Conditions Precedent to the Obligation of the Parties to Consummate the         
Acquisition                                                                     

    The obligation of the Company to consummate the Acquisition transaction is
subject to the approval of the Acquisition by the Company's shareholders, the   
truth and correctness of the representations, warranties and covenants of the   
parties with respect to the value of certain of the STL assets, the net worth of
EDL, the amount of the EDL built-in gains tax, and of the other representations 
and warranties, and the performance of the covenants of EDL, STL and the EDL/STL
Shareholders given by them in the Acquisition Agreement. The conditions         
precedent to the obligation of the Company to close the Acquisition transaction 
also include the absence of litigation against EDL, STL or the EDL/STL          
Shareholders which might materially affect the right of the Company to own EDL  
Common Stock or utilize the STL Purchase Assets, the obtaining by EDL or STL of 
any third party consent required by the Acquisition Agreement, and the absence  
of any material change in the business, assets, financial status or prospects of
either EDL or STL since December 31, 1997, except for such changes as are agreed
upon between the parties. The Company's obligation to close the transaction is  
also subject to delivery at the Closing of the Employment Agreements and the STL
Shareholder Non-Competition Agreements required by the Acquisition Agreement and
the delivery of such other certificates and documents, including legal opinions,
as the Acquisition Agreement shall require or as the Company or its legal       
counsel, may have reasonably requested.                                         

The conditions precedent to the obligation of EDL, STL and the EDL/STL
Shareholders to consummate the Closing is subject to the continued accuracy of  
the representations and warranties of the Company given in the Acquisition      
Agreement, the performance and compliance by the Company in all material        
respects with all of its covenants and agreements required by the Acquisition   
Agreement, and the absence of litigation against the Company which might        
materially affect the right of the EDL/STL Shareholders to own the Common Stock 
to be issued in the Acquisition or which might have material adverse effect on  
the assets, properties and business of the Company. Such conditions precedent   
also require the Company to have obtained all consents, licenses and permits of 
third parties necessary for the Company's performance of its obligations under  
the Acquisition Agreement, that there shall have been no material adverse change
in the business, assets, financial status or prospects of the Company since     
December 31, 1997, and the delivery at the Closing of the Employment Agreements 
and such other certificates and documents, including legal opinions, as the     
Acquisition Agreement shall require or as the Company or its legal counsel, may 
have reasonably requested.                                                      

Conditions of the Closing                                                       

  The Closing shall be subject to the following conditions, in addition to
the other warranties and covenants contained in the Acquisition Agreement: (i)  
at the Closing STL shall transfer to STL Ohio $850,000 in aggregate amount of   
cash and valid receivables in addition to fixed assets, inventory and           
intellectual property; (ii) in the event the fair market value                  

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of the tangible assets included among the STL Purchased Assets combined with the
net worth of EDL at the Closing is less than $2,000,000, Mr. Clifford will      
transfer to the Company such number of shares of Common Stock, at the agreed    
upon value of $3.50 per share, as shall be required to make up the difference   
between such Closing value and $2,000,000 (in such event the Company shall grant
Mr. Clifford the right for a period of two years following the Closing to       
purchase at $3.50 per share, the same number of shares as Mr. Clifford shall    
have transferred to the purchaser to make up such difference); (iii) the maximum
amount of indebtedness of EDL at the Closing of which shall have been incurred  
by EDL for the purpose of distributing to the EDL shareholders a portion of the 
EDL earnings which had not been previously transferred to them shall not exceed 
$225,000; (iv) EDL's accrued liability for built-in gains tax as a result of the
distribution of the STL shares to the shareholders of EDL for purposes of the   
calculation of the EDL/STL Purchased Assets Closing value shall be $633,897 less
any estimates paid by EDL prior to the Closing for such tax; and (v) any        
increase in the built-in gains tax to more than $633,897 will be reimbursed to  
EDL 50% by the Company and 50% by the EDL/STL Shareholders in accordance with   
their prorata ownership interest in STL immediately prior to the Closing. The   
amount of any such increase in the built-in gains tax to be born by parties     
other than the Company shall be taken out of any Cash Earn-Out payable to them. 

Description of the Company

General                                                                         

    The Company was incorporated as a Florida corporation on June 25, 1982. In
early 1983 the Company commenced business operations offering only engineering  
services for computer applications, modifying computer hardware and other       
equipment and developing special software applications for its customers. It    
also served as a value-added reseller for a Japanese manufacturer of portable   
computers. In the mid 1980's the Company began designing and developing its     
first rugged computer under a special contract from the U.S. Department of      
Defense Small Business Innovative Research Program. Subsequently, it designed,  
developed and produced other computer related products.                         

    Currently, the Company is a manufacturer of ruggedized, portable computers
and communications interfaces utilized in outdoor and medical settings. The     
Company also offers extensive customization services to modify its standard     
products to the specific needs of end users. The products of the Company are    
sold to U.S. and foreign military establishments, other governmental agencies   
and commercial enterprises.                                                     

Products                                                                        

The ruggedized, portable computers which the Company manufacturers are
"ruggedized" by the selection and mounting of certain components, the design,   
configuration and fabrication of enclosures and electronics and the application 
of special seals and coatings to withstand certain environmental and operational
hazards. The computers manufactured by the Company, which include two types of  
hand-held processors and four types of laptops, are compatible with IBM PC's,   
are designed with an open architecture configuration for flexibility, and are   
available with standard serial and parallel communications capabilities to      
transmit and receive electronic signals to and from other electronic systems.   
The Company's software is based on MS-Windows or MS-DOS operating systems. The  
computers may be assembled according to designs and with components and printed 
circuit boards specified by the customer or as designed by the Company to the   
customer's requirements.                                                        

   Typical military 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 field command control systems. As of  
September 30, 1997, a substantial portion of the Company's military business    
covering its three primary applications, maintenance and support, training, and 
battlefield communications, resulted from laptop computer contracts with        
Raytheon Company (HAWK/AVENGER Air Defense Missile Systems, portable fire       
controller), U.S. Navy (Phalanx Gun Integrated Maintenance System, diagnostics  
and repair device), Raytheon-Texas Instruments (HARM Missile System, mission    
loading and electronic diagnostics), and Lockheed Martin (F-16 Fighter and      
Mission Loading, electronic diagnostics check).                                 

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Since the market introduction of the implantable pacemaker, medical   
practitioners have increasingly turned to implantable devices for a wide range  
of applications including drug delivery devices, electroneurostimulators,       
defibrillators, and ventricular assist devices ("VADS"). Increasingly, such     
implantable devices may be reprogrammed externally via a telemetry link, to     
enable the physician to alter the drug delivery rate or dispensing of           
medication. The devices used for this are commonly called Programmers and are   
part of the medical support equipment market. It is believed that many          
manufacturers of implantable devices would prefer to outsource the design and   
production of these programmers, because the required skills and resources do   
not necessarily align with the core competencies of the company -- the implant. 
The Company has focused on the Programmer segment of the Medical Support        
Equipment market, because the technical and operations needs of the market      
appear to match the Company's strengths. These strengths include the ability to 
design and manufacture highly specialized computing devices, meet tough design  
requirements like EMI, strict adherence to specifications and regulations like  
FDA, strong documentations and configuration control allowing the Company to    
strictly control each component in the system and the system itself, high       
reliability system performance and seamless field support.                      

   The Company acts as a design and manufacturing subcontractor to the medical
device manufacturers, who typically prefer to do final assembly and test, and   
assume liability for the product.                                               

Customization Services                                                          

    The Company provides its customers and end-users with engineering services
that modify or adjust its standard portable computers, related software and     
communication interfaces to their specific needs and requirements. Substantial  
portions of its product sales to the military involve varying degrees of        
customization while each medical customer's product is a uniquely custom product
with some shared components. The range of engineering services furnished by the 
Company includes special rugged packaging design, miniaturization of            
electronics, development of ultra-low power systems and improvements in         
communications capabilities.                                                    

Supply and Manufacturing                                                        

     The Company designs and engineers substantially all its portable computers,
purchases their components from third parties and then tests and assembles the  
final products. Generally, the Company is not a party to any formal written     
contract regarding the deliveries of its hardware, supplies and components or   
their fabrication. The Company relies on a few board fabricators of different   
sizes and capabilities located within the same geographical area as its         
headquarters. Certain components used in its computers are obtained from sole   
sources, such as Distec, Xcel and HiTech. The Company has also licensed its     
software from sole sources, including Microsoft, Phoenix Technology, Magnavox   
and JFK Associates. The Company has entered into licensing arrangements for     
certain hardware and software elements contained in, or used in conjunction     
with, its computers. These agreements are usually non-exclusive, provide for    
minimum fees and royalties related to sales to be paid by the Company to the    
particular licensor, run for a limited term and are subject to other terms,     
conditions and restrictions.                                                    

The Company's manufacture of computers is done pursuant to specific   
purchase orders or for general inventory purposes. The Company's design,        
engineering and assembly facilities are located in Melbourne, Florida. These    
facilities comply with certain U.S. military specifications necessary for the   
manufacture and assembly of products supplied to it. The Company's facility has 
met the quality management and assurance standards of an international rating   
organization (ISO-9001) as of March 27, 1998. Such qualification should improve 
the Company's marketing opportunities in the international military markets for 
rugged computers. However, there is no assurance that PCS will increase such    
sales of its products abroad in the future even though such standards are met.  

Warranty and Customer Service                                                   

   The Company usually provides one-year warranties on its products covering
both parts and labor although extended warranties may be purchased by customers.
At its option, the Company 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. Generally, all servicing is done
at the Company's plant, and it charges its customers a fee for those service    
items that are not covered by warranty. Except for its extended warranties, it  
does not offer its customers any formal written service contracts.              

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Marketing and Sales                                                             

 The Company markets and sells its computer products through an internal
sales force of four individuals and several of its officers, approximately 20   
manufacturers' representatives in the United States and approximately 20        
distributors abroad. Its manufacturers' representatives cover approximately 28  
states, including Washington, D.C., and its foreign distributors operate in     
nearly 30 countries, including England, France, Japan, Australia and Germany.   

The Company's relationship with its manufacturers' representatives is 
generally governed by a written contract, terminable on 30 days' prior notice.  
These contracts usually provide for exclusive territorial and product           
representation.                                                                 

 Sales of the Company's products or services to foreign distributors are
also generally made pursuant to written contracts. Under such contracts, the    
distributor is granted either an exclusive or non-exclusive territorial and     
product representation as well as discounts based on the list price depending on
the type or amount of products sold. In some cases, there are minimum order     
requirements. The term of these agreements generally run from 1 to 3 years but  
are terminable on 60 days advance notice. The Company has a primary distributor 
for Asia and another primary distributor for Europe.                            

 The Company promotes its computer products through the dissemination of
product literature, attendance and exhibition at trade shows, conduct of        
seminars and the distribution of news releases on special developments to trade 
magazines and newsletters to an extensive customer list.                        

Customers                                                                       

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

The principal customers of the Company are U.S. Department of Defense 
("DoD") contractors who are subject to federal budgetary constraints. For the   
fiscal years ended September 30, 1997 and September 30, 1996, Raytheon's Missile
Systems Division accounted for 46% and 49% of the Company's total sales,        
respectively. For those same periods, Lockheed Martin, and Harris, accounted for
36% and 21%, and 7% and 0% of the Company's total sales, respectively. The loss 
of any of these customers could have a material adverse impact on the Company's 
business.                                                                       

Competition                                                                     

   The Company competes in the rugged portable computer business with a wide
variety of computer manufacturers and repackagers, many of which are larger,    
better known, have more resources in finance, technology, manufacturing and     
marketing, and are able to offer lower prices. The Company competes based on    
customization capabilities, performance, delivery, quality and price.           

  The Company competes in its hand-held computer business with Litton Data
Systems, SAIC, Tadiran and Miltope in military applications; Husky Computer     
Company in both military and non-military markets; and CMT, Micro Palm and DAP  
in non-military applications. The Company competes in its laptop computer       
business with SAIC, Miltope, Cyberchron and North American Industries (CODAR) in
the military and non-military areas. Certain large manufacturers of commercial  
notebook computers such as Panasonic, Amrel and IBM have introduced commercial  
notebooks that have been sealed and ruggedized to some extent. Management       
believes that the Company's ability to increase market penetration in the       
commercial sector will be limited substantially by the entry of such            
manufacturers into the ruggedized computer market.                              

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  Certain military procurement policies require purchases of computers for
the military under Indefinite Delivery, Indefinite Quantity ("IDIQ") contracts  
which encourage purchases of computers amounting to many hundreds of millions of
dollars. Such procurement policies clearly favor larger companies with greater  
resources than those of the Company. Unless the Company can form strategic      
alliances with larger military contractors or qualify for exceptions to IDIQ    
arrangements, it may suffer adverse material consequences in competition for    
military business. For the last five years, the Company has made military sales 
of its computers because they fall into product categories not currently covered
by IDIQ requirements.                                                           

    In the military and government markets, the Company will often be engaged,
directly or indirectly, in the process of seeking competitive bid or negotiated 
contracts with government departments and agencies which are subject to specific
rules and regulations which are difficult for the company to meet. Occasionally 
the Company is one of only a few companies whose products meet the required     
specifications designated by such customers. Although, in most cases, the       
Company tends to be the high priced bidder because of its generally more rugged 
design criteria, use of expensive industrial or higher grade components and     
customer specific product refinements, certain customers are willing to pay the 
Company's higher price for applications in which harsh environmental and        
operational conditions prevail. In those less demanding circumstances, the      
Company's products are offered at a severe competitive disadvantage because the 
applications do not justify its higher prices. Since the Company sells its      
computer products into segments of the commercial market and has a history of   
resale pricing, under DoD regulations such commercial pricing information may be
utilized to support the prices that it charges in the military marketplace.     

Research and Development                                                        

The Company's business requires substantial ongoing research and      
development to enhance its current products, and develop and introduce new      
products that keep pace with technological developments in response to evolving 
customer requirements. The Company's research and development activities        
involve: (i) its sole activities; (ii) joint efforts between it and another     
enterprise; and (iii) endeavors of third party contractors retained by it. A    
substantial portion of its research and development is accomplished on an       
in-house basis.                                                                 

    The Company has designed a new rugged notebook intended to fit between its
laptops and its hand-held computers in size, weight and price. As part of a     
continuing effort to upgrade its products, the Company is also working to       
develop high-speed processor boards for some of its older products. As part of  
the development of the medical market, significant investment was made in the   
development of the Medtronic medical reprogramming device which is designed to  
allow many of the case parts to be used in other customers' programs.           

Research and development expenditures during the fiscal years ended   
September 30, 1997 and 1996 were $611,295 and $382,750, respectively, and       
represented 4.6% and 3.7% of total sales, respectively. A substantial portion of
such expenditures for those fiscal years were applied to the development of the 
rugged notebook, rugged laptops, and the development of a Pentium based main    
board for the rugged laptop line.                                               

Intellectual Property                                                           

Proprietary information and know-how are important to the Company's   
commercial success. The Company 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. None of its employees has signed
a confidentiality agreement regarding its proprietary information nor have any  
employees signed a non-competition agreement other than Messrs. McNeight and    
Craven.                                                                         

Government Regulations and Contracts                                            

  Due to the nature of the products designed, manufactured and sold by the
Company for military applications, it is subject to certain DoD regulations. In 
addition, commercial enterprises engaged primarily in supplying equipment and   

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services, directly or indirectly, to the United States government are subject to
special risks. These risks include dependence on government appropriations,     
termination without cause, contract renegotiations and competition for the      
available DoD business. The Company has no material direct DoD contracts,       
however, that are subject to renegotiation in the foreseeable future and is not 
aware of any proceeding to terminate material DoD contracts in which it may be  
indirectly involved. In addition, many of the Company's contracts provide for   
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by the Company.   

    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 the Company
for government applications are primarily sold to companies acting as           
contractors or subcontractors and not directly to government entities.          
Agreements with such contractors or subcontractors generally are not conditioned
upon completion of the contract by the prime contractor. To the extent that such
contracts are so conditioned, a failure of completion may have a material       
adverse effect on the Company's business.                                       

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

  Under certain circumstances, the Company 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 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.            

The Company'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 June 5, 1998, the Company had 88 employees, all of whom were full
time employees, including its officers, of whom 39 were engaged in manufacturing
and repair services, 8 in administration and financial control, 28 in           
engineering and research and development, and 13 in marketing and sales. None of
its employees is covered by a collective bargaining agreement or is represented 
by a labor union. The Company considers its relationship with its employees to  
be satisfactory.                                                                

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Property                                                                        

 The Company leases approximately 17,300 square feet of space located at
1615A West Nasa Blvd., Melbourne, Florida 32901. This space is utilized by the  
Company as its principal corporate headquarters and manufacturing plant. The    
lease term commenced on September 1, 1996 and expires December 31, 2001.        

Legal Proceedings                                                               

  In March 1996, the Company's former counsel, Cascone & Cole, rendered an
invoice to the Company in the amount of approximately $365,000 for legal fees   
and expenses to which such counsel claimed to be entitled in connection with its
representation of the Company for both general corporate services and services  
relating to the IPO. As the Company had made prior payments to such counsel of  
$130,000, the net amount claimed to be due was approximately $235,000. The      
Company has contested the invoice and accrued an estimate for the payment, if   
any, of these fees. On March 27, 1996, Cascone & Cole filed an action in the    
Supreme Court of the State of New York, County of New York, entitled Cascone &  
Cole v. Paravant Computer Systems, Inc., Victor M. Wang, Duke & Company, Inc.,  
Dean Petkanas and Eagle Group Incorporated (Index No. 96601634) against the     
Company, the Underwriter and certain other defendants, alleging, among other    
things, breach of contract, failure to pay attorneys fees, fraud, copyright     
infringement and defamation by the Company in connection with the aforementioned
services, as well as claiming a finder's fee with respect to the Underwriter's  
relationship with the Company. Plaintiff has filed an amended complaint         
increasing its claim for legal services from approximately $365,000 to          
approximately $415,000, claiming there is a balance due of $280,882 for legal   
services. Plaintiff is also seeking punitive damages of $1 million and costs.   
The Company has filed an answer denying the allegations made by plaintiff and   
has asserted defenses and counterclaims against the plaintiff seeking, among    
other things, recovery of amounts paid to plaintiff as well as punitive damages 
and court costs.                                                                

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

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

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

Description of EDL and STL

EDL                                                                             

  General. EDL is a manufacturer of various miliary qualified avionics for
U.S. and friendly foreign airborne- applications and is a fully qualified source
for U.S. military avionics applications. EDL is currently operating under       
MIL-1-45208A/MIL-Q-9858 with an ISO 9000 pending for hardware and software and  
has U.S. Government oversight of all operations. Typical programs contain       
non-recurring engineering for hardware and software subsystems as well as       
associated aircraft kit installation design. The output of the first phase of   
the typical program is design drawings and kits for trial installation and      
kitproofing. The second phase of the typical program involves manufacture of    
production kits, spare parts and maintenance and operating technical data. The  
third phase is either design/delivery of field support                          

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equipment or service as contractor  depot support.  In order to accomplish these
tasks,  EDL  utilizes  computer  aided design and drafting as well as a software
development laboratory.                                                         

    In general, the EDL approach to program performance consists of all design
by EDL engineers to full military standards/specifications with standards,      
outsourcing of sheetmetal and machine parts fabrication, in-house board         
stuffing/soldering of development and low rate production printed circuit cards 
with outsourcing of high volume production boards for auto insertion and wave   
flow. Final assembly and test is always maintained in house. EDL also generates 
all technical data (drawings, technical orders and test documents) required by  
the military. Further, EDL always strives to provide on site field support as   
well as depot maintenance functions.                                            

  History. EDL commenced business operations in 1984. The initial focus of
EDL was high resolution and multisync displays. In early 1988, Edward Stefanko  
and David Lambertson joined EDL as officers and major shareholders. At this     
juncture the primary focus was shifted to avionics modernization predominately  
for the U.S. Air Force Special Operations aircraft systems. The first major     
programs consisted of redesign and production of flight control hardware and    
design and production of night vision imaging modification kits for the MH-53 J 
Pave Low aircraft systems.                                                      

In early 1989, Mr. Clifford came on board as President and a major    
shareholder. In mid 1993 the high resolution/multisync display business was spun
off. This allowed total focus in the avionics modification/retrofit marketplace.
By late 1994 the shareholders consisted of Mr. Clifford, President; Mr.         
Stefanko, Executive Vice President, Secretary and Treasurer; and Mr. Lambertson,
Senior Vice President Technology, all with an equal one-third ownership which   
continues to the present.                                                       

     Military Market Served. Since 1988 EDL has continuously focused on the USAF
Special Operations requirements. The three owners have a combined background and
experience of over 60 years in this area. Additionally, the Special Operations  
Forces have enjoyed adequate funding levels in an otherwise reduced marketplace.
Their success in this market comes from extremely detailed knowledge of the     
workings, interfaces and deficiencies in these platforms. Typically after they  
implement a solution to a deficiency in a USAF Special Operations plat form they
are afforded further business opportunities on equivalent platforms in the U.S. 
Navy, U.S. Army and USMC as well as foreign military aircraft.                  

   Products. EDL is currently solicited for products and product support for
altitude hold/hover stabilization systems for the H60 aircraft, 875/525 line    
VCR's for various rotary and fixed wing aircraft, IDAS/MATT hardware and kits   
for the MH-53 aircraft, hover couplers, automatic flight control system control 
panels, bladefold controls, refuel controls, caution/advisory panels, night     
vision imaging system components and solid state control modules for the H53    
aircraft. EDL also produces control display unit part task trainers.            

   Marketing. The key marketing of EDL is accomplished through a combination
of outstanding performance and demonstrated in depth technical knowledge of the 
platforms they service. The marketing is technically oriented and conducted out 
of Dayton with a marketing presence in Warner Robins, Georgia, the contracting  
origin for USAF Special Operations requirements.                                

 Competition. The competition varies greatly depending upon the specific
program. On certain requirements EDL may find itself in competition with a large
prime such as Lockheed Martin or Sikorsky. On other programs EDL is a team      
member or subcontractor with the same large primes. In general, a significant   
percentage of EDL's work is sole source non-competitive.                        

  The Acquisition of EDL. Under the terms of the Acquisition Agreement the
Company will acquire all of the EDL Common Stock. In connection with the        
Acquisition, EDL will be converted from an "S corporation" to a "C corporation."
After the Acquisition EDL will be owned and operated as a subsidiary of the     
Company. It is anticipated that, as a subsidiary of the Company, the business of
EDL will continue largely unaffected by the Acquisition. Continuation of certain
of EDL's business relationships and certain of its contractual relationships,   
however, may be                                                                 

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subject to the receipt of third party consents because of the change in         
ownership of EDL. Each of the EDL/STL Shareholders has agreed to use reasonable 
efforts to assist any transition of business to EDL as a subsidiary of the      
Company following the Acquisition. In addition, the Company has agreed to       
authorize certain autonomy with respect to the operation of EDL after the       
Acquisition . See "The Acquisition Agreement - Additional Covenants of the      
Parties."                                                                       

STL                                                                             

 General. STL is a designer and producer of many instruments and devices
used in governmental signal collection and analysis laboratories located in the 
U.S. and foreign countries. Most instruments and devices are digital in nature  
as opposed to analog and the signals which are input are digital rather than    
analog. These digital signals are routed, enhanced, modified or conditioned by  
the instruments. These products are sold to the U.S. Government, other U.S.     
prime contractors, and to foreign countries within the guidelines established by
Munitions Control Board.                                                        

    History. STL was established in April of 1990 by three principals, who had
worked together at another defense contractor (Systems Research Laboratories,   
Inc.) The three individuals, Dr. Oberbeck and Messrs. Schooley and Torresani,   
had many years of combined experience working within a very specific group of   
U.S. Government and other prime contractors.                                    

    The three founders and their positions in STL are Mr. Schooley, President,
Dr. Oberbeck; Vice President Technology, and Mr. Torresani, Vice President,     
Programs/Development.                                                           

   The Company was incorporated under the laws of the State of Ohio in April
1990. A total of 1500 shares were authorized. The above three principals        
retained a total of 600 shares. An additional 765 shares were retained by EDL   
which had played a part in the establishment of STL. Thus, EDL has a 56%        
ownership in STL. STL has since its inception remained a C corporation and has  
had no change in ownership.                                                     

   EDL provided office space, benefit plans, and accounting services for the
initial start-up phase. Mr. Stefanko filled the position of Executive Vice      
President and Secretary/Treasurer of STL. Mr. Stefanko is Executive Vice        
President of EDL.                                                               

     Industry Background. The U.S. Government has long depended upon contractors
to supply needed hardware. The traditional approach was to issue a detailed set 
of specifications and a statement of work. Qualified contractors then bid to    
provide goods in accordance with these specifications and statement of work.    
Following a typical long period of source selection, a winning contractor was   
selected and awarded a contract. In the 1990's this process has undergone       
significant changes mandated by Congress.                                       

 The specific customers within the U.S. Government that STL serves often
have changing requirements that require quick response to either develop new    
equipment or modify existing products in a short time period. STL has since its 
inception been able to work successfully in this rather difficult environment.  

     To be responsive to new and sometimes changing requirements, requires close
cooperation with the government engineers and to be intimately familiar with the
required signal formats. By specializing in a specific government customer, STL 
has met these requirements. Thus STL has developed a very high reputation for   
delivering a product that works properly and was delivered on schedule.         

   Products. STL has designed and currently has more than 30 products on its
price list. These products can generally be separated into four categories;     
routing, modification, conditioning and enhancement.                            

 Signal routing and switching systems has been among the earliest of STL
products. In modern signal processing systems it is often required to           
reconfigure the processing chain to accommodate a different architecture. This  
does not                                                                        

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involve switching a single stream of data but that of 16 bits of data and clock.
STL systems have been developed and are being produced that perform this        
function.                                                                       

 As the requirements have changed, STL has developed larger systems that
perform this switching/routing function at higher speeds and with more inputs   
and outputs. New switches are in development to meet known government future    
needs.                                                                          

   With the development of faster and more powerful computers some dedicated
processing hardware is no longer cost effective. To use these faster computers  
it is often required to reformat the data to make it available to the computer  
in a specific format. The data formats are often not the most efficient for the 
computers to process. STL has in many specialized cases, developed instruments  
that reformat data and interface it to modern computers that in turn process the
data.                                                                           

   The advent of modern digital signal processing technology, which involves
both specialized hardware and software, has had major impacts on signal         
analysis. These devices and associated software have changed signal analysis    
techniques. STL produces several instruments that employ modern digital signal  
processing techniques. These devices range from rather simple to very complex   
systems that cost multiple hundreds of thousands of dollars.                    

   STL works with other government contractors to develop these instruments.
STL develops the software to control the developed instruments but in general   
depends on other contractors involved in the same program to develop the        
operational software.                                                           

 New Products. STL has by maintaining a close liaison with its customers
been kept aware of new requirements. As a result of this, new products are being
developed. These new developments range from modification of existing products  
to total new developments. In general, most new developments involve higher     
speed clock rates.                                                              

    New developments are in response to anticipated needs. STL maintains close
relationships with the government engineers and other contractors. Some         
developments are funded and others are supported by internal R&D funds.         

Supply and Manufacturing. STL performs all electrical design of its   
products. In some cases mechanical design of cabinets and chassis is outsourced.
All parts are procured by STL. Printed circuit board design is outsourced as is 
production of the printed circuit boards. Chassis wiring is done in house, as is
all testing. Once the design is finalized, the PCB assembly is outsourced. All  
final test is accomplished in-house.                                            

     Warranty and Customer Service. Normal warranty is 90 days after delivery on
STL products; this includes parts and labor. If STL should determine that there 
is a fault due to production process this repair will be made without charge.   
After 90 days a return of part is authorized and an evaluation fee is           
established. If the cost of repair exceeds the evaluation fee, the customer is  
informed of the repair costs. Assuming the customer accepts the repair cost, the
item is repaired and the customer billed.                                       

     Marketing and Sales. STL does not use any outside sales force. Marketing is
performed and led by the Vice President of Program Development. In many         
occasions assistance is provided by other executives and engineering staff. A   
product price list is maintained that includes all of the standard products.    
Delivery is adjusted to customer requirements and availability of product.      
Brochures have been prepared for most of STL's products. These are used to      
convey technical details to potential customers. STL does not exhibit at trade  
shows or technical symposiums nor advertises in technical publications.         

     Response to customer delivery requirements and technical changes has been a
major factor in STL's success. It is anticipated that with the maintenance of   
the current executive staff this responsiveness will be maintained.             

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Customers. STL sells directly to U.S. Government customers at several 
different locations. Sales are also made to a number of other prime contractors,
both large and small that provide services and hardware to the U.S. Government. 
Large prime contractors include Raytheon E-Systems, Lockheed Martin and TRW.    

     The consolidation within the defense industry has not had a negative impact
on the company's business. There has been a trend toward the government placing 
orders directly with STL. Currently a BOA (Basic Ordering Agreement) is in place
that facilitates the placing of delivery orders. This agreement has four more   
years to run, however, consent of the contracting parties may be required to    
transfer this agreement to STL Ohio.                                            

  Competition. In general, the products that STL develops and produces are
used in a very specialized technical area. Consequently, the larger companies   
have not been interested in competing for the core business. Where interest has 
been shown by larger companies, STL has been able to deliver sooner and at a    
lower price thus winning the business. Short delivery schedules have enhanced   
STL's ability to win business.                                                  

   In the past, STL has bid on a small number of competitive contracts. More
than half of these were won by STL. Now that a product line has been developed  
and a rapport established with customers, competitive bids are less frequently  
required.                                                                       

     From time to time there is competition from other small companies. This has
not caused a significant impact on STL's business. This is not to imply that in 
the future there will not be an impact.                                         

The Acquisition of the STL Purchased Assets. Under the terms of the   
Acquisition Agreement the Company will acquire in STL Ohio, its subsidiary,     
substantially all of the business and assets of STL as the STL Purchased Assets.
It is anticipated that STL Ohio will be able to continue the business of STL    
largely unaffected by the Acquisition. Continuation of certain of STL's business
relationships and certain of its contractual relationships, however, may be     
subject to the receipt of third party consents which may be required to permit  
an assignment from STL to STL Ohio. Each of the EDL/STL Shareholders has agreed 
to use reasonable efforts to assist any transition of business of STL to STL    
Ohio, however, in some cases it may not be possible to obtain the required      
consent with the result that some business of STL may not be directly           
transferable to STL Ohio. The Company has agreed to authorize certain autonomy  
with respect to the operation of STL Ohio after the Acquisition . See "The      
Acquisition Agreement - Additional Covenants of the Parties."                   

Exceptional Recent Earnings History of EDL and STL                              

The earnings of EDL and STL have been exceptional during the periods  
covered by the Unaudited Pro Forma Consolidated Financial Information included  
in this Proxy Statement. The Company's Board of Directors, in its evaluation of 
the Acquisition, attempted to view such performance in the historical context of
prior periods and to assume reasonable expectations for operations following the
Acquisition in its decision to approve, and recommend shareholder approval of,  
the Acquisition under the terms of the Acquisition Agreement. Shareholders of   
the Company, before deciding how to vote on the Acquisition proposal, should    
also recognize that the pro forma financial information included in this Proxy  
Statement may not be fairly representative of the actual results of operations  
following the Acquisition and that such actual results of operation will likely 
be less favorable. See also "Risk Factors Applicable to the Acquisition."       

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FINANCIAL STATEMENTS  

 PARAVANT COMPUTER SYSTEMS, INC.

  INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

                                                                [Download Table]
                                                                               
Unaudited Pro Forma Consolidated Financial Information....................   37

Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998.......   38

Unaudited Pro Forma Consolidated Income Statement for the Six Months Ended     
March 31, 1998............................................................   39

Unaudited Pro Forma Consolidated Income Statement for the Year Ended           
September 30, 1997........................................................   40

Notes and Management's Assumptions to Unaudited Pro Forma Consolidated         
Financial Statements......................................................   41

Management's Discussion and Analysis of Operations........................   43

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PARAVANT COMPUTER SYSTEMS, INC.   

Unaudited Pro Forma Consolidated Financial Information

The following unaudited pro forma consolidated financial information with       
respect to the Company gives effect to the acquisition, and is based on         
estimates and assumptions set forth below in the notes to such information which
include pro forma adjustments. This unaudited pro forma consolidated financial  
information has been prepared utilizing the historical financial statements of  
the Company and the historical consolidated financial information of EDL and    
STL (EDL) and should be read in conjunction with the accompanying pro forma     
notes of the Company and EDL. The pro forma consolidated financial information  
is based on the purchase method of accounting for the acquisition. The pro      
forma consolidated balance sheet and income statements assume that the          
acquisition occurred on March 31, 1998 and October 1, 1996, respectively.       

This unaudited pro forma financial information does not purport to be indicative
of the results which actually would have occurred had the acquisition been      
effected on the date indicated.                                                 

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                                   Paravant Computer Systems, Inc.
                                Unaudited Pro Forma Consolidated Balance Sheet
                                  As of March 31, 1998

                                                        [Enlarge/Download Table]

                                                                                                                    Pro forma     
                                                         Company             EDL            Pro forma               March 31,     
                       Assets                           historical       historical        adjustments                1998        
---------------------------------------------------------------------  ---------------   ----------------         ----------------
                                                                                                                                  
Current assets:                                                                                                                   
    Cash and cash equivalents                              $2,909,848        1,380,766                                  4,290,614 
    Accounts receivable                                     2,803,897        4,411,486                                  7,215,383 
    Costs and estimated earnings in excess                                                                                        
        of billings on uncompleted contracts                        0        7,932,081                                  7,932,081 
    Inventory                                               3,479,473          153,889                                  3,633,362 
    Prepaid expenses and other assets                         110,156           58,005                                    168,161 
    Deferred income taxes                                     426,263           15,320                                    441,583 
                                                     ----------------  ---------------   ----------------        ---------------- 
        Total current assets                                9,729,637       13,951,547                  0              23,681,184 
                                                     ----------------  ---------------   ----------------        ---------------- 
Prepaid expenses                                              268,588                0                                    268,588 
Property and equipment, net                                   883,871          304,092                                  1,187,963 
Goodwill                                                            0                0          6,427,119 (d)           6,427,119 
Intangible assets, net                                         50,625                0          5,867,250 (d)           5,917,875 
Demonstration pool and custom molds                           255,407                0                                    255,407 
Other assets                                                  578,369           88,492           (246,984)(b)             419,877 
Investment in subsidiary                                            0                0         21,255,881 (a)(b)(c)             0 
                                                                                              (21,255,881)(d)                     
                                                     ----------------  ---------------   ----------------        ---------------- 
        Total assets                                      $11,766,497       14,344,131         12,047,385              38,158,013 
                                                     ================  ===============   ================        ================ 

           Liabilities and Stockholders' Equity                                                                                   
------------------------------------------------------                                                                            
Current liabilities:                                                                                                              
    Accounts payable                                       $  816,129          355,474            950,000 (b)           2,121,603 
    Accrued payroll and other liabilities                   1,394,274          519,050                                  1,913,324 
    Current maturities of long-term debt                       64,149                0                                     64,149 
    Current maturities of capital lease obligations            82,001                0                                     82,001 
    Billings in excess of costs and estimated                                                                                     
        earnings on uncompleted contracts                           0        1,048,631                                  1,048,631 
    Income taxes payable                                      285,524        3,352,400            633,897 (c)           4,271,821 
                                                     ----------------  ---------------   ----------------        ---------------- 
    Total current liabilities                               2,642,077        5,275,555          1,583,897               9,501,529 
                                                     ----------------  ---------------   ----------------        ---------------- 

Promissory notes                                                    0                0          4,800,000 (a)           4,800,000 
Notes payable to bank                                               0                0          8,700,000 (a)           8,700,000 
Capital lease obligations, less current maturities             46,867                0                                     46,867 
Deferred compensation                                               0          105,180                                    105,180 
Deferred income taxes                                          78,820            1,884                                     80,704 
                                                     ----------------  ---------------   ----------------        ---------------- 
        Total Liabilities                                   2,767,764        5,382,619         15,083,897              23,234,280 
                                                     ----------------  ---------------   ----------------        ---------------- 
Minority interest in equity of subsidiary                           0        3,197,576         (3,197,576)(d)                   0 
                                                     ----------------  ---------------   ----------------        ---------------- 

Stockholders' Equity                                                                                                              
    Common stock                                              122,249            1,200             59,250 (a)             181,499 
                                                                                                   (1,200)(d)                     
    Additional paid in capital                              5,325,806          177,395          5,865,750 (a)          11,191,556 
                                                                                                 (177,395)(d)                     
    Retained earnings                                       3,550,678        5,993,452         (5,993,452)(d)           3,550,678 
    Treasury stock                                                  0         (408,111)           408,111 (d)                   0 
                                                     ----------------  ---------------   ----------------        ---------------- 
        Total stockholders' equity                          8,998,733        5,763,936            161,064              14,923,733 
                                                     ----------------  ---------------   ----------------        ---------------- 
        Total liabilities and stockholders' equity        $11,766,497       14,344,131         12,047,385              38,158,013 
                                                     ================  ===============   ================        ================ 


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                               Paravant Computer Systems, Inc.
                             Unaudited Pro Forma Consolidated Income Statement
                             For the six month period ended March 31, 1998

                                                        [Enlarge/Download Table]

                                                                                                            Pro forma     
                                             Company               EDL               Pro forma              March 31,     
                                           historical           historical          adjustments               1998        
                                        -----------------   ------------------   -----------------      ----------------- 
                                                                                                                          
Contract revenues                              $7,648,353           21,613,907                                 29,262,260 

Costs of contract revenues                      4,003,313            9,245,642                                 13,248,955 
                                        -----------------   ------------------   -----------------      ----------------- 

        Gross profit                            3,645,040           12,368,265                                 16,013,305 

General and administrative expenses             2,883,933            2,032,063             581,222 (a)          5,497,218 
                                        -----------------   ------------------   -----------------      ----------------- 

        Income from operations                    761,107           10,336,202            (581,222)            10,516,087 

Other income, net                                  42,190              201,730            (561,750)(b)           (317,830)
                                        -----------------   ------------------   -----------------      ----------------- 
        Income before income taxes                803,297           10,537,932          (1,142,972)            10,198,257 

Income taxes                                     (274,969)          (3,694,064)            217,302 (a)         (3,946,890)
                                                                                           219,083 (b)                    
                                                                                          (414,242)(c)                    
                                        -----------------   ------------------   -----------------      ----------------- 

        Net income                                528,328            6,843,868          (1,120,829)             6,251,367 
                                        =================   ==================   =================      ================= 

Basic earnings per share                   $        0.066                                                  $        0.522 
                                        =================                                               ================= 

Diluted earnings per share                 $        0.046                                                  $        0.403 
                                        =================                                               ================= 

Weighted average number of common                                                                                         
    shares outstanding                          8,035,012                                3,950,000 (d)         11,985,012 

Plus incremental shares from assumed                                                                                      
    conversion of options and warrants          3,520,639                                        0              3,520,639 
                                        -----------------                        -----------------      ----------------- 

Weighted average number of common                                                                                         
    shares outstanding and dilutive                                                                                       
    potential common shares                                                                                               
    outstanding                                11,555,651                                3,950,000 (d)         15,505,651 
                                        =================                        =================      ================= 


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                                 Paravant Computer Systems, Inc.
                             Unaudited Pro Forma Consolidated Income Statement
                               For the year ended September 30, 1997

                                                        [Enlarge/Download Table]

                                             Company               EDL              Pro forma           September 30,   
                                            historical          historical          adjustments              1997       
                                        -----------------   -----------------   -----------------     ----------------- 

                                                                                                                        
Contract revenues                              13,209,541          28,525,537                                41,735,078 

Costs of contract revenues                      6,774,076          12,083,661                                18,857,737 
                                        -----------------   -----------------   -----------------     ----------------- 

        Gross profit                            6,435,465          16,441,876                   -            22,877,341 

General and administrative expenses             4,629,122           3,387,000          1,162,444 (a)          9,178,566 
                                        -----------------   -----------------   -----------------     ----------------- 

        Income from operations                  1,806,343          13,054,876         (1,162,444)            13,698,775 

Other income, net                                 (70,323)             90,187         (1,123,500)(b)         (1,103,636)
                                        -----------------   -----------------   -----------------     ----------------- 
        Income before income taxes              1,736,020          13,145,063         (2,285,944)            12,595,139 

Income taxes                                     (594,229)         (4,442,620)           434,606 (a)         (4,846,177)
                                                                                         438,165 (b)                    
                                                                                        (682,099)(c)                    
                                        -----------------   -----------------   -----------------     ----------------- 

        Net income                              1,141,791           8,702,443         (2,095,272)             7,748,962 
                                        =================   =================   =================     ================= 

Basic earnings per share                   $        0.143                                                $        0.648 
                                        =================                                             ================= 

Diluted earnings per share                 $        0.093                                                $        0.477 
                                        =================                                             ================= 

Weighted average number of common                                                                                       
    shares outstanding                          7,990,872                              3,950,000 (d)         11,940,872 

Plus incremental shares from assumed                                                                                    
    conversion of options and warrants          4,292,494                                      0              4,292,494 
                                        -----------------                       -----------------     ----------------- 

Weighted average number of common                                                                                       
    shares outstanding and dilutive                                                                                     
    potential common shares                                                                                             
    outstanding                                12,283,366                              3,950,000 (d)         16,233,366 
                                        =================                       =================     ================= 


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 PARAVANT COMPUTER SYSTEMS, INC.

 Notes and Management's Assumptions to Unaudited

 Pro Forma Consolidated Financial Statements

(1)          Basis of Presentation                                

           The pro forma consolidated balance sheet as of March 31, 1998 and the
     pro forma consolidated income statements for the six months ended March
      31, 1998 and for the year ended September 30, 1997 have been prepared to
   reflect the pro forma effects of the acquisition as set forth in this
      proxy statement. This unaudited pro forma financial information has been
       prepared utilizing the historical financial statements of the Company and
    the historical financial statements of EDL and STL (EDL) and should be
read in conjunction with the historical financial statements and  
   accompanying notes of the Company and EDL. The pro forma consolidated
      balance sheet and pro forma consolidated income statements were prepared
   as if the acquisition occurred on March 31, 1998 and October 1, 1996,
respectively. The pro forma information is unaudited and is not   
      necessarily indicative of the consolidated operating results which would
   have occurred if the acquisition had been consummated as of March 31,
  1998, or October 1, 1996 nor does it purport to represent the future
financial position or results of operations for future periods. In
       management's opinion, all adjustments necessary to reflect the effects of
the acquisition have been made.                                   

(2)          Method of Accounting                                 

           Assets acquired, liabilities assumed and costs incurred in connection
with the acquisition are recorded using the purchase method of    
      accounting. The amounts allocated to the assets acquired and liabilities
      assumed are based on management's estimate of their fair values with the
 excess of purchase price over fair value of net assets allocated to
goodwill.                                                         

        All significant intercompany balances and transactions between the
Company and EDL have been eliminated in the pro forma consolidated
financial statements.                                             

(3)          Adjustments to Pro Forma Consolidated Balance Sheet  

         The following describes the pro forma adjustments made to arrive at
     the pro forma consolidated balance sheet as of March 31, 1998 as if the
acquisition was consummated on such date.                         

        (a) Represents issuance of 3,950,000 shares of common stock at the
            estimated share price of $1.50, payment of $8,700,000 in cash,
and issuance of $4,800,000 in promissory notes.   

(b) Represents accrual of $950,000 of estimated additional
           transaction costs and amortization of $246,984 of transaction
costs incurred to date.                           

     (c) Represents accrual of $633,897 built in gains tax resulting
      from the distribution of STL shares to EDL shareholders.

    (d) Represents allocation of purchase price to tangible assets
       acquired, goodwill and non-competition agreements and the
          elimination of Paravant's investment in EDL and the minority
interest in STL.                                  

                                                                     (Continued)

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   PARAVANT COMPUTER SYSTEMS, INC.

Notes and Management's Assumptions to Unaudited 

    Pro Forma Consolidated Financial Statements--(Continued)

  (4)          Adjustments to Pro Forma Consolidated Income Statements

         The  following describes the pro forma adjustments to the pro forma
       consolidated income statement for the six months ended March 31, 1998 and
for the year ended September 30, 1997 as if the acquisition was   
consummated as of October 1, 1996.                                

(a) Represents amortization of goodwill and intangible    
              non-competition agreements over a 15 year period and the related
           income tax benefit of deductible amortization of goodwill and
  non-competition agreements associated with STL only.

 (b) Represents interest expense incurred in connection with
           promissory notes issued and additional draws on the Company's
             line of credit in connection with financing the acquisition and
           the related income tax benefit of deducting interest expense.
             Interest expense on the promissory notes and line of credit has
    been calculated using interest rates of 8.0% and 8.5%,
respectively.                                     

      (c) Represents additional income tax incurred as a result of EDL
changing from an S corporation to a C corporation.

      (d) Represents issuance of 3,950,000 shares of common stock upon
consummation of the acquisition.                  

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Management's Discussion and Analysis of                                         
Operations                                                                      

RESULTS OF OPERATIONS                                                           
Six Months ended March 31, 1998 - Pro Forma vs. Historical                      

          The results of operations of the Company are significantly impacted by
the addition of the revenues and costs directly related to the results of       
operations of EDL/STL. Furthermore, the Company will be impacted by the         
assumption of additional costs related to the financing of this acquisition and 
the related amortization of goodwill and intangible assets. The following       
discussion and analysis primarily addresses those items which reflect the impact
of this acquisition beyond the simple combination of revenues, cost of goods    
sold and expenses.                                                              

       Pro forma other income (expense) for the six months ended March 31,
1998 would be ($714,177), a decrease of $756,367 over the historical other      
income (expense) of $42,190. This decrease is due partly to the amortization of 
goodwill over fifteen years with an expense of $581,222 incurred in the six     
months ended March 31, 1998. An additional decrease is due to interest expense  
of $376,875 incurred as a result of the anticipated increase in the Company's   
revolving line of credit to $8,700,000 from $-0-, on an historical basis, and   
the promissory notes payable of $4,800,000 to the previous stockholders of EDL  
and STL. The remaining decrease is due to the other income of $201,730 brought  
with EDL/STL upon consolidation. See LIQUIDITY AND CAPITAL RESOURCES for further
discussion of the increase in debt associated with the acquisition.             

        Pro forma income tax expense for the six months ended March 31, 1998
would be $4,018,991 an increase of $3,744,022 over the historical expense of    
$274,969 for the six months ended March 31, 1998. This increase is due primarily
to the significant increase in income before income taxes provided by the       
acquisition and consolidation of EDL/STL, which results in income tax expense of
$3,694,064. The remaining increase is due primarily to additional income tax    
expense of approximately $414,242 incurred as a result of changing EDL from an  
S-corporation to a C-corporation. This increase is offset by additional         
deductions of $146,982 and $217,302 for interest expense and amortization       
expense, respectively, as discussed above.                                      

    Pro forma income tax expense as a percentage of pro forma income
before income taxes is 38.7% compared to historical income tax expense, which is
34.2% of historical income before income taxes. The increase in income tax is   
due to the increase in income and the effect of Ohio income tax vs. Florida     
income tax and will remain at levels comparable to the combined federal and     
state tax rates. The additional interest expense discussed in relation to other 
income (expense) is related primarily to the increased debt incurred to complete
the acquisition and as the debt decreases the corresponding interest expense    
will decrease.                                                                  

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Year ended September 30, 1997 - Pro Forma vs. Historical                        

          The results of operations of the Company are significantly impacted by
the addition of the revenues and costs directly related to the results of       
operations of EDL/STL. Furthermore, the Company will be impacted by the         
assumption of additional costs related to the financing of this acquisition and 
the related amortization of goodwill and intangible assets. The following       
discussion and analysis primarily addresses those items which reflect the impact
of this acquisition beyond the simple combination of revenues, cost of goods    
sold and expenses.                                                              

          Pro forma other expense for the year ended September 30, 1997 would be
$1,896,330, an increase of $1,826,007 over the historical other expense of      
$70,323. This increase is due partly to the amortization of goodwill over       
fifteen years with an expense of $1,162,444 incurred in the year ended September
30, 1997. An additional increase is due to interest expense of $753,750 incurred
as a result of the anticipated increase in the Company's revolving line of      
credit to $8,700,000 from $-0-, on an historical basis, and the promissory notes
payable of $4,800,000 to the previous stockholders of EDL and STL. These        
increases are offset by the other income of $90,187 brought with EDL/STL upon   
consolidation. See LIQUIDITY AND CAPITAL RESOURCES for further discussion of the
increase in debt associated with the acquisition.                               

      Pro forma income tax expense for the year ended September 30, 1997
would be $4,990,379 an increase of $4,396,150 over the historical expense of    
$594,229 for the year ended September 30, 1997. This increase is due primarily  
to the significant increase in income before income taxes provided by the       
acquisition and consolidation of EDL/ STL, which results in income tax expense  
of $4,442,620. The remaining increase is due primarily to additional income tax 
expense of approximately $682,099 incurred as a result of changing EDL from an  
S-corporation to a C-corporation. This increase is offset by additional         
deductions for interest expense of $293,963 and amortization expense of         
$434,606, as discussed above.                                                   

    Pro forma income tax expense as a percentage of pro forma income
before income taxes is 38.5% compared to historical income tax expense, which is
34.2% of historical income before income taxes. The increase in income tax      
expense is due to the increase in income and the effect of Ohio income tax vs.  
Florida income tax and will remain at levels comparable to the combined federal 
and state tax rates. The additional interest expense discussed in relation to   
other income (expense) is related primarily to the increased debt incurred to   
complete the acquisition and as the debt decreases the corresponding interest   
expense will decrease.                                                          

LIQUIDITY AND CAPITAL RESOURCES                             

       The Company's historical financial position as of March 31, 1998 is
significantly impacted on a pro forma basis by the acquisition of EDL/STL. The  
initial, non-contingent purchase price due at closing is $19,425,000 determined 
as follows: 3,950,000 shares of common stock at $1.50 per share for a total of  
$5,925,000, cash of $8,700,000, which is represented by notes payable to bank,  
and promissory notes of $4,800,000. Additionally, the Company will have incurred
expenses associated with the acquisition of approximately $1,196,894 which are  
disclosed as an increase to accounts payable of $950,000 and reclassification   
from other assets to investment in subsidiary of $246,984. The remaining item,  
which makes up the investment in subsidiary of $21,255,881, is income taxes     
payable of $633,897 for the built-in gains on the investment in subsidiary which
are incurred as a result of EDL switching from a S-corporation status (tax      
pass-through entity) back to a C-corporation status (taxable entity) within ten 
years of changing their designation to an S-corporation.                        

        To properly report the financial position as of March 31, 1998, on a
consolidated basis, an elimination adjustment is recorded which reduces the     
investment in subsidiary to $-0- from $21,255,881 by eliminating the EDL common 
stock of $1,200, additional paid in capital of $177,395, retained earnings of   
$5,993,452, treasury stock of $408,111 and EDL's minority investment in         
subsidiary (STL) of $3,197,576. Additionally, the portion of the investment     
related to the non-competition agreements of $5,867,250 must be reclassified to 
intangible net assets, and the remaining balance of $6,227,119 must be          
reclassified to goodwill.                                                       

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  The primary effect on the Company's current and future liquidity and
capital resources is the additional debt incurred in completing this            
transaction. The Company has received a conditional commitment from National    
City Bank, Dayton, Ohio for floating rate financing which would increase the    
Company's revolving line of credit to $14,000,000 with a maturity date of       
December 31, 2000 convertible thereafter to five year term debt. The interest   
rate on the line of credit is equal to the Bank's prime rate, the federal       
funds rate or the LIBOR rate plus a margin which ranges from 1.5% to 2.0% 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 would be 
secured by a first security interest in accounts receivable, contract rights,   
inventory, equipment and other security reasonably requested by the lender.     
The Company plans to use $8,700,000 of this line of credit to complete the      
acquisition.                                                                    

      The Company will also have promissory notes, payable to the stockholders
of the companies being acquired, in the aggregate amount of $4,800,000. Each of 
these notes will be a subordinated note which is subordinate and junior to any  
indebtedness of the Company to National City Bank, Dayton, Ohio. Each of the    
notes will bear interest at 8% per annum and the principal amount of each such  
note will be payable in 12 equal quarterly payments, together with the interest 
thereon, with the first payment due on October 1, 1998. Subsequent quarterly    
payments will be made through July 1, 2001, when the entire principal sum and   
all accrued interest will be payable in full. Because of the increase in the    
revolving line of credit, discussed above, and these promissory notes the       
Company will incur additional interest expense for the life of these loans.     

     In addition to the non-contingent purchase price and the associated pro
forma adjustments to the consolidated financial statements discussed above, the 
terms of the acquisition agreement include a cash earn-out. The cash earn-out,  
which may be paid as part of the STL purchased assets consideration, will be    
determined for each of the Company's fiscal years beginning with the fiscal year
ended September 30, 1999 and ending with the fiscal year ended September 30,    
2003 based upon the combined pre-tax earnings of EDL and STL Ohio to be         
calculated from the operating results included in the financial statements of   
the Company prepared in accordance with generally accepted accounting principals
and SEC Regulation S-X and subject to certain cost allocations between the      
Company and EDL and STL of Ohio. The combined pre-tax earnings of EDL and STL   
Ohio, to the extent, they are earned, will be distributed among the Company and 
STL as shown in the following table:                                            

                                                        [Enlarge/Download Table]

------------------------------------------------------------------------------------------------------
                      PERIOD           PERIOD           PERIOD           PERIOD           PERIOD      
      CASH           CLOSING -         10/1/99-         10/1/00-         10/1/01-         10/1/02-    
    RECIPIENT         9/30/99          9/30/00          9/30/01          9/30/02          9/30/03     
------------------------------------------------------------------------------------------------------
                                                                                                      
  Company Only          100%          First $7.5       First $7.5       First $6.8        First $8    
                                       Million           Million          Million          Million    
------------------------------------------------------------------------------------------------------
       STL              None          Next $2.5         Next $2.5        Next $1.7         Next $2    
      Only                             Million           Million          Million          Million    
------------------------------------------------------------------------------------------------------
      Split             None          Then Split       Then Split       Then Split       Then Split   
     Company &                           40%               40%              50%              50%      
       STL                               60%               60%              50%              50%      
------------------------------------------------------------------------------------------------------

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PARAVANT COMPUTER SYSTEMS, INC. 
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996 
WITH INDEPENDENT AUDITORS' REPORT THEREON 

                                                        [Enlarge/Download Table]

                                                                                                           PAGE    
                                                                                                       ------------

                                                                                                                   
Independent Auditors' Report..........................................................................           47
Financial Statements:                                                                                              
     Balance Sheets...................................................................................           48
     Statements of Income.............................................................................           49
     Statements of Changes in Stockholders' Equity....................................................           50
     Statements of Cash Flows.........................................................................           51
Notes to Financial Statements.........................................................................           52
Management's Discussion and Analysis of Operations....................................................           62


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INDEPENDENT AUDITORS' REPORT

Board of Directors:                                                             
PARAVANT COMPUTER SYSTEMS, INC.:                                                

We have audited the accompanying balance sheets of Paravant Computer  
Systems, Inc. as of September 30, 1997 and 1996, and the related statements of  
income, changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements based 
on our audits.                                                                  

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paravant Computer Systems,  
Inc. as of September 30, 1997 and 1996, and the results of its operations and   
its cash flows for the years then ended in conformity with generally accepted   
accounting principles.                                                          

                                 KPMG Peat Marwick LLP

Orlando, Florida                                                                

December 3, 1997                                                                

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PARAVANT COMPUTER SYSTEMS, INC. 
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996 

                                                        [Enlarge/Download Table]

                                      ASSETS                                           1997         1996    
                                                                                    -----------  -----------
                                                                                                            
Current assets:                                                                                             
     Cash and cash equivalents..................................................... $ 1,612,627  $    65,069
     Accounts receivable, net (notes 6, 8 and 18)..................................   4,082,915    7,161,192
     Employee receivables and advances.............................................      28,121       73,502
     Inventory, net (notes 2, 6 and 8).............................................   3,461,773    2,503,892
     Prepaid expenses..............................................................      97,585      141,191
     Deferred income taxes (note 14)...............................................     426,263      139,727
                                                                                    -----------  -----------
          Total current assets.....................................................   9,709,284   10,084,573
                                                                                    -----------  -----------
Property, plant and equipment, net (notes 3, 6, 8 and 9)...........................     914,439      517,515
Intangible assets, net (note 4)....................................................      64,875       89,125
Demonstration pool and custom molds, net (note 5)..................................     262,522      281,309
Other assets.......................................................................     318,980       16,136
                                                                                    -----------  -----------
          Total assets............................................................. $11,270,100  $10,988,658
                                                                                    -----------  -----------
                                                                                    -----------  -----------
                       LIABILITIES AND STOCKHOLDERS' EQUITY                                                 
Current liabilities:                                                                                        
     Notes payable to bank (note 6)................................................ $   --       $   540,000
     Other notes payable (note 7)..................................................     --           100,000
     Current maturities of long-term debt (note 8).................................     110,004      110,004
     Current maturities of capital lease obligations (note 9)......................     124,839       99,346
     Accounts payable..............................................................     595,367    1,043,731
     Accrued commissions...........................................................     570,559      449,251
     Accrued expenses..............................................................     739,258      430,900
     Accrued incentive compensation................................................     262,286      140,000
     Income taxes payable..........................................................     498,955      334,993
                                                                                    -----------  -----------
          Total current liabilities................................................   2,901,268    3,248,225
                                                                                    -----------  -----------
Long-term debt, less current maturities (note 8)...................................       9,147      619,151
Capital lease obligations, less current maturities (note 9)........................      71,352       67,781
Deferred income taxes, net (note 14)...............................................      78,820        7,657
                                                                                    -----------  -----------
          Total liabilities........................................................   3,060,587    3,942,814
                                                                                    -----------  -----------
Stockholders' equity:                                                                                       
     Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none                           
      issued.......................................................................     --           --     
     Common stock, par value $.015 per share. Authorized 30,000,000 shares; issued                          
      and outstanding 7,993,652 shares at September 30, 1997 and 7,956,038 shares                           
      at September 30, 1996 (notes 10, 11 and 12)..................................     119,905      119,341
     Additional paid-in capital....................................................   5,067,258    5,045,944
     Retained earnings.............................................................   3,022,350    1,880,559
                                                                                    -----------  -----------
          Total stockholders' equity...............................................   8,209,513    7,045,844
                                                                                    -----------  -----------
 Commitments and contingencies (notes 7, 9, 10 and 17)                                                      
          Total liabilities and stockholders' equity............................... $11,270,100  $10,988,658
                                                                                    -----------  -----------
                                                                                    -----------  -----------

See accompanying notes to financial statements. 

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PARAVANT COMPUTER SYSTEMS, INC. 
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996 

                                                        [Enlarge/Download Table]

                                                                                       1997          1996     
                                                                                    -----------   ----------- 

                                                                                                              
Revenues (note 18)................................................................. $13,209,541   $10,495,063 
Cost of revenues...................................................................   6,774,076     5,818,010 
                                                                                    -----------   ----------- 
     Gross profit..................................................................   6,435,465     4,677,053 
Selling and administrative expense (note 13).......................................   4,629,122     3,247,385 
                                                                                    -----------   ----------- 
          Income from operations...................................................   1,806,343     1,429,668 
Other income (expense):                                                                                       
     Interest expense..............................................................    (101,262)     (362,956)
     Miscellaneous income..........................................................      30,939        11,257 
                                                                                    -----------   ----------- 
          Income before income taxes...............................................   1,736,020     1,077,969 
Income tax expense (note 14).......................................................     594,229       375,816 
                                                                                    -----------   ----------- 
          Net income............................................................... $ 1,141,791   $   702,153 
                                                                                    -----------   ----------- 
                                                                                    -----------   ----------- 
Weighted average number of shares and common share equivalents outstanding.........  13,247,815     7,652,320 
                                                                                    -----------   ----------- 
                                                                                    -----------   ----------- 
Earnings per share.................................................................        $.10          $.10 
                                                                                           ----          ---- 
                                                                                           ----          ---- 

See accompanying notes to financial statements. 

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PARAVANT COMPUTER SYSTEMS, INC. 
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996 

                                                        [Enlarge/Download Table]

                                                                    COMMON STOCK                                           
                                                                --------------------  ADDITIONAL                  TOTAL    
                                                                 NUMBER       PAR      PAID-IN     RETAINED   STOCKHOLDERS'
                                                                OF SHARES    VALUE     CAPITAL     EARNINGS      EQUITY    
                                                                ---------   --------  ----------  ----------  -------------

                                                                                                                           
Balances, September 30, 1995................................... 4,500,000   $ 67,500  $  761,265  $1,178,406   $ 2,007,171 
Issuance of common stock, net of offering costs................ 3,450,000     51,750   4,283,324      --         4,335,074 
Exercise of common stock options...............................     6,038         91       1,355      --             1,446 
Net income for the year ended September 30, 1996...............    --          --         --         702,153       702,153 
                                                                ---------   --------  ----------  ----------  -------------
Balances, September 30, 1996................................... 7,956,038    119,341   5,045,944   1,880,559     7,045,844 
Exercise of common stock options...............................    37,614        564      21,314      --            21,878 
Net income for the year ended September 30, 1997...............    --          --         --       1,141,791     1,141,791 
                                                                ---------   --------  ----------  ----------  -------------
Balances, September 30, 1997................................... 7,993,652   $119,905  $5,067,258  $3,022,350   $ 8,209,513 
                                                                ---------   --------  ----------  ----------  -------------
                                                                ---------   --------  ----------  ----------  -------------

See accompanying notes to financial statements. 

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PARAVANT COMPUTER SYSTEMS, INC. 
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996 

                                                        [Enlarge/Download Table]

                                                                                         1997          1996     
                                                                                      -----------   ----------- 
                                                                                                                
Cash flows from operating activities:                                                                           
     Net income.....................................................................  $ 1,141,791   $   702,153 
     Adjustments to reconcile net income to net cash provided by (used in) operating                            
      activities:                                                                                               
          Depreciation and amortization.............................................      348,233       266,714 
          Deferred income taxes.....................................................     (215,373)       29,059 
          Increase (decrease) in cash caused by changes in:                                                     
               Accounts receivable..................................................    3,078,277    (1,866,086)
               Employee receivables and advances....................................       45,381        (7,795)
               Inventory............................................................     (957,881)      (92,058)
               Costs and estimated earnings in excess of billings on uncompleted                                
                  contracts.........................................................      --            322,071 
               Prepaid expenses.....................................................       43,606       (89,750)
               Other assets.........................................................     (302,844)        9,194 
               Accounts payable.....................................................     (448,364)     (290,900)
               Amounts due to affiliate.............................................      --            (87,294)
               Accrued commissions..................................................      121,308       (64,989)
               Accrued expenses.....................................................      308,358      (413,737)
               Accrued incentive compensation.......................................      122,286       140,000 
               Income taxes payable.................................................      163,962        17,328 
                                                                                      -----------   ----------- 
                    Net cash provided by (used in) operating activities.............    3,448,740    (1,426,090)
                                                                                      -----------   ----------- 
Cash flows from investing activities:                                                                           
     Acquisitions of property, plant and equipment..................................     (443,066)     (127,352)
     Acquisitions of intangible assets and demonstration pool and custom molds......      (67,826)     (254,979)
                                                                                      -----------   ----------- 
                    Net cash used in investing activities...........................     (510,892)     (382,331)
                                                                                      -----------   ----------- 
Cash flows from financing activities:                                                                           
     Net repayments on notes payable to bank........................................     (540,000)   (2,420,000)
     Repayments on other notes payable..............................................     (100,000)     (300,000)
     Repayments on long-term debt...................................................     (610,004)     (110,004)
     Repayments on capital lease obligations........................................     (162,164)     (102,264)
     Proceeds from sale of common stock.............................................       21,878     5,103,161 
     Payment of offering costs......................................................      --           (508,829)
                                                                                      -----------   ----------- 
                    Net cash provided by (used in) financing activities.............   (1,390,290)    1,662,064 
                                                                                      -----------   ----------- 
                    Net increase (decrease) in cash and cash equivalents............    1,547,558      (146,357)
Cash and cash equivalents at beginning of year......................................       65,069       211,426 
                                                                                      -----------   ----------- 
Cash and cash equivalents at end of year............................................  $ 1,612,627   $    65,069 
                                                                                      -----------   ----------- 
                                                                                      -----------   ----------- 
Supplemental disclosures of cash flow information:                                                              
     Cash paid during the year for:                                                                             
          Interest..................................................................  $   103,270   $   385,748 
                                                                                      -----------   ----------- 
                                                                                      -----------   ----------- 
          Income taxes..............................................................  $   644,106   $   358,488 
                                                                                      -----------   ----------- 
                                                                                      -----------   ----------- 
Supplemental disclosure of noncash investing and financing activities:                                          
     The Company entered into capital lease agreements for office equipment totaling                            
      $191,228 and $124,473 for the years ended September 30, 1997 and 1996,                                    
      respectively.                                                                                             

See accompanying notes to financial statements. 

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS 
SEPTEMBER 30, 1997 AND 1996 

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

(A) BUSINESS                                                                    

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

(B) CASH AND CASH EQUIVALENTS                                                   

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

(C) ACCOUNTS RECEIVABLE                                                         

  Management has provided an allowance for doubtful accounts receivable in
the amount of $141,497 and $12,353 as of September 30, 1997 and 1996,           
respectively.                                                                   

(D) INVENTORY                                                                   

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

(E) DEPRECIATION AND AMORTIZATION                                               

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

(F) REVENUE AND COST RECOGNITION                                                

    The Company recognizes revenues on product sales when the customer accepts
title, which typically occurs upon shipment. At September 30, 1997 and 1996, the
Company had product sales of $1,241,111 and $4,144,207, respectively, for which 
title had been transferred to a customer although physical product remained on  
Company premises at the convenience of the customer. The Company allows         
customers to return products under warranty for up to one year for repair and   
accrues a reserve for future warranty costs at the time of product sales. The   
warranty reserve was $75,000 and $54,505 as of September 30, 1997 and 1996,     
respectively.                                                                   

(G) INCOME TAXES                                                                

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

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(H) STOCK OPTION PLAN                                                           

   Prior to October 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ('APB') Opinion
No. 25, 'Accounting for Stock Issued to Employees', and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On    
October 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, 'Accounting for Stock-Based Compensation', which permits        
entities to recognize as expense over the vesting period the fair value of all  
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide  
pro forma net income and pro forma earnings per share disclosures for employee  
stock option grants made in the first fiscal year beginning after December 15,  
1994 and future years as if the fair-value-based method defined in SFAS No. 123 
had been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No.  
123.                                                                            

(I) EARNINGS PER SHARE                                                          

  Earnings per share have been computed by dividing adjusted net income by
the weighted average number of common shares and share equivalents outstanding. 
The adjustment to net income assumes the investment of excess proceeds received 
from the assumed exercise of common stock equivalents, net of related income    
taxes, using the modified treasury stock method. Common equivalent shares       
included in the computation represent shares issueable upon assumed exercise of 
stock options and warrants. Common stock authorized, issued and outstanding as  
of September 30, 1997 and 1996 reflects the effects of a 3-for-1 common stock   
split authorized on July 25, 1996 by the Board of Directors.                    

     Fully diluted earnings per common share amounts did not differ from amounts
computed under the primary computation for the years ended September 30, 1997   
and 1996.                                                                       

(J) USE OF ESTIMATES                                                            

The presentation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the date of the financial    
statements, and the reported amounts of revenues and expenses during the        
reporting period. Actual results could differ from those estimates.             

(K) FUTURE APPLICATION OF ACCOUNTING STANDARDS                                  

    In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, 'Earnings Per Share.' SFAS No. 128 supersedes APB Opinion No. 15, 'Earnings
Per Share,' and specifies the computation, presentation, and disclosure         
requirements for earnings per share ('EPS') for entities with publicly held     
common stock or potential common stock. SFAS No. 128 was issued to simplify the 
computation of EPS. It requires dual presentation of basic and diluted EPS on   
the face of the statements of operations for all entities with complex capital  
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS       
computation.                                                                    

 SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not       
permitted. After adoption, all prior period EPS data presented shall be restated
to conform to SFAS No. 128.                                                     

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(2) INVENTORY                                                                   

 The following is a summary of inventory at September 30, 1997 and 1996:

                                                                [Download Table]

                                                            1997         1996    
                                                         ----------   ---------- 

                                                                                 
Raw materials........................................... $2,149,401   $1,835,286 
Work in process.........................................  1,490,621      474,940 
Finished goods..........................................    263,516      269,243 
                                                         ----------   ---------- 
                                                          3,903,538    2,579,469 
Reserve for obsolete inventory..........................   (441,765)     (75,577)
                                                         ----------   ---------- 
                                                         $3,461,773   $2,503,892 
                                                         ----------   ---------- 
                                                         ----------   ---------- 

(3) PROPERTY, PLANT AND EQUIPMENT                                               

  The following is a summary of property, plant and equipment at September
30, 1997 and 1996:                                                              

                                                                [Download Table]

                                                            1997         1996    
                                                         ----------   ---------- 

                                                                                 
Office equipment........................................ $1,305,028   $  930,332 
Factory equipment.......................................    271,403      209,833 
Leasehold improvements..................................    199,945       14,307 
                                                         ----------   ---------- 
          Total cost....................................  1,776,376    1,154,472 
Less accumulated depreciation...........................   (861,937)    (636,957)
                                                         ----------   ---------- 
                                                         $  914,439   $  517,515 
                                                         ----------   ---------- 
                                                         ----------   ---------- 

    Depreciation and amortization expense on these assets amounted to $237,370
and $196,757 for the years ended September 30, 1997 and 1996, respectively.     

(4) INTANGIBLE ASSETS                                                           

 These assets consist of exclusive rights to a printed circuit board and
certain software. Cost and accumulated amortization of these assets at September
30, 1997 and 1996 are as follows:                                               

                                                                [Download Table]

                                                             1997        1996    
                                                           ---------   --------- 

                                                                                 
Cost...................................................... $ 272,500   $ 267,500 
Accumulated amortization..................................  (207,625)   (178,375)
                                                           ---------   --------- 
                                                           $  64,875   $  89,125 
                                                           ---------   --------- 
                                                           ---------   --------- 

    Total amortization expense on these assets was $29,250 and $28,500 for the
years ended September 30, 1997 and 1996, respectively.                          

(5) DEMONSTRATION POOL AND CUSTOM MOLDS                                         

     These assets consist of equipment held in the demonstration pool and custom
molds. Cost and accumulated amortization of these assets at September 30, 1997  
and 1996 are as follows:                                                        

                                                                [Download Table]

                                                             1997        1996    
                                                           ---------   --------- 

                                                                                 
Cost...................................................... $ 762,549   $ 699,723 
Accumulated amortization..................................  (500,027)   (418,414)
                                                           ---------   --------- 
                                                           $ 262,522   $ 281,309 
                                                           ---------   --------- 
                                                           ---------   --------- 

    Total amortization expense on these assets was $81,613 and $41,457 for the
years ended September 30, 1997 and 1996, respectively.                          

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(6) NOTES PAYABLE TO BANK                                                       

   The Company has a line of credit with a bank totaling $4,000,000 which is
due on demand and, at September 30, 1997, bears interest at the prime rate for  
secured borrowings under prescribed levels or the 30 or 60 day LIBOR rates plus 
2.70% and the prime rate plus .50% for other borrowings. Secured borrowings are 
collateralized by accounts receivable, inventory and equipment. The amount      
outstanding under these credit agreements at September 30, 1997 and 1996 was    
$-0- and $540,000, respectively. The credit agreements do not contain any       
material financial covenants.                                                   

(7) OTHER NOTES PAYABLE                                                         

 In August 1995, the Company issued subordinated, convertible promissory
notes payable ('Notes') in the principal amount of $400,000. The Notes also had 
480,000 warrants attached for $.003 per warrant exercisable at $2.00 per share. 
A portion of these notes totaling approximately $98,000 were manditorily        
convertible into 120,000 shares of the Company's common stock at a conversion   
price of $.82 in the event the Company completed a public offering of its common
stock prior to January 1, 1996. The Company did not complete the public offering
prior to January 1, 1996 and the conversion feature expired. The Notes, which   
bore interest at 6%, had an outstanding balance of $-0- and $100,000 at         
September 30, 1997 and 1996, respectively.                                      

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

(8) LONG-TERM DEBT                                                              

The following is a summary of long-term debt at September 30, 1997 and
1996:                                                                           

                                                        [Enlarge/Download Table]

                                                                        1997        1996    
                                                                      ---------   --------- 

                                                                                            
Note payable to bank bearing an initial interest rate of 7.25%;                             
  interest rate adjusted monthly to 1.50% above the prime rate;                             
  interest and principal due in sixty monthly installments including                        
  principal of $9,167 per payment; final payment due October of                             
  1998; secured by accounts receivable, inventory and equipment.....  $ 119,151   $ 229,155 
Note payable to bank bearing interest at the prime rate; interest                           
  due monthly, principal balance due March 31, 1998; secured by                             
  accounts receivable, inventory and equipment......................     --         500,000 
Less current maturities.............................................   (110,004)   (110,004)
                                                                      ---------   --------- 
     Long-term debt, less current maturities........................  $   9,147   $ 619,151 
                                                                      ---------   --------- 
                                                                      ---------   --------- 

Scheduled principal payments for future periods are as follows:       

                                                                [Download Table]

YEAR ENDING SEPTEMBER 30,                                                
-------------------------                                                
                                                                         
1998..........................................................   $110,004
1999..........................................................      9,147
                                                                 --------
                                                                 $119,151
                                                                 --------
                                                                 --------

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

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(9) LEASES                                                                      

    The Company is obligated under various capital leases for office equipment
and building improvements. At September 30, 1997 and 1996, respectively,        
property, plant and equipment included net capital lease assets of $293,096     
and $197,423.                                                                   

   The Company also has several noncancellable operating leases. Under these
arrangements, the Company leases its current office facilities at a rate of     
$9,176 per month. In addition, the Company leases a residential unit from a     
related partnership under a month-to-month lease at a rate of $1,000 per month. 
The Company also leases automobiles and equipment with lease terms into June of 
1999. Rent expense under operating lease agreements totaled $185,306 and        
$151,924 for the years ended September 30, 1997 and 1996, respectively.         

     The following is a schedule by years of future minimum lease payments under
capital and operating leases together with the present value of the net minimum 
lease payments as of September 30, 1997:                                        

                                                        [Enlarge/Download Table]

                                                                       CAPITAL    OPERATING
YEAR ENDING SEPTEMBER 30,                                              LEASES      LEASES  
------------------------                                              ---------   ---------

                                                                                           
1998................................................................. $ 137,340   $ 137,960
1999.................................................................    60,229     126,619
2000.................................................................    14,675     116,946
2001.................................................................    --         110,117
2002.................................................................    --          27,529
                                                                      ---------   ---------
          Total minimum lease payments...............................   212,244   $ 519,171
                                                                                  ---------
                                                                                  ---------
Less amounts representing interest...................................   (16,053)           
                                                                      ---------            
          Present value of net minimum lease payments................   196,191            
Less current maturities..............................................  (124,839)           
                                                                      ---------            
Capital lease obligations............................................ $  71,352            
                                                                      ---------            
                                                                      ---------            

    The carrying value of the Company's capital lease obligations approximates
its fair value because the leases bear interest at borrowing rates currently    
available to the Company for leases with similar terms and maturities.          

(10) STOCKHOLDERS' EQUITY                                                       

  Common stock authorized, issued and outstanding as of September 30, 1997
and 1996 reflects the effects of a 3-for-1 common stock split effected on July  
25, 1996 by the Board of Directors.                                             

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

(11) STOCK OPTIONS                                                              

    Common stock options and related exercise prices have been adjusted below,
where applicable, to reflect the effects of the aforementioned 3-for-1 common   
stock split effected on July 25, 1996.                                          

On December 22, 1993, the Company granted options under a nonqualified
stock option plan ('nonqualified plan') to employees to purchase 74,799 shares  
of the Company's common stock at an exercise price of $.24 per share. The terms 
of these options provide that the options may be exercised during a period      
beginning December 22, 1994 and ending six years from the date the options were 
granted. The Company terminated the nonqualified plan on November 22, 1994.     

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

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

   On November 22, 1994, the Company reserved 900,000 shares of common stock
for its qualified incentive stock option plan ('qualified plan'). On March 14,  
1996 the Company increased the options reserved under the qualified plan from   
900,000 to 1,455,000. The terms of these options provide that the options are   
exercisable at 33% 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.

On March 14, 1996, the Company reserved 45,000 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 nonqualified plan provides that each nonemployee        
director be granted options to purchase 7,500 shares at the fair market value on
the date of the director's election to the Board.                               

At September 30, 1997, there were 519,357 and 15,000 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 1997 where exercise 
price equals the market price of the stock on the grant date was $4.85. The per 
share weighted-average fair value of stock options granted during 1996 where    
exercise price equals the market price of the stock on the grant date or        
exercise price is greater than the market price of the stock on the grant date  
was $1.30 and $1.21 respectively.                                               

The following weighted average assumptions were used:                 

                                                        [Enlarge/Download Table]

                                                                      1997        1996    
                                                                   ----------   --------- 

                                                                                          
Exercise price equal to market price on grant date                                        
     Expected risk-free interest rate.............................       6.13%       5.58%
     Expected life................................................  8.0 years   8.0 years 
     Expected volatility..........................................     122.72%     113.38%
     Expected dividend yield......................................       0.00%       0.00%
Exercise price greater than market price on grant date                                    
     Expected risk-free interest rate.............................     --            5.58%
     Expected life................................................     --       8.0 years 
     Expected volatility..........................................     --          113.38%
     Expected dividend yield......................................     --            0.00%

   The Company applies APB Opinion No. 25 in accounting for its option plans
and, accordingly, no compensation cost has been recognized for its stock options
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:         

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

                                                        [Enlarge/Download Table]

                                                                              1997       1996  
                                                                           ----------  --------

                                                                                               
Net income          As reported........................................... $1,141,791  $702,153
                    Pro forma............................................. $  629,758  $571,507
Earnings per share  As reported........................................... $     0.10  $   0.10
                    Pro forma.............................................       0.06      0.09

Pro forma net income reflects only options granted in 1997 and 1996.  
Therefore, the full impact of calculating compensation cost for stock options   
under SFAS No. 123 is not reflected in the pro forma net income amounts         
presented above because compensation cost is reflected over the options' vesting
period of 3 years and compensation cost for options granted prior to October 1, 
1995 is not considered.                                                         

Stock option activity during the periods indicated is as follows:     

                                                        [Enlarge/Download Table]

                                                                          NUMBER OF   WEIGHTED- AVERAGE
                                                                           SHARES      EXERCISE PRICE  
                                                                          ---------   ---------------- 

                                                                                                       
Outstanding at September 30, 1995........................................   639,777        $  .68      
     Granted.............................................................   381,000          1.45      
     Exercised...........................................................    (6,038)          .31      
     Forfeited...........................................................   (14,763)          .78      
                                                                          ---------                    
Outstanding at September 30, 1996........................................   999,976           .98      
     Granted.............................................................   223,000          5.18      
     Exercised...........................................................   (37,614)          .60      
     Forfeited...........................................................   (15,608)         3.16      
                                                                          ---------                    
Outstanding at September 30, 1997........................................ 1,169,754          1.76      
                                                                          ---------                    
                                                                          ---------                    

  At September 30, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $.24 to $.72 for 467,504  
shares; $.72 to $.79 for 120,000 shares; and $1.33 to $6.00 for 582,250 shares  
at 5.17 years, 7.15 years and 8.54 years, respectively.                         

At September 30, 1997 and 1996, the number of options exercisable was 
597,754 and 365,628, respectively, and the weighted-average exercise price of   
those options was $.97 and $.65, respectively.                                  

(12) WARRANTS                                                                   

   In connection with the Company's IPO of common stock in June of 1996, the
Company issued 4,830,000 warrants exercisable for a period of five years        
commencing November 30, 1997 at an exercise price of $2.00 per share, subject to
adjustment in certain circumstances. The Company, at its option during the      
exercise period of the warrants, may redeem the warrants, after November 30,    
1997, upon notice of not less than 30 days, at a price of $.0167 per warrant    
provided that the last sale price of the Company's common stock on the Nasdaq   
National Market has exceeded $2.83 per share (subject to adjustment) for a      
period of 30 consecutive trading days. As of September 30, 1997, no warrants    
have been exercised. In addition, in connection with the IPO, the Company issued
warrants to the underwriter to purchase up to 300,000 shares of common stock at 
$2.00 per share and up to 420,000 warrants at $.04 per warrant. The             
underwriter's warrants are exercisable during the four-year period commencing   
June 3, 1997.                                                                   

(13) RESEARCH AND DEVELOPMENT                                                   

    Research and development costs are expensed when incurred and are included
in selling and administrative expense. The amounts charged to expense were      
$611,295 and $382,750 for the years ended September 30, 1997 and 1996,          
respectively.                                                                   

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(14) INCOME TAXES                                                               

The components of income tax expense (benefit) for the years ended    
September 30, 1997 and 1996 are as follows:                                     

                                                        [Enlarge/Download Table]

                                                         CURRENT   DEFERRED     TOTAL  
                                                         --------  ---------   --------
                                                                                       
1997:                                                                                  
     Federal............................................ $683,579  $(184,143)  $499,436
     State..............................................  126,023    (31,230)    94,793
                                                         --------  ---------   --------
                                                         $809,602  $(215,373)  $594,229
                                                         --------  ---------   --------
                                                         --------  ---------   --------
1996:                                                                                  
     Federal............................................ $292,008  $  26,620   $318,628
     State..............................................   54,749      2,439     57,188
                                                         --------  ---------   --------
                                                         $346,757  $  29,059   $375,816
                                                         --------  ---------   --------
                                                         --------  ---------   --------

   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, 1997
and 1996:                                                                       

                                                        [Enlarge/Download Table]

                                                                         1997       1996   
                                                                       --------   -------- 
                                                                                           
Computed 'expected' tax expense....................................... $590,247   $366,509 
Increase (decrease) in income taxes resulting from:                                        
     State income taxes, net of federal income tax benefit............   52,358     36,134 
     Nondeductible meals and entertainment expense....................    7,200      6,270 
     Research and experimentation credit..............................  (31,951)   (12,372)
     Other, net.......................................................  (23,625)   (20,725)
                                                                       --------   -------- 
                                                                       $594,229   $375,816 
                                                                       --------   -------- 
                                                                       --------   -------- 

    Deferred income taxes as of September 30, 1997 and 1996 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, 1997 and 1996:                             

                                                        [Enlarge/Download Table]

                                                                        1997        1996   
                                                                      ---------   -------- 
                                                                                           
Gross deferred tax liabilities:                                                            
     Capitalized costs............................................... $ (36,392)     --    
     Accumulated depreciation........................................   (81,342)  $(46,426)
                                                                      ---------   -------- 
          Total gross deferred tax liabilities.......................  (117,734)   (46,426)
                                                                      ---------   -------- 
Gross deferred tax assets:                                                                 
     Inventory.......................................................   255,166     61,972 
     Accounts receivable.............................................    53,245      --    
     Warranty expense................................................    28,223     20,510 
     Accrued vacation and sick leave.................................    54,996     45,956 
     Accrued incentive compensation..................................    26,341     11,289 
     Deferred revenue................................................     8,292      --    
     Net operating loss carryforwards................................    --          1,554 
     Research credits................................................    38,914     37,215 
                                                                      ---------   -------- 
          Total gross deferred tax assets............................   465,177    178,496 
                                                                      ---------   -------- 
          Total net deferred tax assets.............................. $ 347,443   $132,070 
                                                                      ---------   -------- 
                                                                      ---------   -------- 

   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                                     

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

generation of future taxable income or the reversal of deferred tax liabilities 
during the periods in which those 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, 1997 and 1996, no valuation allowance has been  
recognized in the accompanying financial statements for the deferred tax assets 
because the Company believes that sufficient projected future taxable income    
will be generated to fully utilize the benefits of these deductible amounts.    

(15) RETIREMENT PLAN                                                            

The Company has a defined contribution retirement plan covering       
substantially all employees who have completed 1,000 hours of service.          
Retirement expense incurred was $53,597 and $19,098 for the years ended         
September 30, 1997 and 1996, respectively.                                      

(16) RELATED PARTY TRANSACTIONS                                                 

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

(17) CONTINGENCIES                                                              

In March 1996, the Company's former counsel rendered an invoice to the
Company totaling approximately $365,000 for legal fees and expenses representing
both general corporate services as well as services relating to the Company's   
IPO. The Company contested the invoice and accrued an estimate for the          
settlement, if any, of these fees. In March 1996, the Company's former counsel  
filed an action against the Company, its current underwriter and certain other  
defendants, alleging, among other things, breach of contract, failure to pay    
attorneys fees, fraud, copyright infringement and defamation by the Company in  
connection with the aforementioned services as well as claiming a finder's fee  
with respect to the underwriter's relationship with the Company. In September   
1997, the plaintiff filed an amended complaint increasing his claim for legal   
services from approximately $365,000 to approximately $415,000. The plaintiff is
also seeking punitive damages of $1,000,000 from the Company. The Company filed 
an answer denying the claims asserted by plaintiff and has asserted defenses and
counterclaims against the plaintiff seeking recovery of amounts paid to the     
plaintiff, punitive damages and court costs.                                    

  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      
attorneys fees. The Company has filed a motion to dismiss the plaintiff's       
amended complaint and intends to vigorously defend this lawsuit.                

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

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PARAVANT COMPUTER SYSTEMS, INC. 
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1997 AND 1996 

(18) CONCENTRATION OF CREDIT RISK                                               

The Company has a high concentration of sales to a few customers who  
accounted for 89% and 95% of revenue for the years ended September 30, 1997 and 
1996, respectively. A summary of sales and accounts receivable to the customers 
that exceed 10% of sales or accounts receivable for the years ended September   
30, 1997 and 1996 are as follows:                                               

                                                        [Enlarge/Download Table]

                                                                1997                   1996         
                                                        ---------------------  ---------------------
                                                          SALES       % TOTAL    SALES       % TOTAL
                                                        ----------    -------  ----------    -------

                                                                                                    
Customer A............................................. $6,094,617       46%   $5,094,104       49% 
Customer B.............................................  4,684,013       36     2,255,433       21  
Customer C.............................................    871,468        7        --         --    
Customer D.............................................     --         --       1,609,725       15  
Customer E.............................................     --         --       1,079,408       10  

                                                        [Enlarge/Download Table]

                                                         ACCOUNTS             ACCOUNTS          
                                                        RECEIVABLE  % TOTAL  RECEIVABLE  % TOTAL
                                                        ----------  -------  ----------  -------

                                                                                                
Customer A............................................. $1,556,040     37%   $4,982,408     70% 
Customer B.............................................  1,663,296     39     1,009,630     14  
Customer C.............................................    657,596     16        --       --    
Customer D.............................................     --       --         906,966     13  

(19) FOURTH QUARTER RESULTS                                                     

  Adjustments were made to increase inventory during the fourth quarter of
the years ended September 30, 1997 and 1996 in the amounts of $195,975 and      
$433,000, respectively, before related income taxes. These adjustments were made
to adjust perpetual records to physical counts. The Company was not able to     
determine the amount of the adjustments that related to the fourth quarter or   
the prior quarters.                                                             

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

(20) SUBSEQUENT EVENT                                                           

    On November 20, 1997, the Company granted options under its qualified plan
to employees to purchase 226,000 shares of the Company's common stock at an     
exercise price of $4.25 per share which was the market price of the shares at   
the date of issuance.                                                           

On November 20, 1997, the Company granted special options to the three
nonemployee directors (1997 special option plan) exercisable for ten years from 
the date of issuance for the purchase of an aggregate of up to 24,000 shares at 
an exercise price of $4.25 per share, the market price of the shares at the date
of issuance. Although not granted under the existing directors' nonqualified    
plan, the 1997 special option plan is subject to terms substantially similar to 
those applicable to options granted under the directors' nonqualified plan. The 
1997 special options are evidenced by stock option agreements between the       
Company and the subject directors.                                              

     In October of 1997, the Company announced that it entered into negotiations
related to an acquisition. The terms of the acquisition, including price and    
acquisition date, have not yet been determined.                                 

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS         
OF OPERATION                                                                

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

RESULTS OF OPERATIONS                                                           

FISCAL YEAR ENDED SEPTEMBER 30, 1997 VS. SEPTEMBER 30, 1996                     

     Revenues for fiscal 1997 were $13,209,541, an increase of $2,714,478 or 26%
over 1996 revenues of $10,495,063. This increase is primarily due to Paravant's 
strong backlog ($15,242,745 at September 30, 1997) and continued full scale     
production deliveries to Raytheon in support of the U.S. Marine Corps           
HAWK/AVENGER Air Defense missile system upgrade and additional requirements of  
Lockheed Martin's Enhanced Diagnostic Aid ('EDNA') systems for use by the U.S.  
Air Force on F-16 Fighter Aircraft and the F-117A Stealth Fighter.              

Gross profit was $6,435,465 in 1997, or 49% of sales, compared to     
$4,677,053 or 45% in 1996, a total increase of $1,758,412 or 38%. This increase 
in gross profitability results primarily from the increased revenues discussed  
above.                                                                          

 Selling and administrative expenses of $4,629,122 in 1997, increased by
$1,381,737 or 43% from 1996 expenses of $3,247,385. As a percentage of sales,   
selling and administrative expenses were 35% and 31% in 1997and 1996,           
respectively. The increased selling and administrative costs are due primarily  
to increased employee benefit expenditures, increased professional fees and     
increased expenditures for Research and Development.                            

     Income from operations grew to $1,806,343 for 1997 from $1,429,668 in 1996,
an improvement of $376,675 or 26%. As a percentage of sales, income from        
operations remained unchanged at 14% in 1997 and 1996. The improvement in income
from operations overall, resulted primarily from increased revenues and gross   
profits, offset in part by increased selling and administrative expenses as     
discussed above.                                                                

Interest expense for 1997 was reduced by $261,694 or 72% to $101,262  
compared to $362,956 in 1996. As a percentage of sales, interest expense        
decreased to 1% in 1997 from 3% in 1996. This decrease is due to a significant  
decline in outstanding credit balances made possible by the proceeds of the     
Company's initial public offering of securities in June 1996.                   

     As a result, the Company's net income improved by 63% to $1,141,791 in 1997
when compared to $702,153 in 1996, an increase of $439,638 in total. Net income 
as a percentage of sales were 9% in 1997 and 7% in 1996. The improvement in net 
income overall, resulted primarily from increased revenue, gross profits and    
reduced interest expense, offset in part by increased selling and administrative
expenses as discussed above.                                                    

LIQUIDITY AND CAPITAL RESOURCES                                                 

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

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

   The Company has a secured revolving credit arrangement with National City
Bank in Dayton, Ohio (the 'Bank') for a credit line of up to $4,000,000 that is 
due on demand and bears interest at the prime rate, or 30 or 60 day LIBOR rates 
plus 2.70%. All borrowings are collateralized by accounts receivable, inventory 
and equipment. As of September 30, 1997, there were no borrowings outstanding   
under this arrangement. The Company intends to maintain this arrangement with   
the Bank for the foreseeable future, although there can be no assurance that the
Bank will not in the future demand repayment of any amounts then outstanding    
under its loan arrangement. The Company also has a secured term loan provided by
the Bank bearing interest at a rate adjusted monthly to prime plus 1.5% at      
September 30, 1997. Monthly principal payments of $9,167 are due through October
1998. All borrowings thereunder are secured by a lien on accounts receivable,   
inventory and equipment. As of September 30, 1997, there was $119,151           
outstanding under this arrangement with the Bank. The Company also has capital  
lease obligations of $196,191 at September 30, 1997. These capital lease        
obligations bear interest rates of 1.25% to 1.50% over the prime rate and are   
expected to be satisfied within 3 years.                                        

 On April 22, 1997, the Company retired a note payable to the Bank in an
aggregate principal amount of $500,000, bearing interest at the prime rate,     
which note was due and payable in March 1998.                                   

In August 1995, the Company borrowed $400,000 pursuant to bridge notes
('Notes') from a group of private investors at an annual interest rate of 6%. In
addition, the Company sold to the same investors warrants to purchase 480,000   
shares of Common Stock, exercisable until June 3, 2001 at an exercise price of  
$2.00 per share. The Notes were paid in full on August 8, 1997.                 

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

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

    The Company's operating cash flow was $3,448,740 for 1997. The improvement
in the Company's operating cash flow results primarily from improved net income 
as more fully described in Management's Discussion and Analysis of Operations   
for the fiscal year ended September 30, 1997 and improved working capital as    
more fully presented in the Condensed Statements of Cash Flows for the same     
period. Negative cash flows for the years ended September 30, 1996 and 1995,    
$(1,426,090) and $(298,577), respectively, were primarily associated with       
general increases in inventory levels and temporary increases associated with   
accounts receivable, all in support of the Company's rapid increase in          
operations reflected by the growth in annual revenues from $4,621,527 in fiscal 
1993 to $10,495,063 in fiscal 1996, an increase of almost 127%. In addition, the
Company invested $443,066 in fiscal 1997, $127,352 in fiscal 1996 and $60,350 in
fiscal 1995 to acquire manufacturing equipment and complete leasehold           
improvements, also in support of these expanded operating levels.               

Due to the Company's orders related to U.S. Department of Defense     
procurements, the operations of the Company have been cyclical and generally    
result in a significant increase in deliveries and revenues in the fourth       
quarter of its fiscal year ending on September 30. Due to the Company's strong  
backlog and increased revenues, this cycle is less significant in the current   
fiscal year, resulting in a significant improvement in cash provided from       
operations, as discussed earlier herein and less significant                    

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changes in inventory levels than the prior period. This change is evidenced by a
decrease in fourth quarter revenues to 38% from 65% of total revenues for the   
years ended September 30, 1997 and 1996, respectively.                          

     As of September 30, 1997, management believes inventory balances are not in
excess of requirements for deliveries and normal minimum stocking levels.       

 Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, the Company's major customer, Raytheon,  
has traditionally averaged approximately 80 to 100 days in satisfaction of      
outstanding accounts receivable balances. This situation is improving through   
negotiation with Raytheon, and Management believes that average outstanding     
balances will be reduced to more traditional levels approximating 45 days, in   
the future although there can be no assurance of such. The Company's total      
outstanding accounts receivable balance of $4,082,915 at September 30, 1997 has 
been subsequently reduced by approximately $3,180,358 in cash collections. In   
1997, the Company provided a reserve for certain older balances of $141,497.    
This reserve is believed to be more than sufficient to address any uncollectible
balances outstanding as of September 30, 1997.                                  

  As of September 30, 1997 and 1996, the Company's backlog was $15,242,745
and $14,617,253, respectively, 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 presently expects to manufacture and deliver $9,724,270 of the      
products in backlog within the next 12 months. The remaining $5,518,475 of      
products in backlog will be completed over the next 4 years.                    

The Company anticipates, based on its currently proposed plans and    
assumptions relating to its operations, that the proceeds of the IPO and ongoing
stock offerings, together with 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, 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.                                       

     The Company has conducted a comprehensive review of its computer systems to
identify any systems that could be affected by the 'Year 2000' issue. The Year  
2000 problem is the result of computer programs being written using two digits  
rather than four to define the applicable year. Any programs that have          
time-sensitive software may recognize a date using '00' as the year 1900 rather 
than the year 2000. This could result in a major systems failure or             
miscalculations. The Company has determined the Year 2000 problem will not pose 
any operational problems for the Company's computer systems or result in any    
material expense for the Company, as all programs currently being used have     
already been modified or converted.                                             

    In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, 'Earnings Per Share,' SFAS No. 128 supersedes APB Opinion No. 15, 'Earnings
Per Share,' and specifies the computation, presentation, and disclosure         
requirements for earnings per share ('EPS') for entities with publicly held     
common stock or potential common stock. SFAS No. 128 was issued to simplify the 
computation of EPS. It requires dual presentation of basic and diluted EPS on   
the face of the statements of operations for all entities with complex capital  
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS       
computation.                                                                    

 SFAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not       
permitted. After adoption, all prior period EPS data presented shall be restated
to conform to SFAS No. 128.                                                     

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 PARAVANT COMPUTER SYSTEMS, INC.

Unaudited Condensed Financial Statements
for the Quarters Ended
 March 31, 1998 and 1997

                                                                [Download Table]

                                                                            PAGE
                                                                                

Condensed Balance Sheet - March 31, 1998 ...................................  66

Condensed Statements of Operations for the three months ended March 31,         
1998 and 1997 ..............................................................  67

Condensed Statements of Operations for the six months ended March 31,           
1998 and 1997 ..............................................................  68

Condensed Statements of Cash Flows for the six months                           
ended March 31, 1998 and 1997 ..............................................  69

Notes to Condensed Financial Statements ....................................  70

Management's Discussion and Analysis of Operations .........................  72

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 PARAVANT COMPUTER SYSTEMS, INC.

 Condensed Balance Sheet

March 31, 1998

Assets

                                                        [Enlarge/Download Table]

                                                                            (Unaudited)
                                                                                       
Current assets:                                                                        
   Cash and cash equivalents                                                $ 2,909,848
   Accounts receivable, net                                                   2,803,897
   Employee receivables and advances                                             16,950
   Inventory, net (note 2)                                                    3,479,473
   Prepaid expenses                                                              93,206
   Deferred income taxes                                                        426,263
                                                                            -----------

      Total current assets                                                    9,729,637

Prepaid expenses                                                                268,588

Property, plant and equipment, net                                              883,871

Intangible assets, net                                                           50,625

Demonstration pool and custom molds, net                                        255,407

Other assets                                                                    578,369
                                                                            -----------

      Total assets                                                          $11,766,497
                                                                            ===========

                      Liabilities and Stockholders' Equity                             

Current liabilities:                                                                   
   Current maturities of long-term debt                                     $    64,149
   Current maturities of capital lease obligations                               82,001
   Accounts payable                                                             816,129
   Accrued commissions                                                          550,714
   Accrued expenses                                                             721,674
   Accrued incentive compensation                                               121,886
   Income taxes payable                                                         285,524
                                                                            -----------

      Total current liabilities                                               2,642,077

Capital lease obligations, less current maturities                               46,867
Deferred income taxes, net                                                       78,820
                                                                            -----------
      Total liabilities                                                       2,767,764
                                                                            -----------
Stockholders' equity:                                                                  
   Preferred stock, par value $.01 per share. Authorized 2,000,000 shares,             
      none issued                                                                    --
   Common stock, par value $.015 per share. Authorized 30,000,000 shares,              
      issued and outstanding 8,149,938 shares                                   122,249
   Additional paid-in capital                                                 5,325,806
   Retained earnings                                                          3,550,678
                                                                            -----------
      Total stockholders' equity                                              8,998,733
                                                                            -----------
Commitments (note 4)                                                                   

   Total liabilities and stockholders' equity                               $11,766,497
                                                                            ===========


See accompanying notes to condensed financial statements                        

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 PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Operations

For the three months ended March 31, 1998 and 1997

                                                        [Enlarge/Download Table]


                                                                1998           1997  
                                                                ----           ----  
                                                                  (Unaudited)        
                                                                                     
Revenues                                                $  4,050,388       3,196,218 

Cost of revenues                                           2,028,044       1,665,762 
                                                        ------------    ------------ 

      Gross profit                                         2,022,344       1,530,456 

Selling and administrative expense                         1,537,713       1,169,938 
                                                        ------------    ------------ 

      Income from operations                                 484,631         360,518 

Other income (expense):                                                              
   Interest expense                                           (5,098)        (21,080)
   Miscellaneous                                              25,765          18,121 
                                                        ------------    ------------ 

      Income before income taxes                             505,298         357,559 

Income tax expense                                          (174,129)       (124,651)
                                                        ------------    ------------ 

      Net income                                        $    331,169         232,908 
                                                        ============    ============ 

Basic earnings per share                                $       .041            .030 
                                                        ============    ============ 

Diluted earnings per share                              $       .029            .024 
                                                        ============    ============ 

Weighted average number of common shares outstanding       8,035,012       7,968,375 
                                                        ============    ============ 
Weighted average number of common shares and dilutive                                
      potential common shares outstanding                 11,555,651      12,752,652 
                                                        ============    ============ 

See accompanying notes to condensed financial statements.                            


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 PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Operations

For the six months ended March 31, 1998 and 1997

                                                                [Download Table]

                                                               1998         1997    
                                                               ----         ----    
                                                                (Unaudited)         
                                                                                    
Revenues                                               $  7,648,353       5,127,310 

Cost of revenues                                          4,003,313       2,719,889 
                                                       ------------    ------------ 

      Gross profit                                        3,645,040       2,407,421 

Selling and administrative expense                        2,883,933       2,167,921 
                                                       ------------    ------------ 

      Income from operations                                761,107         239,500 

Other income (expense):                                                             
   Interest expense                                         (11,461)        (65,293)
   Miscellaneous                                             53,651          18,223 
                                                       ------------    ------------ 

      Income before income taxes                            803,297         192,430 

Income tax expense                                         (274,969)        (67,081)
                                                       ------------    ------------ 

      Net income                                       $    528,328         125,349 
                                                       ============    ============ 

Basic earnings per share                               $       .066            .016 
                                                       ============    ============ 

Diluted earnings per share                             $       .046            .010 
                                                       ============    ============ 

Weighted average number of common shares outstanding      8,035,012       7,968,375 
                                                       ============    ============ 
Weighted average number of common shares and dilutive                               
      potential common shares outstanding                11,555,651      12,752,652 
                                                       ============    ============ 

See accompanying notes to condensed financial statements.                       

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 PARAVANT COMPUTER SYSTEMS, INC.

Condensed Statements of Cash Flows

For the six months ended March 31, 1998 and 1997

                                                        [Enlarge/Download Table]

                                                                  1998            1997   
                                                                  ----            ----   
                                                                    (Unaudited)          
                                                                                         
Cash flows from operating activities:                                                    
   Net income                                               $    528,328         125,349 
   Adjustments to reconcile net income to net cash                                       
      provided by operating activities:                                                  
         Depreciation and amortization                           225,539         224,898 
         Writedown on leasehold improvements                      11,311              -- 
         Deferred income taxes                                        --         (27,320)
         Increase (decrease) in cash caused by changes in:                               
            Accounts receivable                                1,279,018       2,118,717 
            Employee receivables and advances                     11,171          60,052 
            Inventory                                            (17,700)     (1,048,398)
            Prepaid expenses                                       4,379          21,314 
            Other assets                                        (527,977)        (20,228)
            Accounts payable                                     220,762        (264,903)
            Accrued commissions                                  (19,845)       (132,141)
            Accrued expenses                                     (17,584)         68,746 
            Accrued incentive compensation                      (140,400)        (48,512)
            Income taxes payable                                (213,431)       (267,912)
                                                            ------------    ------------ 

               Net cash provided by operating activities       1,343,571         809,662 
                                                            ------------    ------------ 
Cash flows fiom investing activities:                                                    
   Acquisitions of property, plant and equipment                (164,432)       (281,109)
   Acquisitions of demonstration pool and custom molds           (20,485)       (101,904)
   Acquisitions of rights                                             --          (5,000)
                                                            ------------    ------------ 

               Net cash used in investing activities            (184,917)       (388,013)
                                                            ------------    ------------ 

Cash flows from financing activities:                                                    
   Net repayments on notes                                                               
      payable to bank                                                 --        (240,000)
   Repayments on other notes payable                                  --         (50,000)
   Repayments on long-term debt                                  (55,002)        (55,002)
   Repayments on capital lease obligations                       (67,323)        (91,143)
   Proceeds from issuance of common stock                         24,520          14,113 
   Proceeds from issuance of warrants                            236,372              -- 
                                                            ------------    ------------ 

       Net cash provided by (used in) financing                                          
          activities                                             138,567        (422,032)
                                                            ------------    ------------ 

       Net increase (decrease) in cash and cash                                          
         equivalents                                           1,297,221            (383)

Cash and cash equivalents at beginning of the period           1,612,627          65,069 
                                                            ------------    ------------ 

Cash and cash equivalents at end of the period              $  2,909,848          64,686 
                                                            ============    ============ 

Supplemental disclosures of cash flow information:                                       
     Cash paid during the period for:                                                    
         Interest                                           $     11,873          65,495 
                                                            ============    ============ 
         Income taxes                                       $    488,400         315,000 
                                                            ============    ============ 


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PARAVANT COMPUTER SYSTEMS, INC

 Notes to Condensed Financial Statements

 March 31, 1998 and 1997

(1)   Basis of Presentation                                                     

 The accompanying unaudited condensed financial statements of Paravant
    Computer Systems, Inc. (the "Company"), have been prepared in accordance
    with the instructions and requirements of Regulation S-B and, therefore,
do not include all information and footnotes necessary for a fair   
    presentation of financial position, results of operations and cash flows
in conformity with generally accepted accounting principles. In the 
     opinion of management, such financial statements, reflect all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     statement of financial position, results of operations and cash flows for
    the interim periods presented. Operating results for the interim periods
      are not necessarily indicative of the results that may be expected for the
full fiscal years.                                                  

These condensed financial statements and footnotes should be read in
      conjunction with the Company's audited financial statements for the fiscal
     years ending September 30, 1997 and 1996 included in the Company's Annual
Report on Form 10-KSB as filed with the Securities and Exchange     
   Commission. The accounting principles used in preparing these condensed
    financial statements are the same as those described in such statements.

(2)   Inventory                                                                 

The following is a summary of inventory at March 31, 1998:          

                                                                [Download Table]
                                              
 Raw materials                    $ 2,789,162 
 Work in progress                   1,045,832 
 Finished goods                        86,244 
                                  ----------- 

                                    3,921,238 
 Reserve for obsolete inventory      (441,765)
                                  ----------- 

                                  $ 3,479,473 
                                  =========== 

                                                           (Continued)

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-2

PARAVANT COMPUTER SYSTEMS, INC. 

 Notes to Condensed Financial Statements

(3)   Basic and Diluted Earnings Per Share                                      

  On October 1, 1997, the Company adopted the provisions of Statement of
     Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS
      No. 128 superseded APB Opinion No. 15, "Earnings Per Share", and specifies
   the computation, presentation, and disclosure requirements for earnings
      per share for entities with publicly held common stock or potential common
    stock. It also requires that prior period earnings per share be restated
to conform to the requirements of SFAS No. 128.                     

      Basic earnings per share for the three and six months ended March 31, 1998
      and 1997 have been computed by dividing net income by the weighted average
   number of common shares outstanding. Diluted earnings per share for the
    three and six months ended March 31, 1998 and 1997 have been computed by
   dividing net income by the weighted average number of common shares and
dilutive potential common shares outstanding.                       

(4)   Commitment                                                                

   On March 31, 1998, the Company entered into an acquisition agreement to
purchase the common stock of Engineering Development Laboratories,  
  Incorporated (EDL) and substantially all of the business and operating
    assets of Signal Technology Laboratories, Inc. (STL). Under the terms of
    the agreement, the Company would pay approximately $8.5 million in cash,
  8%, three year notes aggregating $4.8 million, 3,950,000 shares of the
    Company's common stock and a cash earn-out payable over five years based
    on EDL/STL's future profits. The agreement is subject to the approval of
the Company's shareholders and certain other conditions.            

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Management's Discussion and Analysis of Operations                              
RESULTS OF OPERATIONS                                                           
Three Months ended March 31, 1998 vs. March 31, 1997                            

      Revenues for the quarter ended March 31, 1998 were $4,050,388, an increase
of $854,170 or 27% over the quarter ended March 31, 1997 revenues of $3,196,218.
This increase is primarily due to Paravant's strong backlog ($10,107,826 at     
March 31, 1998) and continued full scale production deliveries to Raytheon in   
support of the U.S. Marine Corps AVENGER Air Defense missile system upgrade and 
additional requirements of Lockheed Martin's Enhanced Diagnostic Aid ("EDNA")   
systems for use by the U.S. Air Force on F-16 Fighter Aircraft and the F-117A   
Stealth Fighter.                                                                

      Gross profit was $2,022,344 for the quarter ended March 31, 1998 or 50% of
sales, compared to $1,530,456 or 48% of sales in the quarter ended March 31,    
1997, a total increase of $491,888 or 32%. This increase in gross profitability 
results primarily from the increased revenues discussed above.                  

  Selling and administrative expenses of $1,537,713 in the quarter ended
March 31, 1998, increased by $367,775 or 31% from the quarter ended March 31,   
1997 expenses of $1,169,938. As a percentage of sales, selling and              
administrative expenses were 38% and 37% in the quarters ended March 31, 1998   
and 1997, respectively. The increased selling and administrative expenses are   
due primarily to increased sales commissions directly attributable to the       
increased sales discussed earlier herein and on-going research and development  
projects.                                                                       

    Income from operations was $484,631 for the quarter ended March 31, 1998
compared to $360,518 in the quarter ended March 31, 1997, an improvement of     
$124,113. As a percentage of sales, income from operations improved to 12% in   
the quarter ended March 31, 1998 from 11% in the quarter ended March 31, 1997.  
The improvement to income from operations overall resulted primarily from       
increased revenues and gross profits, offset in part by increased selling and   
administrative expenses as discussed above.                                     

Interest expense for the quarter ended March 31, 1998 was reduced by
$15,982 or 76% to $5,098 compared to $21,080 in the quarter ended March 31,     
1997. As a percentage of sales, interest expense decreased to 0.1% in the       
quarter ended March 31, 1998 from .7% in the quarter ended March 31, 1997. This 
decrease is due to a continued decline in outstanding credit balances made      
possible by continued growth in revenues and gross profits, offset in part by   
increased selling and administrative expenses as discussed above.               

    As a result, the Company's net income improved by 42% to $331,169 in the
quarter ended March 31, 1998 compared to $232,908 in 1997. Net income as a      
percentage of sales was 8% in the quarter ended March 31, 1998 compared to 7% in
the quarter ended March 31, 1997. The improvement in net income overall,        
resulted primarily from increased revenues and gross profits, offset in part by 
increased selling and administrative expenses as discussed above.               

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Six Months ended March 31, 1998 vs. March 31, 1997                              

Revenues for the six months ended March 31, 1998 were $7,648,353, an
increase of $2,521,043 or 49% over the six months ended March 31, 1997 revenues 
of $5,127,310. This increase is primarily due to Paravant's strong backlog      
($10,107,826 at March 31, 1998) and continued full scale production deliveries  
to Raytheon in support of the U.S. Marine Corps AVENGER Air Defense missile     
system upgrade and additional requirements of Lockheed Martin's Enhanced        
Diagnostic Aid ("EDNA") systems for use by the U.S. Air Force on F-16 Fighter   
Aircraft and the F-117A Stealth Fighter.                                        

      Gross profit was $3,645,040 for the six months ended March 31, 1998 or 48%
of sales, compared to $2,407,421 or 47% in the six months ended March 31, 1997, 
a total increase of $1,237,619 or 51%. This increase in gross profitability     
results primarily from the increased revenues discussed above.                  

     Selling and administrative expenses of $2,883,933 in the six months ended
March 31, 1998, increased by $716,012 or 33% from the six months ended March 31,
1997 expenses of $2,167,921. As a percentage of sales, selling and              
administrative expenses were 38% and 42% in the six months ended March 31, 1998 
and 1997, respectively. The increased selling and administrative expenses are   
due primarily to increased sales commissions directly attributable to the       
increased sales discussed earlier herein and on-going research and development  
projects.                                                                       

  Income from operations was $761,107 for the six months ended March 31,
1998 compared to $239,500 in the six months ended March 31, 1997, an improvement
of $521,607. As a percentage of sales, income from operations improved to 10% in
the six months ended March 31, 1998 from 5% in the six months ended March 31,   
1997. The improvement to income from operations overall resulted primarily from 
increased revenues and gross profits, offset in part by increased selling and   
administrative expenses as discussed above.                                     

   Interest expense for the six months ended March 31, 1998 was reduced by
$53,832 or 82% to $11,461 compared to $65,293 in the six months ended March 31, 
1997. As a percentage of sales, interest expense decreased to 0.1% in the six   
months ended March 31, 1998 from 1% in the six months ended March 31, 1997. This
decrease is due to a significant decline in outstanding credit balances made    
possible by continued growth in revenues and gross profits, offset in part by   
increased selling and administrative expenses as discussed above.               

     As a result, the Company's net income improved by 321% to $528,328 in the
six months ended March 31, 1998 compared to $125,349 in 1997. Net income as a   
percentage of sales was 7% in the six months ended March 31, 1998 compared to 2%
in the six months ended March 31, 1997. The improvement in net income overall,  
resulted primarily from increased revenues and gross profits, offset in part by 
increased selling and administrative expenses as discussed above.               

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LIQUIDITY AND CAPITAL RESOURCES                                                 

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

     The Company has a secured revolving credit arrangement with National City
Bank in Dayton, Ohio (the "Bank") for a credit line of up to $4,000,000 that is 
due on demand and bears interest at the prime rate for secured borrowings and   
prime rate plus 0.5% for undersecured borrowings. All borrowings are            
collateralized by accounts receivable, inventory and equipment. Such arrangement
is subject to a borrowing base formula involving certain accounts receivable,   
inventory and equipment. As of March 31, 1998, there were no borrowings         
outstanding under this arrangement. The Company intends to maintain this        
arrangement with the Bank for the foreseeable future, although there can be no  
assurance that the Bank will not in the future demand repayment of any amounts  
then outstanding under its loan arrangement. The Company also has a secured term
loan provided by the Bank bearing interest at a rate adjusted monthly to prime  
plus 1.5% at March 31, 1998. Monthly principal payments of $9,167 are due       
through October 1998. All borrowings thereunder are secured by a lien on        
accounts receivable, inventory and equipment. As of March 31, 1998, there was   
$64,149 outstanding under this arrangement with the Bank. The Company also has  
capital lease obligations of $128,868 at March 31, 1998. These capital lease    
obligations bear interest rates of 1.25% to 1.50% over the prime rate and are   
expected to be satisfied within 3 years.                                        

   On April 22, 1997, the Company retired a note payable to the Bank in an
aggregate principal amount of $500,000, bearing interest at the prime rate,     
which note was due and payable in March 1998.                                   

  In August 1995, the Company borrowed $400,000 pursuant to bridge notes
("Notes") from a group of private investors at an annual interest rate of 6%. In
addition, the Company sold to the same investors warrants to purchase 480,000   
shares of Common Stock, exercisable until June 3, 2001 at an exercise price of  
$2.00 per share. The Notes were paid in full on August 8, 1997.                 

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

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     The Company's operating cash flow was $1,343,571 and $809,662 for the six
months ended March 31, 1998 and 1997, respectively, $3,448,740 for fiscal 1997, 
and negative $(1,426,090) in fiscal 1996. The improvement in the Company's      
operating cash flow results primarily from improved net income as discussed     
above and improved working capital as more fully presented in the Condensed     
Statements of Cash Flows for the six months ended March 31, 1998. Negative cash 
flow for the year ended September 30, 1996 was primarily associated with general
increases in inventory levels and temporary increases associated with accounts  
receivable, all in support of the Company's rapid increase in operations        
reflected by the growth in annual revenues from $4,621,527 in fiscal 1993 to    
$13,209,541 in fiscal 1997, an increase of almost 186%.                         

Due to the Company's orders related to U.S. Department of Defense   
procurements, the operations of the Company have been cyclical and generally    
result in a significant increase in deliveries and revenues in the fourth       
quarter of its fiscal year ending on September 30. Due to the Company's strong  
backlog and increased revenues, this cycle is less significant in the current   
and prior quarters, resulting in a significant improvement in cash provided from
operations, as discussed earlier herein and less significant changes in         
inventory levels than the prior period. This change is evidenced by an increase 
in both first and second quarter revenues and operating cash flows.             

   Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, the Company's major customer, Raytheon,  
has traditionally averaged approximately 80 to 100 days in satisfaction of      
outstanding accounts receivable balances. This situation is improving through   
negotiation with Raytheon, and Management believes that average outstanding     
balances will be reduced to more traditional levels approximating 45 days, in   
the future although there can be no assurance of such. The Company's total      
outstanding accounts receivable balance of $2,803,897 at March 31, 1998 has been
subsequently reduced by approximately $976,800 in cash collections. We recently 
have provided a reserve for certain older balances of $150,497. This reserve is 
believed to be more than sufficient to address any uncollectible balances       
outstanding as of March 31, 1998.                                               

As of March 31, 1998 and 1997, the Company's backlog was $10,107,826 and        
$11,046,871, respectively, consisting of firm fixed price purchase orders. All  
of these purchase orders are expected to generate profits within the Company's  
historical levels and the Company believes that the completion of the orders    
comprising its backlog, and any new orders which may be accepted by the Company 
in the future, should not result in additional liquidity pressures which cannot 
be addressed in a manner consistent with the Company's past practices. The      
Company presently expects to manufacture and deliver $4,608,463 of the products 
in backlog within the next 12 months. The remaining $5,499,363 of products in   
backlog will be completed over the next 36 months.                              

The Company anticipates, based on its currently proposed plans and  
assumptions relating to its operations, that the proceeds of the IPO and ongoing
stock offerings, together with 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, 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.                                       

      On March 31, 1998 the Company signed a definitive agreement to acquire two
privately-held, affiliated companies, Engineering Development Laboratories,     
Incorporated ("EDL"), in a stock sale, and Signal Technology Laboratories, Inc. 
("STL"), in an asset sale, for approximately $8.5 million in cash, 8%,          
three-year notes aggregating $4.8 million, 3,950,000 shares of the Company's    
common stock and a cash earn-out payable over five years based on EDL-STL's     
future profits. The Company intends to finance the cash portion of the          
consideration to be paid by the Company at the closing. The Company has received
a conditional commitment from National City Bank, Dayton, Ohio for floating rate
financing which would increase the Company's revolving line of credit to        
$14,000,000 with a maturity date of December 31, 2000 convertible thereafter to 
five year term debt. The line of credit would be secured by a first security    
interest in accounts, contract rights, inventory, equipment and other security  
reasonably requested by the lender.                                             

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Consolidated Financial Statements   
for the Nine Months Ended October 4, 1997   
and the Year Ended December 28, 1996  

                                                                [Download Table]


                                                                           PAGE
                                                                           ----

                                                                               
Independent Auditors' Report...........................................      77
Financial Statements:                                                          
    Consolidated Balance Sheet.........................................      78
    Consolidated Statements of Income..................................      79
    Consolidated Statements of Changes in Stockholders' Equity.........      80
    Consolidated Statements of Cash Flows..............................      81
Notes to Consolidated Financial Statements.............................      82
Management's Discussion and Analysis of Operations.............      92        


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

Board of Directors                                                              
Engineering Development Laboratories, Inc.:                                     

We have audited the accompanying consolidated balance sheet of Engineering      
Development Laboratories, Inc. and subsidiary as of October 4, 1997, and the    
consolidated statements of income, changes in stockholders' equity and cash     
flows for the nine month period ended October 4, 1997 and for the year ended    
December 28, 1996. These consolidated financial statements are the              
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits.         

We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the 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 Engineering         
Development Laboratories, Inc. and subsidiary at October 4, 1997 and the results
of their operations and their cash flows for the nine month period ended October
4, 1997 and the year ended December 28, 1996 in conformity with generally       
accepted accounting principles.                                                 

                                                           KPMG Peat Marwick LLP

Orlando, Florida                                                                
May 22, 1998                                                                    

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Consolidated Balance Sheet

 October 4, 1997

                                                                [Download Table]


                                     ASSETS                                       
                                     -----                                        

                                                                                  
Current assets:                                                                   

  Cash and cash equivalents                                           $   609,475 
  Accounts receivable (notes 5 and 8)                                   2,628,722 
  Costs and estimated earnings in excess of billings on                           
     uncompleted contracts (notes 2 and 5)                              7,188,830 
  Inventory (note 5)                                                       86,228 
  Prepaid expenses and other assets                                        25,806 
  Deferred income taxes (note 7)                                           15,320 
                                                                      ----------- 
         Total current assets                                          10,554,381 

Investments (note 3)                                                      356,605 

Property and equipment, net (notes 4 and 5)                               249,299 

Deferred income taxes, net (note 7)                                        29,807 

Other assets                                                                1,660 
                                                                    ------------- 
                                                                    $  11,191,752 
                                                                    ============= 

                      LIABILITIES AND STOCKHOLDERS' EQUITY                        
                      ------------------------------------                        

Current liabilities:                                                              
    Accounts payable                                                $   1,330,228 
    Accrued liabilities                                                   276,617 
    Accrued incentive compensation                                        529,093 
    Billings in excess of costs and estimated earnings on                         
       uncompleted contracts (note 2)                                   1,632,615 
    Income taxes payable                                                2,625,898 
                                                                    ------------- 
           Total current liabilities                                    6,394,451 

Deferred compensation (note 9)                                            344,696 
                                                                    ------------- 
           Total liabilities                                            6,739,147 

                                                                    ------------- 
Minority interest in equity of subsidiary                               1,668,357 
                                                                    ------------- 

Stockholders' equity (note 10):                                                   
    Common stock, at stated value; 750 shares authorized, issued                  
       and outstanding                                                      1,200 
    Additional paid-in capital                                            177,395 
    Retained earnings                                                   2,991,803 
    Net unrealized holding gains on investments available for sale         21,961 
    Treasury stock, 258 shares, at cost                                  (408,111)
                                                                    ------------- 
           Total stockholders' equity                                   2,784,248 

Commitments and contingencies (notes 5, 6 and 14)                                 
                                                                    ------------- 
                                                                    $  11,191,752 
                                                                    ============= 


See accompanying notes to consolidated financial statements.                    

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 Consolidated Statements of Income

 For the nine month period ended October 4, 1997
and for the year ended December 28, 1996

                                                        [Enlarge/Download Table]

                                                               1997           1996    
                                                               ----           ----    
                                                                                      
Contract revenues (note 8)                                $ 23,453,050     22,783,815 

Cost of contract revenues                                   10,142,620      9,441,976 
                                                          ------------   ------------ 
        Gross profit                                        13,310,430     13,341,839 

General and administrative expenses                          2,573,632      2,929,852 
                                                          ------------   ------------ 
        Income from operations                              10,736,798     10,411,987 

Other income (expense)                                         (44,777)       164,928 
                                                          ------------   ------------ 
        Income before income taxes and minority interest    10,692,021     10,576,915 

Income taxes (note 7)                                        3,742,778      3,508,765 
                                                          ------------   ------------ 
        Income before minority interest                      6,949,243      7,068,150 

Minority interest in income of consolidated subsidiary      (2,428,523)    (2,582,102)
                                                          ------------   ------------ 
        Net income                                        $  4,520,720      4,486,048 
                                                          ============   ============ 


See accompanying notes to consolidated financial statements.                    

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ENGINEERING DEVELOPMENT LABORATORIES, INC. AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTH PERIOD ENDED OCTOBER 4, 1997 AND FOR THE YEAR ENDED          

DECEMBER 28, 1996     

                                                        [Enlarge/Download Table]

                                                                              NET                             
                                                                          UNREALIZED                          
                                 COMMON STOCK    ADDITIONAL                 HOLDING                           
                               ----------------   PAID-IN     RETAINED     GAINS ON    TREASURY               
                               SHARES    AMOUNT   CAPITAL     EARNINGS    INVESTMENTS    STOCK       TOTAL    
                               ------    ------  ----------  ----------   -----------  ---------   ---------- 

                                                                                                              
Balances at December 30, 1995    750     $1,200    177,395    3,043,535      32,046     (408,111)   2,846,065 
Net income                        --        --          --    4,486,048          --           --    4,486,048 
Distributions to stockholders     --        --          --   (5,014,500)         --           --   (5,014,500)
Unrealized holding losses on                                                                                  
  investment securities                                                                                       
  available for sale, net of                                                                                  
  deferred income taxes           --        --          --           --     (29,996)          --      (29,996)
                               ------    ------  ----------  ----------   -----------  ---------   ---------- 
Balances at December 28, 1996    750      1,200    177,395    2,515,083       2,050     (408,111)   2,287,617 
Net income                        --        --          --    4,520,720          --           --    4,520,720 
Distributions to stockholders     --        --          --   (4,044,000)         --           --   (4,044,000)
Unrealized holding gains on                                                                                   
  investment securities                                                                                       
  available for sale, net of                                                                                  
  deferred income taxes           --        --          --           --      19,911           --       19,911 
                               ------    ------  ----------  ----------   -----------  ---------   ---------- 
Balances at October 4, 1997      750     $1,200    177,395    2,991,803      21,961     (408,111)   2,784,248 
                               ======    ======  ==========  ==========   ===========  =========   ========== 

See accompanying notes to consolidated financial statements.                    

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 Consolidated Statements of Cash Flows

 For the nine month period ended October 4, 1997
and for the year ended December 28, 1996

                                                        [Enlarge/Download Table]


                                                                        1997           1996   
                                                                        ----           ----   
                                                                                              
Cash flows from operating activities:                                                         
  Net income                                                        $ 4,520,720     4,486,048 
  Adjustments to reconcile net income                                                         
     to net cash provided by operating activities:                                            
        Depreciation                                                     56,071        74,599 
        Minority interest in income of consolidated subsidiary        2,428,523     2,582,102 
        Deferred income taxes                                            76,149        88,100 
        Gains on investments                                               --        (139,084)
        Loss on disposal of property and equipment                         --          21,711 
        Increase (decrease) in cash caused by changes in:                                     
           Accounts receivable                                         (254,607)        1,854 
           Contracts in progress                                     (2,990,174)   (1,582,652)
           Inventory                                                    (48,462)      (37,766)
           Prepaid expenses and other assets                             20,748        (8,132)
           Accounts payable                                             613,751       265,379 
           Accrued liabilities and incentive compensation               232,770       356,320 
           Income taxes payable                                       1,369,628       722,642 
           Deferred compensation                                        323,983      (524,688)
                                                                    -----------   ----------- 
               Net cash provided by operating activities              6,349,100     6,306,433 
                                                                    -----------   ----------- 
Cash flows from investing activities:                                                         
  Proceeds from sales of investments                                       --         596,734 
  Purchases of investments                                             (307,421)         --   
  Purchases of property and equipment                                  (125,574)      (93,358)
  Other, net                                                               --           5,719 

                                                                    -----------   ----------- 
               Net cash provided by (used in) investing activities     (432,995)      509,095 
                                                                    -----------   ----------- 

Cash flows from financing activities:                                                         
  Distributions to stockholders                                      (4,044,000)   (5,014,500)
  Dividends paid relating to minority interests                      (2,400,000)   (1,980,000)
                                                                    -----------   ----------- 
           Net cash used in financing activities                     (6,444,000)   (6,994,500)
                                                                    -----------   ----------- 
           Net decrease in cash and cash equivalents                   (527,895)     (178,972)

Cash and cash equivalents, beginning of period                        1,137,370     1,316,342 
                                                                    -----------   ----------- 
Cash and cash equivalents, end of period                            $   609,475     1,137,370 
                                                                    ===========   =========== 
Supplemental disclosures of cash flow information:                                            
 Cash paid during the period for:                                                             

     Interest                                                       $     1,941         2,618 
                                                                    ===========   =========== 
     Income taxes                                                   $ 2,297,000     2,692,295 
                                                                    ===========   =========== 


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Notes to Consolidated Financial Statements

 October 4, 1997 and December 28, 1996

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

(a)   BUSINESS                                                      

       Engineering Development Laboratories, Inc. ("EDL" or "Company")
    designs, develops and produces military electronic hardware,
         primarily related to airborne and avionics systems for the United
States Department of Defense.                           

    Signal Technology Laboratories, Inc. ("STL"), a consolidated
       subsidiary, designs, develops, and produces hardware, primarily
           related to electronic signal conditioning and analysis, for foreign
and domestic intelligence agencies.                     

           The principal customers of the Company are United States Government
     agencies and contractors who are subject to federal budgetary
implications.                                           

          The Company's fiscal year ends on the Saturday nearest to December
31 using a 52-53 week year.                             

(b)   PRINCIPLES OF CONSOLIDATION                                   

      The accompanying consolidated financial statements include the
      accounts of EDL and its 56% owned subsidiary STL. Intercompany
        transactions and balances have been eliminated in consolidation.

(c)   CASH AND CASH EQUIVALENTS                                     

       For purposes of the statements of cash flows, all highly liquid
          investments purchased with an original maturity of three months or
less are considered to be cash equivalents.             

(d)   REVENUE RECOGNITION                                           

          The Company uses the percentage-of-completion method of accounting
        for fixed price contracts in progress. Accordingly, revenues are
   recognized in the ratio that contract costs incurred are to
         estimated total contract costs. Losses expected to be incurred on
         contracts are charged to operations in the period such losses are
determined.                                             

                                                                     (Continued)

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Notes to Consolidated Financial Statements

            Federal government contracts costs, including indirect expenses, are
            subject to audit and adjustment by the Defense Contract Audit Agency
           ("DCAA"). Contract revenues have been recorded in amounts which are
      expected to be realized upon final settlement. In management's
            opinion, adjustments resulting from any DCAA audit for 1997 or years
    prior to 1997 will not have a material adverse effect on the
 Company's financial position or the results of its future
operations.                                             

(e)   INVENTORY                                                     

    Inventory is stated at the lower of cost or market using the
first-in, first-out (FIFO) cost method.                 

(f)   INVESTMENTS                                                   

  The Company's investments are classified into one of three
          categories which determines their carrying value. These categories
are as follows:                                         

               Held-to-maturity - securities which the Company has the
                   positive intent and ability to hold to maturity are carried
at amortized cost.                      

                Trading - securities that are purchased and held for the
                  purpose of selling in the near term and generating profits
                   on short-term differences in price are carried at estimated
          fair value and any unrealized gains and losses are
            recognized in the consolidated statements of income.

                   Available-for-sale - all other securities not classified as
             held-to-maturity or trading securities are carried at
                 estimated fair value and any unrealized holding gains and
                   losses are recorded as a net amount in a separate component
              of equity, net of related deferred income taxes, until
realized.                               

              As of October 4, 1997, the Company classified its investments as
available-for-sale.                               

                                                                     (Continued)

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Notes to Consolidated Financial Statements

(g)   PROPERTY AND EQUIPMENT                                        

          Property and equipment are stated at cost and are depreciated over
        the estimated useful lives of the assets using the straight-line
method.                                                 

(h)   INCOME TAXES                                                  

           EDL has elected treatment as a small business corporation under the
           S-Corporation provisions of the Internal Revenue Code. No provision
            for income taxes has been included in the accompanying balance sheet
      for the operations of EDL since the S-Corporation earnings are
      included in the individual income tax returns of the Company's
         stockholders. However, STL is taxed as a Subchapter C corporation
   and therefore accounts for income taxes using the asset and
            liability method. Deferred tax assets and liabilities are recognized
           for the future tax consequences attributable to differences between
       the financial statement carrying amounts of existing assets and
         liabilities and their respective tax bases and operating loss and
         tax credit carryforwards. Deferred tax assets and liabilities are
            measured using enacted tax rates expected to apply to taxable income
            in the years in which those temporary differences are expected to be
   recovered or settled. The effect on deferred tax assets and
           liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.                

(i)   USE OF ESTIMATES                                              

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and
           liabilities and disclosures of contingent assets and liabilities at
        the date of the financial statements and the reported amounts of
         revenues and expenses during the reporting period. Actual results
could differ from those estimates.                      

                                                                     (Continued)

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Notes to Consolidated Financial Statements

(2)   COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS                     

   Contracts in progress and advance billings on such contracts consist of
the following as of October 4, 1997:                                

                                                                [Download Table]
                                                                             
Costs incurred on uncompleted contracts                         $ 19,067,734 
Estimated earnings thereon                                        13,474,007 
                                                                ------------ 
                                                                  32,541,741 

Billings to date                                                 (26,985,526)
                                                                ------------ 
                                                                $  5,556,215 
                                                                ============ 

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

Costs and estimated earnings in excess of billings on                        
    uncompleted contracts                                        $ 7,188,830 
Billings in excess of costs and estimated earnings on                        
    uncompleted contracts                                         (1,632,615)
                                                                 ----------- 
                                                                 $ 5,556,215 
                                                                 =========== 

(3)   INVESTMENTS                                                               

Investments at October 4, 1997 are as follows:                      

                                                                [Download Table]

                                UNREALIZED   ESTIMATED 
                       COST   HOLDING GAINS  FAIR VALUE
                       ----   -------------  ----------
                                                       
Mutual funds        $182,001       28,184       210,185
Money market funds   146,420         --         146,420
                    --------     --------      --------
       Total        $328,421       28,184       356,605
                    ========     ========      ========

                                                                     (Continued)

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Notes to Consolidated Financial Statements

     The Company had net realized gains of approximately $130,000 for the year
      ended December 28, 1996. The cost of investments sold was determined using
the average cost method. These investments are intended to fund the 
Company's deferred compensation liability (note 9).                 

(4)   PROPERTY AND EQUIPMENT                                                    

Property and equipment consists of the following at October 4, 1997:

                                                                [Download Table]

                                                      ESTIMATED  
                                                     USEFUL LIVES
                                                      ---------- 
                                                                 
Laboratory equipment                   $    55,479     5 years   
Phase locked oscillator equipment          140,867     5 years   
Test equipment                             177,689     5 years   
Demonstration equipment                     42,876     3 years   
Computer equipment                         302,544     5 years   
Office furniture and equipment              70,603   5-7 years   
                                           -------               
         Total property and equipment      790,058               

Less accumulated depreciation             (540,759)              
                                           -------               
         Net property and equipment    $   249,299               
                                           =======               

(5)   LINE OF CREDIT                                                            

   The Company has a secured $1,500,000 revolving line of credit available
     with a bank. Unpaid balances bear interest at .25% above the bank's prime
rate. Collateral related to this line of credit includes accounts   
     receivable, inventory, equipment, furniture and fixtures and intangibles.
   The agreement contains restrictive covenants and reporting requirements
    which include net worth and debt to equity ratio minimums. As of October
    4, 1997, there were no borrowings outstanding under this line of credit.

                                                                     (Continued)

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                   ENGINEERING DEVELOPMENT LABORATORIES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(6)   LEASE OBLIGATIONS                                                         

      The Company has operating leases for a building with terms of three years.
    Total rent expense under operating leases was approximately $186,000 and
 $169,000 for the nine month period ended October 4, 1997 and the year
      ended December 28, 1996, respectively. Future minimum lease payments under
the operating leases are as follows:                                

YEAR ENDING DECEMBER 31,                        
-----------------------                         
                1998                        $    193,065
                1999                             154,965
                                                 -------
                                            $    348,030
                                                 =======

(7)   INCOME TAXES                                                              

      Income tax expense for the nine month period ended October 4, 1997 and the
year ended December 28, 1996 consist of the following:              

                 CURRENT                DEFERRED               TOTAL
                  -------                --------              -------
1997:                                                                           
Federal            $2,815,482                58,382             2,873,864 
State                 851,147                17,767               868,914 
                  ----------            ----------            ----------
                  $3,666,629                76,149             3,742,778
                  ==========            ==========            ==========
1996:                                                                           
Federal             3,006,664                77,437             3,084,101 
State                 414,001                10,663               424,664 
                  ----------            ----------            ----------
                  $3,420,665                88,100             3,508,765
                  ==========            ==========            ==========

                                                                     (Continued)

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Notes to Consolidated Financial Statements

     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 minority interest and the actual income tax provision for
   the nine month period ended October 4, 1997 and the year ended December
28, 1996:                                                           

                                                                [Download Table]

                                                               1997        1996     
                                                               ----        ----     
                                                                                    
Computed "expected" tax expense                            $  3,635,287   3,596,151 
Increase (decrease) in income taxes resulting from:                                 
    State income taxes, net of federal income tax benefit       573,483     280,278 
    S-Corporation earnings not subject to income taxes         (486,158)   (409,858)
    Other, net                                                   20,166      42,194 
                                                              ---------   --------- 
                                                           $  3,742,778   3,508,765 
                                                              =========   ========= 

Deferred income taxes as of October 4, 1997 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 October 4, 1997:                   

                                                                [Download Table]
                                                        
Gross deferred tax assets:                              
   Accrued vacation                          $   15,320 
   Deferred compensation                         54,812 
                                                 ------ 
       Total gross deferred tax assets           70,132 
                                                 ------ 
Gross deferred tax liabilities:                         
   Investments                                   (6,224)
   Accumulated depreciation                     (18,781)
                                                 ------ 
       Total gross deferred tax liabilities     (25,005)
                                                 ------ 
       Total net deferred tax assets         $   45,127 
                                                 ====== 

                                                                     (Continued)

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Notes to Consolidated Financial Statements

     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 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 October 4, 1997, no valuation allowance has been  
    recognized in the accompanying financial statements for the deferred tax
assets because the Company believes that sufficient projected future
   taxable income will be generated to fully utilize the benefits of these
deductible amounts.                                                 

Deferred income taxes are included in the accompanying consolidated 
balance sheet as follows:                                           

                                                                [Download Table]
                                                
 Current assets                        $  15,320
 Net long-term assets                     29,807
                                          ------
                                       $  45,127
                                          ======

(8)   CONCENTRATION OF CREDIT RISK                                              

     The Company has a high concentration of revenues from a few customers who
 accounted for 71% and 67% of revenues for the nine month period ended
 October 4, 1997 and the year ended December 28, 1996, respectively. A
summary of revenues from the customers exceeding 5% of revenues     
for the nine month period ended October 4, 1997 and the year ended  
December 28, 1996 is as follows:                                    

                                                                [Download Table]

                         1997                              1996         
              ------------------------------   -------------------------
                REVENUES        % TOTAL          REVENUES       % TOTAL 
              -----------       ------------   ------------    ---------
                                                                        
Customer A  $  6,783,589         29%          $  1,648,574         7%   
Customer B     6,323,101         27%             6,206,108        27%   
Customer C     2,248,928         10%              -                -    
Customer D     1,118,246          5%             1,774,779         8%   
Customer E      -                 -              2,641,164        12%   
Customer F      -                 -              1,569,025         7%   
Customer G      -                 -              1,318,148         6%   

                                                                     (Continued)

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Notes to Consolidated Financial Statements

A summary of accounts receivable exceeding 5% of                    
accounts receivable as of October 4, 1997 is as follows:            

                                                                [Download Table]

                   ACCOUNTS RECEIVABLE        % TOTAL 
                   -------------------        --------
                                                      
Customer A         $1,382,403                 53%     
Customer B            554,510                 21%     
Customer E            311,103                 12%     
Customer H            133,885                  5%     

(9)   BENEFIT PLANS                                                             

The Company has a defined contribution 401(k) plan that covers all  
full-time employees 18 years or older. The Company currently matches
employee contributions on a 1 to 2 basis (50% match) up to 10% of   
      compensation. The Company provided matching contributions of approximately
   $73,000 and $86,000 for the nine month period ended October 4, 1997 and
the year ended December 28, 1996, respectively.                     

    The Company has also established deferred compensation plans for certain
employees. EDL has two plans whose provisions provide deferred      
   compensation equal to 50% of base salary for employee-owners and 12% to
     30% of base salary for certain other employees. No employee contributions
are required for EDL plans. STL has a plan whereby the employees can
 defer up to 10% of their base salary. The Company will then match any
deferrals on a 3 for 1 basis. The amount expensed by the Company was
approximately $289,000 and $354,000 for the nine month period ended 
October 4, 1997 and the year ended December 28, 1996, respectively. 
    Amounts are payable upon retirement, termination of employment, death or
disability.                                                         

(10)  STOCK REDEMPTION AGREEMENT                                                

      The Company has a stock redemption agreement with its stockholders whereby
  if the stockholder desires to sell their stock the stock must first be
     offered for sale to the Company. The agreement provides for a price based
 upon book value as stated in the latest interim financial report. The
     Company, however, may decide not to purchase the stock and the holder may
then offer it to any potential buyer.                               

                                                                     (Continued)

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Notes to Consolidated Financial Statements

(11)  ROYALTY AGREEMENT                                                         

 The Company is entitled to 5% of product sales made by the buyer of a
    prior business of the Company through February, 1998, up to a maximum of
     $250,000. During the nine month period ended October 4, 1997, the royalty
 agreement was modified to defer royalty payments for a period of nine
months from April 1, 1997 through December 31, 1997. Royalties and  
 interest are payable to the Company on January 1, 1998 and no royalty
     income for the nine month period ended October 4, 1997 has been accounted
      for in the accompanying consolidated financial statements. Through October
     4, 1997, total royalty income earned by the Company amounted to $168,560.

(12)  PRODUCT WARRANTIES                                                        

    The Company has warranted certain items in its contracts with the United
States Government. The Company believes it has sufficient residual  
material available to provide any needed parts and an employee is   
     available on site to provide needed service. The Company has provided for
estimated future warranty costs as part of contract costs.          

(13)  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS                     

      The carrying amounts of the Company's receivables, current liabilities and
    deferred compensation approximates their fair value because of the short
maturity of those instruments.                                      

(14)  SUBSEQUENT EVENTS                                                         

On March 31, 1998, the Company entered into an agreement to sell the
   common stock of EDL and substantially all of the business and operating
    assets of STL to Paravant Computer Systems, Inc. ("Paravant"). Under the
terms of the agreement, the shareholders of EDL/STL would receive   
     approximately $8.7 million in cash, an 8%, three year, $4.8 million note,
   3,950,000 shares of Paravant's common stock and a cash earn-out payable
over five years based on EDL/STL's future profits. The agreement is 
subject to the approval of Paravant's shareholders.                 

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Management's Discussion and Analysis of Operations                              
RESULTS OF OPERATIONS                                                           
Nine Months ended October 4, 1997 vs. Fiscal year ended December 28, 1996       

Revenues for nine months ended October 4, 1997 were $23,453,050, an increase of 
$669,235 or 3% over revenues for the fiscal year ended December 28, 1996 of     
$22,783,815. On an annualized basis the increase in revenues is projected to be 
approximately 37%. This projected increase is primarily due to accelerated      
delivery requirements by the government customer. These accelerated delivery    
requirements are not anticipated to continue into the future.                   

Gross profit was $13,310,430 in the nine months ended October 4, 1997, or 57% of
revenues, compared to $13,341,839 or 59% of revenues for the fiscal year ended  
December 28, 1996, a total decrease of $(31,409) or 0%. On an annualized basis  
there is a projected increase of approximately 33%. Selling and administrative  
expenses were 11% of revenues or $2,573,632 in the nine months ended October 4, 
1997, versus expenses for the fiscal year ended December 28, 1996 of 13% of     
revenues or $2,929,852, a decrease of $356,220 or 12%. However, on an annualized
basis the expenses are anticipated to increase by approximately 17%. The        
projected increase in selling and administrative costs are due primarily to     
increased expenditures required to meet the accelerated delivery requirements   
discussed above.                                                                

Income from operations grew to $10,736,798 for the nine months ended October 4, 
1997 compared to $10,411,987 for the fiscal year ended December 28, 1996, an    
improvement of $324,811 or 3%. On an annualized basis, income from operations is
projected to increase by approximately 37%. As a percentage of revenues, income 
from operations remained unchanged at 46% in 1997 and 1996. The projected       
improvement in income from operations overall, results primarily from the       
projected increase in revenues, as discussed above.                             

As a result, the Company's net income improved to $4,520,720 for the nine months
ended October 4, 1997 when compared to $4,486,048 for the fiscal year ended     
December 28, 1996, an increase of $34,672 or .7%. On an annualized basis, the   
increase in net income is projected to be approximately 34%. Net income, as a   
percentage of revenues were 19% in 1997 and 1996. The improvement in net income 
overall, resulted primarily from increased revenues, as discussed above.        

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company has a secured revolving credit arrangement with Star Bank in Dayton,
Ohio (the "Bank") for a credit line of up to $1,500,000 that is renewed annually
and bears interest at the prime rate plus 0.25%.                                

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

The Company's operating cash flow was $6,349,100 and $6,306,433 for the nine    
months ended October 4, 1997 and fiscal year ended December 28, 1996,           
respectively.                                                                   

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Generally, accounts receivable at the end of the period are collected within the
following month. Management feels there is no need for a bad debt reserve.      

As of October 4, 1997 and December 28, 1996, the Company's backlog was          
$23,191,702 and $9,449,719, respectively, consisting of firm fixed price        
purchase orders. All of these purchase orders are expected to generate profits  
within the Company's historical levels and the Company believes that the        
completion of the orders comprising its backlog, and any new orders which may be
accepted by the Company in the future, should not result in additional liquidity
pressures which cannot be addressed in a manner consistent with the Company's   
past practices. The Company presently expects to manufacture and deliver all of 
the products in the backlog at October 4, 1997 within the next twelve months.   

On March 31, 1998, the Company entered into a definitive agreement to sell the  
common stock of EDL and substantially all of the business and operating assets  
of STL to Paravant Computer Systems, Inc. ("Paravant"). Under the terms of the  
agreement, the shareholders of EDL/STL would receive approximately $8.7 million 
in cash, 8%, three-year notes aggregating $4.8 million, 3,950,000 shares of     
Paravant's common stock and a cash earn-out payable over five years based on    
EDL-STL's future profits. The agreement is subject to the approval of Paravant's
shareholders.                                                                   

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ENGINEERING DEVELOPMENT LABORATORIES, INC. AND SUBSIDIARY   

Unaudited Consolidated Condensed Financial Statements   
for the Six Months Ended        
March 21, 1998 and March 22, 1997       

                                                                [Download Table]

                                                                            PAGE
                                                                                

Condensed Consolidated Balance Sheet - March 31, 1998 ......................  95

Condensed Consolidated Statements of Income for the six months                  
ended March 21, 1998 and March 22, 1997 ....................................  96

Condensed Consolidated Statements of Cash Flows for the six months              
ended March 21, 1998 and March 22, 1997 ....................................  97

Notes to Condensed Consolidated Financial Statements .......................  98

Management's Discussion and Analysis of Operations .........................  99

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Condensed Consolidated Balance Sheet

                                                                [Download Table]

                                                                      MARCH 21,
          ASSETS                                                       1998    
          ------                                                       -----   
                                                                    (UNAUDITED)
                                                                               
Current assets:                                                                
  Cash and cash equivalents                                        $ 1,380,766 
  Accounts receivable                                                4,411,486 
  Costs and estimated earnings in excess of billings on                        
     uncompleted contracts                                           7,932,081 
  Inventory                                                            153,889 
  Prepaid expenses and other assets                                     58,005 
  Deferred income taxes                                                 15,320 
                                                                   ----------- 
         Total current assets                                       13,951,547 

Property and equipment, net                                            304,092 
Other assets                                                            88,492 
                                                                   ----------- 
                                                                   $14,344,131 
                                                                   =========== 

   LIABILITIES AND STOCKHOLDERS' EQUITY                                        
   ------------------------------------                                        

Current liabilities:                                                           
    Accounts payable                                               $   355,474 
    Accrued liabilities                                                519,050 
    Billings in excess of costs and estimated earnings on                      
       uncompleted contracts                                         1,048,631 
    Income taxes payable                                             3,352,400 
                                                                   ----------- 
           Total current liabilities                                 5,275,555 

Deferred compensation                                                  105,180 
Deferred income taxes                                                    1,884 
                                                                   ----------- 
           Total liabilities                                         5,382,619 
                                                                   ----------- 
Minority interest in equity of subsidiary                            3,197,576 
                                                                   ----------- 
Stockholders' equity:                                                          
    Common stock, at stated value. 750 shares authorized,                      
       issued and outstanding                                            1,200 
    Additional paid-in capital                                         177,395 
    Retained earnings                                                5,993,452 
    Treasury stock, 258 shares, at cost                               (408,111)
                                                                   ----------- 
           Total stockholders' equity                                5,763,936 
                                                                   ----------- 
                                                                   $14,344,131 
                                                                   =========== 


See accompanying notes to condensed consolidated financial statements.          

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 Condensed Consolidated Statements of Income

                                                        [Enlarge/Download Table]

                                                                     SIX MONTHS ENDED           
                                                           ------------------------------------ 
                                                             MARCH 21,              MARCH 22,   
                                                               1998                    1997     
                                                               ----                    ----     
                                                           (UNAUDITED)              (UNAUDITED) 
                                                                                                
Contract revenues                                         $ 21,613,907                8,726,445 
Cost of contract revenues                                    9,245,642                4,452,326 
                                                          ------------             ------------ 
        Gross profit                                        12,368,265                4,274,119 

General and administrative expenses                          2,032,063                1,426,442 
                                                          ------------             ------------ 
        Income from operations                              10,336,202                2,847,677 

Other income                                                   201,730                  181,500 
                                                          ------------             ------------ 
        Income before income taxes and minority interest    10,537,932                3,029,177 

Income taxes                                                 3,694,064                  810,809 
                                                          ------------             ------------ 
        Income before minority interest                      6,843,868                2,218,368 

Minority interest in income of consolidated subsidiary      (2,249,219)                (773,778)
                                                          ------------             ------------ 
        Net income                                        $  4,594,649                1,444,590 
                                                          ============             ============ 

See accompanying notes to condensed consolidated financial statements.          

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 Condensed Consolidated Statements of Cash Flows

                                                        [Enlarge/Download Table]

                                                                           SIX MONTHS ENDED          
                                                                -------------------------------------
                                                                  MARCH 21,               MARCH 22,  
                                                                    1998                     1997    
                                                                    ----                     ----    
                                                                 (UNAUDITED)              (UNAUDITED)

                                                                                                     
Cash flows from operating activities:                                                                
  Net income                                                    $ 4,594,649               1,444,590  
  Adjustments to reconcile net income to net cash provided by                                        
     operating activities:                                                                           
        Depreciation                                                 41,034                   8,738  
        Minority interest in income of consolidated subsidiary    2,249,219                 773,778  
        Deferred income taxes                                        37,914                (769,565) 
        Gains on investments                                        (28,184)                  2,049  
        Increase (decrease) in cash caused by changes in:                                            
              Accounts receivable                                (1,782,764)                (93,739) 
              Contracts in progress                              (1,327,235)              2,212,272  
              Inventory                                             (67,661)                 20,546  
              Prepaid expenses and other assets                     (32,199)                 (7,930) 
              Accounts payable                                     (974,754)                (17,123) 
              Accrued liabilities                                  (286,660)               (113,525) 
              Income taxes payable                                  726,502                  87,221  
              Deferred compensation                                (239,516)                100,075  
                                                                -----------             -----------  
              Net cash provided by operating activities           2,910,345               3,647,387  
                                                                -----------             -----------  
Cash flows from investing activities:                                                                

  Proceeds from sales of investments                                356,605                 780,703  
  Purchases of property and equipment                               (95,827)                   --    
  Proceeds from sale of property and equipment                         --                    32,996  
  Purchases of other assets                                         (86,832)                (12,506) 
  Sale of other assets                                                 --                     5,719  
                                                                -----------             -----------  
               Net cash provided by investing activities            173,946                 806,912  
                                                                -----------             -----------  

Cash flows from financing activities:                                                                
  Distributions to stockholders                                  (1,593,000)             (2,545,500) 
  Dividends paid relating to minority interests                    (720,000)             (1,741,000) 
                                                                   --------               ---------  
               Net cash used in financing activities             (2,313,000)             (4,286,500) 
                                                                   --------               ---------  
               Net increase in cash and cash equivalents            771,291                 167,799  

Cash and cash equivalents, beginning of period                      609,475                  65,646  
                                                                   --------               ---------  
Cash and cash equivalents, end of period                        $ 1,380,766                 233,445  
                                                                   ========               =========  
Supplemental disclosures of cash flow information:                                                   
 Cash paid during the period for:                                                                    

     Interest                                                   $    19,315                     149  
                                                                   ========               =========  
     Income taxes                                               $ 2,940,342                 624,216  
                                                                   ========               =========  


See accompanying notes to condensed consolidated financial statements.          

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Notes to Condensed Consolidated Financial Statements

 March 21, 1998 and March 22, 1997

(1)   BASIS OF PRESENTATION                                                     

     The accompanying unaudited condensed consolidated financial statements of
   Engineering Development Laboratories, Inc. ("EDL" or "Company") include
the accounts of EDL and its 56% owned subsidiary Signal Technology  
Laboratories, Inc. ("STL"). The statements have been prepared in    
accordance with instructions and requirements of Regulation S-B and,
   therefore, do not include all information and footnotes necessary for a
   fair presentation of financial position, results of operations and cash
     flows in conformity with generally accepted accounting principles. In the
     opinion of management, such financial statements, reflect all adjustments
     (consisting of normal recurring accruals) considered necessary for a fair
     statement of financial position, results of operations and cash flows for
    the interim periods presented. Operating results for the interim periods
      are not necessarily indicative of the results that may be expected for the
full fiscal years.                                                  

     These condensed consolidated financial statements and footnotes should be
   read in conjunction with the Company's audited financial statements for
 the nine month period ended October 4, 1997 and the fiscal year ended
December 28, 1996. The accounting principles used in preparing these
condensed consolidated financial statements are the same as those   
described in such statements.                                       

(2)   SUBSEQUENT EVENT                                                          

On March 31, 1998, the Company entered into an agreement to sell the
   common stock of EDL and substantially all of the business and operating
    assets of STL to Paravant Computer Systems, Inc. ("Paravant"). Under the
terms of the agreement, the shareholders of EDL/STL would receive   
    approximately $8.7 million in cash, an 8% three year, $4.8 million note,
   3,950,000 shares of Paravant's common stock and a cash earn-out payable
over five years based on EDL/STL's future profits. The agreement is 
subject to the approval of Paravant's shareholders.                 

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Management's Discussion and Analysis of Operations                              
RESULTS OF OPERATIONS                                                           
Six Months ended March 21, 1998 vs. March 22, 1997                              

Revenues for the six months ended March 21, 1998 were $21,613,907, an increase  
of $12,887,462 or 148% over the six months ended March 22, 1997 revenues of     
$8,726,445. This increase is primarily due to accelerated delivery requirements 
by the government customer. These accelerated delivery requirements are not     
anticipated to continue into the future.                                        

Gross profit was $12,368,265 for the six months ended March 21, 1998 or 57% of  
revenues, compared to $4,274,119 or 49% in the six months ended March 22, 1997, 
a total increase of $8,094,146 or 189%. This increase in gross profitability    
results primarily from the increased revenues discussed above. As volume has    
increased, efficiencies in both production cycle time and fixed costs have been 
attained.                                                                       

Selling and administrative expenses of $2,032,063 in the six months ended March 
21, 1998 increased by $605,621 or 42% from the six months ended March 22, 1997  
expenses of $1,426,442. As a percentage of revenues, selling and administrative 
expenses were 9% and 16% in the six months ended March 21, 1998 and March 22,   
1997, respectively. As the volume has increased, efficiencies in selling and    
administrative expenses as a percentage of revenues have been attained.         

Income from operations was $10,336,202 for the six months ended March 21, 1998  
compared to $2,847,677 in the six months ended March 22, 1997, an improvement of
$7,488,525. As a percentage of revenues, income from operations improved to 48% 
in the six months ended March 21, 1998 from 33% in the six months ended March   
22, 1997. The improvement to income from operations overall resulted primarily  
from increased revenues and gross profits offset in part by increased selling   
and administrative expenses as discussed above.                                 

As a result, the Company's net income improved by 218% to $4,594,649 in the six 
months ended March 21, 1998 compared to $1,444,590 in 1997. Net income as a     
percentage of revenues was 21% in the six months ended March 21, 1998 compared  
to 17% in the six months ended March 22, 1997. The improvement in net income    
overall resulted primarily from increased revenues and gross profits, offset in 
part by increased selling and administrative expenses as discussed above.       

LIQUIDITY AND CAPITAL RESOURCES                                                 

The Company has a secured revolving credit arrangement with Star Bank in Dayton,
Ohio (the 'Bank') for a credit line of up to $1,500,000 that is renewed annually
and bears interest at the prime rate plus 0.25% for secured borrowings.         

The Company's have, and continue to have, a dependence on a few major customers 
for a significant portion of its revenues. This dependence for revenues has not 
been                                                                            

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

The Company's operating cash flow was $2,910,345 and $3,647,387 for the six     
months ended March 21, 1998 and March 22, 1997, respectively. The decrease in   
the Company's operating cash flow for six months ended March 21, 1998 results   
primarily from an increase in accounts receivable and unbilled receivables,     
along with a decrease in accounts payable, offset in part by the increased net  
income, more fully presented in the Condensed Statements of Cash Flows for the  
six months ended March 21, 1998.                                                

Generally, accounts receivable at the end of the period are collected within the
following month. Management feels no bad debt reserve is required.              

As of March 21, 1998 and March 22, 1997, the Company's backlog was $8,419,233   
and $14,443,376, respectively, consisting of firm fixed price purchase orders.  
All of these purchase orders are expected to generate profits within the        
Company's historical levels and the Company believes that the completion of the 
orders comprising its backlog, and any new orders which may be accepted by the  
Company in the future, should not result in additional liquidity pressures which
cannot be addressed in a manner consistent with the Company's past practices.   
The Company presently expects to manufacture and deliver all of the products in 
the backlog at March 21, 1998 within the next nine months.                      

On March 31, 1998, the Company entered into a definitive agreement to sell the  
common stock of EDL and substantially all of the business and operating assets  
of STL to Paravant Computer Systems, Inc. ('Paravant'). Under the terms of the  
agreement, the shareholders of EDL/STL would receive approximately $8.7 million 
in cash, 8%, three-year notes aggregating $4.8 million, 3,950,000 shares of     
Paravant's common stock and a cash earn-out payable over five years based on    
EDL-STL's future profits. The agreement is subject to the approval of Paravant's
shareholders.                                                                   

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ADDITIONAL INFORMATION

Cautionary Statement Concerning Forward-Looking Statements                      

     This Proxy Statement contains forward-looking statements that are subject
to known and unknown risks and uncertainties. Forward-looking statements include
the information concerning the possible or assumed future results of operations 
of the Company when combined with EDL and STL set forth under the caption       
"Proposal 2: Approval of the Acquisition" and sub captions thereunder including,
but not limited to, "Reasons for the Proposal," "Recommendation of the Company's
Board of Directors, "Pro Forma Book Values and Earnings Per Share," "Summary of 
the Acquisition - Risk Factors Applicable to the Acquisition," The Acquisition -
Reasons for the Acquisition," "The Acquisition - Fairness Opinion," "The        
Acquisition Agreement - Cash Earn-Out," "The Acquisition Agreement - Liquidated 
Damages," "The Acquisition Agreement - Description of the Company,"             
"The Acquisition Agreement - Description of EDL and STL - Exceptional Recent    
Earnings History of EDL and STL,"Financial Statements," and those preceded by,  
followed by, or that include the words "believes", "expects", "anticipates", or 
similar expressions. Such statements reflect the current views of the Company   
and/or EDL, STL and/or the EDL/STL Shareholders with respect to future events.  
For those statements as they relate to the Company only, the Company claims the 
protection of the safe harbor for forward-looking statements contained in the   
Private Securities Litigation Reform Act of 1995, to the extent provided by     
applicable law. This safe harbor does not apply to forward-looking statements   
of EDL or STL as neither of such entities has ever registered its securities    
with the SEC. It should be understood that the factors set forth below, in      
addition to those set forth elsewhere in this Proxy Statement and in the        
documents incorporated by reference herein, could affect the future results of  
the Company and could cause results to differ materially from those expressed or
implied in the forward-looking statements in this Proxy Statement. The Company's
management believes that their expectations of future performance are based on  
the assumption which, to the best of their knowledge, are reasonable, however,  
there can be no assurance that actual results will not differ materially from   
such expectations. The factors which could cause actual results to differ from  
these expectations include, among others, those factors referred to under "risk 
factors" in this Proxy Statement, and other factors described in this Proxy     
Statement and in other documents filed by the Company with the SEC.             

Additional Information About the Company                                        

     The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,          
statements or other information that the Company files at the SEC's public      
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.  
Additional information concerning the SEC's public reference rooms may be       
obtained by telephone from the SEC by calling 1-800-SEC-0330. The Company's SEC 
filings are also available to the public from commercial document retrieval     
services and at the Internet Website maintained by the SEC at                   
"http://www.sec.gov." Reports, proxy statements and other information should    
also be available for inspection at the offices of the NASD.                    

    SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT TO VOTE ON THE PROPOSAL RELATING TO THE ACQUISITION. THE COMPANY HAS  
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT FROM THAT WHICH  
IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED JULY 23,    
1998. DO NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS   
ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS   
PROXY STATEMENT TO SHAREHOLDERS NOR THE ISSUANCE OF COMMON STOCK IN CONNECTION  
WITH THE ACQUISITION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.              

 INFORMATION CONCERNING INDEPENDENT AUDITORS

      The Company has selected the firm of KPMG Peat Marwick LLP to serve as the
independent auditors for the Company for the current fiscal year ending         
September 30, 1998. That firm served as the Company's independent auditors for  
its fiscal year ended September 30, 1997. Representatives of KPMG Peat Marwick  
LLP are expected to attend the Special Meeting and will have an opportunity to  
make a statement if they desire to do so and will be available to respond to    
appropriate questions.                                                          

101 

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 SHAREHOLDER PROPOSALS

     Shareholder proposals intended to be presented at the next annual meeting
of shareholders, to be held in 1999, must be received by the Company at 1615A   
West Nasa Boulevard, Melbourne, Florida 32901, Attention: Secretary, by         
September 30, 1998 to be included in the proxy statement and form of proxy      
relating to that meeting.                                                       

 OTHER MATTERS

The Board of Directors is aware of no other matters that are to be  
presented to shareholders for formal action at the Special Meeting. If, however,
any other matters properly come before the Special Meeting or any adjournment   
thereof, it is the intention of the persons named in the enclosed form of proxy 
to vote such proxy in accordance with their judgment on such matters.           

                                             By Order of the Board of Directors,

                           William R. Craven
                   Secretary

Dated:  Melbourne, Florida                                                      
July 23, 1998                                                   

102 

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APPENDIX 1

PROXY                     PARAVANT COMPUTER SYSTEMS, INC.                       

PROXY SOLICITED BY THE BOARD OF DIRECTORS OF PARAVANT COMPUTER SYSTEMS, INC.

FOR THE SPECIAL MEETING OF SHAREHOLDERS--AUGUST 20, 1998

      The undersigned hereby appoints Richard P. McNeight, William R. Craven and
Kevin J. Bartczak, and each of them, as Proxies, each with full power of        
substitution and resubstitution, to represent and to vote, as designated below, 
all shares of Common Stock of Paravant Computer Systems, Inc. (the "Company")   
which the undersigned would be entitled to vote if personally present at the    
Special Meeting of Shareholders of the Company to be held at the Melbourne Beach
Hilton Oceanfront Hotel, 3003 U.S. Highway A1A, Indialantic, Florida 32903 at   
10:00 A.M. (local time) on August 20, 1998, and at any adjournment or           
postponement thereof.                                                           

1.    Approval of Name Change to Paravant Inc.:                                 

       [ ] FOR                 [ ] AGAINST                   [ ] ABSTAIN

2. Approval of Acquisition Agreement and related acquisitions:                  

       [ ] FOR                 [ ] AGAINST                   [ ] ABSTAIN

3. In their discretion, the proxies are authorized to vote upon such other      
business as may properly come before the annual meeting or any adjournment
or postponement thereof.                                                  

IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.           

 TO BE VALID, THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.

                                      Please sign exactly as name appears at
                                   left. When shares are held by joint
                                       tenants, both should sign. When signing
                                     as attorney, executor, administrator,
                                     trustee or guardian, please give your
                                     full title as such. If a corporation,
                                     please sign in full corporate name by
                                      president or other authorized officer.
                                If a partnership, please sign in
                                      partnership name by authorized person.

     Date:
                                            ----------------------------------

                                       ---------------------------------------
         Signature

                                       ---------------------------------------
         Signature

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

103 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PRER14A’ Filing		Date		First		Last			Other Filings
		11/22/04		62
		9/30/03		14		50
		12/31/01		36					10-Q
		7/1/01		22		50
		6/3/01		68		79
		12/31/00		22		80			10-Q
		9/30/00		14					10KSB
		1/1/00		26
		11/30/99		23
		9/30/99		26		50			10KSB
		7/31/99		23
		7/1/99		22
		4/1/99		22
		1/1/99		22
		12/28/98		5
		12/1/98		23
		10/1/98		22		50
		9/30/98		19		107			10KSB40
		8/31/98		24
		8/20/98		3		108
		7/23/98		3		107
		6/25/98		3		6
Filed on:		6/19/98
		6/17/98		19
		6/12/98		7		17
		6/5/98		35
		5/22/98		82
		4/24/98		1
		4/23/98		19
		4/1/98		14
		3/31/98		3		105			10QSB,  8-K
		3/30/98		15
		3/27/98		32
		3/21/98		5		105
		3/15/98		20
		2/13/98		19					SC 13G/A
		1/30/98		11
		1/23/98		18		19
		1/1/98		14		96
		12/31/97		14		96			10QSB
		12/30/97		18		23
		12/15/97		58		69
		12/3/97		52
		12/1/97		23
		11/30/97		63
		11/20/97		8		66
		10/4/97		5		103
		10/1/97		14		76
		9/30/97		5		106			10KSB,  5
		9/19/97		18		19
		9/1/97		19
		8/8/97		68		79
		7/1/97		14
		6/30/97		14					10QSB
		6/3/97		63
		4/22/97		68		79
		4/15/97		65
		4/1/97		14		96
		3/31/97		14		80			10QSB
		3/22/97		5		105
		1/1/97		14
		12/31/96		14					10QSB
		12/28/96		20		103
		12/1/96		23
		11/26/96		23
		10/1/96		14		58
		9/30/96		5		80			10KSB40
		9/18/96		36
		9/1/96		36
		8/1/96		23
		7/25/96		15		65
		7/22/96		15
		7/1/96		14
		6/30/96		14					10QSB
		6/3/96		14		20
		3/27/96		36
		3/14/96		62
		1/1/96		60
		10/1/95		63
		9/30/95		55		68
		12/22/94		61
		12/15/94		58
		11/22/94		61		62
		12/22/93		61
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