SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period from
to .
Commission File Number: 0-22737
Advanced Communication Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1421222
(State or other jurisdiction (I.R.S. Employer Identification No.)
incorporation or organization)
10089 Lee Highway, Fairfax, Virginia 22030
(Address of principal executive office and zip code)
(703) 934-8130
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ X ] No [ ]
As of the close of business on August 11, 1998, the registrant had
outstanding 8,584,583 shares of Common Stock, par value $.01 per
share.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 1998 and September 30, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months Ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
<TABLE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
<CAPTION>
June 30, September 30,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,383 $ 2,744
Contract receivables 48,263 17,643
Other receivables 1,024 154
Income taxes receivable 651 529
Prepaid expenses 1,474 296
Inventories 765 544
Total current assets 53,560 21,910
Property and equipment, net 7,285 1,261
Other assets:
Other related party receivables 265 86
Software development costs, net 1,802 950
Intangibles, net 43,636 1,706
Long-term deferred tax asset 87 147
Other non-current assets 400 152
Total other assets 46,190 3,041
Total assets $107,035 $26,212
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 86 $ -
Current portion of obligation under
capital leases 1,148 -
Accounts payable 2,656 3,321
Accrued expenses and other current
liabilities 19,885 8,838
Billings in excess of revenue 274 225
Deferred income tax liability 2,545 -
Payable to stockholders 95 -
Total current liabilities 26,689 12,384
Obligation under capital leases 112 -
Long-term debt 37,089 -
Total liabilities 63,890 12,384
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.01 par value,
40,000,000 shares authorized,
11,450,000 shares issued at June 30,
1998 and 8,975,000 shares issued at
September 30, 1997 115 90
Paid-in-capital 40,989 14,409
Retained earnings (deficit) 2,370 (382)
Less - Treasury stock, 2,871,000
shares at June 30, 1998 and
2,945,000 shares at September 30,
1997 (329) (289)
Total stockholders' equity 43,145 13,828
Total liabilities and
stockholders' equity $107,035 $26,212
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $25,848 $14,379 $58,398 $35,510
Direct costs 16,374 10,432 37,364 25,179
Indirect, general and
administrative expenses 7,309 3,040 16,130 8,066
Income from operations 2,165 907 4,904 2,265
Interest expense (409) (2) (787) (136)
Other income, net 32 16 47 60
Income before taxes 1,788 921 4,164 2,189
Provision for income taxes 626 33 1,505 33
Net income $ 1,162 $ 888 $ 2,659 $ 2,156
Net income per share-basic $ 0.16 $ 0.40
Net income per share-diluted $ 0.16 $ 0.39
Weighted average shares
outstanding-basic 7,310 6,855
Weighted average shares
outstanding-diluted 7,448 6,855
Pro forma statements of
operations data
Income before taxes as
reported $ 921 $2,189
Pro forma income tax
provision 359 854
Pro forma net income $ 562 $1,335
Pro forma net income per share-basic $ 0.13 $ 0.31
Pro forma net income per share-diluted $ 0.13 $ 0.31
Pro forma weighted average shares
outstanding-basic 4,361 4,307
Pro forma weighted average shares
outstanding-diluted 4,442 4,378
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,659 $2,156
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities-
Depreciation and amortization 983 323
Increase in reserves 65 -
Changes in assets and liabilities:
Contract receivables (4,207) (3,288)
Other receivables (278) (135)
Prepaid expenses 82 (559)
Inventories (221) -
Other related party receivables (397) (230)
Long-term deferred tax asset 60 -
Other assets (4) (164)
Accounts payable (3,182) 2,720
Accrued expenses and other current
liabilities 1,906 2,565
Billings in excess of revenue 49 25
Income taxes payable (40) -
Deferred income taxes 1,329 (19)
Net cash (used in) provided by
operating activities (1,196) 3,394
Cash flows from investing activities:
Acquisitions, net of cash acquired (55,067) -
Purchases of property and equipment (1,251) (441)
Capitalized software development costs (791) (196)
Increase in goodwill (401) -
Intangible assets (665) -
Net cash used in investing
activities (58,175) (637)
Cash flows from financing activities:
Net proceeds from the sale of common
stock 22,838 -
Net borrowings repaid (876) -
Net borrowings (repayments) under line
of credit 35,528 (2,688)
Collection of receivables on behalf of
stockholders 95 678
Purchase of treasury stock - (65)
Sale of treasury stock 425 57
Net cash provided by (used in)
financing activities 58,010 (2,018)
Net (decrease) increase in cash (1,361) 739
Cash and cash equivalents, beginning of
period 2,744 1,177
Cash and cash equivalents, end of period $1,383 $1,916
Income taxes paid $169 $15
Interest paid $787 $136
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated balance sheet as of June 30,
1998, and the statements of operations and cash flows for all periods
presented have been prepared by Advanced Communication Systems, Inc.
(the "Company"), and have not been audited. These financial
statements, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and
cash flows for all periods presented. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto for the fiscal year ended September 30,
1997 included in the Company's Annual Report on Form 10-K. Interim
operating results are not necessarily indicative of operating results
for the full year.
2. Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
3. Completion of Secondary Offering of Common Stock
In May 1998, the Company consummated a secondary offering of its
common stock, selling 2,000,000 shares for $12.375 per share. The
offering resulted in net proceeds to the Company of approximately
$22.8 million after deducting underwriting discounts and offering
expenses payable by the Company. The majority of the proceeds was
used to pay the outstanding debt incurred in the acquisition of
Advanced Management, Incorporated (Note 7).
4. Provision for Income Taxes
Prior to June 25, 1997, the Company elected to be treated as an S
corporation and was not subject to federal and certain state income
taxes. As a result, no provision for federal or state income taxes
has been included in the historical statements of operations prior to
June 25, 1997. On June 25, 1997, in connection with the initial
public offering the S corporation status was terminated, thereby
subjecting future income of the Company to federal and state income
taxes at the corporate level. Subsequent to June 25, 1997, the
Company has provided for federal and state income taxes in the
statements of operations based on the effective tax rate.
5. Pro Forma Net Income Per Share
<PAGE>
Pro forma net income is based on the assumption that the Company's S
corporation status was terminated at the beginning of the year. Pro
forma net income per share has been computed by dividing pro forma
net income by the pro forma weighted average number of common shares
outstanding during the period.
6. Net Income Per Share
Effective December 31, 1997, the Company adopted the Financial
Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". This statement
replaces the previously reported primary and fully diluted net income
per share with basic and diluted net income per share. Unlike
primary net income per share, basic net income per share excludes any
dilutive effects of stock options. Diluted net income per share is
very similar to the previously reported fully diluted net income per
share. All net income per share amounts have been restated to
conform to SFAS No. 128. No reconciling items existed between the
net income used for basic and diluted net income per share. The only
reconciling item between the shares used for basic and diluted net
income per share related to outstanding stock options.
7. Acquisitions
Integrated Systems Control, Inc.
In November 1997, the Company acquired all the outstanding shares of
Integrated Systems Control, Inc. ("ISC") in exchange for 475,000
shares of the Company's common stock. The acquisition has been
accounted for as a purchase and accordingly the total purchase price
has been allocated to acquired assets and liabilities assumed at
their estimated fair values. The excess of the purchase price over
the net assets acquired is being carried as goodwill, in the amount
of approximately $1.3 million, which will be amortized over its
estimated useful life of 30 years.
Advanced Management, Incorporated
In February 1998, the Company acquired all the outstanding shares of
Advanced Management, Incorporated ("AMI") for $19.5 million in cash
and additional contingent payments for each of two consecutive twelve
month periods following the closing date of the acquisition up to a
maximum of $5.25 million for each period. The acquisition has been
accounted for as a purchase, and accordingly, the purchase price has
been allocated to the acquired assets and liabilities assumed at
their estimated fair values. The excess of the purchase price over
the net assets acquired is being carried as intangible assets,
including goodwill and customer lists, in the amounts of
approximately $12.2 million and $4.1 million, respectively, which
will be amortized over their estimated useful lives ranging from 16
to 40 years.
<PAGE>
SEMCOR, Inc.
In June 1998, the Company acquired all the outstanding shares of
SEMCOR, Inc. ("SEMCOR") for the preliminary purchase price of $38
million, which is subject to adjustment based on the net equity shown
on the closing date balance sheet. The purchase price consisted of
$37 million in cash and $1 million in the Company's common stock. In
addition, the Company may pay additional amounts to the former
shareholders based on achievement of certain financial goals by
SEMCOR for the six-month period ending December 31, 1998, and the
twelve-month period ending December 31, 1999. The Company will also
pay the shareholders up to $1.25 million for certain tax liabilities
of the shareholders incurred pursuant to Section 338(h)(10) of the
Internal Revenue Code. The acquisition has been accounted for as a
purchase and accordingly the preliminary purchase price has been
allocated to the acquired assets and liabilities assumed at their
estimated fair values. The excess of the preliminary purchase price
over the net assets acquired is being carried as intangible assets,
in the amount of $23.3 million, and will be amortized over its estimated
useful life.
The following unaudited preliminary pro forma summary presents
information as if the acquisitions had occurred at the beginning of
each period presented. The pro forma information does not
necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of future results of operations of the
combined companies.
<TABLE>
<CAPTION>
(unaudited)
Nine Months Ended
June 30, June 30,
1998 1997
(in thousands, except per share data)
<S> <C> <C>
Revenues $138,405 $131,323
Net Income $ 2,958 $ 2,023
Net income per share-basic $ 0.43 $ 0.42
Net income per share-diluted $ 0.43 $ 0.41
</TABLE>
8. Long-Term Debt
Notes payable and line of credit consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
<S> <C> <C>
Line of credit:
$45 million line of credit with
a commercial bank expiring
February 28, 2000 $35,516 $ -
<PAGE>
Notes payable:
Note payable to bank, interest at
9.9%, due February 2005, secured
by a First Deed of Trust on an
office building 966 -
Note payable to Urban Business
Development Corporation, interest
at 8.575%, due January 2015,
guaranteed by the Small Business
Administration and secured by a
Second Deed of Trust on an office
building 693 -
37,175 -
Less current maturities 86 -
$37,089 $ -
</TABLE>
Line of Credit
In June 1998, the Company increased its existing credit facilities
with a commercial bank from $35 million to $45 million to finance the
acquisition of SEMCOR and to provide for its other working capital
needs. This line of credit consists of two separate facilities,
permitting the Company to borrow up to an aggregate of $45 million.
The first facility, in an amount up to $20 million, may be used to
finance acquisitions, working capital, and other corporate purposes,
and bears interest at either the bank's prime rate or at a London
interbank offered rate ("LIBOR") for one, two or three month periods,
plus a percentage, not more than 2.2%, which depends on the Company's
historical performance. The second facility, in an amount up to $25
million, may be used to finance acquisitions, and bears interest at
either the bank's prime rate or at a LIBOR rate plus a percentage,
not more than 2.45%, which depends on the Company's historical
financial performance. Each facility expires on February 28, 2000.
The credit agreement contains various covenants requiring the Company
and its subsidiaries, on a consolidated basis, to maintain certain
financial ratios, including debt to net income, minimum net income
and minimum net worth. The credit agreement also prohibits the
payment of dividends. As of June 30, 1998, the outstanding balance
on its line of credit was $35.5 million and the weighted average
interest rate for the nine months ended June 30, 1998, was
approximately 8.2%.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements based on management's current expectations, estimates and
projections about the Company's industry, management's beliefs and
certain assumptions made by management. These forward-looking
statements involve risks and uncertainties, and actual results may
differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others,
those set forth under the "Risk Factors" section of the Company's
prospectus dated May 20, 1998, as filed with the Securities and
Exchange Commission. Except as required by law, the Company
undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise.
<PAGE>
Results of Operations
The following table sets forth certain statement of operations data
as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct costs 63.3 72.6 64.0 70.9
Indirect, general and
administrative 28.3 21.1 27.6 22.7
Income from operations 8.4 6.3 8.4 6.4
Other income (expense), net (1.5) 0.1 (1.3) (0.2)
Income before taxes 6.9 6.4 7.1 6.2
Pro forma income taxes (1) 2.4 2.5 2.6 2.4
Pro forma net income 4.5% 3.9% 4.5% 3.8%
</TABLE>
(1) Prior to June 25, 1997,the Company elected to be treated as an S
corporation and was not subject to federal and certain state income
taxes. The pro forma income taxes data reflects federal and state
income taxes based on estimated tax rates, as if the Company had
elected C corporation status for the periods indicated. Amounts for
the three month and nine month periods ended June 30, 1998, are based
on actual results.
Three Months Ended June 30, 1998 Compared to Three Months Ended June
30, 1997
Revenues increased 79.2%, or $11.4 million, to $25.8 million for the
three months ended June 30, 1998, from $14.4 million for the same
period in 1997. The increase was principally due to an increase in
revenues from communication systems resulting from the Company's
acquisitions of RFM and ISC, information technology services
resulting from the acquisition of AMI and systems engineering and
communication systems services resulting from the acquisition of
SEMCOR.
Direct costs include labor costs, related fringe benefits,
subcontract costs, material costs and other non-overhead costs
directly related to a contract. Direct costs increased to $16.3
million for the three months ended June 30, 1998 from $10.4 million
for the same period in 1997 due primarily to increased revenues from
the Company's acquisitions. Direct costs, expressed as a percentage
of revenues, decreased to 63.3% for the three months ended June 30,
1998 from 72.6% for the same period in 1997, primarily due to a
decrease in the proportion of revenues coming from systems
integration services. These services have higher direct costs than
the other services the Company provides because the contracts
generally require the Company to purchase hardware components as part
of the services.
Indirect, general and administrative expenses include fringe
benefits, overhead, selling and administrative costs, depreciation
and amortization, bid and proposal costs and research and development
expenses. Indirect expense increased to $7.3 million for the three
months ended June 30, 1998, from $3.0 million for the same period in
1997. The increase was due primarily to the higher level of revenues
<PAGE>
discussed above. Indirect expenses, expressed as a percentage of
revenues, increased to 28.3% from 21.1% for the three months ended
June 30, 1998, due to both the higher proportion of communication
systems revenues, which typically have higher associated indirect
expenses and to the amortization of intangible assets, principally
goodwill, from the acquisitions of RFM, ISC, AMI and SEMCOR.
Income from operations increased 138.7%, to $2.2 million for the
three months ended June 30, 1998, from $907,000 for the same period
in 1997, primarily due to increased communication systems revenues
and information technology services revenues from the acquisition of
RFM, ISC, AMI and SEMCOR. As a percentage of revenues, income from
operations increased to 8.4% for the three months ended June 30,
1998, from 6.3% for the comparable period in the prior year,
principally attributable to increased revenues from fixed price and
time-and-material contracts of AMI and ISC which typically carry
higher margins.
Other income (expense), net, consists of interest expense, offset in
part by interest income from short-term deposits of cash. Interest
expense was $409,000 and $2,000 for the three-month periods ended
June 30, 1998 and 1997, respectively. Interest income was $13,000
and $16,000 for the three months ended June 30, 1998 and 1997,
respectively.
The Company's effective tax rate was 35.0% for the three months ended
June 30, 1998. The Company's pro forma effective tax rate was 39.0%
for the three months ended June 30, 1997. This decrease is primarily
due to the change in the valuation allowance on temporary
differences.
Nine Months Ended June 30, 1998 Compared to Nine Months Ended June
30, 1997
Revenues increased 64.5%, or $22.9 million, to $58.3 million for the
nine months ended June 30, 1998, from $35.5 million for the same
period in 1997. The increase was principally due to an increase in
revenues from communication systems resulting from the Company's
acquisitions of RFM and ISC, information technology services
resulting from the acquisition of AMI and systems engineering and
communication systems services resulting from the acquisition of
SEMCOR.
Direct costs increased to $37.3 million for the nine months ended
June 30, 1998, from $25.1 million for the same period in 1997 due
primarily to increased revenues from the Company's acquisitions.
Direct costs, expressed as a percentage of revenues, decreased to
64.0% for the nine months ended June 30, 1998, from 70.9% for the
same period in 1997, primarily due to a decrease in the proportion of
revenues coming from systems integration services. These services
have higher direct costs than other services the Company provides
because the contracts generally require the Company to purchase
hardware components as part of the services.
Indirect, general and administrative expenses increased to $16.1
million for the nine months ended June 30, 1998 from $8.0 million for
the same period in 1997. The increase was due primarily to the
higher level of revenues discussed above. Indirect expenses,
<PAGE>
expressed as a percentage of revenues, increased to 27.6% for the
nine months ended June 30, 1998, from 22.7% for the comparable period
last year, due to the amortization of intangible assets, primarily
goodwill, resulting from the acquisitions of RFM, ISC, AMI and
SEMCOR.
Income from operations increased 116.5%, to $4.9 million for the nine
months ended June 30, 1998, from $2.3 million for the same period in
1997, primarily due to increased communication systems and IT
Services revenues from the acquisition of RFM, ISC, AMI and SEMCOR.
As a percentage of revenues, income form operations increased to 8.4%
for the nine months ended June 30, 1998, from 6.4% for the comparable
period in the prior year, principally attributable to increased
revenues from fixed-price and time-and-materials contracts which
typically carry higher margins.
Other income (expense), net, consists of interest expense, offset in
part by interest income from short-term deposits of cash. Interest
expense was $787,000 and $136,000 for the nine month periods ended
June 30, 1998 and 1997, respectively. The increase in interest
expense resulted primarily from the $19.5 and the $34.0 million
borrowed to fund the AMI and SEMCOR acquisitions, respectively. The
$19.5 million borrowed to finance the purchase of AMI was repaid in
May 1998 with the proceeds of the Company's secondary offering of its
common stock. Interest income was $28,000 and $60,000 for the nine
months ended June 30, 1998 and 1997, respectively.
The Company's effective tax rate was 36% for the nine months ended
June 30, 1998. The Company's pro forma effective tax rate was 39%
for the nine months ended June 30, 1997. This decrease is primarily
due to the change in the valuation allowance on temporary
differences.
Liquidity and Capital Resources
The Company used cash from operating activities of $1.7 million for
the nine months ended June 30, 1998, resulting primarily from net
income, for increases in contract receivables and decreases in
accounts payable, partially offset by increases in accrued expenses
and deferred income taxes. The increase in contract receivables was
due to increases in revenue recognized on contracts for which
billings had not been presented to the customer, particularly on a
contract with the Australian Navy. For the nine months ended June
30, 1997, the Company generated cash from operating activities of
$3.4 million resulting primarily from net income, increases in
accounts payable and accrued expenses and partially offset by
increases in contract receivables.
The principal use of cash for investing activities has been for the
purchases of computers and equipment and the acquisitions of AMI and
SEMCOR. The purchases of computers and equipment totaled $1.3
million and $441,000 for the nine-month period ended June 30, 1998
and 1997, respectively. Further the Company invested $791,000 in
software development costs for its communications products, including
the latest Microsoft Exchange-based product, INFORMATION 2000 and its
Impact software product for patient education , in the nine months
ended June 30, 1998. In February 1998, the Company acquired AMI for
$19.5 million in cash and additional contingent payments based on
achievement of certain financial goals. In June 1998, the Company
acquired SEMCOR, Inc. for a preliminary purchase price of $38
million, of which $37 million was in cash and $1 million was in the
<PAGE>
form of the Company's common stock. The Company may also pay
additional amounts contingent on the achievement of certain financial
goals by SEMCOR. The Company will also pay the shareholders up to
$1.25 million for certain tax liabilities of the shareholders
incurred pursuant to Section 338(h)(10) of the Internal Revenue Code.
In February 1998, the Company entered into a line of credit
arrangement, consisting of two credit facilities aggregating $35
million, with a commercial bank, refinancing the Company's then-
existing line of credit and the outstanding commercial bank debt of
ISC. The credit facility was used to finance the acquisition of AMI
and to provide for the working capital needs of the Company. The
first facility, in an amount up to $15 million, may be used to
finance acquisitions, working capital, and other corporate purposes,
and bears interest at either the bank's prime rate or at a London
interbank offered rate ("LIBOR") for one, two or three month periods,
plus a percentage, not more than 2.2%, which depends on the Company's
historical performance. The second facility, in an amount up to $20
million, may be used to finance acquisitions, and bears interest at
either the bank's prime rate or at a LIBOR rate plus a percentage,
not more than 2.45%, which depends on the Company's historical
financial performance. The credit agreement contains various
covenants requiring the Company and its subsidiaries, on a
consolidated basis, to maintain certain financial ratios, including
debt to net income, minimum net income and minimum net worth. The
credit agreement also prohibits the payment of dividends.
In May 1998, the Company consummated a secondary public offering of
its common stock, selling 2,000,000 shares for $12.375 per share.
The offering resulted in net proceeds to the Company of
approximately $22.8 million after deducting underwriting discounts
and offering expenses payable by the Company. The net proceeds of
the offering were used to reduce the debt referred to above that was
incurred to finance the acquisition of AMI.
In June 1998, the line of credit arrangement was increased to $45
million, from $35 million, to finance the acquisition of SEMCOR and
to provide for the working capital needs of the Company. This credit
arrangement was subject to similar terms and conditions as the
original arrangement that was entered into in February 1998. As of
June 30, 1998, the outstanding balance on the credit facilities was
$35.5 million.
The Company currently anticipates that its current cash balances,
amounts available under its credit facilities and net cash provided
by operating activities will be sufficient to meet its working
capital and capital expenditure requirements for at least the next
twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11.1 Statement Regarding Computation of Per Share
Earnings
Exhibit 11.2 Statement Regarding Computation of Pro Forma
Per Share Earnings
Exhibit 27.1 Financial Data Schedule
(b) (i) On May 12, 1998, the Company filed a current report
on Form 8-K/A, containing the audited financial statements
and the unaudited pro forma information required by Item 7 of
Form 8-K with respect to the March 12, 1998, acquisition of
all the outstanding shares Advanced Management, Incorporated.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: August 14, 1998 ADVANCED COMMUNICATION SYSTEMS, INC.
/S/ George A. Robinson
George A. Robinson
Chairman, President
and Chief Executive Officer
/S/ Dev Ganesan
Dev Ganesan
Executive Vice President, Chief
Financial Officer and Treasurer
<PAGE>
<TABLE>
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
Advanced Communication Systems, Inc.
(in thousands, except per share data)
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, 1998 June 30, 1998
<S> <C> <C>
Basic:
Total basic average shares
outstanding 7,310 6,729
Net income $1,162 $2,659
Net income per share-basic $0.16 $0.40
Diluted:
Total basic average shares
outstanding 7,310 6,729
Plus dilutive stock options 138 126
Total diluted average shares 7,448 6,855
Net income per share-diluted $0.16 $0.39
</TABLE>
<TABLE>
EXHIBIT 11.2 - COMPUTATION OF PRO FORMA PER SHARE EARNINGS
Advanced Communication Systems, Inc.
(in thousands, except per share data)
<CAPTION>
Three Months Nine Months
Ended Ended
June 30, 1997 June 30, 1997
<S> <C> <C>
Basic:
Basic average shares outstanding 3,812 3,788
Stock issued to satisfy S corporation
distribution in excess of preceding
twelve months earnings based on the
initial public offering price per
share 549 519
Total basic average shares
outstanding 4,361 4,307
Pro forma net income $ 562 $1,335
Pro forma net income per share-basic $ 0.13 $ 0.31
Diluted:
Total basic average shares
outstanding 4,361 4,307
Plus dilutive stock options 81 71
Total diluted average shares 4,442 4,378
Net income per share-diluted $0.13 $0.31
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,383
<SECURITIES> 0
<RECEIVABLES> 48,263
<ALLOWANCES> 0
<INVENTORY> 765
<CURRENT-ASSETS> 53,560
<PP&E> 10,790
<DEPRECIATION> 3,505
<TOTAL-ASSETS> 107,035
<CURRENT-LIABILITIES> 26,689
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 43,030
<TOTAL-LIABILITY-AND-EQUITY> 107,035
<SALES> 58,398
<TOTAL-REVENUES> 58,398
<CGS> 37,364
<TOTAL-COSTS> 53,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 787
<INCOME-PRETAX> 4,164
<INCOME-TAX> 1,505
<INCOME-CONTINUING> 2,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,659
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
