SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
May 12, 1998 (February 26, 1998)
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Advanced Communication Systems, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-22737 54-1421222
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(Commission File Number) (IRS Employer Identification No.)
10089 Lee Highway, Fairfax, Virginia 22030
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(Address of Principal Executive Offices) (Zip Code)
(703) 934-8130
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(Registrant's Telephone Number, Including Area Code)
<PAGE>
On March 12, 1998, Advanced Communication Systems, Inc., a
Delaware corporation ("ACS"), filed a Current Report on Form 8-K with respect to
its acquisition (the "Acquisition") of all the outstanding shares of Advanced
Management Incorporated, a Virginia corporation ("AMI") effective January 31,
1998. Such Form 8-K was filed without the financial statements and pro forma
financial information required by Item 7 of Form 8-K, as it was impracticable to
do so at that time. This Current Report on Form 8-K/A provides such required
information.
Item 7. Financial Statements and Exhibits
(a) The audited balance sheets of AMI, including independent
auditor's report thereon, as of December 31, 1996 and 1997, and the related
statements of income, shareholder's equity and cash flows for the years then
ended are included at Exhibit 99(a) and incorporated herein by reference.
(b) Pro forma unaudited financial information for ACS giving
effect to the Acquisition as of December 31, 1997, for the fiscal year ended
September 30, 1997, and for the six months ended March 31, 1998, is included at
Exhibit 99(b) and incorporated herein by reference.
(c) Exhibits:
99(a) Audited balance sheets of AMI, including
independent auditor's report thereon, as of December 31, 1996
and 1997, and the related statements of income, shareholder's
equity and cash flows for the years then ended.
99(b) Unaudited pro forma balance sheet for ACS as of
December 31, 1997, giving effect of the Acquisition as of
December 31, 1997, and the unaudited pro forma statements of
operations for the year ended September 30, 1997 and for the
six months ended March 31, 1998, giving effect of the
Acquisition as of the beginning of each period presented.
Signature
Pursuant to the requirement 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: May 12, 1998 Advanced Communication Systems, Inc.
/S/ Dev Ganesan
-------------------------------------------------
Dev Ganesan
Executive Vice President, Chief Financial
Officer and Treasurer
Exhibit 99(a)
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Advanced Management Incorporated
McLean, Virginia
We have audited the accompanying balance sheets of Advanced Management
Incorporated, as of December 31, 1996 and 1997, and the related statements of
income, shareholder's 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 Advanced Management
Incorporated as of December 31, 1996 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
KELLER BRUNER & COMPANY, L.L.C.
Bethesda, Maryland
February 13, 1998, except for Note 11,
as to which the date is February 26, 1998
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 168,346 $ 813,303
Accounts receivable, net 6,361,598 5,016,407
Prepaid expenses 1,057,557 181,582
Notes receivable - shareholder, current maturities 26,089 -
------------------------------
Total current assets 7,613,590 6,011,292
------------------------------
Investments Available for Sale 5,413,249 6,174,464
------------------------------
Other Assets
Notes receivable - shareholder, net of current
maturities 1,894,051 -
Deposits 37,711 20,225
------------------------------
1,931,762 20,225
------------------------------
Property and Equipment, less accumulated
depreciation; 1996 $554,597, 1997 $614,972 148,209 97,687
------------------------------
$ 15,106,810 $ 12,303,668
==============================
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY 1996 1997
<S> <C> <C>
Current Liabilities
Accounts payable $ 426,532 $ 485,992
Accrued expenses 177,765 836,683
Contract contingency allowance 100,000 100,000
Accrued litigation settlement 1,088,000 -
---------------------------------
Total liabilities 1,792,297 1,422,675
---------------------------------
Commitments and Contingencies
Shareholder's Equity
Common stock - $5 par value; 1,000 shares
authorized, issued, and outstanding 5,000 5,000
Additional paid in capital 300,000 300,000
Accumulated unrealized gains on investments 543,445 411,638
Retained earnings 12,466,068 10,164,355
---------------------------------
13,314,513 10,880,993
---------------------------------
$ 15,106,810 $ 12,303,668
=================================
</TABLE>
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1997
1996 1997
- ----------------------------------------------------------------------------
Contract revenue $ 20,648,940 $ 23,164,624
Other revenue 196,880 -
- ----------------------------------------------------------------------------
20,845,820 23,164,624
Direct contract costs 13,822,316 14,793,680
- ----------------------------------------------------------------------------
Gross profit 7,023,504 8,370,944
Indirect expenses 3,839,614 3,902,943
Bonuses - 670,000
- ----------------------------------------------------------------------------
3,839,614 4,572,943
- ----------------------------------------------------------------------------
Operating income 3,183,890 3,798,001
- ----------------------------------------------------------------------------
Other income (expense):
Investment income 397,834 957,863
Other income 234,370 261,816
Litigation settlement (1,088,000) -
Interest expense (1,907) (1,005)
Other expense (103,437) (147,355)
- ----------------------------------------------------------------------------
(561,140) 1,071,319
- ----------------------------------------------------------------------------
Net income $ 2,622,750 $ 4,869,320
============================================================================
See Notes to Financial Statements.
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
STATEMENTS OF SHAREHOLDER'S EQUITY
Years Ended December 31, 1996 and 1997
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Unrealized
Common Paid-In Gains (Losses) Retained
Stock Capital On Investments Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 5,000 $ 300,000 $ 261,209 $ 10,015,478 $ 10,581,687
Unrealized gain on investments - - 282,236 - 282,236
Net income - - - 2,622,750 2,622,750
Shareholder distributions - - - (172,160) (172,160)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 5,000 300,000 543,445 12,466,068 13,314,513
Unrealized loss on investments - - (131,807) - (131,807)
Net income - - - 4,869,320 4,869,320
Shareholder distributions - - - (7,171,033) (7,171,033)
- ----------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 5,000 $ 300,000 $ 411,638 $ 10,164,355 $ 10,880,993
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,622,750 $ 4,869,320
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 109,867 60,375
Increase (decrease) in allowance for doubtful accounts (26,725) 87,966
Realized gains on transfer and sales of investments - (616,220)
Realized loss on sale of investments 74,704 -
Deferred rent (38,623) -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,631,929) 1,257,225
Prepaid expenses (510,408) 817,642
Deposits 37,295 17,486
Increase (decrease) in:
Accounts payable 181,875 59,460
Accrued expenses (347,600) 658,918
Accrued litigation settlement 1,088,000 (1,088,000)
---------------------------
Net cash provided by operating activities 559,206 6,124,172
---------------------------
Cash Flows from Investing Activities
Principal payments received on note receivable-shareholder 28,223 23,844
Purchases of investment securities (3,801,861) (16,940,057)
Proceeds from sale of investment securities 3,342,731 11,753,460
Purchase of property and equipment (97,519) (9,853)
--------------------------
Net cash (used in) investing activities (528,426) (5,172,606)
--------------------------
Cash Flows from Financing Activities
Distributions to shareholder (172,160) (306,609)
--------------------------
Net cash (used in) financing activities (172,160) (306,609)
--------------------------
Net increase (decrease) in cash and cash
equivalents (141,380) 644,957
Cash and cash equivalents:
Beginning 309,726 168,346
--------------------------
Ending $ 168,346 $ 813,303
==========================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,907 $ 1,005
==========================
Income taxes - state $ 72,260 $ 1,538
==========================
See Notes to Financial Statements.
</TABLE>
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Organization and Significant Accounting Policies
Nature of business: Advanced Management Incorporated (the Company), is a
Virginia corporation organized on August 10, 1981. The Company engages in
computer consulting, training, computer facility operations, and other computer
related services. Virtually all of the Company's business is currently with
government or quasi-government agencies. The Company's principal market
locations include Washington, D.C. and Leawood, Kansas.
A summary of the Company's significant accounting policies follows:
Basis of accounting: The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles.
Cash and cash equivalents: For purposes of reporting cash flows, the Company
considers all cash accounts which are not subject to withdrawal restrictions or
penalties and money market funds with a maturity of three months or less, as
cash and cash equivalents.
Revenue and cost recognition: The Company's services are performed under various
time-and-material and fixed price contracts. Revenue from time-and-material
contracts is recognized on the basis of man-hours provided plus other
reimbursable contract costs incurred during the period. Revenue from fixed price
contracts is recognized on the percentage of completion method. Under this
method, individual contract revenue earned is based upon the percentage
relationship that contract costs incurred bear to management's estimate of total
contract costs. The Company currently provides for all known or anticipated
losses on contracts.
Allowance for doubtful accounts: The allowance for doubtful accounts is based on
management's evaluation of the collectibility of existing accounts receivable.
Investments available for sale: The Company has various holdings in bonds,
equity securities and mutual funds. These investments are accounted for under
the fair market value method as required by Statement of Financial Accounting
Standard 115. Under this pronouncement the Company does not reflect unrealized
gains or losses in the statement of operations, rather as an addition or
reduction to the shareholder's equity section of the balance sheet.
Property and equipment: Property and equipment are recorded at cost.
Depreciation has been calculated using accelerated and straight line methods
over the estimated useful lives of the respective assets.
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Nature of Organization and Significant Accounting Policies (Continued)
Income taxes: The Company has elected to be treated as an "S" Corporation under
subchapter "S" of the Internal Revenue Code, which provides that, in lieu of
corporation income taxes, the shareholders separately account for their pro-rata
share of the Company's items of income, deductions, losses and credits. As a
result of this election, no income taxes have been recognized in the
accompanying financial statements.
Financial credit risk: The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash.
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2. Accounts Receivable
The Company's accounts receivable consisted of the following amounts as of
December 31, 1996 and 1997:
1996 1997
- -----------------------------------------------------------------------------
Billed $ 6,187,507 $ 4,971,953
Unbilled 172,560 118,541
Other receivables 1,531 13,879
- -----------------------------------------------------------------------------
6,361,598 5,104,373
Allowance for doubtful accounts - 87,966
- -----------------------------------------------------------------------------
$ 6,361,598 $ 5,016,407
=============================================================================
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Investments - Available for Sale
As of December 31, 1996 and 1997, the Company owned bonds, equity security and
mutual funds that are readily marketable. The cost and fair market value of
these marketable securities were as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------------- ------------------------
Cost Market Value Cost Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest:
Smith Barney $ 6,874 $ 6,874 $ 6,880 $ 6,880
Bonds:
NationsBank 1,981,104 1,969,066 2,455,060 2,505,300
Smith Barney 415,000 447,191 415,000 457,330
Equity securities:
Trigon Healthcare - - 122,403 169,352
Money funds:
Smith Barney 1,968 1,968 - -
Mutual funds:
American Capital Emerging
Growth - B 121,938 147,497 139,340 172,640
Federated American Lenders
Fund - - 1,086,411 1,049,685
Federated Equity Income Fund - - 514,735 497,421
Liberty American Lenders
Funds 1,422,036 1,744,675 - -
MFS - Emerging Growth
Class B 162,796 304,238 165,478 364,273
Smith Barney 758,088 791,740 857,519 951,583
- ------------------------------------------------------------------------------------------------
$ 4,869,804 $ 5,413,249 $ 5,762,826 $ 6,174,464
================================================================================================
</TABLE>
Investment income for the years ended December 31, 1996 and 1997 consists of the
following components:
1996 1997
- --------------------------------------------------------------------
Interest $ 330,179 $ 136,985
Dividends 14,513 204,658
Capital gains 127,846 616,220
Capital losses (74,704) -
- --------------------------------------------------------------------
$ 397,834 $ 957,863
====================================================================
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Property and Equipment
Property and equipment consists of the following as of December 31, 1996 and
1997:
1996 1997
- ---------------------------------------------------------------------
Furniture and fixtures $ 199,963 $ 199,963
Computer hardware and software 38,412 48,265
Equipment 337,190 337,190
Automobiles 123,972 123,972
Leasehold improvements 3,269 3,269
- ---------------------------------------------------------------------
702,806 712,659
Less accumulated depreciation
and amortization 554,597 614,972
- ---------------------------------------------------------------------
$ 148,209 $ 97,687
=====================================================================
Note 5. Consulting Contract
The Company has entered into an agreement with Systems Development Group, Inc.
for accounting, contract support, and administration services on an "as needed"
basis. Billings for these services are based on cost plus 25%. During the years
ended December 31, 1996 and 1997, the Company paid $249,593 and $145,000,
respectively, to Systems Development Group, Inc. on these contracts. There were
no outstanding amounts due on these contracts at December 31, 1996 and 1997.
Note 6. Leasing Arrangements
The Company has entered into a lease commitment for office space.
The total minimum rental commitment under this lease as of December 31, 1997 is
outlined below:
Years ending December 31,
- -------------------------------------------------------------------------------
1998 $ 226,655
1999 57,079
- -------------------------------------------------------------------------------
$ 283,734
===============================================================================
Rent expense for the years ended December 31, 1996 and 1997 charged to
operations totaled $194,169 and $220,054, respectively.
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Retirement Plan
The Company maintains a qualified 401(k) and profit sharing plan for its
eligible employees. The Company can make discretionary contributions to this
plan of up to 15% of eligible compensation. At December 31, 1996 and 1997, the
Company charged to operations $37,930 and $157,467, respectively related to this
plan.
Note 8. Related Party Transactions
The Company loaned to the president of the Company, the sum of $2 million for
30 years at an interest rate of 7% in May 1993. Monthly principal and interest
payments amount to $13,306. During 1997, this note was forgiven by the Company
and the remaining principal of $1,896,298 is included as a distribution to the
shareholder.
The Company's distributions to the shareholder totaled $7,171,033 during 1997.
These distributions related to the transfer of investments from the Company's
portfolio of $4,909,793, premiums paid on behalf of the Owner for Officer's Life
Insurance of $364,942, and forgiveness of note of $1,896,298.
A bonus of $670,000 was paid to the shareholder during 1997.
Note 9. Major Customers
Substantially all of the Company's revenue for the years ended December 31, 1996
and 1997, and accounts receivable at December 31, 1996 and 1997 are derived
through contracts with the U.S. Government.
Note 10. Contingencies
The Company has cost reimbursable type contracts with the federal government.
Consequently, the Company is reimbursed based upon their direct expenses
attributable to the contracts, plus a percentage based upon overhead and general
and administrative expenses. The overhead and general and administrative rates
are estimates. Accordingly, if the actual rates as determined by the Defense
Contract Audit Agency are below the Company's estimates, a refund for the
difference would be due to the federal government. The Company does not
anticipate any significant adjustment.
The Company has undergone a contract audit performed by the Resolution Trust
Corporation (RTC). The preliminary findings by RTC indicate that they had
reimbursed the Company for unsubstantiated travel costs in the amount of
approximately $100,000. This amount has been set up as an allowance and included
on the balance sheets as a contract contingency. The Company is currently
contesting this finding.
<PAGE>
ADVANCED MANAGEMENT INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Contingencies (Continued)
On May 27, 1996, the Company's Martinsburg, West Virginia post office contract
was terminated for the convenience of the U.S. Postal Service. This decision by
the U.S. Postal Service resulted in a law suit being filed against the Company
by its displaced West Virginia employees. These former employees alleged that
the Company violated the U.S. Fair Labor Standards Act and the West Virginia
Wage Payment and Collection Act. The suit was settled on May 9, 1997 for the sum
of $1,270,000 of which the Company has accrued and charged $1,020,000 to
operations for the year ended December 31, 1996. The Company's insurance
carrier, Hartford, paid the difference of $250,000.
Four individuals filed a lawsuit against the Company for wrongful termination
and pregnancy discrimination. This suit was settled on June 9, 1997 for a total
of $68,000. This amount was charged to operations for the year ended December
31, 1996.
Note 11. Subsequent Events
Effective January 31, 1998, the Company was acquired by Advanced Communication
Systems, Inc.
The Company distributed approximately $6,200,000 of investments to the
shareholder subsequent to year end.
Exhibit 99(b)
ADVANCED COMMUNICATION SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Advanced Management Incorporated ("AMI"), as
described below.
Effective January 31, 1998, Advanced Communication Systems, Inc. ("ACS"),
acquired all of the outstanding common stock of AMI in exchange for $19.5
million in cash. The acquisition has been accounted for as a purchase, and
accordingly, the total purchase price has been allocated among the acquired
assets in accordance with the provisions of Accounting Principles Board Opinion
No. 16. The excess of the purchase price over the net fair market value of the
assets acquired is being classified as intangible assets, including goodwill and
customer relationship, which will be amortized over their useful lives ranging
from 16 to 40 years. Prior to this, the Company had acquired RF Microsystems,
Inc.("RFM") in August 1997 and Integrated Systems Control, Inc. ("ISC") in
November 1997.
The unaudited pro forma condensed consolidated balance sheet as of December 31,
1997, has been prepared to reflect the acquisition of AMI as if it had occurred
on December 31, 1997, by combining the consolidated balance sheet of ACS as of
December 31, 1997, with the balance sheet of AMI as of December 31, 1997. The
unaudited pro forma condensed consolidated statement of operations for the year
ended September 30, 1997, with appropriate adjustments, has been prepared by
combining the consolidated statement of operations of ACS for the period ended
September 30, 1997, with the historical results of operations of RFM for the
nine months ended June 30, 1997, the audited statement of income of ISC for the
twelve months ended September 30,1997, and with the statement of operations of
AMI for the twelve months ended December 31, 1997, to reflect the acquisitions
of AMI, ISC and RFM as if they had occurred at the beginning of the period
presented. The unaudited pro forma condensed consolidated statement of
operations for the six months ended March 31, 1998, with appropriate
adjustments, has been prepared by combining the consolidated statement of
operations of ACS for the six months ended March 31, 1998, with the historical
pre-acquisition results of operations of AMI for the four months beginning
October 1, 1997 through January 31, 1998, to reflect the acquisition of AMI as
if it had occurred at the beginning of the period presented.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the ACS's management and should be read in conjunction with the
historical financial statements of ACS and AMI and the related notes thereto.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the results of operations that may have actually
occurred had the acquisition occurred on the dates specified, or of the future
results of the combined companies. The pro forma adjustments are based upon
available information and certain adjustments that the management of ACS
believes are reasonable. In the opinion of ACS's management, all adjustments
have been made that are necessary to present fairly the unaudited pro forma
condensed consolidated financial statements.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ACS AMI Pro Forma Pro Forma
Historical Historical(1) Adjustments Combined
---------- ---------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 251 $ 813 $ -- $ 1,064
Contract receivables ....................... 22,713 5,016 -- 27,729
Other receivables .......................... 151 -- -- 151
Income taxes receivable .................... 309 -- -- 309
Inventories ................................ 614 -- -- 614
Prepaid expenses ........................... 349 182 -- 531
-------- -------- -------- --------
Total current assets .................... 24,387 6,011 -- 30,398
-------- -------- -------- --------
Property and equipment, net ................ 4,792 98 -- 4,890
Other assets:
Other related party receivables ............ 118 -- -- 118
Investments-available for sale ............. -- 6,175 (6,175) --
Software development costs, net ............ 1,155 -- -- 1,155
Goodwill, net .............................. 2,839 -- 15,194 (3) 18,033
Long-term deferred tax asset ............... 147 -- -- 147
Other assets ............................... 201 20 -- 221
-------- -------- -------- --------
Total other assets ...................... 4,460 6,195 9,019 19,674
-------- -------- -------- --------
Total assets ......................... $ 33,639 $ 12,304 $ 9,019 $ 54,962
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .......... $ 1,964 $ -- $ -- $ 1,964
Accounts payable ........................... 2,137 486 -- 2,623
Accrued expenses ........................... 7,827 837 400(4) 9,064
Billings in excess of revenue .............. 243 -- -- 243
Contract contingency allowance ............. -- 100 -- 100
-------- -------- -------- --------
Total current liabilities .............. 12,171 1,423 400 13,994
Long-term debt ............................. 2,512 -- 19,500(4) 22,012
Deferred income taxes ...................... 1,141 -- -- 1,141
-------- -------- -------- --------
Total liabilities ...................... 15,824 1,423 19,900 37,147
(6,175)(2)
Total stockholders' equity ................. 17,815 10,881 (4,706)(5) 17,815
-------- -------- -------- --------
Total liabilities and stockholders'
equity ................................ $ 33,639 $ 12,304 $ 9,019 $ 54,962
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997
(1) Information obtained from the December 31, 1997 audited balance sheet of
AMI.
(2) Reflects assets distributed to the stockholder of AMI prior to the
acquisition.
(3) Reflects intangible assets, including goodwill and customer relationship,
originating from the purchase of all of the outstanding stock of AMI and
represents the allocation of the excess purchase price using the purchase method
of accounting for the transaction after adjusting the assets acquired and the
liabilities assumed to their respective fair market values.
(4) Reflects the borrowings under a bank line of credit facility to fund the
acquisition and represents the cash consideration paid for AMI. In addition,
$400,000 of incremental costs, primarily investment banking, legal and
accounting fees, were incurred directly related to the acquisition and are shown
as a pro forma adjustment to accrued expenses and the purchase price.
(5) Eliminates the equity of AMI upon consolidation with ACS.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company (1) RFM (2) ISC (3) AMI(4) Adjustments (5) Combined
----------- ------- ------- ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $52,194 $4,614 $12,180 $23,165 (3,533) (6) $88,620
Direct Costs............................. 37,687 3,237 6,505 14,794 (1,898) (6) 60,325
Indirect, general and
administrative expenses................ 11,128 1,150 4,975 4,720 (521) (7) 21,452
Write-off of acquired
in-process R & D costs................. 1,910 - - - (1,910)(8) -
-------- -------- -------- -------- -------- --------
Income from operations................... 1,469 227 700 3,651 796 6,843
Interest expense......................... (136) - (218) (1) (1,692)(9) (2,047)
Other income, net........................ 153 - - 1,219 (1,219)(10) 153
-------- -------- -------- -------- -------- --------
Income before taxes...................... 1,486 227 482 4,869 (2,115) 4,949
Pro forma tax provision (benefit)........ 571 92 183 1,850 (813)(11) 1,883
-------- -------- -------- -------- -------- --------
Pro forma net income..................... $915 $135 $299 $3,019 ($1,302) $3,066
======== ======== ======== ======== ======== ========
Pro forma net income per share - basic... $0.20 $0.59
Pro forma net income per share - diluted. $0.19 $0.58
Pro forma weighted average shares
outstanding - basic.................... 4,682 475 (12) 5,157
Pro forma weighted average shares
outstanding - diluted.................. 4,767 475 (12) 5,242
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(1) Represents the historical results of operations of the Company.
(2) Represents the historical results of operations of RFM for the nine months
ended June 30, 1997.
(3) Represents the historical results of operations, derived from the audited
statement of income of ISC for the twelve months ended September 30, 1997.
(4) Represents the historical results of operations, derived from the audited
statement of income of AMI for the year ended December 31, 1997.
(5) Gives effect to the acquisition of AMI, ISC and RFM assuming such
transactions had occurred on October 1, 1996 and the exclusion of a one-time
charge reflecting the write-off of acquired in-process research and development
costs in connection with the acquisition of RFM totaling $1.9 million.
(6) Elimination of intercompany transactions between the Company and RFM and
ISC.
(7) Reflects (a) elimination of intercompany transactions between the Company
and RFM and ISC of $1,438,000, (b) increase in amortization of intangible
assets, principally goodwill, totaling $552,000 resulting from the acquisitions
of AMI, ISC and RFM and (c) an increase in indirect expenses totaling $365,000
relating to additional compensation of $65,000 payable pursuant to employment
contracts with key employees and corporate allocation of $300,000 of costs
previously billable under cost-plus contracts which are no longer billable under
time-and-materials contracts.
(8) Reflects the reversal of the write-off of acquired in-process research and
development costs.
(9) Represents the increase in interest expense due to the borrowings under the
credit facility used for the acquisition of AMI.
(10) Represents the elimination of interest and investment income relating to
assets distributed to the stockholder of AMI prior to the AMI acquisition.
(11) Represents the tax effect of the pro forma adjustments.
(12) Reflects the issuance of 475,000 shares of the Company's common stock in
exchange for all of the outstanding common stock of ISC.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company (1) AMI (2) Adjustments(3) Combined
----------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Revenues................................ $32,550 $8,085 $ - $40,635
Direct Costs............................ 20,990 4,970 - 25,960
Indirect, general and
administrative expenses............... 8,821 2,210 305 (4) 11,336
-------- -------- -------- --------
Income from operations.................. 2,739 905 (305) 3,339
Interest expense........................ (378) - (564)(5) (942)
Other income, net....................... 15 1,065 (1,065)(6) 15
-------- -------- -------- --------
Income before taxes..................... 2,376 1,970 (1,934) 2,412
Pro forma tax provision (benefit)....... 879 729 (716)(7) 892
-------- -------- -------- --------
Pro forma net income.................... $1,497 $1,241 ($1,218) $1,520
======== ======== ======== ========
Pro forma net income per share-basic.... $0.23 $0.24
Pro forma net income per share-diluted.. $0.23 $0.23
Pro forma weighted average shares
outstanding-basic..................... 6,438 6,438
Pro forma weighted average shares
outstanding-diluted.............. 6,558 6,558
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
<PAGE>
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(1) Represents the historical results of the operations of the Company.
(2) Represents the historical pre-acquisition results of operations of AMI for
the four month period beginning October 1, 1997, through January 31, 1998.
(3) Adjustments to reflect the Company's acquisitions as if they had occurred on
October 1, 1997.
(4) Includes the amortization of intangible assets ($181,000), principally
goodwill, resulting from the acquisition and reflects an increase in indirect
expenses relating to additional compensation ($22,000) payable pursuant to
employment contracts with key employees and corporate allocation ($102,000) of
costs, previously billable under cost-plus contracts, which are no longer
billable under time-and-material contracts.
(5) Represents the increase in interest expense due to the borrowings under the
credit facility used for the acquisition of AMI.
(6) Represents the elimination of interest and investment income relating to
assets distributed to the stockholder of AMI prior to the acquisition.
(7) Represents the tax effect of the pro forma adjustments.
