ADVANCED COMMUNICATION SYSTEMS INC, 424B1, 1998-05-22

ADVANCED COMMUNICATION SYSTEMS INC
424B1, 1998-05-22
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1
Filed Pursuant To Rule 424(b)(1)
Registration Statement #333-51025

2,525,000 SHARES

ADVANCED COMMUNICATION SYSTEMS, INC.

COMMON STOCK
------------------
Of the 2,525,000 shares of Common Stock (the "Common Stock") of Advanced
Communication Systems, Inc. ("ACS" or the "Company") offered hereby, 2,000,000
shares are being sold by the Company and 525,000 shares are being sold by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
receive no proceeds from the sale of shares by the Selling Stockholders.

The Common Stock is traded on the Nasdaq National Market under the symbol
"ACSC." On May 20, 1998, the last sale price of Common Stock as reported on the
Nasdaq National Market was $12.375 per share. See "Price Range of Common Stock."
------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $12.375 $0.74 $11.635 $11.635
- -------------------------------------------------------------------------------------------------------------------
Total (3)......................... $31,246,875 $1,868,500 $23,270,000 $6,108,375
===================================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting estimated offering expenses of $400,000, all of which will
be paid by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 378,750 additional shares of Common Stock on the same terms and
conditions set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $35,933,906, $2,148,775 and
$27,676,756, respectively. See "Underwriting."
------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them and subject to certain
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer or to reject any orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about May 27, 1998.

A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
SCOTT & STRINGFELLOW, INC.

THE DATE OF THIS PROSPECTUS IS MAY 20, 1998
<PAGE> 2

DESCRIPTION OF GRAPHIC

ABOUT THE COMPANY

<TABLE>
<S> <C>
COMMUNICATION SYSTEMS
The Company designs, develops, integrates
and implements complete communication
systems. The Company provides program and
[Picture of satellite dish] financial management support for large-scale
system procurement. Another capability
includes innovative business process
re-engineering.
INFORMATION TECHNOLOGY
The Company designs, installs and provides
support services for information management
and LAN/WAN systems. The Company is a
Microsoft Certified Solution Provider, [Drawing of information being transmitted
Banyan Vines Systems Integrator, Lotus from a ship at sea to shore via satellite]
Business Partner and Novell Authorized
Reseller. The Company also provides
multimedia training, Internet/intranet
solutions and database support.
SYSTEMS INTEGRATION
The Company provides COTS solutions for
customer-specific communication and
information system needs. Other capabilities
[Picture of fiber optic cable] include "one-stop shopping" for radio
equipment, satellite time, LAN/WAN
management and customer-specified
applications.
</TABLE>

PRODUCTS

The Company's products focus on networked, efficient standards-based
information exchange, using COTS computers and Company developed software.
ISALTS and INFORMATION 2000 compress, store and forward logistics and other
critical data by time-sharing radios or other information transfer media. BGIXS
uses COTS technology to permit PC-to-PC transfer of tactical data between a
headquarters host and supporting forces using satellite links. The
Company-developed information exchange systems allow the use of either
communication satellites or high frequency transmission for networked shared
media data exchange.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and the Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. Investors should
consider carefully the risk factors related to the purchase of the Common Stock
of the Company. See "Risk Factors." Unless otherwise indicated, the information
in this Prospectus assumes that the Underwriters' over-allotment option will not
be exercised. References herein to fiscal years are to the Company's fiscal year
which ends on September 30. Unless the context otherwise requires, the "Company"
refers to Advanced Communication Systems, Inc. and its subsidiaries. A glossary
of acronyms used in this Prospectus appears on page 52.

THE COMPANY

Advanced Communication Systems, Inc. provides communications and
information technology services and solutions, predominantly to U.S. government
agencies and to a lesser extent commercial and international customers. The
Company operates primarily in three interrelated areas: communication systems
design and support, information technology services ("IT Services") and systems
integration. The Company believes that, from its inception in 1987, it has been
a leader in U.S. Navy satellite communications. The Company's revenues have
increased each year since fiscal 1987 and grew at a compound annual rate of
43.2% during the last five fiscal years, substantially all through internal
growth, reaching $52.2 million for fiscal 1997. Additionally, for the six month
period ended March 31, 1998, the Company's revenues grew 54.0% over the
comparable prior six month period, increasing to $32.6 million. The Company's
total funded and unfunded backlog was $217.6 million as of March 31, 1998. See
"Business -- Backlog."

The Company's primary objective is to provide superior communications and
information technology services and solutions to its clients. Consistent with
this objective, the Company completed three significant strategic acquisitions
since its initial public offering in July 1997. In February 1998, the Company
acquired Advanced Management Incorporated ("AMI"), a provider of a wide range of
information technology services, including complex computer solutions and
management services, to a variety of government and commercial entities,
including clients outside the Company's traditional Department of Defense
("DOD") client base. In November 1997, the Company acquired Integrated Systems
Control, Inc. ("ISC"), a provider of technical and engineering services to the
DOD, primarily the U.S. Navy, in the areas of communications and information
technology. In August 1997, the Company acquired RF Microsystems, Inc. ("RFM"),
a provider of technical and engineering services to the DOD in the areas of
communications, navigation, electronic warfare and digital signal systems. The
Company believes that such acquisitions: (i) allow the Company to participate in
increasingly large and complex procurement programs; (ii) increase its
opportunities to cross-sell products and services to existing customers; (iii)
bring new strength to the Company's technical capabilities through the
cross-utilization of technology and engineering skills; and (iv) increase the
overall depth and experience of the Company's management. See
"Business -- Overview."

The three main areas of the Company's business summarized below are
communication systems, IT Services and systems integration. The Company believes
that the convergence of its unique strengths in communications and information
technologies has positioned the Company to address space and computer-based
communications markets as an end-to-end provider of total solutions.

- COMMUNICATION SYSTEMS. The Company designs, engineers, develops,
integrates, installs and operates satellite and computer-based
communication systems. It provides satellite communications
engineering and technical services and program and system support
primarily to program directorates and field activities of the U.S.
Navy. Recently, the Company has expanded its communication systems
business capabilities to provide a full range of systems engineering
procurement and support for the Command, Control, Communication,
Computer and Intelligence ("C4I") initiatives of the DOD. In addition,
the Company has expanded its staff to include experts in program and
financial management, and now provides support in these areas to its
communication systems customers. The Company believes this combination
of skills and capabilities is one of the factors that distinguishes it
from its competitors in the communications

3
<PAGE> 4

systems business. The Company's communications systems business
represented 63.8% of revenues for the six month period ended March 31,
1998.

- IT SERVICES. The Company provides a full range of services and
support in the areas of information management technology, information
processing, network design and operations, database design and
management, Internet and intranet services and multimedia training
services. It provides these services to a wide range of customers,
including the DOD, other federal agencies and commercial enterprises.
The advanced technical capabilities gained by the Company while
performing services for government customers have provided the Company
with expertise in the information technology area, which the Company
is leveraging to develop its commercial business. The Company's IT
Services business represented 25.2% of revenues for the six month
period ended March 31, 1998.

- SYSTEMS INTEGRATION. The Company provides systems integration
services for communication systems and, to a lesser extent, acts as a
value-added reseller of computer hardware and software to both
government and commercial customers. The Company's strategy in this
business area is to concentrate on providing total communication
systems integration solutions. Most of this communication systems
integration business is performed under its contracts (the "GSA
Schedule Contracts") with the General Services Administration ("GSA"),
which permit the Company to sell approved products to U.S. government
agencies and contractors without further competitive bidding. The
Company's systems integration business represented 11.0% of revenues
for the six month period ended March 31, 1998.

Growth in the Company's business is being driven in part by the increasing
trend in government and commercial organizations to focus on their core
competencies and to outsource non-core functions such as information technology.
In addition, the U.S. military is placing greater emphasis on increasing
productivity while using fewer resources by employing systems that act as "force
multipliers." Solutions and technologies such as those offered by the Company
permit the use of fewer personnel and assets and result in more effective
performance at lower levels of spending. Federal Sources, Inc., an independent
market research firm specializing in the U.S. federal market, estimates that the
U.S. government has budgeted $28 billion in its fiscal year 1998 for information
technology services and products, including approximately $10 billion budgeted
by the DOD. The Company believes that the commercial information technology
market is significantly larger than the government market.

The Company believes it has established a reputation in the industry for
delivering creative solutions to complex problems through the use of highly
skilled personnel and the most current technology. The Company has managed large
and complex federal contracts and believes this capability positions it to
capitalize on the expected future growth in outsourcing, both in the United
States and internationally. To do so, the Company plans to continue to employ
the following strategies: (i) maintain leadership in the military satellite
communications industry; (ii) expand existing services and customer base; (iii)
expand through additional strategic acquisitions and the use of teaming
relationships; and (iv) develop additional international and commercial
business.

Advanced Communication Systems, Inc. is a Delaware corporation incorporated
in 1987. Its principal executive offices are located at 10089 Lee Highway,
Fairfax, Virginia 22030, and its telephone number is (703) 934-8130.

4
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................... 2,000,000 shares
Common Stock offered by the Selling Stockholders...... 525,000 shares
Common Stock to be outstanding after the offering (1). 8,579,000 shares
Use of Proceeds....................................... The net proceeds of this offering will
be used to repay existing bank debt and
for general corporate purposes,
including potential acquisitions. See
"Use of Proceeds."
Nasdaq National Market symbol......................... "ACSC"
</TABLE>

- ---------------
(1) Based on shares outstanding as of April 15, 1998. Includes 25,000 shares
which will be issued upon exercise of an option by one of the Selling
Stockholders and sold in this offering. Does not include an aggregate of
738,500 shares of Common Stock reserved for issuance by the Company upon the
exercise of stock options as of April 15, 1998, of which options to purchase
99,700 shares will be exercisable at the closing of this offering at a
weighted average exercise price of $6.34. See "Management -- Stock Plans and
Agreements" and Note 12 of Notes to the Company's Consolidated Financial
Statements.

5
<PAGE> 6

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------------------ -----------------------------
PRO FORMA PRO FORMA
COMBINED COMBINED
1993 1994 1995 1996 1997 (1) 1997 (2) 1997 1998 1998 (3)
------- ------- ------- ------- -------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $12,223 $19,106 $23,724 $31,665 $52,194 $88,620 $21,130 $32,550 $40,635
Direct costs............ 7,050 11,418 14,815 19,307 37,687 60,325 14,746 20,990 25,960
Indirect, general and
administrative
expenses.............. 4,612 7,177 8,202 10,253 11,128 21,452 5,025 8,821 11,336
Write-off of acquired
in-process R & D
costs................. -- -- -- -- 1,910 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations............ 561 511 707 2,105 1,469 6,843 1,359 2,739 3,339
Interest expense........ (92) (125) (185) (257) (136) (2,047) (134) (378) (942)
Other income, net....... 14 52 52 57 153 153 44 15 15
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes..... 483 438 574 1,905 1,486 4,949 1,269 2,376 2,412
Pro forma income taxes (4) 193 175 229 743 571 1,883 495 879 892
------- ------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income (4) $ 290 $ 263 $ 345 $ 1,162 $ 915 $ 3,066 $ 774 $ 1,497 $ 1,520
======= ======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income per
share -- basic (4).... $ 0.28 $ 0.20 $ 0.59 $ 0.18 $ 0.23 $ 0.24
Pro forma net income per
share -- diluted (4) $ 0.27 $ 0.19 $ 0.58 $ 0.18 $ 0.23 $ 0.23
Pro forma weighted
average shares
outstanding --
basic (5)............. 4,212 4,682 5,157 4,246 6,438 6,438
Pro forma weighted
average shares
outstanding -- diluted
(5)................... 4,361 4,767 5,242 4,346 6,558 6,558
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (6)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $18,136 $18,220
Total assets................................................ 56,788 56,788
Total debt.................................................. 24,930 1,902
Stockholders' equity........................................ 18,955 41,983
</TABLE>

- ---------------
(1) Includes a one-time, non-cash charge reflecting the write-off of acquired
in-process research and development costs in connection with the acquisition
of RFM totaling $1.9 million. Excluding such charge, the Company's income
from operations, pro forma net income and pro forma net income per
share -- diluted would have been $3.4 million, $2.1 million and $0.44,
respectively, for the year ended September 30, 1997.
(2) Gives effect to the acquisition of AMI, ISC and RFM assuming such
transactions had occurred on October 1, 1996 and the exclusion of the
acquired in-process research and development costs of $1.9 million. See
"Unaudited Pro Forma Condensed Consolidated Statements of Operations."
(3) Gives effect to the acquisition of AMI assuming such transaction had
occurred on October 1, 1997. See "Unaudited Pro Forma Condensed Consolidated
Statements of Operations."
(4) 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 six month period ended
March 31, 1998 are based on actual results.
(5) See Note 2 of the Notes to the Company's Consolidated Financial Statements.
Amounts for the six month period ended March 31, 1998 are based on actual
weighted average shares outstanding.
(6) Gives effect to the sale of the 2,000,000 shares of Common Stock offered by
the Company hereby, after deducting the underwriting discount and estimated
offering expenses, and the application of the net proceeds therefrom. See
"Use of Proceeds."

6
<PAGE> 7

RISK FACTORS

Prospective investors should carefully consider the following risk factors
relating to the Company and the Common Stock, in addition to the other
information contained in this Prospectus. Certain statements contained in this
Prospectus that are not related to historical results are forward-looking
statements. Actual results may differ materially from those projected or implied
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the following risk factors.

CONCENTRATION OF REVENUES

For fiscal 1995, 1996 and 1997 and the six months ended March 31, 1998,
approximately 99%, 90%, 92% and 91%, respectively, of the Company's revenues
were derived from contracts or subcontracts funded by the U.S. government,
virtually all of which were funded by the DOD. The Company expects that U.S.
government contracts are likely to continue to account for a significant portion
of its revenues in the future. Accordingly, the Company's financial performance
may be adversely affected by changing U.S. government procurement practices and
policies and declines in U.S. defense spending. Among the factors that could
have a material adverse effect upon the Company's ability to win new contracts
with the U.S. government, or retain existing contracts, are budgetary
constraints, changes in government funding levels, programs, policies or
requirements, technological developments, the adoption of new laws or
regulations and general economic conditions. In addition, certain of the
Company's contracts individually contribute a significant percentage of its
revenues. The Company's two largest contracts, both with the U.S. Navy,
generated approximately 46% of its revenues for fiscal 1997 and approximately
29% of its revenues for the six month period ended March 31, 1998, including one
contract that generated approximately 32% of its revenues for fiscal 1997 and
approximately 18% of its revenues for the six month period ended March 31, 1998.
Although the Company is currently focusing on expanding its customer base to
increase its non-military and non-government sales, a relatively small number of
large U.S. government contracts are likely to continue to account for a
significant percentage of the Company's revenues in the future. Termination of
these contracts or the Company's inability to renew or replace them when they
expire could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Contracts."

GOVERNMENT CONTRACTING RISKS

Government contracts, including the Company's GSA Schedule Contracts, by
their terms, generally can be terminated at any time by the government without
cause. If a government contract is so terminated, the Company generally would be
entitled to receive compensation for the services provided or costs incurred up
to the time of termination and a negotiated amount of the profit on the contract
to the date of termination. Termination of any of its large government contracts
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Government contracts require compliance with various contract provisions
and procurement regulations. The adoption of new or modified procurement
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations or increase its costs of competing
for or performing government contracts. Any violation of these regulations could
result in the termination of the contracts, imposition of fines and/or debarment
from award of additional government contracts. Most government contracts are
subject to modification or termination for the convenience of the government in
the event of changes in funding, and the Company's contract costs and revenues
are subject to adjustment as a result of audits by the Defense Contract Audit
Agency (the "DCAA") and other government auditors. The award of government
contracts also is subject to protest by competitors which can result in the
re-opening of the bidding process, unanticipated legal costs or the award of a
contract to a competitor.

Government contracts generally are awarded to the Company through a formal
competitive bidding process in which the Company has many competitors. Upon
expiration, government contracts may be subject to a competitive rebidding
process. There can be no assurance that the Company will be successful in
winning contract awards or renewals in the future. The Company's failure to
renew or replace such contracts when they expire could have a material adverse
effect on its business, financial condition and results of operations.

7
<PAGE> 8

A significant portion of the Company's revenues in fiscal 1997
(approximately 22%) and in the six months ended March 31, 1998 (approximately
13%) were generated through small business set-aside programs. The Company no
longer is eligible to participate in some of these programs and, as its revenues
and size expand, it will lose its eligibility to participate in more of these
programs. There can be no assurance that the Company will be able to replace
revenues from these contracts.

The Company also derives significant revenues from sales under the GSA
Schedule Contracts. For fiscal 1997 and the six months ended March 31, 1998,
approximately 26% and 16%, respectively, of the Company's revenues were derived
from the GSA Schedule Contracts. The government has no obligation to purchase
any significant amount of goods or services under the contracts and there can be
no assurance as to the actual level of sales that will be derived from the
contracts. The GSA Schedule Contracts are fixed price contracts, which impose
greater financial risk on the Company than cost reimbursement or time and
materials contracts. Failure to anticipate technical problems, estimate costs
accurately or control costs during performance of a fixed price contract may
reduce the Company's profit or cause a loss. In addition, the GSA Schedule
Contracts are renewable every five years by the government. The Company's
current GSA Schedule Contracts expire in March 1999. There can be no assurance
that the GSA Schedule Contracts will be renewed, and the Company's inability to
renew or replace the GSA Schedule Contracts could have a material adverse effect
on its business, financial condition and results of operations. See
"Business -- Government Contracts."

VARIABILITY OF QUARTERLY OPERATING RESULTS AND SEASONALITY

The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects, expenditures
required by the Company, delays, employee utilization rates, adequacy of
provisions for losses, accuracy of estimates of resources required to complete
ongoing projects and general economic conditions. Demand for the Company's
products and services in each of the markets it serves can vary significantly
from quarter to quarter due to revisions in customer budgets or schedules and
other factors beyond the Company's control. In addition, the Company's sales
tend to be seasonal, with the Company's fourth quarter generally accounting for
the greatest proportion of revenues each year, based to a large extent on the
uneven government purchasing patterns. Due to all of the foregoing factors, it
is possible that in some future period the Company's results of operations will
fall below the expectations of securities analysts and investors. In this event,
the market price of the Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations."

RISKS ASSOCIATED WITH ACQUISITION STRATEGY

A part of the Company's business strategy calls for growth through
acquisitions. Consistent with such strategy, the Company made three significant
strategic acquisitions since its public offering in July 1997, including the
acquisition of AMI in February 1998. The successful integration of the Company
and AMI, ISC and RFM is important to the future financial performance of the
Company. There can be no assurance that the anticipated benefits from such
acquisitions will be realized, that the Company will operate the acquired
businesses profitably in the future or that the Company will be able to
integrate the operations, products or personnel gained through any such
acquisitions without a material adverse effect on the business, financial
condition and results of operations of the Company. Accordingly, operating
expenses associated with acquired businesses may have a material adverse effect
on the business, financial condition and results of operations of the Company.
In addition, identifying and pursuing future acquisition opportunities will
require a significant amount of management time and skill. There can be no
assurance that the Company will be able to identify suitable acquisition
candidates, consummate any acquisition on acceptable terms or successfully
integrate acquired business operations. Future acquisitions could result in the
issuance of additional shares of capital stock or the incurrence of additional
indebtedness, could entail the payment of consideration in excess of book value
and could have a dilutive effect on the Company's net income per share. Many
business acquisitions must be accounted for under the purchase method of
accounting. Consequently, such acquisitions may generate significant goodwill or
other intangible assets. Acquisition of these businesses would typically result
in substantial amortization charges to the Company. Acquisitions could also
involve significant charges reflecting

8
<PAGE> 9

write-offs of acquired in-process research and development. As a result of
acquisitions, the Company wrote off $1.9 million of in-process research and
development in fiscal 1997 and on a pro forma basis would have recorded
amortization expenses of $552,000 for acquisition-related intangible assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Business Strategy."

MANAGEMENT OF GROWTH

The Company's revenues have increased over the past five fiscal years at a
compound annual rate of 43.2%. Continued growth could place a significant strain
on the Company's limited personnel, management, financial controls and other
resources. The Company's ability to manage any future expansion effectively will
require it to attract, retain, train, motivate and manage new employees
successfully, to integrate new management and employees into its overall
operations and to continue to improve its operational, financial and management
systems and controls and facilities. The Company's failure to manage any
expansion effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.

BACKLOG NOT INDICATIVE OF REVENUES

Many of the Company's contracts are multi-year contracts and contracts with
option years, and portions of these contracts are carried forward from one year
to the next as part of the Company's contract backlog. The estimated backlog
under a government contract is not necessarily indicative of revenues that will
actually be realized under that contract. Congress normally appropriates funds
for a given program on a fiscal year basis, even though actual contract
performance may take many years. As a result, contracts ordinarily are only
partially funded at the time of award, and additional monies are normally
committed to the contract by the procuring agency as appropriations are made by
Congress in subsequent fiscal years. There can be no assurance that Congress
will appropriate funds or that procuring agencies will commit funds to the
Company's contracts for their anticipated terms. In addition, most of the
Company's government contracts have a base term of one year and a number of
option years. There can be no assurance that the government will extend a
contract through its option years. Many of the Company's large contracts require
that the Company supply services upon request, and the Company receives no
payments under these contracts until such services are requested and performed.
There can be no assurance that cancellations or scope adjustments of these
contracts might not occur or that the Company's services under these contracts
will be requested at the anticipated levels in the future. See
"Business -- Government Contracts" and "Business -- Backlog."

NEED TO ATTRACT AND RETAIN PROFESSIONAL STAFF

The Company's success will depend in part upon its ability to attract,
retain, train and motivate highly skilled employees, particularly in the area of
information technology. There is significant competition for employees with the
communication and information technology skills required to perform the services
the Company offers. In addition, the Company must often comply with provisions
in government contracts which require employment of persons with specified
levels of education, work experience and security clearances. There can be no
assurance that the Company will be successful in attracting a sufficient number
of highly skilled employees in the future. Only five of the Company's key
personnel are subject to noncompetition agreements. The loss of its key
technical personnel or its inability in the future to attract key employees or
to relocate them as required by customers could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Employees."

COMPETITION

The Company experiences significant competition in all of the areas in
which it does business. In general, the markets in which it competes are not
dominated by a single company or a small number of companies; instead, a large
number of companies offer services that overlap and are competitive with those
offered by the Company. Many of its competitors are significantly larger and
have greater financial resources than the Company, and some of these competitors
are divisions or subsidiaries of large, diversified companies that have

9
<PAGE> 10

access to the financial resources of their parent companies. There can be no
assurance that the Company will be able to compete successfully. See
"Business -- Competition."

RISKS ASSOCIATED WITH ENTRY INTO COMMERCIAL BUSINESS

The Company is pursuing a strategy to increase the sales of its services in
the commercial market, although the Company and its management have limited
experience in this market. To date, the Company's sales to customers other than
the U.S. government have been made almost exclusively to military agencies of
other countries and to a lesser extent civilian buyers. Commercial contracts
accounted for 3.8% of the Company's revenues for fiscal 1997 and 6.6% for the
six months ended March 31, 1998. There can be no assurance that the Company will
be able to compete successfully in the civilian markets or continue to make
sales to defense agencies outside the United States.

Most of the Company's existing commercial contracts are fixed price
contracts, and the Company expects this will continue to be true with respect to
new commercial contracts. The Company may fail to anticipate technical problems,
estimate costs accurately or control costs during performance of a fixed price
contract, any of which may reduce the Company's profit or cause a loss under
such contracts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview," "Business -- Business Strategy" and
"Business -- Government Contracts."

INTERNATIONAL EXPANSION

As part of its growth strategy, the Company is seeking opportunities to
expand into international markets. To date, the Company has limited experience
in marketing and distributing its products internationally. International
business accounted for 3.7% of the Company's revenues for fiscal 1997 and 1.5%
for the six months ended March 31, 1998. In marketing its products and services
internationally, the Company will face new competitors, some of which may have
established a strong presence in those markets. In addition, the ability of the
Company to market its products in foreign countries will be dependent on the
Company's ability to adapt its products to operate in foreign languages and to
provide the functionality desired by customers in those countries. There can be
no assurance that the Company will be successful in so adapting its products. In
addition to the uncertainty as to the Company's ability to establish an
international presence, there are certain difficulties and risks inherent in
doing business on an international level, such as compliance with regulatory
requirements and changes in these requirements, export restrictions, tariffs and
other trade barriers, limited protection of intellectual property rights,
difficulties in staffing and managing international operations, longer payment
cycles, problems in collecting accounts receivable, political instability,
fluctuations in currency exchange rates and potentially adverse tax
consequences. There can be no assurance that one or more of these factors will
not have a material adverse effect on any international operations established
by the Company, and consequently, on the Company's business, financial condition
and results of operations. See "Business -- Business Strategy."

TECHNOLOGICAL CHANGES

The Company operates principally in the communications and information
technology services industry, which changes rapidly and is highly competitive.
Even if the Company remains abreast of the latest developments and available
technology, technological advances and/or the introduction of new products and
services in the communications and information technology services industry
could adversely affect the Company. There are many large and successful
companies in the communications and information technology services industry,
many of which have greater resources than the Company. The Company's future
success will depend significantly on its ability to develop and deliver
technologically advanced quality products and services. The cost of developing
such products and services could adversely affect the Company's future results
of operations.

10
<PAGE> 11

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant degree on its key management
personnel, especially George A. Robinson, Charles G. Martinache, Thomas A.
Costello and Dev Ganesan. The loss of any one of these individuals could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not have employment agreements with any
of these individuals, except for Mr. Ganesan. See "Management -- Employment
Agreement." The Company does not maintain key man life insurance policies on any
members of management.

PROPRIETARY INFORMATION

Much of the Company's business is derived from work product, software
programs, methodologies and other information in which it has a proprietary
interest. Although the Company seeks to protect this data with trademarks,
copyrights and confidentiality agreements, there can be no assurance that these
measures will prevent the unauthorized disclosure or use of the Company's
technical knowledge, practices or procedures, or that others may not
independently develop similar knowledge, practices or procedures. In addition,
the government may acquire certain proprietary rights to software programs and
other products that result from the Company's services under government
contracts or subcontracts and may disclose such information to third parties,
including competitors of the Company. Disclosure or loss of control over its
proprietary information could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation would be costly and divert management's
attention, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Adverse determinations
in such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from selling its services,
any one of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS; ANTI-TAKEOVER PROVISIONS

Upon the completion of this offering, the founders and principal officers
of the Company, Messrs. George A. Robinson, Charles G. Martinache and Thomas A.
Costello, will beneficially own approximately 27.7% of the outstanding shares of
Common Stock. Consequently, Messrs. Robinson, Martinache and Costello, if they
act together, will be able to exert significant influence over corporate matters
requiring stockholder approval, including the election of directors. See
"Principal and Selling Stockholders."

The directors of the Company are authorized to issue, without stockholder
approval, up to 1,000,000 shares of Preferred Stock. Such Preferred Stock may
have rights senior to the Common Stock. This Preferred Stock may have the effect
of delaying or preventing a change in control, may decrease the amount of
earnings and assets available for distribution to the holders of the Common
Stock or may adversely affect the rights and powers, including voting rights, of
the holders of the Common Stock. In certain circumstances, such issuance could
have the effect of decreasing the market price of the Common Stock. Further,
certain provisions of Delaware law, including Section 203 of the Delaware
General Corporation Law ("DGCL"), could delay or make more difficult a merger,
tender offer or proxy contest involving the Company. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Certain
Provisions of Delaware Law."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Upon the closing of this offering, the Company will have 8,579,000 shares
of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option or options outstanding under the Company's stock option
plans). The 2,525,000 shares of Common Stock sold in this offering as well as
the 2,875,000 shares sold in the Company's initial public offering will be
freely tradable without restriction or limitation under the Securities Act of
1933, except for shares purchased by "affiliates" (as is defined in

11
<PAGE> 12

Rule 144 under the Securities Act of 1933). All of the remaining 3,179,000
shares of Common Stock may be sold in the public market, subject in some cases
to the volume and other limitations of Rule 144 promulgated under the Securities
Act of 1933. The Company, together with certain of its stockholders (who will
hold in the aggregate 2,824,700 shares after the closing of the offering), have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this Prospectus, subject to certain exceptions,
without the prior written consent of A.G. Edwards & Sons, Inc. The restriction
on the Company is subject to exceptions for the issuance of shares pursuant to
the Company's existing stock plans and as payment for acquisitions by the
Company. The Company has filed registration statements on Form S-8 registering
an aggregate of 1,038,500 shares of Common Stock subject to outstanding stock
options and Common Stock issuable pursuant to the Company's stock option plans
and employee stock purchase plan. If not otherwise subject to a lock-up
agreement, shares purchased pursuant to these plans generally would be available
for resale in the public market. At closing the Company will have outstanding
options to purchase an aggregate of 343,550 shares of Common Stock, 99,700 of
which will be exercisable at the closing of this offering. In connection with
the acquisition of ISC, the Company granted certain registration rights with
respect to the registration of 475,000 shares of Common Stock under the
Securities Act of 1933. See "Description of Capital Stock -- Registration
Rights." Sales of substantial amounts of Common Stock in the public markets,
pursuant to Rule 144 or otherwise, or the availability of such shares for sale,
could adversely affect the prevailing market prices for the Common Stock and
impair the Company's ability to raise additional capital through the sale of
equity securities in the future. See "Management -- Stock Plans and Agreements"
and "Shares Eligible for Future Sale."

VOLATILITY OF STOCK PRICE

There has historically been significant volatility in the market price of
securities of technology companies. In addition, the stock market in recent
years has experienced significant price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of particular
companies. Many factors that have influenced trading prices, such as actual or
anticipated operating results, growth rates, changes in estimates by analysts,
market conditions in the industry, announcements by competitors, regulatory
actions and general economic conditions, will vary from period to period. As a
result of the foregoing, the Company's operating results from time to time may
be below the expectations of securities analysts and investors. Any such event
would likely result in a material adverse effect on the market price of the
Common Stock.

PAYMENT OF DIVIDENDS

The Company does not anticipate declaring or paying cash dividends in the
foreseeable future. In addition, the Company's existing credit facility contains
provisions which prohibit the payment of dividends. See "Dividend Policy."

YEAR 2000 COMPLIANCE COSTS

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. To distinguish 21st
century dates from 20th century dates, these date code fields must be able to
accept four digit entries. The Company has evaluated its information technology
infrastructure for Year 2000 compliance. The Company does not expect that the
cost to modify its information technology infrastructure to be Year 2000
compliant will be material to its financial condition or results of operations.
The Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance. No assurance can be
given, however, that unanticipated or undiscovered Year 2000 compliance problems
will not have a material adverse effect on the Company's financial condition,
results of operations and business. In addition, the Company has limited
information concerning the compliance status of its customers or suppliers. In
the event that any of the Company's significant customers or suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's financial
condition, results of operations and business could be materially adversely
affected.

12
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by it will be approximately $22.9 million ($27.3
million if the over-allotment option granted to the Underwriters is exercised in
full) after deducting the underwriting discount and estimated expenses to be
paid by the Company. The Company will not receive any of the proceeds from the
sale of the 525,000 shares of Common Stock offered by the Selling Stockholders.

The Company intends to use the net proceeds of the offering to repay
outstanding amounts on its line of credit. The Company's outstanding principal
line of credit consists of two separate facilities, permitting the Company to
borrow up to an aggregate of $35 million. The first facility 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 financial performance. The second facility
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. Borrowings
under the bank line of credit to date have been used to finance the acquisition
of AMI and for working capital needs. As of March 31, 1998, the outstanding
balance on the line of credit was approximately $23.3 million and the weighted
average interest rate for the six month period ended March 31, 1998 was
approximately 8.2%.

Any remaining net proceeds received by the Company from the offering will
be used for working capital and general corporate purposes, including possible
acquisitions of complementary businesses. The Company does not currently have
any agreements or commitments with respect to any potential acquisitions, nor
are any negotiations regarding any acquisitions ongoing. Pending such uses, the
Company intends to invest the net proceeds from the offering in investment
grade, interest-bearing instruments.

DIVIDEND POLICY

The Company does not anticipate declaring or paying cash dividends in the
foreseeable future. In addition, the Company's existing credit facilities
prohibit the payment of dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 10 of Notes to the Company's Consolidated Financial
Statements.

13
<PAGE> 14

PRICE RANGE OF COMMON STOCK

Prior to the quotation of the Common Stock on the Nasdaq National Market
beginning on June 27, 1997, there was no established trading market for the
Common Stock. The following table sets forth the high and low sale prices of the
Common Stock as reported by the Nasdaq National Market, where the Common Stock
trades under the Symbol "ACSC."

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1997
Third Quarter (from June 27, 1997)................... $ 8.250 $ 7.500
Fourth Quarter....................................... 13.000 7.500
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter........................................ $12.750 $ 8.000
Second Quarter....................................... 12.000 8.000
Third Quarter (through May 20, 1998)................. 14.938 11.500
</TABLE>

On May 20, 1998, the closing price of the Company's Common Stock was
$12.375 per share. As of April 17, 1998, there were approximately 54 holders of
record of Common Stock. The Company believes that there are over 3,000
beneficial owners of Common Stock.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1998 on an actual and as adjusted basis. This table should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (1)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Total debt.................................................. $24,930 $ 1,902
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, 9,450,000 shares issued, actual (2),
11,475,000 shares issued, as adjusted................. 95 115
Paid-in capital........................................ 17,692 40,700
Retained earnings...................................... 1,205 1,205
Less cost of 2,901,625 shares of treasury stock........ (37) (37)
------- -------
Total stockholders' equity........................... 18,955 41,983
------- -------
Total capitalization.............................. $43,885 $43,885
======= =======
</TABLE>

- ---------------
(1) Gives effect to the sale of the 2,000,000 shares of Common Stock offered by
the Company hereby, after deducting the underwriting discount and estimated
offering expenses, and the application of the net proceeds therefrom. See
"Use of Proceeds."
(2) Includes 25,000 shares which will be issued upon the exercise of an option
by one of the Selling Stockholders and sold in this offering. Does not
include an aggregate of 738,500 shares of Common Stock reserved for issuance
by the Company upon the exercise of stock options as of April 15, 1998, of
which options to purchase 99,700 shares will be exercisable at a weighted
average exercise price of $6.34. See "Management -- Stock Plans and
Agreements" and Note 12 of Notes to the Company's Consolidated Financial
Statements.

14
<PAGE> 15

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The following unaudited pro forma condensed consolidated statement of
operations have been prepared by the Company's management and should be read in
conjunction with the historical financial statements of the Company, AMI and ISC
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 acquisitions 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 the Company believes are reasonable. In the opinion of
the Company's management, all adjustments have been made that are necessary to
present fairly the unaudited pro forma condensed consolidated financial
statements.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------------
PRO FORMA PRO FORMA
COMPANY (1) RFM (2) ISC (3) AMI (4) ADJUSTMENTS (5) COMBINED
----------- ------- ------- ------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>

- ---------------
(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
included herein.
(4) Represents the historical results of operations, derived from the audited
statement of income of AMI for the year ended December 31, 1997 included
herein.
(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, non-cash charge reflecting the write-off of acquired in-process
research and development costs in connection with the acquisition of RFM
totalling $1.9 million.
(6) Elimination of intercompany transactions between the Company and RFM and
ISC.
(7) Reflects (i) elimination of intercompany transactions between the Company
and RFM and ISC of $1,438,000, (ii) increase in amortization of intangible
assets totalling $552,000, principally goodwill, resulting from the
acquisitions of AMI, ISC and RFM and (iii) an increase in indirect expenses
totalling $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-material 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.

15
<PAGE> 16

(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.

<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1998
----------------------------------------------------
PRO FORMA PRO FORMA
COMPANY(1) AMI(2) ADJUSTMENTS(3) COMBINED
---------- ------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>

- ---------------
(1) Represents the historical results of 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 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 of
AMI.
(7) Represents the tax effect of the pro forma adjustments.

16
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere herein. The Statement of Operations Data set forth
below with respect to fiscal 1995, 1996 and 1997 and the Balance Sheet Data as
of September 30, 1996 and 1997 are derived from, and are qualified by reference
to, the financial statements of the Company audited by Arthur Andersen LLP
included elsewhere in this Prospectus. The Statement of Operations Data set
forth below with respect to fiscal 1994 are derived from audited financial
statements of the Company not included in the Prospectus. The Statement of
Operations Data set forth below with respect to fiscal 1993 and the Balance
Sheet Data as of September 30, 1993 and 1994 are derived from reviewed financial
statements of the Company not included in the Prospectus. The unaudited
Statement of Operations Data for the six months ended March 31, 1997 and 1998
and the Balance Sheet Data as of March 31, 1998 are derived from the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus, which, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997(1) 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $12,223 $19,106 $23,724 $31,665 $52,194 $21,130 $32,550
Direct costs............................. 7,050 11,418 14,815 19,307 37,687 14,746 20,990
Indirect, general and administrative
expenses............................... 4,612 7,177 8,202 10,253 11,128 5,025 8,821
Write-off of acquired in-process R&D
costs.................................. -- -- -- -- 1,910 -- --
------- ------- ------- ------- ------- ------- -------
Income from operations................... 561 511 707 2,105 1,469 1,359 2,739
Interest expense......................... (92) (125) (185) (257) (136) (134) (378)
Other income, net........................ 14 52 52 57 153 44 15
------- ------- ------- ------- ------- ------- -------
Income before taxes...................... 483 438 574 1,905 1,486 1,269 2,376
Pro forma income taxes (2)............... 193 175 229 743 571 495 879
------- ------- ------- ------- ------- ------- -------
Pro forma net income (2)............. $ 290 $ 263 $ 345 $ 1,162 $ 915 $ 774 $ 1,497
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share-basic..... $ 0.28 $ 0.20 $ 0.18 $ 0.23
Pro forma net income per share-diluted... $ 0.27 $ 0.19 $ 0.18 $ 0.23
Pro forma weighted average shares
outstanding -- basic (3)............... 4,212 4,682 4,246 6,438
Pro forma weighted average shares
outstanding -- diluted (3)............. 4,361 4,767 4,346 6,558
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31, 1998
-------------------------------------------- ------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(4)
------ ------ ------ ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)

<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $2,231 $2,616 $2,716 $ 5,387 $ 9,526 $18,136 $18,220
Total assets............................ 4,454 6,798 6,987 13,117 26,212 56,788 56,788
Total debt.............................. 1,359 2,031 1,821 2,688 -- 24,930 1,902
Stockholders' equity.................... 1,626 2,006 2,497 4,375 13,828 18,955 41,983
</TABLE>

17
<PAGE> 18

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 this Prospectus. 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.

OVERVIEW

The Company's primary objective is to provide superior communications and
information technology services and solutions to its clients. Consistent with
this objective, the Company completed three significant acquisitions since its
initial public offering in July 1997. The Company acquired AMI in February 1998,
ISC in November 1997 and RFM in August 1997. Since the respective dates of the
acquisitions, the Company has integrated these acquired entities in order to
draw on the Company's base of technical expertise and capabilities in designing
solutions for government and commercial clients. The Company believes that such
acquisitions: (i) allow the Company to participate in increasingly large and
complex procurement programs; (ii) increase its opportunities to cross-sell
products and services to existing customers; (iii) bring new strength to the
Company's technical capabilities through the cross-utilization of technology and
engineering skills; and (iv) increase the overall depth and experience of the
Company's management. See "Risk Factors -- Risks Associated with Acquisition
Strategy" and "Business -- Overview."

Prior to fiscal 1994, virtually all of the Company's revenues were derived
from contracts with the U.S. Navy for systems engineering, design, integration,
services and support for satellite communications. Beginning in fiscal 1994, the
Company began to develop applications for its technical capabilities outside its
traditional U.S. Navy business. For example, the Company's GSA Schedule
Contracts have fueled significant growth in the systems integration area as the
U.S. government's trend toward using readily available software and hardware
expands the need for systems integration services, such as those offered by the
Company.

The Company's backlog, including both funded and unfunded backlog, was
$217.6 million at March 31, 1998. Two five-year U.S. Navy contracts awarded in
fiscal 1996 involve services estimated at approximately $136 million and were
the main contributors to the increase in backlog from 1995 to 1996. The
Company's acquisitions of AMI, ISC and RFM were primarily responsible for the
increase in backlog from 1997 to 1998. Many of the Company's contracts are
funded from year to year, based primarily on the procuring company's or agency's
fiscal requirements. The estimated backlog under a government contract is not
necessarily indicative of revenues that will actually be realized under that
contract. See "Risk Factors -- Backlog Not Indicative of Revenues" and
"Business -- Backlog."

18
<PAGE> 19

Revenues, by dollar and percentage, from the Company's three interrelated
business areas and three major types of customers are given below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SERVICES PROVIDED
Communications Systems.. $17,785 75% $20,422 65% $30,854 59%
IT Services............. 4,634 19 8,008 25 7,563 15
Systems Integration..... 1,305 6 3,235 10 13,777 26
------- -------- ------- -------- ------- --------
Total.......... $23,724 100% $31,665 100% $52,194 100%
======= ======== ======= ======== ======= ========
CUSTOMER TYPE
U.S. Government......... $23,483 99% $28,606 90% $48,284 92%
Commercial.............. 219 1 849 3 1,997 4
International........... 22 0 2,210 7 1,913 4
------- -------- ------- -------- ------- --------
Total.......... $23,724 100% $31,665 100% $52,194 100%
======= ======== ======= ======== ======= ========

<CAPTION>
SIX MONTHS ENDED MARCH 31,
-----------------------------------------
1997 1998
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SERVICES PROVIDED
Communications Systems.. $12,415 59% $20,762 64%
IT Services............. 3,697 17 8,214 25
Systems Integration..... 5,018 24 3,574 11
------- -------- ------- --------
Total.......... $21,130 100% $32,550 100%
======= ======== ======= ========
CUSTOMER TYPE
U.S. Government......... $19,929 94% $29,886 91%
Commercial.............. 403 2 2,162 7
International........... 798 4 502 2
------- -------- ------- --------
Total.......... $21,130 100% $32,550 100%
======= ======== ======= ========
</TABLE>

The Company's operating margin is affected by, among other things, the mix
of contract types (cost reimbursement, fixed-price or time and materials) as
well as the proportion of revenues from higher margin commercial and
international sales. A significant portion of the Company's contracts are cost
reimbursement contracts, under which the Company is reimbursed for all actual
costs, plus a fee or profit. The financial risks under these contracts generally
are lower than those associated with other types of contracts, and margins also
are typically lower. The Company has also been awarded fixed-price contracts by
the government. Such contracts carry higher financial risks because the Company
must deliver the contracted services below the fixed price in order to earn a
profit. For those companies with low cost structures, these contracts offer the
opportunity for higher profit margins. The following table summarizes the
percentage of revenues attributable to each contract type for the periods
indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------- -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cost Reimbursement................... 77% 68% 59% 62% 48%
Fixed-Price.......................... 16 25 35 32 29
Time and Materials................... 7 7 6 6 23
------ ------ ------ ------ ------
Total...................... 100% 100% 100% 100% 100%
====== ====== ====== ====== ======
</TABLE>

Revenues on cost plus fixed fee contracts are recognized to the extent of
costs incurred plus a proportionate amount of fees earned. Revenues on time and
materials contracts are recognized at the contractual rates as labor hours and
direct expenses are incurred. Revenues on fixed-price contracts are recognized
on the percentage-of-completion method based on costs incurred in relation to
total estimated costs.

The Company's two significant U.S. Navy communication systems contracts and
programs accounted for approximately 29.0% of revenues for the six months ended
March 31, 1998. See "Business -- Company Operations -- Communication Systems."
Although the Company intends to expand its commercial and international sales, a
relatively small number of contracts are likely to continue to account for a
significant portion of the Company's future revenues. For fiscal 1997 and the
six months ended March 31, 1998, approximately 26% and 16.1%, respectively, of
the Company's revenues were derived from sales under the GSA Schedule Contracts.
The GSA Schedule Contracts are renewable every five years by the government.
Termination of any of these contracts or the Company's inability to renew or
replace them when they expire could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Government Contracting Risks."

19
<PAGE> 20

The Company generally uses commercially available products in its systems
integration business, which are generally available from several sources. The
Company has generally been able to obtain adequate supplies from its current
suppliers in a timely manner. The Company believes that, in most cases,
alternate vendors can be found if its current suppliers are unable to fulfill
its needs.

During fiscal 1997, and the six months ended March 31, 1998, revenues from
international business amounted to approximately 4% and 2%, respectively, of
revenues. The vast majority of the Company's international business revenues are
derived from sales of the Company's products to foreign navies and the
performance of services related to such sales. Because international business to
date has had higher profit margins than U.S. government business, an inability
to obtain future international business could adversely affect the Company's
financial condition and results of operations. Because both the Company's
expenses and its revenues from its international business are generally
denominated in U.S. dollars, the Company does not believe that its operations
are subject to material risks associated with currency fluctuations.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------- --------------
1995 1996 1997(1) 1997 1998
----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs..................................... 62.4 61.0 72.2 69.8 64.5
Indirect, general and administrative expenses.... 34.6 32.4 21.3 23.8 27.1
Write-off of acquired in-process R&D costs....... -- -- 3.7 -- --
----- ----- ------ ----- -----
Income from operations........................... 3.0 6.6 2.8 6.4 8.4
Other income (expense), net...................... (0.6) (0.6) -- (0.4) (1.1)
----- ----- ------ ----- -----
Income before taxes.............................. 2.4 6.0 2.8 6.0 7.3
Pro forma income taxes(2)........................ 1.0 2.3 1.0 2.4 2.7
----- ----- ------ ----- -----
Pro forma net income(2).......................... 1.4% 3.7% 1.8% 3.6% 4.6%
===== ===== ====== ===== =====
</TABLE>

- ---------------
(1) Includes a one-time, non-cash charge reflecting the write-off of acquired
in-process research and development costs incurred in connection with the
acquisition of RFM totaling $1.9 million. Excluding such charge, the
Company's income from operations and pro forma net income, as a percentage
of revenues, would have been 6.5% and 5.4%, respectively, for the year ended
September 30, 1997.
(2) 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. See Note 2 of the Company's Consolidated
Financial Statements. Amounts for the six month period ended March 31, 1998
are based on actual results.

SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997

Revenues increased 54.0%, or $11.4 million, to $32.6 million for the six
months ended March 31, 1998, from $21.1 million for the same period in 1997. The
increase was principally due to an increase in revenues from communication
systems, primarily under contracts with the U.S. Navy, resulting from the
Company's acquisitions of RFM and ISC, and information technology services,
resulting from the acquisition of AMI.

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 $21.0 million for the six months ended March
31, 1998 from $14.7 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 64.5% for the six months ended March 31,
1998 from 69.8% for the same period in 1997, primarily due to a decrease in the

20
<PAGE> 21

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 expenses
increased to $8.8 million for the six months ended March 31, 1998 from $5.0
million for the same period in 1997. The increase was due primarily to the
higher level of revenues discussed above. Indirect expenses, expressed as a
percentage of revenues, increased to 27.1% for the six months ended March 31,
1998 from 23.8% for the comparable period last year, due to the amortization of
intangible assets, primarily goodwill, resulting from the acquisition of RFM,
ISC and AMI.

Income from operations increased 101.5%, to $2.7 million for the six months
ended March 31, 1998, from $1.4 million for the same period in 1997, primarily
due to increased communication systems and IT Services revenues from the
acquisition of AMI, ISC and RFM. As a percentage of revenues, income from
operations increased to 8.4% for the six months ended March 31, 1998, from 6.4%
for the comparable period in the prior year, principally attributable to
increased revenues from fixed price and time-and-material 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
$378,000 and $134,000 for the six-month periods ended March 31, 1998 and 1997,
respectively. The increase in interest expense resulted primarily from $19.5
million borrowed to fund the AMI acquisition. Interest income was $15,000 and
$44,000 for the six months ended March 31, 1998 and 1997, respectively.

The Company's effective tax rate was 37.0% for the six months ended March
31, 1998. The Company's pro forma effective tax rate was 39.0% for the six
months ended March 31, 1997. This decrease is primarily due to lower state
taxes.

FISCAL 1997 COMPARED TO FISCAL 1996

Revenues increased 64.8%, or $20.5 million, to $52.2 million for fiscal
1997, from $31.7 million for fiscal 1996. The increase was due to a $10.0
million increase in revenues from communication systems, primarily under
contracts with the U.S. Navy, and a $10.5 million increase in revenues from
systems integration services.

Direct costs increased to $37.7 million for fiscal 1997 from $19.3 million
for fiscal 1996. Direct costs, expressed as a percentage of revenues, increased
to 72.2% for fiscal 1997 from 61.0% for fiscal 1996, primarily due to an
increased proportion of revenues coming from systems integration services. These
services have higher direct costs because the contracts generally require the
Company to purchase hardware components as part of the services.

Indirect expenses increased to $11.1 million for fiscal 1997 from $10.3
million for fiscal 1996. The increase was due primarily to the higher level of
revenues discussed above. Indirect expenses, expressed as a percentage of
revenues, decreased to 21.3% for fiscal 1997 from 32.4% for fiscal 1996, due to
the higher proportion of systems integration revenues, which typically have
lower associated indirect expenses.

Based on the results of a third-party appraisal, the Company recorded a
write-off of $1.9 million in the fourth quarter of 1997 to expense in-process
research and development costs related to the acquisition of RFM, because the
acquired in-process research and development had not yet reached technological
feasibility and had no alternative future uses.

Income from operations decreased 30.2%, to $1.5 million for fiscal 1997,
from $2.1 million for fiscal 1996, primarily due to the $1.9 million in-process
research and development write-off incurred in connection with the RFM
acquisition. Excluding the $1.9 million write-off, income from operations
increased 60.5%, to $3.4 million for fiscal 1997. This increase was primarily
due to increased revenues from U.S. Navy contracts and systems integration.
Excluding the in-process research and development write-off, as a percentage of

21
<PAGE> 22

revenues, income from operations decreased slightly to 6.5% for fiscal 1997,
from 6.6% for fiscal 1996, primarily attributable to lower high-margin
international revenues.

Other income (expense), net, consists of interest expense offset by
interest income from short-term deposits of cash. Interest expense was $136,000
and $257,000 for fiscal 1997 and 1996, respectively. Interest income was
$153,000 and $57,000 for fiscal 1997 and 1996, respectively. The increase in
interest income and decrease in interest expense during fiscal 1997 was
attributable to the paydown of debt and short-term investments of initial public
offering proceeds.

The Company's pro forma effective tax rate was 38.4% and 39.0% for fiscal
1997 and 1996, respectively.

FISCAL 1996 COMPARED TO FISCAL 1995

Revenues increased 33.3%, or $7.9 million, to $31.7 million for fiscal
1996, from $23.7 million for fiscal 1995. The increase was due to a $6.0 million
increase in revenues from communication systems and IT Services, primarily under
contracts with the U.S. Navy, and a $1.9 million increase in revenues from
systems integration services.

Direct costs increased to $19.3 million for fiscal 1996 from $14.8 million
for fiscal 1995. Direct costs, expressed as a percentage of revenues, decreased
to 61.0% for fiscal 1996 from 62.4% for fiscal 1995, primarily due to increased
revenues from international fixed price contracts which generally have lower
direct costs as a percentage of revenues. This decrease as a percentage of
revenue was partially offset by the higher direct costs attributable to systems
integration services.

Indirect expenses increased to $10.3 million for fiscal 1996 from $8.2
million for fiscal 1995. The increase was due primarily to the higher level of
revenues discussed above. Indirect expenses, expressed as a percentage of
revenues, decreased to 32.4% for fiscal 1996 from 34.6% for fiscal 1995, because
a higher proportion of revenues came from systems integration services.

Income from operations increased 197.7%, to $2.1 million for fiscal 1996,
from $707,000 for fiscal 1995. As a percentage of revenues, income from
operations increased to 6.6% in fiscal 1996 from 3.0% in fiscal 1995. This
increase was due primarily to a shift in the Company's revenue mix, with an
increased proportion of revenues coming from higher margin international,
systems integration and commercial sales.

Interest expense was $257,000 and $185,000 for fiscal 1996 and 1995,
respectively. Interest income was $57,000 and $52,000 for fiscal 1996 and 1995,
respectively.

The Company's pro forma effective tax rate was 39.0% and 40.0% for fiscal
1996 and 1995, respectively.

QUARTERLY RESULTS OF OPERATIONS

The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects, expenditures
required by the Company, delays, employee utilization rates, adequacy of
provisions for losses, accuracy of estimates of resources required to complete
ongoing projects, general economic conditions and acquisition related charges.
Demand for the Company's products and services in each of the markets it serves,
particularly its systems integration business, can vary significantly from
quarter to quarter due to revisions in customer budgets or schedules and other
factors beyond the Company's control. In addition, the Company's sales tend to
be seasonal, with the Company's fourth quarter generally representing the
highest quarterly revenues in the fiscal year, based to a large extent on the
uneven government purchasing patterns. Additionally, a change in revenue mix
from quarter to quarter may result in fluctuating earnings, as experienced by
the Company on the sale of higher margin products to international customers in
the quarters ending December 31, 1995 and March 31, 1996.

The following tables set forth certain unaudited statement of operations
data for the last ten quarters, and such data expressed as a percentage of
revenues for each quarter. This data has been derived from the Company's
unaudited quarterly financial statements. In management's opinion, these
quarterly financial statements have been prepared on a basis consistent with the
audited financial statement contained elsewhere herein, and include all
adjustments, consisting only of normal recurring adjustments, which the Company

22
<PAGE> 23

considers necessary for a fair presentation of the information presented, when
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto appearing elsewhere herein. The results of trends are not
necessarily indicative of the results to be expected for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
------------------------------------------ ------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $5,775 $7,261 $7,215 $11,415 $9,066 $12,064 $14,379 $16,685
Direct costs............... 3,331 3,864 4,475 7,638 6,038 8,708 10,432 12,509
Indirect, general and
administrative expenses.. 2,027 2,748 2,358 3,121 2,442 2,583 3,040 3,063
Write-off of acquired
in-process R&D costs..... -- -- -- -- -- -- -- 1,910
------ ------ ------ ------- ------ ------- ------- -------
Income from operations..... $ 417 $ 649 $ 382 $ 656 $ 586 $ 773 $ 907 $ (797)(1)
====== ====== ====== ======= ====== ======= ======= =======
(AS A PERCENTAGE OF REVENUES)
Revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs............... 57.7 53.2 62.0 66.9 66.6 72.2 72.6 75.0
Indirect, general and
administrative expenses.. 35.1 37.9 32.7 27.4 26.9 21.4 21.1 18.4
Write-off of acquired
in-process R&D costs..... -- -- -- -- -- -- -- 11.4
------ ------ ------ ------- ------ ------- ------- -------
Income from operations..... 7.2% 8.9% 5.3% 5.7% 6.5% 6.4% 6.3% (4.8)%(1)
====== ====== ====== ======= ====== ======= ======= =======

<CAPTION>
THREE MONTHS ENDED
-------------------
FISCAL 1998
-------------------
DEC. 31, MAR. 31,
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues................... $14,170 $18,380
Direct costs............... 9,131 11,859
Indirect, general and
administrative expenses.. 3,933 4,888
Write-off of acquired
in-process R&D costs..... -- --
------- -------
Income from operations..... $ 1,106 $ 1,633
======= =======
Revenues................... 100.0% 100.0%
Direct costs............... 64.4 64.5
Indirect, general and
administrative expenses.. 27.8 26.6
Write-off of acquired
in-process R&D costs..... -- --
------- -------
Income from operations..... 7.8% 8.9%
======= =======
</TABLE>

- ---------------
(1) The three month period ended September 30, 1997 includes a one-time,
non-cash charge for acquired in-process research and development costs
incurred in connection with the acquisition of RFM totaling $1.9 million.
Excluding such charge, the Company's income from operations would have been
$1.1 million and income from operations as a percentage of revenues would
have been 6.7%.

LIQUIDITY AND CAPITAL RESOURCES

Since the Company's inception in 1987, it has generally financed its
working capital needs through internally generated funds, supplemented by
borrowings under the Company's revolving credit facility with a commercial bank
and the proceeds from the Company's initial public offering in July 1997.

The Company used cash from operating activities of $3.3 million for the six
months ended March 31, 1998, resulting primarily from net income, increases in
contract receivables and decreases in accrued expenses and accounts payable. 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 six months ended
March 31, 1997, the Company generated cash from operating activities of $3.2
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
purchase of computers and equipment and the acquisition of AMI. The purchases of
computers and equipment totaled $765,000 and $350,000 for the six month period
ended March 31, 1998 and 1997, respectively. Further, the Company invested
$686,000 in software development costs for its communication products, including
the latest Microsoft Exchange-based product, INFORMATION 2000, in the six months
ended March 31, 1998. In February 1998, the Company acquired AMI for $19.5
million in cash and additional contingent payments based upon achievement of
certain financial goals.

In February 1998, the Company entered into a revolving credit facility with
a commercial bank, refinancing the Company's then-existing line of credit and
the outstanding commercial bank debt of ISC. This line of credit consists of two
separate facilities, permitting the Company to borrow up to an aggregate of $35
million. The first facility, in an amount up to $15 million, may be used to
finance acquisitions and for working capital and other corporate purposes, and
bears interest at either the bank's prime rate or at LIBOR for one, two or three
month periods, plus a percentage, not more than 2.2%, which depends on the
Company's historical financial 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. Each
facility expires on February 28, 2000. The credit agreement contains various
covenants requiring the Company and its

23
<PAGE> 24

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 March 31, 1998,
the Company was in compliance with all covenants contained in the credit
agreement. As of March 31, 1998, the outstanding balance on the line of credit
was $23.3 million and the weighted average interest rate for the six months
ended March 31, 1998 was approximately 8.2%.

The Company consummated the initial public offering of its Common Stock in
July 1997, selling 2,225,000 shares of Common Stock for $7.50 per share
resulting in net proceeds to the Company of approximately $14.4 million.

In connection with the termination of the Company's S corporation status
and its initial public offering, the Board of Directors declared a $6.7 million
dividend of its previously undistributed S corporation earnings in June 1997.
The distribution was made as follows: $3.5 million, in kind, in the form of
contract receivables in June 1997, and $3.2 million in cash in July 1997.

The Company is regularly evaluating potential acquisition candidates. In
February 1998, the Company acquired AMI for $19.5 million in cash and additional
earn-out payments upon achievement of certain financial goals in each of the two
sequential twelve month periods subsequent to the acquisition up to a maximum of
$5.25 million per year. In November 1997, the Company acquired all of the
outstanding capital stock of ISC in exchange for 475,000 shares of the Company's
Common Stock. In August 1997, the Company acquired all of the outstanding
capital stock of RFM for $5.0 million in cash. The consolidated statement of
operations includes a $1.9 million charge taken at the time of the acquisition
of RFM for acquired research and development costs related to acquired
technology that had not reached technological feasibility and that had no
alternative future use. All three acquisitions have been accounted for as
purchases and the financial results of AMI, ISC and RFM have been included in
the results of operations from the dates of the respective acquisitions. For
each of the acquisitions, the total purchase price has been allocated to the
acquired assets and liabilities assumed at their estimated fair values in
accordance with the provisions of Accounting Principles Board Opinion No. 16.
The estimated excess of the aggregate purchase price of the acquisitions over
the net assets acquired is being carried as goodwill and intangible assets, in
the aggregate amount of $19.3 million, which will be amortized over their
estimated useful lives.

The Company currently anticipates that its current cash balances, amounts
available under its credit facility 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. Inflation did not
have a material impact on the Company's revenues or income from operations in
fiscal 1995, 1996 and 1997.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board (FASB) issued two
SFASs: SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." As
specified by these statements, the Company will apply these statements beginning
in fiscal 1999 and reclassify its financial statements for earlier periods
provided for comparative purposes.

SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This Statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB No.
94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. The Company
believes the impact of adopting SFAS 131 is currently not material.

24
<PAGE> 25

BUSINESS

OVERVIEW

The Company provides communications and information technology services and
solutions, predominantly to U.S. government agencies and to a lesser extent
commercial and international customers. The Company operates primarily in three
interrelated areas: communication systems design and support, IT Services and
systems integration. The Company believes that, from its inception in 1987, it
has been a leader in U.S. Navy satellite communications. Recently, using its
information management capabilities in such areas as network and database design
and support, the Company has begun to expand its services to the U.S. military
and to develop business with other federal agencies, state and local governments
and commercial and international customers. The Company's revenues have
increased each year since fiscal 1987 and grew at a compound annual rate of
43.2% during the last five fiscal years, substantially all through internal
growth, reaching $52.2 million for fiscal 1997. Additionally, for the six month
period ended March 31, 1998, the Company's revenues grew 54.0% over the
comparable prior six month period, increasing to $32.6 million. The Company's
total funded and unfunded backlog was $217.6 million as of March 31, 1998.

The Company's primary objective is to provide superior communication and
information technology services and solutions to its clients. Consistent with
this objective, the Company acquired AMI in February 1998, ISC in November 1997
and RFM in August 1997. The Company believes that such acquisitions: (i) allow
the Company to participate in increasingly large and complex procurement
programs; (ii) increase its opportunities to cross-sell products and services to
existing customers; (iii) bring new strength to the Company's technical
capabilities through the cross-utilization of technology and engineering skills;
and (iv) increase the overall depth and experience of the Company's management.

ADVANCED MANAGEMENT INCORPORATED. The Company acquired AMI in February
1998. Founded in 1981, AMI provides a wide range of information technology
services, including complex computer solutions and management services, to a
variety of government and commercial entities, including clients outside the
Company's traditional DOD client base. AMI's clients include the Federal Deposit
Insurance Corporation (the "FDIC"), U.S. Secret Service, General Accounting
Office, U.S. Customs Service, Department of Health and Human Services,
Department of Labor, the U.S. Department of Agriculture and U.S. Army. AMI is
headquartered in McLean, Virginia, and has operations in California,
Connecticut, Georgia, Illinois, Maryland, Massachusetts, Missouri, New York,
Tennessee, Texas, Virginia and Washington, D.C.

INTEGRATED SYSTEMS CONTROL, INC. The Company acquired ISC in November
1997. Founded in 1983, ISC provides technical and engineering services to the
DOD, primarily the U.S. Navy, in the areas of communications and information
technology. Among others, its clients include the Space and Naval Warfare
Systems Center, Defense Information Systems Agency Joint Interoperability
Engineering Office, Naval Air Systems Command, U.S. Coast Guard and the North
Atlantic Treaty Organization ("NATO"). Headquartered in Virginia Beach,
Virginia, ISC has operations in Virginia Beach, San Diego, Charleston and the
Washington, D.C. area and provides support services from a number of sites
worldwide, including Japan, Bahrain, Honolulu, Italy and Guam.

RF MICROSYSTEMS, INC. The Company acquired RFM in August 1997. Founded in
1985, RFM provides technical and engineering services to the DOD in the areas of
communications, navigation, electronic warfare and digital signal systems. Its
clients include the Space and Naval Warfare Systems Center, Naval Air Warfare
Center -- Aircraft Division, Space and Missile Center, Air Force Space Command,
Defense Information Systems Agency and Department of Transportation.
Headquartered in San Diego, RFM has operations in San Diego, the Los Angeles
area, Colorado Springs and the Washington, D.C. area.

INDUSTRY OVERVIEW

Growth in the Company's business is being driven by increasing demand for
satellite-based communications systems and the increasing trend in government
and commercial organizations to focus on their core competencies by outsourcing
non-core functions such as communications and information technology. In
addition, the U.S. military is placing greater emphasis on increasing
productivity while using fewer resources

25
<PAGE> 26

by employing systems that act as "force multipliers." Solutions and technologies
such as those offered by the Company permit the more effective use of personnel
and assets and result in increased performance.

Improvements in space and communications technologies have resulted in
modern communications satellites with power, capacity, switching capabilities
and longevity significantly greater than those of their predecessors. These
improvements in performance, together with satellites' inherent geographic
coverage and technical advantages, have made satellite-based communications
increasingly competitive with other communications technologies, broadening the
market for satellite services such as telephony support for cable and network
television, broadband data transmission, paging, earth-sensing and position
location.

Government and business organizations also are increasingly demanding that
information technology systems be designed for interoperability with commercial
off-the-shelf ("COTS") computer hardware and software products and that such
products be usable with existing legacy systems. In addition, concerns over
excessive development costs and the rapid pace of technological change have led
both government and business organizations to demand flexible systems created by
adapting COTS software and hardware, rather than systems that have been built to
customized specifications. This emphasis on system flexibility using readily
available commercial products creates extensive systems integration
opportunities.

Federal Sources, Inc., an independent market research firm specializing in
the U.S. federal market, estimates that the U.S. government has budgeted $28
billion in its fiscal year 1998 for information technology services and
products, including approximately $10 billion budgeted by the DOD. The Company
believes that the commercial information technology market is significantly
larger than the government market.

BUSINESS STRATEGY

To capitalize on opportunities created by these industry developments, the
Company has adopted the following business strategies:

MAINTAIN LEADERSHIP IN MILITARY SATELLITE COMMUNICATIONS INDUSTRY. Since its
inception, the Company has focused on being a leader in the military satellite
communications industry. It now seeks to expand its services in this market by
continuing its early identification of program needs and its support of
government program offices in formulating requirements. In addition, through
incremental investments the Company seeks to leverage its existing products base
to develop lower cost military products with shorter delivery times, including
its products based on its Streamlined Automated Logistics Transmission System
("SALTS") and Battle Group Information Exchange System ("BGIXS") technology. The
Company also believes it can leverage its expertise with U.S. Navy satellite
communications to expand its presence as a military satellite communications
provider both within the U.S. Navy and other branches of the DOD.

EXPAND EXISTING SERVICES AND CUSTOMER BASE. The Company plans to continue to
expand its capabilities into new but related areas of technology which the
Company believes will allow it to both further penetrate its existing customer
base and develop new customers. For example, the Company has developed and is
marketing high speed data transfer technology and is currently enhancing that
technology to include high frequency communication capability with Internet and
intranet access. The Company's strategy also involves expanding its customer
base beyond the DOD. In particular, the Company seeks to capitalize on the U.S.
government's trend toward using readily available commercial products and
systems integration services by offering such products and services through its
GSA Schedule Contracts. As a result of the Company's acquisitions, it now has
access to two additional GSA Schedule Contracts.

EXPAND THROUGH STRATEGIC ACQUISITIONS AND THE USE OF TEAMING RELATIONSHIPS.
Strategic acquisitions are an integral component of the Company's growth
strategy. The Company has completed three significant acquisitions and
continues to evaluate potential acquisitions of businesses, technologies and
products which are complementary to its core communications business. See
"Business -- Overview." The Company believes that acquisitions will allow it to
develop technical services and products it does not currently provide, to
target markets it does not currently serve and, with its increased
capabilities, successfully pursue larger communication and IT Services
opportunities. For example, the Company's acquisition of AMI provides the
Company access to clients outside its traditional DOD client base, including
the FDIC and the U.S. Customs Service.

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Additionally, the Company is pursuing teaming relationships with significant
industry participants in order to enhance its ability to participate in
additional large and complex procurement programs. Examples of this strategy
include RFM's teaming relationship with Science Applications International
Corporation, and the Company's teaming relationships with British Aerospace and
GE Marconi.

DEVELOP ADDITIONAL COMMERCIAL AND INTERNATIONAL BUSINESS. While servicing its
government customers, the Company has developed many advanced technical
capabilities in areas such as networking, local area network ("LAN") and wide
area network ("WAN") services and database design and support. The Company's
strategy is to market these skills and capabilities in selected commercial
businesses, especially small and medium-sized businesses that are outsourcing
their increasingly complex information technology needs, and to selected foreign
governments desiring to upgrade their communications systems capabilities. ISC's
NATO Services Basic Ordering Agreement, awarded in 1997, provides a new vehicle
by which the Company can provide its services and products to international
clients.

COMPANY OPERATIONS

The Company operates primarily in three interrelated areas: communication
systems, IT Services and systems integration. The Company believes that the
convergence of its unique strengths in communications and information
technologies has positioned the Company to address space and computer-based
communications markets as an end-to-end provider of total solutions. The nature
of those operations areas and the progression of operations within the Company
have resulted in very close ties between the business areas. The distinction
between communications systems and IT Services have become clouded, as the
traditional communications systems have taken on an increasingly information
technology role, with many communications systems becoming fully integrated
information technology systems. Additionally, the business of communication
systems procurement must heavily rely on the information technology
infrastructure in place to manage these multi-faceted programs.

COMMUNICATION SYSTEMS

The Company believes it is recognized as a leader in the satellite
communications industry, providing technical and program management services and
support for satellite communication systems to the U.S. military. It provides
satellite communications engineering and technical services and program and
system support primarily to various program directorates and field activities of
the U.S. Navy. While the Company initially developed a staff of highly qualified
communications engineers and systems analysts to provide state-of-the-art
engineering and technical support services, it has expanded its staff to include
experts in program and financial management as well as professional support
personnel with backgrounds in communication systems. The Company believes this
combination of skills and capabilities is one of the key factors that
distinguishes it from its competitors in the communication systems market. The
Company's communications systems business represented 63.8% of revenues for the
six month period ended March 31, 1998.

ENGINEERING. The Company provides comprehensive communications engineering
support to assist in the development of military communication systems. Many of
its contracts are not project specific, but require that it provide technical
services and support to a variety of projects and programs being run by a
particular U.S. Navy office. In particular instances, the Company may perform
some or all of the technical engineering and other support for a specific U.S.
Navy program or system, or may provide technical review and support services to
assist the U.S. Navy in evaluating or assessing engineering tasks. These
services cover a full range of engineering and technical support, including
requirements analyses, design, hardware and software engineering, studies and
development.

The Company's skills and experience permit it to apply innovative solutions
to communications engineering problems. For example, the Company has developed
receiver, modulator and coder design alternatives for a major U.S. Navy
communication system and has defined satellite payload modifications for a major
military satellite program. The Company's expertise in both military and
commercial satellite programs has enabled it to develop innovative military uses
of commercial satellite systems. For instance, the Company developed the concept
which permitted the U.S. Navy to conduct its first worldwide video
teleconference,

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simultaneously linking all European, Atlantic and Pacific commanders by
satellite with the Pentagon and a major command ship at sea. In addition, the
Company's engineers have operational experience to translate a user's
requirements into practical technical specifications for a communication system.
This experience has enabled the Company's engineers to analyze major U.S. Navy
communication systems, such as High Speed Fleet Broadcast and the Communication
Support System, and project future needs and technology requirements. The
Company's capability to conduct high level theoretical engineering tasks,
coupled with an intimate knowledge of the system under investigation, permits
the Company to assist its customers in avoiding costly troubleshooting efforts
on communication problems related to natural phenomena. Many of these concepts
and techniques which were developed for the U.S. Navy have natural extensions to
other military and commercial applications.

As an extension of the Company's capability to provide total engineering
solutions, the Company supports communication systems after development with a
complete set of in-service engineering skills, which include planning for and
conducting installation, testing operational performance and providing training
and maintenance assistance. The Company provides this engineering support for a
wide variety of communications equipment, such as antennas, receivers,
processors and complete systems. For example, the Company provides installation
check-out for the U.S. Navy's extra high frequency terminals installed on-board
ships and also provides training for ship and submarine crews in their
operation, both in port and, when appropriate, at sea.

PROGRAM PLANNING AND MANAGEMENT. The Company assists DOD program managers in
planning and managing all facets of defense and military programs and hardware
procurement, from determining needs and objectives through development,
acquisition, integration, testing and fielding. These services include
procurement planning and management, financial management, cost estimating and
control and production support.

The Company has a staff specializing in financial management who have
worked with government managers in the Executive Office of the President,
national budget offices, Congressional committees, the Office of the Secretary
of Defense and the Office of the Secretary of the Navy. This staff has supported
several domestic and international government and commercial customers in
communication systems and other areas. The Company has tailored a variety of
project management techniques and tools to customer needs, such as developing
networks which enable simultaneous progressive tracking of over 100 acquisition
documents and developing dependency schedules to track the progress of
industrial manufacturing processes for a major U.S. Navy weapons system. The
dependency schedules were used to identify a production schedule problem for a
shipboard weapons control system, to conduct analyses of the system and to
develop a work-around alternative to maintain the schedule.

Additionally, the Company provides program support to U.S. and foreign
governments in the sale of U.S. military equipment to foreign governments. The
Company believes that this area of expertise presents significant potential for
growth as foreign governments upgrade their communication system capabilities.
The Company has established a presence in this niche market with its experience
in foreign military sales, including advising on compliance with licensing and
security requirements, preparing technical documentation, forecasting and
tracking equipment deliveries and funding obligations, providing program and
financial reviews and reconciling and closing foreign military sales cases. The
Company prepares schedules of available equipment and provides data for existing
and new technologies, recommendations for release of hardware and software, and
guidance on approval or disapproval of commercial export license requests. This
experience is also being applied to provide direct sales to foreign governments.
See "Business -- Products."

The Company's network management and satellite communications expertise
also permit it to develop systems for business users in geographically dispersed
locations. The Company believes that office locations of companies will continue
to become more geographically dispersed and that the commercial market for
systems to link these offices can be a significant opportunity for future
growth.

The following are significant communication systems contracts and programs,
which also include IT Services, emphasizing the nature of the Company's
interrelated business areas:

- The Company is the prime contractor under a five-year cost plus fixed
fee contract awarded by the U.S. Navy in March 1996 and expiring at
the end of fiscal 2000 to provide technical engineering

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and other support services to a U.S. Navy command. The contract had a
backlog of approximately $67.8 million at March 31, 1998. The contract
team includes, as subcontractors, Computer Sciences Corporation,
Booz-Allen and Hamilton, Inc., Tele-Consultants, Inc. and others.

- The Company is the prime contractor under a five-year cost plus fixed
fee contract awarded by the U.S. Navy in August 1996 and expiring in
fiscal 2001 to provide program management support, financial
management support, cost and schedule analysis, information management
support, foreign military sales support, installation and inventory
management and configuration management for the PD 70 Integrated
Command, Control, Communication, Computers and Intelligence ("IC4I")
project and staff offices. The contract had a backlog of approximately
$29.7 million at March 31, 1998.

INFORMATION TECHNOLOGY SERVICES

Through its IT Services business, the Company offers a broad array of
professional information technology services and information systems to
commercial and government markets. The IT Services offered by the Company
include information management systems design and integration; LAN/WAN design,
installation and support; database design and real-time database management;
Internet and intranet services; and multi-media training development. The
advanced technical capabilities gained by the Company while performing services
for government customers has provided expertise in the information technology
area, which the Company is leveraging to develop its commercial business. The
Company is currently focusing on expanding its customer base to include
commercial and international customers. The Company's IT Services business
represented 25.2% of revenues for the six month period ended March 31, 1998.

The Company designs and implements information management systems that
enable its customers to create integrated productivity software and
communication tools which allow uninterrupted transmission of information
throughout a customer's infrastructure. The Company has been designated as a
Microsoft Certified Solution Provider, a Lotus Business Partner, Banyan Vines
Systems Integrator and a Novell Authorized Reseller, designations which permit
the Company to pursue some business opportunities not available to all
competitors because these certifications frequently are cited as eligibility
requirements for commercial bids.

The Company plans and creates conceptual designs, system designs and system
updates, including identifying functional requirements and creating database,
system and subsystem specifications. It performs feasibility and cost-benefit
studies on system alternatives and presents recommendations. The Company
believes that there is a substantial demand for these kinds of services and is
actively seeking to market them to small and midsize companies and to
municipalities.

The Company also provides office automation system services. It analyzes
current office functions and matches them with appropriate office software and
provides integrated office tools to permit data sharing and improve office
efficiency. The Company established the first office automation system for a
major program directorate of the U.S. Navy over ten years ago, using a central
computer with multiple processors and work station terminals, applying
then-available technology to an office environment. As it continued to provide
network services for that office, improving the system through advances in
technology, the Company implemented and now supports a 250 station LAN with five
servers. The Company has applied that same technology to several commercial
customers.

Additionally, the Company provides technical assistance to end users on
system configuration issues, software upgrades and functionality. In 1993, the
Company was awarded a contract to operate the network used by the International
Joint Commission, a quasi-government organization of the U.S. and Canada charged
with protecting the environmental conditions along the border between the two
countries. After successful completion of that three year contract, the Company
was awarded a multi-year contract to continue the network support with expanded
work scope, including software application training.

The Company provides a full range of database support using innovative
solutions to manage databases and present the information back to a variety of
end users at the level and detail specific to their needs. The

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Company has extensive expertise in developing and implementing plans to migrate
data from legacy systems to modern technology products, as well as the design
and implementation of new applications. In fiscal 1997, the Company completed a
major database task for the U.S. Army to provide access to U.S. Army databases
using a data warehousing approach. The Company believes that this successful
implementation will result in additional contracts from the U.S. Army to extend
the data warehousing to additional databases.

The Company has extensive hands-on experience designing complex management,
program and financial databases and graphical user interfaces ("GUI"). The
Defense Technical Information Center ("DTIC") awarded a contract to the Company
to provide a user-friendly interface to be used world-wide to access and search
the DTIC database, which contains data on virtually every technical study
completed for the DOD. The Company has continued to receive assignments to
implement additional GUIs for the DTIC. The current contract with DTIC expires
at the end of fiscal year 1998.

To permit its customers to communicate more efficiently, the Company
develops and implements both external (Internet) and internal (intranet)
connectivity solutions. It conducts needs analyses to define specific objectives
for web sites; designs marketing objectives and strategies; provides design
services for the appearance of web sites; provides technical and project
management services and support; hosts customer web sites on its server; and
provides web site promotional services to create the desired site traffic.

The Company offers a wide range of training services utilizing innovative
techniques and tools, such as computer based training ("CBT") aids, training
videos and on-line performance tools, to promote increased productivity and
efficient use of installed systems. It prepares and conducts CBT seminars for
government and commercial customers and has developed CBT programs covering a
wide variety of subjects as required by customers, including, for example,
identifying persons driving while under the influence of alcohol (for the
National Highway Traffic Safety Administration) and training seamen on the
operation of on-board submarine communication systems. Activities the Company
undertakes as part of its multi-media training services include developing
customized training concepts and plans, including undertaking front-end analyses
of a customer's business and business processes to identify training
requirements and the appropriate training media; developing user and
administrator guides as well as self study work books, wall charts, training
videos and other materials; and surveying and updating curricula for training
courses.

A United Kingdom based subsidiary of the Company was recently awarded ISO
9001 TickIT certification, an internationally recognized endorsement for quality
management and quality assurance. This certification provides assurance to
customers that the process involved in the design, development, maintenance, and
support of software developed by the subsidiary adheres to the ISO 9001 quality
management standard.

An example of a significant IT Services program is represented by two Basic
Ordering Agreements that AMI has in place with the FDIC, with expiration dates
in July and November 1998. In addition, AMI currently has a GSA Schedule
Contract and has been providing various IT Services to the FDIC, including
nationwide WAN/LAN design and implementation, network operations system
migrations, new technologies evaluations, system development life cycle of major
financial application and logistical systems, relational database design and
programming, network monitoring and troubleshooting. The contracts had a backlog
of approximately $23.3 million at March 31, 1998.

SYSTEMS INTEGRATION

The Company provides systems integration for communication systems and to a
lesser extent acts as a value-added reseller of computer hardware, software and
integrated systems to both government and commercial customers. Sales to
government customers are through the Company's GSA Schedule Contracts. Sales to
commercial customers are through direct contracts with other commercial
customers. The Company supports the systems and products it sells by providing
its customers a wide range of services, including employee training,
maintenance, repair and user assistance. The Company offers individual
components of its systems and other products from various vendors for resale
through its GSA Schedule Contracts. The resale business often provides the
opportunity for additional systems integration business. The Company's systems
integration business represented 11.0% of revenues for the six month period
ended March 31, 1998.
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The Company believes that a market opportunity has developed as government
and commercial customers have begun to migrate to systems composed of COTS
hardware and software components. Its strategy has been to anticipate the
systems needs of customers and to develop systems using readily available
commercial hardware and software. This strategy differs from that of many of the
Company's reseller competitors, which traditionally provide individual hardware
and software items for resale without integration, and many of its integration
competitors, which traditionally have developed entire systems. The Company
concentrates on relatively low quantity procurements which are not
cost-competitive for large systems integration companies, applying system
knowledge gained through following technology trends and providing ease of
procurement through GSA Schedule Contracts for government customers and direct
purchase for commercial customers. A recent example of this strategy resulted in
the sale to the U.S. Navy of over $4.0 million of integration work for extra
high frequency communications controllers.

The Company believes it has been successful as a system integrator because
it has targeted certain technologies and systems to offer through the GSA
Schedule Contracts. Expecting that many government agencies were planning to use
Versa-Module European ("VME") technology, the Company focused on offering VME
products and systems, which provide users with a versatile modular computer
system that allows users to combine products and functions. However, recognizing
that technology changes constantly, the Company is now targeting replacement
technology for some of the VME applications and will offer further technology
advances as appropriate. Because of the nature of this systems integration work,
the Company does not have a large investment in VME plant or equipment and can
continue to provide VME technology while pursuing additional technologies.

PRODUCTS

The Company has developed a set of communication systems and software
products which have both military and commercial applications.

ISALTS

The Company believes that its International Streamlined Automated Logistics
Transmission Systems ("ISALTS") which is based on the SALTS technology, is an
example of its ability to adapt its military expertise to commercial uses. The
Company's SALTS technology is designed to provide military and commercial
organizations with the ability to store and forward large amounts of
administrative and logistics data in a compressed, secure format using many
forms of communication media. SALTS provides a near real-time means of
communicating mass data at minimum cost.

The SALTS technology originally was developed by the U.S. Navy as an
alternative data transmission system so that the transmission of logistics and
administrative data would not interfere with the transmission of tactical data
during the Persian Gulf war. Following the Persian Gulf war, the U.S. Navy
contracted with the Company to operate and enhance the SALTS system.
Subsequently, the Company has customized versions of SALTS for other specialized
applications. For example, the U.S. Army's 18th Airborne Corps and the troops
occupying Haiti used it to exchange accounting data. In addition, SALTS
successfully conveyed mission support data during other major military
operations and disaster relief efforts.

The ISALTS program is the Company's major commercial application of its
SALTS technology. The Company has developed a version of the ISALTS software
which it is marketing to friendly foreign governments for their military data
transmission needs. The Company also provides readily available commercial
hardware, installation and ongoing maintenance, software upgrades and other
support services for its ISALTS customers. To date, the Company has installed an
ISALTS system for the UK Royal Navy and is completing the installation of an
ISALTS system for the Royal Australian Navy.

The Company is currently developing its latest version of ISALTS,
INFORMATION 2000. This is Microsoft Exchange-based and thus takes advantage of
existing COTS technology, while adding significant messaging, file transfer and
database query capabilities. The product is expected to be released and
available for sale in late 1998.

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BGIXS

BGIXS was developed by the Company as a way to permit reliable and
efficient data communication (as compared to text communication only) between
land, sea and air units in half-duplex mode using a hub/spoke architecture.
BGIXS uses COTS technology to permit PC-to-PC transfer of tactical data between
a headquarters host and supporting forces using satellite links. Additionally,
BGIXS permits rapid file transfer with guaranteed delivery and provides
multimedia capability. The Company is currently developing an internet
compatible BGIXS product. The U.S. Navy and the UK Royal Navy have purchased
BGIXS systems, and the Company is actively marketing the product to other
foreign military organizations in friendly countries.

ISALTS and BGIXS illustrate the Company's ability to build systems to
satisfy a particular customer's needs and then use the same technology in a
refined and augmented form to create salable products for a different, and
potentially wider, customer base. The Company believes that these technologies
have significant commercial applications.

DEVELOPING TECHNOLOGIES

MICROMACHINING TECHNOLOGY

RFM has sponsored independent research and development in the area of
micromachining technology since 1994. Micromachining technology utilizes the
processing of CMOS and GaAs materials to produce devices such as thermopiles and
associated bridge and display components on a single substrate. Although the
company believes that this technology may have a variety of applications, the
Company is currently focusing on RF power measurement. Using this technology, a
sensor may be placed in a radome of a satellite antenna to accurately monitor
transmitted power. RFM plans to target the market for compact, low cost,
accurate power sensors.

TAGGING TECHNOLOGY

RFM is in the process of leveraging its U.S. Navy experience in the
development of remote tagging devices into a range of commercial and military
applications. This technology will utilize inexpensive tag devices that will be
attached to an item or person of interest. For instance, the tag device may be
used for the tracking of freight or any high value merchandise. The information
incorporated in a tag can be read remotely in response to an interrogation or
the tag can report at predetermined times. For RFM's applications this involves
RF links to the tags and the remoting distances can be a few feet or thousands
of miles depending on the communication link used.

MARKETING

The Company's operations group is primarily responsible for marketing its
services and products, including the development and execution of marketing
plans, proposal presentations and the performance of related tasks. The
Company's marketing activities are conducted by its professional managers who
have technical expertise and whose efforts are supplemented by the Company's
staff of engineers, scientists and analysts. Company personnel use customer
contacts, attend new business briefings sponsored by government agencies and
review publications such as Commerce Business Daily for contracting
opportunities and to learn of new business opportunities. The Company also
participates in several major trade shows, both domestic and international, that
showcase applicable technologies.

One of the Company's primary marketing strategies is to anticipate and
understand the changing needs of its customers and then to be prepared to meet
those needs as they arise in new programs or in new program functions. The
Company believes that its experience in providing services to the U.S. Navy
enhances its ability to understand and anticipate the U.S. Navy's needs. The
Company emphasizes customer satisfaction, as evidenced by its ability to retain
customers such as the U.S. Navy since the Company's inception in 1987. In fiscal
1996, the Company won a major contract recompetition as the prime contractor on
an engineering services and support contract for which it originally served as a
subcontractor. Under this recompete contract,

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the Navy made the award to the Company as the prime contractor, although the
Company is substantially smaller than the prime contractors on the original
contracts.

GOVERNMENT CONTRACTS

In general, the Company's business with the government (as both a prime
contractor and a subcontractor) is performed under cost reimbursement contracts,
time and materials contracts or fixed price contracts. Cost reimbursement
contracts, including cost plus fixed fee contracts, provide for the
reimbursement of costs (to the extent allowed under federal regulations) plus
the payment of a fixed fee. Under time and materials contracts, the Company is
reimbursed for labor hours at negotiated hourly billing rates and is reimbursed
(without fee) for travel and other direct expenses at actual cost plus applied
indirect, general and administrative expense. Under fixed price contracts, it
agrees to perform certain work for a fixed price and, accordingly, realizes the
financial benefit or detriment to the extent that the actual cost of performing
the work differs from the contract price. The majority of the Company's revenues
from government contracts are derived from cost plus fixed fee contracts.

The Company has several multi-year contracts with U.S. government agencies
to provide communication systems services and support, information technology
services and systems integration services and support. Typically, these
contracts require the Company to provide a broad range of services and support,
as requested by the customer, which may include systems engineering, production
support, management information systems services and support and program
operational support. Each contract generally provides an estimate of the number
of staff years that the government agency believes will be utilized each year
under the contract. The Company receives specific work assignments under the
contract on an as-identified basis through the issuance by the U.S. government
of task orders setting out the specific work to be performed, the staff years
allocated to the task and the estimated cost, fee and travel allocated to such
task. Payments are made to the Company incrementally during the performance of
each task. In order to plan for orderly performance under a contract, it is not
unusual, prior to or at the commencement of each government fiscal year during
the term of the contract, for the U.S. government and the Company to define
proposed tasks to be completed under the contract during the coming fiscal year.

Under the Company's GSA Schedule Contracts, government agencies may
purchase, at prices approved by the GSA, hardware and software integration,
systems engineering, automated data processing services, hardware and software,
repair (service and parts) and training, without further competitive bidding.
Products that the Company can provide under the GSA Schedule Contracts must be
approved by the GSA prior to being offered to end-users. Also, at the time the
contract was initially awarded and at each contract renewal, prices to end-users
under the contract are set for the duration of the contract at a specified level
or specified levels varying over time. The contract is a fixed price contract
and does not have any pre-set delivery schedules or obligation to purchase any
significant amount of goods or services. The GSA Schedule Contracts are
renewable every five years and each of the current contract terms expire in
1999. The Company believes that the GSA Schedule Contracts will be renewed,
although there can be no assurance to this effect.

The Company currently has a total of four blanket purchase agreements
("BPAs") with federal agencies. A BPA is a simplified but non-mandatory, fixed
price, contract for the government to purchase products, usually by establishing
charge accounts with qualified sources. Agencies typically enter into BPAs for
similar products with several companies. BPAs generally include a list of
products at established prices, individual purchase limits for authorized
purchasers, and other pre-negotiated terms and conditions. Purchases under BPAs
are often paid for with a government-issued credit card.

In 1996, the GSA authorized agencies to enter into BPAs with GSA Schedule
holders. The GSA-authorized BPAs incorporate many terms and conditions of the
GSA Schedule Contracts, and incorporate many products offered on the GSA
Schedule Contracts, often at lower prices than available on the GSA Schedules.
The Company normally enters into separate agreements with vendors in order to
offer reduced BPA prices to the government. The BPA sales vehicle allows the
Company to focus specific vendor relationships on specific sets of customers.

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The Company's contracts and subcontracts with federal government agencies
are competitively bid and awarded on the basis of technical merit, personnel
qualifications, experience and price. The Company's business, financial
condition and results of operations could be materially affected by changes in
procurement policies, a reduction in funds available for the services provided
by it and other risks generally associated with federal government contracts.
New government contract awards also are subject to protest by competitors at the
time of award which can result in the re-opening of the bidding process or the
award of a contract to a competitor. None of the Company's current government
contracts is the subject of a bid protest; however, there can be no assurance
that government contracts awarded to it in the future will not be challenged by
competitors.

The Company's contractual costs and revenues also are subject to audits and
adjustments by negotiation between it and the DCAA and other government
auditors. As part of the audit process, the DCAA verifies that all charges made
by a contractor against a contract are legitimate and appropriate. Audits may
result in recalculation of contract revenues and non-reimbursement of some
contract costs and fees. The Company was audited by DCAA for contract
performance through fiscal 1994 under all of its government contracts, which
resulted in immaterial adjustments to its revenues under the contracts audited.
However, there can be no assurance that future audits will not result in
material adjustments to the Company's revenues.

The Company's contracts with the government and its subcontracts with
government prime contractors are subject to termination for the convenience of
the government; termination, reduction or modification in the event of change in
the government's requirements or budgetary constraints; and, when it
participates as a subcontractor, termination for the failure or inability of the
prime contractor to perform its prime contract. If a termination for the
convenience of the government occurs, the government generally is obligated to
pay the costs incurred by the Company under the contract plus a pro rata fee
based upon the work completed.

In addition to the right to terminate, government contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress
usually appropriates funds on a fiscal year basis even though contract
performance may take several years. Consequently, at the outset of a major
program, the contract is usually incrementally funded, and additional funds are
normally committed to the contract by the procuring agency as appropriations are
made by Congress for future fiscal years. In addition, contractors often
experience revenues uncertainties during the first quarter of the government's
fiscal year (beginning October 1) until differences between budget requests and
appropriations are resolved. To date, Congress has funded all years of the
multi-year major program contracts for which the Company has served as prime
contractor or a subcontractor, although there can be no assurance that this will
be the case in the future.

BACKLOG

Many of the Company's contracts are multi-year contracts and contracts with
option years, and portions of these contracts are carried forward from one year
to the next as part of the Company's contract backlog. The Company's total
contract backlog represents management's estimate of the aggregate unearned
revenues expected to be earned by the Company over the life of all of its
contracts, including option periods. Because many factors affect the scheduling
of projects, there can be no assurance as to when revenues will be realized on
projects included in the Company's backlog. In addition, although contract
backlog represents only business which is considered to be firm, there can be no
assurance that cancellations or scope adjustments will not occur. The majority
of backlog represents contracts under the terms of which cancellation by the
customer under the termination for convenience clause would entitle the Company
to all or a portion of its costs incurred and potential fees to the date of
cancellation.

Many of the Company's contracts are funded from year to year, based
primarily on the procuring company's or agency's fiscal requirements. This
results in two different categories of contract backlog: funded
34
<PAGE> 35

and unfunded backlog. "Funded backlog" represents the sum of contract amounts
for which funds have been specifically obligated to contracts by customers,
which in the case of a U.S. government contract requires appropriation by the
U.S. Congress to the applicable agency and allocation to the contract by the
agency. "Unfunded backlog" represents future contract or option amounts that
have not been specifically obligated by customers. "Backlog" is the total of
funded and unfunded backlog.

The following table summarizes the Company's funded and unfunded backlog at
the dates indicated:

<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------------- ---------
1995 1996 1997 1998
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BACKLOG COMPONENT
Funded........................... $ 3,255 $ 6,437 $ 5,323 $ 26,421
Unfunded......................... 29,920 132,803 141,314 191,202
------- -------- -------- --------
Total.................. $33,175 $139,240 $146,637 $217,623
======= ======== ======== ========
</TABLE>

The Company believes that approximately 37% of its backlog as of September
30, 1997 will result in revenues in fiscal 1998. However, the Company also
believes that backlog is not necessarily indicative of future revenues. The
Company's backlog typically is subject to large variations from quarter to
quarter as existing contracts are renewed or new contracts are awarded.
Additionally, all U.S. government contracts included in backlog, whether funded
or unfunded, may be terminated at the convenience of the government.

COMPETITION

Because its communication systems business is specialized and the Company
is a leader in the portion of the communication business it pursues, the market
for this business is somewhat less competitive than the markets for its systems
integration and IT Services businesses. In satellite communication systems and
services, the Company competes against technical services companies in the
defense industry, including Computer Sciences Corporation, Science Applications
International Corporation, Booz-Allen and Hamilton, Inc. and SEMCOR. In its
other business areas, the Company competes against a vast array of computer
manufacturers, systems integrators and product resellers and distributors. In
the IT Services area, the Company frequently teams as a subcontractor on large
procurement programs with one of its larger competitors since it can be very
expensive to bid as a prime contractor on such large procurement programs.

The Company believes that the principal competitive factors in the
businesses in which it operates are technical understanding, management
capability, past contract performance, personnel qualifications and price. In
the federal government market, procurement reforms over the past years have
increased the importance of a contractor's past performance in deciding new bid
awards.

EMPLOYEES

The Company believes that its employees and their knowledge and
capabilities are a major asset. The Company has been successful in attracting
and retaining employees skilled in its core business competencies. The Company
intends to continue to employ highly skilled personnel, as well as personnel
knowledgeable concerning the needs and operations of its major customers.

As of March 31, 1998, the Company employed 759 people. The Company believes
that its relations with its employees are good. None of the Company's employees
are covered by collective bargaining agreements.

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<PAGE> 36

There is significant competition for employees with the communication and
information technology skills required to perform the services the Company
offers. The Company's success will depend in part upon its ability to attract,
retain, train and motivate highly skilled employees, particularly in the area of
information technology.

FACILITIES

The Company's headquarters occupies approximately 22,200 square feet at
10089 Lee Highway, Fairfax, Virginia. This space is provided under the terms of
a lease from 10089 Management, a related party to the Company, that expires
August 31, 2003. See "Certain Transactions -- Transactions with Directors and
Executive Officers." In the United States, the Company, including AMI, ISC and
RFM, occupies an aggregate of approximately 155,000 square feet of office space.
In addition to the Company's headquarters, the Company has offices in Arlington,
Virginia; Virginia Beach, Virginia; Charleston, South Carolina; and San Diego,
California. The Company also maintains an office near Plymouth, England. ISC
maintains its headquarters in Virginia Beach, Virginia as well as offices in San
Diego, California; North Charleston, South Carolina; and Arlington, Virginia.
RFM maintains its headquarters in San Diego, California as well as offices in El
Segundo, California; Colorado Springs, Colorado; Lusby, Maryland; and
Alexandria, Virginia. AMI maintains its headquarters in McLean, Virginia and has
facilities in California, Connecticut, Georgia, Illinois, Maryland,
Massachusetts, Missouri, New York, Tennessee, Texas, Virginia and Washington,
D.C. The Company believes that its current facilities are adequate for its
existing needs and that additional suitable space will be available as required.

LEGAL PROCEEDINGS

The Company currently is not a party to any material legal proceedings.

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<PAGE> 37

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information regarding the directors,
executive officers and other key employees of the Company.

<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
George A. Robinson............ 60 President, Chief Executive Officer and Chairman of the Board
of Directors
Charles G. Martinache......... 57 Executive Vice President, Chief Operating Officer and Director
Thomas A. Costello............ 50 Executive Vice President, Chief Technology Officer, Secretary
and Director
Dev Ganesan................... 39 Executive Vice President, Chief Financial Officer and
Treasurer
Wayne Shelton................. 65 Director
Charles R. Collins............ 66 Director

KEY EMPLOYEES:
Kenneth D. Regan.............. 55 President of ACS Services
Kevin R. Adams................ 40 President of ACS Technologies
Howard Sparks................. 60 President of ISC
Dwayne Junker................. 56 President of RFM
John Lin...................... 52 President of AMI
</TABLE>

GEORGE A. ROBINSON. Mr. Robinson was a founder of the Company and has
served as President, Chief Executive Officer and Chairman of the Board of
Directors of the Company since its inception in 1987. From 1986 to 1987, Mr.
Robinson held the position of Vice President for East Coast Operations of
Advanced Digital Systems, Inc., a military communication software development
company. Prior to working at Advanced Digital Systems, Inc., Mr. Robinson spent
over 20 years as a civilian employee in the U.S. Navy Satellite communication
program, most recently as Deputy Director.

CHARLES G. MARTINACHE. Mr. Martinache was a founder of the Company and has
served as Chief Operating Officer and a Director of the Company since 1987. From
1987 to July 1992, Mr. Martinache also held the office of Vice President, and in
July 1992 was made Executive Vice President. From 1986 to 1987, Mr. Martinache
was a program manager for Advanced Digital Systems, Inc. Prior to that, Mr.
Martinache served 23 years in the U.S. Navy as a cryptologic officer.

THOMAS A. COSTELLO. Mr. Costello was a founder of the Company and has
served as Secretary and a Director of the Company since 1987. Mr. Costello also
served as Treasurer of the Company from 1987 to August 1997. From 1987 to 1994,
Mr. Costello held the positions of Senior Vice President and Technical Director,
and in 1995 was made Executive Vice President and Chief Technology Officer of
the Company. From 1983 to 1987, Mr. Costello was a Senior Systems Engineer for
Advanced Digital Systems, Inc. where, among other things, he led the Integrated
Navy SATCOM Architecture study to upgrade existing information exchange
subsystems.

DEV GANESAN. Mr. Ganesan has served as the Chief Financial Officer of the
Company since February 1997 and as Executive Vice President and Treasurer since
August 1997. From June 1994 to January 1997, Mr. Ganesan was employed by GSE
Systems, Inc., a publicly held international software systems and technology
solutions developer, as Vice President of Finance and Accounting. From 1990 to
June 1994, Mr. Ganesan served as the Treasurer and Corporate Controller of U.S.
Lime & Minerals, Inc., a publicly held mineral resources company. From 1987 to
1990, Mr. Ganesan was with Deloitte & Touche, most recently as an audit manager.

37
<PAGE> 38

WAYNE SHELTON. Mr. Shelton has served on the Board of Directors since
August 1997. From January 1995 to June 1997, he served as president of Hughes
Information Systems and as a senior vice president of Hughes Aircraft Company.
From December 1990 to January 1995, Mr. Shelton was president of Hughes
Information Technology Corporation and corporate vice president of Hughes
Aircraft Company. Mr. Shelton is currently a member of the Board of Directors of
ADI Technology, Inc., a software engineering company.

CHARLES R. COLLINS. Mr. Collins has served on the Board of Directors since
August 1997. He is also currently an advisory partner with the law firm Gibson,
Dunn & Crutcher LLP and has held such position since April 1, 1996. From 1990 to
such date, Mr. Collins was a partner with Gibson, Dunn & Crutcher LLP. Mr.
Collins is a general partner of a real estate partnership that filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in 1995. The
partnership emerged from reorganization in 1996 and currently is performing
under its obligations, as reorganized. Mr. Collins was not the managing general
partner of the partnership at the time it was put into Chapter 11 and currently
is not the managing general partner.

KENNETH D. REGAN. Mr. Regan joined the Company in October 1997 as Vice
President for International Development and assumed the position of President of
ACS Services, a business unit of the Company focusing on IT Services in January
1998. Before joining the Company, Mr. Regan served for seven years as head of
the Communication and Information Systems Department at the Navy Research and
Development Laboratory Center ("NRaD") in San Diego, California. Prior to
becoming head of the department, he was division head, branch head and program
manager for large communication and surveillance programs at the Naval Ocean
Systems Center and predecessor organizations.

KEVIN R. ADAMS. Mr. Adams has served as President of ACS Technologies
since October 1997. Mr. Adams joined the Company in September 1993 as a Systems
Engineer, and in September 1994 he was made Manager of VME Technologies. In
April 1996, Mr. Adams was promoted to Director of ACS Technologies, a business
unit of the Company focusing on systems integration work, and in May 1997, Mr.
Adams was appointed to the position of Vice President of the Company. From
December 1991 to August 1993, Mr. Adams was employed as an engineer by VisiCom
Laboratories, Inc., a software development company.

HOWARD SPARKS. Mr. Sparks was a founder of ISC and has been President and
a Director of ISC since its inception in 1983. Prior to founding ISC, Mr. Sparks
was a Senior Analyst and Business Manager for Sonalysts, Inc. Mr. Sparks has 38
years of C3I experience.

DWAYNE JUNKER. Mr. Junker joined RFM in 1989 and has served as RFM's
President since November 1997. Prior to becoming President, Mr. Junker served as
Vice President from 1996 to November 1997, C4I Division Vice President from 1994
to 1996, head of the C3I Department from 1992 to 1994 and as Milstar Satellite
Program Manager from 1989 to 1992. Prior to working at RFM, Mr. Junker served 30
years as a Navy Officer specializing in telecommunications and electronics.

JOHN LIN. Mr. Lin is a founder of AMI and has been President of AMI since
its inception in 1981. Mr. Lin has over 25 years experience as a systems
engineer, facilities manager, operating system programmer, application
programmer, office automation designer and network designer and installer. Prior
to founding AMI, Mr. Lin worked for Electronic Data Systems and Planning
Research Corporation.

The Bylaws of the Company provide that the Board of Directors shall consist
of five directors (plus such number of directors as may be directed from time to
time pursuant to the terms of any series of preferred stock that may be issued
and outstanding from time to time). Each director is elected for a one-year term
at each annual meeting of the stockholders. Officers are elected by the Board of
Directors. Each officer serves at the discretion of the Board of Directors.
There are no family relationships among any of the directors or executive
officers.

STOCKHOLDERS AGREEMENT

On May 2, 1997, Messrs. Robinson, Martinache and Costello, individually and
as trustees of certain trusts, entered into a Stockholders Agreement pursuant to
which each has agreed to vote the shares

38
<PAGE> 39

beneficially owned by him to elect each other as directors of the Company and on
other matters as a block as determined by the affirmative vote of the majority
of their shares. Upon completion of this offering, the Stockholders Agreement
will automatically terminate due to Messrs. Robinson, Martinache and Costello as
a group beneficially owning less than forty percent (40%) of the outstanding
Common Stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.

Subsequent to the initial public offering in July 1997, the Board of
Directors established a Compensation Committee and an Audit Committee. The
Compensation Committee and Audit Committee are comprised of Messrs. Shelton and
Collins. The Compensation Committee determines the compensation of the Company's
executive officers and administers the 1996 Stock Incentive Plan, the 1997 Stock
Incentive Plan and the Employee Stock Purchase Plan. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plan and results of the
audit engagement, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls. Neither member of the
Compensation Committee was an officer or employee of the Company during the
fiscal year ending September 30, 1997. Prior to the formation of the
Compensation Committee in August 1997, the functions of the Compensation
Committee were performed by the Board of Directors as a whole. For information
concerning certain transactions and relationships among the Company and the
current members of the Board of Directors, see "Certain Transactions."

DIRECTOR COMPENSATION

Directors who are employees of the Company do not receive any compensation
for their service as directors. The Company pays each director who is not an
employee of the Company: (i) an annual retainer of $15,000, which is paid
quarterly in cash; (ii) a stipend of $1,200 for attending each meeting of the
Board of Directors and each meeting of a committee of the Board of Directors if
such committee meeting is held on a date separate from a meeting of the Board of
Directors; and (iii) reimbursement for his out-of-pocket expenses for attending
these meetings. In addition, Directors who are not employees of the Company
receive options to purchase 5,000 shares of the Company's Common Stock upon
election to the Board of Directors and an additional 5,000 shares upon each
reelection to the Board of Directors. Such options have an exercise price equal
to the current market price on the date of the grant, a term of five years and
vest in three equal annual installments beginning on the date of the grant and
on the first and second anniversary of the grant. All non-vested options are
terminated six months after a member leaves the Board of Directors, other than
by death or disability. On death or disability, all non-vested options
automatically vest.

EXECUTIVE COMPENSATION

The following table presents certain information concerning compensation
earned for services rendered in all capacities to the Company for the years
ended September 30, 1996 and 1997 by the Chief Executive Officer and each of the
other most highly compensated executive officers of the Company whose salaries
and bonuses exceeded $100,000 in fiscal 1997 (the "Named Officers").

39
<PAGE> 40

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
NAME AND FISCAL ------------------- NUMBER OF SHARES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
------------------ ------ -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
George A. Robinson............................ 1997 $239,578 $113,266 -- $ 4,112(1)
President, Chief Executive 1996 250,000 79,440 -- 4,333(1)
Officer and Chairman of the Board
Charles G. Martinache......................... 1997 214,576 113,266 -- 4,112(1)
Executive Vice President and 1996 225,000 79,440 -- 23,233(2)
Chief Operating Officer
Thomas A. Costello............................ 1997 214,576 113,266 -- 4,112(1)
Executive Vice President, 1996 225,000 79,440 -- 4,967(1)
Chief Technology Officer and Secretary
Dev Ganesan................................... 1997(3) 75,010 50,000 115,000 --
Executive Vice President, Chief Financial
Officer and Treasurer
</TABLE>

- ---------------
(1) Represents matching 401(k) plan contributions by the Company.
(2) Includes matching 401(k) plan contributions by the Company of $4,967 and
$18,266 in moving expenses paid by the Company.
(3) Reflects compensation earned from Mr. Ganesan's date of hire, February 1,
1997, through September 30, 1997.

OPTION GRANTS IN LAST FISCAL YEAR

The following table presents certain information concerning the stock
option grants made to the Named Officers for the fiscal year ended September 30,
1997.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENTAGE OF AT
NUMBER OF TOTAL ASSUMED RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED FISCAL 1997 SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
George A. Robinson........... -- -- -- N/A N/A N/A
Charles G. Martinache........ -- -- -- N/A N/A N/A
Thomas A. Costello........... -- -- -- N/A N/A N/A
Dev Ganesan.................. 115,000 (2) 51% $6.50 1/1/05 $356,898 $854,833
</TABLE>

- ---------------
(1) Amounts are based on the hypothetical 5% and 10% annual compounded rates of
appreciation of the Common Stock price as prescribed by the Securities and
Exchange Commission and are not intended to forecast future appreciation of
the Company's Common Stock. The Company expresses no opinion regarding
whether this level of appreciation will be realized and expressly disclaims
any representation to that effect.
(2) Mr. Ganesan received such options under the terms of his employment
agreement. Such options have an exercise price of $6.50 per share and a term
of eight years. Options to purchase 28,750 became exercisable in January
1998 and the remainder will become exercisable upon completion of this
offering pursuant to the terms of his employment agreement. See
"Management -- Employment Agreement."

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<PAGE> 41

FISCAL 1997 STOCK OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table presents certain information concerning the value of
options for the fiscal year ended September 30, 1997 by each of the Named
Officers. None of the Named Officers exercised options during the fiscal year
ended September 30, 1997.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END FISCAL YEAR-END(1)
-------------------------- --------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------------------------- --------------------------
<S> <C> <C> <C> <C>
George A. Robinson................................ -- -- -- --
Charles G. Martinache............................. -- -- -- --
Thomas A. Costello................................ -- -- -- --
Dev Ganesan....................................... -- 115,000 (2) -- $718,750
</TABLE>

- ---------------
(1) Value for "in-the-money" options represent the positive spread between the
exercise prices of outstanding options and the closing price of the
Company's Common Stock on September 30, 1997 on the Nasdaq National Market
of $12.75.
(2) Options to purchase 28,750 became exercisable in January 1998 and the
remainder will become exercisable upon completion of this offering pursuant
to the terms of his employment agreement. See "Management -- Employment
Agreement." Options to purchase 25,000 of such shares will be exercised at
closing and such shares will be sold in this offering.

EMPLOYMENT AGREEMENT

Mr. Ganesan serves as the Executive Vice President, Chief Financial Officer
and Treasurer of the Company pursuant to the terms of an employment agreement
which continues in effect until Mr. Ganesan's termination or separation from the
Company. Under the terms of the employment agreement, Mr. Ganesan receives an
annual salary of $150,000 and was given a one-time signing bonus of $25,000 upon
commencing work with the Company on February 1, 1997. Mr. Ganesan received a
first-year bonus of $25,000 upon the accomplishment of certain mutually agreed
upon objectives. In addition, under the terms of the employment agreement, Mr.
Ganesan received options to purchase 115,000 shares of the Company's Common
Stock. Such options have an exercise price of $6.50 per share, which represents
the fair market value on the date of the grant and a term of eight years. All of
the options will become exercisable upon the completion of this offering
pursuant to the terms of the employment agreement. At the closing of this
offering Mr. Ganesan will exercise options for 25,000 shares which shares will
be sold pursuant to this offering.

There are no other employment agreements in effect with respect to any
directors or executive officers of the Company.

STOCK PLANS AND AGREEMENTS

1996 STOCK INCENTIVE PLAN. The 1996 Stock Incentive Plan of the Company
(the "1996 Plan") was adopted by the Company's Board of Directors in July 1996.
The 1996 Plan permits the Company to grant options to purchase stock, stock
appreciation rights, "performance" awards and restricted and unrestricted stock
up to an aggregate of 337,500 shares of Common Stock to participants in the 1996
Plan. Options for a total of 263,500 shares of Common Stock were granted under
the 1996 Plan, 171,750 of which remain outstanding. The Board of Directors has
determined not to award any additional options or other rights or awards under
the 1996 Plan.

1997 STOCK INCENTIVE PLAN. The 1997 Stock Incentive Plan of the Company
(the "1997 Plan") was adopted by the Company's Board of Directors effective
March 1997 and approved by the Company's stockholders as of March 25, 1997. The
Company has reserved 450,000 shares of Common Stock for issuance pursuant to
grants under the 1997 Plan. Options for a total of 196,800 shares of Common
Stock were granted under the 1997 Plan. The 1997 Plan has a term of 10 years.
The 1997 Plan provides for the grant of stock options, stock appreciation
rights, restricted stock or "performance shares" to directors, employees
(including officers) and consultants of the Company and its subsidiaries.
Pursuant to the 1997 Plan, options may be

41
<PAGE> 42

incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options, although incentive stock options may be granted only
to employees. All incentive stock options are nontransferable other than by will
or the laws of descent and distribution.

EMPLOYEE STOCK PURCHASE PLAN. The Company's Employee Stock Purchase Plan
(the "ESPP") was adopted by the Board of Directors in March 1998. A total of
325,000 shares of Common Stock have been reserved for issuance under the ESPP.
The ESPP automatically terminates on the earlier of March 31, 2008 or the
issuance of the maximum number of shares available under the ESPP. The ESPP,
which is intended to qualify under Section 423 of the Code, provides for
consecutive quarterly offering periods. The first offering period commenced on
April 1, 1998. The offering periods start on the first business day of each
offering period and ends on the last business day of the offering period.
Employees of the Company and any subsidiary designated by the Company's Board of
Directors are eligible to participate in the ESPP. However, no employee may be
granted an option under the ESPP who (i) immediately after the grant would own
stock or outstanding options to purchase stock possessing 5% or more of the
total combined voting power or value of all classes of the capital stock of the
Company or any subsidiary or (ii) whose rights to purchase stock under all
employee stock purchase plans of the Company and its subsidiaries accrue at a
rate which exceeds $25,000 in fair market value of the stock for each calendar
year. The ESPP permits participants to purchase Common Stock through payroll
deductions of up to 10% of the participants' base pay. The maximum number of
shares a participant may purchase during a single offering period is 500 shares.
The purchase price of stock under the ESPP is 90% of the lower of the fair
market value of the Common Stock at the beginning of the offering period or at
the end of the offering period.

INDEMNIFICATION ARRANGEMENTS

The Company has entered into indemnification agreements pursuant to which
it agreed to indemnify certain of its directors and officers against judgments,
claims, damages, losses and expenses incurred as a result of the fact that any
director or officer, in his capacity as such, is made or threatened to be made a
party to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the DGCL, as amended. The indemnification
agreements provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding. The Company's Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws
provide for the indemnification of officers and directors to the fullest extent
authorized by the DGCL.

42
<PAGE> 43

CERTAIN TRANSACTIONS

TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

In 1993, the Company entered into a ten year lease with 10089 Management,
the members of which include, among others, Messrs. Robinson, Martinache and
Costello, who collectively own 91% of 10089 Management. Under the terms of the
lease, the Company leases approximately 22,200 square feet at 10089 Lee Highway,
Fairfax, Virginia from 10089 Management for use as the Company's headquarters at
a current rental rate of approximately $27,000 per month. The monthly rental
rate increases annually based upon the annual increase in the Consumer Price
Index. The Company, as tenant, also pays for insurance for the premises and for
increases in real estate taxes over 1993 real estate taxes for the building. The
lease expires on August 31, 2003. This arrangement, in contrast to outright
ownership of the building by the Company, enables the Company to allocate the
cost of its facilities to its government contracts. The Company believes that
the terms of the lease, including the rental rate, are at least as favorable to
the Company as those which could have been negotiated with an unaffiliated third
party. The Company had guaranteed 10089 Management's bank borrowings, but this
guaranty was terminated upon the closing of the Company's initial public
offering. The Company also provides management services for 10089 Management at
no cost.

10089 Management purchased the Company's headquarters building in 1993
using, in part, a loan in the amount of $1,125,000 from a third party
institutional lender, which loan was previously guaranteed by the Company.
Pursuant to the loan agreement, as amended, the guarantee was canceled upon the
Company's initial public offering in July 1997. Also in connection with 10089
Management's acquisition of the Company's headquarters building, the Company
lent to each of Messrs. Robinson, Martinache and Costello approximately $119,000
for use as part of the purchase price for the building. The outstanding balance
of principal and accrued interest in respect of these loans as of September 30,
1997 was $443,000. All loans were repaid in full from the proceeds received by
the makers from the $6.7 million dividend of the Company's previously
undistributed S corporation earnings declared by the Board of Directors in
connection with the termination of the Company's S corporation status and its
initial public offering (the "S Corporation Distribution").

Mr. Martinache received a loan from the Company in 1996 in the amount of
$50,000, bearing interest at a rate equal to 8.75% per annum. This loan was
repaid by Mr. Martinache in full with proceeds received by him from the S
Corporation Distribution.

Charles R. Collins, a director of the Company, is an advisory partner at
the law firm of Gibson Dunn & Crutcher LLP and prior to his election to the
Board of Directors was a partner with the same firm. Gibson Dunn & Crutcher LLP
received legal fees from the Company during the Company's last fiscal year in
connection with the Company's initial public offering in July 1997 and for
certain other legal services.

TERMINATION AGREEMENTS

Immediately prior to the consummation of the Company's initial public
offering, the Company, Messrs. Robinson, Martinache and Costello, as the
majority stockholders, Thomas and Margaret M. Costello and the trusts controlled
by them, Charles and Helen Martinache and the trusts controlled by them and
George and Barbara Robinson and the trusts controlled by them entered into
Termination Agreements pursuant to which certain Stock Redemption Agreements
previously entered into by and between the Company and each other party to the
Termination Agreements were terminated.

FAIRFAX COMMUNICATIONS LTD.

Effective as of April 1, 1997, Fairfax Communications Ltd. became a
subsidiary of the Company pursuant to a transaction in which the Company
purchased all of its outstanding shares of stock. Each of Messrs. Robinson,
Martinache and Costello had owned 26.8% of the outstanding share capital of
Fairfax Communications Ltd. The Company purchased all of the ordinary shares of
Fairfax Communications Ltd. for $46,500 in a transaction intended to qualify as
a tax free reorganization under the Code. The proceeds of the sale were
distributed to the stockholders of Fairfax Communications Ltd., which
stockholders include, among others, Messrs. Robinson, Martinache and Costello,
who each received $12,500. Revenues and operating income of Fairfax
Communications Ltd. are not material.

43
<PAGE> 44

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 by: (i) each person
known by the Company to beneficially own five percent or more of the outstanding
shares of Common Stock; (ii) each director and Named Officer of the Company;
(iii) all executive officers and directors as a group; and (iv) all Selling
Stockholders. The address of the stockholders listed below as beneficially
owning more than five percent of the Common Stock is that of the Company's
principal executive offices. Except as indicated in the footnotes to the table,
the persons named in the table have sole voting and investment power with
respect to all shares beneficially owned.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
OFFERING NUMBER OF AFTER OFFERING (1)
------------------- SHARES -------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS:
George A. and Barbara Robinson (2)......... 947,500 14.5% 100,000 847,500 9.9%
Charles G. Martinache (3).................. 777,750 11.9 100,000 677,750 7.9
Thomas A. and Margaret M. Costello (4)..... 947,500 14.5 100,000 847,500 9.9
Dev Ganesan (5)............................ 86,950 1.3 25,000 61,950 *
Wayne Shelton (6).......................... 4,333 * -- 4,333 *
Charles R. Collins (7)..................... 4,333 * -- 4,333 *
All executive officers and directors as a
group (6 persons)....................... 2,768,366 41.6 325,000 2,443,366 28.3
OTHER 5% STOCKHOLDERS:
FMR Corp. (8).............................. 405,100 6.2% -- 405,100 4.7%
OTHER SELLING STOCKHOLDERS:
Christine and Gale V. Berry (9)............ 237,500 3.6% 100,000 137,500 1.6%
Howard F. and Irene L. Sparks (10)......... 237,500 3.6% 100,000 137,500 1.6%
</TABLE>

- ---------------
* Less than one percent of stock outstanding.

(1) Assumes no exercise of the Underwriters' over allotment options.

(2) Includes 421,305 shares owned by the Robinson 1997 Trust No. 1 and 421,305
shares owned by the Robinson 1997 Trust No. 2, both of which George A.
Robinson is the sole trustee, and 104,890 shares owned by George A.
Robinson and Barbara Robinson as joint tenants.

(3) Includes 186,782 shares owned by the Martinache 1997 Trust No. 1 and
190,729 shares owned by the Martinache 1997 Trust No. 2, both of which
Charles G. Martinache is the sole trustee.

(4) Includes: (i) 300,000 shares owned by the Costello 1997 Trust No. 1; (ii)
300,000 shares owned by the Costello 1997 Trust No. 2; (iii) 173,750 shares
owned by Thomas A. Costello Revocable Trust; and (iv) 173,750 shares owned
by Margaret M. Costello Revocable Trust. Margaret M. Costello and Thomas A.
Costello are trustees for the Costello 1997 Trust No. 1 and Costello Trust
No. 2; Thomas A. Costello is the trustee for the Thomas A. Costello
Revocable Trust; and Margaret M. Costello is the trustee for Margaret M.
Costello Revocable Trust.

(5) Includes outstanding options to purchase 86,250 shares of Common Stock
which will become exercisable at the closing of this offering. Concurrently
with the closing of this offering, these options will be exercised to
purchase 25,000 shares of Common Stock which will be offered for sale as
part of this offering.

(6) Includes outstanding options to purchase 3,333 shares of Common Stock which
are exercisable within 60 days.

(7) Includes outstanding options to purchase 3,333 shares of Common Stock which
are exercisable within 60 days.

(8) The information concerning the shares beneficially owned by FMR Corp. is
based upon Schedule 13G dated February 14, 1998 filed by FMR Corp. together
with Edward C. Johnson 3d, Chairman of FMR Corp., and Abigail P. Johnson, a
director of FMR Corp. Fidelity Management & Research Company

44
<PAGE> 45

("Fidelity"), a wholly-owned subsidiary of FMR Corp., is the beneficial
owner of 405,100 shares of Common Stock as a result of acting as investment
advisor to various investment companies (the "Funds"). Edward C. Johnson 3d
and FMR Corp., through its control of Fidelity, and the Funds each has sole
power to dispose of 405,100 shares owned by the Funds. Neither Edward C.
Johnson 3d nor FMR Corp. has sole power to vote or direct the voting of the
shares owned by the Funds, which power resides in the Board of Trustees of
each of the Funds. The principal business address of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.

(9) Includes 123,500 shares owned by the Christine Berry Trust, of which
Christine Berry is the sole trustee, and 114,000 shares owned by the Gale
V. Berry Trust, of which Gale V. Berry is the sole trustee.

(10) Includes 114,000 shares owned by the Howard F. Sparks Trust, of which
Howard F. Sparks is the sole trustee, and 123,500 shares owned by the Irene
L. Sparks Trust, of which Irene L. Sparks is the sole trustee.

45
<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock,
par value $.01 per share. The following brief description of the Company's
capital stock does not purport to be complete and is subject in all respects to
applicable law and the provisions of the Company's Certificate of Incorporation
and Bylaws. Upon completion of this offering, the Company will have 8,579,000
shares of Common Stock outstanding, and no shares of preferred stock
outstanding. As of April 17, 1998 there were 54 holders of Common Stock. The
Company believes that there are over 3,000 beneficial owners of Common Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that holders
of more than 50% of the shares voted for the election of directors can elect all
of the directors. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after liabilities and
obligations have been paid in full and after each class of stock, if any, having
preference over the Common Stock has been paid in total amounts to which such
class is entitled, or an amount sufficient for such payments in full has been
set aside. The outstanding shares of Common Stock are, and the shares offered by
the Company in this offering will be, when issued and paid for, fully paid and
nonassessable. Holders of Common Stock do not have preemptive rights. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.

PREFERRED STOCK

Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of Directors
without stockholder approval. The Board of Directors could issue the Preferred
Stock with voting and/or conversion rights and thereby dilute the voting power
and equity of the holders of the Common Stock and adversely affect the market
price of such stock. The issuance of Preferred Stock could also be used as an
antitakeover measure by the Company without any further action by the
stockholders. The Company has no present plans to issue shares of Preferred
Stock.

REGISTRATION RIGHTS

In connection with the acquisition of ISC, the Company granted certain
rights with respect to the registration of 475,000 shares of Common Stock under
the Securities Act of 1933. Under the terms of the stock purchase agreement
between the Company and the holders of such registerable securities, if the
Company proposes to register any of its securities under the Securities Act of
1933 pursuant to an underwritten public offering, such holders are entitled to
notice of such registration and are entitled to include shares of such Common
Stock therein. These rights are subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares included in such registration in certain circumstances.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL ("Section 203"). In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the Company's
outstanding voting stock) from engaging in a "business combination" (as defined
in Section 203) with the Company for three years following the date that person
became an interested stockholder unless: (i) before that person became an
interested stockholder, the Board approved the transaction in which the
interested stockholder became an interested stockholder or approved the business

46
<PAGE> 47

combination; (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer); or
(iii) on or following the date on which that person became an interested
stockholder, the business combination is approved by the Company's Board and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66.7% of the outstanding voting stock of the Company not owned by
the interested stockholder.

Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions which (i) involve the
Company and a person who was not an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the directors and (ii) is approved or not approved by a majority of
directors who were directors before any person became an interested stockholder
in the previous three years or who were recommended for election or elected to
succeed such directors by a majority of such directors then in office.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.

47
<PAGE> 48

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, the Company will have 8,579,000 shares
of Common Stock outstanding. The 2,525,000 shares of Common Stock sold in this
offering (assuming no exercise of the Underwriters' over-allotment option or
options outstanding under the Company's stock option plans) as well as the
2,875,000 shares sold in the Company's initial public offering will be freely
tradable without restriction or limitation under the Securities Act of 1933,
except for shares purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act of 1933 (which sales would be
subject to certain limitations and restrictions described below). All of the
remaining 3,179,000 shares of Common Stock may be sold in the public market,
subject in some cases to the volume and other limitations of Rule 144
promulgated under the Securities Act of 1933. The Company, together with certain
of its stockholders (who will hold in the aggregate 2,824,700 shares after the
closing of the offering) have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus, without
the prior written consent of A.G. Edwards & Sons, Inc. The restriction on the
Company is subject to exceptions for the issuance of shares pursuant to the
Company's existing stock plans and as payment for acquisitions by the Company.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "brokers' transactions" or to market makers, within any
three-month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 85,790 shares immediately after this offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are subject to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice filing provisions of
Rule 144.

The Company has filed registration statements on Form S-8 registering an
aggregate of 1,038,500 shares of Common Stock subject to outstanding stock
options and Common Stock issuable pursuant to the Company's stock option plans
and employee stock purchase plan. If not otherwise subject to a lock-up
agreement, shares purchased pursuant to these plans generally would be available
for resale in the public market. At closing the Company will have outstanding
options to purchase an aggregate of 343,550 shares of Common Stock, 99,700 of
which will be exercisable at the closing of this offering. Options to purchase
25,000 shares held by one of the Selling Shareholders will be exercised at the
closing of the offering and included for sale therein. See "Management -- Stock
Plans and Agreements."

In connection with the acquisition of ISC, the Company granted certain
registration rights with respect to the registration of 475,000 shares of Common
Stock under the Securities Act of 1933. See "Description of Capital
Stock -- Registration Rights."

48
<PAGE> 49

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Stockholders have agreed to sell to each
of the underwriters named below (the "Underwriters"), for whom A.G. Edwards &
Sons, Inc., Legg Mason Wood Walker, Incorporated and Scott & Stringfellow, Inc.
are acting as representatives (the "Representatives"), and each of the
Underwriters has severally agreed to purchase from the Company and the Selling
Stockholders, the respective number of shares of Common Stock set forth opposite
its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
A.G. Edwards & Sons, Inc. .................................. 614,334
Legg Mason Wood Walker, Incorporated........................ 614,333
Scott & Stringfellow, Inc. ................................. 614,333
BT Alex. Brown & Sons Incorporated.......................... 51,000
CIBC Oppenheimer Corp. ..................................... 51,000
Credit Lyonnais Securities (USA) Inc. ...................... 51,000
Merrill Lynch, Pierce, Fenner & Smith Inc. ................. 51,000
NationsBanc Montgomery Securities LLC....................... 51,000
PaineWebber Incorporated.................................... 51,000
Prudential Securities Incorporated.......................... 51,000
Anderson & Strudwick Inc. .................................. 25,000
William Blair & Co., L.L.C. ................................ 25,000
Brean Murray & Co., Inc. ................................... 25,000
C.E. Unterberg, Towbin...................................... 25,000
Ferris, Baker Watts Inc. ................................... 25,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 25,000
Johnston, Lemon & Co. Inc. ................................. 25,000
Ladenberg Thalmann & Co. Inc. .............................. 25,000
McDonald & Company Securities, Inc. ........................ 25,000
Needham & Co., Inc. ........................................ 25,000
Raymond James & Associates Inc. ............................ 25,000
Sanders Morris Mundy Inc. .................................. 25,000
Wheat First Securities, Inc. ............................... 25,000
---------
Total.................................................. 2,525,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,525,000 shares of
Common Stock offered hereby if any such shares of Common Stock are purchased. In
the event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.

The Company and the Selling Stockholders have been advised by the
Representatives that the several Underwriters propose initially to offer such
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $0.43 per share. The Underwriters may allow and such
dealers may re-allow a concession not in excess of $0.10 per share to other
dealers. After the initial public offering, the public offering price and such
concessions may be changed.

The Company has granted to the Underwriters an option, expiring 30 days
from the date of this Prospectus, to purchase up to an aggregate of 378,750
additional shares of Common Stock at the public offering price less underwriting
discount set forth on the cover page of this Prospectus. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the sale of shares of Common Stock that the Underwriters have agreed to
purchase. To the extent the Underwriters exercise such

49
<PAGE> 50

option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment.

The Company has agreed that it will not sell, without the consent of A.G.
Edwards & Sons, Inc., any Common Stock or any securities convertible into Common
Stock, during the 180 days following the date of this Prospectus except for
certain limited exceptions. The restriction on the Company is subject to
exceptions for the issuance of shares pursuant to the Company's existing stock
plans and as payment for acquisitions by the Company. In addition, certain of
the stockholders of the Company, including the Selling Stockholders, who will
hold in the aggregate 2,824,700 shares after the closing of this offering have
agreed not to sell, without the consent of A.G. Edwards & Sons, Inc., any Common
Stock for the 180 day period. A.G. Edwards & Sons, Inc. may release shares from
these lock-up agreements in whole or in part in its sole discretion without
notice.

The Representatives have advised the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.

In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
378,750 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, A.G. Edwards & Sons, Inc., on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the offering), for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for the
Company by Venable, Baetjer and Howard, LLP, McLean, VA. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Hale and
Dorr LLP, Washington, D.C.

EXPERTS

The audited financial statements of the Company for the three years ended
September 30, 1997 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report, and
are included herein in reliance upon the authority of said firm as experts in
giving such reports. The audited financial statements of AMI for the two years
ended December 31, 1997 included in this Prospectus have been audited by Keller
Bruner & Company, L.L.C., as indicated in their report, and are included herein
in reliance upon the authority of said firm as experts in giving such reports.
The audited financial statements of ISC for the two years ended September 30,
1997 included in this Prospectus have been audited by Failes and Associates,
P.C., as indicated in their report, and are included herein in reliance upon the
authority of said firm as experts in giving such reports.

50
<PAGE> 51

AVAILABLE INFORMATION

This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
omits certain of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and to the exhibits
thereto for further information with respect to the Company and the securities
offered hereby. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained upon payment of
the prescribed fee or may be examined without charge at the public reference
facilities of the Commission described below.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains an Internet website that contains
reports, proxy statements and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such web site is http://www.sec.gov. Copies of such material can be obtained
in person from the Public Reference Section of the Commission at its principal
office located at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company's Common Stock is quoted on the Nasdaq National Market.
Reports, proxy statements and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.

51
<PAGE> 52

GLOSSARY OF ACRONYMS

<TABLE>
<CAPTION>
ACRONYM DEFINITION
------- ----------
<S> <C>
BGIXS.................. Battle Group Information Exchange System
C3I.................... Command, control, communications and intelligence
C4I.................... Command, control, communications, computer and intelligence
CBT.................... Computer based training
COTS................... Commercial off-the-shelf
CMOS................... Complementary Metal Oxide Semiconductor
DCAA................... Defense Contract Audit Agency
DGCL................... Delaware General Corporation Law
DOD.................... Department of Defense
DTIC................... Defense Technical Information Center
GaAs................... Gallium Arsenide
GSA.................... General Services Administration
GUI.................... Graphical user interface
IC4I................... Integrated command, control, communications, computers and intelligence
ISALTS................. International Streamlined Automated Logistics Transmission System
IT Services............ Information technology services
LAN.................... Local area network
NATO................... North Atlantic Treaty Organization
NRaD................... Navy Research and Development Laboratory Center
SALTS.................. Streamlined Automated Logistics Transmission System
RF..................... Radio Frequency
SATCOM................. Satellite communications
VME.................... Versa-Module European
WAN.................... Wide area network
</TABLE>

52
<PAGE> 53

ADVANCED COMMUNICATION SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANCED COMMUNICATION SYSTEMS, INC.
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of September 30, 1996 and
1997 and March 31, 1998 (unaudited)....................... F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1995, 1996 and 1997 and the Six Month
Periods Ended March 31, 1997 and 1998 (unaudited)......... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended September 30, 1995, 1996 and 1997 and
the Six Month Period Ended March 31, 1998 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997 and the Six Month
Periods Ended March 31, 1997 and 1998 (unaudited)......... F-6
Notes to Consolidated Financial Statements.................. F-7

ADVANCED MANAGEMENT INCORPORATED
Report of Independent Public Accountants.................... F-21
Balance Sheets as of December 31, 1996 and 1997............. F-22
Statements of Income for the Years Ended December 31, 1996
and 1997.................................................. F-23
Statements of Shareholder's Equity for the Years Ended
December 31, 1996 and 1997................................ F-24
Statements of Cash Flows for the Years ended December 31,
1996 and 1997............................................. F-25
Notes to Financial Statements............................... F-26

INTEGRATED SYSTEMS CONTROL, INC.
Report of Independent Public Accountants.................... F-30
Balance Sheets as of September 30, 1996 and 1997............ F-31
Statements of Income for the Years Ended September 30, 1996
and 1997.................................................. F-32
Statements of Retained Earnings for the Years Ended
September 30, 1996 and 1997............................... F-33
Statements of Cash Flows for the Years Ended September 30,
1996 and 1997............................................. F-34
Notes to Financial Statements............................... F-35
</TABLE>

F-1
<PAGE> 54

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Advanced Communication Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Advanced
Communication Systems, Inc. (a Delaware corporation) and subsidiaries, as of
September 30, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 1997. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Communication Systems,
Inc. and subsidiaries as of September 30, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
November 7, 1997

F-2
<PAGE> 55

ADVANCED COMMUNICATION SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------- MARCH 31,
1996 1997 1998
--------- --------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,177 $ 2,744 $ 802
Contract receivables...................................... 9,987 17,643 27,440
Other receivables......................................... 69 154 621
Income taxes receivable................................... -- 529 --
Inventories............................................... -- 544 677
Prepaid expenses.......................................... 208 296 805
------- ------- -------
Total current assets.................................. 11,441 21,910 30,345
------- ------- -------
Property and equipment, net............................... 571 1,261 5,157
Other assets:
Notes receivable, stockholders............................ 443 -- --
Other related party receivables........................... 138 86 152
Software development costs, net........................... 461 950 1,568
Intangibles, net.......................................... -- 1,706 19,333
Long-term deferred tax asset.............................. -- 147 --
Other non-current assets.................................. 63 152 233
------- ------- -------
Total other non-current assets........................ 1,105 3,041 21,286
------- ------- -------
Total assets..................................... $13,117 $26,212 $56,788
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ -- $ -- $ 84
Accounts payable.......................................... 2,125 3,321 2,325
Accrued expenses and other current liabilities............ 3,476 8,838 9,224
Billings in excess of revenue............................. 362 225 245
Income taxes payable...................................... -- -- 331
Deferred income tax liability............................. 91 -- --
------- ------- -------
Total current liabilities............................. 6,054 12,384 12,209
Long-term debt............................................ 2,688 -- 24,846
Deferred income tax liability............................. -- -- 778
------- ------- -------
Total liabilities..................................... 8,742 12,384 37,833
Commitments and contingencies (Notes 4 and 13)
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, 6,750,000, 8,975,000, and 9,450,000 shares
issued at September 30, 1996, September 30 1997, and
March 31, 1998, respectively............................ 67 90 95
Paid-in capital and accretion............................. 16,506 14,409 17,692
Retained earnings (deficit)............................... 4,520 (382) 1,205
Adjustment for redemption value greater than amounts paid
in by stockholders...................................... (16,438) -- --
Less treasury stock, 3,017,250, 2,945,000 and 2,901,625
shares at September 30, 1996, September 30, 1997, and
March 31, 1998.......................................... (280) (289) (37)
------- ------- -------
Total stockholders' equity............................ 4,375 13,828 18,955
------- ------- -------
Total liabilities and stockholders' equity....... $13,117 $26,212 $56,788
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 56

ADVANCED COMMUNICATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------- ---------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $23,724 $31,665 $52,194 $21,130 $32,550
Direct costs................................. 14,815 19,307 37,687 14,746 20,990
Indirect, general and administrative
expenses................................... 8,202 10,253 11,128 5,025 8,821
Write-off of acquired in-process R & D costs
(Note 4)................................... -- -- 1,910 -- --
------- ------- ------- ------- -------
Income from operations....................... 707 2,105 1,469 1,359 2,739
Interest expense............................. (185) (257) (136) (134) (378)
Other income, net............................ 52 57 153 44 15
------- ------- ------- ------- -------
Income before taxes.......................... 574 1,905 1,486 1,269 2,376
(Benefit) provision for income taxes......... -- -- (250) -- 879
------- ------- ------- ------- -------
Net income................................... $ 574 $ 1,905 $ 1,736 $ 1,269 $ 1,497
======= ======= ======= ======= =======
Net income per share -- basic........................................................... $ 0.23
=======
Net income per share -- diluted......................................................... $ 0.23
=======
Weighted average shares outstanding -- basic............................................ 6,438
=======
Weighted average shares outstanding -- diluted.......................................... 6,558
=======
Pro forma statement of operations data:
(unaudited): (Note 2)
Income before taxes as reported......... $ 1,905 $ 1,486 $ 1,269
Pro forma tax provision................. 743 571 495
------- ------- -------
Pro forma net income.................... $ 1,162 $ 915 $ 774
======= ======= =======
Pro forma net income per
share -- basic........................ $ 0.28 $ 0.20 $ 0.18
======= ======= =======
Pro forma net income per
share -- diluted...................... $ 0.27 $ 0.19 $ 0.18
======= ======= =======
Pro forma weighted average shares
outstanding -- basic.................. 4,212 4,682 4,246
======= ======= =======
Pro forma weighted average shares
outstanding -- diluted................ 4,361 4,767 4,346
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 57

ADVANCED COMMUNICATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADJUSTMENT FOR
REDEMPTION
VALUE GREATER
COMMON STOCK THAN AMOUNTS
------------------ PAID-IN RETAINED PAID IN BY TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS STOCK TOTAL
--------- ------ -------- -------- --------------- -------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994.. 6,750,000 $67 $ 4,864 $ 2,068 $ (4,796) $(197) $ 2,006
Net income..................... -- -- -- 574 -- -- 574
Sale of treasury stock......... -- -- -- -- -- 5 5
Purchase of treasury stock..... -- -- -- -- -- (88) (88)
Adjustment for redemption value
greater than amounts paid in
by stockholders.............. -- -- 593 -- (593) -- --
--------- --- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1995.. 6,750,000 67 5,457 2,642 (5,389) (280) 2,497
Net income..................... -- -- -- 1,905 -- -- 1,905
Stockholder distributions...... -- -- -- (27) -- -- (27)
Adjustment for redemption value
greater than amounts paid in
by stockholders.............. -- -- 11,049 -- (11,049) -- --
--------- --- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1996.. 6,750,000 67 16,506 4,520 (16,438) (280) 4,375
Net income..................... -- -- -- 1,736 -- -- 1,736
Sale of common stock from
initial public offering...... 2,225,000 23 14,341 -- -- -- 14,364
Sale of treasury stock......... -- -- -- -- -- 57 57
Purchase of treasury stock..... -- -- -- -- -- (66) (66)
Stockholder distributions...... -- -- -- (6,625) -- -- (6,625)
Translation adjustment......... -- -- -- (13) -- -- (13)
Cancellation of stock
repurchase agreements........ -- -- (16,438) -- 16,438 -- --
--------- --- -------- ------- -------- ----- -------
BALANCE AT SEPTEMBER 30, 1997.. 8,975,000 90 14,409 (382) -- (289) 13,828
Net income (unaudited)......... -- -- -- 1,497 -- -- 1,497
Issuance of common stock
(unaudited).................. 475,000 5 3,296 -- -- -- 3,301
Sale of treasury stock
(unaudited).................. -- -- -- -- -- 252 252
Expenses attributable to sale
of common stock
(unaudited).................. -- -- (13) -- -- -- (13)
Tax benefit attributable to the
exercise of non-qualified
stock options (unaudited).... -- -- -- 81 -- -- 81
Translation adjustment
(unaudited).................. -- -- -- 9 -- -- 9
--------- --- -------- ------- -------- ----- -------
BALANCE AT MARCH 31, 1998
(UNAUDITED).................. 9,450,000 $95 $ 17,692 $ 1,205 -- $ (37) $18,955
========= === ======== ======= ======== ===== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 58

ADVANCED COMMUNICATION SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------ -----------------
1995 1996 1997 1997 1998
----- ------ ------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income........................................ $ 574 $1,905 $ 1,736 $ 1,269 $ 1,497
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization................... 330 402 471 201 549
Write-off of acquired in-process R&D Costs...... -- -- 1,910 -- --
Loss on property and equipment.................. 4 2 -- -- --
Changes in assets and liabilities, net of
effects from acquisitions:
Contract receivables......................... (282) (5,328) (9,414) (1,557) (2,249)
Other receivables............................ (3) (18) (85) (128) (406)
Prepaid expenses............................. 50 (125) (84) (307) (94)
Income taxes receivable...................... -- -- (636) -- --
Inventories.................................. -- -- (182) -- (133)
Other related party receivables.............. (53) (37) (218) (123) (66)
Long-term deferred tax asset................. -- -- (147) -- 147
Other assets................................. 17 (21) (80) (54) (27)
Accounts payable............................. (476) 1,439 715 2,278 (2,083)
Accrued expenses and other current
liabilities................................ 306 1,874 4,983 1,574 (1,010)
Billings in excess of revenue................ 78 79 (502) 83 20
Income taxes payable......................... 7 (7) -- -- 942
Deferred income taxes........................ (7) -- (91) -- (363)
----- ------ ------- ------- -------
Net cash provided by (used in) operating
activities............................ 545 165 (1,624) 3,236 (3,276)
----- ------ ------- ------- -------
Cash flows from investing activities:
Collection (advances) of notes
receivable -- stockholders...................... 7 (50) 443 -- --
Purchases of property and equipment............... (270) (370) (678) (350) (765)
Capitalized software development costs............ (240) -- (626) -- (686)
Acquisitions, net of cash acquired................ -- -- (4,438) -- (19,748)
Deferred financing costs.......................... -- -- -- -- (101)
Insurance proceeds from loss of property and
equipment....................................... 23 -- -- -- --
----- ------ ------- ------- -------
Net cash used in investing activities... (480) (420) (5,299) (350) (21,300)
----- ------ ------- ------- -------
Cash flows from financing activities:
Net proceeds (costs) from sale of common stock.... -- -- 14,364 -- (13)
Net repayments from borrowings.................... -- -- -- -- (866)
Net (repayments) borrowings under line of credit.. (209) 867 (2,701) (2,688) 23,261
Stockholders' distributions....................... -- (27) (3,164) -- --
Purchase of treasury stock........................ (88) -- (66) -- --
Sale of treasury stock............................ 5 -- 57 38 252
----- ------ ------- ------- -------
Net cash (used in) provided by financing
activities............................ (292) 840 8,490 (2,650) 22,634
----- ------ ------- ------- -------
Net (decrease) increase in cash................... (227) 585 1,567 236 (1,942)
Cash and cash equivalents, beginning of year...... 819 592 1,177 1,177 2,744
----- ------ ------- ------- -------
Cash and cash equivalents, end of period.......... $ 592 $1,177 $ 2,744 $ 1,413 $ 802
===== ====== ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 59

ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

Advanced Communication Systems, Inc. (the "Company") was incorporated in 1987 in
the state of Delaware. The Company provides communications and information
technology services and solutions, predominantly to U.S. government agencies and
to a lesser extent commercial and international customers. The Company focuses
its operations in three interrelated areas: communication systems design and
support, information technology services and systems integration. In August
1997, the Company acquired RF Microsystems, Inc. ("RFM") which became a wholly
owned subsidiary of the Company. RFM provides technical and engineering services
to the Department of Defense in the areas of communications, navigation,
electronic warfare and digital signal systems. In fiscal 1998, the Company
acquired Integrated Systems Control, Inc. ("ISC"), a satellite communication
engineering company, and Advanced Management, Incorporated ("AMI"), a provider
of a wide range of information technology services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Advanced
Communication Systems, Inc. and its wholly owned subsidiaries. All intercompany
transactions have been eliminated.

NET INCOME PER COMMON SHARE

Effective December 31, 1997, the Company adopted 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.

PRO FORMA NET INCOME PER SHARE (UNAUDITED)

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
statement of operations data reflects federal and state income taxes at
applicable rates as if the Company had not elected S corporation status for the
periods indicated. 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 each period.

The pro forma weighted average shares outstanding is based on: (i) the weighted
average shares outstanding during the period assuming the dilutive effect of all
options outstanding; (ii) stock options issued during the twelve months
immediately preceding the offering date (using the treasury stock method and the
initial public offering price of $7.50 per share) for all periods presented,
through the date of the offering; and (iii) the assumed sale of a sufficient
number of shares of the Company's common stock necessary to fund the
distribution of all undistributed S corporation earnings in excess of the
preceding twelve months earnings, through the date of the offering. (Note 12)

INTERIM REPORTING

The financial information as of March 31, 1998 and for the six months ended
March 31, 1997 and 1998 has been prepared by the Company, without audit, and
includes, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the interim period
results.

F-7
<PAGE> 60
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Operating results for any interim period are not necessarily indicative of the
results for any other period or for the entire year.

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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

SUPPLEMENTAL STATEMENTS OF CASH FLOWS DATA

The Company paid income taxes in the amount of $1,000, $14,000 and $608,000 and
interest expense of $175,000, $251,000 and $136,000 during the fiscal years
ended September 30, 1995, 1996, and 1997, respectively. The Company paid income
taxes in the amount of $0 (unaudited) and $155,000 (unaudited) and interest
expense of $134,000 (unaudited) and $352,000 (unaudited) for the six months
ended March 31, 1997 and 1998, respectively.

The Company acquired all of the outstanding shares of ISC in exchange for
475,000 shares of the Company's common stock (see Note 4).

REVENUE RECOGNITION

The Company provides services, primarily to the U.S. government, on a
contractual basis. Revenue on cost plus fixed fee contracts is recognized to the
extent of costs incurred plus a proportionate amount of fees earned. Revenue on
time and materials contracts is recognized at the contractual rates as labor
hours and direct expenses are incurred. Revenue on fixed price contracts is
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated contract losses are recognized as
soon as they become known and estimable.

The Company also provides off-the-shelf hardware and software products to the
U.S. government under its GSA Schedule Contracts and to commercial companies.
Related revenue is recognized when products are shipped or when customers have
accepted the products, depending on contractual terms.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and contract
receivables. The Company maintains cash and cash equivalents in a high credit
quality financial institution. The credit risk with respect to accounts
receivable is mitigated because the majority of the Company's contract
receivables are due from agencies of the U.S. government.

For the years ended September 30, 1995, 1996 and 1997 and the six months ended
March 31, 1997 and 1998, approximately $23,483,000, $28,607,000, $48,284,000,
$19,929,000 (unaudited) and $29,886,000 (unaudited), respectively, of the
Company's revenues were derived from contracts or subcontracts funded by the
U.S. government, most of which were funded by the Department of Defense.
Government contracts can be terminated at any time by the government without
cause, are subject to competitive rebidding process upon expiration, require
compliance with various contract procurement regulations and are subject to
audit by the Defense Contract Audit Agency and other government auditors.

F-8
<PAGE> 61
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS

Cash and cash equivalents include short-term investments with original
maturities of three months or less.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined using
the average cost method.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated over their
estimated useful lives, five to seven years, using an accelerated method.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the useful life of the asset or the lease terms.

SOFTWARE DEVELOPMENT COSTS

In compliance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, certain software development costs are capitalized in the accompanying
balance sheets. Capitalization of software development costs begins upon the
establishment of technological feasibility. Capitalization ceases and
amortization of capitalized costs begins when the software product is
commercially available for general release to customers. Amortization of
capitalized software development costs is computed using the straight-line
method over the remaining estimated economic life of the product, not to exceed
five years.

RESEARCH AND DEVELOPMENT EXPENSES

The Company expenses research and development costs as they are incurred.
Research and development expenses for all periods presented were not material
except for acquired in-process research and development costs (Note 4).

INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization, consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
--------------- MARCH 31, AMORTIZATION
1996 1997 1998 PERIOD
----- ------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Goodwill...................................... -- $1,706 $15,127 40 years
Customer relationship......................... -- -- 4,039 16 years
Debt financing costs.......................... -- -- 167 2 years
----- ------ -------
-- $1,706 $19,333
===== ====== =======
</TABLE>

Debt financing costs represent fees and other costs incurred in connection with
the issuance of long term debt. These costs are amortized to interest expense
over term of the related debt using the effective interest rate method.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets, including software development costs
and property and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the

F-9
<PAGE> 62
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
probability that future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. The Company has determined
that as of September 30, 1996 and 1997 and March 31, 1998, there has been no
impairment in the carrying value of long-lived assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments are defined as cash, evidence of an ownership interest in
an entity, or a contract that imposes an obligation to deliver cash or other
financial instruments to a second party. The carrying amounts of current assets
and current liabilities in the accompanying financial statements approximate
fair value due to the short maturity of these instruments.

INCOME TAXES

From inception through September 30, 1989, the Company was subject to corporate
income taxes. On October 1, 1989, the Company elected to be treated as an S
corporation under Subchapter S of the Internal Revenue Code. The Company
recorded a deferred tax liability for the built-in gain on the cumulative
accrual to cash difference as of September 30, 1989. As of September 30, 1996
and 1997, and March 31, 1998 the remaining deferred tax liability is $91,000,
$0, and $0 (unaudited), respectively.

From October 1, 1989 through 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 and 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 public offering (Note 3), the S corporation status
was terminated, thereby subjecting future income of the Company to federal and
state income taxes. Subsequent to June 25, 1997, the Company has provided for
federal and state income taxes in the statements of operations at the effective
tax rates.

3. INITIAL PUBLIC OFFERING AND DISTRIBUTION TO STOCKHOLDERS:

In July 1997, the Company consummated the initial public offering of its common
stock (the "Initial Public Offering"), selling 2,225,000 shares of common stock,
including the underwriter's overallotment option of 375,000 shares, for $7.50
per share. The Initial Public Offering resulted in net proceeds to the Company
of approximately $14,400,000 after deducting underwriters discounts and offering
expenses payable by the Company. In connection with the Initial Public Offering,
the Company terminated its S corporation election and made distributions to the
pre-Initial Public Offering stockholders of its undistributed S corporation
earnings of approximately $6,700,000.

4. ACQUISITIONS:

RF MICROSYSTEMS, INC.

Effective August 26, 1997, the Company acquired all of the outstanding common
stock of RFM for cash consideration of $5,000,000. The acquisition has been
accounted for as a purchase, and the financial results of RFM have been included
in the results of operations from the date of acquisition. The total purchase
price has been allocated to the acquired assets and liabilities assumed at their
estimated fair values in accordance with the provisions of Accounting Principles
Board Opinion No. 16. The estimated excess of the purchase price over the net
assets acquired is being carried as goodwill, in the amount of $1,671,000, which
will be amortized over its estimated useful life of fifteen years. The
consolidated statement of operations includes a $1,910,000 charge taken at the
time of the acquisition for acquired research and development costs related to
acquired technology that has not reached technological feasibility and that has
no alternative future use.

F-10
<PAGE> 63
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS -- (CONTINUED)
The following unaudited pro forma summary presents information as if the
acquisition had occurred at the beginning of each fiscal year presented. The
charge of $1,910,000 related to the write-off of acquired in-process research
and development has been included in the pro forma results for the year ended
September 30, 1997. 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>
SEPTEMBER 30,
-------------------------
1996 1997
------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues............................................. $37,607 $58,195
Net income........................................... 1,294 1,048
Net income per share -- basic........................ 0.31 0.22
Net income per share -- diluted...................... 0.30 0.22
</TABLE>

FAIRFAX COMMUNICATIONS LIMITED

A common group of stockholders held a substantial interest in both Fairfax
Communications, Limited ("FCL") and the Company. As of September 30, 1996, the
Company had a receivable of $54,000 due from FCL for payroll services which the
Company performs on its behalf. In April 1997, the Company acquired all the
outstanding stock of FCL for $46,500. Revenues and operating income of FCL are
not material.

INTEGRATED SYSTEMS CONTROL, INC. (UNAUDITED)

In November 1997, the Company acquired all the outstanding shares of 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 forty years.

ADVANCED MANAGEMENT, INC. (UNAUDITED)

In February 1998, the Company acquired all the outstanding shares of AMI for
$19,500,000 in cash and additional contingent payment 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 relationship, in
the amounts of approximately $12.1 million and $4.1 million, respectively, which
will be amortized over its estimated useful lives ranging from 16 to 40 years.

The following unaudited pro forma summary presents information as if all of the
above acquisitions had occurred at the beginning of each period presented. The
pro forma information does not necessarily reflect the

F-11
<PAGE> 64
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. ACQUISITIONS -- (CONTINUED)
actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined companies.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1997 MARCH 31, 1998
------------------ ----------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................. $88,620 $40,635
Net income................................ 3,066 1,520
Net income per share -- basic............. 0.59 0.24
Net income per share -- diluted........... 0.58 0.23
</TABLE>

5. CONTRACT RECEIVABLES:

Contract receivables consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
-------------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. government:
Amounts billed........................ $4,103 $ 2,927 $ 9,996
Recoverable costs and accrued profit
on progress completed; not billed... 5,187 11,860 13,418
------ ------- -------
Subtotal......................... 9,290 14,787 23,414
Commercial customers:
Amounts billed........................ 123 904 1,133
Recoverable costs and accrued profit
on progress completed; not billed... 574 1,952 2,893
------ ------- -------
Subtotal......................... 697 2,856 4,026
------ ------- -------
Total............................ $9,987 $17,643 $27,440
====== ======= =======
</TABLE>

6. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
------------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and building........................... $ -- $ -- $3,177
Furniture and equipment..................... 1,561 2,575 5,191
Leasehold improvements...................... 13 18 86
------ ------ ------
1,574 2,593 8,454
Less -- Accumulated depreciation and
amortization.............................. 1,003 1,332 3,297
------ ------ ------
Total property and equipment, net........... $ 571 $1,261 $5,157
====== ====== ======
</TABLE>

F-12
<PAGE> 65
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. SOFTWARE DEVELOPMENT COSTS:

Software development costs consist of the following:

<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30,
----------------- MARCH 31,
1996 1997 1998
---- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost......................................... $685 $1,311 $1,997
Accumulated amortization..................... 224 361 429
---- ------ ------
Total software development costs, net........ $461 $ 950 $1,568
==== ====== ======
</TABLE>

Software development costs capitalized were $0, $626,000 and $686,000 in the
years ended September 30, 1996 and 1997, and six months ended March 31, 1998,
respectively. Amortization expense for the years ended September 30, 1995, 1996
and 1997 and for the six months ended March 31, 1997 and 1998 was $88,000,
$137,000, $137,000, $68,000 (unaudited) and $68,000 (unaudited), respectively.

8. ACCRUED EXPENSES:

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
------------------- MARCH 31,
1996 1997 1998
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued salaries, benefits and related
taxes..................................... $ 833 $ 984 $1,673
Accrued vacation............................ 411 543 1,149
Accrued bonuses............................. 387 310 121
Accrued subcontractor costs................. 1,726 6,579 5,408
Other....................................... 119 422 873
------ ------ ------
Total accrued expenses...................... $3,476 $8,838 $9,224
====== ====== ======
</TABLE>

9. RELATED-PARTY TRANSACTIONS (SEE NOTE 4):

In 1993, the Company entered into a ten-year lease with a real estate management
company ("10089 Management") to lease its headquarters facility. The owners of
10089 Management include the principal stockholders of the Company. The lease,
which expires on August 31, 2003, requires current rental payments of
approximately $27,000 (unaudited) per month, increased annually based on the
Consumer Price Index.

10089 Management purchased the headquarters facility, using in part a loan of
$1,125,000 from a third party lender, which was guaranteed by the Company. In
March 1997, the loan agreement was amended to cancel the guarantee upon the
initial public offering resulting in net proceeds to the Company of at least
$10,000,000. The remaining purchase price was financed through promissory notes
from various stockholders due to the Company. Accordingly, this guarantee was
terminated upon the closing of the initial public offering in July 1997. The
mortgage requires monthly principal payments of $6,000 plus interest and a
balloon payment for the balance of $750,000 in 1998. The outstanding balance as
of September 30, 1996, was $894,000.

Stockholders' notes receivable at September 30, 1996 and 1997 were $443,000 and
$0, respectively. The loans bore interest at rates ranging from 7.0% to 8.75%
per annum and had maturity dates ranging from 1998 to 2001. Interest was due
annually on the anniversary date of the loans, with principal due at maturity.
One loan for $50,000 was secured by a lien on real estate. Accrued interest
receivable at September 30, 1996 and 1997 of $83,000 and $0, respectively, is
included in related party receivables in the accompanying balance sheets.

F-13
<PAGE> 66
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED-PARTY TRANSACTIONS (SEE NOTE 4) -- (CONTINUED)
All of the stockholder notes receivable and the related interest receivables
were repaid at the time of the initial public offering.

The Company also provides management services for 10089 Management at no cost.
Included in other related-party receivables are amounts due from 10089
Management for reimbursable operating expenses paid for by the Company.

10. LONG-TERM DEBT:

Notes payable and line of credit consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, (UNAUDITED)
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
(IN THOUSANDS)

<CAPTION>
<S> <C> <C> <C>
Lines of Credit:
$5,000,000 line of credit with a commercial
bank expiring February 28, 1998........... $2,688 $ -- $ --
$35,000,000 line of credit with a commercial
bank expiring February 28, 2000........... -- -- 23,261
Notes Payable:
Note payable to bank, interest at 9.9%, due
February 2005, secured by a First Deed of
Trust on an office building............... -- -- 971
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.................................. -- -- 698
------ ------ -------
2,688 24,930
Less: Current Maturation......................... -- -- 84
------ ------ -------
$2,688 $ -- $24,846
====== ====== =======
</TABLE>

LINE OF CREDIT (UNAUDITED)

In February 1998, the Company entered into a line of credit arrangement with a
commercial bank, refinancing the Company's then-existing line of credit and the
outstanding commercial bank debt of ISC. This line of credit consists of two
separate facilities, permitting the Company to borrow up to an aggregate of $35
million. 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 financial 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. 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.

F-14
<PAGE> 67
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. LONG-TERM DEBT -- (CONTINUED)
As of March 31, 1998, the outstanding balance on its line of credit amounted to
$23.3 million and the weighted average interest rate for the six months ended
March 31, 1998 was approximately 8.2%.

The Company's subsidiary, ISC, had three notes payable totalling approximately
$1,671,000 at the date of acquisition, secured by accounts receivable, equipment
and other assets, which were repaid using the above mentioned facility in
February 1998.

The Company had a line of credit arrangement with a commercial bank under which
it could borrow up to a maximum of $5,000,000. The borrowings were limited to
80% of the eligible receivables, as defined, and 90% of eligible government
receivables, as defined, and were secured by all assets including inventory,
contract receivables and intangibles. Interest was payable monthly, at the
bank's prime rate plus a percentage, not more than 0.25%. The agreement
contained various covenants requiring the Company to maintain certain financial
ratios, each as defined, including tangible net worth, liabilities to tangible
net worth, funded debt to operating cash flow and debt service. The agreement
also restricted the payment of dividends. The line of credit arrangement expired
on February 28, 1998.

For the years ended September 30, 1995, 1996 and 1997, interest expense related
to the Company's debt was $185,000, $249,000 and $136,000, respectively, at
weighted average interest rates of 9.20%, 8.87% and 8.75% respectively. For the
six months ended March 31, 1997 and 1998, interest expense was $134,000
(unaudited) and $378,000 (unaudited), respectively, at weighted average interest
rates of 8.70% and 8.2%, respectively.

11. INCOME TAXES:

Following the completion of the Initial Public Offering, the Company became
subject to federal and state income taxes. The following unaudited pro forma
information has been determined based upon the provisions of SFAS No. 109. This
information reflects income tax expense (benefit) that the Company would have
incurred had it been subject to federal and state income taxes.

<TABLE>
<CAPTION>
(UNAUDITED)
(PRO FORMA)
YEARS ENDED FOR THE SIX
SEPTEMBER 30, MONTHS ENDED
--------------- MARCH 31,
1996 1997 1998
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (benefit)
Current
Federal.................................... $708 $521 $ 988
State...................................... 87 75 121
Deferred........................................ (52) (25) (230)
---- ---- -----
$743 $571 $ 879
==== ==== =====
</TABLE>

The provision for income taxes results in effective rates which differ from the
federal statutory rate as follows:

<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
<S> <C> <C>
Statutory federal income tax rate.................... 34.0% 34.0%
State income taxes, net of federal tax benefit....... 4.9 4.2
Other................................................ (0.5) (1.2)
---- ----
38.4% 37.0%
==== ====
</TABLE>

F-15
<PAGE> 68
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCOME TAXES -- (CONTINUED)
As of September 30, 1997, the Company had net operating loss carryforwards of
approximately $1,007,000, which expire in the year 2012. The benefits of there
carryforwards may be limited in the future in the event of significant changes
in the ownership of the Company. Net operating loss carryforwards may be used to
offset up to 90% of the Company's alternative minimum taxable income. The
provision for the alternative minimum tax will be allowed as a credit carryover
against regular tax in the future in the event regular tax exceeds alternative
minimum tax expense.

Under the provisions of SFAS No. 109, the tax effect of the net operating loss
carryforwards, together with net temporary differences, represents a net
deferred tax asset for which management has reserved certain deferred tax assets
based on their long-term nature. The components of the net deferred tax assets
are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards............... $ 386 $ 338
Write-off of acquired in-process R&D costs..... 729 705
Cash to accrual adjustment (ACS)............... 607 506
Accrued vacation............................... 116 323
Other.......................................... 191 157
------- -------
2,029 2,029
------- -------
Deferred tax liabilities
Unbilled receivables........................... (1,143) (926)
Capitalized software development costs......... (307) (342)
Cash to accrual adjustment (ISC) -- (1,121)
Other.......................................... (46) (80)
------- -------
(1,496) (2,469)
------- -------
Net deferred tax asset (liability).................. 533 (440)
Valuation allowance................................. (386) (338)
------- -------
Long-term deferred tax asset........................ $ 147 $ (778)
======= =======
</TABLE>

12. STOCKHOLDERS' EQUITY:

RECAPITALIZATION AND STOCK SPLIT

On May 5, 1997, the Company amended and restated its Certificate of
Incorporation to increase the number of authorized shares to 40,000,000 shares
of Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred
Stock, par value $.01 per share. In June, 1997, the Board of Directors approved
a stock dividend having the effect of a 6,750-for-1 stock split of the Common
Stock, which was paid to the stockholders effective June 25, 1997. The change in
the Company's Common Stock for the stock dividend has been given retroactive
effect for all periods presented.

STOCK REDEMPTION AGREEMENTS

All of the outstanding shares of common stock and options, upon exercise, were
subject to Stock Redemption Agreements. Under certain circumstances, the Company
was required to buy back the stock at a price equal to fair value, as determined
by the Board of Directors. Adjustment for redemption value greater than amounts

F-16
<PAGE> 69
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCKHOLDERS' EQUITY -- (CONTINUED)
paid in by stockholders represents the change in the redemption value per share
of outstanding Common Stock in each period. The redemption value per share,
based on the fair market value, was $4.44 and $1.48 as of September 30, 1996 and
1995, respectively. The Stock Redemption Agreements were terminated in
connection with the Initial Public Offering and the corresponding accretion was
removed. All treasury stock purchases were a result of the provisions of these
Stock Redemption Agreements.

STOCK PLANS AND AGREEMENTS

The 1997 Stock Incentive Plan of the Company (the "1997 Plan") was adopted by
the Company's Board of Directors effective March 1997 and by the Company's
stockholders on March 25, 1997. The Company may grant options, stock
appreciation rights, "performance" awards and restricted and unrestricted stock
(collectively, the "Awards") to purchase up to 450,000 shares of Common Stock to
participants in the 1997 Plan. The 1997 Plan has a term of 10 years. Options
granted under the 1997 Plan can have an exercise period of up to 10 years. The
1997 Plan provides for the grant of stock options to directors, employees
(including officers) and consultants of the Company and its subsidiaries.
Pursuant to the 1997 Plan, options may be incentive stock options within the
meaning of Section 422 of the Code or nonstatutory stock options, although
incentive stock options may be granted only to employees. All incentive stock
options are nontransferable other than by will or the laws of descent and
distribution. At September 30, 1997 and March 31, 1998, 341,200 shares and
248,200 shares (unaudited), respectively, are available for grant under this
plan.

The 1996 Stock Incentive Plan of the Company (the "1996 Plan") was adopted by
the Company's Board of Directors and approved by the Company's stockholders
effective July 1996. The Company may grant options, stock appreciation rights,
"performance" awards and restricted and unrestricted stock (collectively, the
"Awards") to purchase up to 337,500 shares of Common Stock to participants in
the 1996 Plan. The 1996 Plan has a term of 10 years. Options granted under the
1996 Plan can have an exercise period of up to 10 years. The 1996 Plan provides
for the grant of stock options to directors, employees (including officers) and
consultants of the Company and its subsidiaries. Pursuant to the 1996 Plan,
options may be incentive stock options within the meaning of Section 422 of the
Code or nonstatutory stock options, although incentive stock options may be
granted only to employees. All incentive stock options are nontransferable other
than by will or the laws of descent and distribution. The Board of Directors has
determined not to grant any additional awards under the 1996 Plan.

The Company's Employee Stock Purchase Plan (the "ESPP") was adopted by the Board
of Directors in March 1998. A total of 325,000 shares of Common Stock have been
reserved for issuance under the ESPP. The ESPP automatically terminates on the
earlier of March 31, 2008 or the issuance of the maximum number of shares
available under the ESPP. The ESPP, which is intended to qualify under Section
423 of the Code, provides for consecutive quarterly offering periods.

In 1996, the Board of Directors granted options under the 1996 Plan to purchase
148,500 shares of Common Stock. These options have an exercise price of $4.44
per share and become exercisable in three equal annual increments beginning on
October 1, 1997, and the options expire on the earlier of January 1, 2000 or
termination of employment.

On January 2, 1997, the Company granted a stock option under the 1996 Plan to
purchase 115,000 shares of Common Stock. The option has an exercise price of
$6.50 per share, a term of eight years and becomes exercisable in four equal
annual installments beginning on January 1, 1998. This option has been included
in the weighted average shares outstanding computation for all periods
presented.

In 1997, the Board of Directors granted options under the 1997 Plan to purchase
108,800 shares of Common Stock. These options have an average exercise price of
$8.10 per share and become exercisable in three equal increments and expire
after seven years or upon termination of employment.

F-17
<PAGE> 70
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Company has entered into nonqualified option agreements with various
employees. The per share exercise price of such options was at least 100% of the
fair market value, as determined by the Board of Directors, of a share of Common
Stock as of the respective dates of grant.

In 1993, the Board of Directors granted options to purchase 101,250 shares of
Common Stock to various employees. The employees were fully vested in the
options upon granting, and the options expire on the earlier of January 1, 1998
or termination of employment. As of September 30, 1995, 1996 and 1997, these
options were exercisable in the amounts of 81,000, 81,000 and 0 shares,
respectively. All sales of treasury stock were a result of the exercise of
options.

The following table summarizes the activity of all the Company's stock options:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
NUMBER PRICE PER PRICE PER
OF SHARES SHARE SHARE
--------- -------------- ---------
<S> <C> <C> <C>
Shares under option, September 30, 1994.... 87,750 $0.70 $ 0.70
Options exercised..................... (6,750) 0.70 0.70
------- -------------- ------
Shares under option, September 30, 1995.... 81,000 0.70 0.70
Options granted....................... 148,500 4.44 4.44
Options exercised..................... -- 0.70 0.70
------- -------------- ------
Shares under option, September 30, 1996 229,500 0.70 - 4.44 3.12
Options granted....................... 115,000 6.50 6.50
Options granted....................... 108,800 7.50 - 9.875 8.10
Options exercised..................... (81,000) 0.70 0.70
Options forfeited..................... (13,500) 4.44 4.44
------- -------------- ------
Shares under option, September 30, 1997.... 358,800 0.70 - 9.875 6.21
Options granted (unaudited)........... 93,000 8.875 - 12.50 10.70
Options exercised (unaudited)......... (43,375) 4.44 - 6.50 (5.81)
Options forfeited (unaudited)......... (29,750) 4.44 - 12.50 (5.79)
------- -------------- ------
Shares under option, March 31, 1998
(unaudited).............................. 378,675 $4.44 - $12.50 $ 7.39
======= ============== ======
</TABLE>

Options outstanding at September 30, 1997 had a weighted average remaining
contractual life of 4.9 years. The fair value per share of all options issued in
1997, estimated on the date of grant using the Black-Scholes option pricing
model, is $4.85.

The Company adopted the disclosure requirements of SFAS No. 123, Accounting for
Stock-Based Compensation, effective for the Company's September 30, 1997
financial statements. The Company applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock plans. No
compensation cost has been recognized for its stock plans based on the intrinsic
value of the stock options at date of grant (i.e., the difference between the
exercise price and the fair value of the Common Stock). Had compensation cost
for the Company's stock-based compensation plans been determined based on the
fair value at the grant dates under those plans consistent with the method of
FASB Statement 123, the Company's

F-18
<PAGE> 71
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. STOCKHOLDERS' EQUITY -- (CONTINUED)
pro forma net income and pro forma net income per share would have been reduced
to the amounts indicated below:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Pro forma net income (in thousands) --
As reported............................................ $ 915
SFAS No. 123 pro forma................................. $ 826
Pro forma net income per share --
As reported............................................ $0.19
SFAS No. 123 pro forma................................. $0.17
</TABLE>

The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1996: no dividend yield; expected volatility of 57.6%; risk-free
interest rates of approximately 6.4%; and average expected lives of 7.5 years.
The volatility factor was based on the volatility percentage of comparable
publicly traded companies because the Company does not have sufficient public
trading history.

13. COMMITMENTS:

LEASE COMMITMENTS

The Company leases office space and equipment under various operating lease
agreements expiring through August 2003. Most leases include a provision for
annual rent adjustments based on changes in various economic indices. Future
minimum lease payments under noncancelable operating leases as of September 30,
1997, were as follows:

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, (IN THOUSANDS)
- ------------- --------------
<S> <C>
1998........................................................ $1,146
1999........................................................ 1,070
2000........................................................ 737
2001........................................................ 465
2002........................................................ 326
Thereafter.................................................. 299
------
Total.................................................. $4,043
======
</TABLE>

During 1993, the Company entered into a lease agreement for office space with a
related party which includes the principal stockholders of the Company (Note 9).
For the years ended September 30, 1995, 1996 and 1997 and for the six months
ended March 31, 1997 and 1998, rent expense related to this lease totaled
$299,000, $309,000, $257,000, $158,000 (unaudited) and $168,000 (unaudited),
respectively. Amounts representing aggregate rent expense on all operating
leases, excluding the related party lease, totaled $1,014,000, $1,183,000,
$1,066,000, $526,000 (unaudited) and $851,000 (unaudited) for the years ended
September 30, 1995, 1996 and 1997 and for the six months ended March 31, 1997
and 1998, respectively.

PROFIT-SHARING PLAN

The Company provides a profit-sharing plan (401(k) plan) which covers
substantially all employees. Under the terms of the plan, the Company may make
discretionary profit-sharing contributions and discretionary

F-19
<PAGE> 72
ADVANCED COMMUNICATION SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. COMMITMENTS -- (CONTINUED)
matching contributions, each determined annually by the Board of Directors.
Contributions charged to expense for the years ended September 30, 1995, 1996
and 1997 and the six months ended March 31, 1997 and 1998, were $320,000,
$368,000, $236,000, $60,000 (unaudited) and $297,000 (unaudited), respectively.

14. SUBSEQUENT EVENTS:

ACQUISITION

As discussed in Note 4, the Company acquired all the outstanding shares of ISC
in November 1997 and all of the outstanding shares of AMI in February 1998.

F-20
<PAGE> 73

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

F-21
<PAGE> 74

ADVANCED MANAGEMENT INCORPORATED

BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
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-
$554,597 in 1996; $614,972 in 1997........................ 148,209 97,687
----------- -----------
Total assets........................................... $15,106,810 $12,303,668
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
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
----------- -----------
Total shareholder's equity............................. 13,314,513 10,880,993
----------- -----------
Total liabilities and shareholder's equity............. $15,106,810 $12,303,668
=========== ===========
</TABLE>

See Notes to Financial Statements.

F-22
<PAGE> 75

ADVANCED MANAGEMENT INCORPORATED

STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>

See Notes to Financial Statements.

F-23
<PAGE> 76

ADVANCED MANAGEMENT INCORPORATED

STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
UNREALIZED
ACCUMULATED
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.

F-24
<PAGE> 77

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
=========== ============
</TABLE>

See Notes to Financial Statements.

F-25
<PAGE> 78

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.

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.

F-26
<PAGE> 79
ADVANCED MANAGEMENT INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. ACCOUNTS RECEIVABLE

The Company's accounts receivable consisted of the following amounts as of
December 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>

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:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Interest................................................ $330,179 $136,985
Dividends............................................... 14,513 204,658
Capital gains........................................... 127,846 616,220
Capital losses.......................................... (74,704) --
-------- --------
$397,834 $957,863
======== ========
</TABLE>

F-27
<PAGE> 80
ADVANCED MANAGEMENT INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 1996 and
1997:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>

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:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998........................................................ $226,655
1999........................................................ 57,079
--------
$283,734
========
</TABLE>

Rent expense for the years ended December 31, 1996 and 1997 charged to
operations totaled $194,169 and $220,054, respectively.

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. For the years ended 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.

F-28
<PAGE> 81
ADVANCED MANAGEMENT INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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.

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.

F-29
<PAGE> 82

INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Directors
Integrated Systems Control, Inc.
Virginia Beach, Virginia

We have audited the accompanying balance sheets of Integrated Systems Control,
Inc. (an S corporation) as of September 30, 1996 and 1997, and the related
statements of income, retained earnings and of 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Integrated Systems Control,
Inc. as of September 30, 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.

FAILES AND ASSOCIATES, P.C.

January 14, 1998

F-30
<PAGE> 83

INTEGRATED SYSTEMS CONTROL, INC.

BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 36,083 $ 27,670
Accounts receivables -- trade............................... 3,046,071 3,079,260
Loans receivable -- officers................................ 10,000 --
Prepaid expenses............................................ 3,191 26,692
---------- ----------
3,095,345 3,133,622
Property and equipment...................................... 2,371,766 2,361,601
Other assets................................................ 40,458 61,902
---------- ----------
$5,507,569 $5,557,125
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................... $ 614,000 $ 434,000
Current portion of long-term debt........................... 116,498 130,250
Accounts payable -- trade................................... 319,423 126,575
Accrued expenses............................................ 583,524 811,250
---------- ----------
1,633,445 1,502,075
Long-term debt, net......................................... 1,911,420 1,782,953
---------- ----------
3,544,865 3,285,028
---------- ----------
Stockholders' equity:
Common stock, par value $1 per share; 1,000 shares
authorized, issued and outstanding........................ 1,000 1,000
Retained earnings........................................... 1,961,704 2,271,097
---------- ----------
1,962,704 2,272,097
---------- ----------
$5,507,569 $5,557,125
========== ==========
</TABLE>

See Accompanying Notes to Financial Statements

F-31
<PAGE> 84

INTEGRATED SYSTEMS CONTROL, INC.

STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Contract revenues........................................... $10,686,969 $12,179,618
----------- -----------
Expenses (including provision for depreciation and
amortization of $210,264 (1996) and $213,212 (1997))
Direct job costs............................................ 5,712,848 6,504,569
Overhead expenses........................................... 3,177,367 3,746,152
General and administrative expenses......................... 1,007,793 1,138,872
Non-allocable items......................................... 48,478 90,710
----------- -----------
Operating income............................................ 740,483 699,315
Interest expense............................................ 221,198 217,586
----------- -----------
Net income............................................. $ 519,285 $ 481,729
=========== ===========
</TABLE>

See Accompanying Notes to Financial Statements

F-32
<PAGE> 85

INTEGRATED SYSTEMS CONTROL, INC.

STATEMENTS OF RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
RETAINED EARNINGS -- BEGINNING.............................. $1,511,345 $1,961,704
Net income.................................................. 519,285 481,729
S corporation cash dividends paid........................... (68,926) (172,336)
---------- ----------
RETAINED EARNINGS -- ENDING................................. $1,961,704 $2,271,097
========== ==========
</TABLE>

See Accompanying Notes to Financial Statements

F-33
<PAGE> 86

INTEGRATED SYSTEMS CONTROL, INC.

STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income.................................................. $ 519,285 $ 481,729
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 210,264 213,212
Gain (loss) on disposal of fixed assets................... (2,575) 2,107
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (1,017,444) (33,189)
Prepaid expense........................................ 2,236 (23,501)
Deposits............................................... (4,933) (23,141)
Increase (decrease) in:
Accounts payable -- trade.............................. 239,047 (192,848)
Accrued expenses....................................... 81,408 227,726
----------- ---------
Net cash provided by operating activities......... 27,288 652,095
----------- ---------
Cash flows from investing activities
Proceeds from sale of fixed asset........................... 2,575 --
Capital expenditures........................................ (227,212) (203,457)
Net cash used in investing activities....................... (224,637) (203,457)
Cash flows from financing activities
Net borrowings (payments) under line-of-credit agreements... 5,000 (180,000)
Proceeds from long-term borrowing........................... 100,000 --
Principal payments on long-term debt........................ (100,154) (114,715)
Repayments from officers.................................... -- 10,000
Cash dividends paid to stockholders......................... (68,926) (172,336)
----------- ---------
Net cash provided used in investing activities.... (64,080) (457,051)
----------- ---------
Net decrease in cash and cash equivalents................... (261,429) (8,413)
Cash and cash equivalents, at beginning of year............. 297,512 36,083
----------- ---------
Cash and cash equivalents, at end of year................... $ 36,083 $ 27,670
=========== =========
Supplemental disclosures of cash flow information
Interest paid............................................... $ 221,198 $ 217,586
=========== =========
State income taxes refunded................................. $ (4,804) $ --
=========== =========
</TABLE>

See Accompanying Notes to Financial Statements

F-34
<PAGE> 87

INTEGRATED SYSTEMS CONTROL, INC.

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND NATURE OF OPERATIONS

NATURE OF OPERATIONS

Integrated Systems Control, Inc. is a Virginia based corporation. The
Company's principal lines of business are communication resource master
planning, implementation support and concept development, as well as, the
design, engineering and analysis of communication systems. The principal markets
of the Company are the United States and allied military forces.

REVENUE RECOGNITION

The principal source of revenue of Integrated Systems Control, Inc. is
contracts for systems engineering services in the government defense industry.
Revenue on cost-plus-fixed-fee contracts is recognized to the extent of costs
incurred plus a proportionate amount of fee earned. Revenue on firm-fixed-price
contracts is recognized on the percentage-of-completion method based on costs
incurred in relation to total estimated costs. Revenue on time-and-material
contracts is recognized based on hours incurred, extended at contract rates plus
materials expense incurred. Anticipated losses are recognized as soon as they
become known.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization
is provided using accelerated and straight-line methods over the estimated
useful lives of the assets. Expenditures for major renewals or betterments that
extend the useful lives of property, plant and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.

ADVERTISING

The Company follows the policy of charging the cost of advertising to
expense as incurred. There were no advertising costs incurred for the years
ended September 30, 1996 and 1997.

INCOME TAXES

The Company's stockholders have elected to be taxed as an S Corporation.
Under this election, the Company's net income or loss is reportable by the
stockholders. Therefore, no provision or liability for federal or certain states
income taxes is presented in these statements. The Company operated in one state
which required them to pay income taxes on approximately 13% of the Company's
net income. A (benefit) provision of $-0- (1997) and ($4,804) (1996) for state
income tax has been reflected in general and administrative expenses.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

NOTE 2. 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-35
<PAGE> 88
INTEGRATED SYSTEMS CONTROL, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. CONCENTRATION OF CREDIT RISK

The Company maintains its cash in bank deposit accounts at high credit
quality financial institutions. The balances, at times, may exceed Federally
insured limits.

The Company is also subject to concentration of credit risk due to high
dollar value of accounts receivable. The credit risk with respect to accounts
receivable is mitigated because the majority of the Company's receivables are
due from prime contractors conducting business with agencies of the U.S.
Government.

NOTE 4. ACCOUNTS RECEIVABLE -- TRADE

Accounts receivable -- trade consist of the following:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Amounts billed, net of allowance for doubtful accounts of
$-0-(1996), $36,226 (1997)................................ $2,774,669 $2,882,630
Recoverable costs and accrued profit on progress
completed -- not billed................................... 271,402 196,630
---------- ----------
$3,046,071 $3,079,260
========== ==========
</TABLE>

Recoverable costs and accrued profit not billed principally comprise
amounts of revenue recognized on contracts for which billings had not been
presented to the contract owners because the amounts were not billable at
balance sheet date. It is anticipated such unbilled amounts will be billed and
collectible in the near future once certain contract commitments have been
fulfilled.

NOTE 5. LOANS RECEIVABLE -- OFFICERS

Loans receivable -- officers represents a note with interest accrued at
8 1/4% per annum. The balances are $10,000 (1996) and $-0- (1997).

NOTE 6. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land................................................... $ 231,325 $ 231,325
Building and related fixtures.......................... 1,978,332 1,995,940
Furniture and fixtures................................. 813,855 708,844
Computer equipment and software........................ 283,159 445,642
---------- ----------
3,306,671 3,381,751
Less: Accumulated depreciation and amortization........ 934,905 1,020,150
---------- ----------
$2,371,766 $2,361,601
========== ==========
</TABLE>

F-36
<PAGE> 89
INTEGRATED SYSTEMS CONTROL, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. OTHER ASSETS

Other assets consist of the following:

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deposits.................................................... $ 9,562 $32,703
Loan acquisition costs, net of amortization of $3,041 (1996)
and $4,738 (1997)......................................... 30,896 29,199
------- -------
$40,458 $61,902
======= =======
</TABLE>

NOTE 8. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Payroll..................................................... $258,363 $511,515
Vacation and sick leave..................................... 304,284 275,285
Benefits.................................................... 20,876 24,450
-------- --------
$583,523 $811,250
======== ========
</TABLE>

F-37
<PAGE> 90
INTEGRATED SYSTEMS CONTROL, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable consists of the following line of credit arrangements with a
bank. All credit arrangements are secured by accounts receivable, furniture,
fixtures, equipment and various current and future U.S. Government contract
rights.

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
$1,000,000 maximum borrowing limit, interest accrues monthly
at the prime rate plus one-half percent................... $ 614,000 $ 434,000
========== ==========
Long-term debt consists of the following:

Note payable with bank, balloon payment due February 2005,
payable in monthly installments of $9,062 including
interest at 9.9% (fixed for first five years) secured by a
First Deed of Trust on the office building with a book
value of $2,105,000....................................... $ 989,199 $ 976,898
Note payable with Urban Business Development Corporation,
due January 2015, payable in monthly installments of
$6,537, including interest at 8.575%, also added to
monthly payment is $375 for Small Business Administration
(SBA) service fees (which will be recalculated every five
years based on the principal balance at that time), the
note is guaranteed by the SBA plus secured by a second
deed of trust on the office building and personal
guarantees of the stockholders............................ 722,518 706,847
Note payable with bank, due April 2000, payable in monthly
installments of $6,264, including interest at 9.25%
secured by accounts receivables, furniture, fixtures,
equipment and various government contracts................ 229,443 173,426
Note payable with bank, due April 1999, payable in monthly
installments of $3,169, including interest at 8.75%,
secured by accounts receivable, furniture, fixtures,
equipment and various government contracts................ 86,758 56,032
---------- ----------
2,027,918 1,913,203
Less: current portion.................................. 116,498 130,250
---------- ----------
$1,911,420 $1,782,953
========== ==========
</TABLE>

Annual maturities of long term-debt after September 30, 1997, are as
follows:

<TABLE>
<S> <C>
1998.................................... $ 130,250
1999.................................... 120,199
2000.................................... 77,308
2001.................................... 47,550
Thereafter.............................. 1,537,896
----------
$1,913,203
==========
</TABLE>

NOTE 10. LEASE COMMITMENTS

The Company leases three facilities which are accounted for as
noncancelable operating leases expiring through April 2001. In addition, the
Company rents equipment under noncancelable operating leases expiring on various
dates through November 1999.

F-38
<PAGE> 91
INTEGRATED SYSTEMS CONTROL, INC.

NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. LEASE COMMITMENTS -- (CONTINUED)
The following is a schedule of future minimum rental payments required
under the above leases as of September 30, 1997:

Rent expense charged to operations was $247,641 (1996) and $363,960 (1997).

NOTE 11. EMPLOYEE BENEFIT PLANS

The Company maintains a qualified 401(k) employee savings and profit
sharing plan for the benefit of substantially all employees. Under the plan,
individual employee contributions are not to exceed the lesser of 15% of total
compensation earned by plan participants during the year or $9,500 (1996 and
1997). The Company matches, within prescribed limits, the contributions of
employees. The Company also has the option to make additional profit sharing
contributions to the plan. Employer contributions to the plan amounted to
$160,106 (1996) and $189,261 (1997).

NOTE 12. SUBSEQUENT EVENTS

Effective November 1, 1997, all of the outstanding common stock of the
company was acquired by Advanced Communications Systems, Inc. (ACS), a company
publicly traded on the NASDAQ exchange. In order to conform with ACS's fiscal
year, the accompanying financial statements have been presented based on a
September 30 year end.

F-39
<PAGE> 92

ADVANCED COMMUNICATION SYSTEMS, INC.

DESCRIPTION OF GRAPHIC

[Picture of: satellite dish, army personnel discussing data presented on
computer terminal;
systems operator sitting at communications lab; systems integrator inserting
communications boards into a chasis; communications equipment]

COMMUNICATION
SYSTEMS

INFORMATION
TECHNOLOGY

SYSTEMS
INTEGRATION

CORPORATE HEADQUARTERS: 10089 LEE HIGHWAY, FAIRFAX, VA 22030
CRYSTAL CITY - ALEXANDRIA - PHILADELPHIA - VIRGINIA BEACH - SAN
DIEGO - CHARLESTON - LOS ANGELES
EL SEGUNDO - COLORADO SPRINGS - LUSBY, MARYLAND - UNITED KINGDOM

(703) 934-8130 FAX: (703) 934-8807 www.advcom.com
<PAGE> 93

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER,
SOLICITATION OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THE PROSPECTUS.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 14
Capitalization........................ 14
Unaudited Pro Forma Condensed
Consolidated Statement of
Operations.......................... 15
Selected Consolidated Financial Data.. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 25
Management............................ 37
Certain Transactions.................. 43
Principal and Selling Stockholders.... 44
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 48
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Available Information................. 50
Glossary of Acronyms.................. 52
Index to Financial Statements......... F-1
</TABLE>

2,525,000 SHARES

ADVANCED
COMMUNICATION
SYSTEMS, INC.
COMMON STOCK

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PROSPECTUS

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A.G. EDWARDS & SONS, INC.

LEGG MASON WOOD WALKER
INCORPORATED

SCOTT & STRINGFELLOW, INC.

MAY 20, 1998

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