1 EXHIBIT 99(b) ADVANCED COMMUNICATION SYSTEMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying unaudited pro forma condensed consolidated financial statements give effect to the acquisition of SEMCOR, Inc. ("SEMCOR"), as described below. Effective June 10, 1998, Advanced Communication Systems, Inc. ("ACS"), acquired all of the outstanding common stock of SEMCOR for the preliminary purchase price of $38 million, which consisted of $37 million in cash and $1 million in ACS common stock. In addition, ACS will pay the shareholders up to $1.2 million for certain income tax liabilities incurred as a result of the acquisition. The preliminary purchase price is subject to adjustment based on the net equity shown on the closing date balance sheet. The acquisition has been accounted for as a purchase, and accordingly, the total purchase price has been allocated among the acquired assets in accordance with the provisions of Accounting Principles Board Opinion No. 16. The excess of the purchase price over the net fair market value of the assets acquired is being classified as intangible assets, principally goodwill, which will be amortized over its estimated useful life. The unaudited pro forma condensed consolidated balance sheet as of March 31, 1998, has been prepared to reflect the acquisition of SEMCOR as if it had occurred on March 31, 1998, by combining the consolidated balance sheet of ACS as of March 31, 1998, with the balance sheet of SEMCOR as of March 31, 1998. The unaudited pro forma condensed consolidated statement of operations for the year ended September 30, 1997, with appropriate adjustments, has been prepared by combining the consolidated statement of operations of ACS for the period ended September 30, 1997, with the historical results of operations of RF Microsystems, Inc. ("RFM") for the nine months ended June 30, 1997, the audited statement of income of Integrated Systems Control, Inc. ("ISC") for the twelve months ended September 30,1997, the audited statement of operations of AMI for the twelve months ended December 31, 1997, and the audited statement of income of SEMCOR for the twelve months ended December 31, 1997, to reflect the acquisitions of AMI, ISC, RFM and SEMCOR as if they had occurred at the beginning of the period presented. The unaudited pro forma condensed consolidated statement of operations for the nine months ended June 30, 1998, with appropriate adjustments, has been prepared by combining the consolidated statement of operations of ACS for the nine months ended June 30, 1998, with the historical pre-acquisition results of operations of AMI for the four months beginning October 1, 1997 through January 31, 1998, and the historical pre-acquisition results of operations of SEMCOR for the period beginning October 1 1997 through June 9, 1998, to reflect the acquisitions of AMI and SEMCOR as if they had occurred at the beginning of the period presented. The unaudited pro forma condensed consolidated financial statements have been prepared by the ACS's management and should be read in conjunction with the historical financial statements of ACS and AMI and the related notes thereto. The unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of the results of operations that may have actually occurred had the acquisition occurred on the dates specified, or of the future results of the combined companies. The pro forma adjustments are based upon available information and certain adjustments that the management of ACS believes are reasonable. In the opinion of ACS's management, all adjustments have been made that are necessary to present fairly the unaudited pro forma condensed consolidated financial statements. 2 ADVANCED COMMUNICATION SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (IN THOUSANDS) (UNAUDITED) ACS SEMCOR PRO FORMA HISTORICAL (1) HISTORICAL (2) ADJUSTMENTS COMBINED -------------- -------------- ----------- -------- ASSETS Current assets: Cash and cash equivalents $802 $410 $0 $1,212 Cash-restricted - 2 - 2 Contract receivables 27,440 20,572 - 48,012 Other receivables 621 - - 621 Income taxes receivable - - - - Inventories 677 - - 677 Prepaid expenses 805 636 - 1,441 -------- -------- -------- --------- Total current assets 30,345 21,620 - 51,965 -------- -------- -------- --------- Property and equipment, net 5,157 1,939 - 7,096 Other assets: Other related party receivables 152 - - 152 Software development costs, net 1,568 - - 1,568 Intangibles, net 19,333 525 25,371 (3) 45,229 Other assets 233 175 - 408 -------- -------- -------- --------- Total other assets 21,286 700 25,371 47,357 -------- -------- -------- --------- Total assets $56,788 $24,259 $25,371 $106,418 ======== ======== ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $84 $0 $0 $84 Accounts payable 2,325 1,623 - 3,948 Accrued expenses 9,224 13,058 1,500 (4) 20,813 (2,969) (5) Billings in excess of revenue 245 449 - 694 Income taxes payable 331 - - 331 Deferred income tax liability - 33 - 33 Current portion of capital lease obligation - 795 - 795 Related party notes payable - 1,000 - 1,000 -------- -------- -------- --------- Total current liabilities 12,209 16,958 (1,469) 27,698 Long-term debt 24,846 - 34,000 (4) 58,846 Deferred income taxes 778 - 778 Long-term portion of capital lease obligation - 258 - 258 -------- -------- -------- --------- Total liabilities 37,833 17,216 32,531 87,580 Total stockholders' equity 18,955 7,043 2,969 (5) 18,838 - - (10,129) (6) - -------- -------- -------- --------- Total liabilities and stockholders' equity $56,788 $24,259 $25,371 $106,418 ======== ======== ======== ========= The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. 3 ADVANCED COMMUNICATION SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 (1) Information obtained from the historical unaudited balance sheet of the Company. (2) Information obtained from the unaudited March 31, 1998, balance sheet of SEMCOR. (3) Reflects intangible assets, principally goodwill, resulting from the purchase of all of the outstanding stock of SEMCOR, and the allocation of the purchase price using the purchase method of accounting for the transaction after adjusting the assets acquired and the liabilities assumed to their respective fair values. (4) Reflects the borrowings under a bank line of credit facility to fund the acquisition and represents the cash consideration paid for SEMCOR. Additionally, $1.5 million of incremental costs, primarily investment banking, legal and accounting fees, were incurred directly related to the acquisition and is shown as a pro forma adjustment to accrued expenses and the purchase price. (5) Reflects the settlement of a liability by the stockholders of SEMCOR prior to the acquisition. (6) Eliminates the equity of SEMCOR upon consolidation with the Company. 4 ADVANCED COMMUNICATION SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ACS RFM ISC AMI HISTORICAL (1) HISTORICAL (2) HISTORICAL (3) HISTORICAL (4) -------------- -------------- -------------- -------------- Revenues $52,194 $4,614 $12,180 $23,165 Direct Costs 37,687 3,237 6,505 14,794 Indirect, general and administrative expenses 11,128 1,150 4,975 4,720 Write-off of in-process R & D costs 1,910 - - - -------- -------- -------- -------- Income from operations 1,469 227 700 3,651 Interest expense (136) - (218) (1) Other income, net 153 - - 1,219 -------- -------- -------- -------- Income before taxes 1,486 227 482 4,869 Pro forma tax provision 571 92 183 1,850 -------- -------- -------- -------- Net income $915 $135 $299 $3,019 ======== ======== ======== ======== Pro forma net income per share-basic $0.20 ===== Pro forma net income per share-diluted $0.19 ===== Pro forma weighted average shares outstanding-basic 4,682 ===== Pro forma weighted average shares outstanding-diluted 4,767 ===== RFM, ISC AND AMI SEMCOR PRO FORMA SEMCOR PRO FORMA ADJUSTMENTS (5) HISTORICAL (6) ADJUSTMENTS (14) COMBINED ----------------- -------------- ------------------ -------- Revenues (3,533) (7) $92,826 $181,446 Direct Costs (1,898) (7) 63,947 124,272 Indirect, general and administrative expenses (521) (8) 27,495 (2,114) (15) 47,467 634 (16) Write-off of in-process R & D costs (1,910) (9) - - - -------- -------- -------- -------- Income from operations 796 1,384 1,480 9,707 Interest expense (1,692) (10) (357) (2,788) (17) (5,192) Other income, net (1,219) (11) 182 - 335 -------- -------- -------- -------- Income before taxes (2,115) 1,209 (1,308) 4,850 Pro forma tax provision (813) (12) 464 (502) (12) 1,845 -------- -------- -------- -------- Net income ($1,302) $745 ($806) $3,005 ======== ======== ======== ======== Pro forma net income per share-basic $0.57 ===== Pro forma net income per share-diluted $0.56 ===== Pro forma weighted average shares outstanding-basic 475 (13) 89 (18) 5,246 === == ===== Pro forma weighted average shares outstanding-diluted 475 (13) 89 (18) 5,331 === == ===== The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. 5 ADVANCED COMMUNICATION SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997 (1) Represents the historical results of operations of the Company. (2) Represents the historical results of operations of RFM for the nine months ended June 30, 1997. (3) Represents the historical results of operations, derived from the audited statement of income of ISC for the twelve months ended September 30, 1997. (4) Represents the historical results of operations, derived from the audited statement of income of AMI for the year ended December 31, 1997. (5) Gives effect to the acquisition of AMI, ISC and RFM assuming such transactions had occurred on October 1, 1996, and the exclusion of a one-time 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. (6) Represents the historical results of operations, derived from the audited statement of operations of SEMCOR for the year ended December 31, 1997. (7) Elimination of intercompany transactions between the Company and RFM and ISC. (8) Reflects (a) elimination of intercompany transactions between the Company and RFM and ISC of $1,438,000, (b) increase in amortization of intangible assets, principally goodwill, totaling $552,000 resulting from the acquisitions of AMI, ISC and RFM and (c) an increase in indirect expenses totaling $365,000 relating to additional compensation of $65,000 payable pursuant to employment contracts with key employees and corporate allocation of $300,000 of costs previously billable under cost-plus contracts which are no longer billable under time-and-materials contracts. (9) Reflects the reversal of the write-off of acquired in-process research and development costs. (10) Represents the increase in interest expense resulting from the borrowings under the credit facility used for the acquisition of AMI. (11) Represents the elimination of interest and investment income relating to assets distributed to the stockholder of AMI prior to the AMI acquisition. 6 (12) Represents the income tax effect of the pro forma adjustments. (13) Reflects the issuance of 475,000 shares of the Company's common stock in exchange for all of the outstanding common stock of ISC. (14) Gives effect to the acquisition of SEMCOR assuming such transactions had occurred on October 1, 1996. (15) Reflects the reduction of compensation to the former owners of SEMCOR pursuant to the post acquisition employment agreement. (16) Reflects the amortization of intangible assets, principally goodwill, resulting from the acquisition of SEMCOR. (17) Represents the increase in interest expense due to the borrowings under the credit facility used for the acquisition of SEMCOR. (18) Reflects the issuance of 89,000 shares of the Company's common stock, being the non-cash portion of the SEMCOR purchase price. 7 ADVANCED COMMUNICATION SYSTEMS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) SEMCOR AMI AMI PRO FORMA SEMCOR PRO FORMA COMPANY (1) HISTORICAL (2) ADJUSTMENTS (3) HISTORICAL (4) ADJUSTMENTS (9) COMBINED ----------- ---------------- ---------------- ---------------- ------------------ -------- Revenues $58,398 $8,085 $71,922 $138,405 Direct Costs 37,364 4,970 49,713 92,047 Indirect, general and administrative expenses 16,130 2,210 305 (5) 19,523 438 (10) 38,606 -------- -------- -------- -------- -------- -------- Income from operations 4,904 905 (305) 2,686 (438) 7,752 Interest expense (787) - (564) (6) (8) (1,928) (11) (3,287) Other income, net 47 1,065 (1,065) (7) 49 - 96 -------- -------- -------- -------- -------- -------- Income before taxes 4,164 1,970 (1,934) 2,727 (2,366) 4,561 Pro forma tax provision 1,505 729 (716) (8) 1,064 (923) (8) 1,659 -------- -------- -------- -------- -------- -------- Net income $2,659 $1,241 ($1,218) $1,663 ($1,443) $2,902 ======== ======== ======== ======== ======== ======== Pro forma net income per share-basis $0.40 $0.43 ===== ===== Pro forma net income per share-diluted $0.39 $0.42 ===== ===== Pro forma weighted average shares outstanding-basic 6,729 89 <12> 6,818 ===== == ===== Pro forma weighted average shares outstanding-diluted 6,855 89 <12> 6,944 ===== == ===== The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. 8 ADVANCED COMMUNICATION SYSTEMS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1998 (1) Represents the historical results of the operations of the Company. (2) Represents the historical pre-acquisition results of operations of AMI for the four-month period beginning October 1, 1997, through January 31, 1998. (3) Adjustments to reflect the Company's acquisition of AMI as if it had occurred on October 1, 1997. (4) Represents the historical results of operations of SEMCOR for the period beginning October 1, 1997, through June 9, 1998. (5) Includes the amortization of intangible assets ($181,000), principally goodwill, resulting from the acquisition of AMI 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. (6) Represents the increase in interest expense due to the borrowings under the credit facility used for the acquisition of AMI. (7) Represents the elimination of interest and investment income relating to assets distributed to the stockholder of AMI prior to the acquisition. (8) Represents the tax effect of the pro forma adjustments. (9) Adjustments to reflect the Company's acquisition of SEMCOR as if it had occurred on October 1, 1997. (10) Reflects amortization of intangible assets, principally goodwill, resulting from the acquisition of SEMCOR. (11) Reflects the increase in interest expense due to the borrowings under the credit facility used for the acquisition of SEMCOR. (12) Reflects the issuance of 89,000 shares of the Company's common stock being the non-cash portion of the SEMCOR purchase price.