Exhibit 99(b)
ADVANCED COMMUNICATION SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Advanced Management Incorporated ("AMI"), as
described below.
Effective January 31, 1998, Advanced Communication Systems, Inc. ("ACS"),
acquired all of the outstanding common stock of AMI in exchange for $19.5
million in cash. The acquisition has been accounted for as a purchase, and
accordingly, the total purchase price has been allocated among the acquired
assets in accordance with the provisions of Accounting Principles Board Opinion
No. 16. The excess of the purchase price over the net fair market value of the
assets acquired is being classified as intangible assets, including goodwill and
customer relationship, which will be amortized over their useful lives ranging
from 16 to 40 years. Prior to this, the Company had acquired RF Microsystems,
Inc.("RFM") in August 1997 and Integrated Systems Control, Inc. ("ISC") in
November 1997.
The unaudited pro forma condensed consolidated balance sheet as of December 31,
1997, has been prepared to reflect the acquisition of AMI as if it had occurred
on December 31, 1997, by combining the consolidated balance sheet of ACS as of
December 31, 1997, with the balance sheet of AMI as of December 31, 1997. The
unaudited pro forma condensed consolidated statement of operations for the year
ended September 30, 1997, with appropriate adjustments, has been prepared by
combining the consolidated statement of operations of ACS for the period ended
September 30, 1997, with the historical results of operations of RFM for the
nine months ended June 30, 1997, the audited statement of income of ISC for the
twelve months ended September 30,1997, and with the statement of operations of
AMI for the twelve months ended December 31, 1997, to reflect the acquisitions
of AMI, ISC and RFM as if they had occurred at the beginning of the period
presented. The unaudited pro forma condensed consolidated statement of
operations for the six months ended March 31, 1998, with appropriate
adjustments, has been prepared by combining the consolidated statement of
operations of ACS for the six months ended March 31, 1998, with the historical
pre-acquisition results of operations of AMI for the four months beginning
October 1, 1997 through January 31, 1998, to reflect the acquisition of AMI as
if it had occurred at the beginning of the period presented.
The unaudited pro forma condensed consolidated financial statements have been
prepared by the ACS's management and should be read in conjunction with the
historical financial statements of ACS and AMI and the related notes thereto.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the results of operations that may have actually
occurred had the acquisition occurred on the dates specified, or of the future
results of the combined companies. The pro forma adjustments are based upon
available information and certain adjustments that the management of ACS
believes are reasonable. In the opinion of ACS's management, all adjustments
have been made that are necessary to present fairly the unaudited pro forma
condensed consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(in thousands)
(Unaudited)
ACS AMI Pro Forma Pro Forma
Historical Historical(1) Adjustments Combined
---------- ---------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents .................. $ 251 $ 813 $ -- $ 1,064
Contract receivables ....................... 22,713 5,016 -- 27,729
Other receivables .......................... 151 -- -- 151
Income taxes receivable .................... 309 -- -- 309
Inventories ................................ 614 -- -- 614
Prepaid expenses ........................... 349 182 -- 531
-------- -------- -------- --------
Total current assets .................... 24,387 6,011 -- 30,398
-------- -------- -------- --------
Property and equipment, net ................ 4,792 98 -- 4,890
Other assets:
Other related party receivables ............ 118 -- -- 118
Investments-available for sale ............. -- 6,175 (6,175) --
Software development costs, net ............ 1,155 -- -- 1,155
Goodwill, net .............................. 2,839 -- 15,194 (3) 18,033
Long-term deferred tax asset ............... 147 -- -- 147
Other assets ............................... 201 20 -- 221
-------- -------- -------- --------
Total other assets ...................... 4,460 6,195 9,019 19,674
-------- -------- -------- --------
Total assets ......................... $ 33,639 $ 12,304 $ 9,019 $ 54,962
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt .......... $ 1,964 $ -- $ -- $ 1,964
Accounts payable ........................... 2,137 486 -- 2,623
Accrued expenses ........................... 7,827 837 400(4) 9,064
Billings in excess of revenue .............. 243 -- -- 243
Contract contingency allowance ............. -- 100 -- 100
-------- -------- -------- --------
Total current liabilities .............. 12,171 1,423 400 13,994
Long-term debt ............................. 2,512 -- 19,500(4) 22,012
Deferred income taxes ...................... 1,141 -- -- 1,141
-------- -------- -------- --------
Total liabilities ...................... 15,824 1,423 19,900 37,147
(6,175)(2)
Total stockholders' equity ................. 17,815 10,881 (4,706)(5) 17,815
-------- -------- -------- --------
Total liabilities and stockholders'
equity ................................ $ 33,639 $ 12,304 $ 9,019 $ 54,962
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
DECEMBER 31, 1997
(1) Information obtained from the December 31, 1997 audited balance sheet of
AMI.
(2) Reflects assets distributed to the stockholder of AMI prior to the
acquisition.
(3) Reflects intangible assets, including goodwill and customer relationship,
originating from the purchase of all of the outstanding stock of AMI and
represents the allocation of the excess purchase price using the purchase method
of accounting for the transaction after adjusting the assets acquired and the
liabilities assumed to their respective fair market values.
(4) Reflects the borrowings under a bank line of credit facility to fund the
acquisition and represents the cash consideration paid for AMI. In addition,
$400,000 of incremental costs, primarily investment banking, legal and
accounting fees, were incurred directly related to the acquisition and are shown
as a pro forma adjustment to accrued expenses and the purchase price.
(5) Eliminates the equity of AMI upon consolidation with ACS.
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
(Unaudited)
Pro Forma Pro Forma
Company (1) RFM (2) ISC (3) AMI(4) Adjustments (5) Combined
----------- ------- ------- ------- -------------- --------
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
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(1) Represents the historical results of operations of the Company.
(2) Represents the historical results of operations of RFM for the nine months
ended June 30, 1997.
(3) Represents the historical results of operations, derived from the audited
statement of income of ISC for the twelve months ended September 30, 1997.
(4) Represents the historical results of operations, derived from the audited
statement of income of AMI for the year ended December 31, 1997.
(5) Gives effect to the acquisition of AMI, ISC and RFM assuming such
transactions had occurred on October 1, 1996 and the exclusion of a one-time
charge reflecting the write-off of acquired in-process research and development
costs in connection with the acquisition of RFM totaling $1.9 million.
(6) Elimination of intercompany transactions between the Company and RFM and
ISC.
(7) Reflects (a) elimination of intercompany transactions between the Company
and RFM and ISC of $1,438,000, (b) increase in amortization of intangible
assets, principally goodwill, totaling $552,000 resulting from the acquisitions
of AMI, ISC and RFM and (c) an increase in indirect expenses totaling $365,000
relating to additional compensation of $65,000 payable pursuant to employment
contracts with key employees and corporate allocation of $300,000 of costs
previously billable under cost-plus contracts which are no longer billable under
time-and-materials contracts.
(8) Reflects the reversal of the write-off of acquired in-process research and
development costs.
(9) Represents the increase in interest expense due to the borrowings under the
credit facility used for the acquisition of AMI.
(10) Represents the elimination of interest and investment income relating to
assets distributed to the stockholder of AMI prior to the AMI acquisition.
(11) Represents the tax effect of the pro forma adjustments.
(12) Reflects the issuance of 475,000 shares of the Company's common stock in
exchange for all of the outstanding common stock of ISC.
ADVANCED COMMUNICATION SYSTEMS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(in thousands, except per share data)
(Unaudited)
Pro Forma Pro Forma
Company (1) AMI (2) Adjustments(3) Combined
----------- -------- ---------------- --------
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
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(1) Represents the historical results of the operations of the Company.
(2) Represents the historical pre-acquisition results of operations of AMI for
the four month period beginning October 1, 1997, through January 31, 1998.
(3) Adjustments to reflect the Company's acquisitions as if they had occurred on
October 1, 1997.
(4) Includes the amortization of intangible assets ($181,000), principally
goodwill, resulting from the acquisition and reflects an increase in indirect
expenses relating to additional compensation ($22,000) payable pursuant to
employment contracts with key employees and corporate allocation ($102,000) of
costs, previously billable under cost-plus contracts, which are no longer
billable under time-and-material contracts.
(5) Represents the increase in interest expense due to the borrowings under the
credit facility used for the acquisition of AMI.
(6) Represents the elimination of interest and investment income relating to
assets distributed to the stockholder of AMI prior to the acquisition.
(7) Represents the tax effect of the pro forma adjustments.