UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
____________________ to______________________.
Commission File Number: 0-22737
Advanced Communication Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1421222
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10089 Lee Highway, Fairfax, Virginia 22030
(Address of principal executive office and zip code)
(703) 934-8130
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of the close of business on April 30, 1999, the registrant had outstanding
8,683,986 shares of Common Stock, par value $.01 per share.
ADVANCED COMMUNICATION SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1999
and September 30, 1998 3
Condensed Consolidated Statements of Operations for the Three
Months and Six Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II.OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
March 31 September 30
1999 1998
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents...................... $751 $2,457
Contract receivables........................... 65,143 54,059
Other receivables.............................. 268 286
Prepaid expenses............................... 1,751 958
Inventories.................................... 790 583
-------- --------
Total current assets........................ 68,703 58,343
-------- --------
Property and equipment, net.................... 8,226 8,044
Other assets:
Other related party receivables................ 87 88
Software development costs, net................ 3,848 3,186
Intangibles, net (principally goodwill)........ 54,182 49,726
Other non-current assets....................... 442 348
-------- --------
Total other assets.......................... 58,559 53,348
-------- --------
Total assets............................. $135,488 $119,735
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $93 $87
Obligations under capital lease................ 696 1,100
Accounts payable............................... 4,775 9,577
Accrued expenses and other current liabilities. 25,586 22,772
Billings in excess of revenue.................. 1,328 1,208
Income taxes payable........................... 1,346 1,104
Deferred income tax liability.................. 1,389 1,059
-------- --------
Total current liabilities................... 35,213 36,907
Obligations under capital lease - long-term.... 52 523
Deferred income tax liability - long-term...... 1,520 858
Long-term debt................................. 50,141 36,564
-------- --------
Total liabilities........................... 86,926 74,852
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued
and outstanding.............................. - -
Common stock, $.01 par value, 40,000,000 shares
authorized,11,450,000 shares issued at
March 31, 1999 and September 30, 1998........ 115 115
Paid-in-capital................................ 41,843 41,105
Retained earnings.............................. 6,921 3,991
Less - Treasury stock, 2,766,014 shares at
March 31, 1999 and 2,854,887 shares at
September 30, 1998........................... (317) (328)
-------- --------
Total stockholders' equity.................. 48,562 44,883
-------- --------
Total liabilities and stockholders' equity. $135,488 $119,735
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
-------- -------- -------- --------
Revenues......................................... $51,312 $18,380 $98,836 $32,550
Direct costs..................................... 34,057 11,859 66,252 20,990
Indirect, general and
administrative expenses......................... 13,451 4,888 25,824 8,821
-------- -------- -------- --------
Income from operations........................... 3,804 1,633 6,760 2,739
Interest expense, net............................ (1,092) (285) (1,939) (363)
-------- -------- -------- --------
Income before taxes.............................. 2,712 1,348 4,821 2,376
Income tax expense............................... 1,065 505 1,901 879
-------- -------- -------- --------
Net income....................................... $1,647 $843 $2,920 $1,497
======== ======== ======== ========
Net income per share - basic..................... $0.19 $0.13 $0.34 $0.23
======== ======== ======== ========
Net income per share - diluted................... $0.19 $0.13 $0.33 $0.23
======== ======== ======== ========
Weighted average shares outstanding - basic...... 8,669 6,524 8,644 6,438
======== ======== ======== ========
Weighted average shares outstanding - diluted.... 8,831 6,636 8,758 6,558
======== ======== ======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
March 31
1999 1998
------ ------
Cash flow from operating activities:
Net income............................................. $2,920 $1,497
Adjustments to reconcile net income to net cash used
in operating activities-
Depreciation and amortization........................ 1,771 549
Deferred tax provision............................... 992 147
Changes in assets and liabilities:
Contract receivables............................. (11,084) (2,249)
Other receivables................................ 18 (406)
Prepaid expenses................................. (793) (94)
Inventories...................................... (207) (133)
Other related party receivables.................. 1 (66)
Other assets..................................... (94) (27)
Accounts payable................................. (4,802) (2,083)
Accrued expenses and other current liabilities... 2,814 (1,010)
Billings in excess of revenue.................... 120 20
Income taxes payable............................. 348 579
--------- ---------
Net cash used in operating activities.......... (7,996) (3,276)
Cash flows from investing activities:
Acquisitions, net of cash acquired..................... - (19,748)
Purchases of property and equipment.................... (1,214) (765)
Capitalized software development costs................. (662) (686)
Increase in intangible assets, primarily acquisition
earnouts............................................. (5,185) (101)
--------- ---------
Net cash used in investing activities.......... (7,061) (21,300)
--------- ---------
Cash flows from financing activities:
Net costs incurred in sale of common stock............. (5) (13)
Net borrowings repaid.................................. (17) (866)
Net borrowings under line of credit.................... 13,600 23,261
Net repayments of obligations under capital leases..... (875) -
Sale of treasury stock................................. 648 252
--------- ---------
Net cash provided by financing activities...... 13,351 22,634
--------- ---------
Net decrease in cash................................... (1,706) (1,942)
Cash and cash equivalents, beginning of period......... 2,457 2,744
--------- ---------
Cash and cash equivalents, end of period............... $751 $802
========= =========
Income taxes paid...................................... $556 $155
========= =========
Interest paid.......................................... $2,027 $352
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
ADVANCED COMMUNICATION SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated balance sheet as of March 31, 1999 and
the statements of operations and cash flows for all periods presented have been
prepared by Advanced Communication Systems, Inc. ("the Company"), and have not
been audited. These financial statements, in the opinion of management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows for all periods presented. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto for the fiscal year ended September 30, 1998 included in the Company's
Annual Report on Form 10-K. Interim operating results are not necessarily
indicative of operating results for the full year.
2. Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Acquisition
In June 1998, the Company acquired all the outstanding shares of SEMCOR, Inc.
("SEMCOR") for a preliminary purchase price of $38.1 million in cash and
additional contingent payments, up to a maximum of $5.0 million for the
six-month period ended December 31, 1998, and up to a maximum of $10.0 million
for the twelve-month period ending December 31, 1999, based on the achievement
of certain financial goals. SEMCOR successfully achieved the financial goals for
the six-month period ended December 31, 1998 as outlined in the stock purchase
agreement, and accordingly the selling shareholders were paid the maximum of
$5.0 million in February 1999. Such amount is being carried as intangible assets
(goodwill).
4. Long-Term Debt
Notes payable and line of credit consist of the following:
March 31, September 30,
1999 1998
----------- -----------
(Unaudited)
Line of credit:
$60,000,000 line of credit with a commercial bank ($45,000,000
at September 30, 1998) expiring February 28, 2002.................... $48,600 $35,000
Notes payable:
Note payable to bank, interest at 9.9%, due February
2005, secured by a First Deed of Trust on an office building......... 957 964
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................................................ 677 687
----------- ------------
50,234 36,651
Less current maturities............................................... 93 87
----------- ------------
$50,141 $36,564
=========== ============
As discussed in Item 2 below, the Company's line of credit arrangement with a
commercial bank, consisting of two credit facilities, was increased in February
1999 from $50 million to $60 million. The first facility, in an amount up to $30
million, may be used to finance acquisitions, working capital, and other
corporate purposes, and bears interest at either the bank's prime rate or at a
London interbank offered rate ("LIBOR") for one, two or three month periods,
plus a percentage, not more than 2.2%, which depends on the Company's
historical performance. The second facility, in an amount up to $30 million, may
be used to finance acquisitions and for other corporate purposes approved by the
lender, 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, 2002.
The credit agreement contains various covenants requiring the Company and its
subsidiaries, on a consolidated basis, to maintain certain financial ratios,
including debt to cash flow, fixed charge coverage and minimum net worth. The
credit agreement also prohibits the payment of dividends.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements based on management's
current expectations, estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management. These
forward-looking statements involve risks and uncertainties, and actual results
may differ materially from those anticipated or expressed in such statements.
Potential risks and uncertainties include, among others, those set forth herein
and in the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission. Except as required by law, the Company undertakes no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise.
Overview
The Company provides communications, information systems and applied technology
services and solutions, predominately to U.S. government agencies and to a
lesser extent commercial and international customers. The Company's two
significant U.S. Navy communication services contracts and programs accounted
for 18.0% of the revenues for the six-month period ended March 31, 1999.
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.
Many of the Company's contracts are funded from year to year, based primarily on
the procuring agency's fiscal requirements. 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. 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.
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. In addition, most of the Company's
government contracts have a base term of one year and a number of option years,
and there can be no assurance that the government will extend a contract through
its option years. Termination of any of the Company's large government
contracts, or failure of the government to extend such contracts, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Many of the Company's large contracts require the Company to 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.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of revenues for the periods indicated:
Three Months Six Months
Ended March 31, Ended March 31,
------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenues.............................. 100.0% 100.0% 100.0% 100.0%
Direct costs.......................... 66.4 64.5 67.0 64.5
Indirect, general and administrative.. 26.2 26.6 26.1 27.1
---------- ---------- ---------- ----------
Income from operations................ 7.4 8.9 6.9 8.4
Interest expense, net................. (2.1) (1.6) (2.0) (1.1)
---------- ---------- ------------ ------------
Income before taxes................... 5.3 7.3 4.9 7.3
Provision for income taxes............ 2.1 2.7 1.9 2.7
---------- ---------- ------------ ------------
Net income............................ 3.2% 4.6% 3.0% 4.6%
========== ========== ============ ============
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenues increased 179.2%, or $32.9 million, to $51.3 million for the three
months ended March 31, 1999, from $18.4 million for the same period in 1998. The
increase was principally due to an increase in revenues resulting from the
Company's acquisition of SEMCOR and an increase in systems integration and
communication services revenues, partially offset by a decrease in information
technology services revenues from federal agency information technology
customers.
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 $34.1 million for the three months ended March 31,
1999 from $11.9 million for the same period in 1998 due primarily to increased
revenues from the acquisition of SEMCOR. Direct costs, expressed as a percentage
of revenues, increased to 66.4% for the three months ended March 31, 1999 from
64.5% for the same period in 1998, primarily due to an increase in the
proportion of revenues resulting 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 $13.5 million for the three months ended March 31, 1999, from $4.9
million for the same period in 1998. The increase was due primarily to the
higher level of revenues discussed above. Indirect expenses, expressed as a
percentage of revenues, decreased to 26.2% from 26.6% for the three months ended
March 31, 1999 and 1998 respectively, due to the higher proportion of systems
integration revenues, which typically have lower associated indirect expenses,
partially offest by an increase in the amortization of intangible assets,
principally goodwill, resulting from the acquisition of SEMCOR.
Income from operations increased 132.9%, to $3.8 million for the three months
ended March 31, 1999, from $1.6 million for the same period in 1998, primarily
due to increased communication systems revenues and applied technology services
revenues from the acquisition of SEMCOR and an increase in systems integration
revenues. As a percentage of revenues, income from operations decreased to 7.4%
for the three months ended March 31, 1999, from 8.9% for the comparable period
in the prior year, principally attributable to the traditionally lower operating
margins experienced by SEMCOR, the lower margins from federal agency information
technology customers and from the amortization of intangible assets resulting
from the Company's acquisitions.
Interest expense, net, consists of interest expense resulting from the debt
incurred to fund the Company's acquisitions, offset in part by interest income
from short-term deposits of cash and other sources of non-operating income.
Interest expense was $1.1 million and $289,000 for the three-month periods ended
March 31, 1999 and 1998, respectively. Interest and other non-operating income
was $51,000 and $4,000 for the three months ended March 31, 1999 and 1998,
respectively.
The Company's effective income tax rate was 39.3% and 37.5% for the three months
ended March 31, 1999 and 1998, respectively. This increase was primarily due to
higher effective state tax rates.
Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998
Revenues increased 203.6%, or $66.3 million, to $98.8 million for the six months
ended March 31, 1999, from $32.6 million for the same period in 1998. The
increase was principally due to an increase in revenues resulting from the
Company's acquisition of SEMCOR, and an increase in systems integration and
communication services revenues, partially offset by a decrease in information
technology services from federal agency information technology customers.
Direct costs increased to $66.3 million for the six months ended March 31, 1999,
from $21.0 million for the same period in 1998 due primarily to increased
revenues from the Company's acquisition of SEMCOR. Direct costs, expressed as a
percentage of revenues, increased to 67.0% for the six months ended March 31,
1999, from 64.5% for the same period in 1998, primarily due to an increase in
the proportion of revenues derived from systems integration services. These
services have higher direct costs than other services the Company provides
because the contracts generally require the Company to purchase hardware
components as part of the services.
Indirect expenses increased to $25.8 million for the six months ended March 31,
1999 from $8.8 million for the same period in 1998. The increase was due
primarily to the higher level of revenues discussed above. Indirect expenses,
expressed as a percentage of revenues, decreased to 26.1% for the six months
ended March 31, 1999, from 27.1% for the comparable period last year, due to the
higher proportion of systems integration revenues, that typically have lower
associated indirect expenses, partially offset by an increase in the
amortization of intangible assets, principally goodwill, resulting from the
acquisition of SEMCOR.
Income from operations increased 146.8%, to $6.8 million for the six months
ended March 31, 1999, from $2.7 million for the same period in 1998, primarily
due to increased operating results from communication systems and applied
technology revenues from the acquisition of SEMCOR and from the increase in
systems integration operating results. As a percentage of revenues, income from
operations decreased to 6.9% for the six months ended March 31, 1999, from 8.4%
for the comparable period in the prior year, principally attributable to the
traditionally lower operating margins experienced by SEMCOR, the lower margins
from federal agency information technology customers and from the amortization
of intangible assets resulting from the Company's acquisitions.
Interest expense, net, consists of interest expense resulting from the debt
incurred to fund the Company's acquisitions, offset in part by interest income
from short-term deposits of cash and other sources of non-operating income.
Interest expense was $2.0 million and $378,000 for the six-month periods ended
March 31, 1999 and 1998, respectively. Interest and other sources of
non-operating income was $89,000 and $15,000 for the six months ended March 31,
1999 and 1998, respectively.
The Company's effective tax rate was 39.4% and 37.0% for the six months ended
March 31, 1999 and 1998, respectively. This increase was primarily due to higher
effective state income tax rates.
Liquidity and Capital Resources
The Company used cash from operating activities of $8.0 million for the six
months ended March 31, 1999, resulting primarily from net income, increases in
contract receivables and decreases in accounts payable, partially offset by an
increase in accrued expenses. The increase in contract receivables was due to an
increase in revenues recognized for the period. Included in contract receivables
at March 31, 1999, is a contractual obligation of the Australian Navy in the
amount of $1.7 million. The Australian Navy is contesting this obligation and
the Company continues to vigorously pursue all available remedies to enforce
payment of such amount. For the six months ended March 31, 1998, the Company
used cash from operating activities of $3.3 million resulting primarily from net
income, increases in contract receivables and decreases in accounts payable and
accrued expenses.
The principal use of cash for investing activities has been for the purchases of
computers and equipment, the investment in software development costs and for an
earnout payment of $5.0 million to the former shareholders of SEMCOR based on
SEMCOR's achievement of certain financial goals for the six-month period ended
December 31, 1998. The purchases of computers and equipment totaled $1.2 million
and $765,000 for the six-month period ended March 31, 1999 and 1998,
respectively. Further the Company invested $662,000 and $686,000 in software
development costs in the six months ended March 31, 1999 and 1998, respectively.
During the six-month period ended March 31, 1998, the Company used cash from
investing activities for the acquisition of Advanced Management, Incorporated
for $19.7 million.
In February 1999, the Company's line of credit arrangement with a
commercial bank, consisting of two credit facilities, was increased from $50
million to $60 million. The first facility, in an amount up to $30 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 LIBOR for one, two or
three month periods, plus a percentage, not more than 2.2%, which depends on the
Company's historical performance. The second facility, in an amount up to $30
million, may be used to finance acquisitions and for other corporate purposes
approved by the lender, 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, 2002. The credit agreement contains various covenants requiring the Company
and its subsidiaries, on a consolidated basis, to maintain certain financial
ratios, including debt to cash flow, fixed charge coverage and minimum net
worth. The credit agreement also prohibits the payment of dividends. As of March
31, 1999 the outstanding balance on the Company's credit facilities was $48.6
million.
The Company currently anticipates that its current cash balances, amounts
available under its credit facilities and net cash provided by operating
activities will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months. Inflation did not
have a material impact on the Company's revenues or income from operations for
the six months ended March 31, 1999 or 1998.
YEAR 2000 Disclosure
Overview
As is true for most companies, the Year 2000 computer problem creates a risk for
the Company. If systems do not correctly recognize the date information when the
year changes to 2000, there could be an adverse impact on the Company's
operations. The risk exists primarily in four areas; the Company's internal
systems, third parties with which the Company has a material relationship,
Company products and Company Year 2000 services. In response to the Year 2000
problem and the associated risks, the Company has developed a comprehensive
compliance program to evaluate, address and remedy the date related problems
with respect to the Company's internal systems, third party relationships,
Company products and services. The compliance program is managed by the
Company's Chief Technical Officer, and is tailored after the guidance
promulgated by the General Accounting Office ("GAO") in their publication, "Year
2000 Computing Crisis: An Assessment Guide" and by the Department of the Navy
Year 2000 Action Plan. The Company has adopted the following five-phase approach
that was endorsed by the GAO and recognized by the U.S. Congress:
Awareness Phase. The Company's management is familiarized with the scope of the
Year 2000 impact, the problem is defined, compliance standards are established
and an overall strategy is developed. A Year 2000 program team is formed to
organize and implement the Company's Year 2000 compliance program.
Assessment Phase. The Year 2000 team determines the impact on the Company's
systems, tools, products and contracts. The team creates an inventory and
evaluation of systems that support the core business sectors. Third party
service providers are contacted concerning their compliance with the Year 2000
problem with regard to the products and services they provide. The team then
prioritizes the conversion or replacement of existing systems that are confirmed
to be Year 2000 non-compliant.
Renovation Phase. The Year 2000 program team rectifies the problems discovered
in the assessment phase by modifying or replacing systems that are Year 2000
non-compliant.
Validation Phase. The renovated or replaced systems, applications and databases
are tested and certified as Year 2000 compliant.
Implementation Phase. The renovated or replaced systems are fully implemented
and extensive testing is performed to insure coordination with other systems and
databases. Backup and recovery plans are put in place.
The Company anticipates that it will have all internal mission critical Year
2000 solutions in place by July 1, 1999. Internal mission critical solutions
include local and wide area networks, financial systems and embedded
micro-controllers within facility, security, telephone and other systems.
The Company is also confirming that Company vendors and suppliers of essential
hardware, software and services are Year 2000 compliant.
The Company is assessing the status of its products and Year 2000-related
services. The Company also performs Year 2000-related services for both
government and industry and is assessing the potential risk to the Company of
performing these services and is taking action to mitigate these risks as they
are identified.
Cost for Year 2000 Compliance
The Company has budgeted $550,000 for Year 2000 compliance. To date, the Company
has spent approximately $239,000.
Year 2000 Risks
The Company believes that its Year 2000 compliance plan is a comprehensive one.
The Company, however, may not be able to identify or remedy all Year 2000
compliance issues with respect to its internal systems, suppliers, customers,
products and services. Company customers may choose to fund Year 2000 compliance
efforts in lieu of contracting services to the Company. As a result, the Year
2000 problem could have a materially adverse effect on the Company's financial
condition or results of operations.
Contingency Plans
The Company currently is developing contingency plans. The Company will continue
to develop contingency plans as required to mitigate the effects of delays, if
any, in internal systems compliance, third party business interruption,
non-compliant Company products and risks associated with providing Year
2000-related services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on February 25, 1999.
(b) The matters voted upon at the meeting and the votes cast with respect
thereto were as follows:
(1) Election of Directors
Votes Votes
Nominee for Director Cast For Withheld
------------------------ ----------------- ----------------
George A. Robinson.... 7,434,989 16,395
Charles G. Martinache.. 7,395,289 56,095
Thomas A. Costello..... 7,435,189 16,195
Wayne Shelton.......... 7,433,789 17,595
Charles R. Collins...... 7,432,839 18,545
Vincent G. Vidas........ 7,433,989 17,395
(2) The amendment to the Company's 1997 Stock Incentive Plan that
provides for automatic increases in the number of shares
reserved for issuance thereunder by the lesser (i) of 2% of
the total number of shares of the Company's common stock
issued and outstanding on the last trading day of the
preceding December or (ii) 400,000 shares was approved with
3,988,470 votes in favor, 787,457 votes against and 28,977
abstentions.
(3) The Company's Employee Stock Purchase Plan was approved with
4,681,335 votes in favor, 100,305 votes against and 23,264
abstentions.
(4) The ratification of the appointment of Arthur Andersen LLP as
the Company's independent accountants for the current fiscal
year ending September 30, 1999 was ratified with 7,430,450
votes in favor, 10,840 votes against and 10,094 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 Amended and Restated Credit Agreement, dated as
of February 3, 1999, between the Company and NationsBank, N.A.
Exhibit 11.1 Statement Regarding Computation of Per Share
Earnings
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form-8K -None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1999 ADVANCED COMMUNICATION SYSTEMS, INC.
/S/ George A. Robinson
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George A. Robinson
Chairman, President
and Chief Executive Officer
/S/ Dev Ganesan
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Dev Ganesan
Executive Vice President, Chief
Financial Officer and Treasurer