U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 1O-QSB
(check one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
Commission File Number 000-30486
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 95-4743438
------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
19200 Von Karman Ave., Suite 500, Irvine, CA 92612
---------------------------------------------------
(Address of principal executive offices)
(949) 622-5566
--------------
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 3 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 April 30,2000, 76,844,780 shares of the registrant's no par value
common stock were issued and outstanding
Transmittal Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART I-FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of March 31, 2000
Condensed Consolidated Statement of Operations for the three months ended March
31, 2000 and the nine months ended March 31, 2000
Condensed Consolidated Statement of Cash Flows for the three months ended March
31, 2000 and the nine months ended March 31, 2000
Note to the Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis
PART II-OTHER INFORMATION
ITEM 2. Changes in Securities
ITEM 3. Qualitative Disclosures about Market Risk
ITEM 6. Subsequent Events and Exhibits
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
(UNAUDITED)
ASSETS As of
March 31, 2000
--------------
Current assets
Cash $ 16,917
Loans receivable 157,000
Marketable securities 15,600
Bonds receivable 36,450
-----------
TOTAL CURRENT ASSETS 225,967
-----------
PROPERTY & EQUIPMENT - NET 16,288
-----------
OTHER ASSETS
Advances receivable - Related Party 555,000
Bond issuance costs (net of amortization) 0
Telephone service deposits 65,000
Acquired Assets and other intangibles (net) 953,924
-----------
TOTAL OTHER ASSETS 1,573,924
-----------
TOTAL ASSETS $ 1,816,179
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities
Accounts payable $ 603,558
Accrued compensation 201,550
Interest payable 75,736
Note payable 150,000
Shareholder loan 176,500
Other liabilities 175,000
Convertible debentures 650,000
-----------
TOTAL CURRENT LIABILITIES 2,032,344
-----------
OTHER LIABILITIES
Minority interest in net assets of
Consolidated subsidiaries 362,856
-----------
STOCKHOLDERS' DEFICIENCY
Common stock, no par value, 100,000,000 shares
authorized, 76,897,780 shares issued and outstanding 4,423,591
Accumulated deficit (4,891,462)
Accumulated other comprehensive gain (loss) (111,150)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (579,021)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 1,816,179
===========
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three For the Nine
Months Ended Months Ended
March 31, 2000 March 31, 2000
-------------- --------------
SALES $ 138,243 263,517
COST OF SALES (280,055) (406,528)
------------ ------------
GROSS PROFIT (LOSS) (141,812) (143,011)
------------ ------------
OPERATING EXPENSES
Consulting fees 116,880 325,692
Amortization and depreciation expense 58,500 110,000
Professional fees 1,973,543 3,079,054
Other selling, general and administrative 210,051 414,978
expenses
------------ ------------
TOTAL OPERATING EXPENSES 2,358,974 3,929,724
------------ ------------
NET LOSS FROM OPERATIONS $ (2,500,786) (4,072,735)
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (8,159) (673,339)
Other income 364,498
Minority interest in World IP net loss 137,955 163,068
------------ ------------
TOTAL OTHER INCOME/ (EXPENSE) 129,796 (145,773)
------------ ------------
NET LOSS $ (2,370,990) (4,218,508)
============ ============
Net loss per share:
Basic $ (.03) (.06)
============ ============
Diluted $ (.03) (.06)
============ ============
Weighted average
number of shares
outstanding during
the period:
Basic 76,504,265 75,564,321
============ ============
Diluted 80,747,084 78,372,295
============ ============
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three For the Nine
Months Ended Months Ended
March 31, 2000 March 31, 2000
-------------- --------------
Cash flows from operating activities
Net loss $(2,370,990) (4,218,508)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 58,500 110,000
Expenses incurred in exchange for common stock 1,811,220 2,792,508
Gain on cancellation of shareholder debt (242,561)
Beneficial conversion feature on convertible debt 650,000
Recognition of minority interest (137,955) (111,816)
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable 329,460 333,320
Interest payable 8,159 23,339
Accrued compensation 30,000 90,000
Other liabilities 60,000 60,000
Telephone service deposits (30,000) (65,000)
----------- -----------
Net cash used in operating activities (241,606) (578,718)
Cash flows from investing activities:
Loan to affiliated company (245,000)
Purchase of fixed assets (5,435)
Investment in Kentel LLC (7,000)
Investment in World IP (50,000) (95,000)
----------- -----------
Net cash used in investing activities (50,000) (352,435)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible debt 0 388,050
Proceeds from issuance of common stock 0 373,500
Shareholder loan 170, 000 176,500
----------- -----------
Net cash provided by financing activities 170,000 938,050
----------- -----------
Net increase (decrease) in cash (121,606) 6,897
Cash and cash equivalents at beginning of period 138,523 10,020
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 16,917 16,917
=========== ===========
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
consolidated financial statements include the results of Advanced Communications
Technologies, Inc.'s ("ACT" or the "Company") wholly-owned subsidiary, Advanced
Global Communications Technologies, Inc. ("AGC") and AGC's 51% majority owned
subsidiary, World IP Incorporated and its wholly-owned foreign subsidiaries.
Financial information forwarded herein, which is unaudited, reflects in the
opinion of management all adjustments (all of which are a recurring nature) that
are necessary to present a fair statement of the interim period. Operating
results for the three-months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the fiscal year ending June 30, 2000.
The Company was incorporated on April 30, 1998 and was inactive from that date
until April 7, 1999 when it acquired all of the issued and outstanding stock of
Media Forum International, Inc. Consequently, no comparative results of
operations or financial statements for the three-months ended March 31, 1999 are
included herein. The results of operations include only the quarter ended March
31, 2000.
For Financial reporting purposes, the Company's acquisition of 51% of World IP
and consolidated subsidiaries is being treated as the acquisition of all of the
assets and liabilities of World IP and its wholly-owned foreign subsidiaries.
The accounting for this acquisition is subject to audit and the appraisal of the
assets acquired and liabilities assumed. For financial reporting purposes, the
Company has assumed that the book value of acquired assets as of the date of
purchase is equal to the purchase price paid by the Company. Such purchase price
has been allocated entirely to intangible assets and is subject to adjustment
upon audit by the Company's independent accountants. The Company has assigned a
10 year life to all intangible assets acquired.
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is management's discussion and analysis of certain significant
factors, which have affected the Company's financial position and operating
results. Certain statements under this caption may constitute "forward-looking
statements". See Part II- Other Information.
(a) RESULTS OF OPERATIONS
AGC is the operational arm of ACT for all telecommunications operations and
network development and is the holding company for all currently owned switching
and network operations and future planned acquisitions of other switching and
telecommunications companies. ACT through its wholly-owned subsidiary, AGC,
plans to aggressively pursue the acquisition of smaller telecommunications
enterprises which specialize in providing international origination and
termination telephone services via ATM switching and VoIP.
Revenues. Revenue for the quarter was $138,243 which was generated from
continuing operations and represents international telephone wholesale network
sales from AGC's 51% majority owned subsidiary World IP. Revenue from World IP's
operations since November 11,1999 was $263,517. No comparative results are
included herein due to the
1
limited duration of the Company's ownership of World IP. Neither the Company nor
AGC had revenue from sources other than from World IP's continuing international
telephone distribution operations.
Costs and Expenses. Cost of telephone network sales for the quarter ended March
31, 2000 was $280,055.
General and Administrative Expenses. General and Administrative expenses for the
quarter includes $1,811,220 for professional services rendered to the Company in
exchange for restricted common stock. For the nine-months ended March 31, 2000,
general and administrative expenses includes $2,792,508 for professional
services rendered to the Company in exchange for restricted common stock as well
as other selling and marketing expenses incurred in connection with the
Company's telephone network activities and support of the Spectrucell wireless
technology. It also includes an amortization expense of $57,500 in connection
with bond issuance costs and purchased goodwill for the quarter. The year to
date amortization expense was $107,000.
For the nine-months ended March 31, 2000, total operating expenses were
$3,929,724 of which $2,792,508, or 71% was from the issuance of restricted
common stock in exchange for professional and other services rendered to the
Company.
Interest expense incurred for the quarter was $8,159 and year to date was
$673,339 principally from the Senior Convertible Debentures.
(b) LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's cash and cash equivalents balance was $16,917,
a decrease of $121,606 from the previous quarter. No cash was provided by
operations or financing activities. All cash was provided by loans from the
Company's principal shareholder.
On April 4, 2000 the Company entered into a private placement agreement (the
"Agreement") with Trinity Capital Advisors, Inc. ("Trinity") a California based
investment banking firm to assist the Company, on a best efforts basis, in
securing additional equity financing through the private placement of the
Company's Common Stock. Under the terms of the Agreement, Trinity will seek to
establish a $12 million equity credit line through the private placement of the
Company's Common Stock over a three year period. Under the terms of the Equity
Credit Line Agreement, the Company will have the right to Put to Trinity and its
Investors the purchase of the Company's Common Stock at a 12% discount to the
market price defined as the low closing bid price over the five day trading
period beginning two days prior to the Put. There is a minimum Put requirement
of $500,000 over the life of the Equity Credit Line. The Company must file a
registration statement with respect to the Common Stock issued within 45 days of
the first closing. In addition, the Company also executed a second agreement
with Trinity whereby Trinity will purchase $2,000,000-$3,000,000 of the
Company's newly issuable Exchangeable Preferred Shares exchangeable into the
Company's Common Stock at a
2
price equal to the lesser of the i) Set Price; or ii) 86% of the Market Price as
of each exchange date. The Set Price is equal to a 20% premium to the average
five day bid price of the Company's Common Stock.
The Company terminated its earlier agreement with Bridgewater Capital
Corporation.
The Company is considering other alternatives and is in discussions with other
sources to obtain the necessary capital to continue its wholesale telephone
network business and to assist its related company Advanced Communications
Technologies Pty Ltd -Australia ("ACT-AU") in their development and testing of
the Spectrucell wireless technology.
(c) ACQUISITIONS
During the quarter the Company acquired all of the issued and outstanding shares
of SmartInvestment.com. Inc. (an inactive fully reporting company) for 200,000
shares of its restricted Common Stock. A Form 8-K was previously filed on
February 3, 2000 disclosing this acquisition. Under generally accepted
accounting principles, the Company will treat the purchase as a recapitalization
and will not record any goodwill associated with the acquisition.
The Company's strategy is to generate substantial revenue through the licensing
of the Spectrucell product being developed by ACT-AU and through the acquisition
of telephone network distribution companies. As part of this growth strategy,
the Company will continue to evaluate and pursue opportunities to acquire other
companies, assets and product lines that either complement or expand the
Company's existing businesses. The Company intends to use available cash from
operations, if any, and authorized but unissued common stock to finance any such
acquisitions.
(d) ACT QUARTERLY STOCK PRICE
For the Quarter Ended High Low
- --------------------- ---- ---
March 31, 2000 $6.22 $2.31
December 31, 1999 $5.50 $0.32
September 30, 1999 $0.61 $0.27
June 30, 1999 $0.63 $0.15
March 31, 1999 $1.25 $0.06
Part II- OTHER INFORMATION
The statements in this quarterly report on Form 10-QSB that are not historical
constitute "forward-looking statements". Said forward-looking statements involve
risks and uncertainties that may cause the actual results, performance or
achievements of the Company and its subsidiaries to be materially different from
any future results,
3
performance or achievements, express or implied by such forward-looking
statements. These forward-looking statements are identified by their use of such
terms and phrases as "expects", "intends", "goals", "estimates", "projects",
"plans", "anticipates", "should", "future", "believes", and "scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations. Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
person that the objectives and expectations of the Company will be achieved.
ITEM 2. CHANGES IN SECURITIES
During the quarter the Company issued 720,000 shares of its Common Stock of
which 520,000 shares were issued in exchange for services and 200,000 shares
where issued for the acquisition of the capital stock of SmartInvestment.com,
Inc., a fully reporting inactive company previously described in the Company's
Form 8-K filed on February 3, 2000.
ITEM 3. Qualitative Disclosures about Market Risk
The Company is subject to various risks in connection with the operation of its
business. These risks include, but are not limited to, dependence on operating
agreements with foreign partners, significant foreign and U.S.-based customers
and suppliers, availability of transmission facilities, U.S. and foreign
regulations, international economic and political instability, dependence on
effective billing and information systems, customer attrition, and rapid
technological change. Many of the Company's competitors are significantly larger
and have substantially greater resources than the Company. If the Company's
competitors were to devote significant additional resources to the provision of
international long distance services to the Company's target customer base, the
Company's business, financial condition, and results of operations could be
adversely affected.
The Company has devoted resources to the build out of its network. As a result,
the company has experienced operating losses and negative cash flows from
operations. These losses and negative operating cash flows are expected to
continue for additional
4
periods in the future. There can be no assurance that the Company's operations
will become profitable or will produce positive cash flows. The Company's
capital requirements for the continued build out of its network and growth of
its customer base are substantial. The Company intends to fund its operational
and capital requirements using cash on hand and through available credit
facilities.
ITEM 6. SUBSEQUENT EVENTS AND EXHIBITS
On April 1, 2000, the Company's $650,000 Secured Convertible Debentures matured.
The Company is currently in discussion with the bondholders to consider various
alternatives to satisfy and/or extend the notes.
On April 5, 2000 the Company entered in to a Stock Purchase Agreement with
ACT-AU to acquire a 20% equity interest in ACT Australia for $7,500,000 and
5,000,000 shares of the Company's restricted common shares. The Company intends
to account for this purchase under the equity method of accounting. The Stock
Purchase Agreement is attached herein as Exhibit 1.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.5-Stock Purchase Agreement dated 5 April 2000 between Advanced
Communications Technologies, Inc. and Advanced Communications Technologies
Pty Ltd.
(b) No Reports on Form 8-K have been filed during the quarter for which this
report is filed.
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.
Advanced Communications Technologies, Inc.
(Registrant)
/s/ Roger B. May May 22, 2000
- -------------------------------------------- -------------------
Roger B. May Date
Chairman and Chief Executive Officer
/s/ Wayne I. Danson May 22, 2000
- -------------------------------------------- -------------------
Wayne I. Danson Date
Vice President and Chief Financial Officer
5