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 three months ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
Commission File Number 000-30486
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction
of incorporation or organization)
65-0738251
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(IRS Employer Identification No.)
19200 Von Karman Ave., Suite 500, Irvine, CA 92612
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(Address of principal executive offices)
(949) 622-5566
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(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 March 31, 2001, 90,737,909 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. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001 and June 30, 2000
(audited)
Consolidated Statement of Operations for the three months ended March 31,
2001 and March 31, 2000 (Restated) and for the nine months ended March 31,
2001 and March 31, 2000 (Restated)
Consolidated Statement of Changes in Stockholders' Equity for the nine
months ended March 31, 2001 and March 31, 2000
Consolidated Statement of Cash Flows for the nine months ended March 31,
2001 and March 31, 2000 (Restated)
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II-OTHER INFORMATION
ITEM 2. Changes in Securities
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 6. Subsequent Events, Exhibits and Reports on Form 8-K
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 JUNE 30, 2000
(UNAUDITED) -------------
--------------
ASSETS:
CURRENT ASSETS
Cash $ 26,392 $ 30,154
Marketable securities 2,145 6,825
Prepaid expenses -- 46,118
------------ ------------
TOTAL CURRENT ASSETS 28,537 83,097
------------ ------------
PROPERTY & EQUIPMENT - NET 21,768 16,188
------------ ------------
OTHER ASSETS
Due from affiliate -- 552,125
Investment in affiliate 19,256,695 19,264,182
Deposits 5,525 45,525
------------ ------------
TOTAL OTHER ASSETS 19,262,220 19,861,832
------------ ------------
TOTAL ASSETS $ 19,312,525 $ 19,961,117
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued compensation $ 1,115,420 $ 442,520
Deferred revenue -- 50,000
Note payable-Grassland 108,198 150,000
Loan payable to affiliate 786,000 251,500
Convertible debentures 200,750 613,550
Stock subscription liability 768,180 --
------------ ------------
TOTAL CURRENT LIABILITIES 2,978,548 1,507,570
LONG-TERM LIABILITIES
Notes payable-affiliate 2,440,267 7,500,000
------------ ------------
TOTAL LIABILITIES $ 5,418,815 9,007,570
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STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000 shares
authorized, 90,737,909 and 82,227,280 shares
issued and outstanding, respectively 21,676,613 16,865,441
Accumulated deficit (7,658,298) (5,416,969)
Accumulated other comprehensive loss (124,605) (119,925)
Less: Common stock advances -- (375,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 13,893,710 $ 10,953,547
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,312,525 $ 19,961,117
============ ============
The accompanying notes are an integral part of these financial statements
1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
------------------------------ -------------------------------
MARCH 31, MARCH 31,
MARCH 31, 2000 MARCH 31, 2000
2001 (RESTATED) 2001 (RESTATED)
------------ ------------ ------------ ------------
TELEPHONE NETWORK REVENUE $ -- $ -- $ 50,000 $ --
COST OF REVENUES -- -- (57,310) --
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) -- -- (7,310) --
------------ ------------ ------------ ------------
OPERATING EXPENSES
Consulting fees $ 129,000 $ 97,800 $ 435,125 $ 306,612
Depreciation and amortization 1,000 33,500 3,000 68,000
Professional fees 624,389 158,765 800,370 282,988
Other selling, general &
administrative expenses 104,451 92,952 409,917 247,826
Stock-based compensation 30,000 1,811,220 176,120 2,792,508
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 888,840 2,194,237 1,824,532 3,697,934
------------ ------------ ------------ ------------
Loss FROM OPERATIONS (888,840) (2,194,237) (1,831,842) (3,697,934)
------------ ------------ ------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense -- (8,159) -- (673,339)
Income (Loss) from investment
in affiliate 229,803 -- (7,487) --
Investment write-down (425,000) -- (425,000) --
------------ ------------ ------------ ------------
TOTAL OTHER INCOME/(EXPENSE) (195,197) (8,159) (432,487) (673,339)
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY GAINS (1,084,037) (2,202,396) (2,264,329) (4,371,273)
EXTRAORDINARY GAINS
Gains on extinguishments of debt -- -- 23,000 364,498
------------ ------------ ------------ ------------
NET LOSS FROM OPERATIONS $ (1,084,037) $ (2,202,396) $ (2,241,329) $ (4,006,775)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized gain (loss) on
marketable securities 195 5,850 (4,680) (13,650)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (1,083,842) $ (2,196,546) $ (2,246,009) $ (4,020,425)
============ ============ ============ ============
Net loss per share-basic and diluted $ (.01) $ (.03) $ (.03) $ (.05)
============ ============ ============ ============
Weighted average number of shares outstanding
during the period-basic and diluted 90,354,548 75,952,362 86,593,311 75,292,462
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 (RESTATED)
ACCUMULATED
COMMON STOCK OTHER COMMON COMMON
------------------------ ACCUMULATED COMPREHENSIVE STOCK
SHARES AMOUNT DEFICIT LOSS ADVANCES TOTAL
---------- ------------ ------------ ------------- ---------- ------------
NINE MONTHS ENDED
MARCH 31, 2000:
BALANCE AT JULY 1, 1999 73,312,280 $ 416,183 $ (672,962) $ (97,500) $ -- $ (354,279)
Stock issued for services 2,255,500 2,792,508 -- -- -- 2,792,508
Stock issued for office furniture 30,000 9,900 -- -- -- 9,900
Stock issued in exchange for debt 600,000 180,000 -- -- -- 180,000
Stock issued for acquisitions 700,000 375,000 -- -- -- 375,000
Change in unrealized loss on
securities for sale -- -- -- (13,650) -- (13,650)
Interest on beneficial
conversion of debentures -- 650,000 -- -- -- 650,000
Common stock advances (500,000) -- -- -- (375,000) (375,000)
Net loss for the nine months ended
March 31, 2000 -- $ -- $ (4,006,775) $ -- $ -- (4,006,775)
---------- ------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 2000 76,397,780 $ 4,423,591 $ (4,679,737) $ (111,150) $ (375,000) (742,296)
========== ============ ============ ============ ============ ============
BALANCE AT JULY 1, 2000 82,227,280 16,865,441 (5,416,969) (119,925) (375,000) 10,953,547
NINE MONTHS ENDED
MARCH 31, 2001:
Stock issued for services 672,084 257,070 -- -- -- 257,070
Stock issued for debt 6,535,000 4,516,302 -- -- -- 4,516,302
Change in unrealized loss on securities
held for sale (4,680) (4,680)
Stock issued on conversion of
convertible debentures 1,803,545 412,800 412,800
Common stock retired (500,000) (375,000) 375,000 --
Net loss for the nine months ended
March 31, 2001 -- -- (2,241,329) -- -- (2,241,329)
---------- ------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 2001 90,737,909 $ 21,676,613 $ (7,658,298) $ (124,605) $ -- $ 13,893,710
========== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
--------------------------------------
MARCH 31, 2001 MARCH 31, 2000
(Restated)
---------------- -----------------
Cash flows from operating activities
Net loss $(2,241,329) $(4,006,775)
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 3,000 68,000
Expenses incurred in exchange for common stock 257,070 2,792,508
Gain on extinguishment of debt (23,000) (364,498)
Loss on minority interest in affiliate 7,487 --
Beneficial conversion feature on convertible debt -- 650,000
Changes in operating assets and liabilities:
(Increase) decrease in assets
Prepaid expense 46,118 --
Other deposits 40,000 (65,000)
Increase (decrease) in liabilities:
Accounts payable 477,900 233,708
Note payable-Grassland (41,802) --
Interest payable -- 23,339
Accrued compensation 195,000 90,000
Deferred revenue (50,000) --
----------- -----------
Net cash used in operating activities (1,329,556) (578,718)
----------- -----------
Cash flows from investing activities
Loan to affiliated company (10,108) (245,000)
Purchase of fixed assets (8,580) (5,435)
Investment in Kentel -- (7,000)
Investment in World IP -- (95,000)
----------- -----------
Net cash used in investing activities (18,688) (352,435)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock, net of fees -- 373,500
Proceeds from issuance of convertible debt, net of fees -- 388,050
Loan proceeds from affiliate 534,500 176,500
Proceeds from sale of stock 41,802 --
Proceeds from stock subscriptions 768,180 --
----------- -----------
Net cash provided by financing activities 1,344,482 938,050
----------- -----------
Net increase (decrease) in cash (3,762) 6,897
Cash and cash equivalents at beginning of period 30,154 10,020
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 26,392 $ 16,917
=========== ===========
The accompanying notes are an integral part of these financial statements
4
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Principals of Consolidation and Significant Accounting Policies
The accompanying unaudited consolidated financial statements include the results
of Advanced Communications Technologies, Inc. ("ACT" or the "Company") and its
wholly-owned subsidiary, Advanced Global Communications Inc. ("AGC"). The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to the quarterly reporting rules of the Securities and Exchange
Commission. The financial statements reflect all adjustments of a recurring
nature which are, in the opinion of management, necessary for the fair
presentation of the financial statements.
The financial statements for the three and nine months ended March 31, 2000 have
been restated to omit the results of the Company's 51% interest in World IP and
consolidated subsidiaries as a result of the Company's rescission of the World
IP transaction.
Operating results for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 2001. The interim financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
year ended June 30, 2000 included in the Company's Form 10-KSB as filed with the
Securities and Exchange Commission on October 13, 2000.
Organization
The Company was formed on April 30, 1998 and was inactive from its date of
formation until April 1999 when it acquired all of the issued and outstanding
stock of Media Forum International, Inc. ("MFI") in a reverse merger. The merger
was treated as an acquisition of all of the assets of MFI and as a
recapitalization of the Company. On January 31, 2000, the Company acquired all
of the then issued and outstanding shares of SmartInvestment.com, Inc.
("Smart"), an inactive reporting company for 200,000 shares of restricted common
stock. The Company elected successor issuer status to become a fully reporting
company. The Company treated the purchase as a recapitalization, and has not
recorded any goodwill associated with the acquisition. In July 1999, the Company
formed AGC as a wholly-owned subsidiary to conduct its international telephone
network distribution business. On April 5, 2000, the Company acquired a 20%
equity ownership interest in Advanced Communications Technologies Pty Ltd
(Australia) ("ACT-AU"), an affiliated entity. The Company accounts for its
investment in ACT-AU under the equity method of accounting. In July 2000, the
Company formed Australon USA, Inc. ("Australon"), a Delaware corporation owned
50% by the Company and 50% by Australon Limited. Australon Limited is a publicly
traded company listed on the Australian Stock Exchange and is a 66% owned
subsidiary of ACT-AU. In November 2000, the Company formed Advanced Network
Technologies (USA), Inc. ("ANT"), a Delaware corporation owned 70% by the
Company and 30% by ACT-AU. Both Australon and ANT are inactive. The Company
intends to account for the future results of operations of Australon on an
equity basis and ANT on a consolidated basis.
5
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marketable Securities
Management determines the appropriate classification of its investments at the
time of acquisition and reevaluates such determination at each balance sheet
date. Available-for-sale securities are carried at fair market value, with
unrealized losses reported as a separate component of stockholders' equity.
Revenue Recognition
Revenue is generally recognized at the time telephone service minutes are used
and based on the volume of call service provided to customers and processed by
the Company's contractual service providers.
Comprehensive Income (Loss)
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statements of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". This statement requires that all components of
comprehensive income or loss be reported in the financial statements in the
period in which they are recognized. The components of comprehensive income for
the Company include unrealized gains and losses, net of tax, on
available-for-sale marketable securities and are reported as Other Comprehensive
Income (Loss) in the Statement of Operations and as Accumulated Comprehensive
Income (Loss) in Stockholders' Equity.
Concentrations of Credit Risk
The Company maintains its cash in bank account deposits, which at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalent balances.
Note 2-Due from Affiliate
The Company has, from time to time, advanced funds to ACT-AU to support its
research and development activities of the SpectruCell technology. ACT-AU is
majority owned by a principal stockholder of the Company. The Company has
advanced $562,233 and $552,125, to ACT-AU as of March 31, 2001 and June 30,
2000, respectively. During the quarter, the Company re-classified the amount due
from affiliate as a partial offset to its loan payable to ACT-AU.
Note 3-Investment in Affiliate
In April 2000, the Company acquired 20% of the common stock of ACT-AU, its
Australian affiliate for $19,350,000 consisting of 5,000,000 shares of
restricted common stock valued at the average quoted trading price of
$11,850,000 and a note payable for $7,500,000. The Company has recorded its
investment in ACT-AU under the equity method of accounting. The Company has
reduced its investment in ACT-AU by its proportionate share of ACT-AU's
operating losses in the amount of ($85,818) for the fiscal year ended June 30,
2000 and ($7,487) for the nine
6
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
months ended March 31, 2001. In September 2000, the Company repaid $3,500,000 of
its obligation to ACT-AU via the issuance of an additional 5,000,000 shares of
its restricted common stock. During the three months ended March 31, 2001, the
Company issued an additional 1,075,000 shares of its restricted common stock to
vendors and others of ACT-AU in cancellation of $537,500 of its obligation. In
addition, during the quarter, the Company offset its obligation to ACT-AU by
$562,233 representing funds previously advanced to ACT-AU (see Note 2). As of
March 31, 2001, the outstanding balance of the Company's note payable to ACT-AU
was $2,440,267.
Note 4-Accounts Payable and Accrued Compensation
Included in Accounts Payable and Accrued Compensation are amounts due the Chief
Executive Officer of the Company who has elected to defer accrued compensation
due him. As of March 31, 2001, the Company owed the Chief Executive Officer
$426,550 in accrued and unpaid compensation.
Note 5-Note and Loan Payable
(A) Note Payable-Grassland
MFI, the Company's predecessor was obligated to pay $150,000 to Grassland
Capital ("Grassland") pursuant to a convertible promissory note. During December
1997, MFI issued 75,000 of its common shares to settle the amounts due
Grassland. However, a dispute arose as to whether Grassland authorized the
acceptance of the shares and Grassland subsequently filed a suit to enforce the
convertible promissory note. Total interest payable was $84,507 as of June 30,
2000, resulting in total principal and accrued interest payable to Grassland at
June 30, 2000 of $234,507. In June 2000, the Company and Grassland agreed to
settle the litigation for a payment of $200,000. This resulted in a gain on the
extinguishment of debt in the amount of $34,507. The Company made a payment of
$50,000 by June 30, 2000. The remainder was to be paid with proceeds from the
75,000 shares of stock with any remaining balance owed to be paid by the Company
by August 14, 2000. The Company defaulted on this revised payment obligation and
a judgment against the Company was entered. In October 2000, the Company sold
the 75,000 shares of stock realizing $41,802 which it remitted to Grassland in
partial payment of its outstanding balance. As of March 31, 2001, the Company's
remaining balance on the Grassland obligation is $108,198. Management believes
that the amounts recorded on its consolidated financial statements at March 31,
2001 and June 30, 2000 respectively, fairly reflect the Company's potential
liability.
(B) Loan Payable to Affiliate
As of March 31, 2001 and June 30, 2000, the Company owed an affiliate of the
Chief Executive Officer $786,000 and $251,500, respectively. These funds were
advanced to the Company to provide working capital for normal business
operations.
7
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6-Convertible Debentures
On September 30, 1999, the Company entered into a secured convertible debenture
purchase agreement with two companies, which are already stockholders of the
Company, whereby the Company sold $500,000 of 12% Secured Convertible Debentures
due April 1, 2000, and which were convertible into shares of the Company's
common stock. In addition, on September 30, 1999, the Company issued another
convertible debenture to Bank Insinger in the amount of $150,000. The debentures
are convertible, at the holder's option, into shares of common stock in whole or
in part at any time after the original issue date. The number of shares of
common stock issuable upon a conversion is determined by dividing the
outstanding principal amount of the debenture to be converted, plus all accrued
and unpaid interest by the conversion price. The conversion price in effect on
any conversion date is 50% of the average of the bid price during the 20 trading
days immediately preceding the applicable conversion date. Of the $650,000 total
debentures, only $613,550 was received. As of June 30, 2000, the debentures were
not converted and the Company was in default based on the April 1, 2000 due
date.
The convertible debentures contain a beneficial conversion feature computed at
its intrinsic value that is the difference between the conversion price and the
fair value on the debenture issuance date of the common stock into which the
debt is convertible, multiplied by the number of shares into which the debt is
convertible at the commitment date. Since the beneficial conversion feature is
to be settled by issuing equity, the amount attributed to this beneficial
conversion feature, or $650,000, was recorded as an interest expense and a
component of equity on the issuance date.
For the fiscal year ended June 30, 2000, the Company amortized $65,000 in
convertible debenture issuance costs.
During the three months ended December 31, 2000, holders of $412,800 of
convertible debentures elected to convert their notes into 1,803,545 of the
Company's restricted common stock resulting in a reduction of the amounts
outstanding and an increase in the Company's stockholders' equity.
As of March 31, 2001, $200,750 of Secured Convertible Debentures remain
outstanding. (see Note 10. Commitments and Contingencies)
Note 7-Note Payable-ACT-AU
On January 19, 2001, the Company repaid $537,500 of its obligation to ACT-AU by
issuing 1,075,000 shares of its restricted common stock. In addition, pursuant
to the terms of the April 5, 2000 Stock Purchase Agreement between the Company
and ACT-AU, the Company has elected to reduce its outstanding loan balance by
$562,233, for funds previously advanced to ACT-AU. As of March 31, 2001, the
balance of the Company's obligation to ACT-AU was $2,440,267.
Note 8-Settlement Of Debt
As of June 30, 1999, the Company owed certain former MFI minority stockholders
$422,561. On May 25, 1999, the Company, along with two of its stockholders and
directors, entered into a settlement agreement with these stockholders.
8
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company agreed to issue 600,000 shares of restricted common stock within
five days of the signing of the settlement agreement and the stock option
agreement. The option agreement was signed in July 1999 and the shares were
issued. The Company recognized an extraordinary gain of approximately $242,561
on the extinguishment of debt in the fiscal year ended June 30, 2000 based on
the quoted trading price of the common stock on the agreement date.
Note 9- Stockholders' Equity
(A) Private Placement
During the period April 1999 through July 1999, pursuant to a private placement
under Regulation D, Rule 504, the Company issued 5,000,000 shares of common
stock at $.20 per share. The Company received $1,060,500 from investors, which
included an overpayment of $60,500. The overpayment was included in other
liabilities until it was credited to the same investors who subscribed to
convertible debentures in September, 1999. The Company incurred offering
expenses of $100,000 in cash and issued 33,750 shares of common stock valued at
$10,800, based on the quoted trading price on the grant date, in lieu of the
non-accountable expense reimbursement. The value of the cash and common stock
has been charged to equity as direct costs of the offering.
In November 2000, the Company's Board of Directors approved and the Company
issued a private placement memorandum under Regulation D, Rule 506 for the
purpose of raising up to $10,000,000 through the issuance of restricted common
shares at a price of $.50 per share. During the three month period ended March
31, 2001, the Company received cash in the amount of $768,180 in connection with
this offering. As of the balance sheet date, the Company had not yet issued the
subscribed for shares and has recorded a stock subscription liability in the
amount of $768,180. The Company anticipates that it will issue these as well as
other shares subsequently subscribed during the fourth quarter of the Company's
fiscal year ending 2001. At the time that the Company issues such shares, it
will eliminate its stock subscription liability and record the appropriate
amount as an increase to its stockholders equity.
(B) Stock Issued For Services
During the fiscal year ended June 30, 2000, the Company issued 3,085,000 shares
of common stock for services. The stock was valued based on the quoted trading
price on the grant dates, which aggregated $3,384,358.
During the three months ended March 31, 2001, the Company issued 423,691 shares
of restricted common stock for services. The stock issued was valued at a
discount to the quoted trading price on the grant dates as approved by the
Company's Board of Directors and aggregated $202,500.
For the nine month period ended March 31, 2001, the Company issued 672,084
shares of its restricted common stock having a value of $257,070 in exchange for
professional services rendered to the Company.
9
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10-Commitments and Contingencies
On April 13, 2001, New Millennium Capital Partners II, LLC and AJW Partners,
LLC, holders of the remaining amount of the Company's 12% Secured Convertible
Debentures totaling $200,750, filed an action in the Supreme Court of the State
of New York, County of Nassau seeking recovery of the principal amount of the
obligation plus accrued interest and other monetary damages. The Company
believes that such suit is without merit and intends to defend itself vigorously
against all claims and damages.
Note 11-Acquisitions
(A) Proposed Acquisition of ORBCOMM Assets
On February 28, 2001, the Company was the successful bidder to purchase all of
the assets of ORBCOMM Global L.P and related debtors (collectively "ORBCOMM").
ORBCOMM, a partnership formed by Teleglobe Holding Corp. and Orbital Sciences
Corporation, is the owner and operator of 30 low earth orbit satellites, digital
satellite communications systems, gateway earth stations, control center
facilities and related equipment, and intellectual property (the "Assets") and
provides asset monitoring, global positioning, communications and other data
information services. In September 2000, ORBCOMM filed for Chapter 11 Bankruptcy
protection in the United States Bankruptcy Court for the District of Delaware
(the "Court"). On March 9, 2001, the Court entered an Order to approve the sale
of substantially all of ORBCOMM's Assets to the Company.
The acquisition of the Assets was seen by the Company as an opportunity to
engage in a business that was synergistic to the marketing and deployment of its
SpectruCell technology, and to augment Australon Limited's business of providing
real time remote smart metering and other Lon-works based services. The Assets
were to be owned by a newly formed entity wholly owned by the Company's 50%
owned U.S. affiliate, Australon USA, Inc. The Company also entered into a joint
venture agreement with another bidder to sell a portion of the new entity's
equity in return for a substantial capital commitment. The Company's joint
venture partner subsequently defaulted on its commitment to provide capital to
the new entity. Because of the extreme time constraints place by the Court on
the Company to close the transaction, and the substantial capital commitment
needed to turn ORBCOMM's business around, Company management subsequently
determined that it was no longer in the Company's best interest to pursue the
purchase of the Assets.
The Company incurred a loss in the approximate amount of $800,000 relating to
the proposed Asset acquisition. Such loss is expected to be reimbursed 50% by
the Company's Australian affiliate.
(B) Acquisition of Beneventure Capital, LLC
On February 5, 2001, the Company entered into a Letter of Intent with Dr. Gil
Amelio and his majority owned company, Beneventure Capital , LLC ("Beneventure")
to acquire all of the assets of Beneventure in exchange for shares of stock of
the Company. Beneventure is a privately held technology investment and
management company that owns varying
10
ADVANCED COMUNICATIONS TECHNOLOGIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interests in private companies involved in the telecommunications,
semiconductor, Internet and financial services industries. Benenventure also
provides strategic management consulting services to its portfolio technology
companies and to third parties.
Both the Company and Beneventure have been engaged in selected due diligence
activities and are waiting for the completion and issuance of an independent
valuation of Beneventure's investment portfolio. Additional management and other
issues are being discussed between the Company and Beneventure. The Company
cannot predict, at this time, whether, and to what extent, it will consummate
the proposed acquisition of Beneventure's investment portfolio.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Nature of Business
Advanced Communications Technologies, Inc. ("ACT" or the "Company") (OTCBB:
ADVC), a Florida incorporated company, is a leading international marketer of
wireless telecommunications products. The Company has the exclusive North and
South American marketing rights for a proprietary Software Defined Radio ("SDR")
technology platform for next generation wireless telecommunications products
being developed by the Company's affiliate in Australia, Advanced Communications
Technologies (Australia) Pty Ltd. ("ACT-AU"), which is owned 20% by the Company.
The core product that the Company will be marketing is SpectruCell, the first
wireless communications platform that offers mobile communications network
providers the flexibility of open architecture and seamless integration with the
ability to process and transmit multiple protocols, such as AMPS, CDMA, TDMA,
GSM, W-CDMA, UMTS, Mobile IP, Voice IP, 3G, etc. through one base station.
SpectruCell is one of the first technologies that utilizes the SDR operating
platform, which will reduce the network providers' cost for on-going upgrades to
3G and beyond, as each upgrade will be software-based rather than
hardware-based. This feature essentially makes SpectruCell implemented networks
future proof. Importantly, SpectruCell will enable existing network providers to
upgrade their current networks to the 3G platforms through the simple
installation of a SpectruCell-based station at each of their cell sites.
Network providers implementing a SpectruCell network architecture are assured of
protecting their existing client base through continued support of their
existing services (GSM, CDMA) while being able to support future 3G-based
protocols like WCDMA, UMTS, etc. This flexible migration path for network
operators means that they protect their existing financial asset while giving
the operator both a technical and financial migration to 3G.
In addition, the Company intends to market several other wireless and networking
products that are being developed by ACT-AU. These products are expected to
include:
o Spectrum Efficient Microwave ("SEM") that delivers high speed capacity
communications links that will make it possible to implement truly
wireless networks;
o Wireless Loop Technology that will provide wireless fixed network access
compatible with both Voice Over Internet protocol ("VOIP") and
Internet-based protocols;
o Smart Antennas that will provide network carriers with the ability to
increase their capacity by directing radio signals to an intended target
rather than a general broadcasting shotgun approach; and
o ACT2001 Network Provider, which is a complete network solution comprised
of the SpectruCell multiple protocol wireless base station unit, the SEM
and a Wireless Local Loop system. These products have the ability to be
utilized individually, however, when
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combined, they have the ability to be a complete wireless network
that will support individual or multiple wireless protocols.
In January 2001, ACT-AU received $A4.78 million of a total approximately $A13
million grant from AusIndustry to support its research and development of
SpectruCell and these other technology platforms.
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 section may constitute "forward-looking
statements" (See Part II- Other Information). The following discussion should be
read in conjunction with the Financial Statements and Notes thereto.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
OVERALL RESULTS OF OPERATIONS
The Company owns the rights to distribute and sell the SpectruCell product
throughout North and South America. Such product is currently being tested and
commercialized by Advanced Communications Technologies Pty Ltd (Australia)
("ACT-AU"), the Company's Australian affiliate. The Company's wholly-owned
subsidiary, Advanced Global Communications, Inc. ("AGC") provides wholesale
international telecom services and is the holding company for all switching and
network operations and future planned acquisitions of other switching and
telecommunications companies. AGC operated an international long distance
telephone network between the U.S. and Pakistan (the "U.S.-Pakistan Network").
Due to various problems that the Company encountered with the U.S.-Pakistan
Network, its providers and changing Government regulations, the Company decided
during the quarter to shut down the U.S.-Pakistan Network. Consequently, during
the three months ended March 31, 2001, no revenue was generated by AGC's telecom
operations.
For the three months ended March 31, 2001, the Company incurred an overall loss
from operations of ($1,084,037) or ($.01) per share, which was 51% less than the
($2,202,396) loss it incurred for the comparative three month period ended March
31, 2000. Loss per share for the three months ended March 31, 2000 was ($.03).
Revenue. The Company did not generate any revenue for the quarter. As described
above, due to various technical issues with the Company's network supplier in
England as well as regulatory changes in Pakistan, the Company has determined to
cease operating its U.S-Pakistan Network. As the Company only established the
Network after the third quarter of its fiscal year ended June 30, 2000, no
revenue was reported for the restated three month period ended March 31, 2000.
Operating Expenses. Operating expenses, net of stock-based compensation charges
of $30,000 for the three months ended March 31, 2001, were $858,840 representing
a $475,823 or 124% increase in operating costs, net of stock-based compensation
charges of $1,811,220 for the
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restated three months ended March 31, 2000. This operating cost increase was
principally attributable to costs incurred (professional fees and other) in
connection with the Company's proposed acquisition of the ORBCOMM Assets and the
Beneventure investment portfolio.
Interest expense incurred for the three months ended March 31, 2001 was $0. For
the comparative period ended March 31, 2000, interest expense was $8,159 and was
principally attributable to accrued interest on the Grassland note payable.
Other income (loss) for the three months ended March 31, 2001 includes the
Company's share, under the equity method of accounting, of ACT-AU's net income
for the quarter of $229,803. No income or loss was reported for the comparative
period ended March 31, 2000, as the Company's investment in ACT-AU was made
during the fourth quarter of ACT's fiscal year 2000. During the quarter, the
Company recognized a $425,000 write-off of costs associated with its proposed
acquisition of the ORBCOMM Assets.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2001 TO THE NINE MONTHS ENDED
MARCH 31, 2000
OVERALL RESULTS OF OPERATIONS
For the nine months ended March 31, 2001, the Company incurred an overall
($2,241,329) net loss from operations, or ($.03) per share, as compared to an
overall net loss of ($4,006,775) or ($.05) per share, for the comparative
restated nine months ended March 31, 2000. The overall net loss from operations
for the nine months ended March 31, 2001 was 44% less than the net loss for the
restated nine months ended March 31, 2000.
Revenue. Revenue for the nine months ended March 31, 2001 was $50,000, generated
entirely from AGC's U.S.-Pakistan Network and represents a 100% increase from
the comparative restated nine months ended March 31, 2000. The results of
operation for the nine months ended March 31, 2000 were restated to reflect the
rescission of the World IP acquisition, which the Company rescinded
retroactively to November 10,1999.
Cost of Sales. Cost of direct telephone U.S.-Pakistan Network sales for the nine
months ended March 31, 2001 was $57,310 and represents a 100% increase from the
comparative restated nine months ended March 31, 2000. As the Company completed
the U.S.-Pakistan Network during its first quarter of fiscal 2001, included in
the cost of sales for the nine months ended March 31, 2001 are initial set-up
costs to establish the U.S.-Pakistan Network in addition to normal recurring
direct operating costs.
Operating Expenses. Operating expenses, net of stock-based compensation charges
of $176,120 for the nine months ended March 31, 2001, were $1,648,412 and
represent a $742,986 increase, or 82%, in operating costs, net of stock-based
compensation charges of $2,792,508, for the restated nine months ended March 31,
2000. This operating cost increase was also principally attributable to
professional fees and other costs associated with the
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Company's proposed acquisition of the ORBCOMM Assets and Beneventure investment
portfolio.
Interest expense incurred for the nine months ended March 31, 2001 was $0. For
the comparative nine months ended March 31, 2000, interest expense was $673,339
of which $650,000 was attributable to the intrinsic value of the Senior
Convertible Debentures issued by the Company in September 1999.
Other income (loss) for the nine months ended March 31, 2001 includes the
Company's share, determined under the equity method of accounting, of ACT-AU's
operating loss of ($7,487). No loss was reported for the comparative period
ended March 31, 2000, as the Company's investment in ACT-AU was made during the
fourth quarter of ACT's fiscal year 2000. Extraordinary gain for the nine months
ended March 31, 2001 includes $23,000 of gain on the extinguishments of the
Company's obligation to ACT-AU which was partially repaid with common stock
valued in excess of the then market price. For the restated nine months ended
March 31, 2000, extraordinary gains aggregating $364,498 were recognized from i)
the extinguishments of prior MFI shareholder loans in exchange for 600,000
shares of the Company's restricted common stock; and ii) the abandonment of
certain accounts payable and accrued expenses of MFI.
(b) LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company's cash and cash equivalents balance was $26,392,
a decrease of $3,762 from the fiscal year ended June 30, 2000. During the
quarter, no cash was provided by operations. All cash was provided by stock
subscriptions from the Company's private placement and from loans from the
Company's principal shareholder. For the nine months ended March 31, 2001 and
March 31, 2000, cash provided by (used in) operations and investing activities
amounted to ($1,348,244) and ($931,153), respectively. Cash provided by
financing activities amounted to $1,344,482 and $938,050, respectively. For the
nine months ended March 31, 2001, cash provided by financing activities
consisted principally of stock subscriptions from the Company's 506D private
placement and loans from the Company's principal shareholder. During the nine
months ended March 31, 2000, the Company realized $273,500 net of offering
costs, from the 504D private placement sale of common stock and $388,050, net of
offering costs, from the issuance of convertible debentures.
The Company had a working capital deficiency in the amount of ($2,950,011) for
the nine months ended March 31, 2001. The Company has not yet drawn down its $12
million equity line of credit with Ladenburg Thalmann, a NY-based investment
banking firm, and expects to do so once it files a Form S-1 and receives
approval from the Securities and Exchange Commission. The Company anticipates
receiving such approval during the fourth quarter of fiscal 2001.
In November 2000, the Company prepared a Private Placement Memorandum under
Securities and Exchange Commission Rule 506D to issue up to $10 million of its
restricted common stock at $.50 per share to accredited investors (the
"Offering"). In January 2001, the Company extended the Offering until May 31,
2001. As of March 31, 2001 the Company received $768,180 in connection with the
Offering.
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(c) ACQUISITIONS
The Company's business strategy is to i) be a leader in the development and
marketing of Software Defined Radio technologies; and ii) generate substantial
revenue through the licensing of SpectruCell and other products being
commercialized and developed by ACT-AU and through the acquisition of telephone
network distribution and other technology companies complementary to the
Company's business. As part of this business strategy, the Company will continue
to evaluate and pursue opportunities to acquire other companies, assets and
product lines that complement and meet the Company's expansion criteria. The
Company intends to use available cash from operations, if any, authorized but
unissued restricted common stock and funds from its equity credit line to
finance, in whole or in part, its acquisition and expansion plans.
(A) Proposed Acquisition of ORBCOMM Assets
On February 28, 2001, the Company was the successful bidder to purchase all of
the assets of ORBCOMM Global L.P and related debtors (collectively "ORBCOMM").
ORBCOMM, a partnership formed by Teleglobe Holding Corp. and Orbital Sciences
Corporation, is the owner and operator of 30 low earth orbit satellites, digital
satellite communications systems, gateway earth stations, control center
facilities and related equipment and intellectual property (the "Assets") and
provides asset monitoring, global positioning, communications and other data
information services. In September 2000, ORBCOMM filed for Chapter 11 Bankruptcy
protection in the United States Bankruptcy Court for the District of Delaware
(the "Court"). On March 9, 2001, the Court entered an Order to approve the sale
of substantially all of ORBCOMM's Assets to the Company.
The acquisition of the Assets was seen by the Company as an opportunity to
engage in a business that was synergistic to the marketing and deployment of its
SpectruCell technology as well in furtherance of Australon Limited's business of
providing real time remote smart metering and other Lon-works based services.
The Assets were to be owned by a newly formed entity wholly owned by the
Company's 50% owned U.S. affiliate, Australon USA, Inc. The Company also entered
into a joint venture agreement with another bidder to sell a portion of the new
entity's equity in return for a substantial capital commitment. The Company's
joint venture partner subsequently defaulted on its commitment to provide
capital to the new entity. Because of the extreme time constraints place by the
Court on the Company to close the transaction, and the substantial capital
commitment needed to turn ORBCOMM's business around, Company management
subsequently determined that it was no longer in the Company's best interest to
pursue the purchase of the Assets.
The Company incurred a loss in the approximate amount of $800,000 relating to
the proposed Asset acquisition. Such loss is expected to be reimbursed 50% by
the Company's Australian affiliate.
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(B) Acquisition of Beneventure Capital, LLC
On February 5, 2001, the Company entered into a Letter of Intent with Dr. Gil
Amelio and his majority owned company, Beneventure Capital , LLC ("Beneventure")
to acquire all of the assets of Beneventure in exchange for shares of stock of
the Company. Beneventure is a privately held technology investment and
management company that owns varying interests in private companies involved in
the telecommunications, semiconductor, Internet and financial services
industries. Benenventure also provides strategic management consulting services
to its portfolio technology companies and to third parties.
Both the Company and Beneventure have been engaged in selected due diligence
activities and are waiting for the completion and issuance of an independent
valuation of Beneventure's investment portfolio. Additional management and other
issues are being discussed between the Company and Beneventure. The Company
cannot predict, at this time, whether and to what extent it will consummate the
proposed acquisition of Beneventure's investment portfolio.
(C) Acquisition of Digital Comm Link, Inc.
On October 5, 2000, the Company entered into a Letter of Intent ("LOI") with
Digital Comm Link, Inc. ("Digital"), a Florida based privately held corporation,
to acquire a controlling interest in Digital for approximately $10- $20 million
in stock and cash. Digital currently owns and operates a satellite fixed earth
station, which receives and transmits voice, data and video signals for
telecommunications and other media customers. During the quarter, the Company
ended its pursuit of Digital.
(D) ACT's Quarterly Stock Price
For the Quarter Ended High Low
- --------------------- ---- ---
March 31, 2001 $1.03 .45
December 31, 2000 1.19 .40
September 30, 2000 1.25 .56
June 30, 2000 2.62 1.03
March 31, 2000 7.19 2.00
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Part II- OTHER INFORMATION
The statements in this quarterly report, 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 subsidiary to be materially different from
any future results, performances 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: i) general economic and business conditions; ii) competition; iii)
success of operating initiatives including the commercialization of the
SpectruCell product; iv) financing efforts; v) operating costs; vi) advertising
and promotional efforts; vii) the existence or absence of adverse publicity;
viii) changes in business strategy or development plans; ix) the ability to
retain management; x) availability, terms and deployment of capital; xi)
business abilities and judgment of personnel; xii) availability of qualified
personnel; xiii) labor and employment benefit costs; xiv) availability and costs
of raw materials and supplies; and xv) 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 and/or its
management, 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 1,498,691 shares of its restricted common
stock, of which 423,691 shares valued at $202,500 were issued in exchange for
services and 1,075,000 shares valued at $537,500 were issued in partial payment
of the Company's obligation to ACT-AU.
ITEM 3. QUANTITATIVE AND 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
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target customer base, the Company's business, financial condition, and results
of operations could potentially be adversely affected.
The Company has devoted significant resources for the development, testing and
commercialization of the SpectruCell technology and for acquisitions of existing
businesses that would complement the Company's suite of products being
developed, tested and commercialized by ACT-AU and Australon Limited. 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 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 commercialization of its
SpectruCell product, and other business initiatives are substantial. The Company
intends to fund its operational and capital requirements using cash on hand,
through proposed credit and debt facilities and by the issuance of restricted
common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. SUBSEQUENT EVENTS, EXHIBITS AND REPORTS ON FORM 8-K
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.
Advanced Communications Technologies, Inc.
(Registrant)
/s/ Roger T. May May 15, 2001
- ---------------- ------------
Roger T. May Date
Chairman and Chief Executive Officer
/s/ Wayne I. Danson May 15, 2001
- ------------------- ------------
Wayne I. Danson Date
Chief Financial Officer
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