U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment 1 To 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 September 30, 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
(State or other jurisdiction
of incorporation or organization)
95-4743438
(IRS Employer Identification No.)
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 October 31,2000, 87,657,280 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. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000
Condensed Consolidated Statement of Operations for the three-month period ended
September 30, 2000 and September 30, 1999
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows for the three-month period ended September
30, 2000 and September 30, 1999
Notes to Unaudited Condensed 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. Qualitative Disclosures about Market Risk
ITEM 6. Subsequent Events and Exhibits
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS:
CURRENT ASSETS
Cash $ --
Marketable securities 6,240
Prepaid expenses 22,528
------------
TOTAL CURRENT ASSETS 28,768
------------
PROPERTY & EQUIPMENT - NET 19,855
------------
OTHER ASSETS
Due from affiliate 562,233
Investment in affiliate 18,634,008
Deposits 45,525
------------
TOTAL OTHER ASSETS 19,241,766
------------
TOTAL ASSETS $ 19,290,389
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES
CURRENT LIABILITIES
Cash Overdraft $ 5,644
Accounts payable 352,057
Accrued compensation 326,550
Deferred revenue 13,261
Note payable 150,000
Loan payable to shareholder 435,000
Convertible debentures 613,550
------------
TOTAL CURRENT LIABILITIES 1,896,062
LONG-TERM LIABILITIES
Notes payable-affiliate 4,000,000
------------
TOTAL LIABILITIES $ 5,896,062
------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000
shares authorized, 87,197,280 shares
issued and outstanding 20,227,011
Accumulated deficit during development stage (6,457,099)
Accumulated other comprehensive loss (585)
Less: Common stock advances (375,000)
------------
TOTAL STOCKHOLDERS' EQUITY $ 13,394,327
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,290,389
============
See accompanying notes
1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE-MONTH PERIOD ENDED
---------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
TELEPHONE NETWORK REVENUE $ 36,739 $ --
COST OF SALES (44,782) --
------------ ------------
GROSS PROFIT (LOSS) (8,043) --
------------ ------------
OPERATING EXPENSES
Consulting fees $ 153,125 $ 127,416
Depreciation and amortization 262,542 1,000
Professional fees 12,822 516,057
Other selling, general &
administrative expenses 115,041 62,172
------------ ------------
Total Operating Expenses (543,530) (706,645)
------------ ------------
LOSS FROM OPERATIONS (551,573) (706,645)
------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense -- (657,590)
Loss from investment in affiliate (122,137) --
Other income -- --
------------ ------------
Total Other Income/(Expense) (122,137) (657,590)
------------ ------------
LOSS BEFORE EXTRAORDINARY GAINS (673,710) (1,364,235)
EXTRAORDINARY GAINS
Gain on extinguishment of debt -- 242,561
------------ ------------
NET LOSS FROM OPERATIONS $ (673,710) $ (1,121,674)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on marketable securities (585) (13,650)
------------ ------------
COMPREHENSIVE LOSS $ (674,295) $ (1,135,324)
============ ============
Net loss per share - basic and diluted $ (.01) $ (.015)
============ ============
Weighted average number of shares
outstanding during the period -
basic and diluted 81,787,932 74,415,487
============ ============
See accompanying notes
2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 30, 1999 TO SEPTEMBER 30, 2000
ACCUMULATED
COMMON STOCK OTHER COMMON
---------------------------- ACCUMULATED COMPREHENSIVE STOCK
SHARES AMOUNT DEFICIT LOSS ADVANCES TOTAL
------------ ------------ ------------ ------------- ------------ ------------
BALANCE, JUNE 30, 1999 73,312,280 416,183 (672,962) (97,500) -- (354,279)
Stock issued for services 2,585,000 3,384,358 -- -- -- 3,384,358
Stock issued for office furniture 30,000 9,900 -- -- -- 9,900
Stock issued for debt 600,000 180,000 -- -- -- 180,000
Stock issued for acquisitions 5,700,000 12,225,000 -- -- -- 12,225,000
Change in unrealized loss on
securities for sale -- -- -- 97,500 -- (97,500)
Interest on beneficial
conversion of debentures -- 650,000 -- -- -- 650,000
Common stock advances -- -- -- -- (375,000) (375,000)
Net loss for the year ended
June 30, 2000 -- -- (5,110,427) -- -- (5,110,427)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 2000 82,227,280 $ 16,865,441 $ (5,783,389) $ -- $ (375,000) $ 10,707,052
Stock issued for services (30,000) (138,430) -- -- -- (138,430)
Stock issued for debt 5,000,000 3,500,000 -- -- -- 3,500,000
Change in unrealized loss on
securities held for sale (585) -- (585)
Net loss for the period -- -- (673,710) -- -- (673,710)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2000 87,197,280 20,227,011 (6,457,099) (585) (375,000) 13,394,327
============ ============ ============ ============ ============ ============
See accompanying notes
3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE-MONTH PERIOD ENDED
---------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Cash flows from operating
activities
Net loss $ (673,710) $(1,121,674)
Adjustments to reconcile net
loss to net cash used:
Depreciation and amortization 262,542 1,000
Expenses incurred in exchange
for common stock (138,430) 495,638
Interest for beneficial
conversion feature -- 650,000
Gain on extinguishment of debt -- (242,561)
Loss on minority interest in
affiliate 122,137 --
Changes in operating assets
and liabilities:
(Increase) decrease in assets
Prepaid expense 23,590 --
Other deposits -- (35,000)
Increase (decrease) in
liabilities:
Accounts payable 141,087 (95,100)
Interest payable -- 7,590
Accrued compensation 95,000 30,000
Other liabilities -- 115,000
Deferred revenue (36,739) --
----------- -----------
Net cash used in operating
activities (204,523) (195,107)
----------- -----------
Cash flows from investing
activities
Loan to affiliated company (10,108) (177,500)
Purchase of fixed assets (4,667) (11,900)
Investment in Kentel LLC -- (20,000)
----------- -----------
Net cash used in investing
activities (14,775) (209,400)
----------- -----------
Cash flows from financing
activities
Loan proceeds from shareholder 183,500 30,000
Proceeds from issuance of
common stock, net of
offering costs -- 273,500
Proceeds from issuance of
convertible debt, net -- 100,000
----------- -----------
Net cash provided by
financing activities 183,500 403,500
----------- -----------
Net increase (decrease) in cash (35,798) (1,007)
Cash and cash equivalents at
beginning of period 30,154 10,020
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ (5,644) $ 9,013
=========== ===========
4
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Basis of Presentation and Principles of Consolidation.
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 unaudited
consolidated financial statements include the results of Advanced Communications
Technologies, Inc. ("ACT" or the "Company") and its wholly owned subsidiary,
Advanced Global Communications Technologies, Inc. ("AGC"). Financial information
included herein, which is unaudited, reflects in the opinion of management, all
adjustments (all of which are of a recurring nature) that are necessary to
present a fair statement of the interim period. Operating results for the
three-months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2001. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These unaudited interim financial statements should be
read in conjunction with the audited financial statements and notes contained in
the Company's Annual Report on Form 10-KSB for the year ended June 30, 2000.
Note 2. Revenue Recognition.
During the three-months ended September 30, 2000, the Company generated revenue
from its telecommunications operations. Prior to July 1, 2000, the Company was
developing its telecommunications business and was a development stage
enterprise.
Note 3. Investment in Affiliate.
In April 2000, the Company acquired 20% of the common stock of ACT-Australia, an
affiliate. The purchase price of the investment amounted to $19,350,000 and was
comprised of a note payable for $7,500,000 and the issuance of 5,000,000 shares
of restricted common stock valued $11,850,000. The shares issued were valued at
the average quoted trading price during the acquisition period. The fair value
of the investment at the acquisition date was determined to be $3,657,472. The
excess of the purchase price of $19,350,000 over the fair value of the
investment of $3,657,472, in the amount of $15,692,528, has been accounted for
as Goodwill.
The Company's 20% interest in ACT-Australia, is accounted for using the equity
method of accounting and is stated at the amortized cost of Goodwill and the
equity in undistributed earnings since acquisition. The equity in earnings of
ACT-Australia is adjusted for the amortization of the Goodwill as discussed
above. Amortization is computed on a straight-line basis over fifteen years. The
Company's share of the losses for the three months ended September 30, 2000
totaled $122,137, and the amortization cost of Goodwill charged to income from
the date of acquisition to September 30, 2000 totaled $508,037.
The components of the investment in ACT-Australia at September 30, 2000, are as
follows:
Investment Goodwill Total
---------- ----------- -----------
At date of acquisition $3,657,472 $15,692,528 $19,350,000
Investment loss (207,955) -- (207,955)
Amortization of goodwill -- (508,037) (508,037)
---------- ----------- -----------
Balance at December 31, 2000 $3,449,517 $15,184,491 $18,634,008
========== =========== ===========
On July 24, 2000, the Company formed Australon USA, Inc., a Delaware corporation
owned 50% by the Company and 50% by Australon Enterprise, Pty., Ltd., an 80%
subsidiary of ACT-AU. During the quarter ended September 30, 2000, Australon
USA, Inc. was inactive. The investment will be accounted for using the Equity
Method.
Note 4. Note Payable to Affiliate.
During the quarter, the Company repaid $3,500,000 of its obligation to its
Australian affiliate, Advanced Communications Technologies, Pty, Ltd. ("ACT-AU")
by issuing 5,000,000 shares of its restricted common stock. As of September 30,
2000, the balance of the Company's obligation to ACT-AU was $4,000,000.
Note 5. Stockholder's Equity.
During the three-months ended September 30, 2000, $3,500,000 of the note payable
from Affiliate was converted into 5,000,000 common shares. The shares were
valued at the quoted trading price on the date authorized by the Company's Board
of Directors.
Note 6. Commitments and Contingencies.
As disclosed in the Company's Form 10-KSB for the fiscal year ended June 30,
2000, the Company was named as a defendant in two lawsuits filed during the
three-month period ended September 30, 2000. On July 27, 2000, Bank Insinger,
the holder of $150,000 of the Company's 12% Secured Convertible Debentures,
filed an action in the Federal Court in the Eastern District of New York seeking
recovery of the principal amount of the obligation plus accrued interest and
other monetary damages. The Company is currently in discussions with Bank
Insinger to settle their claim.
On September 18, 2000, an action was filed against the Company by Star Multi
Care Services, Inc ("Star") for alleged breach of contract and recovery of a
break-up or termination fee in connection with the Company's failure to
consummate a proposed merger with Star in January 2000. The Company believes
that the suit is without merit
5
and is vigorously defending the alleged claim.
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 section may constitute "forward-looking
statements". See Part II-Other Information.
(a) 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 developed,
tested and commercialized by the Company's Australian affiliate. The Company's
wholly owned subsidiary, Advanced Global Communications Technologies, 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 currently operates an
international long distance telephone network between the U.S. and Pakistan (the
"U.S.-Pakistan Network"). During the three-month period ended September 30,
2000, all of the Company's revenues were generated by AGC's telecom operations.
Revenues. Revenue for the quarter was $36,739 and was entirely generated from
AGC's U.S.-Pakistan Network and represents a 100% increase from the comparative
three-month period ended September 30, 1999.
Cost of Sales. Cost of direct telephone network sales for the quarter ended
September 30, 2000 was $44,782 and represents a 100% increase from the
comparative three-month period ended September 30, 1999. Because the Company
only recently completed the U.S.-Pakistan Network, the cost of sales reflects
charges and expenses for the entire period of operation notwithstanding that the
revenue from the U.S.-Pakistan Network only reflects call volume for
approximately six weeks.
Operating Expenses. Operating expenses for the three-month period ended
September 30, 2000 was $543,530 and represents a 23% decrease in operating costs
from the three-month period ended September 30, 1999. This decrease was
principally attributable to a reduction in professional fees incurred in
exchange for restricted common stock. Employee and consulting costs for the
three-month period ended September 30, 2000 increased 20% to $153,125 from the
three-month period ended September 30, 1999 and is attributable to an increase
in staffing of the California office. Other selling and general & administrative
expenses increased from $62,172 for the quarter ended September 30,
6
1999 to $115,041 for the three-months ended September 30, 2000, or approximately
85% because of an increase in costs associated with the Company's California
headquarters and the increase in costs devoted to marketing the Company's
business and products.
Depreciation and amortization expense for the three months ended September 30,
2000 and 1999 was $262,542 and $1,000 respectively.
Interest expense incurred for the three months ended September 30, 2000 was $0.
For the comparative period ended September 30, 1999, interest expense was
$657,590 and was principally attributable to the intrinsic value of the Senior
Convertible Debentures issued by the Company.
Other income (loss) for the three-month period ended September 30, 2000 includes
the Company's share, under the equity method of accounting, of ACT-AU's
operating loss for the quarter. No loss was reported for the comparative period
ended September 30, 1999, as the Company's investment in ACT-AU was made during
the fourth quarter of ACT's fiscal year 2000. Extraordinary gain for the
three-month period ended September 30, 1999 includes $242,561 of gain on the
extinguishment of prior shareholder loans in exchange for 600,000 shares of the
Company's restricted common stock. The Company had no extraordinary gains nor
losses for the comparative period ended September 30, 2000.
(b) LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's cash and cash equivalents balance was
($5,644) a decrease of $35,798 from the period ended June 30, 2000. During the
quarter, no cash was provided by operations or financing activities. During the
three-month periods ended September 30, 2000 and 1999, cash provided by (used
in) operations and investing activities amounted to ($219,298) and ($404,507),
respectively. Cash provided by financing activities amounted to $183,500 and
$403,500, respectively, and consisted of loans from the Company's principal
shareholder and the sale of common stock and convertible debentures. During the
three-month period ended September 30, 1999, the Company realized $273,500, net
of offering costs, from the private placement sale of common stock and $100,000,
net of offering costs, from the issuance of convertible debentures.
The Company had a working capital deficiency in the amounts of $1,867,294 and
$811,418 respectively for the three-month periods ended September 30, 2000 and
1999. The Company is currently working with Ladenburg Thalmann, a NY-based
investment banking firm, and others to obtain the necessary capital to continue
its wholesale telephone network business and to assist ACT-AU in its
development, testing and commercialization of the SpectruCell wireless
technology. In addition, the Company is in the process of preparing an offering
memorandum under the provisions of regulation 506(d) to raise up to $10 million
through the sale of its common stock to accredited investors. If the Company is
unable to raise the capital sufficient to fund its operations until SpectruCell
can be successfully marketed and sold, it may be forced to sell or merge its
business with a company that has the resources to execute its marketing plan. If
the Company is unable to either raise sufficient capital to continue its
business or find a merger partner to assist in the execution of its sales and
marketing plan, it may be unable to continue as a going concern.
(c) ACQUISITIONS
The Company's strategy is to generate substantial revenue through the licensing
of the SpectruCell product being developed and tested 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 business. The
7
Company intends to use available cash from operations, if any, and authorized
but unissued common stock to finance any acquisitions.
(d) ACT QUARTERLY STOCK PRICE
For the Quarter Ended High Low
- --------------------- ---- ---
September 30, 2000 $ 1.25 $ .56
June 30, 2000 2.62 1.03
March 31, 2000 7.19 2.00
December 31, 1999 5.50 .31
September 30, 1999 .72 .24
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, 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: 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.
8
ITEM 2. CHANGES IN SECURITIES
During the quarter, the Company issued 5,020,000 shares of its common stock of
which 20,000 shares valued at $13,120 were issued in exchange for services and
5,000,000 shares valued at $3,500,000 where issued in partial repayment of the
Company's obligation to ACT-AU.
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 the U.S.-Pakistan Network
and for the development, testing and commercialization of the SpectruCell
technology. 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 for the continued build out of
the U.S.-Pakistan Network and growth of its customer base 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 6. SUBSEQUENT EVENTS AND EXHIBITS
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.
On October 12, 2000 the Company's Board of Directors adopted a resolution to
issue 460,000 shares of restricted common stock to ACT-AU in partial repayment
of $460,000 of the Company's obligation. The Company will record a gain on the
issuance of this stock.
On October 23, 2000, the Company was notified by holders of $210,000 of its
$650,000 Secured Convertible Debentures that such holders have elected to
convert their debt into
9
restricted common stock based on certain conversion rights granted to the
bondholders under the terms of the 12% Secured Convertible Debentures. Such
conversion, when effected, will have the result of reducing the Company's
liabilities and increasing the Company's stockholder's equity.
On November 1, 2000 the Company, along with ACT-AU formed Advanced Network
Technologies (USA) Inc, ("ANT") to market wireless network services and
applications developed by ACT-AU. The Company owns 70% of ANT.
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 11/13/2000
- ------------------------------------------- ---------------
Roger B. May Date
Chairman and Chief Executive Officer
/s/ Wayne I. Danson 11/13/2000
- ------------------------------------------- ---------------
Wayne I. Danson Date
Vice President and Chief Financial Officer
10