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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FLORIDA ADVANCED COMMUNICATIONS 65-0738251
(State or Other TECHNOLOGIES, INC. (I.R.S. Employer
Jurisdiction of (Name of Registrant Identification No.)
Incorporation or in Our Charter)
Organization)
420 LEXINGTON AVENUE, 7389 WAYNE I. DANSON
SUITE 2739 (Primary Standard c/o Danson Partners, LLC
NEW YORK, NY 10170 Industrial 420 Lexington Ave.,
(646) 227-1600 Classification Suite 2739
(Address and telephone Code Number) New York, NY 10170
number of Principal (646) 227-1600
Executive Offices and (Name, address and
Principal Place of telephone number
Business) of agent for service)
Copies to:
Clayton E. Parker, Esq. Troy J. Rillo, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Boulevard, Suite 2000 201 S. Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
(305) 539-3300 (305) 539-3300
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) FEE
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Common stock, no par value per share 4,506,868,683 shares $0.005 $22,534,343 $2,073
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(1) Estimated solely for the purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933. For the purposes of this table, we have
used the average of the closing bid and asked prices as of current date.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
4,506,868,683 SHARES OF COMMON STOCK
This prospectus relates to the sale of up to 4,506,868,683 shares of
Advanced Communications' common stock by certain persons who are, or will
become, stockholders of Advanced Communications. Please refer to "Selling
Stockholders" beginning on page 13. Advanced Communications is not selling any
shares of common stock in this offering and therefore will not receive any
proceeds from this offering. We will, however, receive proceeds from the sale of
common stock under the Equity Line of Credit. All costs associated with this
registration will be borne by us.
The shares of common stock are being offered for sale on a "best efforts"
basis by the selling stockholders at prices established on the Over-the-Counter
Bulletin Board during the term of this offering. There are no minimum purchase
requirements. These prices will fluctuate based on the demand for the shares of
common stock.
The selling stockholders consist of:
o Cornell Capital Partners and holders of convertible debentures that
intend to sell up to 4,500,000,000 shares of common stock.
o Other selling stockholders, who intend to sell up to 6,868,683 shares
of common stock purchased in private offerings.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit Agreement. Cornell Capital Partners, L.P. will pay
Advanced Communications 91% of the market price of our common stock. Advanced
Communications has paid Cornell Capital Partners a one-time commitment fee of
$740,000, payable in 2,960,000 shares of common stock. In addition, Cornell
Capital Partners is entitled to be paid 3% of each advance under the Equity Line
of Credit. The 9% discount, the one-time commitment fee and the 3% retention are
underwriting discounts.
Advanced Communications has engaged Westrock Advisors, Inc., a registered
broker-dealer, to advise it in connection with the Equity Line of Credit.
Westrock Advisors, Inc. was paid a fee of 40,000 shares of Advanced
Communications' common stock, which is equal to $10,000 at a closing bid of
$0.25 on January 10, 2002. Westrock Advisors, Inc. is not participating in this
offering.
Our common stock is quoted on the Over-the-Counter Bulletin Board
maintained by the NASD under the symbol "ADVC." On July 11, 2003, the last
reported sale price of our common stock was $0.006 per share.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 7.
With the exception of Cornell Capital Partners, L.P., which is an
"underwriter" within the meaning of the Securities Act of 1933, no other
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after the
accompanying registration statement is declared effective by the Securities and
Exchange Commission. None of the proceeds from the sale of stock by the selling
stockholders will be placed in escrow, trust or any similar account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is July ___, 2003.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................1
THE OFFERING...............................................................3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION.................................4
RISK FACTORS...............................................................6
FORWARD-LOOKING STATEMENTS................................................11
SELLING STOCKHOLDERS......................................................12
USE OF PROCEEDS...........................................................15
DILUTION..................................................................16
EQUITY LINE OF CREDIT.....................................................17
PLAN OF DISTRIBUTION......................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.................21
DESCRIPTION OF BUSINESS...................................................28
MANAGEMENT................................................................35
DESCRIPTION OF PROPERTY...................................................38
LEGAL PROCEEDINGS.........................................................38
PRINCIPAL STOCKHOLDERS....................................................40
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS....................................43
DESCRIPTION OF SECURITIES.................................................44
EXPERTS...................................................................46
LEGAL MATTERS.............................................................46
HOW TO GET MORE INFORMATION...............................................46
FINANCIAL STATEMENTS.....................................................F-1
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We intend to distribute to our stockholders annual reports containing
audited financial statements. Our audited financial statements for the fiscal
year June 30, 2002, were contained in our Annual Report on Form 10-KSB.
i
PROSPECTUS SUMMARY
In April 1999, we merged with and into Advanced Communications (Nevada), a
Nevada corporation. Pursuant to this merger, the shareholders of Advanced
Communications (Nevada) received 90% of the Company's outstanding common stock
and the Company received all of Advanced Communications (Nevada)'s assets. These
assets included all of the North and South American rights to market and
distribute SpectruCell, a wireless software defined radio ("SDR") based
communications platform that is being developed to offer mobile communications
network providers the flexibility of processing and transmitting multiple
wireless communication signals (e.g., AMPS, CDMA, GSM, Mobile IP, Voice IP,
etc.) through one base station. We are not aware of any formal oral or written
agreement documenting the transfer of the rights of Advanced Communications
(Nevada) in SpectruCell to the Company at the time of the merger except for the
Company's Proxy Statement prepared for a shareholders meeting held on March 25,
1999 (the "Proxy Statement"). Proposal #6 of the Proxy Statement stated that
Advanced Communications (Nevada) would merge all of its assets into the Company.
The Proxy Statement was prepared under the direction of Roger May, the
Company's former CEO and the CEO and the controlling shareholder of Advanced
Communications (Nevada) The Company is not aware of any documentation that
substantiated the rights of Advanced Communications (Nevada) in SpectruCell that
were transferred to the Company in the merger other than statements contained in
the Proxy Statement.
From the time of the merger in April 1999 through the latter part of 2002,
SpectruCell was being developed by Advanced Communications Technologies
(Australia), Pty. Ltd. ("Advanced Communications (Australia)"), an Australia
development company in which we owned a 20% interest. Advanced Communications
(Australia) went into an administrative insolvency proceeding in July 2002 and
is no longer operating as a going concern. It is our belief that SpectruCell is
now being developed by SDR Communications Pty Ltd., an Australia start-up
company in which we have no interest, that acquired a license to develop,
manufacture and sell the SpectruCell technology in the latter part of 2002. It
is our belief that SDR Communications Pty Ltd is owned and controlled by Mr.
Roger May, a former officer and director and a major shareholder of the Company.
It is our belief that the SDR Communications Pty Ltd license was acquired from
Global Communications Technologies Pty Ltd, the controlling shareholder and
major creditor of Advanced Communications (Australia), which foreclosed its
security interest in SpectruCell during the Advanced Communications (Australia)
administrative insolvency proceeding. Global Communications Technologies Pty,
Ltd is also owned by Roger May. We have no written documentation regarding the
transfer of the SpectruCell technology to SDR Communications Pty Ltd.
We believe that our rights to SpectruCell have not been affected by the
transfer of the SpectruCell technology to SDR Communications Pty Ltd and that
SDR Communications Pty Ltd acquired SpectruCell subject to our rights. Our view
is not shared by Advanced Communications (Australia), Global Communications
Technologies Pty Ltd, or by SDR Communications Pty Ltd., which believe that
SpectruCell was acquired by SDR Communications Pty Ltd free and clear of our
rights. We have had no communications with SDR Communications Pty Ltd regarding
our rights to market and distribute SpectruCell in our territory.
In July 2000, we entered into an interim License and Distribution
Agreement (the "interim License Agreement") with Advanced Communications
(Australia) to help facilitate implementation of the rights we acquired in the
1999 merger. The interim License Agreement acknowledged our exclusive license to
market and distribute SpectruCell (and certain other technologies to be
developed) in North and South America. It was represented to us by Mr. May that
Advanced Communications (Nevada) acquired the rights it transferred to us in the
1999 merger from Advanced Communications (Australia). We are not aware of any
written agreement that documented the rights of Advanced Communications (Nevada)
in SpectruCell that were transferred to the Company in the merger, other than
statements contained in the Proxy Statement. The interim License Agreement
acknowledged our exclusive license to market and distribute in North and South
America the SpectruCell technology and certain other technologies to be
developed. It was the intention of the parties that upon the SpectruCell
technology becoming commercially available, our company and Advanced
Communications (Australia) would negotiate royalty payments, reflective of
industry standards on an arms-length basis after the final pricing of the
SpectruCell technology was established.
During most of 2002, we were in litigation with Advanced Communications
(Australia) and Roger May over our stock ownership interests in Advanced
Communications (Australia) under a Stock Purchase Agreement we entered into with
Advanced Communications (Australia) in April 2000 and our rights to market and
distribute SpectruCell under an interim License Agreement. In early October
2002, Advanced Communications (Australia) terminated the interim License
Agreement on the grounds that we were insolvent and our insolvency constituted
an irreparable breach of the interim License Agreement. Our initial response to
the termination of the License Agreement was to oppose it; however, after
further consideration, we made the strategic decision not to contest the
termination and to withdraw from the Australian litigation. This decision was
1
based, in part, on our view that the rights we acquired in the 1999 merger with
Advanced Communications (Nevada) to market and distribute SpectruCell in North
and South America were not created or affected by the termination of the interim
License Agreement by Advanced Communications (Australia). As noted above, and
other than is set forth in the Proxy Statement, there was no formal agreement
transferring the rights of Advanced Communications (Nevada) in SpectruCell to
the Company at the time of the merger, and we are not aware of any oral or
written agreement that documented the rights of Advanced Communications (Nevada)
in SpectruCell that were transferred to the Company in the merger. We intend to
protect these rights to the fullest extent we are able to do so, and we
anticipate that Advanced Communications (Australia), Mr. May and SpectruCell SDR
Pty Ltd. will not acknowledge these rights and will oppose them. As stated
above, Mr. May and related entities control SpectruCell SDR Pty Ltd.
As a result of the above-described events, our ability to market and
distribute SpectruCell in North and South America and exercise the rights we
acquired in the 1999 merger with Advanced Communications (Nevada) is limited and
our rights to market and distribute SpectruCell are unclear. Apart from this, it
is our belief that SpectruCell is still under development and it is uncertain,
even if the above-described issues were resolved, whether the development will
ever be completed and a commercially viable product brought to market.
OVERVIEW OF FINANCIAL CONDITION
We had net losses of $4,332,693 and $19,732,566 during the years ended
June 30, 2002 and 2001, respectively. For the nine months ended March 31, 2003,
we had a net loss of $1,670,852. As of March 31, 2003, we had a net loss of
$1,670,852, a cash overdraft of $28 and current liabilities of $3,846,963. We do
not have sufficient cash or other assets to meet our current liabilities. In
order to meet those obligations, we will need to raise cash from the sale of
securities or from borrowings. Our independent auditors have added an
explanatory paragraph to their audit opinions issued in connection with the
years 2002 and 2001 financial statements, which states that our ability to
continue as a going concern depends upon our ability to resolve liquidity
problems, principally by obtaining capital, commencing sales and generating
sufficient revenues to become profitable. Our ability to obtain additional
funding will determine our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
If we are unable to obtain additional funding through our Equity Line of
Credit facility (as described in the Management Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere), then the
failure to obtain this funding will have a material adverse effect on our
business and our ability to continue as a going concern. Unless we are able to
access our Equity Line of Credit facility soon, we will be forced to cease
operations after August 2003. As a consequence, we may be forced to seek
protection under the bankruptcy laws. In that event, it is unclear whether we
could successfully reorganize our capital structure and operations, or whether
we could realize sufficient value for our assets to satisfy our creditors in
full. Accordingly, should we be forced to file for bankruptcy protection, there
is no assurance that our stockholders would receive any value.
ABOUT US
Our principal office is located at 420 Lexington Avenue, Suite 2739, New
York, NY 10170. Our telephone number is (646) 227-1600.
2
THE OFFERING
This offering relates to the sale of common stock by certain persons who
are, or will become, stockholders of us. The selling stockholders consist of:
o Cornell Capital Partners and other holders of convertible debentures
that intend to sell up to 4,500,000,000 shares of common stock.
o Other selling stockholders, who intend to sell up to 6,868,683 shares
of common stock purchased in private offerings.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital Partners, L.P. shares of common
stock for a total purchase price of $30 million. The amount of each advance is
subject to an aggregate monthly maximum advance amount of $2 million in any
thirty-day period. Cornell Capital Partners, L.P. will purchase the shares of
common stock for a 9% discount to the prevailing market price of our common
stock. In addition, Cornell Capital Partners will be paid 3% of each advance
under the Equity Line of Credit, together with a one-time commitment fee of
$740,000, payable in 2,960,000 shares of common stock. Cornell Capital Partners
intends to sell any shares purchased under the Equity Line of Credit at the then
prevailing market price. Among other things, this prospectus relates to the
shares of common stock to be issued under the Equity Line of Credit.
We have engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise us in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of 40,000 shares of Advanced Communications' common stock, which
was equal to $10,000 at a closing bid of $0.25 on January 10, 2002. Westrock
Advisors, Inc. is not participating in this offering.
COMMON STOCK OFFERED 4,506,868,683 shares by selling
stockholders
OFFERING PRICE Market price
COMMON STOCK OUTSTANDING BEFORE
THE OFFERING(1) 198,852,622 shares
USE OF PROCEEDS We will not receive any proceeds of the
shares offered by the selling
stockholders. Any proceeds we receive
from the sale of common stock under the
Equity Line of Credit will be used for
(i) the repayment of our convertible
debt obligations, (ii) the repayment
of our accounts payable and accrued
expenses, (iii) potential acquisitions,
and (iv) general working capital
purposes. See "Use of Proceeds."
RISK FACTORS The securities offered hereby involve
a high degree of risk and immediate
substantial dilution. See "Risk
Factors" and "Dilution."
OVER-THE-COUNTER BULLETIN BOARD SYMBOL ADVC
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1 Excludes warrants to purchase 6,440,990 shares of common stock, debentures
convertible into 482,500,000 shares of common stock (at assumed conversion
prices of $0.0032 and $.001 per share) and up to 4,500,000,000 shares of
common stock to be issued under the Equity Line of Credit.
3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below should be
read in conjunction with "Management's Discussion and Analysis or Plan of
Operation," the consolidated financial statements and the notes thereto of
Advanced Communications Technologies, Inc. included elsewhere in this
Prospectus. The selected summary consolidated financial information of Advanced
Communications Technologies, Inc. as of March 31, 2003 and for the years ended
June 30, 2002 and 2001 are derived from financial statements included elsewhere
in this document. The consolidated financial information as of March 31, 2003
and 2002, and for the nine months ended March 31, 2003 and 2002, is unaudited.
In the opinion of management, such financial statements include all adjustments
(consisting only of normal recurring accruals) necessary for the fair
presentation of the financial position and the results of operations. The
results of operations for the nine months ended March 31, 2003 and 2002, are not
necessarily indicative of the results to be expected for the full year.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOR THE FOR FOR
NINE NINE THE THE
MONTHS MONTHS FISCAL FISCAL
ENDED ENDED YEAR YEAR
MARCH 31, MARCH 31, ENDED ENDED
2003 2002 JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED) 2002 2001
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TELEPHONE NETWORK REVENUE $ -- $ -- $ -- $ 50,000
COST OF REVENUES -- -- -- (57,310)
------------ ------------ ------------- -------------
GROSS PROFIT (LOSS) -- -- -- $(7,310)
------------ ------------ ------------- -------------
OPERATING EXPENSES
Depreciation and amortization 318,937 403,417 508,167 1,051,169
Professional and consulting fees 575,295 607,451 1,218,631 1,782,364
Other selling, general and 77,949 536,120
administrative expenses 407,772 501,048
Stock-based compensation -- 81,010 180,000 --
------------ ------------ ------------- -------------
TOTAL OPERATING EXPENSES 972,181 1,627,998 2,314,570 3,334,581
------------ ------------ ------------- -------------
(LOSS) FROM OPERATIONS (972,181) (1,627,998) (2,314,570) (3,341,891)
------------ ------------ ------------- -------------
OTHER INCOME/(EXPENSE)
Interest expense (480,177) (265,623) (318,123) (10,332)
Lawsuit settlements (218,494) (80,000) -- --
Income (Loss) from investment -- (3,571,654)
(Loss) from impairment of goodwill (1,700,000) (12,399,864)
(Loss) on investment acquisition deposit -- (425,000)
Realized (loss) on decline in marketable
securities -- (6,825)
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-- --
TOTAL OTHER INCOME/(EXPENSE) (698,671) (345,623) (2,018,123) (16,413,675)
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(LOSS) BEFORE EXTRAORDINARY GAINS $(1,670,852) $(1,973,621) $ (4,332,693) $(19,755,566)
EXTRAORDINARY GAINS
Gains on extinguishment of debt -- -- -- 23,000
------------ ------------ ------------- -------------
NET (LOSS) $(1,670,852) (1,973,621) (4,332,693) (19,732,566)
=======================================================
Net (loss) per share-basic and diluted $ (.012) $ (.02) $ (0.04) $ (0.22)
============ ============ ============= =============
Weighted average number of shares
outstanding during the period-basic
and diluted 137,718,954 98,506,328 100,576,484 87,976,428
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4
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(UNAUDITED) JUNE 30, 2002 JUNE 30, 2001
---------------- --------------- -------------
ASSETS:
Cash and cash equivalents $ -- $ 11,093 $ 6,816
Prepaid expenses -- -- 10,000
---------------- --------------- ----------------
TOTAL CURRENT ASSETS $ -- 11,093 16,816
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PROPERTY & EQUIPMENT - NET 14,274 17,274 19,599
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OTHER ASSETS
Goodwill, less accumulated amortization of
$300,000 and 200,000 respectively -- -- 2,000,000
Deposits 7,700 13,225 5,525
Other receivables 9,927 9,927 --
Deferred bond financing costs, less
accumulated amortization 53,646 63,333 --
---------------- --------------- ----------------
TOTAL OTHER ASSETS 71,273 86,485 2,005,525
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TOTAL ASSETS $ 85,547 $ 114,852 $ 2,041,940
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
LIABILITIES
CURRENT LIABILITIES
Cash overdraft $ 28 $ -- $ --
Accounts payable and accrued expenses 1,449,091 872,493 844,205
Accrued compensation 172,183 172,183 479,050
Note Payable-Grassland -- -- 118,530
Loan Payable to shareholder 1,055,736 1,055,736 796,000
12% Convertible debentures -- 100,407 200,750
Interest payable 168,094 62,917 --
5 % Convertible Debentures - Due 1/04 944,000 1,000,000 --
8% Note Payable Due 12/05 - Current portion 57,831 -- --
---------------- --------------- ----------------
TOTAL CURRENT LIABILITIES 3,846,963 3,263,736 2,438,535
---------------- --------------- ----------------
LONG-TERM LIABILITIES
10% Secured Convertible Debentures - Due 11/04 187,500 -- --
8% Note Payable - Due 12/05 115,663 - -
Notes Payable-Unconsolidated affiliate 1,791,166 1,791,166 2,173,167
---------------- --------------- ----------------
TOTAL LONG-TERM LIABILITIES 2,094,329 1,791,166 2,173,167
---------------- --------------- ----------------
TOTAL LIABILITIES 5,941,292 5,054,902 4,611,702
-------------------------------------------------
STOCKHOLDERS' DEFICIENCY
Preferred Stock, $.01 par Value, 25,000,000
shares authorized, none issued and
outstanding
Common stock, no par value, 200,000,000 and
100,000,000 shares authorized, respectively,
198,852,622, 114,102,622, and 94,489,916
shares issued and outstanding, respectively 25,945,005 25,471,098 22,696,193
Common stock to be issued, 833,334 shares -- -- 250,000
Less: Deferred commitment fees, net of
accumulated amortization (281,250) (562,500) --
Accumulated deficit (31,519,500) (29,848,648) (25,515,955)
---------------- --------------- ----------------
TOTAL STOCKHOLDERS' DEFICIENCY (5,855,745) (4,940,050) (2,569,762)
---------------- --------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 85,547 $ 114,852 $ 2,041,940
================ =============== ================
5
RISK FACTORS
We are subject to various risks that may materially harm our business,
financial condition and results of operations. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE DO NOT HAVE A PRODUCT TO SELL, WHICH MEANS THAT WE DO NOT HAVE A PRODUCT TO
SELL IN ORDER TO TRY TO ATTAIN PROFITABLE OPERATIONS
The SpectruCell product is in development and our rights to market and
distribute the product, if developed, are uncertain. As a result, we do not have
a product to sell in order to attain profitable operations.
THE CONVERSION OF OUR OUTSTANDING DEBENTURES WILL CAUSE DILUTION TO OUR EXISTING
SHAREHOLDERS
The issuance of shares upon the conversion of the outstanding debentures
will have a dilutive impact on our stockholders. We currently have $1,131,500 of
outstanding convertible debentures. Of that total, $187,500 of convertible
debentures are convertible at a fixed price of $0.001 per share, which would
upon conversion result in the issuance of 187,500,000 shares of common stock.
The balance or $944,000 of convertible debentures are convertible into shares of
common stock at a price equal to equal to either (a) an amount equal to one
hundred twenty percent (120%) of the closing bid price of the common stock as of
the closing date or $0.40, whichever is higher, or (b) an amount equal to eighty
percent (80%) of the lowest closing bid price of the common stock for the five
trading days immediately preceding the conversion date. If such conversion had
taken place at $0.0032 (i.e., 80% of the recent price of $0.004), then the
holders of the convertible debentures would have received 295,000,000 shares of
common stock. As a result, our net income per share could decrease, in future
periods, and the market price of our common stock could decline.
THE CONVERSION OF OUR OUTSTANDING DEBENTURES COULD CAUSE A CHANGE OF CONTROL
The issuance of shares upon the conversion of the outstanding debentures
could result in a change of control. Cornell Capital Partners holds convertible
debentures, which if converted would result in the issuance of 343,750,000
shares of our common stock. After such conversions, Cornell Capital Partners,
L.P. would own a total of 409,210,000 shares or approximately 75% of our then
outstanding common stock, and would be our largest shareholder and would likely
be able to exercise control of our company by electing directors.
TERMINATION OF THE INTERIM LICENSE AGREEMENT
In early October 2002, Advanced Communications (Australia) terminated an
interim License Agreement we entered into with Advanced Communications
(Australia) in July 2000 to facilitate implementation of our rights to
SpectruCell on the grounds that we were insolvent and our insolvency constituted
an irreparable breach of the interim License Agreement. After considering the
overall situation we made the strategic decision to withdraw from the Australian
litigation.
Notwithstanding our withdrawal from the Australia litigation, we believe
that we retain ownership of the rights to market and distribute SpectruCell and
related technology acquired in the 1999 merger with Advanced Communications
Technologies (Nevada), which were neither created by nor subject to cancellation
under the interim License Agreement.
OUR RELATIONSHIP WITH MR. MAY AND ADVANCED COMMUNICATIONS (AUSTRALIA) IS
SIGNIFICANTLY IMPAIRED
Given all of the litigation by the Company against Mr. May and Advanced
Communications (Australia) over rights to SpectruCell and the Company's 20%
stock interest in Advanced Communications (Australia), it is likely that the
Company will continue to be involved in substantive litigation against Mr. May
and other parties to protect its rights to, and interest in, the SpectruCell
technology for the North and South American markets.
Even if we are able to prevail against Mr. May and Advanced Communications
(Australia) or its successor in interest as to SpectruCell, or settle our
disputes with those parties which is unlikely under current conditions, the
success of the SpectruCell project and our financial viability on this basis is
6
subject to many other risks and contingencies, including, but not limited to,
the ones mentioned below.
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have historically lost money. In the year ended June 30, 2002 and for
the nine months ended March 31, 2003 we had a net loss of ($4,332,693) and
($1,670,852) or ($0.04) and ($0.012) per share, respectively. Future losses are
likely to occur. Accordingly, we are experiencing significant liquidity and cash
flow problems because our operations are not profitable. No assurances can be
given that we will be successful in reaching or maintaining profitable
operations.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS
We have relied on significant external financing to fund our operations.
Such financing has historically come from a combination of borrowings and sale
of common stock from third parties and funds provided by certain officers and
directors. We cannot assure you that financing whether from external sources or
related parties will be available if needed or on favorable terms. Our inability
to obtain adequate financing has resulted in the Company curtailing its business
operations by relocating its office and terminating all of its consultants. Any
of these events would be materially harmful to our business and may result in a
lower stock price. We will need to raise additional capital to fund our
anticipated operating expenses and future expansion. Among other things,
external financing will be required to cover our operating costs. Unless the
company is able to access its Equity Line of Credit Facility by August 2003 or
seek other sources of capital, management will be unable to continue operating
the company. To date, the Company has been unable to raise any external capital
and its only source of capital is its Equity Line of Credit facility, which
cannot be accessed until a registration statement registering the shares to be
issued to Cornell Capital is effective.
OUR INDEPENDENT AUDITORS HAVE ADDED A GOING CONCERN OPINION TO OUR FINANCIAL
STATEMENTS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS UNLESS WE
OBTAIN ADDITIONAL FUNDING
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with the years 2002 and 2001 financial
statements, which states that our ability to continue as a going concern depends
upon our ability to resolve liquidity problems, principally by obtaining
capital, commencing sales and generating sufficient revenues to become
profitable. Our ability to obtain additional funding will determine our ability
to continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WE HAVE A WORKING CAPITAL DEFICIT, WHICH MEANS THAT OUR CURRENT ASSETS ON MARCH
31, 2003 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES ON THAT DATE
We had a working capital deficit of $3,846,963 as of March 31, 2003, which
means that our current liabilities exceeded our current assets by $3,846,963.
Current assets are assets that are expected to be converted into cash within one
year and, therefore, may be used to pay current liabilities as they become due.
Our working capital deficit means that our current assets on March 31, 2003 were
not sufficient to satisfy all of our current liabilities on that date.
OUR FUTURE DEPENDS UPON THE MARKET ACCEPTANCE OF A SINGLE PRODUCT
We intend to market and distribute a single product called SpectruCell. To
date, we have not had any revenue from the sale of this product. Our success is
completely dependent on the telecommunication industry's acceptance of this
product, in such quantities that we can generate sufficient revenues and cash
flow to finance our operations. We may need to overcome substantial hurdles to
obtain such market acceptance, including convincing the telecommunication
industry of the necessity of such product and encouraging companies and other
entities to offer incentives to use our product. No assurances can be given that
the market will accept our product.
The inability of SpectruCell SDR Pty Ltd to complete the development of
our proposed product and prove its features and functionality will jeopardize
our ability to continue operations.
Our proposed product is under development and is not commercially
available. The features and functionality of our proposed product is
commercially unproven. The success of Advanced Communications is dependent upon
the ability of the developer to successfully complete the development, and to
prove the features and functionality of our product. The inability to timely
7
complete such development or to prove to potential customers our product's
features and functionality, such that we can generate sales, will jeopardize our
ability to continue operations. Such testing and functionality is outside our
control and we are dependent on the developers' efforts to complete these tasks.
THE PRICE OF OUR COMMON STOCK MAY BE AFFECTED BY A LIMITED TRADING VOLUME AND
MAY FLUCTUATE SIGNIFICANTLY
Prior to this offering there has been a limited public market for our
common stock and there can be no assurance that an active trading market will
develop. An absence of an active trading market could adversely affect our
stockholders' ability to sell our common stock in short time periods, or
possibly at all. Our common stock has experienced, and is likely to experience
in the future, significant price and volume fluctuations that could adversely
affect the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as quarterly fluctuations
in our financial results and changes in the overall economy or the condition of
the financial markets could cause the price of our common stock to fluctuate
substantially.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our common stock is deemed to be "penny stock" as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline. Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last three
years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of key executives
and consultants, including Wayne Danson, our President and Chief Financial
Officer. The loss of the services of Mr. Danson could materially harm our
business because of the cost and time necessary to replace and train a
replacement. Such a loss would also divert management`s attention away from
operational issues. We do not presently maintain a key-man life insurance policy
on Mr. Danson.
RISKS RELATING TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make it more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 198,852,622 shares of common stock outstanding as of July 1, 2003,
52,886,765 shares are, or will be, freely tradable without restriction, unless
held by our "affiliates." The remaining 145,965,857 shares of common stock held
by existing stockholders are "restricted securities" and may be resold in the
public market only if registered or pursuant to an exemption from registration.
Some of these shares may be resold under Rule 144.
8
In addition, we have issued, or will issue, warrants to purchase up to
6,440,900 shares of common stock and debentures convertible into 482,500,000
shares of common stock (assuming conversion prices of $0.0032 and $.001 per
share).
EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF
SHARES UNDER THE EQUITY LINE OF CREDIT
The sale of shares pursuant to the Equity Line of Credit will have a
dilutive impact on our stockholders. As a result, our net income per share could
decrease in future periods, and the market price of our common stock could
decline. In addition, for a given advance, we will need to issue a greater
number of shares of common stock under the Equity Line of Credit as our stock
price declines. If our stock price is lower, then our existing stockholders
would experience greater dilution.
THE INVESTOR UNDER THE EQUITY LINE OF CREDIT WILL PAY LESS THAN THE
THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK
The common stock to be issued under the Equity Line of Credit will be
issued at a 9% discount to the lowest closing bid price for the 5 days
immediately following the notice date of an advance. These discounted sales
could cause the price of our common stock to decline.
The amount of each advance is subject to an aggregate maximum advance
amount of $2 million in any thirty-day period. Cornell Capital Partners will
purchase the shares of common stock for a 9% discount to the market price of our
common stock. The amount available under the Equity Line of Credit is not
dependent on the price or volume of our common stock. Cornell Capital Partners
will retain 3% of the advance amount as a commitment fee, which means that we
will receive 97% of the advance amount. This means that Cornell Capital Partners
will pay 88% of the market price of our common stock (i.e., 91% less 3%). There
is no floor price that Cornell Capital Partners must pay for an advance.
Accordingly, we will be required to issue a greater number of shares to Cornell
Capital Partners as our price declines.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
PUBLIC MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO DECLINE
The selling stockholders intend to sell the shares of common stock being
registered in this offering in the public market. Such sales may cause our stock
price to decline.
THE SALE OF OUR STOCK UNDER OUR EQUITY LINE OF CREDIT COULD ENCOURAGE SHORT
SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER DECLINE OF OUR
STOCK PRICE
The significant downward pressure on the price of our common stock caused
by the sale of significant amounts of common stock under the Equity Line of
Credit could encourage short sales by third parties. Such an event could place
further downward pressure on the price of our common stock.
OUR COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT THE
EXTENT TO WHICH A TRADING MARKET WILL DEVELOP
Before this offering our common stock has traded on the Over-the-Counter
Bulletin Board. Our common stock is thinly traded compared to larger more widely
known companies in our industry. Thinly traded common stock can be more volatile
than common stock trading in an active public market. We cannot predict the
extent to which an active public market for the common stock will develop or be
sustained after this offering.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING
The price in this offering will fluctuate based on the prevailing market
price of the common stock on the Over-the-Counter Bulletin Board. Accordingly,
the price you pay in this offering may be higher or lower than the prices paid
by other people participating in this offering.
9
THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THIS OFFERING COULD RESULT IN A
CHANGE OF CONTROL
We are registering 4,506,868,683 shares of common stock in this offering.
These shares will represent approximately 90% of our outstanding common stock,
and we anticipate all such shares will be sold in this offering. If all or a
significant block of these shares are held by one or more stockholders working
together, then such stockholder or stockholders would have enough shares to
assume control of Advanced Communications by electing its or their own
directors.
10
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may
contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including statements
regarding, among other things, (a) our projected sales and profitability, (b)
our growth strategies, (c) anticipated trends in our industry, (d) our future
financing plans and (e) our anticipated needs for working capital. These
statements may be found under "Management's Discussion and Analysis or Plan of
Operations" and "Business," as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, the
risks outlined under "Risk Factors" and matters described in this prospectus
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will in fact
occur.
11
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders and the type of
security or securities to be sold in this offering. None of the selling
stockholders have held a position or office, or had any other material
relationship, with Advanced Communications, except as follows:
o Cornell Capital Partners, L.P. is the investor under the Equity Line
of Credit and a holder of convertible debentures. All investment
decisions of Cornell Capital Partners are made by its general
partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of
Yorkville Advisors, makes the investment decisions on behalf of
Yorkville Advisors.
o Westrock Advisors, Inc. is a registered broker/dealer that has been
retained by us. It has provided advice to us in connection with the
Equity Line of Credit. For its services, Westrock Advisors, Inc.
received a fee of 40,000 shares of Advanced Communications' common
stock, which is equal to $10,000 at a closing bid of $0.25 on January
10, 2002. These shares were transferred to D. Christian Southwick,
Julia Oliver, Mark Sklar and Mitchel Sklar, each of whom are
employees of Westrock Advisors. These shares are being registered in
this offering.
o Robert Bends makes the investment decisions on behalf of Central
Florida Sales and Leasing.
o Bennie Williams makes the investment decisions on behalf of Morgan
Group.
The table follows:
PERCENTAGE
OF
PERCENTAGE OUTSTANDING
OF SHARES TO SHARES TO PERCENTAGE
OUTSTANDING BE BE OF
SHARES SHARES ACQUIRED ACQUIRED SHARES
BENEFICIALLY BENEFICIALLY UNDER THE UNDER THE SHARES TO BENEFICIALLY
OWNED OWNED EQUITY EQUITY BE SOLD OWNED
SELLING BEFORE BEFORE LINE OF LINE OF IN THE AFTER
STOCKHOLDER OFFERING OFFERING(1) CREDIT CREDIT OFFERING OFFERING(1)
----------- -------- ----------- ------ ------ -------- -----------
WARRANTS:
Anthony Castaldi 125,000 * -- -- 125,000 0.00%
Central Florida
Sales and
Leasing 125,000 * -- -- 125,000 0.00%
David R. Osborne 200,000 * -- -- 200,000 0.00%
Frank Tremmel 125,000 * -- -- 125,000 0.00%
Fred S. Mann 125,000 * -- -- 125,000 0.00%
Gary Levy 125,000 * -- -- 125,000 0.00%
Jerome and Joanne
Martin 125,000 * -- -- 125,000 0.00%
John C. Roberson 125,000 * -- -- 125,000 0.00%
Johnny & Janice
Greene 250,000 * -- -- 250,000 0.00%
Leslie Rosenberg 375,000 * -- -- 375,000 0.00%
Melissa Graybeal 125,000 * -- -- 125,000 0.00%
Michael Jones 62,500 * -- -- 62,500 0.00%
Michael Jones &
Thomas Smith 125,000 * -- -- 125,000 0.00%
Morgan Group 2,000,000 * -- -- 2,000,000 0.00%
Paul & Debra Hale 187,500 * -- -- 187,500 0.00%
Paul M. Troop 325,000 * -- -- 325,000 0.00%
12
PERCENTAGE
OF
PERCENTAGE OUTSTANDING
OF SHARES TO SHARES TO PERCENTAGE
OUTSTANDING BE BE OF
SHARES SHARES ACQUIRED ACQUIRED SHARES
BENEFICIALLY BENEFICIALLY UNDER THE UNDER THE SHARES TO BENEFICIALLY
OWNED OWNED EQUITY EQUITY BE SOLD OWNED
SELLING BEFORE BEFORE LINE OF LINE OF IN THE AFTER
STOCKHOLDER OFFERING OFFERING(1) CREDIT CREDIT OFFERING OFFERING(1)
----------- -------- ----------- ------ ------ -------- -----------
R. William
Timberman 560,000 * -- -- 560,000 0.00%
Raj Selvaraju 375,000 * -- -- 375,000 0.00%
Ronald Coletta 280,900 * -- -- 280,900 0.00%
Sean R. Repko 125,000 * -- -- 125,000 0.00%
Theodore &
Claudia Jones 125,000 * -- -- 125,000 0.00%
Victoria Lichtman 125,000 * -- -- 125,000 0.00%
Wayne Madden 325,000 * -- -- 325,000 0.00%
---------- ---------- ---------- -------- ------------- -----
Total Shares
Underlying
Warrants 6,440,900 3.14% -- -- 6,440,900 0.00%
---------- ---------- ---------- -------- ------------- -----
COMMON STOCK:
Alberto Monteiro 160,000 * -- -- 160,000 0.00%
Eduardo Acosta 160,000 * -- -- 160,000 0.00%
James Rennie 34,449 * -- -- 34,449 0.00%
Robert H. Groman 11,111 * -- -- 11,111 0.00%
Richard R. Ross 11,111 * -- -- 11,111 0.00%
Russell G. Tisman 11,112 * -- -- 11,112 0.00%
D. Christian
Southwick 16,000 * -- -- 16,000 0.00%
Julia Oliver 16,000 * -- -- 16,000 0.00%
Mark Sklar 4,000 * -- -- 4,000 0.00%
Mitchel Sklar 4,000 * -- -- 4,000 0.00%
---------- ---------- ---------- -------- ------------- -----
Total Shares
of Common Stock 427,783 * -- -- 427,783 0.00%
---------- ---------- ---------- -------- ------------- -----
DEBENTURES:
Cornell Capital
Partners, L.P. 65,460,000 32.92% -- -- 409,210,000(2) 0.00%
Eric Brager 1,093,750 * -- -- 1,093,750 0.00%
Mary Ellen Misiak 1,093,750 * -- -- 1,093,750 0.00%
Connie Benesch 1,093,750 * -- -- 1,093,750 0.00%
Adam Denish 1,093,750 * -- -- 1,093,750 0.00%
Paul Denish 1,093,750 * -- -- 1,093,750 0.00%
Dr. Gerald Holland 1,093,750 * -- -- 1,093,750 0.00%
Doree
Kesselbrenner
(For Sarah
Kesselbrenner) 1,093,750 * -- -- 1,093,750 0.00%
Doree
Kesselbrenner
(For David
Kesselbrenner) 1,093,750 * -- -- 1,093,750 0.00%
Doree
Kesselbrenner
(For Joseph
Kesselbrenner) 1,093,750 * -- -- 1,093,750 0.00%
Doree
Kesselbrenner
(For Louis
Kesselbrenner) 1,093,750 * -- -- 1,093,750 0.00%
13
PERCENTAGE
OF
PERCENTAGE OUTSTANDING
OF SHARES TO SHARES TO PERCENTAGE
OUTSTANDING BE BE OF
SHARES SHARES ACQUIRED ACQUIRED SHARES
BENEFICIALLY BENEFICIALLY UNDER THE UNDER THE SHARES TO BENEFICIALLY
OWNED OWNED EQUITY EQUITY BE SOLD OWNED
SELLING BEFORE BEFORE LINE OF LINE OF IN THE AFTER
STOCKHOLDER OFFERING OFFERING(1) CREDIT CREDIT OFFERING OFFERING(1)
----------- -------- ----------- ------ ------ -------- -----------
Roger Mischel 1,093,750 * -- -- 1,093,750 0.00%
Robert Benson 1,093,750 * -- -- 1,093,750 0.00%
Kent Chou 1,093,750 * -- -- 1,093,750 0.00%
Steve Severance 1,093,750 * -- -- 1,093,750 0.00%
Craig Moss 1,093,750 * -- -- 1,093,750 0.00%
Meir Levin 1,093,750 * -- -- 1,093,750 0.00%
---------- ---------- ----------- -------- ------------- -----
Total Shares
Underlying
Debentures 82,960,000 38.34% -- -- 426,710,000 0.00%
---------- ---------- ----------- -------- ------------- -----
COMMON STOCK
FROM EQUITY
LINE:
Cornell Capital
Partners, L.P. 65,460,000 25.05% 4,073,290,000 95.35% 4,073,290,000 0.00%
---------- ---------- ----------- -------- ------------- -----
Total Shares
of Common Stock
from Equity
Line: 65,460,000 25.05% 4,073,290,000 95.35% 4,073,290,000 0.00%
----------- -------- ------------- -----
GRAND TOTAL 4,073,290,000 95.35% 4,506,868,683 0.00%
============= ======== ============= =====
- -----------------------------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 198,852,622 shares of
common stock outstanding as of July 1, 2003, together with securities
exercisable or convertible into shares of common stock within 60 days of
July 1, 2003, for each stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to securities exercisable or convertible
into shares of common stock that are currently exercisable or exercisable
within 60 days of July 1, 2003 are deemed to be beneficially owned by the
person holding such securities for the purpose of computing the percentage
of ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person. The
common stock is the only outstanding class of equity securities of
Advanced Communications.
(2) Excludes shares to be acquired under the Equity Line of Credit.
14
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by certain selling stockholders. There will be no
proceeds to us from the sale of shares of common stock in this offering.
However, we will receive the proceeds from the sale of shares of common stock to
Cornell Capital Partners, L.P. under the Equity Line of Credit. The purchase
price of the shares purchased under the Equity Line of Credit will be equal to
91% of the lowest closing bid price of our common stock on the Over-the-Counter
Bulletin Board for the 5 days immediately following the notice date.
For illustrative purposes, we have set forth below our intended use of
proceeds for the range of net proceeds indicated below to be received under the
Equity Line of Credit. The table assumes estimated offering expenses of $85,000
and 3% retention of the gross proceeds raised under the Equity Line of Credit.
GROSS PROCEEDS $5,000,000 $10,000,000 $30,000,000
NET PROCEEDS $4,765,000 $9,615,000 $29,015,000
USE OF PROCEEDS: AMOUNT AMOUNT AMOUNT
- -------------------- ------------------- ------------------- -----------------
Repayment of Convertible
Debt $1,300,000 $1,300,000 $1,300,000
General and Administrative
Operating Expenses 600,000 600,000 1,200,000
Accounts Payable & Note
Payable 1,000,000 1,650,000 1,650,000
Future Acquisitions 1,500,000 4,500,000 22,550,000
General Working Capital 365,000 1,565,000 2,315,000
----------- ----------- ------------
TOTAL $4,765,000 $9,615,000 $29,015,000
=========== =========== ============
Any proceeds received upon issuance of outstanding options or warrants
will be used for general working capital purposes.
15
DILUTION
The net tangible book value of our company as of March 31, 2003, was
($5,730,449) or ($0.0288) per share of common stock. Net tangible book value per
share is determined by dividing the tangible book value of our company (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. Since this offering is being made solely by the selling
stockholders and none of the proceeds will be paid to our company, our net
tangible book value will be unaffected by this offering. Our net tangible book
value, however, will be impacted by the common stock to be issued under the
Equity Line of Credit. The amount of dilution will depend on the offering price
and number of shares to be issued under the Equity Line of Credit. The following
example shows the dilution to new investors at an offering price of $0.005 per
share.
If we assume that our company had issued 4,073,290,000 shares of common
stock under the Equity Line of Credit at an assumed offering price of $0.005 per
share (I.E., the maximum number of shares registered in this offering under the
Equity Line of Credit), less retention fees of $610,994 and offering expenses of
$85,000, our net tangible book value as of March 31, 2003, would have been
$13,940,007 or $0.0033 per share. Note that at an offering price of $0.005 per
share, Advanced Communications would receive gross proceeds of $20,366,450 or
$9,633,550 less than is available under the Equity Line of Credit. Such an
offering would represent an immediate increase in net tangible book value to
existing stockholders of $0.05 per share and an immediate dilution to new
stockholders of $0.0017 per share. The following table illustrates the per share
dilution:
Assumed public offering price per share $0.0050
Net tangible book value per share before this offering $(0.0483)
Increase attributable to new investors $0.0500
---------
Net tangible book value per share after this offering $0.0033
-------
Dilution per share to new stockholders $0.0017
=======
The offering price of our common stock is based on the then-existing
market price. In order to give prospective investors an idea of the dilution per
share they may experience, we have prepared the following table showing the
dilution per share at various assumed offering prices:
DILUTION PER
ASSUMED NO. OF SHARES SHARE TO NEW
OFFERING PRICE TO BE ISSUED(1) INVESTORS
-------------- --------------- ------------
$0.0038 4,073,290,000 $0.0016
$0.0025 4,073,290,000 $0.0015
$0.0020 4,073,290,000 $0.0015
$0.0015 4,073,290,000 $0.0015
$0.0010 4,073,290,000 $0.0014
$0.0005 4,073,290,000 $0.0014
- -------------------
(1) This represents the maximum number of shares of common stock that will be
registered under the Equity Line of Credit.
16
EQUITY LINE OF CREDIT
SUMMARY. In July 2003, we entered into an Equity Line of Credit with
Cornell Capital Partners, L.P. Pursuant to the Equity Line of Credit, we may, at
our discretion, periodically sell to Cornell Capital Partners shares of common
stock for a total purchase price of up to $30.0 million. For each share of
common stock purchased under the Equity Line of Credit, Cornell Capital Partners
will pay 91% of the lowest closing bid price of our common stock on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded for the 5 days immediately following the notice date. Cornell
Capital Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Further, Cornell
Capital Partners will retain a fee of 3% of each advance under the Equity Line
of Credit. In addition, we engaged Westrock Advisors, Inc., a registered
broker-dealer, to advise us in connection with the Equity Line of Credit. For
its services, Westrock Advisors, Inc. received 40,000 shares of our common
stock. The effectiveness of the sale of the shares under the Equity Line of
Credit is conditioned upon us registering the shares of common stock with the
Securities and Exchange Commission. The costs associated with this registration
will be borne by us.
EQUITY LINE OF CREDIT EXPLAINED. Pursuant to the Equity Line of Credit, we
may periodically sell shares of common stock to Cornell Capital Partners, L.P.
to raise capital to fund our working capital needs. The periodic sale of shares
is known as an advance. We may request an advance every 5 trading days. A
closing will be held 7 trading days after such written notice at which time we
will deliver shares of common stock and Cornell Capital Partners, L.P. will pay
the advance amount, less the 3% retention.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $30.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first.
The amount of each advance is subject to an aggregate maximum advance
amount of $2 million in any thirty-day period. The amount available under the
Equity Line of Credit is not dependent on the price or volume of our common
stock.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Equity Line of Credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Nonetheless,
we can estimate the number of shares of our common stock that will be issued
using certain assumptions. Assuming we issued the maximum number of shares of
common stock being registered in the accompanying registration statement at a
recent price of $0.005 per share, we would issue 4,073,290,000 shares of common
stock to Cornell Capital Partners, L.P. for gross proceeds of $20,366,450 or
$9,633,550 less than is available under the Equity Line of Credit. These shares
would represent 95% of our outstanding common stock upon issuance. We are
registering 4,073,290,000 shares of common stock for the sale under the Equity
Line of Credit and the conversion of debentures. Accordingly, we would need to
register additional shares of common stock in order to fully utilize the $30.0
million available under the Equity Line of Credit at the current price of $0.005
per share.
There is an inverse relationship between our stock price and the number of
shares to be issued under the Equity Line of Credit. That is, as our stock price
declines, we would be required to issue a greater number of shares under the
Equity Line of Credit for a given advance. This inverse relationship is
demonstrated by the following table, which shows the number of shares to be
issued under the Equity Line of Credit at a recent price of $0.005 per share and
25%, 50% and 75% discounts to the recent price.
17
Purchase Price: $0.0050 $0.0038 $0.0025 $0.0013
Gross Proceeds: $20,366,450 $15,274,838 $10,183,225 $5,091,613
No. of Shares(1): 4,073,290,000 4,073,290,000 4,073,290,000 4,073,290,000
Total Outstanding(2): 4,272,142,622 4,272,142,622 4,272,142,622 4,272,142,622
Percent Outstanding(3): 95% 95% 95% 95%
(1) Represents the maximum number of shares of common stock to be issued to
Cornell Capital Partners, L.P.
(2) Represents the total number of shares of common stock outstanding after
the issuance of the shares to Cornell Capital Partners, L.P.
(3) Represents the shares of common stock to be issued as a percentage of the
total number shares outstanding.
The issuance of shares under the Equity Line of Credit may result in a
change of control. That is, up to 4,073,290,000 shares of common stock could be
issued under the Equity Line of Credit. If all or a significant block of these
shares are held by one or more stockholders working together, then such
stockholder or stockholders would have enough shares to assume control of
Advanced Communications by electing its or their own directors.
Proceeds used under the Equity Line of Credit will be used in the manner
set forth in the "Use of Proceeds" section of this prospectus. We cannot predict
the total amount of proceeds to be raised in this transaction because we have
not determined the total amount of the advances we intend to draw.
We expect to incur expenses of approximately $85,000 in connection with
this registration, consisting primarily of professional fees. In addition,
Cornell Capital Partners will retain 3% of each advance. In connection with the
Equity Line of Credit, we paid Cornell Capital Partners a commitment fee of
$740,000, which was paid by the issuance of 2,960,000 shares of common stock.
The number of shares issued for the commitment fee was equal to $0.25 per share.
In addition, we issued 40,000 shares of common stock, valued at $10,000, to
Westrock Advisors, Inc., a registered broker-dealer, as a placement agent fee.
18
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution of
our common stock owned by the selling stockholders may be effected directly to
purchasers by the selling stockholders or by pledgees, donees, transferees or
other successors in interest, as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the over-the-counter market or
in any other market on which the price of our shares of common stock are quoted
or (ii) in transactions otherwise than on the over-the-counter market or in any
other market on which the price of our shares of common stock are quoted. Any of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of common stock under the
Equity Line of Credit. Cornell Capital Partners, L.P. will pay us 91% of the
lowest closing bid price of our common stock on the Over-the-Counter Bulletin
Board or other principal trading market on which our common stock is traded for
the 5 days immediately following the advance date. In addition, Cornell Capital
Partners will retain 3% of the proceeds received by us under the Equity Line of
Credit, plus a one-time commitment fee of $740,000, which was paid by the
issuance of 2,960,000 shares of common stock. The 9% discount, the 3% retention,
and the one-time commitment fee are underwriting discounts. In addition, we
engaged Westrock Advisors, Inc., a registered broker-dealer, to advise us in
connection with the Equity Line of Credit. For its services, Westrock Advisors,
Inc. received 40,000 shares of our common stock.
Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in our stock or to otherwise engage in
stabilizing or other transactions intended to help support the stock price.
Prospective investors should take these factors into consideration before
purchasing our common stock.
Under the securities laws of certain states, the shares of common stock
may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of common stock may not be sold unless the shares
have been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000, and a one-time fee of $740,000 payable in common stock.
In addition, we engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise us in connection with the Equity Line of Credit. For its services,
Westrock Advisors, Inc. received 40,000 shares of our common stock. The offering
expenses consist of: a SEC registration fee of $955 printing expenses of $2,500,
accounting fees of $15,000, legal fees of $50,000 and miscellaneous expenses of
$16,545. We will not receive any proceeds from the sale of any of the shares of
common stock by the selling stockholders. We will, however, receive proceeds
from the sale of common stock under the Equity Line of Credit.
19
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Registration M, the selling stockholders or their agents
may not bid for, purchase, or attempt to induce any person to bid for or
purchase, shares of our common stock while such selling stockholders are
distributing shares covered by this prospectus. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. Cornell Capital
Partners can cover any short positions only with shares received from us under
the Equity Line of Credit. The selling stockholders are advised that if a
particular offer of common stock is to be made on terms constituting a material
change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is management's discussion and analysis of certain
significant factors that will have affected our financial condition and results
of operations. Certain statements under this section may constitute
"forward-looking statements". The following discussion should be read in
conjunction with the June 30, 2002 audited financial statements and notes
thereto included in the Company's Form 10-KSB.
FINANCIAL CONDITION
We had net losses of $4,332,693 and $19,732,566 during the years ended
June 30, 2002 and 2001, respectively. For the nine months ended March 31, 2003,
we had a net loss of $1,670,852. As of March 31, 2003, we had a net loss of
$1,670,852, a cash overdraft of $28 and current liabilities of $3,846,963. We do
not have sufficient cash or other assets to meet our current liabilities. In
order to meet those obligations, we will need to raise cash from the sale of
securities or from borrowings. Our independent auditors have added an
explanatory paragraph to their audit opinions issued in connection with the
years 2002 and 2001 financial statements, which states that our ability to
continue as a going concern depends upon our ability to resolve liquidity
problems, principally by obtaining capital, commencing sales and generating
sufficient revenues to become profitable. Our ability to obtain additional
funding will determine our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
If we are unable to obtain additional funding through our Equity Line of
Credit facility (as described in the Management Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere), then the
failure to obtain this funding will have a material adverse effect on our
business and our ability to continue as a going concern. Unless the Company is
able to access its Equity Line of Credit facility soon, the Company will be
forced to cease operations after August 2003. As a consequence, we may be forced
to seek protection under the bankruptcy laws. In that event, it is unclear
whether we could successfully reorganize our capital structure and operations,
or whether we could realize sufficient value for our assets to satisfy our
creditors in full. Accordingly, should we be forced to file for bankruptcy
protection, there is no assurance that our stockholders would receive any value.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 TO THE THREE MONTHS ENDED
MARCH 31, 2002
OVERALL RESULTS OF OPERATIONS
For the three months ended March 31, 2003 we incurred an overall loss of
($337,546) or ($.002) per share, which was a material decrease from the loss of
($865,403) or ($0.009) per share for the comparable period in the prior year.
REVENUE
No revenues were generated during either the three months ended March 31,
2003 or March 31, 2002.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2003, were
$227,036 and represent a $297,950 or 57% decrease in operating expenses of
$524,986 for the comparative period ended March 31, 2002. Included in operating
expenses for both periods is $107,875 and $201,417 respectively, of non-cash
charges for depreciation and amortization attributable to the quarterly
depreciation of our office property and equipment, $106,875 and $100,417
respectively of amortization attributable to deferred financing and commitment
fees for the three months ended March 31, 2003 and $100,000 of amortization of
goodwill associated with our investment in Advanced Communications (Australia)
for the three months ended March 31, 2002. Because goodwill was completely
written-off in our June 30, 2002 financial statements, no amortization of
goodwill was incurred for the three months ended March 31, 2003. Professional
and consulting fees for the three months ended March 31, 2003 increased by
$51,111 over the comparable three-month period ended March 31, 2002 due to the
increase in legal fees as a result of the Company's settlement of all its
remaining lawsuits and its withdrawal from the Australian litigation with Roger
May and Advanced Communications (Australia).
Other selling, general and administrative expenses decreased $234,509 from
the comparative three month period ended March 31, 2002 due to the Company's
curtailment of its operations and relocation of its office to New York. In
particular, the Company has reduced its office rent, marketing and promotion,
and other office operating expenses by approximately $53,000 from the
comparative three month period ended March 31, 2002. In addition, during the
three month period ended March 31, 2002, the Company expensed $180,000 of
21
directors' fees while no directors' fees were incurred for the three months
ended March 31, 2003.
OTHER EXPENSE
Interest expense incurred for the three months ended March 31, 2003 was
$80,510 and was attributable to quarterly interest on the Company's 10% Secured
Convertible Debentures due November 2004, the 5% $1,000,000 Convertible
Debentures due January 2004 and the 8% Note Payable due 2005. Interest of
$260,417 for the comparative three-month period ended March 31, 2002 was
attributable entirely to interest on the 5% $1,000,000 Convertible Debenture we
issued in January 2002. Included in the $260,417 of interest expense is $250,000
of interest attributable to the intrinsic value of the beneficial conversion
feature included in the convertible debt we issued to Cornell Capital Partners,
L.P. and other investors.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2003 TO THE NINE MONTHS ENDED
MARCH 31, 2002
OVERALL RESULTS OF OPERATIONS
For the nine months ended March 31, 2003, the Company incurred an overall
net loss of ($1,670,852) or ($.012) per share, as compared to an overall net
loss of ($1,973,621) or ($.02) per share, for the comparative nine months ended
March 31, 2002. The overall net loss for the nine months ended March 31, 2003
was 15% less than the net loss for the nine months ended March 31, 2002.
REVENUE
No revenues were generated during either the nine months ended March 31,
2003 or March 31, 2002.
OPERATING EXPENSES
Operating expenses for the nine months ended March 31, 2003, were $972,181
and represent a $655,817 or 40% decrease in operating expenses of $1,627,998 for
the comparative period ended March 31, 2002. Included in operating expenses for
both periods is $318,937 and $403,417 respectively, of non-cash charges for
depreciation and amortization attributable to the quarterly depreciation of our
office property and equipment, $315,937 and $100,417 of amortization
attributable to deferred financing and commitment fees for the nine months ended
March 31, 2003 and 2002 respectively and $300,000 of amortization of goodwill
associated with our investment in Advanced Communications (Australia) for the
nine months ended March 31, 2002. Because goodwill was completely written-off in
our June 30, 2002 financial statements, no amortization expense for goodwill was
recorded for the nine months ended March 31, 2003. Professional and consulting
fees for the nine months ended March 31, 2003 decreased slightly by $32,156 from
the comparative period due to the curtailment of our operations commencing
August 1, 2002, as well as an overall reduction in legal fees associated with
the Company's settlement of all its remaining lawsuits and its litigation with
Roger May and Advanced Communications (Australia).
OTHER EXPENSE
Interest expense incurred for the nine months ended March 31, 2003 was
$480,177 and was principally attributable to $250,000 of intrinsic interest on
the beneficial conversion feature of the Company's 10% Secured Convertible
Debentures we issued in November 2002, $216,971 of accrued and penalty interest
on the 5% Convertible Debentures due January 2004, $5,359 of interest on the 8%
Note Payable due 2005 and $7,847 of interest on the 10% Secured Convertible
Debentures issued November 2002. Interest of $265,623 for the comparative nine
month period ended March 31, 2002 was attributable entirely to interest on the
5% Convertible Debentures we issued in January 2002 and included $250,000 of
interest attributable to the intrinsic value of the beneficial conversion
feature of the Convertible Debentures. During the nine month period ended March
31, 2003, the Company settled its remaining lawsuits and recorded $218,494 of
settlement expense in accordance with paragraphs 8(a) and 35 of FASB 5. For the
nine month period ended March 31, 2002, the Company recorded $80,000 of expense
attributable to the settlement of the World IP lawsuit.
YEAR ENDED JUNE 30, 2002 COMPARED TO YEAR ENDED JUNE 30, 2001
OVERALL RESULTS OF OPERATIONS
For the fiscal year ended June 30, 2002, we incurred an overall loss of
$(4,332,693) or ($.04) per share which was a substantial decrease from the net
loss of $(19,732,566) or $(0.22) per share for the comparable period in the
prior year. The net losses for the 2002 and 2001 fiscal years include a
22
$1,700,000 and $15,971,518 loss from the write-off of our investment in Advanced
Communications (Australia), respectively.
REVENUE
We did not generate any revenue during the year. Revenue for the year
ended June 30, 2001 was $50,000 and was realized entirely from our subsidiary's
U.S.-Pakistan international telephone distribution network. We ceased operating
our international telephone services network on June 30, 2001 because of
regulatory difficulties we encountered in our target market. We realized no
revenue from the sale and/or license of the SpectruCell product as such product
was not ready to be commercially sold in our territory.
OPERATING EXPENSES
Total operating expenses for the fiscal years ended June 30, 2002 and June
30, 2001 were $2,314,570 and $3,334,581 respectively and represents a 31%
decrease from the prior fiscal year. Of these amounts, $1,228,780 and $1,214,739
or 53% and 36% respectively, were for professional services rendered of which
$677,634 and $296,870 during the fiscal years ended June 30, 2002 and June 30,
2001, respectively, was paid via the issuance of restricted common stock and
represent a non-cash expense. During the fiscal years ended June 30, 2002 and
June 30, 2001, we paid $246,782 and $307,002 respectively, in cash fees for
professional services rendered.
Depreciation and amortization expense decreased by $543,002 due to the
write-off of the unamortized balance of goodwill associated with our investment
in Advanced Communications (Australia) as of June 30, 2002.
Consulting fees during fiscal year ended June 30, 2002 of $(10,149), which
include employee payments, decreased $577,774 from the fiscal year ended June
30, 2001 of $567,625 due to the curtailment of our employees and outside
consultants during the fiscal year ended June 30, 2002 as well as the reversal
of $394,361 of accrued compensation due Mr. May, our former Chief Executive
Officer and Chairman. During the fiscal year ended June 30, 2002 and June 30,
2001, $0 and $32,000, respectively, was paid via the issuance of restricted
common stock and represents a non-cash expense.
Other general and administrative expenses (exclusive of professional fees,
consulting expenses and other non-cash charges) amounted to $407,772 for the
fiscal year ended June 30, 2002, a decrease of $93,276 from the prior fiscal
year.
Interest expense increased $307,791 from the fiscal year ended June 30,
2001 due principally to the issuance, in January 2002, of our 5% Convertible
Debentures. $250,000 of the increase in interest expense is attributable to the
intrinsic value of the beneficial conversion feature included in the convertible
debentures.
Other expense for the fiscal year ended June 30, 2002 includes a
$1,700,000 loss from impairment of Goodwill associated with our investment in
Advanced Communications (Australia). The impairment loss of $1,700,000 was based
on management's evaluation, in accordance with FASB 121 and SFAS 142 of the
carrying value of our investment in Advanced Communications (Australia). The
decision to write-down our remaining Goodwill was based principally on the
ongoing financial difficulties of Advanced Communications (Australia) and its
filing for voluntary administration (bankruptcy) in Australia on or about July
18, 2002.
Other expense for the fiscal year ended June 30, 2001 includes a one-time
write-off of $425,000 attributable to the abandonment of our investment deposit
for the proposed acquisition of the ORBCOMM assets. It also includes a
$12,399,864 loss on the write-down of Goodwill associated with our investment in
Advanced Communications (Australia), as well as the write-off of $3,571,654
representing our remaining equity investment in Advanced Communications
(Australia). The write-down in Advanced Communications (Australia) was based on
management's evaluation of the business prospects, which were necessitated by
FASB 121 ("Accounting for Impairment of Long Lived Assets") and APB 18 ("The
Equity Method of Accounting for Investments in Common Stock"). Such
pronouncements require the annual evaluation of long-lived assets for
impairment. Advanced Communications (Australia) has been in the development
stage since inception, and has not made any sales. Based on these factors,
management believed that the carrying value of the good will in the investment
should be reduced to $2,000,000, resulting in a $12,399,864 write-down of
goodwill.
23
EXTRAORDINARY GAIN
Extraordinary gain for the fiscal year ended June 30, 2001 included a
$23,000 gain on the issuance of our restricted common stock to unrelated vendors
of Advanced Communications (Australia) in excess of the then current market
value. In fiscal 2002, we realized no extraordinary gains.
SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 of the Notes to the Financial Statements includes a
summary of the significant accounting policies and methods used in the
preparation of our Financial Statements. The following is a brief discussion of
the more significant accounting policies and methods used by us. In addition,
Financial Reporting Release No. 61 was recently released by the Securities and
Exchange Commission to require all companies to include a discussion to address,
among other things, liquidity, off-balance sheet arrangement, contractual
obligations and commercial commitments.
LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable assets
related to those assets for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recoverable.
COMPREHENSIVE INCOME
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components.
LOSS PER SHARE
Basic and dilutive net loss per common share is computed based upon the
weighted average common shares outstanding.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 rescinds the provisions of SFAS No. 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS No. 44 regarding transition to the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS 145 related to classification of debt extinguishments are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. In July 2002, the FASB issued SFAS No. 146, "Accounting for
Restructuring Costs." SFAS 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived assets. Those
activities can include eliminating or reducing product lines, terminating
employees and contracts and relocating plant facilities or personnel. Under SFAS
146, the Company will record a liability for a cost associated with an exit or
disposal activity when that liability is incurred and can be measured at fair
value. SFAS 146 will require the Company to disclose information about its exit
and disposal activities, the related costs, and changes in those costs in the
notes to the interim and annual financial statements that include the period in
which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
Under SFAS 146, a company cannot restate its previously issued financial
statements and the new statement grandfathers the accounting for liabilities
that a company had previously recorded under Emerging Issues Task Force Issue
94-3.
In December 2002, the Financial Accounting Standards Board issued
Statement No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure - an amendment of FASB Statement No. 123," ("SFAS 148"). SFAS 148
amends FASB Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
123") and provides alternative methods for accounting for a change by
registrants to the fair value method of accounting for stock-based compensation.
Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require
disclosure in the significant accounting policy footnote of both annual and
interim financial statements of the method of accounting for stock
based-compensation and the related pro forma disclosures when the intrinsic
24
value method continues to be used. The statement is effective for fiscal years
beginning after December 15, 2002, and disclosures are effective for the first
fiscal quarter beginning after December 15, 2002.
The Company does not believe the adoption of these standards will have a
material impact to the financial statements.
(B) LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had a cash overdraft of $28. We have no credit
facilities in place. The Company has no funds with which to continue its
operations, and has no cash available to pay its minor operating expenses.
Unless it is able to draw down on its equity line of credit shortly, it will be
forced to file for bankruptcy protection and will cease operations. In July
2003, we entered into an Equity Line of Credit Agreement with Cornell Capital
Partners, L.P. Pursuant to the Equity Line of Credit, we may, at our discretion,
for a period of two years periodically sell to Cornell Capital Partners shares
of common stock for a total purchase price of up to $30.0 million. For each
share of common stock purchased under the Equity Line of Credit, Cornell Capital
Partners will pay 91% of the lowest closing bid price of our common stock on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded for the 5 days immediately following the notice date. Cornell
Capital Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. Further, Cornell
Capital Partners will be paid a fee of 3% of each advance under the Equity Line
of Credit. In addition, we engaged Westrock Advisors, Inc., a registered
broker-dealer, to advise us in connection with the Equity Line of Credit. For
its services, Westrock Advisors, Inc. received 40,000 shares of our common
stock. The effectiveness of the sale of the shares under the Equity Line of
Credit is conditioned upon us (i) increasing the number of shares of common
stock that we are authorized to issue and (ii) registering the shares of common
stock with the Securities and Exchange Commission. Our Equity Line of Credit is
not yet effective and the Company has not drawn down any funds from this
facility. Except for the Equity Line of Credit, we have no commitments for
capital. Based upon the current price of the Company's stock, we will only be
able to draw down a portion of the maximum $30 million under the Equity Line of
Credit.
In June 2003, we borrowed $35,000 from Cornell Capital Partners. The loan
is due in August 2003. We paid Cornell Capital a fee of $5,000 for making the
loan. The proceeds of the loan are being used in connection with this
registration.
In January 2003, the holders of our 5% and 10% Convertible Debentures
converted $56,000 and $62,500 into 17,500,000 and 62,500,000 shares,
representing approximately 8.8% and 31.43% respectively, of our common stock. As
a result of these conversions, we have 198,852,622 shares of common stock
outstanding.
If Cornell Capital Partners, L.P. converted the outstanding balance of
$500,000 of their 5% secured convertible debt at $.0032 (80% of the recent price
of $.004) and the remaining balance of $187,500 of their 10% secured convertible
debt at $.001 per share, then such conversions would result in the issuance of
156,250,000 and 187,500,000 shares of common stock, respectively. After such
conversions, Cornell Capital Partners, L.P. would own 409,210,000 shares or
approximately 75% of our then outstanding common stock.
We anticipate that our cash needs over the next 12 months consist of
general working capital needs of $600,000, plus the repayment of outstanding
indebtedness of $3,846,963. These obligations include accounts payable, cash
overdraft and accrued expenses in the amount of $1,449,119, accrued interest of
$168,094, the current portion of principal on the 8% note payable of $57,831, 5%
Convertible Debentures in the amount of $944,000, accrued compensation of
$172,183 and an unsecured, non-interest-bearing loan in the amount of $1,055,736
payable to an entity wholly-owned by Roger May, a former officer and director.
In addition, we have a note payable to Advanced Communications (Australia) in
the amount of $1,791,166 at March 31, 2003 that was the subject of a lawsuit by
us against Roger May and Advanced Communications (Australia). Management
believes that as a result of the unilateral cancellation of the stock purchase
agreement by Advanced Communications (Australia), no further money is owed and
we have no further obligation to Advanced Communication (Australia). As of March
31, 2003, we had a working capital deficiency of $3,846,963. We will attempt to
satisfy our cash needs over the next 12 months from the sale of securities or
loans, including the Equity Line of Credit.
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business; and as a consequence, the financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should we be unable to continue as a going concern. We have
experienced net operating losses and negative cash flows since inception and, as
of March 31, 2003, we had an accumulated deficit of $31,519,500. At March 31,
2003, we had no cash available and were overdrawn by $28. Such conditions raise
substantial doubt that we will be able to continue as a going concern for a
25
reasonable period of time. Unless we are able to raise additional capital
through the draw down of our equity line once it is declared effective by the
SEC, we will be unable to continue our operations. We have no other sources of
internal or external capital.
The Company has total liabilities of $5,941,292 as of March 31, 2003.
Included in this total are contractual obligations of $2,922,208. These
contractual obligations, along with the dates on which such payments are due,
are described below:
PAYMENTS DUE BY PERIOD
-----------------------------------------
1 YR. 2-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS OR LESS* YEARS YEARS 5 YEARS
---------- -------- ------ -------
Note Payable and interest
thereon $ 59,618 $119,236 $ -- $ --
Convertible Debentures and
interest thereon 1,098,888 195,347 -- --
Accounts Payable and Accrued
Expenses 1,449,119 -- -- --
---------- -------- ------ -------
Total Contractual Obligations $2,607,625 $314,583 $ -- $ --
========== ======== ====== =======
* Excludes $1,791,166 due to Advanced Communications (Australia). The
Company believes that this obligation has been cancelled by Advanced
Communications (Australia) due to Advanced Communications (Australia)'s
unilateral revocation of the Stock Purchase Agreement and is no longer
obligated to pay this.
Our only source of funds to repay these obligations will come from our
Equity Line of Credit facility. We have no other source of funds, internal or
external with which to repay our contractual obligations.
CAPITAL RESOURCES
Pursuant to the Equity Line of Credit, we may periodically sell shares of
common stock to Cornell Capital Partners, L.P. to raise capital to fund our
working capital needs. The periodic sale of shares is known as an advance. We
may request an advance every 5 trading days. A closing will be held 7 trading
days after such written notice at which time we will deliver shares of common
stock and Cornell Capital Partners, L.P. will pay the advance amount, less the
3% retention. We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $30.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first. The amount of each
advance is subject to an aggregate maximum advance amount of $2 million in any
thirty-day period. Cornell Capital Partners will purchase the shares of common
stock for a 9% discount to the market price of our common stock. The amount
available under the Equity Line of Credit is not dependent on the price or
volume of our common stock. Cornell Capital Partners will retain 3% of the
advance amount as a commitment fee, which means that we will receive 97% of the
advance amount. This means that Cornell Capital Partners will pay 88% of the
market price of our common stock (i.e., 91% less 3%). There is no floor price
that Cornell Capital Partners must pay for an advance. Accordingly, we will be
required to issue a greater number of shares to Cornell Capital Partners as our
price declines.
We are attempting to register shares of common stock to be issued in
connection with the Equity Line of Credit and upon conversion of the debentures.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Equity Line of Credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Pursuant to
our Articles of Incorporation, we are authorized to issue up to 5,000,000,000
shares of common stock, of which 198,852,622 are outstanding. At a recent price
of $0.005 per share, we would be required to issue 6,000,000,000 shares of
common stock in order to fully utilize the $30.0 million available. In order to
access funds under the Equity Line of Credit, we must obtain a vote of at least
a majority of the outstanding shares in order to increase our authorized shares
of common stock for this purpose. Our inability to obtain such approval would
prohibit us from increasing our authorized shares of common stock and from
issuing any additional shares under the Equity Line of Credit or to otherwise
raise capital from the sale of capital stock.
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net cash used in operating activities was $111,121 and $1,076,988 for the
nine months ended March 31, 2003 and 2002, respectively. The use of cash by
operating activities was principally the result of net losses during both
reporting periods together with a corresponding increase in accounts payable,
26
accrued interest and the settlement of lawsuits for the nine months ended March
31, 2003 and the issuance of stock in lieu of cash in fiscal 2002 respectively.
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
No net cash was provided by or used in investing activities for the nine
months ended March 31, 2003. For the nine months ended March 31, 2002, $351,675
of cash was used in investing activities of which $325,000 of cash was used to
repay our short-term loan and $25,000 of cash was used to repay a portion of the
loan to Advanced Communications (Australia).
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
During the nine months ended March 31, 2003, the Company generated
$100,028 of net cash from financing activities principally from the net proceeds
on the $250,000 10% Secured Convertible Debenture that we issued on November 22,
2002. During the nine months ended March 31, 2002, the Company generated
$1,586,206 of net cash from financing activities which was attributable to
$120,000 of proceeds received from the sale of equity securities pursuant to a
private placement that commenced December 2000 and ended August 2001, $259,736
of loan proceeds received from Global Communications Technology Pty Ltd, an
entity wholly owned by Roger May, a former officer and director of the company,
$325,000 of proceeds from a short-term loan from Cornell Capital Partners, L.P.
issued on December 13, 2001 and repaid in early January 2002, and $1,000,000 of
proceeds from the issuance of the 5% Convertible Debentures. During the nine
months ended March 31, 2002, the Company used $118,530 to pay, in full, the
remaining balance on the Grassland note payable.
27
DESCRIPTION OF BUSINESS
In April 1999, we merged with and into Advanced Communications (Nevada), a
Nevada corporation. Pursuant to this merger, the shareholders of Advanced
Communications (Nevada) received 90% of the Company's outstanding common stock
and the Company received all of Advanced Communications (Nevada)'s assets. These
assets included all of the North and South American rights to market and
distribute SpectruCell, a wireless software defined radio ("SDR") based
communications platform that is being developed to offer mobile communications
network providers the flexibility of processing and transmitting multiple
wireless communication signals (e.g., AMPS, CDMA, GSM, Mobile IP, Voice IP,
etc.) through one base station. We are not aware of any formal oral or written
agreement documenting the transfer of the rights of Advanced Communications
(Nevada) in SpectruCell to the Company at the time of the merger except for the
Company's Proxy Statement prepared for a shareholders meeting held on March 25,
1999 (the "Proxy Statement"). Proposal #6 of the Proxy Statement stated that
Advanced Communications (Nevada) would merge all of its assets into the Company.
The Proxy Statement was prepared under the direction of Roger May, the
Company's former CEO and the CEO and the controlling shareholder of Advanced
Communications (Nevada) The Company is not aware of any documentation that
substantiated the rights of Advanced Communications (Nevada) in SpectruCell that
were transferred to the Company in the merger other than statements contained in
the Proxy Statement.
From the time of the merger in April 1999 through the latter part of 2002,
SpectruCell was being developed by Advanced Communications Technologies
(Australia), Pty. Ltd. ("Advanced Communications (Australia)"), an Australia
development company in which we owned a 20% interest. Advanced Communications
(Australia) went into an administrative insolvency proceeding in July 2002 and
is no longer operating as a going concern. It is our belief that SpectruCell is
now being developed by SDR Communications Pty Ltd., an Australia start-up
company in which we have no interest, that acquired a license to develop,
manufacture and sell the SpectruCell technology in the latter part of 2002. It
is our belief that SDR Communications Pty Ltd is owned and controlled by Mr.
Roger May, a former officer and director and a major shareholder of the Company.
It is our belief that the SDR Communications Pty Ltd license was acquired from
Global Communications Technologies Pty Ltd, the controlling shareholder and
major creditor of Advanced Communications (Australia), which foreclosed its
security interest in SpectruCell during the Advanced Communications (Australia)
administrative insolvency proceeding. Global Communications Technologies Pty,
Ltd is also owned by Roger May. We have no written documentation regarding the
transfer of the SpectruCell technology to SDR Communications Pty Ltd.
We believe that our rights to SpectruCell have not been affected by the
transfer of the SpectruCell technology to SDR Communications Pty Ltd and that
SDR Communications Pty Ltd acquired SpectruCell subject to our rights. Our view
is not shared by Advanced Communications (Australia), Global Communications
Technologies Pty Ltd, or by SDR Communications Pty Ltd., which believe that
SpectruCell was acquired by SDR Communications Pty Ltd free and clear of our
rights. We have had no communications with SDR Communications Pty Ltd regarding
our rights to market and distribute SpectruCell in our territory.
In July 2000, we entered into an interim License and Distribution
Agreement (the "interim License Agreement") with Advanced Communications
(Australia) to help facilitate implementation of the rights we acquired in the
1999 merger. The interim License Agreement acknowledged our exclusive license to
market and distribute SpectruCell (and certain other technologies to be
developed) in North and South America. It was represented to us by Mr. May that
Advanced Communications (Nevada) acquired the rights it transferred to us in the
1999 merger from Advanced Communications (Australia). We are not aware of any
written agreement that documented the rights of Advanced Communications (Nevada)
in SpectruCell that were transferred to the Company in the merger, other than
statements contained in the Proxy Statement. The interim License Agreement
acknowledged our exclusive license to market and distribute in North and South
America the SpectruCell technology and certain other technologies to be
developed. It was the intention of the parties that upon the SpectruCell
technology becoming commercially available, our company and Advanced
Communications (Australia) would negotiate royalty payments, reflective of
industry standards on an arms-length basis after the final pricing of the
SpectruCell technology was established.
During most of 2002, we were in litigation with Advanced Communications
(Australia) and Roger May over our stock ownership interests in Advanced
Communications (Australia) under a Stock Purchase Agreement we entered into with
Advanced Communications (Australia) in April 2000 and our rights to market and
distribute SpectruCell under an interim License Agreement. In early October
2002, Advanced Communications (Australia) terminated the interim License
Agreement on the grounds that we were insolvent and our insolvency constituted
an irreparable breach of the interim License Agreement. Our initial response to
the termination of the License Agreement was to oppose it; however, after
further consideration, we made the strategic decision not to contest the
termination and to withdraw from the Australian litigation. This decision was
28
based, in part, on our view that the rights we acquired in the 1999 merger with
Advanced Communications (Nevada) to market and distribute SpectruCell in North
and South America were not created or affected by the termination of the interim
License Agreement by Advanced Communications (Australia). As noted above, and
other than is set forth in the Proxy Statement, there was no formal agreement
transferring the rights of Advanced Communications (Nevada) in SpectruCell to
the Company at the time of the merger, and we are not aware of any oral or
written agreement that documented the rights of Advanced Communications (Nevada)
in SpectruCell that were transferred to the Company in the merger. We intend to
protect these rights to the fullest extent we are able to do so, and we
anticipate that Advanced Communications (Australia), Mr. May and SpectruCell SDR
Pty Ltd. will not acknowledge these rights and will oppose them. As stated
above, Mr. May and related entities control SpectruCell SDR Pty Ltd.
As a result of the above-described events, our ability to market and
distribute SpectruCell in North and South America and exercise the rights we
acquired in the 1999 merger with Advanced Communications (Nevada) is limited and
our rights to market and distribute SpectruCell are unclear. Apart from this, it
is our belief that SpectruCell is still under development and it is uncertain,
even if the above-described issues were resolved, whether the development will
ever be completed and a commercially viable product brought to market.
FINANCIAL CONDITION
We had net losses of $4,332,693 and $19,732,566 during the years ended
June 30, 2002 and 2001, respectively. For the nine months ended March 31, 2003,
we had a net loss of $1,670,852. As of March 31, 2003, we had a net loss of
$1,670,852, a cash overdraft of $28 and current liabilities of $3,846,963. We do
not have sufficient cash or other assets to meet our current liabilities. In
order to meet those obligations, we will need to raise cash from the sale of
securities or from borrowings. Our independent auditors have added an
explanatory paragraph to their audit opinions issued in connection with the
years 2002 and 2001 financial statements, which states that our ability to
continue as a going concern depends upon our ability to resolve liquidity
problems, principally by obtaining capital, commencing sales and generating
sufficient revenues to become profitable. Our ability to obtain additional
funding will determine our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
If we are unable to obtain additional funding through our Equity Line of
Credit facility (as described in the Management Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere), then the
failure to obtain this funding will have a material adverse effect on our
business and our ability to continue as a going concern. Unless the Company is
able to access its Equity Line of Credit facility soon, the Company will be
forced to cease operations after August 2003. As a consequence, we may be forced
to seek protection under the bankruptcy laws. In that event, it is unclear
whether we could successfully reorganize our capital structure and operations,
or whether we could realize sufficient value for our assets to satisfy our
creditors in full. Accordingly, should we be forced to file for bankruptcy
protection, there is no assurance that our stockholders would receive any value.
COMPANY HISTORY
We were incorporated on April 30, 1998 and were inactive from April 1998
to June 1998 except for the issuance of founders' shares. On April 7, 1999,
Advanced Communications (Nevada) merged with and into the Company. Pursuant to
this merger, the shareholders of Advanced Communications (Nevada) (of which Mr.
May was the principal shareholder) received 90% of the Company's outstanding
common stock and the Company received all of Advanced Communications (Nevada)'s
assets that included all of the North and South American rights to market and
distribute SpectruCell.
Mr. May and his related entities including Global Communications
Technology Pty Ltd, his wholly owned entity, as majority owner of Advanced
Communications (Nevada), received approximately 42,000,000 shares in the Company
under the share exchange.
Media Forum, the surviving entity, subsequently changed its name to
Advanced Communications Technologies, Inc. Upon completion of the merger, we
changed our trading symbol to "ADVC."
On January 31, 2000, we acquired Smart Investments.com, Inc. through a
stock exchange with Smart Investments' sole shareholder. Immediately upon
completion of that acquisition, we elected successor issuer status in accordance
with Rule 12g-3 promulgated under the Securities Exchange Act of 1934, as
amended, and consequently became a "reporting company" in compliance with the
NASD's requirements.
29
On July 20, 1999, we formed Advanced Global Communications, Inc. ("AGC"),
a Florida corporation. AGC was established to develop and operate our
international telecommunications network from the United States to Pakistan and
India, as well as to acquire other switching and telecommunications companies.
The network was established in 2000 and operated until 2001, when the regulatory
climate in Pakistan and India made it legally and economically impractical to
operate. During the fiscal year ended June 30, 2001, we ceased operating AGC's
international telecommunications network and wrote-off our entire investment in
various telephone equipment and network costs.
On November 10, 1999, AGC entered into an agreement with the shareholders
of World IP Incorporated and its wholly-owned foreign subsidiaries, Sur
Comunicaciones, S.A., a Chilean corporation, and Acinel, S.A., an Argentinean
corporation, to acquire a 51% controlling interest in the World IP. Under the
terms of the agreement, 500,000 shares of our restricted common stock, plus
$95,000 in cash was exchanged for 1,020 shares of stock representing 51% of the
then issued and outstanding shares of World. The 500,000 shares of restricted
common stock were valued at the trading price on the closing date and together
with the cash consideration resulted in a purchase price of $470,000. World IP
provides wholesale international telephone services from the U.S. to Chile and
Argentina. On October 4, 2000, we notified World's management and its
shareholders that we intended to rescind the agreement because we were unable,
after repeated requests, to obtain from World's management financial records and
audited financial statements. Consequently, our management deemed that it was in
our best interest to unilaterally rescind the agreement. On October 6, 2000, we
filed suit in the Circuit Court in and for Palm Beach County, Florida against
the World IP and its shareholders for rescission of the agreement and for
monetary damages resulting from such breach. On January 23, 2002, the parties
entered into Settlement and Rescission Agreements and a Stipulation for
Dismissal with Prejudice (the "Stipulation") to settle this matter. The
Stipulation states that the November 10, 1999, Agreement and all related
transactions, including the issuance of 1,020 shares of World IP to AGC and the
500,000 shares of restricted common stock to World IP shareholders, are
rescinded, AB INITIO, effective November 10, 1999, as though such transactions
never occurred. Further, as part of the settlement, Advanced Communications
issued a total of 320,000 shares of restricted common stock to certain
shareholders of World IP, which shares have been included in the Company's
Registration Statement on file with the SEC and have not yet been registered.
The Circuit Court in and for Palm Beach County issued an Order Approving
Stipulation approving the Settlement and Rescission Agreements and the
Stipulation. The lawsuit was dismissed by a court order dated January 29, 2002.
For financial statement purposes, we have treated the World IP rescission
transaction as if we had never acquired the World IP stock and wrote-off our
$125,000 investment in World IP in our June 30, 2000 financial statements.
On April 5, 2000, we entered into a Stock Purchase Agreement with Advanced
Communications (Australia) to acquire a 20% interest for $19,350,000. The
majority owner of Advanced Communications (Australia) is Roger May, who was the
Chief Executive Officer, Chairman of the Board of Directors of our company until
November 30, 2001. In consideration for our purchase of the stock, we issued
5,000,000 shares of our common stock having a value of $11,850,000 and a
$7,500,000 unsecured non-interest bearing note payable in installments. The note
payable was payable in three equal monthly installments commencing May 31, 2000.
Under the terms of the April 2000 Stock Purchase Agreement, the monthly
installment deadline was extended indefinitely, without interest, to allow us to
raise the cash portion of the purchase price through the sale of securities.
Upon raising such funds, our company was obligated to repay Advanced
Communications (Australia)'s note payable after deducting for reserves needed
for current operations, working capital and the development and expansion of its
operations and the operations of its subsidiaries, as determined by its Board of
Directors. Our company believes that it has no further obligation to pay the
unsecured note since the Stock Purchase Agreement was terminated in November
2002 by Advanced Communications (Australia). The shares issued to Advanced
Communications (Australia) 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 over the fair value of the investment in the amount of $15,692,528 was
accounted for as goodwill. During the year ended June 30, 2001, we reduced the
carrying value of our investment in Advanced Communications (Australia) to
$2,000,000 based on management evaluation of Advanced Communications
(Australia). This adjustment was necessitated by FASB 121 ("Accounting for
Impairment of Long Lived Assets") and APB 18 ("The Equity Method of Accounting
for Investments in Common Stock"). Such pronouncements require the annual
evaluation of long-lived assets for impairment.
Due to Advanced Communications (Australia)'s filing on or about July 18,
2002 for protection under Australia's insolvency laws by appointing an
Independent Administrator to take over its business and affairs its ceasing to
operate as a going concern and the sale of its assets to third parties,
management determined that its remaining goodwill investment was impaired
pursuant to the provisions of SFAS 142. Accordingly, the Company has written off
the balance of its unamortized goodwill of $1,700,000 during the fiscal year
ended June 30, 2002.
30
On November 11, 2002, Advanced Communications (Australia) issued a Notice
of Termination to the Company which stated that the April 2000 Stock Purchase
Agreement was terminated immediately due to the Company's insolvency. Consistent
with our decision to withdraw from the Australia litigation, we have not
challenged the purported termination of the Stock Purchase Agreement in the
Australia Court. The Company's position, which is subject to opinion by
Australian counsel, is that as a result of Advanced Communications (Australia's)
insolvency proceeding and its termination of the Stock Purchase Agreement, no
further money is owed, and that the Company has no further obligation to
Advanced Communications (Australia).
In July 2000, we entered into an interim License and Distribution
Agreement (the "interim License Agreement") with Advanced Communications
(Australia) to help facilitate implementation of the rights we acquired in the
1999 merger. The interim License Agreement acknowledged our exclusive license to
market and distribute in North and South America the SpectruCell technology and
certain other technologies to be developed. In early October, 2002, Advanced
Communications (Australia) terminated the interim License Agreement on the
grounds that we were insolvent and our insolvency constituted an irreparable
breach of the interim License Agreement. After considering the overall situation
and receiving advice of counsel, we made the strategic decision not to contest
the termination and to withdraw from the Australian litigation.
On July 24, 2000, we formed Australon USA, Inc., a Delaware corporation,
owned 50% by our company and 50% by Australon Enterprises Pty., Ltd. a publicly
traded company listed on the Australian Stock Exchange and a 66% owned
subsidiary of Advanced Communications (Australia). Australon Enterprises Pty
Ltd. is an Australian public company that manufactures and distributes remote
monitoring devices for homes and businesses such as remote meter reading and
residential automated gateway devices. While Mr. May, our former CEO and
Chairman of the Board has a significant ownership interest in Australon
Enterprise Pty, through his ownership interest in Advanced Communications
(Australia), he is not involved in Australon`s daily management or business
operations and is not represented on its Board of Directors. The joint venture
relationship was established while Mr. May controlled both companies. We formed
Australon USA, Inc. to market and sell the Australon suite of products in the
U.S., Canada and South America. Presently, the company is not in negotiations
with Australon Enterprises Pty to distribute its products. Australon USA, Inc.
is inactive and will remain inactive for the foreseeable future. Australon USA,
Inc. had no revenues or expenses for the fiscal years ended June 30, 2002 or
2001.
In November 2000, we formed Advanced Network Technologies (USA), Inc., a
Delaware corporation, owned 70% by us and 30% by Advanced Network Technologies
Pty. Ltd. Advanced Network intended to acquire wireless network infrastructure
in North and South America. This infrastructure was intended to help showcase
SpectruCell within a working network environment. To date, no acquisitions have
been made. Advanced Network Technologies (USA), Inc. is presently inactive and
had no revenues or expenses for the fiscal years ended June 30, 2001 or 2001.
ACQUISITIONS
None.
INDUSTRY OVERVIEW
U.S. mobile subscribers are projected to grow to 226.8 million by 2010 and
generate revenues of $72.8 billion, according to Analysts Bakerville (Feb.
2002). New technologies, such as broadband wireless, are helping to fuel demand
for more advanced wireless equipment. High-speed fiber optic networks are being
coupled with broadband wireless technologies to deliver enhanced telecom
capabilities and features to new customers and markets. Global revenues from the
broadband market are expected to exceed $88 billion by 2007, according to the
ARC Group (Feb. 2002). However, during the past six months, the
telecommunications industry has experienced the adverse effect of the downturn
in the global economy, and as a result, has significantly curtailed its
infrastructure capital spending. Moreover, as a result of the economic and stock
market slowdown in the United States, wireless carriers have deferred the
roll-out of new and enhanced wireless telecom features and the expansion of
their existing wireless networks.
CHANGES IN THE WIRELESS TELECOM INDUSTRY
As carriers deploy their networks, they face significant competition.
Through privatization in the 1980s and deregulation in the 1990s, both
domestically and internationally, the competitive landscape has changed for
wireless carriers. For carriers to differentiate themselves and remain
competitive in this new environment, they are deploying networks to:
31
o provide seamless nationwide coverage and avoid expensive roaming
costs on competitors' networks in markets where carriers do not
currently own infrastructure;
o offer enhanced services, such as one rate plans, calling party pays,
caller ID, text messaging and emergency 911 locator services;
o implement the new third-generation (3G) network standard to deliver
wireless broadband data services, including Internet access and
two-way e-mail;
o introduce other emerging data networking and broadband technologies,
such as LMDS, MMDS and other point-to-multipoint architectures, for
the provision of high speed data wireless Internet access and other
broadband services; and
o offer wireless local loop systems domestically to bypass incumbent
wire line competitors and in developing countries lacking modern wire
line telephone infrastructure.
The convergence of traditional wireless, wire line and cable services is
also adding complexity to the telecom environment as carriers deploy networks
spanning traditional wireless/wire line boundaries to offer these enhanced
services and new technologies.
NEW CHALLENGES FOR WIRELESS CARRIERS AND EQUIPMENT VENDORS
Due to this increasingly competitive environment, carriers need to focus
on satisfying customer demand for enhanced services, seamless and comprehensive
coverage, better quality, more bandwidth and lower prices. The proliferation of
carriers and new technologies has created an environment where speed to market
is an essential element of a wireless carrier's success. Carriers are also
experiencing challenges managing increasingly complex networks and technologies.
For example, the introduction of wireless Internet technologies and the growth
in broadband wireless services requiring the transmission of large amounts of
data creates additional new technological hurdles for carriers establishing or
upgrading their networks. In this dynamic environment, customer acquisition and
retention are the most important determinants of success. This has led carriers
to increasingly prioritize their resources, focusing on mission critical revenue
generating activities such as marketing, billing and customer care and
outsourcing whenever they can do so effectively.
The changing environment is also placing significant operational
challenges on carriers. Carriers must make critical decisions about which
geographic markets to serve and which services and technologies to offer. They
are striving to avoid the cost uncertainties and considerable operational
challenges associated with the staffing and process implementation software for
the deployment and management of their networks. Furthermore, the rapidly
changing and increasingly complex nature of wireless technologies has made it
difficult for carriers to optimize employee training and utilization for what
are often one-time upgrades for each generation of new technology. Additionally,
networks are being implemented with equipment from unrelated vendors, posing
system integration challenges. This situation is exacerbated by consolidation in
the industry, which often entails the integration of disparate networks.
Equipment vendors are facing numerous challenges in the current
environment, as carriers are requiring them to develop new generations of
equipment that are capable of handling increased features and functionality. In
addition, vendors must provide equipment that can be deployed within a carrier's
existing network and integrate with equipment offered by other vendors. Carriers
are more likely to select a vendor who provides a full suite of products and
deployment services. Given the rapid pace of technological change, equipment
vendors are finding it increasingly difficult to justify using resources for the
deployment, integration and optimization of their current generation of
products. This has increasingly led equipment vendors to focus on their core
competencies to offer competitive solutions in this rapidly changing
technological environment and to outsource network design, deployment and
management services. On top of the technological challenges, facing the
telecommunications industry, the recent downturn in the U.S. and global
economies as well as the bankruptcy filings of Worldcom and Quest Communications
have caused a dramatic decrease in not only the capital budgets of the telecom
giants but in the industry's overall financial stability.
THE SPECTRUCELL TECHNOLOGY
Based on information provided to us or taken from written statements made
by management of Advanced Communications (Australia) prior to the filing of its
administrative insolvency proceeding in July 2002, which we were unable to
independently verify and the current accuracy of which is not known to us, we
are of the belief that SpectruCell is a software defined radio ("SDR") based
32
operating system being developed for wireless communications base stations that,
in the commercial (e.g., cell phone) market, will give mobile communications
network providers a cost-efficient and easily modifiable method of receiving,
processing and transmitting wireless communication signals from multiple
protocols. We also believe that SpectruCell can be adapted for military and
other applications. Our understanding is that SpectruCell once developed will
operate on a hardware platform that will use mainly off-the-shelf components and
that the proprietary portion of the platform is the easily modifiable software
and processing cards. We believe that prior to ceasing operations as a going
concern following the filing of its administrative insolvency proceeding,
Advanced Communications (Australia) filed four or five patent applications with
the Australian Patent Office in connection with certain aspects of the
SpectruCell technology. We do not know the status of those applications.
In September 2002, the administrator of Advanced Communications
(Australia) estimated that the cost to complete the development of SpectruCell
to a commercially viable stage would be between $10 million to $30 million. We
do not know how much, if any, of additional required development capital has
been raised or what the state of development of SpectruCell is at this time. We
also do not know whether any development work is being done on SpectruCell at
this time, or, if such development work is being done, who is doing it.
PATENTS
We have been told that Advanced Communications (Australia) filed five
patent applications with the Australian Patent Office under the Patent
Cooperation Treaty in connection with certain aspects of the SpectruCell
technology. Under this treaty, any patents issued provide patent protection in
111 member countries, including the United States. As far as we know, no patents
have been issued to date and we do not know that any such patents will be issued
in the future.
COMPETITION
We believe that the SpectruCell system will compete with traditional
cellular telephone and other wireless communications technologies. However, the
technology will have to be differentiated through cost savings in implementation
and upgrades and through improved service. Like most new technologies the
introduction of SpectruCell will require demonstrations and education through
field trials and similar demonstrations to introduce the product to the
potential market. No assurances can be given that the market will accept the
SpectruCell technology, or that other competing products will be developed or
achieve better market acceptance than the SpectruCell technology.
The wireless telecommunications infrastructure market is highly
competitive. The market for a SpectruCell type product is characterized by
rapidly changing technology, evolving industry wireless standards and frequent
new product introductions and enhancements. Failure to keep pace with these
changes could seriously harm our ability to compete once it becomes commercially
available. Even if the legal and other issues referred to above were resolved
and we were able to market and distribute SpectruCell as originally intended,
our ability to compete successfully in the market would depend on many factors
including the timing of delivery to market of the SpectruCell product, its
flexibility, price, and reliability.
Potential competitors consist primarily of major domestic and
international companies, all of which have longer operating histories; installed
customer bases; higher volumes; substantially greater name recognition; and
greater financial, technical, manufacturing, marketing, sales and distribution
resources. While the Company anticipates marketing and selling SpectruCell to
wireless network operators, other telecommunications companies and federal,
state and local governmental agencies, we expect to face increasing competition
as major telecommunications companies realize the advantages of SDR and begin
devoting more resources to developing SDR base technologies. All of these
companies have substantially greater resources than we do. These companies also
have more experience than we do in obtaining governmental approval from the
Federal Communications Commission and other agencies.
We cannot be sure that we would be able to effectively compete with
existing wireless network companies or that we would be able to gain acceptance
for the SpectruCell system.
SALES AND DISTRIBUTION
We planned to have independent distribution and sales offices located in
California, New York and Florida once SpectruCell became commercially available.
Given the litigation between us and Advanced Communications (Australia) and the
current state of the SpectruCell development, it is unclear when or whether we
will carry out such plans.
33
GOVERNMENT REGULATION
The proposed sale of wireless communications services through the
SpectruCell product may be subject to government regulation. Federal law
regulates interstate and international telecommunications, while states have
jurisdiction over telecommunications that originate and terminate within the
same state. These regulations may require Advanced Communications (Australia),
its successor, or our company to obtain regulatory approval from the Federal
Communications Commission prior to the use of the SpectruCell product. At this
time, we cannot estimate how long this process will take to complete or whether
these efforts will be successful or how and when Advanced Communications
(Australia) will satisfy the FCC, if at all. Moreover, because SpectruCell is
not yet developed for the commercial market, it is uncertain what form the
product will ultimately take and whether Advanced Communications (Australia),
the company or the commercial user will be required to comply with the specific
FCC regulations in effect at the time SpectruCell is available for sale to
commercial customers. The inability to obtain FCC approval, if required, would
prevent us from deploying any wireless applications, which would be detrimental
to our proposed business operations. Changes in existing policies or regulations
in any state or by the Federal Communications Commission ("FCC") could have a
material adverse effect on our financial condition or results of operations.
There can be no assurance that the regulatory authorities in one or more states
or the FCC will not take action having an adverse effect on our business or
financial condition or results of operations.
EMPLOYEES AND CONSULTANTS
As of July 1, 2003, we have no full time employees and four part time
consultants. None of our consultants are covered by any collective bargaining
agreement.
34
MANAGEMENT
The following table sets forth the names and ages of our current directors
and executive officers, their principal offices and positions and the date each
such person became a director or executive officer. Our executive officers are
elected annually by the Board of Directors. Our directors serve one-year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
Our directors and officers are as follows:
NAME AND ADDRESS AGE POSITION
--------------------------------- ----- -----------------------------
Wayne I. Danson 49 President, Chief Financial
420 Lexington Avenue Officer and Director
New York, NY 10170
Dr. Michael Finch 54 Director
37 Walnut Street
Wellesley, MA 02481
Jonathan J. Lichtman 50 Director
120 East Palmetto Park Road
Boca Raton, FL 33432
Randall Prouty 50 Director
420 Lexington Avenue
New York, NY 10170
Wilbank J. Roche 56 Director
2530 Wilshire Boulevard
Santa Monica, CA 90403
The directors named above will serve until the next annual meeting of our
shareholders or until their successors shall be elected and accept their
positions. Mr. Danson is party to a written consulting agreement that entitles
him to $20,000 per month in cash and stock for the period September 1, 2000
through August 31, 2001 and, as extended orally, to December 31, 2001. Effective
January 1, 2002, Mr. Danson agreed to orally extend his consulting agreement
with Advanced Communications through December 31, 2003 at a monthly rate of
$12,500. Mr. Danson is reimbursed for reasonable out-of-pocket expenses relating
to activities in connection with Advanced Communications.
Our directors do not receive any cash compensation for their services as a
director, but are reimbursed for all of their out-of-pocket expenses incurred in
connection with the rendering of services as a director. The directors are
compensated through the grant and issuance of 100,000 shares of restricted
common shares for each of the fiscal years ended 2002 and 2001 in which they
have served as directors. The value of the stock issued to each director on
January 22, 2002 was $36,000.
WAYNE I. DANSON, PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr.
Danson has served as our company's Chief Financial Officer since December 1,
1999, was appointed a Director on January 3, 2000, and appointed President on
April 30, 2002. Mr. Danson is the Managing Director and Founder of Danson
Partners, LLC, a financial advisory firm specializing in middle market companies
in the real estate and technology industries. Prior to forming Danson Partners,
LLC in May 1999, Mr. Danson was co-head of and Managing Director of
PricewaterhouseCoopers LLP's Real Estate Capital Markets Group. Prior to
rejoining PricewaterhouseCoopers in 1996, Mr. Danson was a Managing Tax Partner
with Kenneth Leventhal & Company in New York and Washington D.C., where he was
also Kenneth Leventhal's National Director of its International and Debt
Restructure Tax Practices. Prior to his involvement with Kenneth Leventhal in
1988, Mr. Danson was a Managing Director with Wolper Ross & Co., Ltd. in New
York, a closely held financial services company specializing in financial tax,
pension consulting, designing financial instruments and providing venture
capital and investment banking services. Mr. Danson graduated with honors from
Bernard M. Baruch College with a BBA in Accounting and an MBA in Taxation. He is
a certified public accountant and a member of the AICPA and the New York State
Society of CPAs.
35
Mr. Danson is a consultant to the Company who spends approximately 20-30
hours on average per week on Company matters.
JONATHAN J. LICHTMAN, SECRETARY AND DIRECTOR. Mr. Lichtman was appointed a
Director on November 9, 1999 and is currently a partner with the Boca Raton law
firm of Levinson & Lichtman, LLP, where he specializes in structuring corporate
and partnership transactions, including real estate syndications. Mr. Lichtman
is also currently a general partner of several real estate partnerships in New
York, North Carolina and Florida. Prior to forming Levinson and Lichtman LLP,
Mr. Lichtman was an attorney with English, McCaughan and O'Bryan, PA, where he
performed legal work for domestic and international clients, as well as real
estate partnerships and development. Mr. Lichtman obtained his J.D. degree, cum
laude, from Syracuse University College of Law and his LLM degree in taxation
from the University of Miami School of Law. He is also a certified public
accountant and is licensed to practice law in Florida and New York.
DR. MICHAEL FINCH, DIRECTOR. Dr. Finch was appointed a Director on March
10, 1997 and since 1998, has been Chief Technology Officer of New Media
Solutions, responsible for the conception, planning, creation, execution and
deployment of all software products and projects. For the four years before
that, he was employed by Media Forum (first in the UK, and then in the U.S.) as
Director of Product Development. He was responsible for developing and
implementing Media Forum's software capabilities and strategy, managing
technical and complex software projects for high-end clients, and pre-sales
demonstrations to clients of Media Forum's software stance and expertise. From
1983 to 1993, Dr. Finch was a Financial Software Engineer, who designed, wrote
and implemented sophisticated real-time computer programs for trading Financial
Instruments and Commodities on the Chicago and New York Futures exchanges. Prior
to 1983, Dr. Finch was a research scientist and mathematician, with an academic
career at four UK universities. He obtained a Doctorate of Mathematics at Sussex
University for original research into Einstein's Theory of General Relativity
and its application to Neutron Stars. He lectured at Queen Mary's College London
on advanced mathematics.
RANDALL PROUTY, DIRECTOR. Mr. Prouty, a co-founder and Director since
March 10, 1997, is currently the President and CEO of World Associates, Inc., a
publicly traded development stage company. He is also the sole owner of Bristol
Capital, Inc., a firm active in consulting and business development work for
companies seeking access to capital markets, and through which he is incubating
other e-business ventures. Mr. Prouty is a licensed real estate and mortgage
broker in the State of Florida. His technical background includes being a
qualified Webmaster and developing e-businesses on the web.
WILBANK J. ROCHE, DIRECTOR. Mr. Roche was appointed a Director on March
25, 1999 and is currently a principal with the law firm of Roche & Holt in Santa
Monica, California. Mr. Roche was an honors graduate from the University of
California in 1976, as well as from Loyola University School of Law, Los
Angeles, in 1979. He was admitted to the California State Bar in 1979 and has
been practicing law actively since that time. Mr. Roche worked for law firms in
the Los Angeles area from 1976 to 1983, when he opened his own office. In 1985,
he formed Roche & Holt. Mr. Roche's law practice has revolved largely around
representing small businesses and their owners. In that regard, he has provided
legal services in connection with the formation, purchase, sale, and dissolution
of numerous entities, as well as in connection with their on-going operations.
In the past several years, he has devoted substantial time to clients in the
telecommunications business.
RESIGNATIONS
Effective November 30, 2001, Mr. May was removed as Chief Executive
Officer, President and Chairman of the Board. The Board of Directors removed Mr.
May because it had become dissatisfied with Advanced Communications' direction
under Mr. May's leadership. Mr. Prouty assumed the role of Chairman of the Board
effective November 30, 2001 and Mr. Gary Ivaska was appointed President of the
Company. Effective March 14, 2002, Roger May and Allen Roberts resigned from the
Board of Directors. Neither Mr. May nor Mr. Roberts were replaced on Advanced
Communications' Board of Directors. Effective April 30, 2002, Mr. Ivaska
resigned as our President. Effective December 12, 2002, Mr. Prouty resigned his
position as Chairman of the Board. Mr. Prouty remains a director of the Company
and is a member of the Company's audit, compensation and acquisition committees.
COMMITTEES OF THE BOARD OF DIRECTORS
In a board meeting held on May 15 2001, both an audit and compensation
committee was established. The audit committee will report to the board
regarding the appointment of our independent public accountants, the scope and
results of our annual audits, compliance with our accounting and financial
policies and management's procedures and policies relative to the adequacy of
our internal accounting controls. The audit committee is comprised of Messrs.
Prouty and Finch. The compensation committee of the board of directors will
review and make recommendations to the board regarding our compensation policies
and all forms of compensation to be provided to our executive officers. In
addition, the compensation committee will review bonus and stock compensation
36
arrangements for all of our other employees. The compensation committee is
comprised of Messrs. Roche and Prouty.
The Board of Directors also established an Acquisitions Committee and an
Advanced Communications (Australia) Committee. Messrs. Prouty, Danson, Lichtman
and Roche currently serve on the Acquisitions Committee and Messrs. Prouty,
Danson, Lichtman, Roche and Finch serve on the Australian Affiliate Committee,
which will address and make all decisions relating to the activities of our
Australian Affiliate and SpectruCell.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows all cash compensation accrued and/or paid by
Advanced Communications, as well as certain other compensation paid or accrued,
for the fiscal years ended June 30, 2002, 2001 and 2000. Other than as set forth
herein, no executive officer's cash salary and bonus exceeded $50,000 in any of
the applicable years. The following information includes the dollar value of
base salaries, bonus awards, the value of restricted shares issued in lieu of
cash compensation and certain other compensation, if any, whether paid or
deferred.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ----------------------------
AWARDS PAYOUTS
------ -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------- ---- ----------- ------- ------------ ----------- -------- ------- ------------
Wayne I. Danson, 2002 $149,933(1) -- -- $110,000(1) -- -- --
President and CFO 2001 $235,931(2) -- -- $167,500(2) -- -- --
2000 $50,000(3) -- -- $223,400(4) -- -- --
Roger May, CEO 2002 $87,500(5) -- -- -- -- -- --
2001 $197,500(5) $50,000(5) -- -- -- -- --
2000 $120,000(5) -- -- -- -- -- --
(1) Represents accrued fees and out-of-pocket expenses. Mr. Danson received
$65,000 in cash for fiscal 2002 services and $32,775 for reimbursement of
prior and current out-of-pocket expenses. Mr. Danson was appointed
President on April 30, 2002.
(2) Represents the value of accrued fees and stock-based compensation earned
by Mr. Danson during the fiscal year ended June 30, 2001. Stock-based
compensation amounted to $167,500. Of accrued consulting fees earned in
the amount of $235,931, only $23,105 was paid in cash to Mr. Danson. The
balance of Mr. Danson's accrued compensation remains unpaid as of June 30,
2001. In August 2001, Mr. Danson agreed to receive 500,000 shares of our
restricted common stock in lieu of $150,000 of unpaid consulting fees.
(3) Mr. Danson became Chief Financial Officer of Advanced Communications on
December 1, 1999 and such amount reflects the cash compensation (exclusive
of reimbursement of expenses) paid to him during the period December 1,
1999 to June 30, 2000.
(4) Mr. Danson also received 100,000 shares of our stock as a signing bonus in
December 1999 and June 2000. During this time, the shares were trading
between $1.50 - $3.50 per share.
(5) Accrued and unpaid compensation. No cash was received by Mr. May during
the fiscal years ended June 30, 2000, June 30, 2001 and 2002. Mr. May's
compensation for fiscal 2001 includes a $50,000 cash bonus which remains
unpaid as of June 30, 2001. Mr. May left Advanced Communications on
November 30, 2001. On March 26, 2002, the Board of Directors unanimously
approved the recommendation of the Compensation Committee to reduce Mr.
May's current and prior accrued compensation by $394,361 representing
services Mr. May performed for Advanced Communications (Australia).
Advanced Communications has no deferred compensation, stock options, SAR
or other bonus arrangements for its employees and/or directors. During the
fiscal year ended June 30, 2001, all decisions concerning executive compensation
were made by the Board of Directors and effective May 15, 2001 by our
compensation committee.
EMPLOYMENT AND CONSULTING AGREEMENTS
On November 29, 1999, we entered into a consulting agreement with Danson
Partners, LLC to provide the functions customarily provided by a Chief Financial
Officer. As compensation for these services, we paid $5,000 monthly in advance,
plus 100,000 restricted shares of common stock. Starting April 1, 2000,
compensation for these services increased to $10,000 per month. On September 1,
2000, we entered into another one-year consulting agreement with Wayne I.
Danson, the Chief Financial Officer. A signing bonus of 75,000 shares of stock
37
was issued, valued at $67,500. This contract expired August 31, 2001, but was
orally extended to December 31, 2001. As compensation, Mr. Danson receives
$10,000 per month in cash and $10,000 per month in stock. Effective January 1,
2002, Mr. Danson agreed to orally extend his contract with Advanced
Communications through December 31, 2003, at a monthly rate of $12,500.
Effective July 1, 2000, Advanced Communications and Mr. May, our former
Chief Executive Officer, entered into an oral employment agreement that entitled
Mr. May to receive $15,000 per month and a bonus of $50,000. Effective December
1, 2000, Mr. May's compensation increased to $17,500 per month. On November 30,
2001, Mr. May was terminated as Advanced Communications' Chief Executive
Officer. The Compensation Committee of the Board of Directors reviewed the
nature and extent of Mr. May's past services to Advanced Communications to
determine how much of Mr. May's prior services are more properly allocable to
Advanced Communications (Australia). At Advanced Communications' March 26, 2002
Board of Director's meeting, the Board of Directors unanimously approved the
recommendation of the Compensation Committee to reduce Mr. May's prior accrued
compensation by $394,361 representing services Mr. May performed for Advanced
Communications (Australia), leaving a balance of $172,183 at June 30, 2002.
On November 30, 2001, we entered into an oral employment agreement with
Mr. Gary Ivaska to serve as our President at a rate of $120,000 per annum.
Effective April 30, 2002, Mr. Gary Ivaska resigned as Advanced Communications'
President.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
DESCRIPTION OF PROPERTY
As of August 1, 2002, the Company relocated its principal executive office
from California to 420 Lexington Avenue, New York, NY 10170 within the office
facility of Danson Partners, LLC, a privately owned company that employs our
President and Chief Financial Officer. No rent or facility use fee is charged to
the Company by Danson Partners, LLC. The Company is a party to a three-year
office lease that commenced January 1, 2002 and ends December 31, 2004 for its
former California office located at 880 Apollo Street, Suite 200, El Segundo,
CA. The monthly rent is $7,634 inclusive of the cost of monthly parking. The
minimum lease payments for the remaining life of the lease is $229,020. The
Company has engaged Grubb & Ellis to find a suitable subtenant to assume all or
a portion of the Company's remaining lease obligation.
LEGAL PROCEEDINGS
As of March 31, 2003, management has settled all of its outstanding
lawsuits and has recorded the financial statement impact of such settlements.
The Company was involved in a dispute with one of its creditors involving unpaid
legal fees in the amount of $35,034. The Company did not contest the creditor's
claim and on May 8, 2003 a default judgment was entered into by the court
against the Company. The Company has previously recorded this expense and has
determined that such judgment will not have a material adverse impact on the
Company's financial condition.
Management does not believe that the contingencies described below will
have a material adverse impact on the future financial condition of the Company.
CONTINGENCIES
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES IN RE: ADVANCED COMMUNICATIONS
(AUSTRALIA) V. COMPANY DIRECTORS AND EMPLOYEES
On or about May 10, 2002, Advanced Communications (Australia) filed suit
in the Superior Court of Orange County, California against the Company, all of
its directors, its former president, and some of its former employees, including
38
the Company's receptionist. On or about May 17, 2002, Advanced Communications
(Australia) voluntarily dismissed the suit as to the Company but not as to the
individual defendants.
The complaint sets forth multiple causes of action against the defendants,
including various business torts. The basis of the complaint is that the
defendants improperly interfered with and conspired to ruin plaintiff's business
and conspired to force plaintiff into bankruptcy.
In the opinion of the Company, based on input from legal counsel, the
complaint is deficient and subject to attack on numerous procedural grounds. In
the opinion of the Company, based on its knowledge of the facts and
circumstances underlying the action, the complaint is also substantively
deficient and meritless.
Under the Company's articles of incorporation and applicable Florida law,
the Company is obligated to indemnify and defend its directors and the officer
named as defendants who have been served in the action. The Company might also
be under an obligation to indemnify and defend the other former and present
employees named as defendants who have not been served in the action, if and
when they are served. This determination will be made on a case-by-case basis.
INDEMNIFICATION AGREEMENT BETWEEN THE COMPANY AND JACK HALPERIN RE:
NEEDHAM/DUPONT LAWSUIT
On or about July 2000, the Company entered into an indemnification
agreement with Jack Halperin, Esq., our then SEC counsel, whereby the Company
agreed to indemnify Mr. Halperin for all costs and damages incurred as a result
of Mr. Halperin being named a defendant in the Needham/DuPont lawsuit filed
against the Company, Mr. May and Mr. Halperin in July 2000. Mr. May executed
this agreement on behalf of the Company. The agreement includes a provision that
prohibits the Company from entering into any settlement agreement in the
Needham/DuPont lawsuit unless such settlement agreement provides for the
unconditional release of Mr. Halperin from any claim. On November 14, 2002, the
Company settled the Needham/DuPont lawsuit without obtaining a full release for
Mr. Halperin.
PENDING CLAIM BY ADVANCED COMMUNICATIONS (AUSTRALIA) FOR COSTS OF
AUSTRALIA LITIGATION AND FOR DAMAGES
Following our withdrawal from the Australia litigation against Mr. May and
Advanced Communications (Australia),the court made an order awarding costs of
the litigation against the Company, subject to proving the actual amount of such
costs. Advanced Communications (Australia) indicated to the court that its costs
of litigation were approximately AU $400,000 or approximately US$220,000, but
has not filed any formal proof thereof with the court. Advanced Communications
(Australia) sought leave of the court to apply for an order awarding damages
against the Company in the amount of AU$6,000,000 or approximately US$3,300,000
as a result of the Company notifying third parties in the U.S. with which
Advanced Communications (Australia) was dealing in regard to SpectruCell, of the
Australia Court's August 23, 2002 injunctive orders. The court granted such
leave. The Company believes based on information made available to it, that
Advanced Communications (Australia)'s proposed claims for damages are without
merit. To date, as far as the Company knows, the Australia Court has not awarded
any specific amount of costs and has not awarded any damages against the
Company. It is not known if such awards will be made in the future and, if they
are made, what their amounts will be.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 9, 2003 a Special Meeting of Stockholders was held in New York,
New York. At this meeting, our stockholders authorized the following change to
our Articles of Incorporation:
1. To increase our authorized shares of common stock from 200,000,000
shares to 5,000,000,000.
A Certificate of Amendment to our Articles of Incorporation embodying the
above changes was filed in Florida on July 10, 2003.
39
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership
of our common stock as of July 1, 2003 for:
o each person who beneficially owns more than five percent of the common
stock;
o each of our directors;
o the named executive officers; and
o all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o Advanced Communications Technologies, Inc., 420 Lexington Avenue,
New York, NY 10170.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentage of beneficial
ownership is based on 198,852,622 shares of common stock outstanding as of July
1, 2003.
COMMON STOCK
BENEFICIALLY OWNED
------------------------------------
NUMBER PERCENT(1)
NAME/ADDRESS OF SHARES OF CLASS
- ------------------------------------------------------------ ----------------- ----------------
Cornell Capital Partners, L.P. 65,460,000 32.92%
Advanced Communications (Australia) 10,000,000(2) 5.03%
Roger May 18,228,000(2) 9.17%
Wayne Danson 2,811,214(3) 1.41%
Jonathan Lichtman 2,710,334(4) 1.36%
Dr. Michael Finch 591,334 *
Randall Prouty 2,218,056 1.12%
Wilbank Roche 650,000 *
All Officers and Directors as a Group (5 people) 8,980,938 4.52%
(1) Percentage of outstanding shares is based on 198,852,622 shares of
common stock outstanding as of February 28, 2003, together with shares
deemed beneficially owned by each such shareholder. Beneficial ownership
is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power
with respect to securities.
(2) No shares are owned directly by Mr. May. All shares are beneficially
owned through Global Communications Technologies Pty Ltd, an entity
controlled by Mr. May. Global Communications Technologies owns a
majority of the shares of Advanced Communications Technologies
(Australia) Pty Ltd., which owns 10,000,000 shares of the Company.
(3) Includes 2,461,214 shares beneficially owned by Mr. Danson's affiliated
entity and children.
(4) Excludes 396,666 shares beneficially owned through various family
trusts. Mr. Lichtman has no beneficial ownership in these shares.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective April 30, 2002, Mr. Gary Ivaska resigned as Advanced
Communications' Chief Executive Officer. Advanced Communications and Mr. Ivaska
have settled all outstanding amounts otherwise due him for his prior services.
Under the terms of the Ivaska Agreement, Advanced Communications is obligated to
pay Mr. Ivaska $40,000 at the rate of $10,000 per month for four months
commencing on May 31, 2002. No payments have been made to Mr. Ivaska.
40
During the fiscal year ended June 30, 2002, Advanced Communications
issued 200,000 shares of its restricted common stock having a value of $36,000
to each of its five current directors for services rendered to Advanced
Communications as directors. Advanced Communications issued a total of 1,000,000
shares in the aggregate having a value of $180,000. The stock was valued based
on the quoted trading price of Advanced Communications' stock on the date that
the shares were granted to the individual directors.
At the request of Advanced Communications' Board of Directors, the
Compensation Committee conducted a review of the nature of the past services
provided by Mr. May to Advanced Communications to determine whether a portion of
such services are more properly allocable to Advanced Communications
(Australia). At Advanced Communications' March 26, 2002 Board of Director's
meeting, the Board of Directors unanimously approved the recommendation of the
Compensation Committee to reduce Mr. May's prior accrued compensation by
$394,361 representing services Mr. May performed for Advanced Communications
(Australia), leaving a balance of $172,183 at June 30, 2002.
On January 10, 2002, the Company executed various financing agreements
with Cornell Capital Partners, LP, a New Jersey-based hedge fund, whereby
Cornell and certain other investors purchased from Advanced Communications $1
million of two-year Convertible Debentures and Cornell provided a $30 million
structured equity facility. Pursuant to the Convertible Debenture financing,
Advanced Communications received $564,000 net of financing and closing costs and
the repayment of the $325,000 ninety-day note. Under the terms of the $30
million structured equity facility, Advanced Communications has the right to
require Cornell to make monthly purchases of up to $2 million of Advanced
Communications' stock on a discounted basis. Advanced Communications issued
2,960,000 shares of common stock with a market value of $740,000 as a commitment
fee as part of this transaction.
On January 15, 2002, Advanced Communications moved its corporate
headquarters from Irvine to El Segundo, California. The lease has a three-year
term commencing on January 1, 2002. As of August 1, 2002, the Company relocated
its principal executive office from California to 420 Lexington Avenue, New
York, NY 10170 within the office facility of Danson Partners, LLC, a privately
owned company that employs our President and Chief Financial Officer. No rent or
facility use fee is charged to the Company by Danson Partners, LLC.
Through a family trust established in Australia, Mr. May, an officer and
director of the company until November 30, 2001 and March 14, 2002 respectively
and a principal shareholder of our company, indirectly owns a 70% majority
interest in Advanced Communications (Australia). Up until November 11, 2002, we
owned 20% of the common stock of Advanced Communications (Australia). On
November 11, 2002, Advanced Communications (Australia)'s issued a Notice of
Termination to the Company stating that the April 2000 Stock Purchase Agreement
was terminated immediately due to the Company's insolvency. Advanced
Communications (Australia) filed for protection under Australia's insolvency law
on July 18, 2002 and appointment an independent administrator and receiver to
manage and operate its business.
As of June 30, 2002, Advanced Communications owed Global Communications
Technology Pty Ltd, a wholly-owned entity of Roger May, a former officer and
director of the Company and a significant shareholder, $1,055,736 for funds
advanced to Advanced Communications to provide working capital and for the
repayment of certain of Advanced Communications' obligations. This loan is
non-interest bearing and unsecured. This loan does not have a scheduled date of
repayment. Advanced Communications does not believe that the loans are due upon
demand. However, the actual repayment terms are not known with any specificity
since the terms are not contained in a written document.
In April 2000, the Company acquired 20% of the common stock of Advanced
Communications (Australia). 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 at $11,850,000. The shares
issued were valued at the average quoted trading price during the acquisition
period. Our interest in Advanced Communications (Australia) was evidenced by a
Stock Purchase agreement and was reflected by stock ownership records on file
with the Australian Securities Investment Commission, an Australian government
agency. Through June 30, 2002, we repaid $5,708,834 of our obligation to
Advanced Communications (Australia), in part by the issuance of 7,787,000 shares
of restricted common stock having a value of $4,884,101. The balance of our
repayments was in the form of cash. As of June 30, 2002, the balance of our
obligation to Advanced Communications (Australia) was $1,791,166. Advanced
Communications was in litigation with Advanced Communications (Australia)
regarding the attempt by Mr. May to lien and transfer the company's shares in
the affiliate for alleged nonpayment of the company's obligations as well as to
terminate our interim License Agreement. On November 11, 2002, Advanced
Communications (Australia) issued a Notice of Termination to the Company that
the April 2000 Stock Purchase Agreement was terminated immediately due to the
Company's insolvency. The Company's position, which is subject to confirmation
by Australian counsel, is that as a result of Advanced Communications
(Australia)'s insolvency proceeding and its unilateral termination of the Stock
Purchase Agreement, no further money is owed and that the Company has no further
obligation to Advanced Communications (Australia).
41
On September 1, 2000, Mr. Danson entered into a one-year consulting
agreement with our company for the period September 1, 2000 through August 31,
2001. Under the terms of the consulting agreement, Mr. Danson received $10,000
per month in cash and $10,000 per month in stock for his services. Mr. Danson's
agreement expired on August 31, 2001. Mr. Danson has agreed to orally extend his
consulting agreement with Advanced Communications through December 31, 2003 at a
monthly rate of $12,500.
On December 13, 2001, Advanced Communications entered into a 90-day
$325,000 Promissory Note (the "Note") with Cornell Capital Partners, LP. The
Note had an interest rate of 12% and was secured by a Guaranty and Pledge
Agreement executed by Mr. Danson, Mr. Lichtman and Mr. Prouty. Advanced
Communications realized $269,000 of net proceeds after financing costs and legal
fees. The Note was repaid on January 14, 2002 with proceeds from Advanced
Communications' $1 million Convertible Debenture.
Jonathan J. Lichtman, Assistant Secretary and a director of the Company,
is a partner at Levinson & Lichtman, LLP, a law firm in Boca Raton, FL that the
Company retained to provide legal services during the fiscal years 2002 and
2001. The Company has paid Levinson & Lichtman, LLP $43,913 and $90,000 in the
form of cash and stock respectively, for legal services rendered during fiscal
2002. No cash was paid to Levinson & Lichtman, LLP during fiscal 2001. During
fiscal 2001, the Company issued $186,000 of restricted common stock for legal
services rendered.
Wilbank Roche, a director of the Company, is a partner at Roche & Holt,
a law firm in Los Angeles, CA that the Company retained to provide legal
services during the fiscal year 2002. The Company has paid Roche & Holt $13,515
and $15,000 in the form of cash and stock, respectively, for legal services
rendered.
Effective July 1, 2002, the Company entered into a six month consulting
agreement with Randall Prouty, Chairman of the Board and a director of the
Company, pursuant to which Mr. Prouty has agreed to provide certain business
services, such as dispute resolution, corporate communications strategies, and
business acquisitions to the Company. Pursuant to the terms of the consulting
agreement, Mr. Prouty will accrue $10,000 in monthly compensation for services
provided to the Company. During the fiscal year ended June 30, 2002, the Company
issued 1,100,000 shares of restricted common stock having a value of $55,000 to
Mr. Prouty and $10,986 in cash compensation for business services rendered to
the Company.
Dr. Michael Finch, a director of the Company, has been issued 133,334
shares of restricted common stock having a value of $10,000 for engineering and
software design consulting services rendered to the Company during fiscal 2002.
42
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Our common stock is currently traded on the National Association of
Securities Dealers Automated Quotation System Over-the-Counter Bulletin Board
under the symbol "ADVC". As of July 1, 2003, there were 198,852,622 common
shares outstanding and approximately 427 holders of record.
The following table sets forth, for the fiscal periods indicated, the
bid price range of our common stock:
HIGH BID LOW BID
-------------------- -------------------
FISCAL 2000
Quarter Ended March 31, 2000 $6.0300 $2.2100
Quarter Ended June 30, 2000 2.4600 1.0600
FISCAL 2001
Quarter Ended September 29, 2000 $1.2100 $0.5600
Quarter Ended December 29, 2000 0.9800 0.4000
Quarter Ended March 30, 2001 1.0200 0.4800
Quarter Ended June 29, 2001 0.6200 0.3100
FISCAL 2002
Quarter Ended September 28, 2001 $0.3800 $0.2500
Quarter Ended December 31, 2001 0.3500 0.1700
Quarter Ended March 28, 2002 0.2550 0.0550
Quarter Ended June 30, 2002 0.0800 0.0200
FISCAL 2003
Quarter Ended September 30, 2002 $0.0080 $0.0050
Quarter Ended December 31, 2002 $0.0150 $0.0040
Quarter Ended March 31, 2003 $0.0100 $0.0020
Such market quotations reflect the high bid and low prices as reflected
by the OTCBB or by prices, without retail mark-up, markdown or commissions and
may not necessarily represent actual transactions.
We did not pay any dividends during fiscal 2002 and have never paid any
dividends on our capital stock. We currently expect that we will retain future
earnings for use in the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future. Any decision on
the future payment of dividends will depend on our earnings and financial
position at that time and such other factors as the Board of Directors deems
relevant.
43
DESCRIPTION OF SECURITIES
CAPITAL STOCK. The authorized capital stock of our Company consists of
5,000,000,000 shares of common stock, no par value, per share, and 25,000,000
shares of preferred stock. As of July 1, 2003, the Company had 198,852,622
shares of our common stock outstanding. In addition, there are outstanding
debentures that collectively are convertible into 482,500,000 shares of common
stock (at assumed conversion prices of $0.0032 and $.001 per share) and warrants
to purchase up to 6,440,900 shares of common stock. The following description is
a summary of the capital stock of the Company and contains the material terms of
the capital stock. Additional information can be found in the Company's Articles
of Incorporation and Bylaws.
COMMON STOCK. Each share of common stock entitles the holder to one vote
on each matter submitted to a vote of our stockholders, including the election
of directors. There is no cumulative voting. Subject to preferences that may be
applicable to any outstanding preferred stock, stockholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors. Stockholders have no preemptive, conversion or other
subscription rights. There are no redemption or sinking fund provisions related
to the common stock. In the event of liquidation, dissolution or winding up of
the Company, stockholders are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of preferred
stock, if any, then outstanding.
PREFERRED STOCK. The Board of Directors is authorized, subject to any
limitations prescribed by the Florida Statutes, or the rules of any quotation
system or national securities exchange on which stock of our Company may be
quoted or listed, to provide for the issuance of shares of preferred stock in
one or more series; to establish from time to time the number of shares to be
included in each such series; to fix the rights, powers, preferences, and
privileges of the shares of such series, without any further vote or action by
the shareholders. Depending upon the terms of the preferred stock established by
the Board of Directors, any or all series of preferred stock could have
preference over the common stock with respect to dividends and other
distributions and upon liquidation of our Company or could have voting or
conversion rights that could adversely affect the holders of the outstanding
common stock. The Company has no present plans to issue any shares of preferred
stock.
CONVERTIBLE DEBENTURES. Our Company has outstanding secured convertible
debentures with a remaining principal balance of $1,131,500. $944,000 of these
secured debentures are convertible into shares of common stock at a price equal
to either (a) an amount equal to one hundred twenty percent (120%) of the
closing bid price of the common stock as of the closing date or $0.40, whichever
is higher, or (b) an amount equal to eighty percent (80%) of the lowest closing
bid price of the common stock for the five trading days immediately preceding
the conversion date. If such conversion had taken place at $0.0032 (i.e., 80% of
the recent price of $0.004), then the holders of the convertible debentures
would have received 295,000,000 shares of common stock. These secured
convertible debentures accrue interest at a rate of 5% per year and are
convertible at the holder's option. These secured convertible debentures have a
term of two years. At our option, these secured convertible debentures may be
paid in cash or redeemed at a 20% premium prior to January 2004. $187,500 of 10%
secured convertible debentures is convertible into shares of common stock at a
price per share equal to $0.001 or 187,500,000 shares. In addition, the Company
has the right to redeem a portion or all of these outstanding debentures at a
redemption price equal to 150% of the amount redeemed plus accrued interest on
or before November 2004.
EQUITY LINE OF CREDIT. In July 2003, our Company entered into an Equity
Line of Credit Agreement with Cornell Capital Partners, L.P. Pursuant to the
Equity Line of Credit, our Company may, at its discretion, periodically sell to
Cornell Capital Partners shares of common stock for a total purchase price of up
to $30.0 million. For each share of common stock purchased under the Equity Line
of Credit, Cornell Capital Partners will pay 91% of the lowest closing bid price
of the common stock on the Over-the-Counter Bulletin Board or other principal
market on which the common stock is traded for the 5 days immediately following
the notice date. Cornell Capital Partners is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. Further, Cornell Capital Partners will be paid a fee of 3% of
each advance under the Equity Line of Credit as a fee. In addition, we engaged
Westrock Advisors, Inc., a registered broker-dealer, to advise our Company in
connection with the Equity Line of Credit. For its services, Westrock Advisors,
Inc. received 40,000 shares of our common stock. The effectiveness of the sale
of the shares under the Equity Line of Credit is conditioned upon our Company
registering the shares of common stock with the Securities and Exchange
Commission. The Equity Line of Credit is not yet effective and the Company has
not drawn down any funds from this facility.
OPTIONS. Our Company has no outstanding options.
44
WARRANTS. Our Company has outstanding warrants to purchase up to
6,440,900 shares of common stock. All of the warrants have a $0.30 exercise
price.
ANTI-TAKEOVER PROVISIONS. The authorized but unissued shares of our
common stock are available for future issuance without our stockholders'
approval. These additional shares may be utilized for a variety of corporate
purposes, including, but not limited to future public or direct offerings to
raise additional capital, corporate acquisitions and employee incentive plans.
The issuance of such shares may also be used to deter a potential takeover of
the Company that may otherwise be beneficial to stockholders by diluting the
shares held by a potential suitor or issuing shares to a stockholder that will
vote in accordance with the Company's Board of Directors' desires. A takeover
may be beneficial to stockholders because, among other reasons, a potential
suitor may offer stockholders a premium for their shares of stock compared to
the then-existing market price.
The existence of authorized but unissued and unreserved shares of
preferred stock may enable the Board of Directors to issue shares to persons
friendly to current management which would render more difficult or discourage
an attempt to obtain control of our Company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of our Company's
management.
TRANSFER AGENT. Our Company's transfer agent is American Stock Transfer
& Trust Company. Its address is 6201 15th Avenue, 3rd Floor, Brooklyn, New York
11219. Its telephone number is (718) 921-8200.
45
EXPERTS
The condensed consolidated financial statements as of March 31, 2003 and
for the three and nine months ended March 31, 2003 and 2002 and the consolidated
financial statements as of June 30, 2002 and 2001 and for the years then ended,
respectively included in the Registration Statement have been reviewed and
audited by Weinberg & Company P.A., independent certified public accountants, to
the extent and for the periods set forth in their reports (which contain
explanatory paragraphs regarding Advanced Communications' ability to continue as
a going concern) appearing elsewhere herein and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of common stock offered hereby for us.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
46
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of:
Advanced Communications Technologies, Inc. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet, and the
related condensed consolidated statements of operations and cash flows of
Advanced Communications Technologies, Inc. and subsidiaries as of March 31,
2003, and for the three and nine month periods ended March 31, 2003 and 2002.
These condensed consolidated financial statements are the responsibility
of the Company's management.
We conduct our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
8 to the condensed consolidated financial statements, the Company's net loss of
$1,670,852 and negative cash flows from operations of $111,121 for the nine
months ended March 31, 2003, working capital deficiency of $3,846,963 and
stockholders' deficiency of $5,855,745 raise substantial doubt about its ability
to continue as a going concern. Management's Plan in regards to these matters is
also described in Note 8. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, FL
May 20, 2003
F-1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 JUNE 30, 2002
(UNAUDITED)
---------------- -----------------
ASSETS
- --------\
CURRENT ASSETS:
Cash $ - $ 11,093
---------------- -------------------
TOTAL CURRENT ASSETS - 11,093
---------------- -------------------
PROPERTY AND EQUIPMENT (NET) 14,274 17,274
---------------- -------------------
OTHER ASSETS:
Security Deposits 7,700 13,225
Other Receivables 9,927 9,927
Deferred Financing Costs, net of accumulated amortization 53,646 63,333
---------------- -------------------
TOTAL OTHER ASSETS 71,273 86,485
---------------- -------------------
TOTAL ASSETS $ 85,547 $ 114,852
- ------------
================ ===================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Cash Overdraft $ 28 $ -
Accounts Payable and Accrued Expenses 1,449,091 872,493
Accrued Compensation 172,183 172,183
Loan Payable to Shareholder 1,055,736 1,055,736
12% Convertible Debentures - 100,407
Interest Payable 168,094 62,917
8% Note Payable Due 12/05 - Current Portion 57,831 -
5% Convertible Debentures Due 1/04 944,000 1,000,000
---------------- -------------------
TOTAL CURRENT LIABILITIES 3,846,963 3,263,736
---------------- -------------------
LONG-TERM LIABILITIES
10% Secured Convertible Debentures Due 11/04 187,500 -
8% Note Payable Due 12/05 115,663 -
Note Payable-Advanced Communications (Australia) 1,791,166 1,791,166
---------------- ------------------
TOTAL LONG TERM LIABILITIES 2,094,329 1,791,166
---------------- ------------------
TOTAL LIABILITIES 5,941,292 5,054,902
---------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred Stock, $.01 Par Value, 25,000,000 Shares Authorized,
none issued and outstanding - -
Common Stock, No Par Value, 200,000,000
Shares Authorized, 198,852,622 and 114,102,622
shares issued and outstanding, respectively 25,945,005 25,471,098
Deferred Commitment fees, net of accumulated amortization (281,250) (562,500)
Accumulated Deficit (31,519,500) (29,848,648)
------------------ -----------------
TOTAL STOCKHOLDERS' DEFICIENCY (5,855,745) (4,940,050)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 85,547 $ 114,852
- ----------------------------------------------
================== ==================
The accompanying notes are an integral part of these condensed consolidated financial statements
F-2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------- ---------------------------------
MARCH 31, 2003 MARCH 31, 2002 MARCH 31, 2003 MARCH 31, 2002
------------------------------- ---------------------------------
OPERATING EXPENSES
Amortization and Depreciation $ 107,875 $ 201,417 $ 318,937 $ 403,417
Professional and Consulting Fees 93,300 42,189 575,295 607,451
Other Selling, General and
Administrative Expenses 25,861 260,370 77,949 536,120
Stock-Based Compensation
- 21,010 - 81,010
--------------- --------------- --------------- -----------------
TOTAL OPERATING EXPENSES 227,036 524,986 972,181 1,627,998
--------------- --------------- --------------- -----------------
(LOSS) FROM OPERATIONS (227,036) (524,986) (972,181) (1,627,998)
--------------- --------------- --------------- -----------------
OTHER EXPENSES
Lawsuit Settlements (30,000) (80,000) (218,494) (80,000)
Interest expense (80,510) (260,417) (480,177) (265,623)
--------------- --------------- --------------- -----------------
TOTAL OTHER (EXPENSES) (110,510) (340,417) (698,671) (345,623)
--------------- --------------- --------------- -----------------
NET (LOSS) $ (337,546) $ (865,403) $ (1,670,852) $ (1,973,621)
- ----------
=============== =============== =============== =================
Net (Loss) Per Share- Basic and
Dilutive $ (0.002) $ (0.009) $ (0.012) $ (0.02)
=============== =============== =============== =================
Weighted Average Number of Shares
Outstanding During the Period- Basic
and Dilutive 180,185,955 101,794,353 137,718,954 98,506,328
=============== =============== =============== =================
The accompanying notes are an integral part of these condensed consolidated financial statements
F-3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
-------------------------------------
MARCH 31, 2003 MARCH 31, 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,670,852) $ (1,973,621)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 318,937 403,417
Expenses incurred in exchange for common stock 5,000 781,569
Interest Expense attributable to beneficial conversion 250,000 250,000
Lawsuit Settlement 173,494 -
Changes in operating assets and liabilities:
(Increase) decrease in assets
Security deposits and Other 5,525 (17,700)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 576,598 (161,203)
Interest payable 230,177 10,417
Accrued compensation - (306,867)
Other Advances - (63,000)
----------------- -----------------
Net cash used in operating activities (111,121) (1,076,988)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (1,675)
Repayment of short-term loan (325,000)
Repayment of unaffiliated note payable - (25,000)
----------------- -----------------
Net cash used in investing activities - (351,675)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft 28 -
Loan proceeds from shareholder - 259,736
Proceeds from issuance of convertible debt, net 100,000 -
Repayment of note payable - (118,530)
Proceeds from issuance of short-term note - 325,000
Proceeds from issuance of convertible debt 1,000,000
Proceeds from issuance of common stock
and warrants net of offering costs - 120,000
----------------- -----------------
Net cash provided by financing activities 100,028 1,586,206
----------------- -----------------
Net (decrease)/increase in cash (11,093) 157,543
Cash at beginning of year 11,093 6,816
----------------- -----------------
CASH AT END OF PERIOD $ - $ 164,359
- ---------------------
================= =================
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ - $ 14,538
================= =================
Income Taxes Paid 0 0
================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended March 31, 2003, the Company issued 4,250,000 shares of common stock
valued at $100,407
in full settlement of the September 1999 12% Senior Secured Convertible Debentures.
During the nine months ended March 31, 2003, the Company issued 500,000 shares of common stock
valued at $5,000 in
partial settlement of unpaid prior legal and consulting fees.
During the nine months ended March 31, 2003, the Company converted $125,000 of accrued interest
into 10% Secured
Convertible Debentures and incurred $25,000 of financing costs associated with the issuance of
its 10% Secured Convertible Debentures.
During the nine months ended March 31, 2003, the Company issued 17,500,000 and 62,500,000 shares
of common stock valued at $56,000 and
$62,500 on the conversion of 5% Convertible Debentures and 10% Convertible Debentures,
respectively.
During the nine months ended March 31, 2002, the Company issued 1,190,000 shares of common
stock, valued at $357,001,
in partial payment of a note payable held by Advanced Communications Technologies (Australia)
Pty Ltd, in which the Company owned a 20% interest.
The accompanying notes are an integral part of these condensed consolidated financial statements
F-4
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------
The accompanying unaudited condensed consolidated financial statements
include the results of Advanced Communications Technologies, Inc. ("ACT" or the
"Company") and its wholly-owned subsidiaries. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
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 of America 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 that are, in the opinion of management, necessary for the fair
presentation of the financial statements.
Operating results for the three and nine months ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2003. 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, 2002 included in the Company's Form 10-KSB as
filed with the Securities and Exchange Commission.
(A) ORGANIZATION
- ----------------
Advanced Communications Technologies, Inc., a Nevada corporation, was
incorporated on April 30, 1998 and was inactive from its date of formation until
April 1999 when it merged with and into the Company in a reverse merger. In
consideration for 90% of the stock of the Company, Advanced Communications
Technologies, Inc (Nevada) (of which Roger May, our former Chairman and CEO was
the principal shareholder) transferred all of its assets which included all of
the rights and interest in the SpectruCell technology for the North and South
American territories. For accounting purposes, the merger was treated as an
acquisition of all of the assets of the Company and as a recapitalization of the
Company. In July 1999, the Company formed Advanced Global Communications, Inc.
("AGC") as a wholly owned subsidiary to conduct its international telephone
network distribution business. On July 1, 2001, AGC ceased operations and has
been inactive since this date. 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 is a marketing company whose primary asset is the ownership
of the rights to market and distribute the SpectruCell technology in the North
and South American territories. The Company expects to generate revenue from the
marketing and distribution of the SpectruCell technology when and if it becomes
available to the marketplace. The Company has not generated any meaningful
revenue to date.
(B) PRINCIPLES OF CONSOLIDATION
- -------------------------------
The accompanying consolidated financial statements include the accounts
of the Company and its inactive subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(C) USE OF ESTIMATES
- --------------------
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and revenues and expenses during the
reported period. Actual results could differ from those estimates.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The carrying amounts of the Company's accounts payable, accrued
liabilities, debentures, and loans payable approximate fair value due to the
relatively short period to maturity for these instruments.
(E) PROPERTY AND EQUIPMENT
- --------------------------
Property and equipment are stated at cost and depreciated, using
accelerated methods, over the estimated useful lives of 5 years.
F-5
(F) LONG-LIVED ASSETS
- ---------------------
The Company reviews long-lived assets and certain identifiable assets
related to those assets for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recoverable.
(G) INCOME TAXES
- ----------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
There was no current income tax expense for the fiscal years ended June
30, 2002 and 2001 and for the nine months ended March 31, 2003 and 2002 due to
net operating losses in both periods. Any deferred tax asset arising from the
future benefit of the Company's net operating loss carryforward, of
approximately $16,000,000 as of March 31, 2003 has been fully reserved.
(H) COMPREHENSIVE INCOME
- ------------------------
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components..
(I) CONCENTRATION OF CREDIT RISK
- --------------------------------
The Company maintains its cash in bank deposit accounts, 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 equivalents.
(J) LOSS PER SHARE
- ------------------
Basic and dilutive net loss per common share is computed based upon the
weighted average common shares outstanding.
(K) RECENT ACCOUNTING PRONOUNCEMENTS
- -------------------------------------
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS 145 related to classification of debt
extinguishments are effective for fiscal years beginning after May 15, 2002.
Earlier application is encouraged. In July 2002, the FASB issued SFAS No. 146,
"Accounting for Restructuring Costs." SFAS 146 applies to costs associated with
an exit activity (including restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or reducing product lines,
terminating employees and contracts and relocating plant facilities or
personnel. Under SFAS 146, the Company will record a liability for a cost
associated with an exit or disposal activity when that liability is incurred and
can be measured at fair value. SFAS 146 will require the Company to disclose
information about its exit and disposal activities, the related costs, and
changes in those costs in the notes to the interim and annual financial
statements that include the period in which an exit activity is initiated and in
any subsequent period until the activity is completed. SFAS 146 is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
with earlier adoption encouraged. Under SFAS 146, a company cannot restate its
previously issued financial statements and the new statement grandfathers the
accounting for liabilities that a company had previously recorded under Emerging
Issues Task Force Issue 94-3.
In December 2002, the Financial Accounting Standards Board issued
Statement No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure - an amendment of FASB Statement No. 123," ("SFAS 148"). SFAS 148
F-6
amends FASB Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
123") and provides alternative methods for accounting for a change by
registrants to the fair value method of accounting for stock-based compensation.
Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require
disclosure in the significant accounting policy footnote of both annual and
interim financial statements of the method of accounting for stock
based-compensation and the related pro forma disclosures when the intrinsic
value method continues to be used. The statement is effective for fiscal years
beginning after December 15, 2002, and disclosures are effective for the first
fiscal quarter beginning after December 15, 2002.
The Company does not believe the adoption of these standards will have a
material impact to the financial statements.
NOTE 2. PROPERTY AND EQUIPMENT
- ------------------------------
March 31, 2003 June 30,
2002
--------------- --------------
Computer and office equipment $ 32,909 $ 32,909
Less: Accumulated depreciation (18,635) (15,635)
--------------- --------------
Property and equipment - net $ 14,274 $ 17,274
=============== ==============
Depreciation expense for each of the three months ended March 31, 2003
and 2002 was $1,000.
NOTE 3. NOTES AND LOAN PAYABLE
- ------------------------------
(A) NOTE PAYABLE TO ADVANCED COMMUNICATIONS (AUSTRALIA)
- -------------------------------------------------------
The Company had a non-interest bearing and unsecured note payable to
Advanced Communications (Australia) of $7,500,000 as of April 5, 2000 . The note
was payable in three equal monthly installments commencing on May 31, 2000.
Under the terms of the Stock Purchase Agreement with Advanced Communications
(Australia), the monthly installment payments were extended indefinitely without
interest to allow the Company, on a best efforts basis, to raise the cash
portion of the purchase price through a private or public offering of
securities. There are no default or penalty provisions under the terms of the
Stock Purchase Agreement. Upon raising funds pursuant to a private or public
offering, the Company was obligated to repay Advanced Communications
(Australia)'s note with those funds remaining after deduction for reserves
needed for current operations, working capital and the development and expansion
of its operations and the operations of its subsidiaries, as determined by the
Company's Board of Directors.
During the fiscal years ended June 30, 2002 and 2001, the Company repaid
in both cash and common stock, $5,326,833 and $382,001 of the obligation,
respectively. As of March 31, 2003, the balance of the Company's obligation to
Advanced Communications (Australia) was $1,791,166.
On November 11, 2002, Advanced Communications (Australia) issued a
Notice of Termination to the Company which stated that the April 2000 Stock
Purchase Agreement was terminated immediately due to the Company's insolvency.
The effect of the Notice of Termination is to cancel the Company's stock
interest in Advanced Communications (Australia). Consistent with our decision to
withdraw from the Australia litigation, we have not challenged the termination
of the Stock Purchase Agreement in the Australia Court. Given that Advanced
Communications (Australia) is in an insolvency proceeding in Australia, has
ceased to do business as an operating entity, that its assets have been sold or
transferred, and that the Company has written off its entire investment in
Advanced Communications (Australia), the future financial impact of this on the
Company is not believed to be significant. We believe that, subject to advice of
Australian counsel, as a result of Advanced Communications (Australia's)
insolvency proceeding and its termination of the Stock Purchase Agreement, no
further money is owed, and we have no further obligation to Advanced
Communications (Australia).
(B) LOAN PAYABLE TO SHAREHOLDER
- -------------------------------
As of March 31, 2003 and June 30, 2002, the Company owed Global
Communications Technology Pty, an Australian company wholly-owned by Mr. May, a
former officer and director of the Company, $1,055,736, for funds advanced to
the Company to provide working capital. This loan is non-interest bearing and
unsecured, and has no scheduled date for repayment. The Company believes that
the loan is not due upon demand. However, since the actual repayment terms are
not known with any specificity because the terms are not confirmed in a written
document, the loan has been classified as a current liability.
F-7
(C) 8% NOTE PAYABLE
- -------------------
On November 14, 2002, the Company settled its litigation with the
Needham/DuPont plaintiffs by agreeing to release the plaintiffs' stock from
restriction and issuing a three year 8% promissory note for $173,494 to
reimburse the plaintiffs for their legal costs. The note is payable in three
equal annual installments of principal and interest commencing December 1, 2003
with additional installments due on December 1, 2004 and December 1, 2005. In
accordance with paragraphs 8(a) and 35 of FASB 5, the Company has recorded in
its September 30, 2002 financial statements, an expense of $173,494 and the
associated liability in connection with the lawsuit settlement. The current
portion of the note payable of $57,831 plus accrued interest of $1,787 has been
classified as a current liability on the balance sheet.
Interest of $5,359 was accrued on the note payable as of March 31, 2003.
NOTE 4. CONVERTIBLE DEBENTURES
- ------------------------------
5% CONVERTIBLE DEBENTURES DUE JANUARY 2004
- ------------------------------------------
In January 2002, the Company issued, in the aggregate, $1 million of 5%
Convertible Debentures to Cornell Capital Partners, LP and other investors.
These debentures are convertible into shares of common stock at a price
equal to either (a) an amount equal to 120% of the closing bid price of the
common stock as of the closing date or $.40, whichever is higher, or (b) an
amount equal to 80% of the lowest closing bid price of the common stock for the
five trading days immediately preceding the conversion date. These Convertible
Debentures accrue interest at a rate of 5% per year and are convertible at the
holder's option. These Convertible Debentures have a term of two years. At the
Company's option, these debentures may be paid in cash at maturity or redeemed
at a 20% premium prior to January 2004.
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 the
beneficial conversion feature, of $250,000, was recorded in the June 30, 2002
financial statements as interest expense and a component of equity on the
issuance date.
The Company incurred $80,000 of financing costs associated with the 5%
Convertible Debentures that is being amortized over the life of the debentures.
Amortization of $10,000 and $30,000 was expensed for the three months and nine
months ended March 31, 2003, respectively.
During the three months ended December 31, 2002, the Company converted
$125,000 of accrued interest on the Convertible Debentures into 10% Secured
Convertible Debentures issued on November 22, 2002.
On January 22, 2003, bondholders elected to convert $56,000 of the
debentures at a price of $.0032 per share, into 17,500,000 shares of restricted
common stock. As of March 31, 2003, the balance due on these debentures after
the aforementioned conversion is $944,000.
As of March 31, 2003 and June 30, 2002, interest of $154,888 and
$62,917, respectively, is accrued on these debentures.
10% SECURED CONVERTIBLE DEBENTURES DUE NOVEMBER 2004
- ----------------------------------------------------
On November 22, 2002, the Company entered into a Securities Purchase
Agreement with Cornell Capital Partners, L.P., whereby it agreed to issue and
sell Two Hundred Fifty Thousand Dollars ($250,000) of Secured Convertible
Debentures. These Secured Convertible Debentures have a term of two years and
are convertible into shares of common stock at a price equal to $.001 per share
commencing on December 31, 2002. These Secured Convertible Debentures accrue
interest at a rate 10% per year and are convertible at the holder's option. At
the Company's option, these debentures may be paid in cash or redeemed at a 20%
premium on or before December 15, 2002 and at a 50% premium after December 15,
2002 and prior to November 2004. In connection with the Securities Purchase
Agreement, the Company entered into a Security Agreement in favor of Cornell
Capital Partners, L.P. whereby it granted a security interest in all of its
assets as security for its obligations under the Secured Convertible Debentures,
as well as all other obligations of Advanced Communications to Cornell Capital
Partners, L.P. whether arising before, on or after the date of the Security
F-8
Agreement, including, without limitation, those obligations of the Company to
Cornell Capital Partners, L.P. under the Convertible Debentures dated January
2002.
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 the
beneficial conversion feature, of $250,000, was recorded as an interest expense
and a component of equity on the issuance date.
The Company received $100,000 in cash from the sale of these debentures,
issued another $125,000 in payment of accrued interest on the 5% convertible
debentures and incurred $25,000 of financing costs associated with the
Convertible Debentures that is being amortized over the life of the debentures.
Amortization expense of $3,125 and $4,687 was recorded for the three and nine
months ended March 31, 2003.
On January 22, 2003, Cornell Capital Partners, L.P. elected to convert
$62,500 of debentures at a conversion price of $.001 per share into 62,500,000
shares of restricted common stock. As of March 31, 2003, the balance due on
these debentures after the aforementioned conversion is $187,500.
As of March 31, 2003 interest of $7,847, is accrued on these debentures.
Future maturities of long-term debt as of March 31, 2003 are as follows:
YEAR AMOUNT
---- ------
March 31, 2004 $ 1,001,831
March 31, 2005 245,331
March 31, 2006 57,832
-----------------------
Total $ 1,304,994
=======================
NOTE 5. STOCKHOLDERS' DEFICIENCY
- --------------------------------
(A) STOCK ISSUED FOR CONVERTIBLE DEBENTURES
- -------------------------------------------
On January 22, 2003, holders of the Company's 5% and 10% Convertible
Debentures converted $56,000 and $62,500 of Convertible Debentures into
17,500,000 and 62,500,000 shares respectively, of the Company's common stock.
On August 26, 2002 and September 24, 2002, the Company issued 4,250,000
shares of stock to the 12% Convertible Debenture holders in full settlement of
the Company's outstanding obligation of $100,407.
(B) STOCK ISSUED FOR SERVICES
- -----------------------------
On October 10, 2002, the Company's Board of Directors approved the
issuance of 100,000 shares each or 500,000 shares in the aggregate to Messrs.
Danson, Prouty, Lichtman, Roche and Finch, having a value of $1,000 each or
$5,000 in the aggregate, in partial satisfaction of unpaid prior legal and
consulting fees. These shares were issued on December 5, 2002.
NOTE 6. RELATED PARTIES
- -----------------------
(A) GLOBAL COMMUNICATIONS TECHNOLOGY PTY LTD
- --------------------------------------------
Global Communications Technologies Pty Ltd., a related party, is wholly
owned by Mr. May a stockholder of the Company.
F-9
(B) ADVANCED COMMUNICATIONS TECHNOLOGY (AUSTRALIA) PTY. LTD.
- ------------------------------------------------------------
Advanced Communications Technology (Australia) Pty. Ltd., an Australian
company, is 70% owned by Mr. May's wholly owned company, Global Communications
Technology Pty Ltd. Advanced Communications Technologies (Australia) Pty Ltd
placed itself into voluntary administration on or about July 18, 2002.
(C) LEGAL COUNSEL
- -----------------
Certain of the Company's legal counsel are stockholders and directors of
the Company.
NOTE 7. COMMITMENTS AND CONTINGENCIES
- -------------------------------------
(A) LEASE AGREEMENT
- --------------------
The Company is a party to a three-year office lease commencing January
1, 2002 and ending December 31, 2004. The monthly rent is $7,634 inclusive of
the cost of monthly parking. The minimum lease payment for the remaining life of
the lease is $229,020. On August 1, 2002, the Company notified the landlord that
it was relocating its office from California to New York. The Company has
engaged Grubb & Ellis to find a suitable subtenant to assume all or a portion of
the Company's remaining lease obligation.
(B) INDEMNIFICATION OF DIRECTORS AND EMPLOYEES IN RE: ADVANCED COMMUNICATIONS
(AUSTRALIA) V. COMPANY DIRECTORS AND EMPLOYEES
- ----------------------------------------------
On or about May 10, 2002, Advanced Communications (Australia) filed suit
in the Superior court of Orange County, California against the Company, all of
its directors, its former president, and some of its former and present
employees, including the Company's receptionist. On or about May 17, 2002,
Advanced Communications (Australia) voluntarily dismissed the suit as to the
Company but not as to the individual defendants.
The complaint sets forth multiple causes of action against the
defendants, including various business torts. The basis of the complaint is that
the defendants improperly interfered with and conspired to ruin plaintiff's
business and conspired to force plaintiff into bankruptcy.
In the opinion of the Company, based on input from legal counsel, the
complaint is deficient and subject to attack on numerous procedural grounds. In
the opinion of the Company, based on its knowledge of the facts and
circumstances underlying the action, the complaint is also substantively
deficient and meritless.
Under the Company's articles of incorporation and applicable Florida
law, the Company is obligated to indemnify and defend its directors and the
officer named as defendants who have been served in the action. The Company
might also be under an obligation to indemnify and defend the other former and
present employees named as defendants who have not been served in the action, if
and when they are served. This determination will be made on a case-by-case
basis.
(C) INDEMNIFICATION AGREEMENT BETWEEN THE COMPANY AND JACK HALPERIN RE:
NEEDHAM/DUPONT LAWSUIT
- ----------------------
On or about July 2000, the Company entered into an indemnification
agreement with Jack Halperin, Esq., our then SEC counsel, whereby the Company
agreed to indemnify Mr. Halperin for all costs and damages incurred as a result
of Mr. Halperin being named a defendant in the Needham/DuPont lawsuit filed
against the Company, Mr. May and Mr. Halperin in July 2000. Mr. May executed
this agreement on behalf of the Company. The agreement includes a provision that
prohibits the Company from entering into any settlement agreement in the
Needham/DuPont lawsuit unless such settlement agreement provides for the
unconditional release of Mr. Halperin from any claim. On November 14, 2002, the
Company settled the Needham/DuPont lawsuit without obtaining a full release for
Mr. Halperin. The Company's Board of Directors is consulting with its current
legal counsel to determine the validity of the indemnification agreement.
(D) PENDING CLAIM BY ADVANCED COMMUNICATIONS (AUSTRALIA) FOR COSTS OF AUSTRALIA
LITIGATION AND FOR DAMAGES
- --------------------------
Following our withdrawal from the Australia litigation against Mr. May
and Advanced Communications (Australia), Advanced Communications (Australia)
applied to the court for an order awarding its costs of the litigation against
the Company. Advanced Communications (Australia) has indicated that its costs of
litigation were approximately AU$400,000 or US$220,000. Advanced Communications
(Australia) has also applied for an order awarding damages against the Company
in the amount of Aus $6,000,000 or approximately US$3,200,000 as a result of the
Company notifying third parties in the U.S. with which Advanced Communications
(Australia) was dealing in regard to SpectruCell, of the Australia Court's
August 23, 2002 injunctive orders. Management believes that based on information
made available to it, Advanced Communications (Australia) proposed claims for
damages are without merit. To date, as far as the Company knows, the Australia
Court has not awarded any costs and has not awarded any damages against the
Company. It is not known if such awards will be made and, if they are made, what
their amounts will be.
F-10
(E) LEGAL MATTERS
- ------------------
As of March 31, 2003, management has settled all of its outstanding
lawsuits and has recorded the financial statement impact of such settlements.
The Company is currently involved in a dispute with one of its creditors
involving unpaid legal fees in the amount of $35,034. The Company did not
contest the creditor's claim and on May 8, 2003 a default judgment was entered
into by the court against the Company. The Company has previously recorded this
expense and has determined that such judgment will not have a material adverse
impact on the Company's financial condition.
Management does not believe that the contingencies described above will
have a material adverse impact on the future financial condition of the Company.
NOTE 8. GOING CONCERN
- ---------------------
The Company's consolidated financial statements for the nine months
ended March 31, 2003, have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company's net loss of
$1,670,852 and negative cash flows from operations of $111,121 for the nine
months ended March 31, 2003, working capital deficiency of $3,846,963 and
stockholders' deficiency of $5,855,745, raise substantial doubt about its
ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent
on the Company's ability to raise additional capital, implement its business
plan and acquire an existing profitable business enterprise. Management
anticipates that the issuance of securities will generate sufficient resources
for the continuation of the Company's operations and the implementation of its
business plan.
The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
F-11
ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
F-12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Advanced Communications Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Advanced
Communications Technologies, Inc., and Subsidiaries as of June 30, 2002 and 2001
and the related consolidated statements of operations, changes in stockholders'
deficiency and cash flows for the years ended June 30, 2002 and 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Advanced
Communications Technologies, Inc. and Subsidiaries as of June 30, 2002 and 2001,
and the results of their operations and their cash flows for the years ended
June 30, 2002 and 2001 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 11 to
the consolidated financial statements, the Company's significant net loss of
$4,332,693 for the year ended June 30, 2002, a working capital deficiency of
$3,252,643, and a stockholders' deficiency of $4,940,050, raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 11. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
September 7, 2002 (except for Note 12 (A) and (B) as to which date is December
4, 2002)
F-13
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND JUNE 30, 2001
June 30,
2002 2001
-------------------------------------
ASSETS
------
CURRENT ASSETS
Cash $ 11,093 $ 6,816
Prepaid Expense - 10,000
---------------- -------------
TOTAL CURRENT ASSETS 11,093 16,816
---------------- -------------
PROPERTY AND EQUIPMENT (NET) 17,274 19,599
OTHER ASSETS
Purchase Goodwill-ACT-AU - 2,000,000
Security Deposits 13,225 5,525
Other Receivables 9,927 -
Deferred Bond Financing Costs, net of accumulated amoritization 63,333 -
---------------- -------------
TOTAL OTHER ASSETS 86,485 2,005,525
---------------- -------------
TOTAL ASSETS $ 114,852 2,041,940
- ------------ ================ =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 872,493 $ 844,205
Accrued Compensation 172,183 479,050
Note Payable-Grassland - 118,530
Loan Payable to Shareholder 1,055,736 796,000
12% Convertible Debentures 100,407 200,750
5% Convetible Debentures 1,000,000 -
Interest Payable 62,917 -
---------------- ---------------
TOTOL CURRENT LIABILITIES 3,263,736 2,438,535
LONG-TERM LIABILITIES
Note Payable-ACT-Australia 1,791,166 2,173,167
---------------- --------------
TOTAL OTHER LIABILITIES 1,791,166 2,173,167
---------------- --------------
TOTAL LIABILITIES 5,054,902 4,611,702
---------------- --------------
STOCKHOLDER'S DEFICIENCY
Preferred Stock, $.01 Par Value, 25,000,000 Shares Authorized,
note issued and outstanding
Common Stock, No Par Value, 200,000,000 and 100,000,000
Shares Authorized, 114,102,622 and 94,489,916
share issued and outstanding, respecitvely 25,471,098 22,696,193
Common Stock to be issued, 833,334 shares - 250,000
Deferred Commitment fees, net of accumulated amortization (562,500) -
Accumulated Deficit (29,848,648) (25,515,955)
---------------- --------------
TOTAL STOCKHOLDERS' DEFICIENCY (4,940,050) (2,569,762)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 114,852 $ 2,041,940
================ ===============
See accompanying notes to consolidated financial statements.
F-14
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2002 AND JUNE 30, 2001
2002 2001
----------------- -------------
SALES $ - $ 50,000
COST OF SALES - (57,310)
----------------- -------------
GROSS PROFIT (LOSS) - (7,310)
OPERATING EXPENSES
Consulting Fees (10,149) 567,625
Amortization and Depreciation 508,167 1,051,169
Professional and Consulting Fees 1,228,780 1,214,739
Other Selling, General and Administrative Expenses 407,772 501,048
Stock-Based Compensation 180,000 -
----------------- -------------
TOTAL OPERATING EXPENSES 2,314,570 3,334,581
(LOSS) FROM OPERATIONS (2,314,570) (3,341,891)
----------------- -------------
OTHER EXPENSES
Interest expense (318,123) (10,332)
Loss from investment - (3,571,654)
Loss from impairment of goodwill (1,700,000) (12,399,864)
Loss on investment acquisition deposit - (425,000)
Realized loss on decline in marketable securities - (6,825)
----------------- -------------
TOTAL OTHER (EXPENSES) (2,018,123) (16,413,675)
----------------- -------------
(LOSS) BEFORE EXTRAORDINARY GAIN (4,332,693) (19,755,566)
EXTRAORDINARY GAIN
Gain on extinguishment of debt - 23,000
----------------- --------------
NET (LOSS)
- ---------- $ (4,332,693) $ (19,732,566)
================= ===============
Net (Loss) Per Share- Basic and Dilutive $ (0.04) $ (0.22)
================= ===============
Weighted Average Number of Shares Outstanding During the
Period-Basic and Dilutive $ 100,576,484 $ 87,976,428
================= ===============
See accompanying notes to consolidated financial statements.
F-15
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED JUNE 30, 2002 AND JUNE 30, 2001
COMMON STOCK TO
COMMON STOCK BE ISSUED COMMON DEFFERED
-------------------- ACCUMULATED ---------------- STOCK COMMITMENT
SHARES AMOUNT DEFICIT SHARES AMOUNT ADVANCES FEE TOTAL
------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 82,227,280 $16,865,441 $(5,783,389) $(375,000) - $ 10,707,052
Stock issued for cash 3,060,600 642,726 642,726
Stock warrants issued for cash 275,454 275,454
Stock to be issued 833,334 250,000 250,000
Stock issued for offering costs 250,000 -
Stock issued for services 1,051,491 328,870 328,870
Stock issued for
extinguishment of debt 6,597,000 4,545,902 4,545,902
Stock issued for conversion of
convertible debt 1,803,545 412,800 412,800
Common stock retired (500,000) (375,000) 375,000 -
Net (loss) for the year (19,732,566) (19,732,566)
---------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 94,489,916 22,696,193 $(25,515,955) $833,334 $ 250,000 - - $(2,569,762)
---------------------------------------------------------------------------------------------------
Stock issued for services 6,334,679 677,634 (33,334) (10,000) 667,634
Stock issued for
extinguishments of debt 1,190,000 357,001 357,001
Stock issued for conversion of
convertible debt 4,250,000 100,343 100,343
Stock issued for cash 1,233,333 260,000 (800,000) (240,000) 20,000
Stock warrants issued for cash - 110,000 110,000
Stock issued for offering costs 137,727 - -
Stock and warrants issued from
repricing of previously issued
shares 2,146,967 - -
Stock issued to Directors for
services 1,000,000 180,000 180,000
ztock issued for commitment
fees 3,000,000 750,000 $(562,500) 187,500
Capital contribution - 9,927 9,927
Stock issued in settlement of
lawsuit 320,000 80,000 80,000
Interest on beneficial
conversion-Convertible
Debentures - 250,000 250,000
Net (loss) for the year (4,332,693) (4,332,693)
---------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002 114,102,622 $25,471,098 $(29,848,648) - $ - $ $(562,500) $(4,940,050)
===================================================================================================
See accompanying notes to consolidated financial statements.
F-16
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2002 AND JUNE 30, 2001
2002 2001
----------------- -----------------
Net (loss) $ (4,332,693) $ (19,732,566)
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 508,167 1,051,169
Realized loss on decline in marketable securities - 6,825
Stock issued for services 847,634 328,870
Stock issued in settlement of lawsuit 80,000
Gain on extinguishment of debt - (23,000)
Loss from investment - 3,571,654
Loss from impairment of goodwill 1,700,000 12,399,864
Accrued compensation (306,867) 247,500
Interest Expense on Beneficial Conversion Feature 250,000 -
change in operating assets and liabilities:
(Increase) decrease in assets
Prepaid expense 10,000 36,118
Deposits and other 7,700 40,000
Increase (decrease) in liabilities:
Accounts payable 28,288 633,235
Interest payable 62,917 10,332
Deferred revenue and other 41,600 (50,000)
----------------- -----------------
Net cash used in operating activities (1,103,254) (1,479,999)
----------------- -----------------
CASHFLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Loan to unconsolidated affiliated company - (247,608)
Purchase of fixed assets (1,675) (8,411)
Repayment of laon to unconsolidated affiliate (25,000) -
Net cash used in investing activities ----------------- -----------------
CASHFLOWS FROM FINANCING ACTIVITIES 26,675 256,019
- ----------------------------------- ----------------- -----------------
Repayment of note payable (118,530) -
Loan proceeds form shareholder 259,736 544,500
Proceeds from stock to be issued - 250,000
Proceeds from issuance of common stock
and warrants net of offering costs 130,000 918,180
Proceeds from issuance of convetible debentures, net 889,000
Proceeds form short-term loan, net of financing fees 299,000
Repayment of short-term loan (325,000) -
----------------- -----------------
Net cash provided by financing activities 1,134,206 1,712,680
----------------- -----------------
Net increase (decrease) in cash 4,277 (23,338)
Cash and cash equivalents at beginning of year 6,816 30,154
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,093 $ 6,816
- ---------------------------------------- ================= =================
See accompanying notes to consolidated financial statements.
F-17
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 2002, the Company issued 1,190,000 shares of
common stock, valued at $357,001, in partial payment of notes payable held by a
related Australian corporation, in whom we hold a 20% investment, and a
non-related company (See Notes 6(B) and 8(D)).
During the year ended June 30, 2002 the Company issued 4,250,000 shares of
common stock, valued at $100,343, for the conversion of convertible debentures.
During the year ended June 30, 2001, the Company issued 6,597,000 shares of
common stock, valued at $4,545,902, in partial payment of notes payable held by
a related Australian corporation, in whom we hold a 20% investment, and a
non-related company (See Notes 6(B) and 8(D)).
During the year ended June 30, 2001, the Company issued 1,803,545 shares of
common stock, valued at $412,800, for the conversion of convertible debentures.
NOTE 1. PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------
(A) 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. In July 1999, the Company formed Advanced
Global Communications, Inc. ("AGC") as a wholly owned subsidiary to conduct its
international telephone network distribution business. 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. On April 5, 2000, the Company acquired a 20% equity ownership
interest in Advanced Communications Technology (Australia) Pty Ltd ("Advanced
Communications (Australia)"), an unconsolidated affiliated entity. The Company
is currently in litigation over its ownership rights. SEE NOTE 10(B)(IV). On
July 5, 2000, the Company entered into a License and Distribution Agreement with
Advanced Communications Technologies (Australia) Pty Ltd. pursuant to which the
Company has the exclusive rights to market and distribute the SpectruCell
technology in North, South and Central America. The License and Distribution
Agreement is effective for an indefinite period. The parties to this License and
Distribution Agreement are currently involved in litigation in connection with
this agreement. (SEE NOTE 10(B)(IV). In July 2000, the Company formed Australon
USA, Inc. ("Australon"), a Delaware corporation owned 50% by the Company and 50%
by Australon Enterprises Pty., Ltd., a publicly traded company listed on the
Australian Stock Exchange and a 66% owned subsidiary of Advanced Communications
(Australia). In November 2000, the Company formed Advanced Network Technologies
(USA), Inc. ("ANT"), a Delaware corporation owned 70% by the Company and 30% by
Advanced Communications (Australia). Both Australon and ANT are inactive and
have never been operational. Australon Enterprises Pty Ltd is an Australian
public company that manufactures and distributes remote monitoring devices for
homes and businesses such as remote meter reading and residential automated
gateway devices. While Mr. May, our former CEO and Chairman of the Board has a
significant ownership interest in Australon Enterprise Pty, through his
ownership interest in ACT AU, he is not involved in Australon `s daily
management or business operations and is not represented on its Board of
Directors. The joint venture relationship was established while Mr. May
controlled both companies. Presently, the company is not in negotiations with
Australon Enterprises Pty and will not enter into any discussions with
Australon's management until the Company's lawsuit with Advanced Communications
(Australia)Advanced Communications (Australia) and Mr. May is resolved.
Australon USA, Inc is inactive and will remain inactive for the foreseeable
future.
The Company will account for the future results of operations, if any, of
Australon on an equity basis and ANT on a consolidated basis.
The Company is a marketing company whose primary activity is the ownership of
the rights to the SpectruCell technology including a License and Distribution
F-18
Agreement and its investment in Advanced Communications (Australia). The Company
expects to generate revenue from the marketing and distribution of Advanced
Communications (Australia)'s software defined radio based wireless communication
product "SpectruCell". The Company has not generated any meaningful revenue to
date.
(B) PRINCIPLES OF CONSOLIDATION
- -------------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its inactive subsidiaries AGC, Australon and ANT. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Company accounts for its investment in Advanced Communications (Australia),
a non-consolidated affiliate (a 20-50% owned company over which the Company does
not exercise control) under the equity method of accounting.
(C) USE OF ESTIMATES
- --------------------
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The carrying amounts of the Company's accounts payable, accrued liabilities,
debentures, and loans payable approximates fair value due to the relatively
short period to maturity for these instruments.
(E) 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 value, with unrealized
losses, reported as a separate component of stockholders' equity.
Declines in the fair value of individual available-for-sale securities below
their cost that are other than temporary would result in write-downs of the
individual securities to their fair value. The related write-downs are included
in earnings as realized losses.
(F) PROPERTY AND EQUIPMENT
- --------------------------
Property and equipment are stated at cost and depreciated, using accelerated
methods, over the estimated useful lives of 5 years.
(G) LONG-LIVED ASSETS
- ---------------------
The Company reviews long-lived assets and certain identifiable assets related to
those assets for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be recoverable.
(H) INCOME TAXES
- ----------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
There was no current income tax expense for the fiscal years ended June 30, 2002
and 2001 due to net operating losses in both periods. Any deferred tax asset
arising from the future benefit of the Company's net operating loss
carryforward, of approximately $13,948,000, has been fully reserved.
F-19
(I) COMPREHENSIVE INCOME
- ------------------------
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components.
(J) REVENUE RECOGNITION
- -----------------------
For the fiscal year ended June 30, 2001, revenue was generally recognized at the
time telephone service minutes were used and based on the volume of call service
provided to customers and processed by the Company's contractual service
providers. The Company recognized no revenue for the fiscal year ended June 30,
2002.
(K) CONCENTRATION OF CREDIT RISK
- --------------------------------
The Company maintains its cash in bank deposit accounts, 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 equivalents.
(L) LOSS PER SHARE
- ------------------
Basic and dilutive net loss per common share is computed based upon the weighted
average common shares outstanding.
(M) NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------
The Financial Accounting Standards Board has recently issued several new
Statements of Financial Accounting Standards. Statement No. 141, "Business
Combinations" supersedes APB Opinion 16 and various related pronouncements.
Pursuant to the new guidance in Statement No. 141, all business combinations
must be accounted for under the purchase method of accounting; the
pooling-of-interests method is no longer permitted. SFAS 141 also establishes
new rules concerning the recognition of goodwill and other intangible assets
arising in a purchase business combination and requires disclosure of more
information concerning a business combination in the period in which it is
completed. This statement is generally effective for business combinations
initiated on or after July 1, 2001.
Statement No. 142, "Goodwill and Other Intangible Assets" supercedes APB Opinion
17 and related interpretations. Statement No. 142 establishes new rules on
accounting for the acquisition of intangible assets not acquired in a business
combination and the manner in which goodwill and all other intangibles should be
accounted for subsequent to their initial recognition in a business combination
accounted for under SFAS No. 141. Under SFAS No. 142, intangible assets should
be recorded at fair value. Intangible assets with finite useful lives should be
amortized over such period and those with indefinite lives should not be
amortized. All intangible assets being amortized as well as those that are not,
are both subject to review for potential impairment under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". SFAS No. 142 also requires that goodwill arising in a business
combination should not be amortized but is subject to impairment testing at the
reporting unit level to which the goodwill was assigned to at the date of the
business combination.
SFAS No. 142 is effective for years beginning after December 15, 2001 and must
be applied as of the beginning of such year to all goodwill and other intangible
assets that have already been recorded in the balance sheet as of the first day
in which SFAS No. 142 is initially applied, regardless of when such assets were
acquired. Goodwill acquired in a business combination whose acquisition date is
on or after July 1, 2001, should not be amortized, but should be reviewed for
impairment pursuant to SFAS No. 121, even though SFAS No. 142 has not yet been
adopted. However, previously acquired goodwill should continue to be amortized
until SFAS No. 142 is first adopted. The Company intends to adopt the provisions
of SFAS 142 in its financial statements for the fiscal year ended June 30, 2002.
Statement No. 143 "Accounting for Asset Retirement Obligations" establishes
standards for the initial measurement and subsequent accounting for obligations
associated with the sale, abandonment, or other type of disposal of long-lived
tangible assets arising from the acquisition, construction, or development
and/or normal operation of such assets. SFAS No. 143 is effective for years
beginning after June 15, 2002, with earlier application encouraged.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses financial accounting
F-20
and reporting for the impairment or disposal of long-lived assets and supercedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." The provisions of the statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001.
With the exception of the adoption of SFAS No. 142 (See Note 2), the adoption of
these pronouncements is not expected to have a material effect on the Company's
financial position or results of operations.
NOTE 2. INVESTMENT IN UNCONSOLIDATED AFFILIATE
- ----------------------------------------------
In April 2000, the Company acquired 20% of the common stock of Advanced
Communications (Australia), an unconsolidated affiliate. The purchase price of
the investment amounted to $19,350,000, and was comprised of a note payable for
$7,500,000 (See Note 1(A) and Note 6(B)) and the issuance of 5,000,000 shares of
restricted common stock valued at $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 over the fair value of the investment in the amount
of $15,692,528 was accounted for as goodwill.
The Company's 20% interest in Advanced Communications (Australia) was accounted
for using the equity method of accounting and was stated at the amortized cost
of goodwill and the equity in undistributed earnings since acquisition. The
equity in earnings of Advanced Communications (Australia) was adjusted for the
amortization of the goodwill, as discussed above. During the year ended June 30,
2001, the Company reduced the carrying value of its unconsolidated equity
investment in Advanced Communications to $2,000,000 based on management's
evaluation of Advanced Communications (Australia)'s fair market value. This
adjustment was required by FASB 121 ("Accounting for Impairment of Long-Lived
Assets") and APB 18 ("The Equity Method of Accounting for Investments in Common
Stock"). Such pronouncements require the annual evaluation of long-lived assets
for impairment.
Advanced Communications (Australia) had a current period operating loss combined
with a history of operating losses due to the fact that Advanced Communications
(Australia) has been in development stage activities since inception and has not
generated any sales revenue for its products. Advanced Communications
(Australia)'s projections of estimated future cash flows could not be
objectively verified because Advanced Communications (Australia) had not
completed scheduled field trials of the SpectruCell product, a requisite before
sales can be recognized. Based on these factors, management completely wrote-off
its investment in Advanced Communications (Australia) and wrote-down its
investment in Advanced Communications (Australia)'s goodwill to $2,000,000 based
on the fair market value of Advanced Communications (Australia)'s 66% majority
ownership interest in Australon Enterprises, Ltd, a publicly traded Australian
company.
Amortization was computed on a straight-line basis over fifteen years until June
30, 2001 when the Company re-assessed the life of the goodwill to be 5 years.
This change coupled with the write down of goodwill resulted in a reduction of
Goodwill amortization on a quarterly basis from $261,542 to $100,000. The
amortization of goodwill charged to income for the fiscal years ended June 30,
2002 and June 30, 2001 was $300,000 and $1,046,169, respectively.
Due to litigation by the Australian Tax Office against Advanced Communications
(Australia) and Advanced Communications (Australia)'s subsequent filing on or
about July 18, 2002 for protection under Australia's insolvency laws by
appointing an Independent Administrator to take over its business and affairs
(see Note 10(B)(iv)), management has determined that its remaining goodwill
investment is impaired pursuant to the provisions of SFAS 142. Accordingly, the
Company has written off the balance of its unamortized goodwill of $1,700,000
during the fiscal year ended June 30, 2002.
F-21
The components of the Company's investment in its unconsolidated affiliate
Advanced Communications (Australia) at June 30, 2002 are as follows:
INVESTMENT GOODWILL TOTAL
------------------- ------------------ ------------------
At acquisition $ 3,657,472 $ 15,692,528 $ 19,350,000
Cumulative Investment loss (3,657,472) -- (3,657,472)
Amortization of goodwill -- (1,292,664) (1,292,664)
Impairment of goodwill -- (12,399,864) (12,399,864)
------------------- ------------------ ------------------
Balance at June 30, 2001 $ -- $ 2,000,000 $ 2,000,000
Cumulative amortization of goodwill
through March 31, 2002 (300,000) (300,000)
Impairment of goodwill -- (1,700,000) (1,700,000)
------------------- ------------------ ------------------
Balance at June 30, 2002 $ -- $ -- $ --
=================== ================== ==================
NOTE 3. REALIZED LOSS ON DECLINE IN MARKETABLE SECURITIES
- ---------------------------------------------------------
The Company's marketable securities were comprised of equity securities, all
classified as available-for-sale, which were carried at their fair value based
upon the quoted market prices of those investments at June 30, 2001 and 2000.
Declines in the fair value that are other than temporary result in write-downs
of the securities and are included in earnings as realized losses. The Company
determined there was a permanent decline in the fair value of these securities
and at June 30, 2001 the Company wrote down these securities to their fair value
of $0. This resulted in $6,825 being recognized in the statements of operations
as a realized loss on decline in marketable securities for the year ended June
30, 2001.
NOTE 4. PROPERTY AND EQUIPMENT
- ------------------------------
2002 2001
------------ -----------
Computer and office equipment $ 32,909 $ 31,234
Less: Accumulated depreciation (15,635) (11,635)
------------ -----------
Property and equipment - net 17,274 19,599
============ ===========
Depreciation expense for the years ended June 30, 2002 and 2001 was $4,000 and
$5,000, respectively.
NOTE 5. ACCRUED COMPENSATION
- ----------------------------
The Company had an oral agreement with Mr. Roger May to serve as the Chief
Executive Officer of the Company. Mr. May agreed to defer payment of the amounts
owed him pursuant to the oral agreement due to the Company's lack of funds. The
Company owed Mr. May $479,050 at June 30, 2001. On November 30, 2001, Mr. May
was removed as the Company's Chief Executive Officer. Subsequent to that date,
Mr. May was not entitled to receive any additional compensation from the
Company.
At the request of the Company's Board of Directors, the Compensation Committee
conducted a review of the nature of the past services provided by Mr. May to the
Company to determine whether a portion of such services are more properly
allocable to the Company's unconsolidated Australian affiliate. At the Company's
March 26, 2002 Board of Director's meeting, the Board of Directors unanimously
approved the recommendation of the Compensation Committee to reduce Mr. May's
prior accrued compensation by $394,361 representing services Mr. May performed
for Advanced Communications (Australia)Advanced Communications (Australia),
leaving a balance of $172,183 at June 30, 2002.
F-22
NOTE 6. NOTES AND LOAN PAYABLE
- ------------------------------------
(A) NOTE PAYABLE-GRASSLAND
- --------------------------
MFI was obligated to pay $150,000 to a company (the "Payee") pursuant to a
convertible promissory note. During December 1997, MFI issued 75,000 of its
common shares to settle the amounts due to the Payee. However, a dispute arose
as to whether the Payee authorized the issuance of the shares. The Payee filed a
suit during December 1997 to enforce the convertible promissory note. Total
interest payable was $84,507 as of June 30, 2000 resulting in the total
principal and accrued interest payable at June 30, 2000 of $234,507. In June
2000, the parties agreed to settle the matter for a payment of $200,000. This
resulted in a gain on extinguishment of debt in the amount of $34,507. The
Company made a payment of $50,000 by June 30, 2000. The $150,000 remainder was
to be paid with proceeds from the 75,000 shares of stock and any remaining
balance to be paid by the Company. The revised obligation was to be paid 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 in partial repayment
of its outstanding debt. As of June 30, 2001, the Company's remaining balance
and accrued interest on this obligation was $118,530. An additional $4,206 of
interest was accrued on this note and on October 19, 2001 the Company paid the
obligation in full. On October 24, 2001 the Company received notice from the
court that the judgment has been satisfied.
(B) NOTE PAYABLE TO ADVANCED COMMUNICATIONS (AUSTRALIA)
- -------------------------------------------------------
The Company had a non-interest bearing and unsecured note payable to Advanced
Communications (Australia) of $7,500,000 as of April 5, 2000 (See Note 2). The
note was payable in three equal monthly installments commencing on May 31, 2000.
Under the terms of the Stock Purchase Agreement with Advanced Communications
(Australia), the monthly installment payments were extended without interest to
allow for the Company , on a best efforts basis, to raise the cash portion of
the purchase price through a private or public offering of securities. There are
no default or penalty provisions under the terms of the Stock Purchase
Agreement. Upon raising funds pursuant to a private or public offering, the
Company shall only be obligated to repay Advanced Communications (Australia)'s
note with those funds remaining after deduction for reserves needed for current
operations, working capital and the development and expansion of its operations
and the operations of its subsidiaries, as determined by the Company's Board of
Directors.
The following schedule represents payments on such debt by issuance of
restricted common stock to either Advanced Communications (Australia) or
creditors or employees of Advanced Communications (Australia). Such transactions
were recorded at the market price of the stock at date of issuance.
SHARES
DATE OF COMMON STOCK ISSUED VALUE
------------------------ ------------------------ ---------------------
September 2000 5,000,000 $ 3,500,000
October 2000(1) 460,000 460,000
June 2001 1,137,000 567,100
September 2001 1,190,000 357,001
------------- ---------------
7,787,000 $ 4,884,101
============= ===============
(1) This transaction resulted in a gain on extinguishment of debt of $23,000.
During the fiscal years ended June 30, 2002 and 2001 the Company repaid $25,000
and $247,608 of the obligation in cash, respectively.
Pursuant to the terms of the April 5, 2000 Stock Purchase Agreement between the
Company and Advanced Communications (Australia), the Company has elected to
reduce its outstanding loan balance by $552,125 for funds previously advanced to
Advanced Communications (Australia).
As of June 30, 2002, the balance of the Company's obligation to Advanced
Communications (Australia) was $1,791,166. The Company is currently in
litigation with Advanced Communications (Australia) regarding the attempt by Mr.
May and Advanced Communications (Australia) to lien or transfer the Company's
shares in Advanced Communications (Australia) for alleged nonpayment of the
Company's obligation (See Note 10 (B)(iv.)).
F-23
(C) LOAN PAYABLE TO SHAREHOLDER
- -------------------------------
As of June 30, 2002 and 2001, the Company owed Global Communications Technology
Pty Ltd., an Australian company wholly-owned by Mr. May, a former officer and
director of the Company, $1,055,736 and $796,000 respectfully, for funds
advanced to the Company to provide working capital. This loan is non-interest
bearing and unsecured, and has no scheduled date for repayment. The Company
believes that the loan is not due upon demand. However, since the actual
repayment terms are not known with any specificity because the terms are not
confirmed in a written document, the loan has been classified as a current
liability.
(D) SHORT TERM LOAN PAYABLE
- ---------------------------
On December 13, 2001 the Company entered into a 90 day $325,000 Promissory Note
(the "Note") with Cornell Capital Partners, LP. The Note bore interest at 12%
and was secured by a Guaranty and Pledge Agreement executed by three
stockholders. The Company realized $269,000 of net proceeds after financing
costs and legal fees. The Note was repaid on January 14, 2002 with proceeds from
the Company's $1 million Convertible Debenture (See Note 7(B)).
NOTE 7. CONVERTIBLE DEBENTURES
- ------------------------------
(A) AJW PARTNERS, LLC AND NEW MILLENNIUM CAPITAL PARTNERS II, LLC
- -----------------------------------------------------------------
On September 30, 1999, the Company entered into secured convertible debentures
purchase agreements with two investors, who were also stockholders of the
Company, whereby the Company sold $500,000 of 12% Secured Convertible Debentures
due April 1, 2000, 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 de Beaufort N.V. in the amount of
$150,000. The debentures were 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 was to be
determined by dividing the outstanding principal amount of the debenture to be
converted, plus all accrued 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 twenty trading days immediately preceding the applicable conversion
date.
The convertible debentures contained a beneficial conversion feature computed at
its intrinsic value which 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 the beneficial
conversion feature, of $650,000, was recorded as an interest expense and a
component of equity on the issuance date during the fiscal year ended June 30,
2000.
The Company further reduced these bonds payable by offsetting a related bond
receivable in the amount of $36,450.
Between October and December 2000, AJW Partners, LLC and New Millennium Capital
Partners II, LLC elected to convert $262,800 of convertible debentures into
860,378 shares of the Company's restricted common stock.
In December 2000, Bank Insinger de Beaufort N.V. converted its $150,000 note,
inclusive of accrued and unpaid interest into 943,167 shares of the Company's
restricted common stock.
On April 24, 2002 the Company entered into a Settlement Agreement with the two
note holders, AJW Partners, LLC and New Millennium Capital Partners II, LLC.
Under the terms of the Settlement Agreement, the note holders agreed to dismiss
their lawsuit and convert their remaining unpaid obligation, inclusive of
accrued and unpaid interest, into 8,500,000 shares of the Company's common
stock, payable over a 180-day period. On April 24, 2002 and June 4, 2002, the
Company issued a total of 2,921,450 and 1,328,550 shares of common stock to AJW
Partners, LLC and New Millennium Capital Partners II, LLC, respectively (See
Note 10(B)) for a total debt reduction of $100,343.
As of June 30, 2002 and June 30, 2001, $100,407 and $200,750 of 12% Secured
Convertible Debentures, respectively remain outstanding.
On August 26, 2002, the Company issued its third set of shares to AJW Partners,
LLC (1,460,725 shares) and New Millennium Capital Partners II, LLC (664,275
shares). The final delivery of shares is due on or about October 21, 2002.
F-24
(B) CORNELL CAPITAL PARTNERS, LP
- --------------------------------
In January 2002, the Company issued, in the aggregate, $1 million of 5%
Convertible Debentures to Cornell Capital Partners, LP and other investors.
These debentures are convertible into shares of common stock at a price equal to
either (a) an amount equal to 120% of the closing bid price of the common stock
as of the closing date or $.40, whichever is higher, or (b) an amount equal to
80% of the lowest closing bid price of the common stock for the five trading
days immediately preceding the conversion date. These convertible debentures
accrue interest at a rate of 5% per year and are convertible at the holder's
option. These convertible debentures have a term of two years. At the Company's
option, these debentures may be paid in cash at maturity or redeemed at a 20%
premium prior to January 2004.
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 the beneficial
conversion feature, of $250,000, was recorded as an interest expense and a
component of equity on the issuance date.
The Company accrued $22,917 of interest as of June 30, 2002 on these debentures.
The Company realized $564,000 of net proceeds after financing fees, closing
costs and the repayment of the $325,000 ninety-day short-term note (See Note
6(D)).
The Company incurred $80,000 of financing costs associated with the 5%
Convertible Debentures that is being amortized over the life of the debentures.
Amortization of $16,667 was expensed for the fiscal year ended June 30, 2002.
NOTE 8. STOCKHOLDERS' DEFICIENCY
- --------------------------------
On September 11, 2001, the Company's stockholders authorized a change in the
Company's Articles of Incorporation increasing the authorized no par value
common shares from 100,000,000 to 200,000,000 and providing for a class of
25,000,000 $.01 par value shares of preferred stock which will have such terms
as the Board of Directors shall determine from time to time. A Certificate of
Amendment to the Company's Articles of Incorporation incorporating the above
changes was filed on September 27, 2001.
(A) PRIVATE PLACEMENT
- ---------------------
During the period of December 2000 to August 2001, pursuant to a private
placement, the Company issued 4,293,933 shares of common stock and 4,293,933
warrants at $.30 per share. The Company received $1,288,180 from investors,
which included $250,000 for stock not yet issued as of June 30, 2001 (which was
subsequently issued during the year ended June 30, 2002) and $275,454 for
warrants.
For the fiscal years ended June 30, 2002 and June 30, 2001, the Company issued
137,727 and 250,000 shares of common stock, valued at $75,000 and $41,318
respectively, in payment of offering costs incurred. The value assigned to this
stock was based on the private placement memorandum of $.30 per share. The value
of the common stock has been charged to equity as direct costs to the offering.
The fair market value of the warrants, aggregating $110,000 and $275,454 at June
30, 2002 and June 30, 2001, respectively, was estimated on the grant date using
the Black-Scholes option pricing model as required under FASB 123 with the
following weighted average assumptions: expected dividend yield 0%, volatility
49.84%, risk-free interest rate 4.22%, expected option life 2 years. At June 30,
2002, no warrants have been exercised.
On February 27, 2002, the Company's Board of Directors approved a resolution to
reprice the private placement offering from $.30 per share to $.20 per share.
The Board of Directors repriced these shares due the delay in registering the
shares sold to investors in such private placement. The Company did not receive
any consideration for the repricing of the shares. The repricing resulted in the
additional issuance of 2,146,967 of its restricted common stock and warrants to
the 23 investors that previously subscribed to the Company's private placement.
The exercise price of the underlying warrants will remain at $.30 per share.
F-25
(B) EQUITY LINE OF CREDIT FACILITY
- ----------------------------------
On January 10, 2002, the Company entered into a $30 million Equity Line of
Credit facility with Cornell Capital Partners, LP. Pursuant to the Equity Line
of Credit, the Company may, at its discretion, periodically issue and sell to
Cornell Capital Partners, LP shares of common stock for a total purchase of $30
million. The amount of each advance is subject to an aggregate monthly maximum
advance amount of $2 million in any 30-day period. Cornell Capital Partners, LP
will purchase the shares of common stock for a 9% discount to the lowest closing
bid price of the Company's common stock during the 5 trading days after a notice
date. In addition, Cornell Capital Partners, LP will retain 3% of each advance
under the Equity Line of Credit, together with a one-time commitment fee of
$740,000, paid in 2,960,000 shares of common stock. Cornell Capital Partners, LP
intends to sell any shares under the Equity Line of Credit at the then
prevailing market price. As of June 30, 2002, the Company has not drawn down any
funds on this line.
The Company has engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise it in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of 40,000 shares of the Company's common stock, which was equal
to $10,000 at a closing bid of $.25 on January 10, 2002.
For the fiscal year ended June 30, 2002, the Company recorded amortization
expense of $187,500 in connection with the $750,000 two year commitment fees and
the balance of $562,500 has been recorded as deferred commitment fees and
classified as part of stockholders' deficiency (See Note 8(G)).
(C) STOCK ISSUED FOR SERVICES
- -----------------------------
During the fiscal year ended June 30, 2001, the Company issued 1,051,491 shares
of common stock for services. The stock was valued based on the quoted trading
price on the grant dates, which aggregated $328,870.
During the fiscal year ended June 30, 2002, the Company issued 6,334,679 shares
of restricted common stock for services valued at $667,634. The stock was valued
based on the quoted trading price on the grant dates.
(D) STOCK ISSUED FOR EXTINGUISHMENT OF DEBT
- -------------------------------------------
During the fiscal years ended June 30, 2002 and June 30, 2001, the Company
issued 6,597,000 and 1,190,000 shares of restricted common stock respectively,
to Advanced Communications (Australia), its vendors and employees for the
partial extinguishment of debt. The stock was valued based on the quoted trading
price on the grant dates, which aggregated $4,545,902 and $357,001 respectively
(See Note 6(B)).
(E) STOCK ISSUED TO DIRECTORS
- -----------------------------
During the fiscal year ended June 30, 2002, the Company issued 200,000 shares of
its restricted common stock having a value of $36,000 to each of its five
current Directors for services rendered to the Company as directors during the
two-year period ending September 30, 2002. The Company issued a total of
1,000,000 shares in the aggregate having a value of $180,000. The stock was
valued based on the quoted trading price of the Company's stock on the date that
the shares were granted to the individual directors.
(F) STOCK ISSUED IN SETTLEMENT OF LAWSUIT
- -----------------------------------------
During the year ended June 30, 2002, the Company issued 320,000 shares of its
restricted common stock having a value of $80,000 to the principals of WORLD IP
in full settlement of the WORLD IP rescission lawsuit. The stock was valued
based on the quoted trading price of the Company's stock on the date that the
shares were granted (See Note 10B).
(G) STOCK ISSUED FOR PLACEMENT FEES
- -----------------------------------
During the fiscal year ended June 30, 2002, the Company issued 2,960,000 shares
of its restricted common stock having a value of $740,000 to Cornell Capital
Partners, LP as a one-time commitment fee in connection with the $30 million
Equity Line of Credit Agreement. The stock was priced at the closing bid price
of $.25 per share on January 10, 2002. In addition, the Company issued 40,000
shares of its restricted common stock having a value of $10,000 to Westrock
Advisors, Inc to advise it in connection with the Equity Line of Credit. The
40,000 shares were also priced at the closing bid price of $.25 on January 10,
2002.
F-26
(H) STOCK ISSUED FOR CONVERTIBLE DEBENTURES
- -------------------------------------------
During the fiscal years ended June 30, 2002 and June 30, 2001, the Company
issued 1,803,545 and 4,250,000 shares of stock to the 12% Convertible Debenture
holders in extinguishments of $412,800 and $100,343 of Convertible Debentures
respectively (See Note 10B).
NOTE 9. RELATED PARTIES
- -----------------------
(A) GLOBAL COMMUNICATIONS TECHNOLOGY PTY LTD
- --------------------------------------------
Global Communications Technology Pty Ltd., a related party, is wholly owned by
Mr. May a principal stockholder of the Company (See Note 6(C)).
(B) ADVANCED COMMUNICATIONS TECHNOLOGY (AUSTRALIA) PTY. LTD.
- ------------------------------------------------------------
Advanced Communications Technology (Australia) Pty. Ltd., an Australian company,
is 70% owned by Mr. May's wholly owned company, Global Communications Technology
Pty Ltd. Advanced Communications Technologies (Australia) Pty Ltd placed itself
into voluntary administration on or about July 18, 2002 (See Note 10B(iv)).
(C) LEGAL COUNSEL
- -----------------
Certain of the Company's legal counsel are stockholders and directors of the
Company.
NOTE 10. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------
(A) LEASE AGREEMENT
- -----------------------
The Company is a party to a three-year office lease commencing January 1, 2002
and ending December 31, 2004. The monthly rent is $7,634 inclusive of the cost
of monthly parking. The minimum lease payment for the remaining life of the
lease is $229,020. On August 1, 2002, the Company notified the landlord that it
was relocating its office from California to New York. The Company has engaged
Grubb & Ellis to find a suitable subtenant to assume all or a portion of the
Company's remaining lease obligation.
The Company is a guarantor of Jason Webster's one-year residential lease which
expires January 25, 2003. The Guaranty which was executed in January 2002
requires the Company to reimburse the landlord in the event of a default by
Jason Webster, the former Director of Corporate Communications of the Company.
The rent under the residential lease is $1,600 per month. The Company has not
been required to perform under the Guaranty.
(B) LEGAL MATTERS
- ----------------------
(I) NANCY J. NEEDHAM AND EDMUND R. DUPONT LAWSUIT
In NANCY J. NEEDHAM; EDMUND R. DUPONT ET AL V. ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC., ET al, an action filed July 2000 in the Fifteenth Judicial
Circuit in the State of Florida, two former officers and directors of the
Company are seeking damages and injunctive relief arising out of the Company's
refusal to provide legal opinion letters and to take other actions necessary to
allow the former officers to convert restricted stock into unrestricted stock
under an exemption under Rule 144. The plaintiffs have not specified the amount
of damages they are seeking. The Company has filed a counterclaim to rescind all
of the Plaintiffs' stock for lack and/or failure of consideration and other
damages. In October 2001, the Court denied summary judgment for the Plaintiffs.
In July 2002 the court denied the Company's motion to dismiss. The Company
believes that it has meritorious defenses to the suit and is vigorously
defending the litigation.
(II) WORLD IP INCORPORATED SETTLEMENT
In ADVANCED COMMUNICATIONS TECHNOLOGIES, INC., ET AL V. WORLD IP INCORPORATED,
ET AL, an action filed in the Fifteenth Judicial Circuit in the State of
Florida, the Company sued World IP Incorporated, its subsidiaries and
shareholders (collectively, "World") for breach of the terms of a Stock
Subscription and Purchase Agreement between the parties dated November 10, 1999.
F-27
The parties entered into Settlement and Rescission Agreements, pursuant to which
all transactions between the parties including the Stock Subscription and
Purchase Agreement, the issuance of World stock to the Company and the issuance
of 500,000 shares of the Company's stock to World's shareholders were rescinded
effective November 10, 1999. Further, World's shareholders were issued 320,000
shares of the Company's stock (See Note 8F) which will be registered pursuant to
the Registration Statement currently on file with the Securities Exchange
Commission. The lawsuit was dismissed by a Court order dated January 29, 2002.
(III) AJW PARTNERS, LLC AND NEW MILLENNIUM CAPITAL PARTNERS II, LLC
On April 24, 2002, the Company entered into a Settlement Agreement with the two
remaining September 1999 Convertible Debenture holders, AJW Partners, LLC and
New Millennium Capital Partners II, LLC. Under the terms of the Settlement
Agreement, the Company is obligated to issue, over a 180 day period, 8,500,000
shares of its common stock in exchange for the dismissal of the lawsuit and in
satisfaction of the remaining outstanding principal and accrued interest. The
Company had the option, until July 23, 2002, to substitute cash in lieu of
shares. On closing, the Company issued 1,460,725 and 664,275 shares of its
common stock to AJW Partners, LLC and New Millennium Capital Partners II, LLC,
respectively. A Stipulation and Order of Discontinuance was filed with and
Ordered by the court on April 25, 2002 (See Note 7A). On June 4, 2002 the
Company issued an additional 1,460,725 and 664,275 shares of common stock to AJW
Partners LLC and New Millennium Capital Partners, II, LLC (See Notes 7(A) and 8
(H)).
(IV) ADVANCED COMMUNICATIONS (AUSTRALIA)) LITIGATION
On December 6, 2001, Mr. Roger May, as Chairman and Chief Executive Officer of
Advanced Communications (Australia), sent a letter to the Company demanding full
payment of all amounts due under the Stock Purchase Agreement between the
Company and Advanced Communications (Australia) (the "Stock Purchase Agreement).
This letter was dated six days after Mr. May was removed by the Board of
Directors of the Company from all executive capacities including as President
and Chief Executive Officer. Mr. May sent additional demand letters on December
11, 2001, and December 21, 2001. These demand letters threatened to exercise the
rights granted to Advanced Communications (Australia) under its constitutional
documents, which include exercising Advanced Communications (Australia)'s lien
over the shares registered in the name of the Company or declaring that those
shares be forfeited. The Company believes that it has fully met its obligation
under the Stock Purchase Agreement, which states that payments are only required
to be paid to Advanced Communications (Australia) from those funds remaining
after deduction of reserves needed for current operations, working capital and
the development and expansion of its operations and the operations of its
subsidiaries as determined by its Board of Directors. At this time, the Company
does not have sufficient funds available to pay to Advanced Communications
(Australia). On January 23, 2002, the Company filed suit against Advanced
Communications (Australia) and Roger May in the Supreme Court of Victoria at
Melbourne, Australia to protect its investment.
On January 23, 2002, the Court issued an interim injunction effectively
enjoining and prohibiting Advanced Communications (Australia) from
"transferring, dealing with, charging, diminishing, mortgaging, assigning or
disposing of" the Company's stock in Advanced Communications (Australia). The
interim injunction was recently extended by the court until a final
determination is made at trial.
On March 15, 2002, Advanced Communications (Australia) issued a press release
stating that EntrePort Corporation ("EntrePort"), an AMEX listed company,
executed "definitive documents" whereby EntrePort would acquire a minority
interest in Advanced Communications (Australia) and Advanced Communications
(Australia) would purchase a majority interest in EntrePort. Further, on March
14, 2002, Advanced Communications (Australia) entered into an Acquisition
Agreement with EntrePort (the "Acquisition Agreement") which stated that
Advanced Communications (Australia) "now plans to locate and establish a base of
operations in the United States for the continued development, marketing and
distribution of the SpectruCell product in the USA and Canada. Such base of
operations will involve the establishment of engineering facilities, research
and development, sales, marketing and distribution." The Acquisition Agreement
also stated that EntrePort's name would be changed to "Advanced Communications
USA, Inc." Mr. May resigned from the Company's Board of Directors one day before
entering into the Acquisition Agreement.
The Company believes that the transaction with EntrePort as described in the
Acquisition Agreement is inconsistent with the rights granted to it by Advanced
Communications (Australia) in the License and Distribution Agreement dated July
5, 2000 pursuant to which the Company received the exclusive rights to market
and distribute the SpectruCell technology in North, South and Central America.
The Company therefore instructed its Australian lawyers to write to Advanced
Communications (Australia) requesting an undertaking that it would not appoint
EntrePort or any other person to market and distribute the SpectruCell
technology in the exclusive territory in breach of the license agreement.
Advanced Communications (Australia) refused to provide the undertaking sought by
the Company and, accordingly, the Company applied to the Court for an order
restraining Advanced Communications (Australia) from breaching the terms of the
license agreement. On April 26, 2002, the Court issued an interim order that
held that Advanced Communications (Australia), whether by itself or by its
officers, employees, agents, attorneys or any of them is restrained from
F-28
appointing or agreeing to appoint EntrePort Corporation or any other person to
distribute, sell, offer to sell or supply the SpectruCell product and its
related hardware in the U.S., and North and South Americas without the prior
written consent of the Company.
EntrePort was added as a defendant to the proceedings.
On May 7, 2002, the Company received a notice alleging a breach from Advanced
Communications (Australia) stating that Advanced Communications had breached its
obligation under the License Agreement. In addition, on May 7, 2002, Advanced
Communications (Australia) sent a termination notice formally terminating the
License Agreement. The Company believes that the notice of breach and the
termination notice are without merit and it is taking the necessary legal
actions to prevent Advanced Communications (Australia) from terminating its
rights under the License Agreement.
On May 8, 2002, the Court extended its April 26, 2002 order further restraining
Advanced Communications (Australia) from "acting upon or taking any further
steps in reliance upon" the notice of breach and termination notice. On May 27,
2002, the court held a full hearing on the injunction application, took the
matter under advisement and indicated that it would rule on the matter in the
near future.
A dispute also arose between Advanced Communication (Australia) and the Company
as to whether the Company's SpectruCell license included military applications
as well as commercial applications. Contrary to previous statements and
understandings, Advanced Communications (Australia) claimed for the first time
in or about March 2002 that military applications were not included under the
Company's SpectruCell license, and that these rights were exclusively reserved
to Advanced Communications (Australia). A dispute also arose between the parties
as to whether the Company's SpectruCell license included marketing rights, in
addition to distribution rights. Contrary to previous statement and
understandings, Advanced Communications (Australia) claimed for the first time
in or about March 2002 that the Company's SpectruCell license did not include
marketing rights, and that these rights were exclusively reserved to Advanced
Communications (Australia).
The Company disputed these claims and requested the court to expand the existing
injunctions against Advanced Communications (Australia) to include marketing
rights and military applications of SpectruCell technology in the Exclusive
Territory and to continue the existing injunctions in effect until the trial on
the case.
The marketing and military applications rights were relevant because the Company
had been contacted by a major U.S. defense contractor that was bidding on a
large U.S. Army project that involved a SpectruCell-type component that the
contractor wanted the Company to provide for the project. The Company was also
contacted at this time by another U.S. defense-related company regarding similar
products. It was also relevant because it had become apparent that the best way
to generate short term revenues for SpectruCell-related products was through
military applications which were easier and less expensive to produce than the
technically much more sophisticated commercial products being designed for
public telephone system use.
The above-mentioned matters were argued before the court at a two-day hearing on
May 27 and 28, 2002. The court took the matters under submission. On August 23,
2002, the court issued its ruling in which the judge held that all activity
related to SpectruCell in the Exclusive Territory pending the trial, will be
carried out by the Company and not Advanced Communications (Australia).
Based on this conclusion, the court issued a comprehensive preliminary
injunction granting all the relief sought by the Company. Among other things,
the injunction prohibits Advanced Communications (Australia), directly or
indirectly, from taking any action in the Exclusive Territory with respect to
marketing, distributing, selling or otherwise dealing with the SpectruCell
technology (including the military applications thereof), except through and
with the prior written consent of the Company.
The court's order also prohibited Advanced Communications (Australia) from
licensing, marketing, distributing, selling or otherwise dealing with the
SpectruCell technology, including military applications of the product, and from
offering to do any of the foregoing, in the Exclusive Territory through any
third party without the Company's prior written consent. The court's order also
prohibited Advanced Communications (Australia) from entering into a license or
sub-license agreement to market, distribute, sell, provide promotional material
or otherwise deal with the SpectruCell technology, including military
applications thereof, in the Exclusive Territory except to the company or at its
request. The court's order also prohibited Advanced Communications (Australia)
from granting any license to any third party to use, sub-license or reproduce
the product in the Exclusive Territory, except at the request of the Company.
F-29
The court's order will remain in effect until the trial on the merits in the
case. Simultaneously with making the above-described order, because Advanced
Communications (Australia)'s administrator indicated that he had no intention of
proceeding with the litigation at this time, the court ordered the proceeding to
be taken off the fast-track "Commercial List" and returned to the regular track.
According to the Company's Australian counsel, this means that the case will not
proceed to trial for well over one year. At the present time the action is
stayed because of the administration proceeding in which Advanced Communications
(Australia) is involved and the above-mentioned injunctions remain in effect.
(V) STAR MULTICARE SERVICES, INC.
In STAR MULTI CARE SERVICES, INC. v. ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.,
an action filed September 18, 2000 in the Fifteenth Judicial Circuit in the
State of Florida, Star Multi Care Services, Inc. ("Star") sued the Company for
alleged breach of contract and the recovery of a break-up or termination fee in
excess of $50,000 in conjunction with the Company's alleged failure to
consummate a proposed merger with Star in January 2000. The Company believes
that the suit is without basis and is vigorously defending the alleged claim.
NOTE 11. GOING CONCERN
- ----------------------------
The Company's consolidated financial statements for the fiscal year ended June
30, 2002, have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company's net loss of $4,332,693 for the fiscal
year ended June 30, 2002, working capital deficiency of $3,252,693 and
stockholders' deficiency of $4,940,050, raise substantial doubt about its
ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its business plan.
Management anticipates that the issuance of securities will generate sufficient
resources for the continuation of the Company's operations (See Note 8B).
Based on the Company's loss from operations, working capital deficiency and
stockholders' deficiency, there is doubt regarding its ability to continue as a
going concern. Of the $4,332,693 loss incurred during the fiscal year ended June
30, 2002, $3,229,439 was non-cash, a major portion of which was a non-recurring
charge for the impairment of a long-lived asset. Cash required by operations
amounted to $1,103,254. The Company raised $1,459,206 by issuing stock and debt.
Management is of the opinion that funds for the next fiscal year can be obtained
by issuing additional stock and debt. Management anticipates that future
operations will generate sufficient cash to offset operating expense.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 12. SUBSEQUENT EVENTS
- --------------------------------
(A) ACT - AUSTRALIA LITIGATION (SEE NOTE 10(B)(IV))
- ----------------------------------------------------
In July 2002, Advanced Communications (Australia) entered into an administrative
insolvency proceeding in Australia. As a result of this insolvency proceeding,
the Company's stock interest in Advanced Communications (Australia) became
worthless. Further, the SpectruCell technology will be transferred by the
receiver to an entity owned and controlled by Mr. Roger May. The plan of company
arrangement was approved at a meeting held on September 26, 2002. The Company
voted against the plan. Shortly after the plan of company arrangement was
adopted, Advanced Communications (Australia) filed a motion with the Australian
Court to terminate the Court's injunctions against it regarding the interim
License Agreement. Advanced Communications (Australia) sent a letter to the
Company purportedly terminating the interim License Agreement on the basis that
Advanced Communications (Australia) is insolvent, as determined under Australian
law, and this insolvency constitutes an irreparable event of default under the
interim License Agreement.
On September 7, 2002, a September 7, 2001 Letter of Intent that the Company
entered into with ACT-Australia to acquire all of the intellectual property,
including the worldwide rights (other than the rights to territories that the
Company currently possess) for the licensing and distribution of the SpectruCell
product expired.
In October 2002, the Company withdrew from the Australia litigation against Mr.
May and Advanced Communications (Australia). The effect of the Company's
decision to withdraw from the Australia litigation is that the interim License
Agreement has been terminated and the existing injunctions issued by the
Australia Court have been lifted.
F-30
In November 2002, Advanced Communications (Australia) issued a Notice of
Termination to the Company stating that the April 2000 Stock Purchase Agreement
is terminated immediately due to Advanced Communications (Australia)'s
insolvency. The effect of the Notice of Termination is to cancel the Company's
stock interest in Advanced Communications (Australia).
Consistent with the Company's decision to withdraw from the Australia
litigation, it has not challenged the termination of the Stock Purchase
Agreement. The Company has written off its entire investment in Advanced
Communications (Australia).
(B) CORNELL CAPITAL PARTNERS, LP
- --------------------------------
In November 2002, the Company entered into a Securities Purchase Agreement to
Cornell Capital Partners, LP whereby it agreed to issue and sell $250,000 of
secured convertible debentures. These secured convertible debentures have a term
of two years and are convertible into shares of common stock at a price equal to
$.001 per share commencing on December 31, 2002. These secured convertible
debentures accrue interest at a rate of 10% per year and are convertible at the
holder's option. At the Company's option, these debentures may be paid in cash
or redeemed at a 20% premium on or before December 15, 2002 and at a 50% premium
after December 15, 2002 and prior to November 2004. In connection with the
Securities Purchase Agreement, the Company entered into a Security Agreement in
favor of Cornell Capital Partners, L.P. whereby it granted a security interest
in all of its assets as security for its obligations under the secured
convertible debenture.
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 the beneficial
conversion feature, of $250,000, was recorded as an interest expense and a
component of equity on the issuance date.
F-31
II
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR
OTHER PERSON TO PROVIDE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS ABOUT ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC. EXCEPT THE INFORMATION OR
REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU
SHOULD NOT RELY ON ANY ADDITIONAL INFORMATION OR
REPRESENTATIONS IF MADE.
-----------------------
This prospectus does not constitute an offer to ----------------------
sell, or a solicitation of an offer to buy any
securities: PROSPECTUS
[ ] except the common stock offered by this ---------------------
prospectus;
[ ] in any jurisdiction in which the offer or
solicitation is not authorized;
4,506,868,683 SHARES OF COMMON STOCK
[ ] in any jurisdiction where the dealer or
other salesperson is not qualified to make
the offer or solicitation;
ADVANCED COMMUNICATIONS
[ ] to any person to whom it is unlawful to TECHNOLOGIES, INC.
make the offer or solicitation; or
[ ] to any person who is not a United States
resident or who is outside the
jurisdiction of the United States.
The delivery of this prospectus or any ___________ __, 2003
accompanying sale does not imply that:
[ ] there have been no changes in the affairs
of Advanced Communications Technologies,
Inc. after the date of this prospectus; or
[ ] the information contained in this
prospectus is correct after the date of
this prospectus.
-----------------------
Until __________, 2003, all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a
prospectus when acting as underwriters.
F-32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Advanced Communications Technologies, Inc.'s bylaws provide that it has
the power to indemnify any officer or director against damages if such person
acted in good faith and in a manner the person reasonably believed to be in the
best interests of Advanced Communications Technologies, Inc. No indemnification
may be made (i) if a person is adjudged liable unless a Court determines that
such person is entitled to such indemnification, (ii) with respect to amounts
paid in settlement without court approval or (iii) expenses incurred in
defending any action without court approval.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. Advanced Communications will pay all expenses in connection
with this offering.
Securities and Exchange Commission Registration Fee $ 955
Printing and Engraving Expenses $ 2,500
Accounting Fees and Expenses $ 15,000
Legal Fees and Expenses $ 50,000
Blue Sky Qualification Fees and Expenses $ 2,500
Miscellaneous $ 16,545
TOTAL $ 85,000
RECENT SALES OF UNREGISTERED SECURITIES
All issuances of restricted stock have been valued based on the closing
price of the stock as of the date the Company's Board of Directors approved the
grant of shares.
On January 22, 2003, holders of the Company's 5% and 10% Convertible
Debentures converted $56,000 and $62,500 of Convertible Debentures into
17,500,000 and 62,500,000 shares respectively, of the Company's common stock.
On October 10, 2002, the Company's Board of Directors approved the
issuance of 100,000 shares each to Messrs. Danson, Prouty, Lichtman, Roche and
Finch, having a value of $1,000 each in partial satisfaction of unpaid prior
legal and consulting fees. These shares were issued on December 5, 2002.
On both August 26, 2002 and September 24, 2002, we issued a total of
2,921,450 and 1,328,550 shares of common stock to AJW Partners LLC and New
Millennium Capital Partners II, LLC, respectively, in full satisfaction of the
Company's outstanding obligation on the remaining September 30, 1999 12%
Convertible Debenture.
On April 24, 2002 Advanced Communications entered into a Settlement
Agreement with the two note holders, AJW Partners, LLC and New Millennium
Capital Partners II, LLC. Under the terms of the Settlement Agreement, the note
holders agreed to dismiss their lawsuit and convert their remaining unpaid
obligation, inclusive of accrued and unpaid interest, into 8,500,000 shares of
Advanced Communications' common stock, payable over a 180-day period. Advanced
Communications has the option, until July 23, 2002, to cash out the note holders
by remitting to them $475,000 by June 8, 2002 or $325,000 by July 23, 2002 in
lieu of the balance of shares to be delivered. On both April 24, 2002 and June
10, 2002, Advanced Communications issued 1,460,725 and 664,275 shares of common
stock to AJW Partners, LLC and New Millennium Capital Partners II, LLC,
respectively.
During the first quarter of 2002, we issued 8,480,435 shares of our
restricted common stock having a value of $1,161,010 to the following parties:
(i) 200,000 shares each having a value of $36,000 were issued to Messrs.
Danson, Prouty, Lichtman, Roche and Finch for director's fees;
II-1
(ii) 2,960,000 shares having a value of $740,000 were issued to Cornell
Capital Partners, LP as a one-time commitment fee for the $30 million Equity
Line of Credit facility;
(iii) 40,000 shares having a value of $10,000 were issued to Westrock
Advisors, Inc. for financial advisory services in connection with the Equity
Line of Credit facility;
(iv) 160,000 shares each having a value of $40,000 were each issued to
Eduardo Acosta and Alberto Monteiro in settlement of the World IP recession
lawsuit;
(v) 667,667 share having a value of $50,000 were issued to Danson
Partners, LLC for prior professional services;
(vi) 666,667 shares having a value of $50,000 were issued to Levinson &
Lichtman, LLP for prior legal services;
(vii) 400,000 shares having a value of $30,000 were issued to Jack
Halperin, Esq. for prior legal services;
(viii) 133,334 shares having a value of $10,000 were issued to Dr.
Michael Finch for prior professional services;
(ix) 27,800 shares having a value of $2,085 were issued to The Law
Offices of Alan Foxman for prior legal services; and
(x) 119,000 shares having a value of $8,925 were issued to
DDInvestor.com, Inc. for prior investor relations services.
All of the above share issuance were valued based on the price of
Advanced Communications' common stock on the date that Advanced Communications'
Board of Directors approved the issuance of the stock.
In July 2003, Advanced Communications entered into the Equity Line of
Credit Agreement where Advanced Communications may, at its discretion,
periodically issue and sell to Cornell Capital Partners, L.P. shares of common
stock for a total purchase price of $30 million. The amount of each advance is
subject to an aggregate maximum advance amount of $2 million in any thirty-day
period. Cornell Capital Partners, L.P. will purchase the shares of common stock
for a 9% discount to the prevailing market price of our common stock. In
addition, Cornell Capital Partners is entitled to retain 3% of each advance
under the Equity Line of Credit, together with a one-time commitment fee of
$740,000, payable in shares of its common stock. On January 28, 2002, we issued
2,960,000 shares of our restricted common stock to Cornell Capital Partners, LP
with a market value of $740,000 as a commitment fee for the $30 million
structured equity line facility. Cornell Capital Partners intends to sell any
shares purchased under the Equity Line of Credit at the then prevailing market
price. Additionally, Westrock Advisors, Inc. was paid a fee of 40,000 shares of
Advanced Communications' common stock, which is equal to $10,000 at a closing
bid of $0.25 on January 10, 2002 for acting as the placement agent.
On February 27, 2002, Advanced Communications' Board of Directors
approved a resolution to reprice the private placement offering from $.30 per
share to $.20 per share. The repricing resulted in the additional issuance of
2,146,967 of its restricted common stock and warrants to the 23 investors that
previously subscribed to Advanced Communications' private placement. The
exercise price of the underlying warrants will remain at $.30 per share.
In January 2002, Advanced Communications entered into a Securities
Purchase Agreement with Buyers (as listed in Schedule 1 of the Securities
Purchase Agreement), where they shall issue and sell to Buyers up to One Million
Dollars of convertible debentures Advanced Communications has outstanding
convertible debentures with an original principal balance of $1,000,000. These
debentures are convertible into shares of common stock at a price equal to equal
to either (a) an amount equal to one hundred twenty percent (120%) of the
closing bid price of the common stock as of the closing date or $0.40, whichever
is higher, or (b) an amount equal to eighty percent (80%) of the lowest closing
bid price of the common stock for the five trading days immediately preceding
the conversion date. If such conversion had taken place at $0.16 (i.e., 80% of
the recent price of $016), then the holders of the convertible debentures would
have received 7,812,500 shares of common stock. These convertible debentures
accrue interest at a rate 5% per year and are convertible at the holder's
option. These convertible debentures have a term two years. At Advanced
Communications' option, these debentures may be paid in cash or redeemed at a
20% premium prior to January 2004.
II-2
On January 22, 2002, our directors, excluding Mr. May and Roberts,
pursuant to a January 4, 2002 Board of Directors Meeting, were each issued
200,000 shares for a total of 1,000,000 shares of our restricted common stock
for services rendered to us as directors for the 2001 and 2002 fiscal years.
During the quarter ended December 31, 2001, we issued 557,408 shares of
our restricted common stock, of which 419,681 shares valued at $116,335 were
issued in exchange for professional services and 137,727 shares valued at
$41,318 were issued to our placement agent for placement fees in connection with
the 504(d) private placement.
During the quarter ended September 30, 2001, Advanced Communications
issued 3,203,573 shares of its restricted common stock, of which 780,240 shares
valued at $244,224 were issued in exchange for services and 1,190,000 shares
valued at $357,001 were issued to various employees and vendors of Advanced
Communications (Australia) in partial repayment of our note payable.
As of September 30, 2001 and June 30, 2001, $200,750 of Secured
Convertible Debentures are still outstanding. Advanced Communications is in
default based on the April 1, 2000 due date and Advanced Communications is
currently in litigation with these debenture holders.
During the year ended June 30, 2001, Advanced Communications retired
500,000 shares of restricted common stock, valued at $375,000. The stock was
originally issued to the owners of World IP in connection with that company's
acquisition in November 1999 and was then retired pursuant to a rescission of
this transaction in October 2000.
During the year ended June 30, 2001, Advanced Communications issued
6,597,000 shares of common stock for the extinguishment of debt. The stock was
valued based on the quoted trading price on the grant dates, which aggregated
$4,545,902. During the year ended June 30, 2001, Advanced Communications issued
1,051,491 shares of common stock for services. The stock was valued based on the
quoted trading price on the grant dates, which aggregated $328,870.
During the quarter ending June 30, 2001, Advanced Communications issued
780,240 shares of restricted common stock for services. The stock was valued
based on the quoted trading price on the grant dates, which aggregated $244,224.
During the period of December 2000 to August 2001, pursuant to a private
placement under Regulation D, Rule 506, Advanced Communications issued 3,060,600
shares of common stock and 3,060,000 warrants at $.30 per share. Advanced
Communications received $1,168,180 from 23 investors, which included $250,000
for stock not yet issued as of June 30, 2001 and $275,454 for warrants. Advanced
Communications issued 250,000 shares of common stock, valued at $75,000, in
payment of offering costs incurred. The value assigned to this stock was based
on the private placement memorandum of $.30 per share. The value of the common
stock has been charged to equity as direct costs to the offering. The fair
market value of the warrants, aggregating $275,454, was estimated on the grant
date using the Black-Scholes option pricing model as required under FASB 123
with the following weighted average assumptions: expected dividend yield 0%,
volatility 49.84%, risk-free interest rate 4.22%, expected option life 2 years.
To date, no warrants have been exercised.
During the quarter ended September 30, 2001, we issued an additional
1,233,333 shares of restricted common stock for cash and warrants at $0.30 per
share that were subscribed for prior to August 2001. On February 27, 2002, our
Board of Directors approved a resolution to reprice the private placement
offering from $0.30 per share to $0.20 per share. This repricing will result in
the issuance of an additional 2,146,967 shares of common stock and warrants to
the private placement investors. These additional shares are included in the
number of shares that we are registering for these selling shareholders. The
exercise price of the underlying warrants will remain at $0.30 per share.
In July and August 2001, Advanced Communications authorized the issuance
of 1,190,000 Regulation 144 shares on behalf of Advanced Communications
(Australia) in consideration for a $357,000 credit ($.30 a share) against the
outstanding debt incurred for the 20% equity purchase of Advanced Communications
(Australia). These shares were issued on August 29, 2001.
During December 2000, holders of $412,800 of convertible debentures
elected to convert their notes into 1,803,545 of Advanced Communications'
restricted common stock. Advanced Communications further reduced these bonds
payable by offsetting a related bond receivable in the amount of $36,450.
During the year ended June 30, 2001, Advanced Communications issued
1,803,545 shares of common stock, valued at $412,800, for the conversion of
convertible debentures.
II-3
During the year ended June 30, 2000, Advanced Communications issued
500,000 shares of common stock, valued at $375,000, related to a rescinded
acquisition. As of June 30, 2000, Advanced Communications had not received the
funds for these shares; therefore, a common stock advance had been recorded in
the equity section, in the amount of $375,000, to offset the value of the shares
that were issued at year-end.
On January 31, 2000 Advanced Communications issued 200,000 shares of
common stock to acquire 100% of Smart Investment.com Inc.
As of April 5, 2000, Advanced Communications had a non-interest bearing
note payable to an affiliate of $7,500,000. The following schedule represents
payments on such debt by issuance of restricted common stock to either the
affiliate or creditors of the affiliate. Such transactions were recorded at the
market price of the stock at date of issuance.
SHARES OF
COMMON
DATE STOCK ISSUED VALUE
------------------------------------- -------------- ---------------
September 2000 5,000,000 $ 3,500,000
October 2000(1) 460,000 460,000
June 2001 1,137,000 567,100
September 2001 1,190,000 357,001
December 2001
-------------- ---------------
7,787,000 $ 4,884,101
============== ===============
(1) This transaction resulted in a gain on extinguishment of debt of $23,000.
In April 2000, Advanced Communications acquired 20% of the common stock
of Advanced Communications (Australia). 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 at
$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 over the fair value of the investment in the amount of $15,692,528 was
accounted for as goodwill.
In April 2000, Advanced Communications' 20% interest in Advanced
Communications (Australia) was accounted for using the equity method of
accounting and was stated at the amortized cost of goodwill and the equity in
undistributed earnings since acquisition. The equity in earnings of Advanced
Communications (Australia) was adjusted for the amortization of the goodwill, as
discussed above. Amortization was computed on a straight-line basis over fifteen
years. The amortization of goodwill charged to income for each of the three
months ended September 30, 2001 and September 30, 2000 was $261,542.
On September 30, 1999, Advanced Communications entered into secured
convertible debentures purchase agreement with two companies, which were
stockholders of Advanced Communications, whereby Advanced Communications sold
$500,000 of 12% Secured Convertible Debentures due April 1, 2000, which were
convertible into shares of Advanced Communications' Common Stock. In addition,
on September 30, 1999, Advanced Communications issued another convertible
debenture to an unrelated party in the amount of $150,000. The debentures were
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 was to be determined by dividing the
outstanding principal amount of the debenture to be converted, plus all accrued
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 twenty trading
days immediately preceding the applicable conversion date. The convertible
debentures contained a beneficial conversion feature computed at its intrinsic
value which 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 the beneficial
conversion feature, of $650,000, was recorded as an interest expense and a
component of equity on the issuance date during the fiscal year ended June 30,
2000.
II-4
Between October and December 2000, AJW Partners, LLC and New Millennium
Capital Partners II, LLC elected to convert $262,800 of convertible debentures
into 860,378 shares of Advanced Communications' restricted common stock.
In December 2000, Bank Insinger de Beaufort N.V. converted its $150,000
note, inclusive of accrued and unpaid interest into 943,167 shares of Advanced
Communications' restricted common stock.
MFI (as previously defined) was obligated to pay $150,000 to a company
(the "Payee") pursuant to a convertible promissory note. During December 1997,
MFI issued 75,000 of its common shares to settle the amounts due to the Payee.
However, a dispute arose as to whether the Payee authorized the issuance of the
shares. The Payee filed a suit during December 1997 to enforce the convertible
promissory note. Total interest payable was $84,507 as of June 30, 2000
resulting in the total principal and accrued interest payable at June 30, 2000
of $234,507. In June 2000, the parties agreed to settle the matter for a payment
of $200,000. This resulted in a gain on extinguishment of debt in the amount of
$34,507. Advanced Communications made a payment of $50,000 by June 30, 2000. The
$150,000 remainder was to be paid with proceeds from the 75,000 shares of stock
and any remaining balance to be paid by Advanced Communications. The revised
obligation was to be paid by August 14, 2000. Advanced Communications defaulted
on this revised payment obligation and a judgment against Advanced
Communications was entered. In October 2000, Advanced Communications sold the
75,000 shares of stock realizing $41,802 which it remitted in partial repayment
of its outstanding debt. As of June 30, 2001, Advanced Communications' remaining
balance and accrued interest on this obligation was $118,530. An additional
$4,206 of interest was accrued on this note and on October 19, 2001 Advanced
Communications paid the obligation in full. On October 24, 2001 Advanced
Communications received notice from the court that its judgment has been
satisfied.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant Rule 506 promulgated
under the Securities Act of 1933 (the "1933 Act"). These offerings may have
qualified for other exemptions as well. In each instance, the purchaser had
access to sufficient information regarding Advanced Communications so as to make
an informed investment decision. More specifically, Advanced Communications had
a reasonable basis to believe that each purchaser was an "accredited investor"
as defined in Regulation D of the 1933 Act, which information was based on
representations received from such investors, and otherwise had the requisite
sophistication to make an investment in Advanced Communications' securities.
II-5
EXHIBITS
EXHIBIT NO. DESCRIPTION LOCATION
- --------------- ------------------------------------------ ------------------------------------
1.1 Exchange Agreement between MRC Legal Incorporated by reference to Exhibit
Services Corporation and Advanced 1.1 to Company's Form 8-K filed on
Communications Technologies, Inc. dated as February 4, 2000
of January 31, 2000
2.1 Articles of Incorporation of Media Forum Incorporated by reference to Exhibit
International, Inc. 2.1 to the Company's Form S-8 filed
on February 9, 2000
2.2 Second Amendment to Articles of Incorporated by reference to Exhibit
Incorporation of Telenetworx, Inc. 2.2 to the Company's Form S-8 filed
on February 9, 2000
2.3 Third Amendment to Articles of Incorporated by reference to Exhibit
Incorporation of Media Forum International, 2.3 to the Company's Form S-8 filed
Inc. on February 9, 2000
2.4 Bylaws of the Company Incorporated by reference to Exhibit
2.4 to the Company's Form S-8 filed
on February 9, 2000
2.5 Articles of Incorporation as currently in Incorporated by reference to Exhibit
effect for the Company 3.1 to Form S-1 Registration
Statement filed on August 14, 2001
2.6 Bylaws, as currently in effect Incorporated by reference to Exhibit
3.2 to Form S-1 Registration
Statement filed on August 14, 2001
2.7 Fourth Amendment to Articles of Incorporated by reference to Exhibit
Incorporation 2.7 to the Form SB-2 filed with the
SEC on March 5, 2002
2.8 Fifth Amendment to Articles of Incorporation Provided herewith
5.1 Opinion re: Legality Provided herewith
10.1 Lease Agreement dated as of November 27, Incorporated by reference to Exhibit
2001 between the Company and Continental 10.1 to the Form SB-2 filed with the
Development, L. P. II SEC on March 5, 2002
10.2 Stock Purchase Agreement between Advanced Incorporated by reference to Exhibit
Communications Technologies, Inc. and 10.2 to the Form S-1 Registration
Advanced Communications Technologies Statement filed on August 14, 2001
(Australia) Pty Ltd.
10.3 Agreement dated June 27, 2000, between Incorporated by reference to Exhibit
Ladenburg Thalmann & Co. and the Company 10.3 to the Company's Form S-1
Registration Statement filed on
August 14, 2001
10.4 Common Stock Purchase Agreement dated Incorporated by reference to Exhibit
December 14, 2000, between the Company and 10.4 to the Company's Form S-1
Wanquay Ltd. Registration Statement filed on
August 14, 2001
II-6
EXHIBIT NO. DESCRIPTION LOCATION
- --------------- ------------------------------------------ ------------------------------------
10.5 Registration Rights Agreement dated Incorporated by reference to Exhibit
December 14, 2000, between the Company and 10.5 to the Company's Form S-1
Wanquay Ltd. Registration Statement filed on
August 14, 2001
10.6 Escrow Agreement dated December 14, 2000, Incorporated by reference to Exhibit
among the Company, Wanquay Ltd. and Epstein 10.6 to the Company's Form S-1
Becker & Green Registration Statement filed on
August 14, 2001
10.7 Consulting Agreement with M. Richard Cutler Incorporated by reference to Exhibit
dated January 31, 2000 10.1 to the Company's Form S-8 filed
on February 9, 2000
10.8 Stock Purchase Agreement dated April 5, Incorporated by reference to Exhibit
2000, between Advanced Communications 10.5 to the Company's Form 10-QSB
Technologies, Inc. and Advanced filed on May 24, 2000
Communications Technologies Pty Ltd.
10.9 Securities Purchase Agreement dated January Incorporated by referenced to
10, 2002, by and among Advanced Exhibit 10.9 to the Company's Form
Communications Technologies, Inc. and Buyers 10-QSB filed on February 12, 2002
10.10 Investor Registration Rights Agreement Incorporated by reference to Exhibit
dated January 10, 2002, by and among 10.10 to the Company's Form 10-QSB
Advanced Communications Technologies, Inc. filed on February 12, 2002
and Investors
10.11 Transfer Agent Instructions Incorporated by reference to Exhibit
10.11 to the Company's Form 10-QSB
filed on February 12, 2002
10.12 Escrow Agreement dated January 10, 2002, by Incorporated by reference to Exhibit
and among Advanced Communications 10.12 to the Company's Form 10-QSB
Technologies, Inc., Buyers and First Union filed on February 12, 2002
National Bank
10.13 Equity Line of Credit Agreement dated July Provided herewith
2003, by and between Cornell Capital
Partners, LP and Advanced Communications
Technologies, Inc.
10.14 Registration Rights Agreement dated July Provided herewith
2003, by and between Advanced
Communications Technologies, Inc.
10.15 Placement Agent Agreement dated January 10, Incorporated by reference to Exhibit
2002, by and between Advanced Communications 10.15 to the Company's Form 10-QSB
Technologies, Inc. and Westrock Advisors, filed on February 12, 2002
Inc.
10.16 Escrow Agreement dated July 2003, by and Provided herewith
among Advanced Communications Technologies,
Inc., Cornell Capital Partners, LP, Butler
Gonzalez LLP and First Union National Bank
10.17 License and Distribution Agreement dated as Incorporated by reference to Exhibit
of July 5, 2000, between Advanced 10.17 to the Company's Amendment to
Communications Technologies, Inc. and Form 10-KSB filed on May 23, 2002
Advanced Communications Technologies
(Australia) Pty. Ltd.
II-7
EXHIBIT NO. DESCRIPTION LOCATION
- --------------- ------------------------------------------ ------------------------------------
10.18 Letter of Intent dated September 7, 2001 Incorporated by reference to Exhibit
re: Purchase of Advanced Communications 10.18 to Amendment No. 1 to the
(Australia) Company's Form 10-QSB for the
quarter ended December 31, 2001
10.19 Securities Purchase Agreement, dated Incorporated by reference to Exhibit
November 2002, by and among Advanced 10.19 to the Company's Form 10-KSB
Communications and Buyers for the year ended June 30, 2002
filed on December 6, 2002
10.20 Investor Registration Rights Agreement, Incorporated by reference to Exhibit
dated November 2002, by and among Advanced 10.20 to the Company's Form 10-KSB
Communications and Investors for the year ended June 30, 2002
filed on December 6, 2002
10.21 Secured Convertible Debenture Incorporated by reference to Exhibit
10.21 to the Company's Form 10-KSB
for the year ended June 30, 2002
filed on December 6, 2002
10.22 Escrow Agreement, dated November 2002, by Incorporated by reference to Exhibit
and among Advanced Communications, Buyers, 10.22 to the Company's Form 10-KSB
and Wachovia Bank, N.A. for the year ended June 30, 2002
filed on December 6, 2002
10.23 Irrevocable Transfer Agent Instructions, Incorporated by reference to Exhibit
dated November 2002 10.23 to the Company's Form 10-KSB
for the year ended June 30, 2002
filed on December 6, 2002
10.24 Security Agreement, dated November 2002, by Incorporated by reference to Exhibit
and among Advanced Communications and Buyers 10.24 to the Company's Form 10-KSB
for the year ended June 30, 2002
filed on December 6, 2002
10.25 Middletons Lawyers Letter, dated November Incorporated by reference to Exhibit
11, 2002, terminating the April 2000 Stock 10.25 to the Company's Form 10-KSB
Purchase Agreement between Advanced for the year ended June 30, 2002
Communications Technologies, Inc. and filed on December 6, 2002
Advanced Communications (Australia)
10.26 Consulting Agreement dated July 1, 2002, Incorporated by reference to Exhibit
between Advanced Communications and Randall 10.26 to the Company's Third Amended
H. Prouty Form 10-KSB for the year ended June
30, 2002 filed on June 13, 2003
10.27 Proxy Statement, dated March 25, 1999 Incorporated by reference to Exhibit
10.27 to the Company's Third Amended
Form 10-KSB for the year ended June
30, 2002 filed on June 13, 2003
23.1 Consent of Weinberg and Company, P.A. Provided herewith
23.2 Consent of Kirkpatrick & Lockhart, LLP Incorporated by reference to Exhibit
5.1
II-8
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on
the plan of distribution;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-9
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on July 16, 2003.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ WAYNE I. DANSON
-------------------------------------
Name: Wayne I. Danson
Title: President, Chief Financial Officer and
Director (Principal Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ WAYNE I. DANSON President (Chief Executive Officer), Chief July 16, 2003
- ----------------------------- Financial
Wayne I. Danson Officer (Principal Accounting Officer and
Controller)
and Director
/s/ JONATHAN LICHTMAN Secretary and Director July 16, 2003
- -----------------------------
Jonathan Lichtman
/s/ RANDALL PROUTY Director July 16, 2003
- -----------------------------
Randall Prouty
/s/ MICHAEL FINCH Director July 16, 2003
- -----------------------------
Michael Finch
/s/ WILBANK ROCHE Director July 16, 2003
- -----------------------------
Wilbank Roche
II-10