FILED PURSUANT TO RULE NO. 424(b)(3)
REGISTRATION NO. 333-107101
SUPPLEMENT TO PROSPECTUS
DATED JULY 12, 2004
ADVANCED COMMUNCATIONS TECHONOLOGIES, INC.
UP TO 4,506,868,683 SHARES OF COMMON STOCK
Attached hereto and hereby made part of the prospectus is: (1) the
company's Annual Report on Form 10-KSB for the year ended June 30, 2003, as
filed with the U.S. Securities and Exchange Commission on October 10, 2003, (2)
the company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
2004, as filed with the U.S. Securities and Exchange Commission on May 25, 2004
and (3) the company's Current Report on Form 8-K as filed with the U.S.
Securities and Exchange Commission on June 18, 2004. Prospective investors in
our common stock should carefully read each of these documents and the related
financial information prior to making any investment decision.
--------------------------
You should only rely on the information provided in the prospectus, this
prospectus supplement or any additional supplement. We have not authorized
anyone else to provide you with different information. The common stock is not
being offered in any state where the offer is not permitted. You should not
assume that the information in the prospectus or this prospectus supplement or
any additional supplement is accurate as of any date other than the date on the
front of those documents.
--------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus or this prospectus supplement. Any
representation to the contrary is a criminal offense.
--------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 12, 2004
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2003
Commission File No. 000-30486
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0738251
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
420 LEXINGTON AVENUE, NEW YORK, NY 10170
(Address of principal executive office)
(646) 227-1600
(Registrant's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS TO BE REGISTERED: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE, 5,000,000,000 SHARES AUTHORIZED
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The aggregate market value as of October 1, 2003 of the voting common
equity held by non-affiliates is $552,311.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING PRECEDING FIVE YEARS
Indicate by checkmark whether the Registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court.
YES ____ NO ____
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date. As of October 1,
2003 there were 280,474,473 shares of the Company's no par value common stock
issued and outstanding.
This Form 10-KSB contains "forward-looking statements" relating to the
Registrant which represent the Registrant's current expectations or beliefs
including, but not limited to, statements concerning Registrant's operations,
performance, financial condition and growth. For this purpose, any statement
contained in this Form 10-KSB that are not statements of historical fact are
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "anticipation", "intend", "could", "estimate", or
"continue" or the negative or other comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, such as credit losses, dependence on
management and key personnel and variability of quarterly results, ability of
Registrant to continue its growth strategy and competition, certain of which are
beyond the Registrant's control. Should one or more of these risks or
uncertainties materialize or should the underlying assumptions prove incorrect,
actual outcomes and results could differ materially from those indicated in the
forward-looking statements.
i
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I.........................................................................1
Item 1. Business......................................................1
Item 2. Description Of Property.......................................2
Item 3. Legal Proceedings.............................................2
Item 4. Submission Of Matters To A Vote Of Security Holders...........3
PART II........................................................................4
Item 5. Market For Common Equity And Related Stockholder Matters......4
Item 6. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations.....................................5
Item 7. Financial Statements.........................................12
Item 8. Changes In And Disagreements With Accountants On Accounting
And Financial Reporting......................................12
Item 8A. Changes In And Disagreements With Accountants On Accounting
And Financial Reporting......................................12
PART III......................................................................13
Item 9. Directors and Executive Officers of the Registrant...........13
Item 10. Executive Compensation.......................................15
Item 11. Security Ownership Of Certain Beneficial Owners And
Management and Related Stockholder Matters...................15
Item 12. Certain Relationships and Related Transactions...............16
Item 13. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.....................................................17
Item 14. Principal Accountant Fees and Services.......................20
EXHIBIT 31.1......................................................EXHIBIT 31.1-1
EXHIBIT 32.1......................................................EXHIBIT 32.1-1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2003 AND 2002............................F-i
INDEPENDENT AUDITORS' REPORT...............................................F-iii
ii
PART I
ITEM 1. 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 communications signals 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, which included all of the rights to a product being
developed called SpectruCell.
As of June 30, 2003, we did not have any meaningful assets other than cash
and our ownership rights to market and distribute SpectruCell in the North and
South American markets. We have no tangible assets. It is our belief that
SpectruCell is still under development in Australia by an unrelated third party
in which we have no interest. Moreover, it is uncertain whether the product's
development will ever be completed and a commercially viable product brought to
market. Consequently, we have no current business or ongoing operations.
However, we intend to focus our efforts on identifying and acquiring an existing
profitable business or businesses. We have not identified any prospective
business candidates to date.
FINANCIAL CONDITION
We had net losses of $1,869,031 and $4,332,693 during the years ended June
30, 2003 and 2002, respectively. As of June 30, 2003, we had cash of $22,527 and
current liabilities of $4,067,322. 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 2003 and 2002 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 from our Equity
Line of Credit, commencing sales and generating sufficient revenues to become
profitable. Our ability to obtain funding and to identify and acquire an
existing profitable operating business 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.
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.
Roger 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 a wireless software defined radio technology in
development known as 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.
1
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 April 5, 2000, we entered into a Stock Purchase Agreement with Advanced
Communications Technologies Pty Ltd (Australia) to acquire a 20% interest for
$19,350,000. The majority owner of Advanced Communications (Australia) was 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. 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. Our company believes that it has no further
obligation to pay the unsecured note since the Stock Purchase Agreement was
unilaterally terminated by Advanced Communications (Australia).
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, 2003 or 2002.
EMPLOYEES AND CONSULTANTS
As of September 19, 2003 we have no full time employees and four part time
consultants. None of our consultants are covered by any collective bargaining
agreement.
ITEM 2. 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 payment for the remaining life of the lease is $137,412. The
Company has engaged Grubb & Ellis to find a suitable subtenant to assume all or
a portion of the Company's remaining lease obligation. As of June 30, 2003, the
Company's former office space remains vacant and the Company is indebted to the
landlord for $101,946.
ITEM 3. LEGAL PROCEEDINGS
As of June 30, 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 disputes with various creditors regarding unpaid
professional and other fees. A number of creditors have filed and obtained
judgments against the Company for unpaid fees and services in the amount of
$105,815. The Company has previously recorded this expense and has determined
that these judgments 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.
2
CONTINGENCIES
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES IN RE: ADVANCED COMMUNICATIONS
(AUSTRALIA) v. COMPANY DIRECTORS AND EMPLOYEES
On or about May 10, 2002, Advanced Communications Technologies Pty Ltd
(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 was that the
defendants improperly interfered with and conspired to ruin plaintiff's business
and conspired to force plaintiff into bankruptcy.
In July 2003, the individual directors and employees who had been served in
the case were successful in having the complaint dismissed for failure to state
any valid causes of action and a judgment was entered by the Court in the
individual's favor. Consequently, the Company is no longer obligated to
indemnify the directors and former employees in this case.
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. To date, no claim for indemnity has been filed against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 9, 2003 a Special Meeting of Stockholders was held in 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.
The following illustrates the certified record of the results of our
shareholder vote:
NUMBER OF VOTES FOR NUMBER OF VOTES AGAINST NUMBER ABSTAINED
------------------- ----------------------- ----------------
109,363,744 21,014,521 51,900
A Certificate of Amendment to our Articles of Incorporation embodying the
above change was filed with the Florida Secretary of State on July 10, 2003.
3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock is currently traded on the Over-the-Counter Bulletin Board
("OTCBB") under the symbol "ADVC". As of October 1, 2003 there were 280,474,473
common shares outstanding and approximately 459 holders of record. We believe
that the number of beneficial owners is substantially greater than the number of
record holders because a large portion of our common stock is held in "broker"
or "street names".
The following table sets forth, for the fiscal periods indicated, the bid
price range of our common stock:
HIGH BID LOW BID
-------- -------
2002
Quarter Ended September 30, 2001 $.41 $.250
Quarter Ended December 31, 2001 .38 .170
Quarter Ended March 31, 2002 .26 .060
Quarter Ended June 30, 2002 .08 .020
2003
Quarter Ended September 30, 2002 $.080 $.005
Quarter Ended December 31, 2002 .015 .004
Quarter Ended March 31, 2003 .010 .002
Quarter Ended June 30, 2003 .011 .006
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 2003 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.
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 or under the terms of our Convertible Debentures.
On September 18, 2003, September 25, 2003 and October 1, 2003, the Company
agreed to issue, in the aggregate, 85,787,623 shares of common stock for
$200,000 to Cornell Capital Partners, L.P. under the terms of the Equity Line of
Credit. The Company netted $192,500 after underwriting and escrow fees.
On September 4, 2003, holders of our 5% Convertible Debentures elected to
convert $82,375 of debentures at a conversion price of $.00138 per share into
59,692,027 shares of common stock.
On January 22, 2003, holders of our 5% Convertible Debentures elected to
convert $56,000 of debentures at a conversion price of $.0032 per share into
17,500,000 shares of common stock.
On January 22, 2003, Cornell Capital Partners, L.P. converted $62,500 of
our 10% Convertible Debentures at a conversion price of $.001 per share into
62,500,000 shares of common stock.
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
4
the aggregate, 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, the Company issued
1,460,725 and 664,275 shares of common stock to AJW Partners LLC and New
Millennium Capital Partners II, LLC, respectively (an aggregate of 4,250,000
shares) in full settlement of the Company's outstanding obligation on the
remaining September 30, 1999 12% Convertible Debenture.
With respect to the sale of unregistered securities referenced above, all
transactions were exempt from registration pursuant to 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.
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------
2003 2002 2001
--------------- -------------- ------------
Revenue $ -- $ -- $ 50,000
Cost of Revenue -- -- 57,310
Gross Profit (Loss) -- -- (7,310)
Operating Expenses 1,216,776 2,314,570 3,334,581
Operating (Loss) (1,216,776) (2,314,570) (3,341,891)
(Loss) from Investment -- -- (3,571,654)
(Loss) from Goodwill Impairment -- (1,700,000) (12,399,864)
Other Expense (652,255) (318,123) (419,157)
(Loss) Before Income Taxes (1,869,031) (4,332,693) (19,732,566)
Provision for Income Taxes -- -- --
Net (Loss) (1,869,031) (4,332,693) (19,732,566)
Net (Loss) Per Share:
Basic and Diluted $ (.01) $ (.04) $ (.22)
Pro Forma Weighted Average Shares:
Basic and Dilutive 152,960,499 100,576,484 87,976,428
============== ============= =============
Cash $ 22,527 $ 11,093 $ 6,816
Working Capital (Deficiency) (4,044,795) (3,252,643) (2,421,719)
Total Assets 70,748 114,852 2,041,940
Total Debt 6,030,922 5,054,902 4,611,702
Stockholders' (Deficiency)/Equity (5,960,174) (4,940,050) (2,569,762)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this report. In addition to historical information, the following
discussion and other parts of this Annual Report contain forward-looking
information that involves risks and uncertainties.
As of June 30, 2003, the Company had limited resources, had incurred
cumulative net operating losses of $31,717,679 and expects to incur additional
losses until either the Company identifies and acquires an alternative operating
business or the SpectruCell product, when developed, is made available to us for
sale to military and commercial customers in North and South America. Based on
the past litigation with Advanced Communications (Australia), it is unclear if
the SpectruCell product will ever be commercially developed and made available
to us. Moreover, given the prior litigation between the Company, Mr. May and
Advanced Communications (Australia), we have no reliable information on the
status of the SpectruCell product and when it will be available, if at all, to
military users and be field tested for commercial applications. Until the
Company identifies and acquires an alternative operating business it will
continue to minimize its infrastructure costs while accessing capital through
the periodic draw down of our Equity Line of Credit facility. The Company has no
5
plans to rely solely on the SpectruCell product as a future revenue source
because there is no assurance that SpectruCell will ever be completed and become
a commercially viable product or that we will be able to exercise our rights to
market and distribute SpectruCell in North and South America. The Company's main
focus is to reduce its overall debt and consider the acquisition of alternative
operating businesses. To date, the Company has not identified any viable
acquisition candidate.
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. 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.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles in the United States of America, 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.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated, using
accelerated methods, over the estimated useful lives of 5 years.
LOSS PER SHARE
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during each
year. Common stock equivalents are not included in the computation of diluted
net loss per common share because the effect would be anti dilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The changes in SFAS No. 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. This statement is effective for contracts entered into or modified
after June 30, 2003 and all of its provisions should be applied prospectively.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type includes put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instruments that
are liabilities under this Statement is obligations that can be settled with
shares, the monetary value of which is fixed, tied solely or predominantly to a
6
variable such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of Statement 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. This Statement shall be effective for financial instruments entered into
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of a non-public entity, as to which
the effective date is for fiscal periods beginning after December 15, 2003.
YEAR ENDED JUNE 30, 2003 COMPARED TO YEAR ENDED JUNE 30, 2002
OVERALL RESULTS OF OPERATIONS
For the fiscal year ended June 30, 2003, we incurred an overall loss of
$(1,869,031) or ($.01) per share which was a substantial decrease from the net
loss of $(4,332,693) or $(0.04) per share for the comparable period in the prior
year. The decrease of $2,463,662 in the fiscal 2003 net loss from fiscal 2002 is
attributable to the $1,700,000 write-off of our remaining investment in Advanced
Communications (Australia) that occurred in fiscal 2002 and an approximate
$800,000 reduction in corporate overhead in fiscal 2003 compared to fiscal 2002.
REVENUE
We did not generate any revenue during either fiscal year.
OPERATING EXPENSES
Total operating expenses for the fiscal years ended June 30, 2003 and June
30, 2002 were $1,216,776 and $2,314,570 respectively and represents a 47%
decrease from the prior fiscal year. Of these amounts $629,741 and $1,228,780 or
52% and 53% respectively, were for professional services rendered of which
$5,000 and $677,634 during the fiscal years ended June 30, 2003 and June 30,
2002, respectively, was paid via the issuance of restricted common stock and
represent a non-cash expense. Professional and consulting fees for the fiscal
year ended June 30, 2003 decreased significantly 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
of its remaining lawsuits and its litigation with Roger May and Advanced
Communications (Australia).
Depreciation and amortization expense decreased by $82,355 to $425,812 from
$508,167 due to $300,000 of amortization of goodwill associated with our
investment in Advanced Communications (Australia) included in the fiscal 2002
amounts reduced by additional amortization of deferred commitment fees and
financing costs in the amount of $218,645 in fiscal 2003.
Other general and administrative expenses amounted to $128,362 for the
fiscal year ended June 30, 2003, which decreased $279,410 or 69% from the prior
fiscal year due principally to the curtailment of our overhead expenses. Total
general and administrative expenses for the fiscal year ended June 30, 2003 was
principally from accrued rent on our El Segundo office and Proxy solicitation
costs (printing and mailing) as well as other stock costs.
OTHER EXPENSES
Interest expense increased $110,638 from the fiscal year ended June 30,
2002 due principally to the issuance, in November 2002, of our 10% Secured
Convertible Debentures and the overall higher level of interest bearing debt in
fiscal 2003 compared to fiscal 2002. Interest expense incurred for the twelve
months ended June 30, 2003 was $428,761 and was principally attributable to
$119,721 of discount amortized relating to the beneficial conversion feature of
the Company's 10% Secured Convertible Debentures we issued in November 2002,
$283,139 of accrued and penalty interest on the 5% Convertible Debentures due
January 2004, $8,829 of interest on the 8% Note Payable due 2005 and $12,522 of
interest on the 10% Secured Convertible Debentures issued November 2002.
Interest of $318,123 for the comparative fiscal year ended June 30, 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 these Convertible Debentures.
7
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).
During the fiscal year ended June 30, 2003, the Company settled its
remaining lawsuits and recorded $223,494 of settlement expense. For the fiscal
year ended June 30, 2002, the Company recorded $80,000 of expense attributable
to the settlement of the World IP lawsuit.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, our principal source of liquidity was $22,527 of cash. On
July 16, 2003, we entered into an Equity Line of Credit Agreement with Cornell
Capital Partners, L.P., a private limited partnership. 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. 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.
On July 31, 2003, the Securities and Exchange Commission issued an order
declaring effective our Registration Statement and the sale of up to
4,500,000,000 shares of common stock. To date the Company has made three
advances under the Equity Line of Credit for an aggregate amount of $200,000 in
exchange for agreeing to issue 85,787,623 shares of common stock to Cornell
Capital Partners, L.P. The Company netted $192,500 from these advances after
deducting fees and escrow agent expenses. With the Equity Line of Credit
facility now available to us, we anticipate that we will, from time to time,
request advances from Cornell Capital Partners, L.P. to provide us with
sufficient working capital to reorganize and settle our outstanding obligations.
We anticipate that our cash needs over the next 12 months consist of
general working capital needs of $300,000, plus the repayment of outstanding
indebtedness of $4,067,322. These obligations include outstanding Convertible
Debentures and interest thereon in the amount of $1,234,349, as well as accounts
payable and accrued expenses in the amount of $1,560,165, accrued compensation
of $172,183 and an unsecured, non-interest-bearing loan payable to an entity
wholly-owned by Roger May, a former officer and director. As of June 30, 2003,
we had a working capital deficiency of $4,044,795. As a result of our working
capital shortfall during fiscal 2003, we ceased virtually all business
operations, except for minimal operations in attempting to raise capital and to
file reports with the Securities and Exchange Commission.
The Company has total liabilities of $6,030,922 as of June 30, 2003.
Included in this total are contractual obligations of $3,011,837. These
contractual obligations, along with the dates on which such payments are due,
are described below:
PAYMENTS DUE BY PERIOD
----------------------------------------------------------------
1 2-3 4-5 AFTER 5
CONTRACTUAL OBLIGATIONS TOTAL YEAR OR LESS YEARS YEARS YEARS
- ------------------------------------ ------------- ------------ ---------- --------- ---------
Notes Payable and Interest Thereon $ 217,323* $ 95,774 $ 121,549 $ -- $ --
Convertible Debentures and Interest
Thereon 1,234,349 1,034,327 200,022 -- --
Accounts Payable and Accrued
Expenses 1,560,165 1,560,165 -- -- --
----------- ---------- ---------- -------- --------
Total Contractual Obligations $ 3,011,837 $2,690,266 $ 321,571 $ -- $ --
=========== ========== ========== ======== ========
- ---------------
* 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 advances
under our Equity Line of Credit facility. We have no other source of funds,
internal or external with which to repay our contractual obligations.
Below is a discussion of our sources and uses of funds for the 12 months
ended June 30, 2003:
8
NET CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities was $123,566 and $1,103,254 in the
fiscal years ended June 30, 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 reduction in accrued compensation and deferred
revenue in the fiscal year ended 2002, offset by non cash charges for
depreciation and amortization, stock issued for services and the write-off of
goodwill in the aggregate amount of $564,357 and $3,135,801 for the fiscal year
ended June 30, 2003 and 2002 respectively. In addition, cash used in operating
activities for fiscal 2003 was substantially reduced by a $637,672 and $304,490
increase in accounts payable and accrued interest payable, respectively.
NET CASH USED IN INVESTING ACTIVITIES
We used net cash of $25,000 during the fiscal year ended June 30, 2002, for
the repayment of our loan payable to Advanced Communications (Australia). No
cash was used in investing activities for the fiscal year ended June 30, 2003.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities for the year ended June 30, 2003
was $135,000 and was from the proceeds on the sale of Convertible Debentures and
the issuance of a short-term promissory note to Cornell Capital Partners, L.P.
Net cash provided by financing activities for the year ended June 30, 2002
was $1,134,206 and was due to the net proceeds received from the sale of 5%
Convertible Debentures in January 2002 in the amount of $863,000 (inclusive of
cash received from the $325,000 December 2001 bridge loan and net of $26,000 in
financing fees), $130,000 received from the private placement of equity
securities that commenced December 2000 and ended August 2001 and $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.
Net cash used by financing activities for the fiscal year ended June 30,
2002 of $118,530 resulted entirely from the payment of the Grassland Capital
Group loan payable and accrued interest that was in default and which was
subject to a judgment against the Company.
EQUITY LINE OF CREDIT
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. 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. 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
valued at $10,000. 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. On July 16, 2003, the Company filed
a Registration Statement with the Securities and Exchange Commission seeking to
register 4,073,290,000 shares of common stock for sale under the Equity Line of
Credit. On July 31, 2003, the Securities and Exchange Commission issued an order
declaring our Registration Statement effective.
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 continue to request advances until Cornell Capital Partners
has advanced $30.0 million or two years after the effective date of our
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. To date, the Company has made three advances under the Equity Line of
9
Credit aggregating $200,000 in exchange for agreeing to issue 85,787,623 shares
of common stock to Cornell Capital Partners. The Company netted $192,500 from
these advances after deducting fees and escrow agent expenses.
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.
WE WILL NEED TO ACQUIRE AN EXISTING OPERATING BUSINESS OR COMPANY IN ORDER
TO GENERATE REVENUE
We cannot predict when, if at all, our rights to the SpectruCell product
will generate sales revenue. Consequently, we will need to acquire an existing
operating business or businesses, in order to generate future revenue and attain
profitable operations.
THE CONVERSION OF OUR OUTSTANDING DEBENTURES WILL CAUSE DILUTION TO OUR
EXISTING SHAREHOLDERS, WHICH MEANS THAT OUR PER-SHARE INCOME AND STOCK
PRICE COULD DECLINE
The issuance of shares upon the conversion of the outstanding debentures
will have a dilutive impact on our stockholders. We currently have $1,049,125 of
outstanding Convertible Debentures. Of that total, $187,500 of Convertible
Debentures is 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 of $861,625 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 269,257,812 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 368,639,824 shares or approximately 57% of our
outstanding shares. In such event, Cornell Capital would be our largest
shareholder and would be able to exercise control of our company by electing
directors, increasing the number of authorized shares of common stock that our
company could issue or otherwise.
OUR RELATIONSHIP WITH MR. MAY AND ADVANCED COMMUNICATIONS (AUSTRALIA) IS
SIGNIFICANTLY IMPAIRED
Given the prior litigation by the Company against Mr. May and Advanced
Communications (Australia) over our ownership rights to market and distribute
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, Advanced Communications
(Australia) or its successor in interest or other parties as to SpectruCell, or
settle our disputes with those parties, the success of the SpectruCell project
and our financial viability on this basis is 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 fiscal years ended June 30, 2003
and 2002, we had a net loss of ($1,869,031) and ($4,332,693) or ($.01) and
($0.04) per share, respectively. Future losses are likely to occur. Accordingly,
we may experience 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.
10
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 2003 and 2002 financial statements,
which states that our ability to continue as a going concern depends upon our
ability to resolve liquidity problems, commencing sales and generating
sufficient revenues to become profitable. Our ability to obtain additional
funding and pay off our obligations 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
JUNE 30, 2003 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES ON
THAT DATE
We had a working capital deficit of $4,044,795 as of June 30, 2003, which
means that our current liabilities exceeded our current assets by $4,044,795.
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 June 30, 2003 were
not sufficient to satisfy all of our current liabilities on that date.
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
for Mr. Danson.
11
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by item 8 are included in the Form 10-KSB
beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL REPORTING
None.
ITEM 8A. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL REPORTING
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:
As of June 30, 2003, we carried out an evaluation, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic reports that are filed with the
Securities and Exchange Commission. It should be noted that the design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. In addition, we reviewed our internal controls, and
there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last valuation.
(b) CHANGES IN INTERNAL CONTROLS:
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls during the fiscal
year covered by this Report or from the end of the reporting period to the date
of this Form 10-KSB.
12
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 or understandings 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 50 President, Chief Financial
420 Lexington Avenue Officer and Director
New York, NY 10170
Dr. Michael Finch 55 Director
37 Walnut Street
Wellesley, MA 02481
Jonathan J. Lichtman 51 Director
120 Palmetto Park Road
Boca Raton, FL 33432
Randall Prouty 51 Director
420 Lexington Avenue
New York, NY 10170
Wilbank J. Roche 57 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 entitled
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 for 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 were
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. No grant of shares was made for fiscal 2003.
WAYNE I. DANSON, PRESIDENT, CHIEF FINANCIAL OFFICER AND DIRECTOR. Mr.
Danson has served as the 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 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,
13
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.
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, was appointed a Director on March 10,
1997, and is currently the President and CEO of World Associates, Inc., a
publicly traded development stage company. Mr. Prouty served as Chairman of the
Board of the Company from November 30, 2001 until December 12, 2002. 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.
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
arrangements for all 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,
14
Danson, Lichtman, Roche and Finch serve on the Advanced Communications
(Australia) Committee, which will address and make all decisions relating to
SpectruCell matters.
ITEM 10. 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, 2003, 2002 and 2001. Other than as set forth
herein, no executive officer's cash salary and bonus exceeded $100,000 in any of
the applicable years. The following information includes the dollar value of
base salaries, bonus awards, the value of restricted shares issued in lieu of
cash compensation and certain other compensation, if any, whether paid or
deferred.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ------------------------------
AWARDS PAYOUTS
------------------- --------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND ------------ ----- ------------ ---------- ------- ------- -------------
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------- ---- ------------ ----- ------------ ---------- ------- ------- -------------
Wayne I. Danson, 2003 $190,138(1) $ --
President and CFO 2002 $149,933(2) $110,000(2)
2001 $235,931(3) -- -- $167,500(3) -- -- --
- -------------------
(1) Represents accrued fees and out-of-pocket expenses. Mr. Danson received $3,000 in cash and $1,000 in
stock for fiscal 2003 services rendered.
(2) 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.
(3) 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. 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.
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, 2003, all decisions concerning executive compensation are
made 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
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table contains information about the beneficial ownership of
our common stock as of October 1, 2003 for:
o each person who beneficially owns more than five percent of the common
stock;
o each of our directors;
15
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 280,474,473 shares of common stock outstanding as of
October 1, 2003.
COMMON STOCK
BENEFICIALLY OWNED
--------------------------------------------------------
NAME/ADDRESS NUMBER PERCENT(1)
- --------------------------------------- ------------------------ ------------------------------
Advanced Communications Tech (Australia) 10,000,000(2) 3.57%
Roger May 18,228,000(2) 6.50%
Wayne Danson 2,811,214(3) 1.00%
Jonathan J. Lichtman 2,710,334(4) 0.97%
Dr. Michael Finch 591,334 *
Randall Prouty 2,218,056 *
Wilbank Roche 650,000 *
------------------------ ------------------------------
All Officers and Directors as a Group 8,980,938 3.20%
======================== ==============================
- --------------------
(1) Percentage of outstanding shares is based on 280,474,473 shares of common stock outstanding
as of October 1, 2003, together with shares deemed beneficially owned by each 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 adult
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 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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. As of June 30, 2003, the Company owes Danson Partners,
LLC $274,911 for unpaid consulting fees and expenses.
16
Jonathan J. Lichtman, 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 2003 and 2002. The
Company has paid Levinson & Lichtman, LLP $0 and $43,184 and $1,000 and $90,000
in the form of cash and stock respectively, for legal services rendered during
fiscal years 2003 and 2002.
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 years 2003 and 2002. The Company has paid Roche & Holt $0 and
$13,515 and $1,000 and $15,000 in the form of cash and stock, respectively, for
legal services rendered during the fiscal years ended 2003 and 2002.
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. Mr. Prouty's contract expired December 31, 2002. During the fiscal
year ended June 30, 2003, the Company paid Mr. Prouty $0 and $1,000 in the form
of cash and stock respectively, for services rendered.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
(i) Registrant.
(b) EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(i) 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
17
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- -------------------------------------------- -------------------------------------
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 Incorporated by reference to Exhibit
2.8 to the Form SB-2 filed with the
SEC on July 16, 2003
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
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
18
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- -------------------------------------------- -------------------------------------
10.13 Equity Line of Credit Agreement dated July Incorporated by reference to Exhibit
2003, by and between Cornell Capital 10.13 to the Form SB-2 filed with
Partners, LP and Advanced Communications the SEC on July 16, 2003
Technologies, Inc.
10.14 Registration Rights Agreement dated July Incorporated by reference to Exhibit
2003, by and between Advanced 10.14 to the Form SB-2 filed with
Communications Technologies, Inc. the SEC on July 16, 2003
10.15 Placement Agent Agreement dated July 2003, Incorporated by reference to Exhibit
by and between Advanced Communications 10.15 to the Form SB-2 filed with
Technologies, Inc. and Westrock Advisors, the SEC on July 16, 2003
Inc.
10.16 Escrow Agreement dated July 2003, by and Incorporated by reference to Exhibit
among Advanced Communications Technologies, 10.16 to the Form SB-2 filed with
Inc., Cornell Capital Partners, LP, Butler the SEC on July 16, 2003
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.
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 10.24 to the Company's Form 10-KSB
Buyers for the year ended June 30, 2002
filed on December 6, 2002
19
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- -------------------------------------------- -------------------------------------
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
31.1 Certification by Chief Executive Officer Provided herewith
and Chief Financial Officer pursuant to
Sarbanes-Oxley Section 302
32.1 Certification by Chief Executive Officer Provided herewith
and Chief Financial Officer pursuant to 18
U.S. C. Section 1350:
(ii) Reports on Form 8-K:
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES. The aggregate fees billed for professional services rendered
was $32,143 and $44,818 for the audit of the Company's annual financial
statements for the fiscal years ended June 30, 2003 and 2002, respectively, and
the reviews of the financial statements included in the Company's Forms 10-QSB
for those fiscal years.
AUDIT-RELATED FEES. The aggregate fees billed in each of the last two
fiscal years for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit or review of the
Company's financial statements and not reported under the caption "Audit Fee."
TAX FEES. No fees were billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning services.
ALL OTHER FEES. Other than the services described above, the aggregate fees
billed for services rendered by the principal accountant was $16,099 and
$18,364, respectively, for the fiscal years ended June 30, 2003 and 2002. These
fees related to the review of the Company's Registration Statement.
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
------------------------------------------
Name: Wayne I. Danson
Title: President and Chief Financial Officer
Date: October 10, 2003
In accordance with the Exchange Act, this amended report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Wayne I. Danson
- --------------------------- President (Principal Executive October 10, 2003
Wayne I. Danson Officer), Chief Financial Officer
(Principal Accounting Officer)
and Director
/s/ Jonathan Lichtman, Esq.
- --------------------------- Secretary and Director October 10, 2003
Jonathan Lichtman, Esq.
/s/ Dr. Michael Finch
- --------------------------- Director October 10, 2003
Dr. Michael Finch
/s/ Wilbank J. Roche, Esq.
- --------------------------- Director October 10, 2003
Wilbank J. Roche, Esq.
86
EXHIBIT 31.1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Wayne I. Danson, the President and Chief Financial Officer of Advanced
Communications Technologies, Inc. certify that:
1. I have reviewed this Form 10-KSB of Advanced Communications
Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Omitted;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: October 10, 2003 /s/ Wayne I. Danson
--------------------------------------------
Wayne I. Danson
President and Chief Financial Officer
The introductory paragraph of Section 4 of this certification that refers
to the certifying officers' responsibility for establishing and maintaining
internal control over financial reporting for the company, as well as paragraph
4(b), have been omitted in accordance with Release No. 33-8238 (June 5, 2003)
because the compliance period has been extended for small business issuers until
the first fiscal year ending on or after April 15, 2005.
EXHIBIT 31.1 - 1
EXHIBIT 32.1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Advanced Communications
Technologies, Inc. (the Company) on Form 10-KSB for the period ended June 30,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Wayne I. Danson, President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906 has
been provided to Advanced Communications Technologies, Inc. and will be retained
by Advanced Communications Technologies, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
Date: October 10, 2003 /s/ Wayne I. Danson
----------------------------------------
Wayne I. Danson
President and Chief Financial Officer
A signed original of this written statement required by Section 906, or
other document authentications, acknowledging, or otherwise adopting the
signature that appears in typed form within the electronic version of this
written statement required by Section 906, has been provided to Advanced
Communications Technologies, Inc. and will be retained by Advanced
Communications Technologies, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.
EXHIBIT 32.1 - 1
ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2003 AND 2002
F-i
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003 AND 2002
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 2003 AND 2002
PAGE 4 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
PAGE 5 - 6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 2003 AND 2002
PAGES 7 - 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-ii
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 ("Company") as of June 30,
2003 and 2002 and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the years ended June 30, 2003 and
2002. 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, 2003 and 2002,
and the results of their operations and their cash flows for the years ended
June 30, 2003 and 2002 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 8 to the
consolidated financial statements, the Company's net loss of $1,869,031 for the
year ended June 30, 2003, a working capital deficiency of $4,044,795, a negative
cash flow from operations of $123,566 and a stockholders' deficiency of
$5,960,174 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 8. 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
October 2, 2003
F-iii
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
JUNE 30,
-----------------------------------------
2003 2002
-----------------------------------------
ASSETS
------
CURRENT ASSETS
Cash $ 22,527 $ 11,093
-------------------- --------------------
TOTAL CURRENT ASSETS 22,527 11,093
-------------------- --------------------
PROPERTY AND EQUIPMENT (NET) - 17,274
-------------------- --------------------
OTHER ASSETS
Security Deposits 7,700 13,225
Other Receivables - 9,927
Deferred Financing Costs, net of accumulated
amortization 40,521 63,333
-------------------- --------------------
TOTAL OTHER ASSETS 48,221 86,485
-------------------- --------------------
TOTAL ASSETS $ 70,748 $ 114,852
- ------------ ==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 1,560,165 $ 872,493
Accrued Compensation 172,183 172,183
Loan Payable to Shareholder 1,055,736 1,055,736
8% Note Payable-Current Portion 57,831 -
12% Note Payable 35,000 -
12% Convertible Debentures - 100,407
5% Convertible Debentures due 1/04 944,000 1,000,000
Interest Payable 242,407 62,917
-------------------- --------------------
TOTAL CURRENT LIABILITIES 4,067,322 3,263,736
-------------------- --------------------
LONG-TERM LIABILITIES
10% Secured Convertible Debentures due 11/04, net of
discount of $130,729 56,771 -
8% Note Payable-Non Current Portion 115,663 -
Note Payable-ACT-Australia 1,791,166 1,791,166
-------------------- --------------------
TOTAL LONG TERM LIABILITIES 1,963,600 1,791,166
-------------------- --------------------
TOTAL LIABILITIES 6,030,922 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 (187,500) (562,500)
Accumulated Deficit (31,717,679) (29,848,648)
-------------------- --------------------
TOTAL STOCKHOLDERS' DEFICIENCY (5,960,174) (4,940,050)
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 70,748 $ 114,852
- ---------------------------------------------- ==================== ====================
See accompanying notes to consolidated financial statements
F-1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
JUNE 30,
-----------------------------------------
2003 2002
----------------- -----------------
REVENUES $ - $ -
OPERATING EXPENSES
Consulting Fees 18,587 (10,149)
Depreciation and Amortization 425,812 508,167
Impairment of Fixed Assets 14,274 -
Loss from impairment of goodwill - 1,700,000
Professional Fees 629,741 1,228,780
Other Selling, General and Administrative Expenses 128,362 407,772
Stock-Based Compensation - 180,000
----------------- -----------------
TOTAL OPERATING EXPENSES 1,216,776 4,014,570
----------------- -----------------
LOSS FROM OPERATIONS (1,216,776) (4,014,570)
----------------- -----------------
OTHER EXPENSES
Interest expense (428,761) (318,123)
Lawsuit Settlements (223,494) -
----------------- -----------------
TOTAL OTHER EXPENSES (652,255) (318,123)
----------------- -----------------
NET LOSS $ (1,869,031) $ (4,332,693)
- -------- ================= =================
Net Loss Per Share- Basic and Dilutive $ (0.01) $ (0.04)
================= =================
Weighted Average Number of Shares
Outstanding During the Period- Basic and Dilutive 152,960,499 100,576,484
================= =================
See accompanying notes to consolidated financial statements
F-2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
COMMON STOCK
COMMON STOCK TO BE ISSUED DEFFERRED
-------------------------- ACCUMULATED ----------------------- COMMITMENT
SHARES AMOUNT DEFICIT SHARES AMOUNT FEES TOTAL
------------ -------------------------------------------------------------------------------------
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
Stock 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)
----------------------------------------------------------------------------------------------------
Stock issued for services 500,000 5,000 5,000
Stock issued for conversion of
convertible debt 84,250,000 218,907 218,907
Interest on beneficial
conversion-Convertible
Debentures 250,000 250,000
Amortization of deferred
commitment fees 375,000 375,000
Net loss for the year (1,869,031) (1,869,031)
----------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2003 198,852,622 $25,945,005 $(31,717,679) - $ - $(187,500) $(5,960,174)
- ------------------------ ====================================================================================================
See accompanying notes to consolidated financial statements
F-3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
JUNE 30,
------------------------------------------
2003 2002
--------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net loss $ (1,869,031) $ (4,332,693)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 545,083 508,167
Stock issued for services 5,000 847,634
Stock issued in settlement of lawsuit - 80,000
Lawsuit Settlements 223,494 -
Loss from impairment of goodwill - 1,700,000
Impairment of Fixed Assets 14,274 -
Interest Expense on Beneficial Conversion Feature - 250,000
Changes in operating assets and liabilities:
(Increase) decrease in assets
Prepaid expense - 10,000
Deposits and other receivables 15,452 7,700
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 637,672 28,288
Interest payable 304,490 62,917
Deferred revenue and other - 41,600
Accrued compensation - (306,867)
--------------------- --------------------
Net cash used in operating activities (123,566) (1,103,254)
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of fixed assets - (1,675)
Repayment of loan to unconsolidated affiliate - (25,000)
--------------------- --------------------
Net cash used in investing activities - (26,675)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITES:
- ------------------------------------
Repayment of note payable - (118,530)
Loan proceeds from shareholder - 259,736
Proceeds from issuance of common stock
and warrants net of offering costs - 130,000
Proceeds from issuance of convertible debentures, net 100,000 889,000
Proceeds from short-term loan 35,000 299,000
Repayment of short-term loan - (325,000)
--------------------- --------------------
Net cash provided by financing activities 135,000 1,134,206
--------------------- --------------------
Net increase in cash
11,434 4,277
Cash at beginning of year 11,093 6,816
--------------------- --------------------
CASH AT END OF YEAR $ 22,527 $ 11,093
- ------------------- ===================== ====================
F-4
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 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 year ended June 30, 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 year ended June 30, 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 year ended June 30, 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 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
Advanced Communications (Australia), a non-related company.
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 its September 1999 12%
Secured Convertible Debentures.
F-4A
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2003 AND 2002
NOTE 1. BASIS OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
Unless the context requires otherwise, "we", "us", or "our" refers to
Advanced Communications Technologies, Inc. and subsidiaries ("Company") on a
consolidated basis.
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's primary asset is the ownership of the rights to market and
distribute a software defined radio wireless technology known as SpectruCell, in
the North and South American territories which is being developed by an
unrelated party. The Company expects to generate revenue from the marketing and
distribution of the SpectruCell product when and if it becomes available to us
and from other investment activities. The Company has not generated any
meaningful revenue to date. It is uncertain if the SpectruCell product will ever
be commercially developed and made available to us.
(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 in the United States of America, 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) 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 (See Note 2).
F-5
(G) INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 "ACCOUNTING FOR
INCOME TAXES". Under SFAS No. 109, 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. Under
SFAS No. 109, 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.
The Company has made no current provision (benefit) for Federal income
taxes because of financial statement and tax losses since its inception. A
valuation allowance has been used to offset the recognition of any deferred tax
assets arising from net operating loss carryforwards due to the uncertainty of
future realization. The use of any tax loss carryforward benefits may also be
limited as a result of changes in Company ownership.
(H) 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.
(I) LOSS PER SHARE
Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during each
year. Common stock equivalents are not included in the computation of diluted
net loss per common share because the effect would be anti dilutive.
(J) RECENT ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The changes in SFAS No. 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. This statement is effective for contracts entered into or modified
after June 30, 2003 and all of its provisions should be applied prospectively.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type includes put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instruments that
are liabilities under this Statement is obligations that can be settled with
shares, the monetary value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of Statement 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. This Statement shall be effective for financial instruments entered into
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of a non-public entity, as to which
the effective date is for fiscal periods beginning after December 15, 2003.
F-6
Management does not expect the impact from these statements' pronouncements
to have a material impact on the Company's consolidated financial position or
results of operations.
NOTE 2. PROPERTY AND EQUIPMENT
2003 2002
---------------- ----------------
Computer and office equipment $ 32,909 $ 32,909
Less: Accumulated depreciation (18,635) (15,635)
Impairment loss (14,274) --
---------------- ----------------
PROPERTY AND EQUIPMENT, NET $ -- $ 17,274
================ ================
Depreciation expense for the years ended June 30, 2003 and 2002 was $3,000
and $4,000 respectively. The Company has determined these fixed assets are no
longer used in its operations, and consequently impaired $14,274 during the
fourth quarter.
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, penalty or acceleration 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 year ended June 30, 2002 the Company repaid in both cash
and common stock, $5,326,833 and $382,001 of the obligation, respectively. No
payments were made during the fiscal year ended June 30, 2003. As of June 30,
2003 and 2002, 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 was to cancel the Company's stock interest in
Advanced Communications (Australia). Management is of the belief that as a
result of Advanced Communications (Australia)'s termination of the Stock
Purchase Agreement, no further money is owed, and we have no further obligation
to Advanced Communications (Australia). The financial statements reflect the
above amount as a long-term liability until such time as the Company obtains
evidence that the $1,791,166 has been extinguished.
(B) LOAN PAYABLE TO SHAREHOLDER
As of June 30, 2003 and 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.
(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. The
current portion of the note payable of $57,831 has been classified as a current
liability on the balance sheet.
F-7
Interest of $8,829 was accrued on the note payable as of June 30, 2003.
(D) 12% NOTE PAYABLE
On June 19, 2003, the Company issued a 12% promissory note for $35,000. The
face amount of this note plus interest shall be payable in its entirety 60 days
from the date hereof. The note payable for $35,000 has been classified as a
current liability on the balance sheet.
The Company incurred $5,000 in financing fees in regard to this note, and
has included the full amount as interest expense at June 30, 2003. This note
plus interest was paid on October 1, 2003 in the amount of $36,188.
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 15 other accredited
individual 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 $40,000 and $16,667 related to these debentures was expensed for
the fiscal years ended June 30, 2003 and 2002 respectively.
During the three months ended December 31, 2002, the Company paid $125,000
of accrued interest on the 5% Convertible Debentures with the proceeds from the
10% Secured Convertible Debentures issued on November 22, 2002.
On January 22, 2003, debenture holders 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 June 30, 2003, the balance due on these debentures after the
aforementioned conversion is $944,000.
As of June 30, 2003 and 2002, interest of $221,056 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
Agreement, including, without limitation, those obligations of the Company to
F-8
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. The amount attributable to the beneficial
conversion feature of $250,000, will be recorded as a discount on the debt and
accreted over a 24 month period as interest expense in accordance with paragraph
19 of EITF 00-27. For the fiscal year ended June 30, 2003, the Company accreted
$61,979 of debt discount as interest expense.
The Company received $100,000 in cash from the sale of these debentures,
paid $125,000 in accrued interest due on the 5% convertible debentures and
incurred $25,000 of financing costs associated with these Convertible Debentures
that is being amortized over the life of the debentures. Amortization expense of
$7,812 related to these debentures was recorded for the fiscal year ended June
30, 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 June 30, 2003, the balance due on these
debentures after the aforementioned conversion and write off of the related
discount, in the amount of $57,292, is $187,500.
As of June 30, 2003 interest of $12,522, is accrued on these debentures.
Future maturities of long-term debt as of June 30, 2003 are as follows:
YEAR AMOUNT
--------------- ----------------
June 30, 2004 $ 57,831
June 30, 2005 245,331
June 30, 2006 57,832
-------------
TOTAL $ 360,994
=============
NOTE 5. STOCKHOLDERS' DEFICIENCY
On July 9, 2003, the Company's stockholders authorized a change in the
Company's Articles of Incorporation increasing the authorized no par value
common shares from 200,000,000 to 5,000,000,000. A Certificate of Amendment to
the Company's Articles of Incorporation incorporating the above change was filed
with the Florida Secretary of State on July 10, 2003 (See Note 9).
(A) EQUITY LINE OF CREDIT FACILITY
In January 2002 (as revised in July 2003), 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, 2003,
the Company has not drawn down any funds on this line (See Note 9).
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.
For the fiscal years ended June 30, 2003 and 2002, the Company recorded
amortization expense of $375,000 and $187,500 respectively in connection with
the $750,000 two year commitment fee and the balance has been recorded as
deferred commitment fees and classified as part of stockholders' deficiency.
F-9
On July 31, 2003, the SEC declared effective the Company's Registration
Statement. On September 18, 2003, September 25, 2003 and October 1, 2003, the
Company sold, in the aggregate, $200,000 of common stock in exchange for
agreeing to issue 85,787,623 shares to Cornell Capital Partners, L.P. under the
terms of the Equity Line of Credit (See Note 9).
(B) 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.
(C) 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) LEGAL COUNSEL
Certain of the Company's legal counsel are stockholders and directors of
the Company. The Company has paid these attorneys $0 and $56,699 and $2,000 and
$105,000 in the form of cash and stock respectively, for legal services during
the fiscal years 2003 and 2002. The Company owes these attorneys an aggregate of
$309,457 at June 30, 2003.
(B) PRESIDENT AND CHIEF FINANCIAL OFFICER
The Company's President and Chief Financial Officer, who is also a director
and stockholder, and a company in which he is the Managing Director and Founder
have been contracted to provide financial consulting services to the Company.
The Company has paid this consultant $3,000 and $65,000 and $1,000 and $110,000
in the form of cash and stock respectively, for financial services during the
fiscal years 2003 and 2002. The Company owes this consultant a total of $274,911
at June 30, 2003.
(C) CHAIRMAN OF THE BOARD
The Company's former Chairman of the Board was contracted to provide
business services and is also a director and stockholder of the Company. The
Company has paid this consultant $0 and $10,986 and $55,000 and $1,000 in the
form of cash and stock respectively, for business services rendered during the
fiscal years 2003 and 2002. The Company owes this consultant a total of $50,323
at June 30, 2003.
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 $137,412. On August 1, 2002, the Company notified the landlord that it
relocated 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. As of June 30, 2003, the Company's former office
space remains vacant and is indebted to the landlord for $101,946.
(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,
F-10
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 July 2003, the individual directors and employees prevailed in their
defense against Advanced Communications (Australia) and a judgment was entered
by the Court in the individuals' favor. Consequently, the Company is no longer
obligated to indemnify the directors and former employees in this case.
(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. To date, no claim for indemnity has been filed against the
Company.
(D) LEGAL MATTERS
As of June 30, 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 disputes with various creditors regarding unpaid
professional and other fees. A number of creditors have filed and obtained
judgments against the Company for unpaid fees and services in the amount of
$105,815. The Company has previously recorded this expense and has determined
that these judgments will not have a material adverse impact on the Company's
financial condition.
Management does not believe that the contingencies described above (7(C),
and 7(D)) 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 fiscal year ended
June 30, 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 $1,869,031 and negative
cash flows from operations of $123,566 for the fiscal year ended June 30, 2003,
working capital deficiency of $4,044,795 and stockholders' deficiency of
$5,960,174, 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 under its Equity Line of Credit facility 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.
NOTE 9. SUBSEQUENT EVENTS
On July 9, 2003, a Special Shareholders Meeting was held approving the
Company's Proxy Statement which sought a change in the Company's Articles of
Incorporation increasing the authorized no par common stock from 200,000,000 to
5,000,000,000.
On July 31, 2003, the Securities and Exchange Commission declared effective
the Company's Registration Statement.
F-11
On September 4, 2003, holders of the Company's 5% convertible debentures
converted $82,375 of convertible debentures into 59,692,027 shares of the
Company's common stock.
On September 18, 2003, September 25, 2003 and October 1, 2003, the Company
agreed to issue, in the aggregate, 85,787,623 shares of common stock for
$200,000 to Cornell Capital Partners, L.P. under the terms of the Equity Line of
Credit. The Company netted $192,500 after underwriting and escrow fees (See Note
5).
F-12
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(check one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Three Months Ended March 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
Commission File Number 000-30486
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Florida
(State or other jurisdiction
of incorporation or organization)
65-0738251
(IRS Employer Identification No.)
420 Lexington Avenue, New York, NY 10170
(Address of principal executive offices)
(646)-227-1600
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 3 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 1, 2004, there were 1,799,365,845 shares of the registrant's no par
value common stock issued and outstanding
Transmittal Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART I-FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of March 31, 2004 (Unaudited)
and June 30, 2003
Condensed Consolidated Statements of Operations for the three and nine
months ended March 31, 2004 and 2003 (Unaudited)
Condensed Consolidated Statement of Stockholders' Deficiency for the
nine months ended March 31, 2004 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months
ended March 31, 2004 and 2003 (Unaudited)
Notes to Unaudited Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. CONTROLS AND PROCEDURES
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
i
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2004 June 30, 2003
(Unaudited)
-------------------------------------------
ASSETS
Current Assets
Cash $ 167,659 $ 22,527
------------------------ ------------------
Total Current Assets 167,659 22,527
------------------------ ------------------
Other Assets
Investment in Partnership 2,709,420 -
Prepaid expense/security deposits 20,355 7,700
Deferred financing costs, net of accumulated amortization 1,146 40,521
------------------------ ------------------
Total Other Assets 2,730,921 48,221
------------------------ ------------------
TOTAL ASSETS $ 2,898,580 $ 70,748
======================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current liabilities
Accounts payable $ 211,162 1,560,165
Accrued compensation - 172,183
Loan payable to shareholder 1,055,736 1,055,736
8% note payable-current portion 57,831 57,831
12% note payable - 35,000
5% convertible debentures due 1/04 - 944,000
10% secured convertible debentures due 11/04, net of discount of 60,415 $ 127,085 -
Interest payable 39,355 242,407
Short-term prommissory note 2,500,000 -
------------------------ ------------------
Total Current Liabilities 3,991,169 4,067,322
------------------------ ------------------
Long-Term Liabilities
10% secured convertible debentures due 11/04, net of discount of $130,729 - 56,771
8% note payable-non current portion 57,832 115,663
Note payable-ACT Australia 1,791,166 1,791,166
------------------------ ------------------
Total Long Term Liabilities 1,848,998 1,963,600
------------------------ ------------------
TOTAL LIABILITIES 5,840,167 6,030,922
------------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, 25,000,000 shares authorized,
none issued and outstanding - -
Common stock, no par value, 5,000,000,000 and 200,000,000 shares authorized,
1,799,365,845 and 198,852,622 shares issued and outstanding, respectively 28,469,821 25,945,005
Deferred commitment fees, net of accumulated amortization - (187,500)
Accumulated deficit (31,411,408) (31,717,679)
------------------------ ------------------
Total Stockholders' Deficiency (2,941,587) (5,960,174)
------------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 2,898,580 $ 70,748
======================== ==================
See accompany notes to condensed consolidated financial statements
1
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months Ended For The Nine Months Ended
March 31, March 31,
-----------------------------------------------------------------------
2004 2003 2004 2003
------------------ --------------- ------------------- ----------------
REVENUE $ - $ - $ - $ -
------------------ --------------- ------------------- ----------------
OPERATING EXPENSES
Depreciation and amortization 13,125 107,875 226,875 318,937
Professional fees 64,369 93,300 255,916 575,295
Other selling, general and administrative expenses 4,667 25,861 58,984 77,949
------------------ --------------- ------------------- ----------------
TOTAL OPERATING EXPENSES $ 82,161 $ 227,036 $ 541,775 $ 972,181
------------------ --------------- ------------------- ----------------
Loss From Operations (82,161) (227,036) (541,775) (972,181)
------------------ --------------- ------------------- ----------------
OTHER INCOME (EXPENSES)
Forgiveness of debt income 40,258 - 780,938 -
Lawsuit settlement - (30,000) - (218,494)
Distributable share of partnership net income 199,420 - 199,420 -
Interest (expense), net (31,305) (80,510) (132,312) (480,177)
------------------ --------------- ------------------- ----------------
TOTAL OTHER INCOME (EXPENSES) 208,373 (110,510) 848,046 (698,671)
------------------ --------------- ------------------- ----------------
$ 126,212 $ (337,546) $ 306,271 $ (1,670,852)
================== =============== =================== ================
Net income (loss) per share-basic and dilutive $ 0.00 $ (0.002) $ 0.00 $ (0.012)
================== =======================================================
Weighted average number of shares
outstanding during the period-basic and
dilutive 1,464,270,779 180,185,955 810,439,193 137,718,954
=========================================================================
See accompany notes to condensed consolidated financial statements
2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
COMMON STOCK ACCUMULATED
-------------------------------------------------
SHARES AMOUNT DEFICIT
--------------------------------------------------------------------
BALANCE AT JUNE 30, 2003
198,852,622 $ 25,945,005 $ (31,717,679)
--------------------------------------------------------------------
Stock issued for cash, net 722,706,505 1,013,125
Stock issued for conversion of
convertible debt and accrued interest 585,283,270 1,117,681
Amortization of deferred commitment
fees
Stock issued for professional
services 1,000,000 2,810
Stock issued to settle accounts
payable 125,297,618 335,000
Stock issued in settlement of
creditor claims 26,976,190 56,200
Escrowed stock 139,249,640 -
Net income for the period 306,271
--------------------------------------------------------------------
BALANCE AT MARCH 31, 2004 1,799,365,845 $28,469,821 $ (31,411,408)
====================================================================
DEFERRED
COMMITMENT
FEES TOTAL
----------------------------------------
BALANCE AT JUNE 30, 2003
$ (187,500) $ (5,960,174)
----------------------------------------
Stock issued for cash, net 1,013,125
Stock issued for conversion of
convertible debt and accrued interest 1,117,681
Amortization of deferred commitment
fees 187,500 187,500
Stock issued for professional
services 2,810
Stock issued to settle accounts
payable 335,000
Stock issued in settlement of
creditor claims 56,200
Escrowed stock
Net income for the period 306,271
----------------------------------------
BALANCE AT MARCH 31, 2004 $ - $ (2,941,587)
========================================
See accompany notes to condensed consolidated financial statements
3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended
March 31,
----------------------------------------------
2004 2003
--------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 306,271 $ (1,670,852)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 226,875 318,937
Stock issued in exchange for services 2,810 5,000
Interest expense attributable to beneficial conversion - 250,000
Lawsuit settlements - 173,494
Debt discount expense 70,314 -
Forgiveness of debt (780,938) -
Distributive share of partnership income (199,420) -
Changes in operating assets and liabilities:
(Increase) decrease in assets Prepaid expense/security deposits (12,655) 5,525
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (434,420) 576,598
Interest payable 56,001 230,177
--------------------- ------------------------
Net cash used in operating activities (765,162) (111,121)
--------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in partnership (2,670,000) -
Partnership distributions 160,000 -
----------------------------------------------
Net cash flow used in investing activities
(2,510,000) -
--------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Overdraft - 28
Proceeds from issuance of common stock, net 1,013,125 -
Proceeds from short term promissory note 3,000,000 -
Repayment of short term and installment notes (592,831) -
Proceeds from issuance of convertible debt, net - 100,000
--------------------- ------------------------
Net cash provided by financing activities 3,420,294 100,028
--------------------- ------------------------
Net increase (decrease) in cash $ 145,132 $ (11,093)
Cash at beginning of period 22,527 11,093
--------------------- ------------------------
CASH AT END OF PERIOD $ 167,659 $ -
===================== ========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $ 6,043 $ 0
===================== ========================
Income Taxes Paid $ 0 $ 0
===================== ========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended March 31, 2004, the Company recorded $391,200
representing 152,273,808 shares of restricted common stock issued for prior
unpaid accrued professional fees and various creditor settlements (See Note 3).
During the nine months ended March 31, 2004, debenture holders converted
$944,000 and $173,681 of principal and interest, respectively, into 492,801,173
and 92,482,097 shares of common stock respectively in full payment of this debt.
During the nine months ended March 31, 2004, the 5% convertible debenture
holders forgave $85,372 of accrued interest.
During the nine months ended March 31, 2004, the Company issued 1,000,000 shares
of restricted common stock valued at $2,810 for professional services rendered.
During the nine months ended March 31, 2003, the Company issued 4,250,000 shares
of restricted 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 restricted common stock valued at $5,000 in partial satisfaction 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% 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.
See accompany notes to condensed consolidated financial statements
4
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
include the results of Advanced Communications Technologies, Inc. (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 nine months ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2004. 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, 2003 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, a Florida corporation, 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. On December 9, 2003 and December 17, 2003,
the Company formed Hudson Street Investments, Inc. ("Hudson Street") and
SpectruCell, Inc., respectively, both wholly owned subsidiaries. Hudson Street
was formed for the purpose of holding the Company's investment in Yorkville
Advisors Management LLC (see Note 2) and SpectruCell, Inc was formed for the
purpose of holding the Company's rights in the SpectruCell technology acquired
in the above-referenced merger.
(B) PRINCIPLES OF CONSOLIDATION
- -------------------------------
The accompanying condensed consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly owned.
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 in the United States of America,
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) EARNINGS (LOSS) PER SHARE
- -----------------------------
Basic earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities, using the treasury stock method, that could share in the
earnings of an entity. During the three and nine months ended March 31, 2004,
shares of common stock that could have been issued upon conversion of
convertible debt were excluded from the calculation of diluted loss per share as
their effect would have been anti-dilutive.
5
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
(E) INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
- --------------------------------------------
The Company accounts for its investment in unconsolidated partnership and/or
joint ventures under the equity method of accounting, as the Company does not
have any management control over this entity. This investment is recorded
initially at cost and subsequently adjusted for equity in net earnings and cash
distributions.
NOTE 2. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
On January 14, 2004, the Company's wholly owned subsidiary, Hudson
Street purchased for $2,625,000 a minority interest in Yorkville Advisors
Management LLC, ("Yorkville") a privately owned investment management
partnership that is the portfolio manager of Cornell Capital Partners, L.P. The
purchase was effective as of January 1, 2004. Hudson Street incurred $45,000 of
legal and professional fees associated with the purchase of the partnership
interest ($15,000 of which is to a related party) that has been capitalized.
During the three months ended March 31, 2004, Hudson Street received $160,000 of
cash distributions from this investment and recorded $199,420 as its
distributable share of partnership net earnings. As of March 31, 2004, Hudson
Street's investment in Yorkville is $2,709,420 and is reflected on the
consolidated balance sheet in Other Assets.
NOTE 3. CREDITOR SETTLEMENTS AND DEBT FORGIVENESS
During the three months ended March 31, 2004, the Company negotiated,
settled and/or converted approximately $425,000 of accounts payable and accrued
liabilities and convertible debentures at a discount to face generating $40,258
of forgiveness of debt income. For the nine months ended March 31, 2004, the
Company realized $780,938 of forgiveness of debt income arising from such
negotiations. (See Note 6(c)).
NOTE 4. NOTES AND LOAN PAYABLE
(A) 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 issued 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, the first of which was due on December
1, 2003 with additional installments due on December 1, 2004 and December 1,
2005. The current portion of the note payable of $57,831 has been classified as
a current liability on the balance sheet.
On November 24, 2003, the Company paid the first loan installment of
$57,831 plus accrued interest of $4,855.
Interest of $12,809 is accrued on the remaining balance of the note
payable as of March 31, 2004.
(B) SHORT-TERM PROMISSORY NOTE
- ------------------------------
During January 2004, the Company entered into a six month promissory
note with Cornell Capital Partners, L.P. in the amount of $3,000,000, the net
proceeds of which were used to purchase its minority interest in the Yorkville
Advisors partnership. Under the terms of the promissory note, the Company agreed
to repay the note either in cash or through the net proceeds to be received by
the Company under its Equity Line of Credit facility over a 24 week period
commencing February 23, 2004. The promissory note is non-interest bearing and
only becomes interest-bearing at the rate of 24% or the highest rate permitted
by law, if lower, in the event that the note is not repaid when due. As of March
31, 2004, the Company repaid $500,000 of the note and issued 360,750,360 shares
of common stock under its Equity Line of Credit facility.
NOTE 5. 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 15 other accredited
individual investors.
These debentures were 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 average of the four lowest closing bid prices of the
common stock for the five trading days immediately preceding the conversion
date. These Convertible Debentures accrued interest at a rate of 5% per year and
were convertible at the holder's option. These Convertible Debentures had a term
of two years. The Company incurred $80,000 of financing costs associated with
the 5% Convertible Debentures that have been amortized over the life of the
debentures.
On October 28, 2003 and November 10, 2003, debenture holders agreed to
forgive $85,372 of accrued interest, in the aggregate.
6
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
As of February 2, 2004, the debenture holders elected to convert the
balance of $325,000 of principal and $3,861 of accrued interest or $328,861 into
155,593,145 shares of common stock. As of that date, the debentures, plus all
accrued interest, have been paid in full.
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 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 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
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. The amount attributable to the
beneficial conversion feature of $250,000 is recorded as a discount on the debt
and accreted over a 24 month period as interest expense in accordance with EITF
00-27. For the nine months ended March 31, 2004, the Company accreted $70,314 of
debt discount as interest expense.
The Company incurred $25,000 of financing costs associated with these
Convertible Debentures that is being amortized over the life of the debentures.
Amortization expense of $9,375 related to these debentures was recorded for the
nine months ended March 31, 2004.
As of March 31, 2004, the $187,500 balance due on these debentures, net
of the related debt discount in the amount of $60,415, is $127,085.
As of March 31, 2004, interest of $26,546 is accrued on these
debentures.
NOTE 6. STOCKHOLDERS' DEFICIENCY
On July 9, 2003, the Company's stockholders authorized a change in the
Company's Articles of Incorporation increasing the authorized no par value
common shares from 200,000,000 to 5,000,000,000. A Certificate of Amendment to
the Company's Articles of Incorporation reflecting the above change was filed
with the Florida Secretary of State on July 10, 2003.
(A) EQUITY LINE OF CREDIT FACILITY
- ----------------------------------
During the nine months ended March 31, 2004, the Company issued
722,706,505 shares of common stock under the Equity Line of Credit facility for
$1,225,000. The Company netted $1,013,125 from these issuances after deducting
escrow agent expenses and other direct costs totaling $211,875 that has been
recorded as a reduction of additional paid-in capital as of March 31, 2004.
(B) STOCK ISSUED FOR CONVERTIBLE DEBENTURES
-------------------------------------------
During the three months ended March 31, 2004, the remaining 5%
convertible debenture holder elected to convert the balance of $325,000 of
principal and $3,861 of accrued interest or $328,861 into 155,593,145 shares of
common stock.
7
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
During the nine months ended March 31, 2004, the 5% convertible
debenture holders converted $944,000 of debentures and $173,681 of accrued
interest into 492,801,173 and 92,482,097 shares of common stock, respectively.
(C) STOCK ISSUED FOR SERVICES
-----------------------------
During January 2004, the Company's Board of Directors approved the
issuance of 1,000,000 shares of restricted common stock to a third party
consultant having a value of $2,810 in consideration of professional services
rendered to the Company. During March 2004 the Company's Board of Directors
approved the issuance of 10,000,000 shares of restricted common stock having a
value of $18,000 to a creditor in full satisfaction of his claim. During the
nine months ended March 31, 2004, the Company issued 152,273,808 shares of
restricted common stock to settle prior unpaid accounts payble and creditor
claims aggregating $391,200.
NOTE 7. COMMITMENTS AND CONTINGENCIES
(A) LEGAL MATTERS
- ------------------
Management has settled all of its outstanding lawsuits and has
previously recorded the financial statement impact of such settlements. During
the three months ended March 31, 2004, the Company has settled all but two
disputes with its creditors who have filed and obtained judgments against the
Company for unpaid fees and services in the amount of $21,064. The Company has
previously recorded this expense and has determined that these judgments will
not have a material adverse impact on the Company's financial condition. The
Company is currently in settlement discussions with these creditors.
Management does not believe that the matters described above will have
a material adverse impact on the future financial condition of the Company.
On February 5, 2004, the Company filed suit in California against
Advanced Communications (Australia), Roger May, Global Communications
Technologies Limited and Global Communications Technologies Pty Ltd to recover
damages incurred as a result of wrongful actions of such defendants against the
Company and to clarify the status of the Company's obligations to such
defendants under various agreements and other arrangements, from which the
Company believes it has been relieved as a result of such wrongful actions. This
action is currently pending before the court.
NOTE 8. GOING CONCERN
The Company's consolidated financial statements for the nine months
ended March 31, 2004, 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 negative cash flows
from operations of $765,162 for the nine months ended March 31, 2004, working
capital deficiency of $3,823,510 and stockholders' deficiency of $2,941,587, as
of March 31, 2004, 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 implement its business plan which includes the
future investment in and/or acquisition of existing profitable business
enterprises. On January 14, 2004, the Company, through its wholly-owned
subsidiary, Hudson Street acquired a minority interest in Yorkville Advisors
8
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2004
(UNAUDITED)
Management, LLC, a privately owned investment management partnership. Management
anticipates that projected distributions from this investment along with the
periodic issuance of securities under its Equity Line of Credit facility, if
necessary, will generate sufficient resources for the continued expansion of the
Company's operations and the implementation of its business plan. For the nine
months ended March 31, 2004, the Company significantly improved its financial
position by reducing its contractual obligations by approximately $2,625,000
through a combination of debenture holder conversions, debt forgiveness, cash
payments, settlements with creditors and the issuance of common stock.
The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors 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, 2003 audited financial statements and notes
thereto included in the Company's Form 10-KSB.
FINANCIAL CONDITION
We had net losses of $1,869,031 and $4,332,693 during the years ended
June 30, 2003 and 2002, respectively. For the three months ended March 31, 2004,
we generated net income of $126,212. As of March 31, 2004, we had cash of
$167,659 and current liabilities of $3,991,169. During the three months ended
March 31, 2004, we reduced our liabilities by approximately $425,000 through a
combination of debenture holder conversions, debt forgiveness, settlements with
creditors and the issuance of common stock in satisfaction of creditor claims.
On January 14, 2004, we acquired a minority interest in Yorkville Advisors
Management, LLC, a privately held investment management partnership. We
anticipate that current and future distributions from this investment and
periodic draw downs, if necessary, of our Equity Line of Credit facility will
provide us with sufficient working capital to meet our current liabilities,
continue our operations and to execute our business/investment expansion plans.
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with the years 2003 and 2002 financial
statements, which states that our ability to continue as a going concern depends
upon our ability to resolve liquidity problems, and generate sufficient revenues
to become profitable. Our ability to implement our business plan and expand our
business and investment interests 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.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 TO THE THREE MONTHS ENDED
MARCH 31, 2003
OVERALL RESULTS OF OPERATIONS
For the three months ended March 31, 2004 we generated net income of
$126,212, which was a $463,758 increase from the loss of ($337,546) or ($.002)
per share for the comparable period in the prior year.
The substantial increase in net income for the three months ended March
31, 2004 over the comparative period was principally a result of the Company
generating $199,420 of net earnings from its investment in Yorkville Advisors
Management, $40,258 of forgiveness of debt income due to favorable settlements
with its accounts payable creditors and the reduction of interest bearing debt
during the quarter which generated an overall reduction in interest expense in
the amount of $49,205 compared with the prior period. In addition, the Company
reduced its overall operating expenses by $144,875 compared with the prior
period.
REVENUE
No revenues were generated during either the three months ended March
31, 2004 or March 31, 2003.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2004, were
$82,161 and represent a $144,875 decrease in operating expenses from $227,036
for the comparative period ended March 31, 2003. Included in operating expenses
for both periods are $13,125 and $107,875, respectively, of non-cash charges for
amortization attributable to deferred financing and commitment fees.
Professional and consulting fees for the three months ended March 31, 2004
decreased by $28,931 from $93,300 to $64,369 due to the decrease 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) during fiscal 2003.
Other selling, general and administrative expenses decreased by $21,194
from the comparative three month period ended March 31, 2003 due to the
termination in November 2003 of the Company's California office lease.
10
OTHER INCOME (EXPENSE)
During the three months ended March 31, 2004, the Company realized
$208,373 of net other income due to the favorable results of the Company's
investment in Yorkville Advisors Management and additional forgiveness of
indebtedness income generated from the successful settlement, at a discount, of
certain accounts payable.
During the three month period ended March 31, 2004, the Company
generated $199,420 of net earnings from its partnership interest in Yorkville
Advisors Management that it purchased effective January 1, 2004 and $40,258 of
forgiveness of debt income attributable to the favorable settlement of the
remainder of the Company's accounts payable and accrued expenses in the amount
of $95,758. These income items were offset, in part by net interest expense of
$31,305 that was attributable to $7,913 of accrued interest on the Company's 10%
Secured Convertible Debentures, the outstanding 5% $1,000,000 Convertible
Debentures and the 8% Note Payable and $23,438 of debt discount expense treated
as interest attributable to the beneficial conversion feature of the Company's
10% Secured Convertible Debentures, net of $46 of interest income.
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. During the three
month period ended March 31, 2003, the Company also recorded, in accordance with
paragraphs 8(a) and 35 of FASB 5, $30,000 of expense relating to the settlement
of the Staite and Star MultiCare lawsuits. No such expense was incurred during
the comparative three month period ended March 31, 2004 as the Company settled
all of its lawsuits in prior periods.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2004 TO THE NINE MONTHS ENDED
MARCH 31, 2003
OVERALL RESULTS OF OPERATIONS
For the nine months ended March 31, 2004, the Company earned net income
of $306,271, as compared to an overall net loss of ($1,670,852) or ($.012) per
share for a $1,977,123 increase in earnings over the comparative nine month
period. This substantial turnaround in net earnings is attributable to
management's successful efforts in restructuring and settling substantially all
of the Company's obligations, significantly reducing its ongoing operating and
interest costs and generating a source of ongoing earnings and cash flow through
the purchase of an interest in a profitable financial services business. Of the
$1,977,123 earnings increase, $780,938 is a result of the Company negotiating
and settling a majority of its accounts payable and other liabilities at a
substantial discount and generating forgiveness of debt income along with a
$996,765 reduction in interest expense, lawsuit settlements and operating
expenses. An additional $199,420 of net income was realized through the
Company's investment in the Yorkville Advisors Management investment
partnership.
REVENUE
No revenues were generated during either the nine months ended March
31, 2004 or March 31, 2003.
OPERATING EXPENSES
Operating expenses for the nine months ended March 31, 2004, were
$541,775 and represent a $430,406 or 44% decrease in operating expenses of
$972,181 for the comparative period ended March 31, 2003. Included in operating
expenses for both periods are $226,875 and $318,937 respectively, of
depreciation and amortization attributable to the depreciation of our office
property and equipment and amortization attributable to deferred financing and
commitment fees. Professional and consulting fees for the nine months ended
March 31, 2004 decreased by $319,379 over the comparable nine month period ended
March 31, 2003 due to the decrease in legal fees associated with the Company's
settlement of all its remaining lawsuits and its litigation with Roger May and
Advanced Communications (Australia) during the nine months ended March 31, 2003.
All of the legal and professional fees that were incurred during the nine months
ended March 31, 2003 were settled at a substantial discount during the nine
months ended March 31, 2004.
Other selling, general and administrative expenses decreased marginally
by $18,965 from $77,949 to $58,984 for the nine months ended March 31, 2004,.
11
OTHER INCOME (EXPENSE)
During the nine months ended March 31, 2004, the Company realized
$848,046 of net other income due to the favorable results of the Company's
investment in Yorkville Advisors Management and substantial forgiveness of
indebtedness income generated from the successful settlement, at a discount, of
certain of its debts.
During the nine month period ended March 31, 2004, the Company
generated $199,420 of net earnings from its partnership interest in Yorkville
Advisors Management that it purchased effective January 1, 2004 and $780,938 of
forgiveness of debt income attributable to the favorable settlement of the
Company's accounts payable and accrued expenses at a substantial discount and
the forgiveness of accrued interest by certain 5% convertible bondholders. These
items were offset, in part by net interest expense of $132,312 attributable to
$62,044 of accrued interest on the Company's 10% Secured Convertible Debentures,
the outstanding 5% $1,000,000 Convertible Debentures and the 8% Note Payable and
$70,314 of debt discount expense treated as interest attributable to the
beneficial conversion feature of the Company's 10% Secured Convertible
Debentures, net of $46 of interest income.
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. 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. No such
expense was incurred during the comparative nine month period ended March 31,
2004.
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.
EARNINGS (LOSS) PER SHARE
-------------------------
Basic earnings (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities, using the treasury stock method, that could share in the
earnings of an entity. During the three and nine months ended March 31, 2004,
shares of common stock that could have been issued upon conversion of
convertible debt were excluded from the calculation of diluted loss per share as
their effect would have been anti-dilutive.
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
----------------------------------------
The Company accounts for its investment in unconsolidated partnership
and/or joint ventures under the equity method of accounting, as the company does
not have any management control over this entity. This investment is recorded
initially at cost and subsequently adjusted for equity in net earnings and cash
distributions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, our principal source of liquidity was $167,659 of
cash. On July 16, 2003, we entered into a new Equity Line of Credit Agreement
with Cornell Capital Partners, L.P., a private limited partnership. 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. The periodic sale of shares is known as an advance.
During the nine months ended March 31, 2004, the Company made advances
under the Equity Line of Credit in the aggregate amount of $1,225,000in exchange
for issuing 722,706,505 shares of common stock to Cornell Capital Partners, L.P.
The Company netted $1,013,125 from these advances after deducting escrow agent
12
expenses and other direct costs totaling $211,875 that have been recorded as a
reduction of additional paid-in capital as of March 31, 2004. On January 14,
2004, the Company, through its wholly owned subsidiary, Hudson Street acquired a
minority interest in Yorkville Advisors Management, LLC, a privately owned
investment management partnership and the portfolio manager of Cornell Capital
Partners, L.P. During the three months ended March 31, 2004, Hudson Street
received $160,000 of partnership cash distributions with an additional $100,000
distribution received on May 5, 2004. Management anticipates that projected
distributions from this investment partnership along with the periodic issuance
of securities under its Equity Line of Credit facility, if necessary, as well as
other sources of capital, will generate sufficient cash resources for the
continuation and expansion of the Company's operations.
We anticipate that our cash needs over the next 12 months consist of
general working capital needs of $300,000, plus the repayment of outstanding
indebtedness of $2,989,444. These obligations include outstanding Convertible
Debentures and interest thereon in the amount of $214,046, the repayment of
installment debt and interest thereon in the amount of $64,236, the repayment of
short-term debt in the amount of $2,500,000, as well as accounts payable and
accrued expenses in the amount of $211,162. As of March 31, 2004, we had a
working capital deficiency of $1,323,510.
The Company had total liabilities of $5,840,167 as of March 31, 2004.
Included in this total are contractual obligations of $3,053,680. These
contractual obligations, along with the dates on which such payments are due,
are described below:
PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------------------
1 2-3 4-5 AFTER 5
CONTRACTUAL OBLIGATIONS TOTAL YEAR OR LESS YEARS YEARS YEARS
- --------------------------------------- --------------- ----------------- ------------- ---------------- ---------
Notes Payable and Interest Thereon $2,628,472* $2,564,236 $64,236 $ -- $ --
Convertible Debentures and Interest Thereon 214,046 214,046 -- -- --
Accounts Payable and Accrued Expenses 211,162 211,162 -- -- --
-- -- -- -- --
----------- ------------------ ------------- --------------- -------------
Total Contractual Obligations $3,053,680 $2,989,444 $ 64,236 $ -- $ --
=========== ================== ============= =============== =============
- ------------------------------------
* Excludes $1,791,166 due to Advanced Communications (Australia) under the Stock Purchase Agreement dated April 5, 2000. The
Company believes that this obligation is not enforceable as a result of Advanced Communications (Australia)'s improper
unilateral revocation of the Stock Purchase Agreement and other wrongful acts of Advanced Communications (Australia), Roger
May and related parties. Also excludes $1,055,736 due to Roger May and/or Global Communications Technologies Limited and/or
Global Communications Technologies Pty Ltd for monies provided to the Company. The Company believes it is not obligated to
pay these amounts as a result of wrongful acts of such parties against the Company. On February 5, 2004, the Company filed
suit in California seeking a judgment against Advanced Communications (Australia), Roger May, Global Communications
Technologies Limited and Global Communications Technologies Pty Ltd to recover damages related to their wrongful acts
against the Company. The Company's damages claims exceed the $2,846,902 allegedly due such defendants. The Company also
seeks in the action to have its obligations under the Stock Purchase Agreement and other arrangements clarified as to such
defendants. This action is currently pending before the court.
During the three months ended March 31, 2004, the Company reduced its
contractual obligations by approximately $425,000 through a combination of
debenture holders conversions, debt forgiveness, settlements with creditors and
the issuance of common stock.
Below is a discussion of our sources and uses of funds for the nine
months ended March 31, 2004:
NET CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities was $765,162 and $111,121 for the
nine months ended March 31, 2004 and 2003, respectively. The use of cash by
operating activities for the nine months ended March 31, 2004 was principally
from a reduction in accounts payable in the amount of $434,420, and an increase
in debt forgiveness income offset by non-cash charges for amortization and debt
discount expense. The use of cash in operating activities for the nine months
ended March 31, 2003 was principally the result of a net loss during the period
reduced by an increase in accounts payable and accrued interest in the amount of
$806,177 and by non-cash charges for depreciation and amortization, debt
discount expense, common stock issued in exchange for services and lawsuit
settlements in the aggregate amount of $747,431.
NET CASH FROM INVESTING ACTIVITIES
No cash was provided by investing activities for the nine months ended
March 31, 2003. Cash used in investing activities for the nine months ended
March 31, 2004 was $2,510,000 and was attributable to the Company's investment
in a partnership for $2,625,000 reduced by $160,000 of cash distributions from
this partnership investment.
13
NET CASH FROM FINANCING ACTIVITIES
Net cash from financing activities for the nine months ended March 31,
2004 of $3,420,294 was from net proceeds on the sale of common stock to Cornell
Capital Partners, L.P., under the Company's Equity Line of Credit facility in
the amount of $1,013,125 and proceeds of $3,000,000 from the issuance of a short
term promissory note to Cornell Capital Partners, L.P., offset by the repayment
of short-term and installment debt in the amount of $92,831, and the repayment
of $500,000 on the short term promissory note. Net cash of $100,028 from
financing activities for the nine months ended March 31, 2003 was from the net
proceeds on the $250,000 10% Secured Convertible Debentures issued in November
2002.
COMPANY QUARTERLY STOCK PRICE
PRICE RANGE OF COMMON STOCK
Our common stock is currently traded on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol "ADVC". As of May 1, 2004, there were
1,799,365,845 common shares outstanding and approximately 500 holders of record.
We believe that the number of beneficial owners is substantially greater than
the number of record holders because a large portion of our common stock is held
in "broker" or "street names".
The following table sets forth, for the fiscal periods indicated, the
bid price range of our common stock:
High Bid Low Bid
------------ ------------
2003
Quarter Ended September 30, 2002 $ .080 $ .005
Quarter Ended December 31, 2002 .015 .004
Quarter Ended March 31, 2003 .010 .002
Quarter Ended June 30, 2003 .011 .006
2004
Quarter Ended September 30, 2003 $ .007 $.00163
Quarter Ended December 31, 2003 $.00363 $.00169
Quarter Ended March 31, 2004 $.00350 $.00131
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.
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2004, we carried out an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information required to be included in our periodic reports that are filed with
the Securities and Exchange Commission. It should be noted that the design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. In addition, we reviewed our internal controls, and
there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last valuation.
14
PART II
OTHER INFORMATION
The statements in this quarterly report, Form 10-QSB, that are not
historical constitute "forward-looking statements". Such forward-looking
statements involve risks and uncertainties that may cause the actual results,
performance or achievements of the Company and its subsidiary to be materially
different from any future results, performances or achievements, express or
implied by such forward-looking statements. These forward-looking statements are
identified by their use of such terms and phrases as "expects", "intends",
"goals", "estimates", "projects", "plans", "anticipates", "should", "future",
"believes", and "scheduled".
ITEM 1. LEGAL PROCEEDINGS
On February 5, 2004, the Company filed a lawsuit in the Orange County
Superior Court in California against Advanced Communications (Australia), Roger
May, Global Communications Technologies Limited and Global Communications
Technologies Pty Ltd to recover damages incurred as a result of wrongful actions
taken by the defendants against the Company and to clarify the status of the
Company's obligations to such defendants under various agreements and other
arrangements, from which the Company believes it has been relieved as a result
of such wrongful actions. This action is currently pending before the court.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 or under the terms of the Company's Convertible Debentures.
On March 9, 2004, the Board of Directors approved the issuance of
10,000,000 shares of restricted common stock having a value of $18,000 or $.0018
per share, to DDInvestor.com, Inc. in full satisfaction and settlement of their
debt.
On January 8, 2004, the Board of Directors approved the issuance of
1,000,000 shares of restricted common stock to Mr. Steve Black for professional
services rendered to the Company. The stock was valued at $.00281 per share or
$2,810, the closing bid price of the stock on the date approved by the Board.
On January 5, 2004, January 7, 2004, January 15, 2004, January 22, 2004
and February 2, 2004, the holder of our outstanding 5% convertible debentures
elected to convert $25,000, $50,000, $75,000, $75,000 and $103,861 or $328,861
in the aggregate, at conversion prices of $.001676, $.001776, $.002076, $.00238
and $.002314 per share of principal and accrued interest into 14,916,468,
28,153,153, 36,127,168, 31,512,605 and 44,883,751 or 155,593,145 shares of
common stock in the aggregate, respectively.
With respect to the sale of unregistered securities referenced above,
all transactions were exempt from registration pursuant to 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 Technologies,
Inc. so as to make an informed investment decision. More specifically, Advanced
Communications Technologies, Inc. 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 Technologies, Inc.'s securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION LOCATION
- -------- ---------------------------------------------------- ---------------------------------------------
1.1 Exchange Agreement between MRC Legal Services Incorporated by reference to Exhibit 1.1 to
Corporation and Advanced Communications Technologies, Company's Form 8-K filed on February 4, 2000
Inc. dated as of January 31, 2000
2.1 Articles of Incorporation of Media Forum Incorporated by reference to Exhibit 2.1 to
International, Inc. the Company's Form S-8 filed on February 9,
2000
2.2 Second Amendment to Articles of Incorporation of Incorporated by reference to Exhibit 2.2 to
Telenetworx, Inc. the Company's Form S-8 filed on February 9,
2000
2.3 Third Amendment to Articles of Incorporation of Media Incorporated by reference to Exhibit 2.3 to
Forum International, Inc. the Company's Form S-8 filed 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 effect for Incorporated by reference to Exhibit 3.1 to
the Company 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 Incorporation Incorporated by reference to Exhibit 2.7 to
the Form SB-2 filed with the SEC on March 5,
2002
2.8 Fifth Amendment to Articles of Incorporation Incorporated by reference to Exhibit 2.8 to
the Form SB-2 filed with the SEC on July 16,
2003
10.1 Lease Agreement dated as of November 27, 2001 between Incorporated by reference to Exhibit 10.1 to
the Company and Continental Development, L. P. II the Form SB-2 filed with the SEC on March 5,
2002
10.2 Stock Purchase Agreement between Advanced Incorporated by reference to Exhibit 10.2 to
Communications Technologies, Inc. and Advanced the Form S-1 Registration Statement filed on
Communications Technologies (Australia) Pty Ltd. August 14, 2001
10.3 Agreement dated June 27, 2000, between Ladenburg Incorporated by reference to Exhibit 10.3 to
Thalmann & Co. and the Company the Company's Form S-1 Registration Statement
filed on August 14, 2001
16
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ---------------------------------------------------- ---------------------------------------------
10.4 Common Stock Purchase Agreement dated December 14, Incorporated by reference to Exhibit 10.4 to
2000, between the Company and Wanquay Ltd. the Company's Form S-1 Registration Statement
filed on August 14, 2001
10.5 Registration Rights Agreement dated December 14, Incorporated by reference to Exhibit 10.5 to
2000, between the Company and Wanquay Ltd. the Company's Form S-1 Registration Statement
filed on August 14, 2001
10.6 Escrow Agreement dated December 14, 2000, among the Incorporated by reference to Exhibit 10.6 to
Company, Wanquay Ltd. and Epstein Becker & Green the Company's Form S-1 Registration Statement
filed on August 14, 2001
10.7 Consulting Agreement with M. Richard Cutler dated Incorporated by reference to Exhibit 10.1 to
January 31, 2000 the Company's Form S-8 filed on February 9,
2000
10.8 Stock Purchase Agreement dated April 5, 2000, between Incorporated by reference to Exhibit 10.5 to
Advanced Communications Technologies, Inc. and the Company's Form 10-QSB filed on May 24,
Advanced Communications Technologies Pty Ltd. 2000
10.9 Securities Purchase Agreement dated January 10, 2002, Incorporated by referenced to Exhibit 10.9 to
by and among Advanced Communications Technologies, the Company's Form 10-QSB filed on February
Inc. and Buyers 12, 2002
10.10 Investor Registration Rights Agreement dated January Incorporated by reference to Exhibit 10.10 to
10, 2002, by and among Advanced Communications the Company's Form 10-QSB filed on February
Technologies, Inc. and Investors 12, 2002
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 and among Incorporated by reference to Exhibit 10.12 to
Advanced Communications Technologies, Inc., Buyers the Company's Form 10-QSB filed on February
and First Union National Bank 12, 2002
10.13 Equity Line of Credit Agreement dated July 2003, by Incorporated by reference to Exhibit 10.13 to
and between Cornell Capital Partners, LP and Advanced the Form SB-2 filed with the SEC on July 16,
Communications Technologies, Inc. 2003
10.14 Registration Rights Agreement dated July 2003, by and Incorporated by reference to Exhibit 10.14 to
between Advanced Communications Technologies, Inc. the Form SB-2 filed with the SEC on July 16,
2003
10.15 Placement Agent Agreement dated July 2003, by and Incorporated by reference to Exhibit 10.15 to
between Advanced Communications Technologies, Inc. the Form SB-2 filed with the SEC on July 16,
and Westrock Advisors, Inc. 2003
10.16 Escrow Agreement dated July 2003, by and among Incorporated by reference to Exhibit 10.16 to
Advanced Communications Technologies, Inc., Cornell the Form SB-2 filed with the SEC on July 16,
Capital Partners, LP, Butler Gonzalez LLP and First 2003
Union National Bank
17
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ---------------------------------------------------- ---------------------------------------------
10.17 License and Distribution Agreement dated as of Incorporated by reference to Exhibit 10.17 to
July 5, 2000, between Advanced Communications the Company's Amendment to Form 10-KSB filed
Technologies, Inc. and Advanced Communications on May 23, 2002
Technologies (Australia) Pty. Ltd.
10.18 Letter of Intent dated September 7, 2001 re: Purchase Incorporated by reference to Exhibit 10.18 to
of Advanced Communications (Australia) Amendment No. 1 to the Company's Form 10-QSB
for the quarter ended December 31, 2001
10.19 Securities Purchase Agreement, dated November 2002, Incorporated by reference to Exhibit 10.19 to
by and among Advanced Communications and Buyers the Company's Form 10-KSB for the year ended
June 30, 2002 filed on December 6, 2002
10.20 Investor Registration Rights Agreement, dated Incorporated by reference to Exhibit 10.20 to
November 2002, by and among Advanced Communications the Company's Form 10-KSB for the year ended
and Investors 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 and among Incorporated by reference to Exhibit 10.22 to
Advanced Communications, Buyers, and Wachovia Bank, the Company's Form 10-KSB for the year ended
N.A. June 30, 2002 filed on December 6, 2002
10.23 Irrevocable Transfer Agent Instructions, dated Incorporated by reference to Exhibit 10.23 to
November 2002 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 and among Incorporated by reference to Exhibit 10.24 to
Advanced Communications and Buyers 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 11, 2002, Incorporated by reference to Exhibit 10.25 to
terminating the April 2000 Stock Purchase Agreement the Company's Form 10-KSB for the year ended
between Advanced Communications Technologies, Inc. June 30, 2002 filed on December 6, 2002
and Advanced Communications (Australia)
10.26 Consulting Agreement dated July 1, 2002, between Incorporated by reference to Exhibit 10.26 to
Advanced Communications and Randall H. Prouty the Company's Third Amended 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
18
EXHIBIT
NO. DESCRIPTION LOCATION
- ------- ---------------------------------------------------- ---------------------------------------------
10.28 Termination of Lease Agreement, dated November 25, Incorporated by reference to Exhibit 10.28 to
2003, by and between Continental Development, L.P. II the Company's Form 10-QSB filed on February
(Lessor) and Advanced Communications 13, 2004
31.1 Certification by Chief Executive Officer and Chief Provided herewith
Financial Officer pursuant to Sarbanes-Oxley Section
302
32.1 Certification by Chief Executive Officer and Chief Provided herewith
Financial Officer pursuant to 18 U.S.C. Section 1350:
(b) REPORTS ON FORM 8-K.
None.
19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ WAYNE I. DANSON
------------------------------------------------
Name: Wayne I. Danson
Title: President (Principal Executive Officer), Chief
Financial Officer (Principal Accounting Officer)
and Director
Date: May 24, 2004
20
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 3, 2004
------------
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
--------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 000-30486 65-0738251
- --------------------------------------------------------------------------------
(State or other Jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
420 Lexington Avenue, New York, New York 10170
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (646) 227-1600
--------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 3, 2004 (the "Closing"), an indirect subsidiary of Advanced
Communications Technologies, Inc. ("ACT"), Cyber-Test, Inc. ("C-T Delaware"),
purchased substantially all of the assets of Cyber-Test, Inc., a privately held
Florida corporation ("C-T Florida"). C-T Delaware is a newly formed Delaware
corporation and a wholly-owned subsidiary of Encompass Group Affiliates, Inc.,
which is a wholly-owned subsidiary of ACT ("Encompass" and collectively with ACT
and C-T Delaware, the "Company").
C-T Florida's principal executive offices, which will be the principal
executive offices of C-T Delaware, are located in Longwood, Florida. C-T Florida
was engaged in the business of providing warranty and other office equipment
services on behalf of sellers of office equipment. All of the assets of C-T
Florida shall remain with C-T Delaware and C-T Delaware will carry on the
business of C-T Florida going forward. Although the transaction closed on June
3, 2004, the parties had signed the Asset Purchase Agreement on May 27, 2004
(the "Asset Purchase Agreement").
The purchase price for the assets of C-T Florida (the "Purchase Price") was
determined as a result of arm's length negotiations between C-T Florida and C-T
Delaware. Neither C-T Florida nor its principals were, prior to the consummation
of this transaction, affiliated with the Company and neither the Company nor any
of its affiliates has any ownership interest in C-T Florida.
The Purchase Price consists of three components, as follows:
(a) a fixed payment of $3,000,000 paid in cash at Closing;
(b) a 6% senior unsecured promissory note in the original principal
amount of $547,000 (the "Note"), the principal of which shall be repaid in three
(3) equal annual installments of $182,333.33 on the first, second and third
anniversary of the date of issuance of the Note, together with all unpaid
interest accrued prior to such payment date; and
(c) a right to earn shares of ACT's common stock, to be earned as
follows:
On June 30 of each year during the three (3) year period commencing July 1,
2004 and ending June 30, 2007, C-T Florida has the right to receive 16,666,667
shares of ACT's common stock (the "Earn-Out Shares"), provided that C-T Delaware
achieves the Milestones (as defined below) during such year. In the event that
C-T Delaware does not achieve the Milestones during any year, the Earn-Out
Shares for such year are forfeited and, except as provided below, C-T Florida
has no right to re-earn such Earn-Out Shares in a future year. Notwithstanding
the foregoing, in the event the Milestones are not achieved in a given year, the
board of directors of ACT has the right, in its sole and absolute discretion, to
grant to C-T Florida all or a portion of the Earn-Out Shares that could have
been earned during such year.
Upon earning the Earn-Out Shares, if applicable, the Earn-Out Shares will
be placed in escrow to be held by an escrow agent and released upon Lisa
Welton's completion of the original three (3) year term of her employment
agreement (as described below), all in accordance with the terms of an escrow
agreement entered into between C-T Delaware and C-T Florida. Upon release from
escrow, the Earn-Out Shares will have piggyback registration rights, subject to
customary underwriters' cutbacks.
"Milestones" means the following revenue and EBIDTA (earnings before
interest, depreciation, taxes and amortization) goals of C-T Delaware for the
applicable year:
- --------------------------------------------------------------------------------
Fiscal Year End Revenues EBIDTA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 2005 $ 6,600,000 $ 500,000
- --------------------------------------------------------------------------------
June 30, 2006 $ 8,600,000 $ 860,000
- --------------------------------------------------------------------------------
June 30, 2007 $ 11,600,000 $1,400,000
- --------------------------------------------------------------------------------
At Closing, C-T Florida delivered its final Closing balance sheet to C-T
Delaware, with "net working capital" $47,000 in excess of the net working
capital assumed in determining the original purchase price. Accordingly,
pursuant to the terms of the Asset Purchase Agreement, the original principal
amount of the Note was increased from $500,000 to $547,000 at Closing. C-T
Delaware is entitled, for a period of sixty (60) days after Closing, to review
the final Closing balance sheet, and to request, on or prior to the expiration
of the sixty (60) day period, a Purchase Price reduction if it does not agree
with the net working capital on the final Closing balance sheet. In the event
C-T Delaware and C-T Florida cannot agree on the net working capital, they will
retain an independent accounting firm to determine the net working capital,
which determination will be binding on both parties.
In connection with the transaction, Lisa Welton, the President of C-T
Florida ("Welton"), entered into an employment agreement with the Company, and
Thomas Sutlive, the Vice-President of C-T Florida ("Sutlive"), entered into and
employment agreement with C-T Delaware. Welton has been with C-T Florida since
1992 and Sutlive has been with C-T Florida since 1994.
In accordance with the terms of Welton's employment agreement, Welton will
hold the offices of President and Chief Executive Officer, and be a director, of
C-T Delaware, as well as hold the office of Executive Vice-President of
Encompass. The term of Welton's employment agreement is three (3) years. In
addition, Welton's employment agreement provides that if her employment is
terminated for any reason, other than "without cause" by the Company, prior to
the end of the original term, all Earn-Out Shares, whether earned or unearned,
shall be forfeited by C-T Florida. In accordance with the terms of Sutlive's
employment agreement, Sutlive will hold the office of Vice-President of C-T
Delaware. The term of Sutlive's employment agreement is three (3) years. Both
agreements contain standard confidentiality, noncompete and work-for-hire
provisions.
In connection with the transaction, C-T Florida and each shareholder of C-T
Florida signed a noncompetition agreement with C-T Delaware, and C-T Florida
changed its name to one not resembling the name "Cyber-Test."
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements
The financial statements required pursuant to Article 3 of
Regulation S-X are attached hereto as Exhibit 99.2.
(b) Pro Forma Financial Statements
The Pro Forma financial statements required pursuant to Article
11 of Regulation S-X will be filed by amendment to this initial
report on Form 8-K, no later than 60 days after the date that
this Report must be filed.
(c) Exhibits
10.1 Asset Purchase Agreement, dated May 27, 2004, by and between
Cyber-Test, Inc., a Delaware corporation and Cyber-Test, Inc., a
Florida corporation.
10.2 6% Senior Unsecured Promissory Note, in the original principal
amount of $547,000 issued on June 3, 2004 by Cyber-Test, Inc., a
Delaware corporation in favor of Cyber-Test, Inc., a Florida
corporation.
10.3 Escrow Agreement, June 3, 2004, by and between Cyber-Test, Inc.,
a Delaware corporation and Cyber-Test, Inc., a Florida
corporation.
10.4 NonCompetition Agreement, June 3, 2004, by and between
Cyber-Test, Inc., a Delaware corporation, and Cyber-Test, Inc.,
a Florida corporation and the shareholders of Cyber-Test
Florida.
10.5 Employment Agreement, June 3, 2004, by and between Cyber-Test,
Inc., a Delaware corporation and Lisa Welton.
10.6 Employment Agreement, June 3, 2004, by and between Cyber-Test,
Inc., a Delaware corporation and Thomas Sutlive.
23.1 Consent of Chatham, Seland & Lashley, P.A., independent auditors
of Cyber-Test, Inc., a Florida corporation
99.1 Press Release dated June 8, 2004.
99.2 Audited Financial Statements of Cyber-Test, Inc., a Florida
corporation, for calendar year 2002 and 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
By: /s/ Wayne I. Danson
------------------------------------------
Wayne I. Danson, President and
Chief Executive Officer
EXHIBIT INDEX
10.1 Asset Purchase Agreement, dated May 27, 2004, by and between
Cyber-Test, Inc., a Delaware corporation and Cyber-Test, Inc., a
Florida corporation.
10.2 6% Senior Unsecured Promissory Note, in the original principal
amount of $547,000 issued on June 3, 2004 by Cyber-Test, Inc., a
Delaware corporation in favor of Cyber-Test, Inc., a Florida
corporation.
10.3 Escrow Agreement, June 3, 2004, by and between Cyber-Test, Inc.,
a Delaware corporation and Cyber-Test, Inc., a Florida
corporation.
10.4 NonCompetition Agreement, June 3, 2004, by and between
Cyber-Test, Inc., a Delaware corporation, and Cyber-Test, Inc.,
a Florida corporation and the shareholders of Cyber-Test
Florida.
10.5 Employment Agreement, June 3, 2004, by and between Cyber-Test,
Inc., a Delaware corporation and Lisa Welton.
10.6 Employment Agreement, June 3, 2004, by and between Cyber-Test,
Inc., a Delaware corporation and Thomas Sutlive.
23.1 Consent of Chatham, Seland & Lashley, P.A., independent auditors
of Cyber-Test, Inc., a Florida corporation
99.1 Press Release dated June 8, 2004.
99.2 Audited Financial Statements of Cyber-Test, Inc., a Florida
corporation, for calendar year 2002 and 2003.