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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 September 30, 2006
|_| 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
(Issuer'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 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 whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
As of October 12, 2006, there were 4,679,030,401shares of the registrant's no
par value common stock issued and outstanding.
Transmittal Small Business Disclosure Format (check one):
Yes |_| No |X|
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
INDEX TO FORM 10-QSB
Part I-Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets As Of September 30, 2006
(Unaudited) And June 30, 2006
Condensed Consolidated Statements Of Operations For The Three
Months Ended September 30, 2006 And 2005 (Unaudited)
Condensed Consolidated Statement Of Stockholders' Equity For
The Three Months Ended September 30, 2006 (Unaudited)
Condensed Consolidated Statements Of Cash Flows For The Three
Months Ended September 30, 2006 And 2005 (Unaudited)
Notes To Condensed Consolidated Financial Statements As Of
September 30, 2006 (Unaudited)
Item 2. Management's Discussion And Analysis Or Plan Of Operation
Item 3. Controls And Procedures
Part II-Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity 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
As used herein, the terms the "Company," "Advanced Communications Technologies,"
"ACT," "we," "us" or "our" refer to Advanced Communications Technologies, Inc.,
a Florida corporation.
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the "Management's Discussion and Analysis or Plan of
Operation" and elsewhere in this quarterly report constitute "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Act")) relating to us and our business, which represent our
current expectations or beliefs including, but not limited to, statements
concerning our operations, performance, financial condition and growth. The Act
may, in certain circumstances, limit our liability in any lawsuit based on
forward-looking statements that we have made. All statements, other than
statements of historical facts, included in this quarterly report that address
activities, events or developments that we expect or anticipate will or may
occur in the future, including such matters as our projections, future capital
expenditures, business strategy, competitive strengths, goals, expansion, market
and industry developments and the growth of our businesses and operations are
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "believes," "expects," "anticipates," "could," "estimates,"
"grow," "plan," "continue," "will," "seek," "scheduled," "goal" or "future" 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, variability of quarterly results, our ability to continue our growth
strategy and competition, certain of which are beyond our control. Any or all of
our forward-looking statements may turn out to be wrong. They may be affected by
inaccurate assumptions that we might make or by known or unknown risks or
uncertainties. 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.
Because of the risks and uncertainties associated with forward-looking
statements, you should not place undo reliance on them. Further, any
forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2006
(Unaudited) June 30, 2006
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 759,562 $ 756,093
Accounts receivable, net of allowance for doubtful
accounts of $5,290 and $4,634, respectively 385,291 372,273
Replacement parts and equipment 411,113 414,425
Prepaid expenses and other current assets 128,841 119,961
------------ ------------
Total Current Assets 1,684,807 1,662,752
------------ ------------
Property and equipment, net 221,983 228,361
Other Assets
Other assets -- 7,601
Deferred acquisition costs 413,369 301,921
Licensed Intangibles and rights 400,000 400,000
Goodwill 2,624,388 2,624,388
------------ ------------
Total Other Assets 3,437,757 3,333,910
------------ ------------
TOTAL ASSETS $ 5,344,547 $ 5,225,023
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Notes payable and current portion of capitalized lease obligation $ 641,659 $ 965,909
Accounts payable and accrued expenses 2,318,986 1,993,193
------------ ------------
Total Current Liabilities 2,960,645 2,959,102
Capitalized lease obligation, less current portion 8,904 15,340
------------ ------------
TOTAL LIABILITIES 2,969,549 2,974,442
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 25,000 shares authorized:
Series A convertible preferred stock, $.01 par value, 3,270 and
3,585 shares issued and outstanding as of September 30, 2006
and June 30, 2006, respectively (liquidation value of
$3,270,000 and $3,585,000 as of September 30, 2006 and
June 30, 2006, respectively) 33 36
Series A-1 convertible preferred stock, $.01 par value, 340 shares
issued and outstanding as of September 30, 2006 (liquidation
value of $340,000) 3 --
Series B convertible preferred stock, $.01 par value, 40 and 60
shares issued and outstanding as of September 30, 2006 and
June 30, 2006, respectively (liquidation value of $40,000 and
$60,000 as of September 30, 2006 and June 30, 2006, respectively) 1 1
Common stock, no par value, 5,000,000,000 shares authorized,
4,617,302,006 and 4,167,927,006 shares issued and outstanding as of
September 30, 2006 and June 30, 2006, respectively; 30,808,040 30,455,040
Additional paid-in capital 4,324,894 4,397,037
Accumulated deficit (32,685,973) (32,601,533)
Deferred Compensation (72,000) --
------------ ------------
Total Stockholders' Equity 2,374,998 2,250,581
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,344,547 $ 5,225,023
============ ============
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
-------------------------------
September 30,
-------------------------------
2006 2005
-------------- --------------
NET SALES $ 2,140,837 $ 2,288,683
COST OF SALES 1,374,856 1,552,322
-------------- --------------
GROSS PROFIT 765,981 736,361
-------------- --------------
OPERATING EXPENSES
Depreciation and amortization 19,536 79,638
Professional and consulting fees 150,738 75,746
Selling, general and administrative expenses 668,730 985,465
-------------- --------------
TOTAL OPERATING EXPENSES 839,004 1,140,849
-------------- --------------
Loss From Operations Before Other Expense (73,023) (404,488)
OTHER EXPENSE
Interest expense, net (11,417) (20,483)
-------------- --------------
NET LOSS $ (84,440) $ (424,971)
============== ==============
Net loss per share - basic and dilutive $ -- $ --
============== ==============
Weighted average number of shares
outstanding during the year - basic and dilutive 4,449,489,506 3,152,792,753
============== ==============
See accompany notes to condensed consolidated financial statements
2
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
(UNAUDITED)
COMMON STOCK PREFERRED STOCK
--------------------------- ---------------- ADDITIONAL
PAID IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
------------- ----------- ------ ------- ---------- ------------ ------------ ----------
BALANCE AT
JUNE 30, 2006 4,167,927,006 $30,455,040 3,645 $ 37 $4,397,037 $(32,601,533) $ -- $2,250,581
Common stock issued on
conversion of Series A
preferred stock 321,875,000 315,000 (315) (3) (314,997) -- -- --
Common stock issued on
conversion of Series B
preferred stock 20,000,000 20,000 (20) -- (20,000) -- -- --
Issuance of Series A-1
preferred stock 340 3 339,997 -- -- 340,000
Issuance of common stock
to officers 20,000,000 18,000 -- 72,000 -- (72,000) 18,000
Issuance of common stock
to escrow pursuant to
litigation settlement 87,500,000 -- -- -- -- --
Accrued distribution of
common shares of
Herborium Group, Inc.
to shareholders -- -- -- -- (149,143) -- -- (149,143)
Net loss for the period (84,440) -- (84,440)
------------- ----------- ----- ------- ---------- ------------ -------- ----------
BALANCE AT
SEPTEMBER 30, 2006 4,617,302,006 $30,808,040 3,650 $ 37 $4,324,894 $(32,685,973) $(72,000) $2,374,998
============= =========== ===== ======= ========== ============ ======== ==========
See accompany notes to condensed consolidated financial statements
3
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
September 30,
--------------------------
2006 2005
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) CONTINUING OPERATIONS:
Net loss $ (84,440) $(424,971)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 19,536 79,638
Common stock issued for services 18,000 --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (13,018) (373,824)
Replacement parts and equipment 3,312 315
Prepaid expense/security deposits (1,279) (16,830)
Increase in liabilities:
Accounts payable and accrued expenses 176,650 288,686
--------- ---------
Net cash provided by (used in) operating activities 118,761 (446,986)
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets (13,158) (3,936)
Deferred acquisition costs (111,448) --
--------- ---------
Net cash used in investing activities (124,606) (3,936)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Principal payments on notes payable and capitalized lease (330,686) (5,029)
Proceeds from sale of Series A-1 preferred stock 340,000 --
--------- ---------
Net cash provided by (used in) financing activities 9,314 (5,029)
--------- ---------
Net increase (decrease) in cash 3,469 (455,951)
Cash and cash equivalents at beginning of period 756,093 836,876
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 759,562 $ 380,925
========= =========
See accompanying notes to consolidated financial statements
4
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
NOTE 1. BASIS OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) Organization
Unless the context requires otherwise, "we", "us", "our" "ACT" or the
"Company" refers to Advanced Communications Technologies, Inc. and its wholly
and majority-owned subsidiaries on a consolidated basis.
We are a New York-based public holding company specializing in the
technology after-market service and supply chain, known as reverse logistics.
Our wholly-owned subsidiary and principal operating unit, Encompass Group
Affiliates, Inc. a Delaware corporation ("Encompass"), acquires and operates
businesses that provide computer and electronics repair and end-of-life cycle
services. Encompass owns Cyber-Test, Inc. ("Cyber-Test"), an electronic
equipment repair company based in Florida and our principal operating business.
We seek to acquire investments in various profitable businesses within our
industry.
Encompass seeks to become a leader in the integrated technology and
services industry through the acquisition of assets and companies in that
industry. Among other activities, Encompass is focused on eliminating the risks
associated with environmental compliance in the e-Recycle industry by repairing,
refurbishing, sorting and selling old components to specialized processors, such
as smeltering plants.
Cyber-Test, a Delaware corporation and wholly-owned subsidiary of
Encompass, operates as an independent service organization. Cyber-Test provides
board-level repair of technical products to third-party warranty companies,
OEMs, national retailers and national office equipment dealers. Service options
include advance exchange, depot repair, call center support, parts and warranty
management. Cyber-Test's technical competency extends from office equipment and
fax machines to printers, scanners, laptop computers, monitors, multi-function
units and high-end consumer electronics, such as PDAs and digital cameras.
Programs are delivered nationwide through proprietary systems that feature
real-time EDI, flexible analysis tools and repair tracking.
(B) Basis of Accounting
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of business. The Company incurred
a net loss of $84,440 for the three months ended September 30, 2006 and $573,841
for the year ended June 30, 2006. The Company had a working capital deficiency
of $1,275,838 and $1,296,350 as of September 30, 2006 and June 30, 2006,
respectively. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to continue as a
going concern is dependent upon it achieving profitability and generating
sufficient cash flows to meet its obligations as they come due. Management is
pursuing additional capital and debt financing and the acquisitions of
profitable businesses. However, there is no assurance that these efforts will be
successful. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
(C) Financial Statement Presentation And Principles Of Consolidation
The consolidated financial statements include the Company and all of its
wholly-owned subsidiaries. The Company consolidates all majority-owned and
controlled subsidiaries, uses the equity method of accounting for investments in
which the Company is able to exercise significant influence, and uses the cost
method for all other investments. All significant intercompany transactions have
been eliminated in consolidation.
(D) Interim Financial Statements
Financial statements as of September 30, 2006 and 2005 are unaudited but
in the opinion of management the consolidated financial statements include all
adjustments consisting of normal accruals necessary for a fair presentation of
financial position and the comparative results of operation. Results of
operations for interim periods are not necessarily indicative of those to be
achieved or expected for the entire year. 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. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006.
5
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
(E) Use of Estimates
The preparation of the consolidated financial statements of the Company in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. In particular, significant estimates
are required to value replacement parts and equipment and estimate the future
cost associated with the Company's warranties. If the actual value of the
Company's replacement parts and equipment differs from these estimates, the
Company's operating results could be adversely impacted. The actual results with
regard to warranty expenditures could also have an adverse impact on the Company
if the actual rate of repair failure or the cost to re-repair a unit is greater
than what the Company has used in estimating the warranty expense accrual.
(F) Allowance For Doubtful Accounts
We make judgments as to our ability to collect outstanding trade
receivables and provide allowances for the portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review of
all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, we analyze our historical
collection experience and current economic trends. If the historical data we use
to calculate the allowance provided for doubtful accounts does not reflect our
future ability to collect outstanding receivables, additional provisions for
doubtful accounts may be needed and the future results of operations could be
materially affected.
(G) Replacement Parts and Equipment
Replacement parts and equipment consists primarily of repair parts,
consumable supplies for resale and used machines that are held for resale, and
are stated at the lower of weighted average cost or market. The weighted average
cost of replacement parts and equipment approximates the first-in, first-out
("FIFO") method. Management performs periodic assessments to determine the
existence of obsolete, slow-moving and non-usable replacement parts and
equipment and records necessary provisions to reduce such replacement parts and
equipment to net realizable value.
(H) Property and Equipment
Property and equipment are stated at cost. Assets are depreciated using
the straight-line method based on the following estimated useful lives:
Machinery and equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
Leasehold improvements Estimated useful life or length of the lease,
whichever is shorter
Maintenance and repairs are charged to expense when incurred.
(I) Goodwill
In accordance with SFAS No. 141, the Company allocates the purchase price
of its acquisitions to the tangible assets, liabilities and intangible assets
acquired based on their estimated fair values. The excess purchase price over
those fair values is recorded as "Goodwill." The fair value assigned to
intangible assets acquired is either based on valuations prepared by management
using certain estimates and assumptions or the values negotiated at arms-length
between the Company and the seller of the acquired assets. In accordance with
SFAS No. 142, goodwill and purchased intangibles with indefinite lives acquired
after June 30, 2001 are not amortized, but will be reviewed periodically for
impairment. Purchased intangibles with finite lives will be amortized on a
straight-line basis over their respective useful lives. As of September 30,
2006, these intangible assets were not impaired.
6
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
(J) Revenue Recognition
The Company recognizes revenue from the sale of refurbished computer
equipment and related products upon delivery of goods to a common carrier for
delivery to the customer. Revenue for the repair of customer-owned equipment is
recognized upon completion of the repair. The Company assumes the risk of loss
due to damage or loss of products during shipment. The Company is reimbursed by
the common carriers for shipping damage and lost products. The Company includes
shipping costs in cost of sales. Total shipping costs included in cost of sales
for the three months ended September 30, 2006 and 2005 were $324,886 and
$307,573, respectively. The Company also sells extended warranty and product
maintenance contracts. Revenue from these contracts is deferred and recognized
as income on a straight-line basis over the life of the contract, which is
typically for a period of one year. Service warranty and product maintenance
revenue represented less than 5% of the Company's total revenue for the year.
(K) Loss Per Share
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted loss 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 months ended September 30, 2006 and 2005, shares of common
stock that could have been issued upon conversion of convertible preferred stock
were excluded from the calculation of diluted loss per share, as their effect
would have been anti-dilutive.
(L) 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.
(M) Recent Accounting Pronouncements
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments." SFAS No. 155 amends FASB Statement No. 133 and
FASB Statement No. 140, and improves the financial reporting of certain hybrid
financial instruments by requiring more consistent accounting that eliminates
exemptions and provides a means to simplify the accounting for these
instruments. Specifically, SFAS No. 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole if the holder elects to
account for the whole instrument on a fair value basis. SFAS No. 155 is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006.
Management does not believe the adoption of SFAS No. 155 will have a material
impact on the Company's financial position or results of operations.
In June 2006, the FASB issued Interpretation No. ("FIN") 48, "Accounting
for Uncertainty in Income Taxes." This interpretation of FASB Statement No. 109,
"Accounting for Income Taxes," prescribes a recognition threshold or measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. In order to minimize the
diversity in practice existing in the accounting for income taxes, FIN 48 also
provides guidance on measurement, de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN 48 will
be effective for fiscal years beginning after December 15, 2006. Management does
not believe the adoption of FIN 48 will have a material impact on the Company's
financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Management does not believe
the adoption of SFAS No. 157 will have a material impact on the Company's
financial position or results of operations.
NOTE 2. STOCKHOLDERS' EQUITY
On September 13, 2006, the Company amended its articles of incorporation
to authorize the issuance of up to 1,000 shares of $0.01 par value Series A-1
Convertible Preferred Stock. The Series A-1 Preferred generally ranks
junior to the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock (collectively "the Senior Stock") and is senior to the Company's
common stock and all series of preferred stock other than the Senior Stock.
Subject to certain adjustments, the Series A-1 Preferred is, after December 31,
2006, convertible into shares of Common Stock at a conversion price of (a) $0.01
per share, or (b) eighty percent (80%) of the average of the three (3) lowest
closing bid prices of the Common Stock for the ten (10) trading days immediately
preceding the date of conversion, whichever is lower. The Company may redeem the
shares of Series A-1 Preferred at any time, upon notice to the holders, for a
price equal to 120% of the amount paid per share (the "Liquidation Amount"), and
is mandatorily redeemable upon the Company's receipt of an aggregate of
$35,000,000 through any combination of debt and equity investments and financing
facilities. Upon such event, the holders may exercise the right to convert their
shares of Series A-1 Preferred into shares of the Company's common stock. The
Series A-1 Preferred does not have any voting rights.
7
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
On September 13, 2006, the Company sold 340 shares of Series A-1 Preferred
Stock at a $1,000 per share. In connection with the sale of Series A-1 Preferred
Stock, the Company received aggregate gross proceeds of $340,000 as follows: (a)
$290,000 from officers and a former employee of the Company; and (b) $50,000
from an outside investor. In addition to the rights applicable to all holders of
Series A-1 Preferred, the holders of Series A-1 Preferred Stock were granted
certain piggyback registration rights in the event that the shares of Series A-1
Preferred are converted into shares of common stock.
In conjunction with the Company's license of certain intangible assets,
the Company issued 300 shares of nonvoting Series B Convertible Preferred Stock
(the "Series B Preferred Shares"), having a liquidation value of $1,000 per
share. The Series B Preferred Shares have the same terms and privileges as the
Series A Preferred Shares, but are junior to the Series A Preferred Shares in
the event of a liquidation of the Company, and are convertible, in whole or in
part into shares of common stock on the same terms of the Series A Preferred
Shares. During the three months ended September 30, 2006, holders of Series B
Preferred Shares elected to convert 20 shares of their Series B preferred stock
into 20,000,000 shares of the Company's common stock. At September 30, 2006, 40
Series B Preferred shares remain issued and outstanding.
On September 25, 2006, the Company entered into two separate, two-year
employment agreements with its Chief Operating Officer and Chief Financial
Officer. Under the terms of the agreements, an aggregate of 100,000,000
restricted shares of the Company's common stock were awarded at the closing
price per share at the dates of grant, of which 20% vested immediately, with 30%
and 50% to vest on September 26, 2007 and September 26, 2008, respectively,
subject to continued employment. As of September 30, 2006, 20,000,000 shares of
the Company's stock valued at $18,000 have been issued to these two officers.
NOTE 3. MAJOR CUSTOMERS
For the three months ended September 30, 2006 and 2005, sales to two
customers accounted for approximately 90% of our sales. As of September 30,
2006, accounts receivable from these two customers aggregated approximately
$285,000 or 76% of accounts receivable.
NOTE 4. SEGMENT INFORMATION
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". For the
three months ended September 30, 2006 and 2005, the Company primarily operated
in one segment, the repair and depot exchange of office and consumer
electronics. For the three months ended September 30, 2005, the Company also
operated Encompass Electronics Recovery, an electronic asset recovery and
distribution center. For the three months ended September 30, 2006 and 2005, the
Company's asset recovery and distribution services business had less than 1% of
the total revenue and accordingly, the financial results have not been
separately reported as a business segment.
NOTE 5. COMMITMENTS AND CONTINGENCIES
On September 25, 2006, the Company entered into two separate, two-year
employment agreements with a Chief Operating Officer and Chief Financial
Officer, with each agreement having a one-year option at the Company's election.
Under the terms of the agreements, the Company is obligated to pay aggregate
base salaries of $425,000 in the first year, $450,000 in the second year and
$500,000 in the option year. Further, an aggregate of 100,000,000 restricted
shares of the Company's common stock were awarded at the closing price per share
at the dates of grant, of which 20% vested immediately, with 30% and 50% to vest
on September 26, 2007 and September 26, 2008, respectively, subject to continued
employment.
8
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
In July, 2006, the Company, Pacific Magtron International Corp. (PMIC),
Mr. Li and Ms. Lee (Former Executives) and others entered into a Mutual
Settlement Agreement and Release (the "Settlement Agreement") with respect to
the settlement of the litigation and other potential claims, including the
termination of their employment contracts, involving us, PMIC, Encompass, Mr.
Li, Ms. Lee, Martin Nielson, our then Executive Vice President, and Wayne
Danson, our Chief Executive Officer. PMIC's entry into the Settlement Agreement
was conditioned on bankruptcy court approval, which was obtained on August 11,
2006 in connection with confirmation of PMIC's Plan of Reorganization. Under
PMIC's Plan of Reorganization, ACT contributed $50,000 as of June 30, 2006, and
an additional $100,000 during the three months ended September 30, 2006 on
behalf of PMIC's stockholders to effectuate the plan of reorganization and a
subsidiary of PMIC merged with an unrelated entity, Herborium, Inc. In
connection with the merger, PMIC changed its name to Herborium Group, Inc. Upon
closing of the merger on September 18, 2006, the Company paid an aggregate
$325,000 in cash to Mr. Li and Ms. Lee. In addition, Li and Lee are entitled to
receive certain shares of common stock of Herborium Group. If these shares do
not have a value of $.10 or greater at the end of a 150 day lock-up period, the
difference will be made up, at our option, by cash payments from us or delivery
of additional 1,750,000 shares of Herborium/PMIC common stock which would
otherwise be issued to our stockholders under PMIC's Plan of Reorganization and
has been escrowed. A special stock distribution of shares of Herborium Group
will be made to the holders of our common stock as of the record date of August
11, 2006 on the basis of a 0.001652911 share of Herborium common stock for each
share of our common stock. As of September 30, 2006, 87,500,000 shares of the
Company's common stock have been issued, are held in escrow and are to be
cancelled by the Company upon the issuance of the Herborium Group, Inc. shares.
Under the court approved PMIC plan of reorganization, the Company has been
acting as the disbursing agent and administrator for the remaining assets of
PMIC since September 19, 2006. As of September 30, 2006, the Company held
approximately $81,000 in trust for the payment of administrative and creditor
claims.
NOTE 6. RELATED PARTIES
Certain of the Company's legal counsels are stockholders and directors of
the Company. The Company incurred $275 for one of these attorneys' services
during the three months ended September 30, 2006. At September 30, 2006, the
Company owed $1,375 to this attorney.
Per terms of the Service Agreement with Danson Partners, LLC ("DPL"), the
Company accrued $62,500 for Mr. Danson's services as President and Chief
Executive Officer and $4,999 for reimbursable expenses for the three months
ended September 30, 2006. During the quarter ended September 30, 2006, the
Company reimbursed DPL $9,776 for expenses previously incurred for the Company
and did not make any payment for DPL's services. At September 30, 2006, the
Company owed a total of approximately $293,000 to DPL for compensatory services
and reimbursable expenses.
NOTE 7. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
The following are the payments made during the three months ended
September 30, 2006 and 2005 for income taxes and interest:
2006 2005
------ ------
Income taxes $3,913 $2,010
Interest $ 0 $ 0
During the three months ended September 30, 2006 and 2005, the Company
issued certain common shares for consideration other than cash.
9
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2006
(UNAUDITED)
Three Months Ended September 30, 2006:
(1) 315 shares of Series A Preferred Shares and 20 shares of Series B
Preferred Shares were converted into 321,875,000 shares and
20,000,000 shares, respectively, of the Company's common stock.
(2) 20,000,000 shares of the Company's common stock were issued to
certain officers of the Company in pursuant of the employment
contracts with the Company.
Three Months Ended September 30, 2005:
(1) 15 shares of Series A Preferred Shares were converted into
18,750,000 shares of the Company's common stock.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 quarterly report contain words such as "may,"
"estimates," "expects," "anticipates," "believes," "plan," "grow," "will,"
"could," "seek," "continue," "future," "goal," "scheduled" and other similar
expressions that are intended to identify forward-looking information that
involves risks and uncertainties. In addition, any statements that refer to
expectations or other characterizations of future events or circumstances are
forward-looking statements. Actual results and outcomes could differ materially
as a result of important factors including, among other things, general economic
conditions, the Company's ability to renew or replace key supply and credit
agreements, fluctuations in operating results, committed backlog, public market
and trading issues, risks associated with dependence on key personnel,
competitive market conditions in the Company's existing lines of business and
technological obsolescence, as well as other risks and uncertainties. See "Risk
Related To Our Business" and "Risks Related To Our Stock" below.
General
We are a New York-based public holding company specializing in the
technology after-market service and supply chain, known as reverse logistics.
Our wholly-owned subsidiary and principal operating unit, Encompass Group
Affiliates, Inc. ("Encompass"), acquires and operates businesses that provide
computer and electronics repair and end-of-life cycle services. Encompass owns
Cyber-Test, Inc. ("Cyber-Test"), an electronic equipment repair company based in
Florida and our principal operating business. The Company operated in one
business segment, the repair and refurbishment component of the reverse
logistics industry.
Financial Condition
We incurred a consolidated net loss of $84,000 for the three months ended
September 30, 2006 and $574,000 for the year ended June 30, 2006, and we had a
working capital deficiency of $1,276,000 as of September 30, 2006. For the three
months ended September 30, 2006, we have funded our ongoing operations from
working capital generated by Cyber-Test and the issuance of preferred stock.
However, these amounts have not been sufficient to fund all of our corporate
overhead. Our ability to continue as a going concern is dependent upon achieving
profitability and generating sufficient cash flows to meet our obligations as
they come due.
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with our fiscal 2006 and 2005 financial
statements, which states that our ability to continue as a going concern depends
upon our ability to resolve liquidity problems by generating sufficient
operating profits to provide additional working capital. 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.
RESULTS OF OPERATIONS-COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2006 TO
THE THREE MONTHS ENDED SEPTEMBER 30, 2005
Summary of Results of Operations
The following table sets forth certain selected financial data as a
percentage of sales for the three months ended September 30, 2006 and 2005:
2006 2005
----- -----
Net sales 100.0% 100.0%
Cost of sales 64.2 67.8
----- -----
Gross profit 35.8 32.2
Operating expenses 39.2 49.8
----- -----
Loss from operations before other expense (3.4) (17.6)
Other expenses (0.5) (0.9)
----- -----
Net loss (3.9)% (18.5)%
===== =====
11
Net Sales
Net sales for the three months ended September 30, 2006 amounted to
$2,141,000 as compared to net sales of $2,289,000 for the three months ended
September 30, 2005, a decrease of $148,000, or 6.5%. Cyber-Test, our core
operating business unit, experienced a 6.5% decrease in net sales for the three
months ended September 2006 compared to the comparable period in 2005. The
decrease in net sales was primarily due to reduced repair orders from a major
customer for a certain type of equipment during the period ended September 30,
2006 compared to the same period in 2005, partially offset by an increase in
repair orders from another major customer for another type of equipment.
Cost of Sales
Our cost of sales totaled $1,375,000 for the three months ended September
30, 2006 as compared to $1,552,000 for the three months ended September 30, 2005
a decrease of $177,000, or 11.4%. The decrease in cost of sales is primarily due
to the aforementioned decrease in Cyber-Test's net sales, as well as an
improvement of Cyber-Test's replacement parts purchase management. The decrease
in cost of sales was also attributable to a decrease in parts costs as charges
to write off excess parts were higher in the earlier period. The improvement in
Cyber-Test's gross margin to 35.8% for the three months ended September 30, 2006
compared to gross margin of 32.2% in the 2005 period was attributable to such
reduction in replacement parts write offs in the current period compared to the
earlier period.
Operating Expenses
Total operating expenses for the three months ended September 30, 2006 and
2005 were $839,000 and $1,141,000, respectively, representing a $302,000, or
26.5%, decrease from the three months ended September 30, 2005. The decrease was
primarily attributable to decreases in depreciation and amortization expense and
selling, general and administrative expenses of $60,000 and $317,000,
respectively, offset by an increase of $75,000 in professional and consulting
expenses as compared to the three months ended September 30, 2005.
Depreciation and amortization expense for the three months ended September
30, 2006 amounted to $20,000 compared to $80,000 for the three months ended
September 30, 2005. The decrease was principally due to amortization of deferred
compensation recorded in the three months ended September 30, 2005, with no such
expense recorded in the quarter ended September 30, 2006.
Professional and consulting fees increased from $76,000 for the three
months ended September 30, 2005 to $151,000 for the three months ended September
30, 2006. The increase of $75,000 in the current period compared to the prior
year period was primarily due to an increase in legal fees associated with the
PMIC bankruptcy proceeding and litigation settlement.
Selling, general and administrative expenses decreased by $317,000 from
$985,000 for the three months ended September 30, 2005 to $669,000 for the three
months ended September 30, 2006, due to decreases in compensation expense and
Encompass' operating expenses of $170,000 and $156,000, respectively. The
decrease in compensation expense was primarily due to a non-recurring charge for
a bonus to an officer incurred in the earlier period and the effect of a
deferral of $54,000 of officer's compensation in the current period related to
the acquisition of certain targeted businesses. Encompass, which ceased
operations in California effective June 30, 2006 incurred no expenses in the
three months ended September 30, 2006, whereas it incurred expenses of
approximately $156,000 in the three months ended September 30, 2005.
Other Expense
Interest expense for the three months ended September 30, 2006 was $11,000
compared to $20,000 for the three months ended September 30, 2005. The decrease
is primarily due to a decrease in the amount of notes payables and capital
leases outstanding in the three months ended September 30, 2006 compared to the
comparable period in 2005.
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred a net loss of $84,000 for the three months ended
September 30, 2006 and $574,000 for the year ended June 30, 2006. The Company
had a working capital deficiency of $1,276,000 as of September 30, 2006. For the
year ended June 30, 2006 and for the three months ended September 30, 2006, we
have funded our ongoing operations from working capital generated by Cyber-Test.
However, these amounts have not been sufficient to fund all of our corporate
overhead. The Company incurred a substantial amount of legal expenses during the
quarter ended September 30, 2006 and for the year ended June 30, 2006. Our
professional and consulting fees increased from $76,000 for three months ended
September 30, 2005 to $151,000 for the three months ended June 30, 2006. We also
incurred $108,000 and $302,000 of legal, accounting and consulting costs
relating to the potential acquisition of certain targeted businesses for the
three months ended September 30, 2006 and the year ended June 30, 2006,
respectively. Additionally, during fiscal 2006 the Company settled litigation
with former PMIC executives for $325,000, which was paid, in full, on September
18, 2006.
12
On September 13, 2006, we sold 340 shares of our Series A-1 Preferred
Stock for proceeds of $340,000. A portion of these proceeds was used to pay the
$325,000 to former PMIC executives. Our existing sources of liquidity, including
cash resources and cash provided by operating activities will not provide us
with sufficient resources to meet our present obligations and the working
capital and cash requirements for the next 12 months. Consequently, we are
actively pursuing but have not yet secured a working capital facility to provide
us with the necessary working capital over the next 12 months. The Company's
ability to continue as a going concern is dependent upon achieving profitability
and generating sufficient cash flows to meet its obligations as they come due,
and obtaining additional equity or debt financing.
We are pursuing equity and debt financing for the acquisition of
profitable businesses within our industry. In April 2006, we engaged Janney
Montgomery Scott, LLC, a Philadelphia-based investment banking firm, to assist
us in securing an acquisition debt facility and/or long-term strategic equity
investors, for the purpose of providing us with acquisition funds and funds for
ongoing working capital needs and a planned recapitalization of our common and
preferred stock. There can be no assurance that we will be able to obtain
financing to meet working capital needs at suitable valuations or rates of
interest, if at all. In addition, there is no guarantee that we will be able to
secure financing to permit us to pursue strategic acquisitions and investments.
On September 25, 2006, the Company entered into two separate, two-year
employment agreements with a Chief Operating Officer and Chief Financial
Officer. Under the terms of the agreements, the Company is obligated to pay
aggregate base salaries of $425,000 in the first year, $450,000 in the second
year and $500,000 in the option year. Further, an aggregate of 100,000,000
restricted shares of the Company's common stock were awarded at the closing
price per share at the dates of grant, of which 20% vested immediately, with 30%
and 50% to vest on September 26, 2007 and September 26, 2008, respectively,
subject to continued employment.
We have total contractual obligations of $651,000 as of September 30,
2006. These contractual obligations, along with the dates on which such payments
are due, are described below:
Contractual Obligations
--------------------------------------------
Total 1 Year or Less More Than 1 Year
-------- -------------- ----------------
Notes payable $618,000 $ 618,000 $ --
Capitalized lease obligations 33,000 24,000 9,000
-------- --------- --------
Total Contractual Obligations $651,000 $ 642,000 $ 9,000
======== ========= ========
Net Cash Provided By (Used In) Operating Activities
Net cash provided by operating activities was $119,000 for the three
months ended September 30, 2006 compared to net cash used in operating
activities of $447,000 for the three months ended September 30, 2005. Net cash
provided by operating activities for the three months ended September 30, 2006
was principally due to an increase in accounts payable and accrued expenses of
$177,000, which was partially offset by the loss from operations of $84,000.
Net cash used in operating activities was $447,000 for the three months
ended September 30, 2005. Cash used in operating activities was principally due
to the net loss from operations of $425,000 and an increase in accounts
receivable of $374,000, offset by an increase in accounts payable and accrued
expenses of $289,000 and non-cash depreciation and amortization charges of
$80,000.
Net Cash Provided By (Used In) Investing Activities
Net cash used in investing activities of $125,000 for the three months
ended September 30, 2006 was attributable to deferred legal, accounting and
consulting costs of $111,000 relating to several contemplated acquisitions of
certain targeted businesses. Net cash used in investing activities of $4,000 for
the three months ended September 30, 2005 was attributable to purchases of fixed
assets.
13
Net Cash Provided By (Used In) Financing Activities
Net cash provided by financing activities of $9,000 for the three months
ended September 30, 2006 was attributable to proceeds of $340,000 from the sale
of our Series A-1 preferred stock, offset by principal payments of $331,000 on
notes payable and capital leases. Net cash used in financing activities of
$5,000 for the three months ended September 30, 2005 was attributable to
principal payments on notes payable and capital leases.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements between the Company and any
other entity that have, or are reasonably likely to have, a current or future
effect on the Company's financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or
capital resources. The Company does not have any non-consolidated special
purpose entities.
RISKS RELATED TO OUR BUSINESS
In addition to historical facts or statements of current condition, this
quarterly report on Form 10-QSB contains forward-looking statements.
Forward-looking statements provide our current expectations or forecasts of
future events.
The following discussion outlines certain factors that we think could
cause our actual outcomes and results to differ materially from our
forward-looking statements as well as impact our future overall performance.
These factors are in addition to those set forth elsewhere in this quarterly
report on Form 10-QSB.
We Have A History Of Losses, And May Incur Additional Losses
We are a holding company with a limited history of operations. For the
three months ended September 30, 2006 and the year ended June 30, 2006, we
incurred an overall net loss of $84,000 and $574,000, respectively. We cannot be
sure that we will be profitable in future years.
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 our fiscal 2006 and 2005 financial
statements, which states that our ability to continue as a going concern depends
upon our ability to resolve liquidity problems by generating sufficient
operating profits to provide additional working capital. 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 Will Need Additional Capital to Achieve Our Business Plans
We are seeking capital to fund the transactions with our current
acquisition candidates. Delay in obtaining this funding will delay or inhibit
our progress in achieving our goals. We will likely require additional
investment funds:
o to seek out and find investment opportunities in high
growth-potential companies; and,
o to acquire the assets or stock of related companies in the
reverse logistics arena.
It is possible that we will be unable to obtain additional funding as and
when we need it or on terms that are acceptable to us. If we are unable to
obtain additional funding as and when needed, we could be forced to delay the
progress of our business expansion plans.
We Need Additional Capital to Fund our Present Liabilities
At September 30, 2006, we had a working capital deficit of $1,276,000. It
is unlikely that Cyber-Test's operations will be able to produce sufficient
excess working capital to fund this deficit in the next 12 months. Therefore, we
will be required to raise additional debt or equity funds to pay our present
liabilities. In the event we are not able to raise sufficient funds in
connection with proposed acquisitions, we may not have any sources of capital
available to pay these liabilities.
14
To Service Our Indebtedness, We Will Require A Significant Amount Of Cash; Our
Ability To Generate Cash Depends On Many Factors Beyond Our Control
Our ability to make payments on the indebtedness we intend to incur to
fund acquisitions will depend on our ability to generate cash from our
operations in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based on our projected level of operations after the
acquisitions, we believe our cash flow from operations will be adequate to meet
our debt service requirements. We cannot provide any assurances, however, that
we will have sufficient cash flow to fund our debt service and other liquidity
needs. We may need to refinance or restructure all or a portion of our
indebtedness on or before maturity. We cannot make any assurances that we will
be able to refinance any of our indebtedness on commercially reasonable terms or
at all. If we cannot service our indebtedness, we may have to take actions such
as selling assets, seeking additional equity or reducing or delaying capital
expenditures, strategic acquisitions, investments and alliances. We cannot make
any assurances that any such actions, if necessary, could be effected on
commercially reasonable terms, or at all.
New Equity Financing Could Dilute Current Stockholders
If we raise funds through equity financing to meet the needs discussed
above, it will have a dilutive effect on existing holders of our shares by
reducing their percentage ownership. The shares may be sold at a time when the
market price is low because we need the funds. This will dilute existing holders
more than if our stock price was higher. In addition, equity financings often
involve shares sold at a discount to the current market price.
The Loss Of Any One Of Cyber-Test's Key Customers Could Have A Material Adverse
Effect On Our Business
Cyber-Test relies heavily on the business of a few key customers. While
all these key customers are contractually committed to purchase parts or service
from Cyber-Test, these contracts are terminable within 60 to 90 days. If any one
(or all) of these key customers terminates its relationship with Cyber-Test, it
could have a material adverse effect on our business.
We And Our Subsidiaries Operate In Competitive Industries
Cyber-Test's business is highly competitive. Cyber-Test competes with
companies that provide repair services for office equipment and computer
peripheral products, with companies that supply parts and consumables to
end-users and repair companies of such equipment and products, and with
resellers of such equipment and products.
Competition within the office equipment and computer peripheral products
service and repair industry is based on quality of service, depth of technical
know-how, price, availability of parts, speed and accuracy of delivery, and the
ability to tailor specific solutions to customer needs. Many of Cyber-Test's
competitors are larger in size and have greater financial and other resources
than Cyber-Test, such as Decision One, Depot America, Teleplan, DataTech
America, and DEX. Cyber-Test also competes with manufacturers and OEMs that do
their own repair work, as well as large distribution and logistics companies
such as United Parcel Service and Airborne Logistics.
Management believes Cyber-Test has a competitive advantage over many of
its competitors, but Cyber-Test's ability to maintain such competitive advantage
is dependent upon many variables, including its ability to successfully attract
and retain technicians that are capable of performing repair on all brands and
models of office equipment and computer peripherals at prices which remain
competitive. We can provide no assurances that Cyber-Test will continue to have
the resources to successfully compete in the technology repair service industry.
Our Business Could Suffer If There Is A Prolonged Economic Downturn
We derive a substantial amount of our net revenue from the repair and
resale by Cyber-Test of office equipment and computer peripheral products.
Revenue from the repair and resale of such equipment does not generally
fluctuate widely with economic cycles. However, a prolonged national or regional
economic recession could have a material adverse effect on our business.
15
Fluctuations In The Price Or Availability Of Office Equipment Parts And Computer
Peripheral Products Could Materially Adversely Affect Us
The price of office equipment parts and computer peripheral products may
fluctuate significantly in the future. Changes in the supply of or demand for
such parts and products could affect delivery times and prices. We cannot
provide any assurances that Cyber-Test will continue to have access to such
parts and products in the necessary amounts or at reasonable prices or that any
increases in the cost of such parts and products will not have a material
adverse effect on our business.
We Could Be Materially Affected By Turnover Among Our Service Representatives
Cyber-Test depends on its ability to identify, hire, train, and retain
qualified service personnel as well as a management team to oversee the services
that Cyber-Test provides. A loss of a significant number of these experienced
personnel would likely result in reduced revenues for Cyber-Test and could
materially affect our business. Cyber-Test's ability to attract and retain
qualified service representatives depends on numerous factors, including factors
that Cyber-Test cannot control, such as conditions in the local employment
markets in which it operates. We cannot provide any assurances that Cyber-Test
will be able to hire or retain a sufficient number of service representatives to
achieve its financial objectives.
We Have A Working Capital Deficit, Which Means That Our Current Assets On
September 30, 2006 Were Not Sufficient To Satisfy Our Current Liabilities On
That Date
We had a working capital deficit of $1,276,000 as of September 30, 2006,
which means that our current liabilities exceeded our current assets by
$1,276,000. 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
September 30, 2006 were not sufficient to satisfy all of our current liabilities
on that date.
We Could Fail To Attract Or Retain Key Personnel
Our success largely depends on the efforts and abilities of key
executives, including Mr. Wayne Danson, our President and Chief Executive
Officer, Mr. Steven Miller, our Chief Operating Officer, Mr. John Donahue, our
Chief Financial Officer and Ms. Lisa Welton, our President and Chief Executive
Officer of Cyber-Test. The loss of the services of these key executives could
materially adversely affect 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 maintain a $2,000,000 key-man life
insurance policy for each of Mr. Danson and Ms. Welton, and will do so for Mr.
Miller and Mr. Donahue.
RISKS RELATED TO OUR STOCK
The Future Conversion Of Our Outstanding Series A, A-1 And B Convertible
Preferred Stock Will Cause Dilution To Our Existing Shareholders, Which Means
That Our Per Share Income And Stock Price Could Decline
The issuance of shares upon any future conversion of the outstanding
Series A, Series A-1 and Series B Convertible Preferred Stock will have a
dilutive impact on our stockholders. As of September 30, 2006, we have
$3,650,000 of outstanding shares at liquidation value of Series A, Series A-1
and Series B Convertible Preferred Stock that is convertible into shares of our
common stock. Our Series A and B Convertible Preferred Stock are convertible at
a price of $0.01 per share or 100% of the average of the three lowest closing
bid prices for the ten trading days immediately preceding the date of
conversion, whichever is lower. Our Series A-1 Convertible Preferred Stock is
convertible at a price of $.01 per share or 80% of the average of the three
lowest closing bid prices for the ten trading days immediately preceding the
date of conversion, whichever is lower. If our share price were equal to or
greater than $.01 per share at the time of conversion, the Series A, A-1 and B
Convertible Preferred Stock would be convertible into an aggregate of
365,000,000 shares of our common stock. In the event the price of our common
stock is less than $.01 per share at the time of conversion, the number of
shares of our common stock issuable would be greater than 365,000,000. If such
conversions had taken place at $0.0008, our recent stock price, then holders of
our Convertible Preferred Stock would have received 4,668,750,000 shares of our
common stock. As a result, the market price of our common stock could decline
due to the dilutive effect of such additional shares of common stock.
16
The Conversion Of Our Series A Convertible Preferred Stock Could Cause A Change
Of Control
The issuance of shares upon the conversion of our Series A Convertible
Preferred Stock could result in a change of control. Cornell Capital Partners,
L.P. holds $2,120,000 of our Series A Convertible Preferred Stock, which if
converted at $0.0008 per share would result in the issuance of up to
2,650,000,000 shares of our common stock. After such conversions, Cornell
Capital Partners, L.P. would own approximately 37% of our then outstanding
shares of Common Stock. In such event, Cornell Capital Partners, L.P. would be a
major shareholder and might be able to exercise control of us by electing
directors and increasing the number of authorized shares of common stock that we
could issue or otherwise.
The Price of Our Common Stock May Be Affected By A Limited Trading Volume And
May Fluctuate Significantly
There is a limited public market for our common stock, and there can be no
assurance that an active trading market will continue. An absence of an active
trading market could adversely affect our stockholders' ability to sell our
common stock in short time periods, or 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 Exchange Act. 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:
o have a price of less than $5.00 per share;
o are not traded on a "recognized" national exchange;
o 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 include stock in issuers with net tangible assets of 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.
ITEM 3. CONTROLS AND PROCEDURES
(A) Evaluation Of Disclosure Controls And Procedures
As of September 30, 2006, 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 (as defined in Section 240.13a-15(e) or
240.15d-15(e) under the Exchange Act). Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the September 30, 2006 quarterly period, 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 SEC. 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.
17
(B) Changes In Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting (as defined in Section 240.13a-15(f) or 240.15d-15(f) of the Exchange
Act) during our first fiscal quarter ended September 30, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been, and may in the future be, involved as a party to
various legal proceedings which are incidental to the ordinary course of its
business. Management regularly analyzes current information and, as necessary,
provides accruals for probable liabilities on the eventual disposition of these
matters. In the opinion of management, as of September 30, 2006, there were no
threatened or pending legal matters that would have a material impact on the
Company's consolidated results of operations, financial position or cash flows.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On September 30, 2006, we were in default for failure to pay an unsecured
term note when due on June 30, 2005. The note has a principal balance of
$275,000 and bears interest at the rate of 10%. The total amount of principal
and interest due as of September 30, 2006 amounted to $320,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
19
Exhibit No. Description Location (1)
- ----------- ----------- ------------
2.1 Asset Purchase Agreement dated May 27, 2004, by and Incorporated by reference to Exhibit 10.1 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Cyber-Test, Inc., a Florida corporation. June 18, 2004
2.2 Stock Purchase Agreement, dated as of December 10, Incorporated by reference to Exhibit 2.14.1 to
2004, among Advanced Communications Technologies, the Company's Form 8-K filed with the SEC on
Inc., Theodore S. Li and Hui Cynthia Lee. December 14, 2004
3(I)(a) Articles of Incorporation of Media Forum Incorporated by reference to Exhibit 2.1 to
International, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(b) Second Amendment to Articles of Incorporation of Incorporated by reference to Exhibit 2.2 to
Telenetworx, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(c) Third Amendment to Articles of Incorporation of Incorporated by reference to Exhibit 2.3 to
Media Forum International, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(d) 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
3(I)(e) 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
3(I)(f) Sixth Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1.6 the
Company's Form 10-KSB filed with the SEC on
November 3, 2004
3(I)(g) Seventh Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1.7 the
Company's Form 10-KSB filed with the SEC on
November 3, 2004
3(I)(h) Eighth Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K filed with the SEC on
September 19, 2006
20
3(II) Bylaws of the Company Incorporated by reference to Exhibit 2.4 to
the Company's Form S-8 filed with the SEC on
February 9, 2000
4.1 6% Secured Convertible Promissory Note, dated Incorporated by reference to Exhibit 10.1 to
December 30, 2004, issued to Theodore S. Li. the Company's Form 8-K filed with the SEC on
January 5, 2005
4.2 6% Secured Convertible Promissory Note, dated Incorporated by reference to Exhibit 10.2 to
December 30, 2004, issued to Hui Cynthia Lee. the Company's Form 8-K filed with the SEC on
January 5, 2005
4.3 Secured Convertible Debenture Incorporated by reference to Exhibit 10.21 to
the Company's Form 10-KSB filed with the SEC
on December 6, 2002
4.4 Securities Purchase Agreement, dated November 2002, Incorporated by reference to Exhibit 10.19 to
by and among Advanced Communications Technologies, the Company's Form 10-KSB filed with the SEC
Inc. and Buyers. on December 6, 2002
4.5 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 filed with the SEC
Technologies, Inc. and Investors. on December 6, 2002
4.6 Escrow Agreement, dated November 2002, by and among Incorporated by reference to Exhibit 10.22 to
Advanced Communications Technologies, Inc., Buyers, the Company's Form 10-KSB filed with the SEC
and Wachovia Bank, N.A. on December 6, 2002
4.7 Irrevocable Transfer Agent Instructions, dated Incorporated by reference to Exhibit 10.23 to
November 2002 the Company's Form 10-KSB filed with the SEC
on December 6, 2002
4.8 Security Agreement, dated November 2002, by and Incorporated by reference to Exhibit 10.24 to
among Advanced Communications Technologies, Inc. and the Company's Form 10-KSB filed with the SEC
Buyers on December 6, 2002
4.9 6% Senior Unsecured Promissory Note, in the original Incorporated by reference to Exhibit 10.2 to
principal amount of $547,000 issued on June 3, 2004 the Company's Form 8-K filed with the SEC on
by Cyber-Test, Inc., a Delaware corporation, in June 18, 2004
favor of Cyber-Test, Inc., a Florida corporation.
4.10 Escrow Agreement, dated June 3, 2004, by and between Incorporated by reference to Exhibit 10.3 to
Cyber-Test, Inc., a Delaware corporation, and the Company's Form 8-K filed with the SEC on
Cyber-Test, Inc., a Florida corporation. June 18, 2004
21
4.11 Amendment No. 1 to 6% Unsecured Promissory Note Incorporated by reference to Exhibit 10.35 to
dated August 10, 2004. the Company's Form 10-KSB filed with the SEC
on November 3, 2004
4.12 Form of Exchange Agreement, dated June 24, 2004, by Incorporated by reference to Exhibit 10.40 to
and among Advanced Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
and certain debenture holders of Hy-Tech Technology on November 3, 2004
Group, Inc.
4.13 Escrow Agreement dated May 28, 2004 by and among Incorporated by reference to Exhibit 10.42 to
Advanced Communications Technologies, Inc., Buyers the Company's Form 10-KSB filed with the SEC
and Butler Gonzalez, LLP, Escrow Agent. on November 3, 2004
4.14 Investment Agreement dated May 28, 2004 by and Incorporated by reference to Exhibit 10.43 to
between Advanced Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
and Cornell Capital Partners, LP. on November 3, 2004
4.15 Registration Rights Agreement dated May 28, 2004 by Incorporated by reference to Exhibit 10.44 to
and between Advanced Communications Technologies, the Company's Form 10-KSB filed with the SEC
Inc. and Cornell Capital Partners, LP. on November 3, 2004
4.16 Investment Agreement dated September 8, 2006 by and Incorporated by reference to Exhibit 4.1 to
between Advanced Communications Technologies, Inc. the Company's Form 8-K filed with the SEC on
and the Series A-1 Preferred Stockholders September 19, 2006
10.1 Custodial and Stock Pledge Agreement, dated December Incorporated by reference to Exhibit 10.3 to
30, 2004, among Advanced Communications the Company's Form 8-K filed with the SEC on
Technologies, Inc., Theodore S. Li and Hui Cynthia January 5, 2005
Lee, and Quarles & Brady Streich Lang LLP.
10.2 Employment Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.4 to
Pacific Magtron International Corporation, Inc., the Company's Form 8-K filed with the SEC on
Advanced Communications Technologies, Inc., January 5, 2005
Encompass Group Affiliates, Inc., and Theodore S. Li.
10.3 Employment Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.5 to
Pacific Magtron International Corporation, Inc., the Company's Form 8-K filed with the SEC on
Advanced Communications Technologies, Inc., January 5, 2005
Encompass Group Affiliates, Inc., and Hui Cynthia Lee
10.4 Indemnity Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.6 to
Advanced Communications Technologies, Inc., Theodore the Company's Form 8-K filed with the SEC on
S. Li and Hui Cynthia Lee. January 5, 2005
22
10.5* Form of Grant Instrument under Advanced Incorporated by reference to Exhibit 10.1 to
Communications Technologies, Inc. 2005 Stock Plan the Company's Form 8-K filed with the SEC on
for Non-Employee Director. July 6, 2005
10.6* Form of Lock-Up Agreement for Executive Incorporated by reference to Exhibit 10.2 to
Officer/Director of Advanced Communications the Company's Form 8-K filed with the SEC on
Technologies, Inc. July 6, 2005
10.7* Form of Grant Instrument under Advanced Incorporated by reference to Exhibit 10.3 to
Communications Technologies, Inc. 2005 Stock Plan the Company's Form 8-K filed with the SEC on
for Executive Officer/Employee. July 6, 2006
10.8* Services Agreement entered into on June 7, 2005 by Incorporated by reference to Exhibit 10.1 to
and among Advanced Communications Technologies, the Company's Form 8-K filed with the SEC on
Inc., Wayne I. Danson and Danson Partners, LLC. July 13, 2005
10.9 Equity Line of Credit Agreement dated July 2003, by Incorporated by reference to Exhibit 10.13 to
and between Cornell Capital Partners, LP and the Company's Form SB-2 filed with the SEC on
Advanced Communications Technologies, Inc. July 16, 2003
10.10 Registration Rights Agreement dated July 2003, by Incorporated by reference to Exhibit 10.14 to
and between Advanced Communications Technologies, the Company's Form SB-2 filed with the SEC on
Inc. and Cornell Capital Partners, LP. July 16, 2003
10.11 Placement Agent Agreement dated July 2003, by and Incorporated by reference to Exhibit 10.15 to
between Advanced Communications Technologies, Inc. the Company's Form SB-2 filed with the SEC on
and Westrock Advisors, Inc. July 16, 2003
10.12 Escrow Agreement dated July 2003, by and among Incorporated by reference to Exhibit 10.16 to
Advanced Communications Technologies, Inc., Cornell the Company's Form SB-2 filed with the SEC on
Capital Partners, LP, Butler Gonzalez LLP and First July 16, 2003
Union National Bank.
10.13 Consulting Agreement dated July 1, 2002 between Incorporated by reference to Exhibit 10.26 to
Advanced Communications Technologies, Inc. and the Company's Form 10-KSB/A filed on February
Randall H. Prouty. 7, 2003
10.14 NonCompetition Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.4 to
among Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
Cyber-Test, Inc., a Florida corporation, and the June 18, 2004
shareholders of Cyber-Test.
10.15 Employment Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.5 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Lisa Welton. June 18, 2004
23
10.16 Employment Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.6 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Thomas Sutlive. June 18, 2004
10.17 Agreement, dated May 27, 2004, by and among Incorporated by reference to Exhibit 10.36 to
Encompass Group Affiliates, Inc., Hy-Tech Technology the Company's Form 10-KSB filed with the SEC
Group, Inc. and Hy-Tech Computer Systems, Inc. on November 3, 2004
10.18 Customer Lists License Agreement, dated June 24, Incorporated by reference to Exhibit 10.37 to
2004, by and among Encompass Group Affiliates, Inc., the Company's Form 10-KSB filed with the SEC
Hy-Tech Technology Group, Inc. and Hy-Tech Computer on November 3, 2004
Systems, Inc.
10.19 Websites License Agreement, dated June 24, 2004, by Incorporated by reference to Exhibit 10.38 to
and among Encompass Group Affiliates, Inc., Hy-Tech the Company's Form 10-KSB filed with the SEC
Technology Group, Inc. and Hy-Tech Computer Systems, on November 3, 2004
Inc.
10.20 NonCompetition and Nondisclosure Agreement by and Incorporated by reference to Exhibit 10.39 to
among Encompass Group Affiliates, Inc., Hy-Tech the Company's Form 10-KSB filed with the SEC
Technology Group, Inc. and Hy-Tech Computer Systems, on November 3, 2004
Inc.
10.21* Employment Agreement dated June 24, 2004 by and Incorporated by reference to Exhibit 10.41 to
among Encompass Group Affiliates, Inc., Advanced the Company's Form 10-KSB filed with the SEC
Communications Technologies, Inc. and Martin Nielson. on November 3, 2004
10.22* January 1, 2005 Amendment to Employment Agreement by Incorporated by reference to Exhibit 10.22 to
and among Encompass Group Affiliates, Inc., Advanced the Company's Form 10-KSB filed with the SEC
Communications Technologies, Inc. and Martin Nielson. on October 3, 2005
10.23* Employment Agreement dated September 21, 2006 Incorporated by reference to Exhibit 10.23 to
between Advanced Communications Technologies, Inc. the Company's Form 8-K filed with the SEC on
and John E. Donahue September 29, 2006
10.24* Employment Agreement dated September 8, 2006 between Incorporated by reference to Exhibit 10.23 to
Advanced Communications Technologies, Inc. and the Company's Form 8-K filed with the SEC on
Steven J. Miller September 29, 2006
14 Code of Business Conduct and Ethics for Advanced Incorporated by reference to Exhibit 14.1 to
Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
on November 3, 2004
31.1 Certification by Chief Executive Officer pursuant to Provided herewith
Sarbanes-Oxley Section 302
24
31.2 Certification by Chief Financial Officer pursuant to Provided herewith
Sarbanes-Oxley Section 302
32.1 Certification by Chief Executive Officer pursuant to Provided herewith
18 U.S.C. Section 1350
32.2 Certification by Chief Financial Officer pursuant to Provided herewith
18 U.S.C. Section 1350
* Management contract or management compensatory plan or arrangement.
(1) In the case of incorporation by reference to documents filed by the Company
under the Exchange Act, the Company's file number under the Exchange Act is
000-30486.
25
SIGNATURES
In accordance with the requirements 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, Chief Executive Officer
(Principal Executive Officer) and
Director
Date: November 13, 2006
By: /s/ John E. Donahue
----------------------------------------
Name: John E. Donahue
Title: Chief Financial Officer (Principal
Accounting Officer)
Date: November 13, 2006
26
EXHIBIT INDEX
27
Exhibit No. Description Location (1)
- ----------- ----------- ------------
2.1 Asset Purchase Agreement dated May 27, 2004, by and Incorporated by reference to Exhibit 10.1 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Cyber-Test, Inc., a Florida corporation. June 18, 2004
2.2 Stock Purchase Agreement, dated as of December 10, Incorporated by reference to Exhibit 2.14.1 to
2004, among Advanced Communications Technologies, the Company's Form 8-K filed with the SEC on
Inc., Theodore S. Li and Hui Cynthia Lee. December 14, 2004
3(I)(a) Articles of Incorporation of Media Forum Incorporated by reference to Exhibit 2.1 to
International, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(b) Second Amendment to Articles of Incorporation of Incorporated by reference to Exhibit 2.2 to
Telenetworx, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(c) Third Amendment to Articles of Incorporation of Incorporated by reference to Exhibit 2.3 to
Media Forum International, Inc. the Company's Form S-8 filed with the SEC on
February 9, 2000
3(I)(d) 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
3(I)(e) 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
3(I)(f) Sixth Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1.6 the
Company's Form 10-KSB filed with the SEC on
November 3, 2004
3(I)(g) Seventh Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1.7 the
Company's Form 10-KSB filed with the SEC on
November 3, 2004
3(I)(h) Eighth Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K filed with the SEC on
September 19, 2006
28
3(II) Bylaws of the Company Incorporated by reference to Exhibit 2.4 to
the Company's Form S-8 filed with the SEC on
February 9, 2000
4.1 6% Secured Convertible Promissory Note, dated Incorporated by reference to Exhibit 10.1 to
December 30, 2004, issued to Theodore S. Li. the Company's Form 8-K filed with the SEC on
January 5, 2005
4.2 6% Secured Convertible Promissory Note, dated Incorporated by reference to Exhibit 10.2 to
December 30, 2004, issued to Hui Cynthia Lee. the Company's Form 8-K filed with the SEC on
January 5, 2005
4.3 Secured Convertible Debenture Incorporated by reference to Exhibit 10.21 to
the Company's Form 10-KSB filed with the SEC
on December 6, 2002
4.4 Securities Purchase Agreement, dated November 2002, Incorporated by reference to Exhibit 10.19 to
by and among Advanced Communications Technologies, the Company's Form 10-KSB filed with the SEC
Inc. and Buyers. on December 6, 2002
4.5 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 filed with the SEC
Technologies, Inc. and Investors. on December 6, 2002
4.6 Escrow Agreement, dated November 2002, by and among Incorporated by reference to Exhibit 10.22 to
Advanced Communications Technologies, Inc., Buyers, the Company's Form 10-KSB filed with the SEC
and Wachovia Bank, N.A. on December 6, 2002
4.7 Irrevocable Transfer Agent Instructions, dated Incorporated by reference to Exhibit 10.23 to
November 2002 the Company's Form 10-KSB filed with the SEC
on December 6, 2002
4.8 Security Agreement, dated November 2002, by and Incorporated by reference to Exhibit 10.24 to
among Advanced Communications Technologies, Inc. and the Company's Form 10-KSB filed with the SEC
Buyers on December 6, 2002
4.9 6% Senior Unsecured Promissory Note, in the original Incorporated by reference to Exhibit 10.2 to
principal amount of $547,000 issued on June 3, 2004 the Company's Form 8-K filed with the SEC on
by Cyber-Test, Inc., a Delaware corporation, in June 18, 2004
favor of Cyber-Test, Inc., a Florida corporation.
4.10 Escrow Agreement, dated June 3, 2004, by and between Incorporated by reference to Exhibit 10.3 to
Cyber-Test, Inc., a Delaware corporation, and the Company's Form 8-K filed with the SEC on
Cyber-Test, Inc., a Florida corporation. June 18, 2004
29
4.11 Amendment No. 1 to 6% Unsecured Promissory Note Incorporated by reference to Exhibit 10.35 to
dated August 10, 2004. the Company's Form 10-KSB filed with the SEC
on November 3, 2004
4.12 Form of Exchange Agreement, dated June 24, 2004, by Incorporated by reference to Exhibit 10.40 to
and among Advanced Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
and certain debenture holders of Hy-Tech Technology on November 3, 2004
Group, Inc.
4.13 Escrow Agreement dated May 28, 2004 by and among Incorporated by reference to Exhibit 10.42 to
Advanced Communications Technologies, Inc., Buyers the Company's Form 10-KSB filed with the SEC
and Butler Gonzalez, LLP, Escrow Agent. on November 3, 2004
4.14 Investment Agreement dated May 28, 2004 by and Incorporated by reference to Exhibit 10.43 to
between Advanced Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
and Cornell Capital Partners, LP. on November 3, 2004
4.15 Registration Rights Agreement dated May 28, 2004 by Incorporated by reference to Exhibit 10.44 to
and between Advanced Communications Technologies, the Company's Form 10-KSB filed with the SEC
Inc. and Cornell Capital Partners, LP. on November 3, 2004
4.16 Investment Agreement dated September 8, 2006 by and Incorporated by reference to Exhibit 4.1 to
between Advanced Communications Technologies, Inc. the Company's Form 8-K filed with the SEC on
and the Series A-1 Preferred Stockholders September 19, 2006
10.1 Custodial and Stock Pledge Agreement, dated December Incorporated by reference to Exhibit 10.3 to
30, 2004, among Advanced Communications the Company's Form 8-K filed with the SEC on
Technologies, Inc., Theodore S. Li and Hui Cynthia January 5, 2005
Lee, and Quarles & Brady Streich Lang LLP.
10.2 Employment Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.4 to
Pacific Magtron International Corporation, Inc., the Company's Form 8-K filed with the SEC on
Advanced Communications Technologies, Inc., January 5, 2005
Encompass Group Affiliates, Inc., and Theodore S. Li.
10.3 Employment Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.5 to
Pacific Magtron International Corporation, Inc., the Company's Form 8-K filed with the SEC on
Advanced Communications Technologies, Inc., January 5, 2005
Encompass Group Affiliates, Inc., and Hui Cynthia Lee
10.4 Indemnity Agreement, dated December 30, 2004, among Incorporated by reference to Exhibit 10.6 to
Advanced Communications Technologies, Inc., Theodore the Company's Form 8-K filed with the SEC on
S. Li and Hui Cynthia Lee. January 5, 2005
30
10.5* Form of Grant Instrument under Advanced Incorporated by reference to Exhibit 10.1 to
Communications Technologies, Inc. 2005 Stock Plan the Company's Form 8-K filed with the SEC on
for Non-Employee Director. July 6, 2005
10.6* Form of Lock-Up Agreement for Executive Incorporated by reference to Exhibit 10.2 to
Officer/Director of Advanced Communications the Company's Form 8-K filed with the SEC on
Technologies, Inc. July 6, 2005
10.7* Form of Grant Instrument under Advanced Incorporated by reference to Exhibit 10.3 to
Communications Technologies, Inc. 2005 Stock Plan the Company's Form 8-K filed with the SEC on
for Executive Officer/Employee. July 6, 2006
10.8* Services Agreement entered into on June 7, 2005 by Incorporated by reference to Exhibit 10.1 to
and among Advanced Communications Technologies, the Company's Form 8-K filed with the SEC on
Inc., Wayne I. Danson and Danson Partners, LLC. July 13, 2005
10.9 Equity Line of Credit Agreement dated July 2003, by Incorporated by reference to Exhibit 10.13 to
and between Cornell Capital Partners, LP and the Company's Form SB-2 filed with the SEC on
Advanced Communications Technologies, Inc. July 16, 2003
10.10 Registration Rights Agreement dated July 2003, by Incorporated by reference to Exhibit 10.14 to
and between Advanced Communications Technologies, the Company's Form SB-2 filed with the SEC on
Inc. and Cornell Capital Partners, LP. July 16, 2003
10.11 Placement Agent Agreement dated July 2003, by and Incorporated by reference to Exhibit 10.15 to
between Advanced Communications Technologies, Inc. the Company's Form SB-2 filed with the SEC on
and Westrock Advisors, Inc. July 16, 2003
10.12 Escrow Agreement dated July 2003, by and among Incorporated by reference to Exhibit 10.16 to
Advanced Communications Technologies, Inc., Cornell the Company's Form SB-2 filed with the SEC on
Capital Partners, LP, Butler Gonzalez LLP and First July 16, 2003
Union National Bank.
10.13 Consulting Agreement dated July 1, 2002 between Incorporated by reference to Exhibit 10.26 to
Advanced Communications Technologies, Inc. and the Company's Form 10-KSB/A filed on February
Randall H. Prouty. 7, 2003
10.14 NonCompetition Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.4 to
among Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
Cyber-Test, Inc., a Florida corporation, and the June 18, 2004
shareholders of Cyber-Test.
10.15 Employment Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.5 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Lisa Welton. June 18, 2004
31
10.16 Employment Agreement, dated June 3, 2004, by and Incorporated by reference to Exhibit 10.6 to
between Cyber-Test, Inc., a Delaware corporation, the Company's Form 8-K filed with the SEC on
and Thomas Sutlive. June 18, 2004
10.17 Agreement, dated May 27, 2004, by and among Incorporated by reference to Exhibit 10.36 to
Encompass Group Affiliates, Inc., Hy-Tech Technology the Company's Form 10-KSB filed with the SEC
Group, Inc. and Hy-Tech Computer Systems, Inc. on November 3, 2004
10.18 Customer Lists License Agreement, dated June 24, Incorporated by reference to Exhibit 10.37 to
2004, by and among Encompass Group Affiliates, Inc., the Company's Form 10-KSB filed with the SEC
Hy-Tech Technology Group, Inc. and Hy-Tech Computer on November 3, 2004
Systems, Inc.
10.19 Websites License Agreement, dated June 24, 2004, by Incorporated by reference to Exhibit 10.38 to
and among Encompass Group Affiliates, Inc., Hy-Tech the Company's Form 10-KSB filed with the SEC
Technology Group, Inc. and Hy-Tech Computer Systems, on November 3, 2004
Inc.
10.20 NonCompetition and Nondisclosure Agreement by and Incorporated by reference to Exhibit 10.39 to
among Encompass Group Affiliates, Inc., Hy-Tech the Company's Form 10-KSB filed with the SEC
Technology Group, Inc. and Hy-Tech Computer Systems, on November 3, 2004
Inc.
10.21* Employment Agreement dated June 24, 2004 by and Incorporated by reference to Exhibit 10.41 to
among Encompass Group Affiliates, Inc., Advanced the Company's Form 10-KSB filed with the SEC
Communications Technologies, Inc. and Martin Nielson. on November 3, 2004
10.22* January 1, 2005 Amendment to Employment Agreement by Incorporated by reference to Exhibit 10.22 to
and among Encompass Group Affiliates, Inc., Advanced the Company's Form 10-KSB filed with the SEC
Communications Technologies, Inc. and Martin Nielson. on October 3, 2005
10.23* Employment Agreement dated September 21, 2006 Incorporated by reference to Exhibit 10.23 to
between Advanced Communications Technologies, Inc. the Company's Form 8-K filed with the SEC on
and John E. Donahue September 29, 2006
10.24* Employment Agreement dated September 8, 2006 between Incorporated by reference to Exhibit 10.23 to
Advanced Communications Technologies, Inc. and the Company's Form 8-K filed with the SEC on
Steven J. Miller September 29, 2006
14 Code of Business Conduct and Ethics for Advanced Incorporated by reference to Exhibit 14.1 to
Communications Technologies, Inc. the Company's Form 10-KSB filed with the SEC
on November 3, 2004
31.1 Certification by Chief Executive Officer pursuant to Provided herewith
Sarbanes-Oxley Section 302
32
31.2 Certification by Chief Financial Officer pursuant to Provided herewith
Sarbanes-Oxley Section 302
32.1 Certification by Chief Executive Officer pursuant to Provided herewith
18 U.S.C. Section 1350
32.2 Certification by Chief Financial Officer pursuant to Provided herewith
18 U.S.C. Section 1350
* Management contract or management compensatory plan or arrangement.
(1) In the case of incorporation by reference to documents filed by the Company
under the Exchange Act, the Company's file number under the Exchange Act is
000-30486.
33