U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ECHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
-------------
Commission File Number 000-30486
-------------
Advanced Communications Technologies, Inc.
-------------
(Exact name of small business issuer as specified in its charter)
Florida 95-4743438
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
19200 Von Karman Ave., Suite 500, Irvine, CA 92612
(Address of principal executive offices)
(949) 622-5566
-------------
(Issuer's telephone number)
Check whether the issuer (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
State number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of January 31, 2000, 76,124,780
shares of the registrant's no par value common stock wereissued and outstanding
Transmittal Small Business Disclosure Format (check one):
Yes No X
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet as of December 31, 1999
Condensed Consolidated Statement of Operations for the six months ended December
31, 1999
Condensed Consolidated Statement of Cash Flows for the six months ended December
31, 1999
Note to the Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis
PART II OTHER INFORMATION
ITEM 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8K
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
ASSETS
Current assets
Cash $ 138,523
Loans receivable 157,000
Marketable securities 9,750
Bonds receivable 36,450
-----------
TOTAL CURRENT ASSETS 341,723
-----------
PROPERTY & EQUIPMENT - NET 17,288
-----------
OTHER ASSETS
Advances receivable - Related Party 555,000
Bond issuance costs (net of amortization) 32,500
Telephone service deposits 35,000
Purchased goodwill and other intangibles (net) 978,924
-----------
TOTAL OTHER ASSETS 1,601,424
-----------
TOTAL ASSETS $ 1,960,435
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities
Accounts payable $ 324,098
Accrued compensation 171,550
Interest payable 67,577
Note payable 150,000
Other liabilities 121,500
Convertible debentures 650,000
-----------
TOTAL CURRENT LIABILITIES 1,484,725
-----------
OTHER LIABILITIES
Minority interest in net assets of
Consolidated subsidiaries 500,811
-----------
STOCKHOLDERS' DEFICIENCY
Common stock, no par value, 100,000,000 shares
authorized, 76,177,780 shares issued and outstanding 2,612,371
Accumulated deficit (2,520,472)
Accumulated other comprehensive loss (117,000)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (25,101)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 1,960,435
===========
1
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
SALES $ 125,274
COST OF SALES (126,473)
-----------
GROSS PROFIT (LOSS) (1,199)
-----------
OPERATING EXPENSES
Consulting fees 208,812
Amortization and depreciation expense 51,500
Professional fees 1,105,511
Other selling, general and administrative expenses 204,927
-----------
TOTAL OPERATING EXPENSES (1,570,750)
-----------
NET LOSS FROM OPERATIONS $(1,571,949)
-----------
OTHER INCOME/(EXPENSE)
Interest expense (665,180)
Other income 364,498
Minority interest in World IP net loss
25,113
-----------
TOTAL OTHER INCOME/ (EXPENSE) (275,569)
-----------
NET LOSS $(1,847,518)
===========
Net loss per share:
Basic $ (.03)
===========
Diluted $ (.02)
===========
Weighted average
number of shares
outstanding during
the period:
Basic 75,099,457
===========
Diluted 77,197,808
===========
2
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------ OTHER
ACCUMULATED COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME (LOSS) TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1999 73,312,280 $ 416,183 $ (672,954) $(97,500) $ (354,271)
Stock issued for office equipment 30,000 9,900 -- -- 9,900
Stock issued for services 1,735,500 981,288 -- -- 981,288
Stock issued in exchange for debt 600,000 180,000 -- -- 180,000
Stock issued for investment in World IP 500,000 375,000 -- -- 375,000
Effect of convertible debentures -- 650,000 -- -- 650,000
Net loss for the six month period ended
December 31, 1999 (1,847,518) -- (1,847,518)
Unrealized loss on marketable securities (19,500) (19,500)
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 76,177,780 $2,612,371 $(2,520,472) $(117,000) $ (25,101)
========== ========== =========== ========= ===========
</TABLE>
3
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
& CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
Cash flows from operating activities
Net loss $(1,847,518)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 51,500
Expenses incurred in exchange for common stock 981,288
Gain on debt extinguishment 364,498
Minority interest in net loss 25,113
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable (5,104)
Interest payable 15,180
Accrued compensation 60,000
Other liabilities (54,000)
Bonds receivable 36,450
Telephone service deposits and other 41,981
-----------
Net cash used in operating activities (330,612)
-----------
Cash flows from investing activities
Loan to affiliated company (245,000)
Purchase of fixed assets (5,435)
Investment in Kentel LLC (7,000)
Investment in World IP (45,000)
-----------
Net cash used in investing activities (302,435)
-----------
Cash flows from financing activities
Proceeds from issuance of convertible debt
Proceeds from issuance of common stock 388,050
373,500
-----------
Net cash provided by financing activities 761,550
-----------
Net increase in cash 128,503
Cash and cash equivalents at beginning of period 10,020
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 138,523
===========
4
<PAGE>
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
consolidated financial statements include the results of the Company's 51%
majority owned subsidiary, World IP Incorporated and its wholly-owned foreign
subsidiaries from November 11,1999, the date the Company acquired a controlling
interest, to December 31,1999. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation are included herein. Operating results for the six month period
ended December 31,1999 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2000.
The Company was incorporated on April 30, 1998 and was inactive from that date
until April 7, 1999 when it acquired all of the issued and outstanding stock of
Media Forum International, Inc. Consequently, no comparative results of
operations or financial statements for the six month period ended December
31,1998 are included herein. The results of operations include only the six
month period ended December 31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's discussion and analysis of certain significant
factors, which have affected the Company's financial position and operating
results. Certain statements under this caption may constitute "forward-looking
statements". See Part II- Other Information.
(a) RESULTS OF OPERATIONS
Revenues. Revenue from continuing operations represents telephone wholesale
network sales from the Company's 51% majority owned subsidiary World IP for the
period November 11,1999 to December 31,1999. The Company had no other revenues
from continuing operations.
Costs and Expenses. Cost of telephone network sales of $126,473 through the
Company's 51% majority owned subsidiary includes the cost of third party
telephone network providers.
General and Administrative Expenses. General and Administrative expenses
includes $981,288 of professional services rendered to the Company in exchange
for restricted common stock and other selling and marketing expenses incurred in
connection with the Company's telephone network activities and support of the
Spectrucell wireless technology being developed by a corporation related to the
Company. It also includes amortization expense of $49,500 in connection with
bond issuance costs ($32,500) and purchased goodwill ($17,000).
5
<PAGE>
Other Income/Expense. Included in other income/expense of $364,498 for the six
month period ended December 31, 1999 is $242,561 of gain from the
extinguishments of $422,561 of prior shareholder loans in exchange for 600,000
of Company's restricted common stock valued at $180,000. In addition, $121,937
of other income was recognized on the abandonment of certain accounts payable
and accrued expenses of Media Forum International, Inc, a predecessor
corporation. Interest expense of $650,000 was incurred during this period as a
result of the Company's issuance of $650,000 of Secured Convertible Debentures
due April 1, 2000. Under the terms of the Secured Convertible Debentures, the
holders of the debentures could, at any time, and at their option, convert the
notes into shares of the Company's common stock at a conversion price equal to
50% of the average bid price during the 20 trading days immediately preceding
the applicable conversion date. Since the convertible debentures contain a
beneficial conversion feature, which when computed at its intrinsic value, is
equal to the principal amount of the debt, applicable accounting guidelines
require that the Company record as interest expense during this period, $650,000
representing the interest component of the beneficial conversion feature.
(b) LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's cash and cash equivalents balance was
$138,523, an increase of approximately $128,000 from July 1, 1999, the start of
the Company's fiscal year. No cash was provided by operations. All cash was
provided from financing activities including the issuance of $650,000 of Secured
Convertible Debentures and the closing of the Company's April 1999 Reg. 504D
offering during July 1999.
On December 7, 1999 the Company entered into an agreement with Bridgewater
Capital Corporation ("Bridgewater"), a California based investment banking firm
to assist the Company in securing additional equity financing. Under the terms
of the agreement, Bridgewater will assist the Company in identifying a target
corporation to enter into a reverse merger with and, on a best efforts basis,
secure equity funding for the Company in an amount up to $40 million based on
the successful filing by the Company of a S-4 registration statement. Under such
agreement, such equity amounts would be funded in the following amounts and at
the following times; $5 million at the close of the merger transaction, $10
million upon the filing of the S-4 registration statement and thereafter, a $25
million draw down equity line.
The Company is considering other alternatives and sources to obtain the
necessary capital to continue its wholesale telephone network business and to
assist its related company, Advanced Communications Technologies Pty Ltd
(Australia) in their development and testing of the Spectrucell wireless
technology.
(c) ACQUISITIONS
On November 11,1999 the Company's newly formed wholly-owned subsidiary Advanced
Global Communications ("AGC") entered into an agreement with the shareholders of
World IP Incorporated ("World") and its wholly-owned subsidiaries Sur
Comunicaciones, S.A. (a Chilean
6
<PAGE>
corporation) and Acinel S.A. (an Argentinean corporation), hereinafter the
"World Group" to acquire a controlling interest in the World Group. The World
Group provides wholesale international telephone services from the U.S. to Chile
and Argentina. Under the terms of the agreement, AGC purchased 1,020 shares or
51% of World's common stock for $95,000 plus 500,000 shares of the Company's
restricted common stock. The former shareholders of World own the remaining 49%
interest. In addition, AGC has agreed to pay up to $60,000 to World to fund the
acquisition of a point of presence ("POP") in Venezuela. Moreover, the agreement
provides for certain additional shares of the Company to be issued to the former
World shareholders based on World's performance on the six month anniversary
date of the acquisition. At December 31,1999 the Company owed $50,000 to the
former World shareholders.
The Company intends to grow through acquisition and as part of this growth
strategy, will continue to evaluate and pursue opportunities to acquire other
companies, assets and product lines that either complement or expand the
Company's existing businesses. The Company intends to use available cash from
operations, if any, and authorized but unissued common stock to finance any such
acquisitions. Assuming that the Company is successful in obtaining additional
equity financings, it contemplates making additional acquisitions during fiscal
2000.
Part II- OTHER INFORMATION
The statements in this quarterly report on Form 10-QSB that are not historical
constitute "forward-looking statements". Said forward-looking statements involve
risks and uncertainties which may cause the actual results, performance or
achievements of the Company and its subsidiaries to be materially different from
any future results, performance or achievements, express or implied by such
forward-looking statements. These forward-looking statements are identified by
their use of such terms and phrases as "expects", "intends", "goals",
"estimates", "projects", "plans", "anticipates", "should", "future", "believes",
and "scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations. Although the Company believes
that the assumptions underlying the forward looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this filing
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
person that the objectives and expectations of the Company will be achieved.
7
<PAGE>
ITEM 2. CHANGES IN SECURITIES
As reported in the Company's Current Report on Form 8-K listed in Item
6(b), the Company issued a total of 600,000 shares of its Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Description of Exhibits
- ------- -----------------------
(b) Reports on Form 8-K
On February 3, 2000, the Company filed a Current Report on Form 8-K reporting
the acquisition of the capital stock of Smart Investment.com, Inc. ("SICI") and
related transactions including the issuance of 200,000 shares of the Company's
Common Stock in exchange therefor. The Company also agreed to issue 400,000
shares of its Common Stock pursuant to a Consulting Agreement as part of the
transaction.
8
<PAGE>
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.
Date: March 1, 2000 /s/ Roger May
- -------------------- --------------
Roger May
Chairman of the Board and Chief Executive Officer
Date: March 1, 2000 /s/ Wayne I. Danson
- -------------------- --------------------
Wayne I. Danson
Chief Financial Officer
9
