UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 31, 2000
----------------
Advanced Communications Technologies, Inc.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of incorporation)
000-30486 65-0738251
--------- -----------
(Commission File Number) (IRS Employer Identification No.)
19200 Von Karman, Suite 500, Irvine, CA 92612
---------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 622-5566
--------------
Registrant's telephone number, including area code:
Smart Investment.com, Inc.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
(949) 719-1977
--------------
(Former name, address and telephone number)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated
as of January 31, 2000 between MRC Legal Services Corporation ("MRC"), a
California corporation and the sole shareholder of Smart Investment.com, Inc.
("SICI"), a Nevada corporation, and Advanced Communications Technologies, Inc.
("ADVC"), a Florida corporation, all the outstanding shares of common stock of
SICI held by MRC were exchanged for 200,000 shares of common stock of ADVC in a
transaction in which ADVC effectively became the parent corporation of SICI.
The Exchange Agreement was adopted by the unanimous consent of the Board of
Directors of SICI and MRC on January 31, 2000. No approval of the shareholders
of either ADVC or SICI is required under applicable state corporate law.
Prior to the merger, SICI had 2,700,000 shares of common stock outstanding
which shares were exchanged by MRC for 200,000 shares of common stock of ADVC.
By virtue of the exchange, ADVC acquired 100% of the issued and outstanding
common stock of SICI.
ADVC also entered into a Consulting Agreement in connection with the
acquisition with M. Richard Cutler pursuant to which ADVC agreed to issue
400,000 shares of common stock of ADVC to Mr. Cutler.
Prior to the effectiveness of the Exchange Agreement, ADVC had an aggregate
of 76,124,780 shares of common stock, par value $.001, issued and outstanding,
and no shares of preferred stock outstanding.
Upon closing of the Exchange Agreement, ADVC had an aggregate of 76,724,780
shares of common stock outstanding.
The officers of ADVC continue as officers of ADVC subsequent to the
Exchange Agreement. See "Management" below. The officers, directors, and
by-laws of ADVC will continue without change.
A copy of the Exchange Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
(b) The following table sets forth certain information regarding beneficial
ownership of the common stock of ADVC as of December 31, 1999 (prior to the
issuance of 600,000 shares pursuant to the Exchange Agreement and the Consulting
Agreement) by:
o each person or entity known to own beneficially more than 5% of the common
stock;
o each of ADVC's directors;
o each of ADVC's named executive officers; and
o all executive officers and directors of ADVC as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner (1) Beneficial Ownership Class
- ---------------------------------- ----------------------- -------------------- -----------
Common Stock Roger May (2) 24,150,000 31.7%
Common Stock Wayne I. Danson (3) 100,000 0.1%
Dr. Michael R. Finch (4)
27 Lakeshore Drive
Holliston, MA 07146 158,000 0.2%
Common Stock Randall Prouty
1900 Decker School Lane
Malibu, CA 90265 1,007,500 1.3%
Common Stock Wilbank J. Roche
2530 Wilshire Blvd.
Santa Monica, CA 90403 200,000 0.3%
Common Stock Jonathan J. Lichtman (5)
4800 North Federal Hgwy, D-100
Boca Raton, FL 33431 930,000 1.2%
Common Stock Nancy Needham (6)
307 East 51st Street
New York, NY 10022 7,168,454 9.4%
Common Stock Global Communications
Technologies Limited 14,941,043 19.6%
Common Stock All Officers and Directors as a
Group (6 persons) 26,545,500 34.9%
========== ===========
</TABLE>
1. Except as otherwise set forth, the address for each of these shareholders
is c/o Advanced Communications Technologies, Inc., 19200 Von Karman, Suite 500,
Irvine, CA 92612.
2. Of such shares, (i) 3,000,000 are held by Global Communications
Technology Consultants, Inc., a consulting firm as to which Mr. May is the
beneficial owner; (ii) 20,500,000 shares are held by Global Technologies Pty
Ltd., a family trust owned by Mr. May's children in Australia as to which Mr.
May disclaims beneficial ownership; and (iii) 650,000 shares are held by Jasden
Trust, a trust owned by two of Mr. May's children, as to which Mr. May disclaims
beneficial ownership.
3. Mr. Danson presently has issued 50,000 shares and has an additional
50,000 shares issuable in accordance with an agreement with the Company.
4. Mr. Finch directly owns 108,000 shares and has a commitment from the
Company to issue an additional 50,000 shares.
5. Mr. Lichtman holds 830,000 shares and the right to purchase an additional
100,000 shares. Of such shares, 130,000 are held by family trusts as to which
Mr. Lichtman disclaims beneficial ownership.
6. Ms. Needham is the former President of the Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between MRC and ADVC.
In evaluating ADVC as a candidate for the proposed acquisition, MRC used
criteria such as ADVC's present stock price as set forth on the over-the-counter
bulletin board, its proposed communications businesses and other anticipated
operations, and ADVC's business name and reputation. MRC and ADVC determined
that the consideration for the merger was reasonable.
(b) ADVC intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
BUSINESS
SUMMARY OF OPERATION
Advanced Communications Technology, Inc. ("ADVC") is a Florida corporation
formed to develop and market a new wireless communication network technology
that will be trademarked and marketed as "SpectruCell". ACT 2001 is a network
solution and comprises the Spectrum Efficient Microwave and SpectruCell multiple
protocol wireless base station unit (which would be the core revenue generator).
This application is discussed further below.
BACKGROUND ON WIRELESS COMMUNICATIONS TECHNOLOGY
Conventional mobile networks primarily rely upon long-established mobile
radio technology and traditional voice channel transmission. This was the only
suitable technology available when cellular communications first evolved 20
years ago. The SpectruCell technology represents a departure from this somewhat
antiquated technology.
Conventional telephone networks were traditionally configured with a major
Central Office Switch (CO) and numerous smaller switches (Points of Presence or
POPS) throughout the network. The POPS collect calls from the outlying reaches
of the network and route them back to the CO for processing and routing to the
call termination.
Cellular telephone networks evolved from the long established mobile radio
telephone technology and the traditional call processing and voice channel
transmission applications associated with that technology. Much of the call
processing and routing is done at the cell site and this can be very restrictive
because it depends upon the number of voice channels and processing capacity at
each cell site. In a conventional telephone network environment any upgrades or
call capacity changes can be effected at the Central Office switch, whereas in
the present cellular network environment hundreds of cell sites would have to be
upgraded individually.
1
<PAGE>
SPECTRUCELL
ADVC has developed a wireless communication network technology that will be
trademarked and marketed as "SpectruCell". SpectruCell differentiates itself
from existing communications networks by processing and transmitting numerous
communications protocols (AMPS, CDMA, TDMA, GSM, W-CDMA, UMTS, 3G, Voice IP,
etc.) as well as wireless internet applications, all within the one network.
The SpectruCell system architecture is a distinct departure from
conventional Cellular/PCS network structure. The SpectruCell architecture
provides a method of transmitting the entire baseband spectrum from the
receiving Antenna/Cell to a centralized Mobile Telephone Switching Office (MTSO)
for call processing and redistribution, rather than processing calls at the cell
site. Until approximately three years ago almost all cellular transmissions
were Analog. In the current cellular network environment, additional call
processing hardware has to be added to each cell site (usually around 200+ cells
per average network), for network operators to transmit evolving new digital
protocols (TDMA, CDMA, GSM, W-CDMA, etc.) over their existing cellular networks.
This is a very expensive undertaking.
In a SpectruCell network environment, the additional hardware and/or
software upgrades would only be required at the MTSO/Central Office Switch
location. The potential savings in network implementation and establishment
costs, and cell site maintenance costs savings would be very substantial. In
addition, given the SpectruCell network's ability to carry all current, evolving
and future call protocols, there is also a significant potential for increased
revenues from foreign roaming calls.
Another major feature of SpectruCell is the capacity to dynamically assign
channels and spectrum (call carrying capacity) to the cells requiring it most.
In a sense, the Cellular operator would possess a so-called "elastic capacity"
at cells in the system. Since all voice channels would be centrally located at
the switch instead of at the cell/antenna site, individual voice channels and RF
trunks can be distributed as needed to busy cell/antenna sites. Channels would
be essentially "borrowed" from surrounding cells and used to support call
traffic at the busier sites during call volume peaks. This is a distinct
departure from present "honeycomb style" systems where each cellular network is
dedicated to a single protocol and each cell has fixed call carrying capacity or
bandwith, that is limited by the number of voice channels installed at each cell
site. In essence, the SpectruCell architecture provides a basis for a paradigm
shift from the conventional telecommunications central office switching
structure for evolving wireless networks.
For carriers to support multiple protocols such as GSM and CDMA digital
mobile phones, current wireless communications technology requires separate cell
sites with separate equipment for each protocol carried. Upon implementation,
SpectruCell, however, will allow carriers to maintain and utilize their existing
networks within a modern network platform that will enable them to support
evolving protocols. By utilizing the SpectruCell multiple protocol wireless base
station, network providers will be able to support current and in all
probability future protocols with the same equipment on the same existing
networks. Future protocols would be added to the network through software
upgrades.
2
<PAGE>
Benefits of the proposed SpectruCell network include:
o Cheaper rollout cost due to the network being wireless;
o Cheaper costs for upgrading existing networks to handle additional
protocols through utilisation of existing network infrastructure rather than
creating a new structure;
o Alleviate dropped calls and busy signals in current mobile networks that
are caused through bottlenecks, as calls on the SpectruCell network would be
configured through a distributed network rather than a centralised switching
facility;
o Will permit cellular subscribers to directly access Internet services via
mobile IP and other evolving data protocols (such as ITU 3G).
o In third world countries or regions of the world with little or no existing
communications infrastructure, the SpectruCell system would provide for the
deployment of a wireless communications network infrastructure (known as a
"greenfield" installation"). This could be achieved at lower cost, and in a
shorter time frame than an equivalent land-based infrastructure network.
SPECTRUM EFFICIENT MICROWAVE ("SEM")
In a cellular network, each cell is connected to the network via some form
of backbone connection. A backbone connection is normally a high-speed link.
These backbone connections are typically fibre optic cable, coaxial cable or
point-to-point microwave. The advantage of using microwaves is that the service
provider would not have the expense and time delays involved with laying cables
in the ground or other hard-wired applications. In built up cities the cost of
laying cable can be prohibitive. In mountainous areas the terrain can make
cable laying impossible. Traditionally, microwave links have been limited in
their data throughput, and have been expensive to implement because they use a
large component of radio spectrum. Radio spectrum must be licensed and is
costly.
ADVC is presently finalizing negotiations for an exclusive license to an
existing efficient modulation technique and intends to further develop that
modulation technique. The existing system is currently in production and could
be used to allow for a capacity upgrade to existing networks. Upon finalization
of the license, ADVC proposes to develop a microwave link with spectral
efficiency of approximately 6 times current technology, with a data rate of 155
MBs, which is substantially equivalent to fibre optic cable backbones. The SEM
has applications in the provision of the medium and high rate backbones
necessary for the deployment of mobile communications networks.
One advantage of a SEM technique is that it has the capability to transmit
up to 10 times the traffic of an existing system, without increasing use of
bandwidth or radio spectrum. This could allow existing network providers to
increase their capacity in the same spectrum by as much as six times. ADVC
believes that demand for increased bandwidth will continue to develop and
consequently sees this as both an exciting opportunity in the marketplace and an
integral part of the proposed SpectruCell network. In a green field
installation an efficient point-to-point microwave link could further enhance
the attraction of a distributed SpectruCell network.
3
<PAGE>
The current development plan put forth by ADVC calls for a 155 Mb/s radio
occupying a mere 30 MHz of RF bandwidth, making it spectrally efficient. ADVC
is also negotiating to acquire the rights to another spectrally efficient
microwave technology that, although it only transmits at 2 Mb/s (the same as
most current Microwave links), it nevertheless operates at 1028 Quams, which
will allow for two to three times the present capacity of the current Microwave
links.
These microwave links are complementary to the SpectruCell technology.
Perhaps, most importantly, the combination of the two technologies has the
potential to create a new wireless network architecture. ADVC managements
perceives an unprecedented demand for this technology within the communications
industry, and believes further that this demand will continue to grow as the
need for high speed Internet access continues to expand at an increasingly rapid
rate.
BUSINESS DIFFERENTIATIONS
The key attributes of the proposed ADVC business through its licensing
arrangements and subsidiaries are as follows:
o Uniqueness of Product: Management of ADVC believes that there is no product
similar to SpectruCell on the market that can process and transmit numerous
communications protocols (AMPS, CDMA, TDMA, GSM, W-CDMA, UMTS, 3G, Voice IP,
etc.), as well as Internet applications on one network. SpectruCell also would
provide a distributed network platform that could minimize present network
bottlenecks caused by central switching overloading.
o Universal Market Acceptance: SpectruCell is compatible with numerous
communications technologies. This could enable easier integration and upgrading
of existing networks. There are no substantial barriers to market entry as
SpectruCell conforms to substantially all existing communications standards with
its open system design.
o Supports Evolving Technology Standards: SpectruCell has been designed with
an open architecture and is software upgradeable. This means that the
SpectruCell network permits new technologies to be added via a software upgrade.
SpectruCell also supports Digital Mode of Operation (DMO), the standard
currently being adopted by many communication companies.
o Total Network Solution: The combination of the various technologies
provide ADVC with a network capable of terminating voice and data via Voice IP
to both mobile telephones and the traditional fixed network home/office phones.
o Third World Regions B Most Suitable Network: SpectruCell's ability to
terminate to both mobile or fixed networks, combined with its ability to be
efficiently deployed and operational, is a major advantage in third world
regions.
o Financial Asset B "Lifesaver": SpectruCell provides network providers with
a means of maintaining value in their investments in their often outdated
network structures, (usually their primary financial asset), by plugging
SpectruCell base stations into their existing networks.
4
<PAGE>
SPECTRUCELL
OVERVIEW
The SpectruCell concept was originally developed in the United States in an
entirely different format and configuration to the current product design. The
request to develop the SpectruCell Wireless Base Station concept was presented
to the Royal Melbourne Institute of Technology University ("RMIT") in the first
quarter of 1998 for evaluation and development. The current technology for the
SpectruCell Wireless Base Station unit has been developed entirely in Melbourne,
Australia by the ADVC "Vision Team" in collaboration with the Department of
Computer Systems Engineering at RMIT.
ADVC has developed a wireless communication network technology that will be
trademarked and marketed as "SpectruCell". Unlike existing communications
networks, SpectruCell supports a wireless network architecture designed to
process and transmit numerous communications protocols (AMPS, CDMA, TDMA, GSM,
W-CDMA, UMTS, 3G, Voice IP, etc.) as well as wireless Internet applications, all
within one network.
By utilizing the SpectruCell multiple protocol wireless base station,
network providers will be able to support substantially all current and future
protocols with the same equipment on the same network through software upgrades.
SPECTRUCELL GATEWAY DEVICE
SpectruCell is a gateway device for mobile communications that bridges
information from one medium or protocol to another. Conventional mobile
communications networks use a base station as a gateway device to connect mobile
phones (AMPS, GSM, CDMA) to the traditional fixed wire phone network (PSTN).
In conventional networks, each protocol that the network supports (AMPS,
GSM, CDMA) requires its own base station. Essentially, this means that for a
network provider to roll out a new protocol, it must set up an entirely new
network for each protocol. A good example of this is Telstra Australia's
recently announced plans to spend $600 million implementing a new CDMA network
to compliment their existing GSM network. With SpectruCell, Telstra could plug
in the new base stations to their existing GSM network, enabling it to carry
both protocols (CDMA and GSM) on the same network.
SpectruCell, in essence, is designed to be a high-end software radio that
can be configured to talk to multiple protocols simultaneously, allowing the
network to support multiple protocols with a single base station. It also means
that if a network provider wants to provide a new protocol to its customers, it
would send a software upgrade to the SpectruCell unit.
5
<PAGE>
Key Attributes of the SpectruCell Gateway include:
o The ability to support most existing communication protocols (AMPS, GSM,
CDMA) as well as allowing software upgrades to support potential future or
evolving protocols (WCDMA, UMTS, PCS, 3G initiatives, etc.);
o The ability to support an IP (Internet Protocol) based network
infrastructure, utilizing voice over IP (VoiceIP) and wireless Internet services
(mobile IP);
o Easier integration into an existing network and roll out in countries with
no telecommunications infrastructure (known as Greenfield installations);
o SpectruCell allows the installation of a telecommunications infrastructure
with a wireless backbone;
o Low earth orbit satellites (LEOS) and high altitude drone aircraft can be
used to support a SpectruCell network's infrastructure;
o External interfaces to a SpectruCell gateway device are of a
non-proprietary nature. SpectruCell interfaces generally conform to existing
standards for information exchange including the air interface, switch interface
and billing and management interfaces. Such an open system improves its
viability in a changing marketplace.
INTERNET PROTOCOL
A SpectruCell base station provides an ability to provide a mobile Internet
Protocol ("IP"). IP has been developed over many years to provide a generic,
efficient and flexible data communications protocol. Many telecommunications
networks are now picking up on IP's efficiencies in transporting voice traffic
(known as "voice over IP") as well as the more traditional data services. By
using IP as the core protocol for inter-cell communications, SpectruCell
provides more efficient base station networking. More significantly,
SpectruCell provides a method for integration of future mobile Internet
services.
At present, all wireless IP traffic must be encapsulated into existing
air-interface protocols, leading to many inefficiencies. For example, while GSM
is very efficient at carrying voice traffic via radio, it is inefficient at
providing data/internet connectivity, being both expensive and slow.
Other voice call based air protocols, such as AMPS, suffer similar speed
and expense difficulties. This inefficiency is because of the fundamental
problems associated with sending packet-based (Internet) traffic on a
connection-oriented network (GSM/AMPS). The centralized architecture of a
traditional cellular network is also inappropriate for third generation personal
communications protocols, which is why SpectruCell has developed a distributed
design.
6
<PAGE>
THE SPECTRUCELL NETWORK
Rather than having a central controller (potentially a central point of
failure), SpectruCell moves control and call processing/routing into the base
stations. In some cases, where compatibility with existing protocols is
required, there would need to be some centralized control. This would not mean
all communications traffic would have to be routed centrally, just the control
information. This semi-centralized architecture provides a more dynamic network
capacity and a level of network redundancy. This style of network structure
would help to eliminate MTSO congestion that causes network overloads and
results in dropped or lost calls.
The SpectruCell architecture does not require a land-based backbone
connection between cell sites. An inter-cell connection can just as easily be
implemented using a point-to-point microwave link or via a satellite.
The telecommunications market dictates that there will always be a wide
variety of traffic with different priorities. The SpectruCell base station's
router functionality means it can prioritize the various types of traffic and
because bandwidth costs are a significant factor in modern network operations,
SpectruCell can accommodate variations in both channel bandwidth and cost. For
example, there may be both a fibre optic connection and a satellite connection
to the SpectruCell base station. This could enable the base station to rout
time-critical voice traffic over the fibre backbone, while sending less
time-critical traffic, such as email and web pages, over the satellite link.
KEY ADVANTAGES
A SpectruCell network is a flexible network architecture. It has two
principle advantages over conventional cellular networks:
It is able to support multiple protocols (AMPS, CDMA, GSM, 3G, Wireless IP)
in a single base station and
It has the ability to dynamically reconfigure base stations to support
various protocols through software upgrades.
SpectruCell can also generally be integrated with current networks and is
consistent with what ADVC management perceives as the direction of the industry,
including the concept of Digital Mode of Operation (DMO). SpectruCell's
architecture allows:
Both immediate and long term integration into communication network
infrastructures.
The support of Voice over IP networks. IP will enable voice to be delivered
over VPN (virtual private networks), allowing telecommunications providers to
act as primary carriers to other providers who are acting as the primary service
provider to the customer. Primary service providers will be able to manage
their own mobile services within the primary carrier's environment.
A reduction in the total cost of network ownership through cheaper rollout
costs and improved end user focus.
Better ways of providing both improved and additional services to
customers, such as number redirection or call center handling.
Better access to developing products based on the facilities within
intelligent networks.
The potential development of new products for the mobile market. The open
system approach provides a basis for developers to create new products and
services that use the SpectruCell unit. Many of these new applications have not
been developed yet, but SpectruCell's platform will support many new mobile
communications services and applications.
7
<PAGE>
The internal architecture of a SpectruCell base station is designed to
provide flexibility for future upgrades. In its present form, SpectruCell uses
processors which, to a certain degree, limits the network's bandwidth capacity.
In the current configuration, some of that processing is done in dedicated
hardware with more processors added as needed in a parallel architecture. As
processor speeds increase, the capability of a SpectruCell base station also
increases.
MARKET ENVIRONMENT
Including planned roll-outs through 1999, there are 730 Cellular networks
worldwide and it is estimated that on average there are usually 200+
cells/antenna sites per network, or approximately 146,000 cells. In addition
the World Bank reports that third world countries alone will spend US $40
billion a year on telecommunications infrastructure. SpectruCell units have a
potential ability to replace virtually every Cell/Antenna site currently being
operated throughout the world, as well as to become the primary system of choice
for all new systems.
The market in which ADVC operates is growing rapidly:
o Dataquest estimates that the expected growth of the US wireless market
alone will grow from 3 million users to 36 million by 2003.
o The International Telecommunications Union, established by the United
Nations estimates that the number of mobile wireless communications users will
grow to in excess of 2 billion by 2010.
o At present, there are approximately 800+ networks worldwide with an average
of 500 to 1,000 cell sites each.
SALES AND MARKETING
MARKETING STRATEGY
ADVC intends to conduct marketing focused directly at the CEO level,
utilizing the relationships that ADVC management has established within the
telecommunication industry. The direct emphasis will be focused on:
Third World Countries: SpectruCell has the ability to provide "green field"
networks in third world countries. In regions with little or no existing
communications infrastructure, the SpectruCell system will provide a means for
the deployment of a wireless communications network infrastructure, at reduced
cost, and in a shorter time frame than an equivalent land-based network.
Major Telecommunication Companies: ADVC will look to partner with major
telecommunication companies in each region. The SpectruCell unit has advantages
due to its capability of handling multiple protocols.
8
<PAGE>
Test Market through Advanced Global Communications: Advanced Global
Communications, a wholly-owned subsidiary of ADVC ("AGC") will provide the
platform for ADVC to launch its prototype in June 2000. The test phase will be
supervised personally by Roger May and James Rennie. AGC was formed to become
the operational arm of ADVC for all North and South American based
communication operations as well as the holding company for all currently
owned switching operations, planned acquisitions of other switching and
communications companies.
SALES STRATEGY
ADVC plans to take advantage of the established sales and distribution
channels that are already established within other companies. As such, ADVC
will look to establish joint venture marketing and distribution agreements with
established reputable companies in key demographic and marketing locations. In
markets where suitable joint venture arrangements can not be established ADVC
will look to establish its own regional or national distributors.
SOURCES OF REVENUES
Company revenues will be derived from three sources: SpectruCell unit
sales for new systems, existing network upgrades (SpectruCell can be added to an
existing network and run in conjunction with other system architecture), and the
sale of RF wireless circuitry boards. There is an additional potential for the
sale of licensing arrangements.
PROPRIETARY TECHNOLOGY
The unique proprietary element of the SpectruCell architecture is in the
design of the Wide Band Spectrum Signal Processor (SSP) at the Mobil Telephone
Switching Office (MTSO) that will enable the transmission of the full spectrum
of the base band signal to the MTSO for processing and distribution. The unique
and extremely complex design of the SSP that will be located at the MTSO is the
key to the operational viability of UWSC, SpectruCell will be able to utilize
either existing fiber optic technology or dedicated point to point radio
frequency bandwidth to connect the MTSO to the Antenna site. Both the specially
designed DSP at the cell/antenna site and the SSP at the MTSO and much of the
specialized circuitry necessary to process the full spectrum of the base band
signal, with the variable frequency modulation, are proprietary to the Company.
Patents and copyrights will be applied for in regard to all appropriate
circuitry design and specialized applications.
The SpectruCell concept is essentially a wide-area distributed antenna
network connected via fiber trunks to a radio controller and switching center.
Aside from the proprietary SSP circuitry and software, SpectruCell relies
primarily on existing components and sub-systems. Any technology risk usually
associated with a new product is minimal as SpectruCell is simply a further
development and re-application of current technology. SpectruCell's fiber
backbone (for Phase 2 development point to point high speed radio frequency
connection) provides unlimited bandwidth potential to any operator, and the
system is forward and backwards compatible with any wireless access standard,
including currently evolving and future protocols.
9
<PAGE>
COMPETITION
The SpectruCell system will compete with traditional cellular telephone
technology and other wireless communication technology. Without a doubt,
existing wireless communications companies have substantially greater resources
and market penetration than the Company. We will have to differentiate our
technology through cost savings in implementation and upgrades and through
improved service.
Some of the competitive advantages of the SpectruCell system are more
efficient equipment utilization, reduced capital equipment costs (preliminarily
estimated at 50%-70% less), and higher revenues from increased U.S. and foreign
roaming, or multiple protocol, calls handled in domestic networks. One very
important advantage is that SpectruCell can be implemented into existing
cellular networks and run in parallel with conventional cellular
network technology. It does not require the complete redesign and replacement
of the existing cellular network structure. Rather it can be implemented in
stages, until the entire network structure has been upgraded to the SpectruCell
architecture.
We cannot be sure that we will be able to effectively compete with existing
wireless network companies or that we will gain acceptance for the SpectruCell
system.
GOVERNMENT REGULATION
The Company's proposed provision of wireless communications services is
subject to substantial government regulation. Federal law regulates interstate
and international telecommunications, while states have jurisdiction over
telecommunications that originate and terminate within the same state. Changes
in existing policies or regulations in any state or by the Federal
Communications Commission ("FCC") could have a material adverse effect on our
financial condition or results of operations. There can be no assurance that
the regulatory authorities in one or more states or the FCC will not take action
having an adverse effect on the business or financial condition or results of
operations of the Company.
RECENT DEVELOPMENTS
HIGH ALTITUDE AIRCRAFT OR SATELLITE IMPLEMENTATION
A European company recently expressed a high degree of interest in
SpectruCell operated from low altitude aerial mobile wireless networks for data
transmissions utilizing high altitude aircraft as technological platform.
Operators of one of the major low level satellite networks in eastern Europe
also expressed a high level of interest. Both of these companies expressed an
interest in utilizing the SpectruCell technology in their low level aerial
platform to create a truly wireless network for high speed data/voice and
Internet functionality.
10
<PAGE>
FORMATION OF ADVANCED GLOBAL COMMUNICATIONS, INC.
On July 20, 1999, Advanced Global Communications, Inc. ("AGC") was
incorporated in the State of Florida. AGC is a wholly-owned subsidiary of the
Company. AGC was formed for acting as the operational arm of the Company for
all United States based communications operations as well as the holding company
for all currently owned switching operations and proposed acquisitions.
In November 1999, AGC entered into an agreement with the Company, World IP
Incorporated, Sur Comunicaciones, S.A., Acinel, S.A. and the former shareholders
of World IP. Under the agreement, AGC agreed to purchase 51% of World IP's
common stock for $95,000 cash to be paid by January 12, 2000. In addition to
the cash paid for the stock, AGC will pay up to $60,000 to World IP which funds
will be used to open a point of presence in Venezuela. In addition, the Company
issued 500,000 shares of restricted common stock to the former shareholders of
World IP. Those shares may be adjusted up to 1,000,000 restricted shares upon
measuring the performance of World IP and its subsidiaries, Sur Comunicaciones
and Acinel.
BUSINESS HISTORY
ADVC was incorporated as a Nevada corporation on April 30, 1998. On April
7, 1999, the Company merged with Media Forum International Inc ("MFII"), a
Florida corporation, pursuant to which MFII was the surviving entity but
subsequently changed its name to Advanced Communication Technologies, Inc. This
transaction is known as a reverse acquisition. The company was established for
the development and production of the SpectruCell System.
Upon completion of the merger with MFII, the Company changed its trading
symbol and began trading on the Over-the-counter Bulletin Board maintained by
Nasdaq under the symbol "ADVC." On January 4, 1999, the NASD advised that all
OTCBB companies would be required to become "reporting companies" in accordance
with the rules and regulations of the Securities and Exchange Commission or be
subject to deletion from the OTCBB. The NASD provided a phase in schedule based
on each company's trading symbol on January 4, 1999. Since the Company's symbol
on January 4, 1999 was MFMI, the Company's stock was subject to delisting
effective February 10, 2000 if it had not become reporting. In January 2000,
ADVC acquired Smart Investment.com, Inc. ("SICI") through a stock exchange with
SICI's sole shareholder. Immediately upon completion of that acquisition, ADVC
elected successor issuer status in accordance with Rule 12g-3 promulgated under
the Securities Act of 1934, as amended, and consequently became a "reporting
company" in compliance with the NASD's requirements.
EMPLOYEES
As of December 31, 1999, we had four full-time employees and no part time
employees, not including the employees of any of our acquired organizations. Of
these employees, three work in our administrative offices and one works for AGC.
None of our employees is covered by any collective bargaining agreement. We
believe that our relations with our employees are good.
11
<PAGE>
FACILITIES
Our principal executive offices are located at 19200 Von Karman, Suite 500,
Irvine, California 92612. Rental payments on the lease were $1,250 per month
for a lease term of six months from July 24, 1999, which was extended and
amended on December 15, 1999 to increase the rental rate to $1,300 per month for
an additional six months. At the end of the lease terms for our rental space,
we believe that we can lease the same or comparable offices at approximately the
same monthly rate.
MARKET FOR ADVC'S SECURITIES
ADVC has been a non-reporting publicly traded company. ADVC's common
stock is presently traded on the OTC Bulletin Board operated by Nasdaq under the
symbol ADVCE. ADVC has not become or otherwise been a reporting company under
the Securities Exchange Act of 1934. The Nasdaq Stock Market has implemented a
change in its rules requiring all companies trading securities on the OTC
Bulletin Board to become reporting companies under the Securities Exchange Act
of 1934. ADVC is required to become a reporting company by the close of
business on February 10, 2000 or no longer be listed on the OTC Bulletin Board.
ADVC effected the stock exchange transaction with SICI on January 31, 2000 and
became a successor issuer thereto in order to comply with the reporting company
requirements implemented by the over-the-counter bulletin board.
The following table sets forth the high and low closing prices for shares
of ADVC common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Prior to June 1999, ADVC common stock was listed
under the symbol "MFMI." Effective in June 1999, the trading symbol for ADVC
common stock changed to ADVC.
CLOSING PRICES
YEAR PERIOD HIGH LOW
--------------- ------- ------ ---
2000 First quarter
(through January 31, 2000) $ 4.94 $ 3.00
1999 First quarter $ 1.25 $0.062
Second quarter $ 0.625 $0.156
Third quarter $ 0.44 $ 0.30
Fourth quarter $ 4.09 $ 3.00
1998 First quarter $ 2.125 $ 0.75
Second quarter $ 0.812 $ 0.25
Third quarter $ 1.031 $0.218
Fourth quarter $ 0.156 $ 0.01
12
<PAGE>
The number of beneficial holders of record of ADVC common stock as of the
close of business on December 31, 1999 was approximately 249. Many of the
shares of ADVC's common stock are held in "street name" and consequently reflect
numerous additional beneficial owners.
In addition to freely tradeable shares, ADVC has numerous shares of common
stock outstanding which could be sold pursuant to Rule 144. In general, under
Rule 144, subject to the satisfaction of certain other conditions, a person,
including one of our affiliates, who has beneficially owned restricted shares of
common stock for at least one year is entitled to sell, in certain brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate for at least three months immediately preceding the sale and
who has beneficially owned the shares of common stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the volume
limitations described above.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of ADVC who will remain so with the combined entity,
their principal offices and positions and the date each such person became a
director or executive officer. Our executive officers are elected annually by
the Board of Directors. Our directors serve one year terms until their
successors are elected. The executive officers serve terms of one year or until
their death, resignation or removal by the Board of Directors. There are no
family relationships between any of the directors and executive officers. In
addition, there was no arrangement or understanding between any executive
officer and any other person pursuant to which any person was selected as an
executive officer.
Our directors and executive officers are as follows:
Name Age Positions
- ---- --- ---------
Roger May 53 Chief Executive Officer, Chairman of the
Board; Director
Wayne I. Danson 46 Chief Financial Officer; Director
Jonathan J. Lichtman 47 Director
Dr. Michael J. Finch 51 Director
Randall Prouty 47 Director
Wilbank J. Roche 53 Director
13
<PAGE>
ROGER MAY, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE BOARD AND DIRECTOR.
Roger May has been the Chairman and Chief Executive Officer of ADVC since its
formation in 1998. In 1991 he founded America's first nationwide central
reservation system known as Independent Reservation Services Ltd ("IRS"). In
1997 Roger negotiated the sale of IRS to a Florida public company, Teleservices
International Group. In 1987, Mr. May began is focus on telecommunications,
first establishing nationwide distribution networks for a private network and
then marketing discounted telecommunications products and associated services to
the hospitality industry. He established successful joint ventures with Cable &
Wireless, and relationships with Rochester Telephone, Bell Atlantic, Frontier
Communications and others. Mr. May moved to Los Angeles from Australia in 1980
to capitalize on export incentive allowances offered by the Australian
government. He began operating a wool export company and then purchased a
franchise for International Business Exchange, Inc., a barter exchange company.
Mr. May begin his marketing career in Australia in 1969, where he was a General
Manager for the largest General Motors dealership in Australia.
WAYNE I. DANSON, CHIEF FINANCIAL OFFICER AND DIRECTOR. Since May 1999, Mr.
Danson has been the Managing Director and Founder of Danson Partners, a
financial advisory and investment banking firm specializing in middle market
companies in the real estate and technology industries. Prior to forming Danson
Partners, from August 1996 to April 1999 Mr. Danson was co-head of and Managing
Director of PricewaterhouseCoopers LLP's Real Estate Capital Markets Group.
Prior to joining PricewaterhouseCoopers, from 1992 through 1995 Mr. Danson was a
Managing Tax Partner with Kenneth Leventhal & Company in New York and
Washington, D.C., where he was also Kenneth Leventhal's national Director of its
International and Debt Restructure Tax Practices. Prior to his involvement with
Kenneth Leventhal, Mr. Danson was a Managing Director with Wolper Ross & Co.,
Ltd. in New York, a closely held financial services company specializing in
financial, tax, pension consulting, designing financial instruments and
providing venture capital and investment banking services. Mr. Danson graduated
with honors from Bernard M. Baruch College with a BBA in Accounting and an MBA
in Taxation.
JONATHAN J. LICHTMAN, DIRECTOR. Mr. Lichtman is currently an attorney with
the Boca Raton law firm of Levinson & Lichtman, LLP, where he specializes in
structuring corporate and partnership transactions including real estate
syndications. Mr. Lichtman is also currently a general partner of several real
estate partnerships in New York and Florida. Prior to forming his current firm,
Mr. Lichtman was an attorney since 1988 with English, McCaughan and O'Bryan, PA,
where he undertook legal work as well as real estate partnerships and
development. Mr. Lichtman obtained his J.D. degree, cum laude, from Syracuse
University College of Law and his LLM degree in taxation from the University of
Miami School of Law.
DR. MICHAEL FINCH, DIRECTOR. Since January 1998, Mr. Finch has been Chief
Technical Officer of New Media Solutions, Inc., a software development company.
From July 1993 to January 1998, Mr. Finch was employed by UCM Limited, a British
company, later renamed Media Forum, a multmedia and software development
company.
14
<PAGE>
RANDALL PROUTY, DIRECTOR. Mr. Prouty is the President of LA Investment
Associates, Inc., a development stage company. In 1997 Mr. Prouty co-founded
the Company with Mr. May. Mr. Prouty is also the President and sole owner of
Bristol Realty Corporation since 1984, a firm active in the commercial real
estate finance and brokerage market. And finally, he is the sole owner of
Bristol Capital, Inc., a firm active in consulting and business development work
for companies seeking access to capital markets, and through which he is
incubating other e-business ventures. Mr. Prouty was exposed to the public
markets in the early 1990's while assembling commercial real estate assets used
to back REMICs (mortgage backed securities) offered by Donaldson, Lufkin and
Jenrette and others. Prior to that time his career included positions
as a real estate construction lender, workout specialist and investment
advisor.
WILBANK J. ROCHE, DIRECTOR. Since 1995, Mr. Roche has practiced law as a
principal with Roche & Holte, a professional corporation. Roche & Holte has
performed legal services for the Company regarding various business matters for
the past ten months. Roche & Holte has been partially compensated in restricted
common stock for these services and partially in funds.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following ADVC summary compensation table shows certain compensation
information for services rendered in all capacities for the three fiscal years
ended December 31, 1997, 1998 and 1999. Other than as set forth herein, no
executive officer's salary and bonus exceeded $100,000 in any of the applicable
years. The following information includes the dollar value of base salaries,
bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------- -------------------------------
Awards Payouts
--------------- -------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION STOCK Awards OPTIONS PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NAME AND PRINCIPAL YEAR ($) ($) ($) ($) SARS (#) ($) ($)
POSITION
Roger May (1) 1999 - 0 - -0- -0- -0- -0- -0- -0-
1998 - 0 - -0- -0- - 0 - - 0 - -0- -0-
Wayne L. Danson (2) 1998 - 0 - -0- -0- -0- -0- -0- -0-
1999 - 0 - -0- -0- - 0 - - 0 - -0- -0-
</TABLE>
(1) Mr. May receives compensation through a consulting agreement with an
entity as to which he is the primary beneficial owner. See Certain
Transactions.
(2) Mr. Danson is a principal of a company that has a consulting agreement
with the Company. See Certain Transactions.
15
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANTED
OPTIONS/SAR'S GRANTED TO EMPLOYEES IN FISCAL EXERCISE OF BASE PRICE
NAME (#) YEAR ($/SH) EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------------------
Roger May -0- -- -- --
- ------------------ ---------------------- ---------------------- ----------------------- ---------------
Wayne L. Danson -0- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<S> <C> <C> <C> <C>
NUMBER OF UNEXCERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FY-END (#) MONEY OPTION/SARS
SHARES ACQUIRED ON EXERCISABLE/UNEXERCISABLE AT FY-END ($)
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE
------------------- ------------------ -------------------------- -----------------------------
Roger May -0- -0- - 0 - --
- ------------------ ------------------- ------------------ -------------------------- -----------------------------
Wayne L. Danson -0- -0- - 0 - --
</TABLE>
Compensation of Directors
To date, Directors of the Company have been issued 50,000 shares each of
our restricted common stock and may be issued certain additional shares. Other
than such stock grants or payments made in connection with other services
unrelated to being directors, our Directors have not received any compensation
for serving in such capacity.
Employment Agreements
The Company has entered into a Consulting Agreement with Global
Communications Technology Consultants, Inc.("GCTCI"), an entity beneficially
owned by Roger May, pursuant to which the Company pays GCTCI a consulting fee of
$10,000 per month. The Company has accrued the majority of fees owed pursuant
to this agreement due to insufficient funding. As of June 30, 1999, the Company
owed $111,550 on this agreement.
On November 29, 1999, the Company entered into an employment agreement
with a consulting organization to provide the functions customarily provided by
a Chief Financial Officer. The consulting organization is beneficially owned by
Wayne I. Danson. As compensation under the agreement, the Company will pay the
sum of $5,000 per month, plus 100,000 restricted shares of the Company's common
stock.
16
<PAGE>
CERTAIN TRANSACTIONS
During April through June 1999, the Company advanced funds to Advanced
Communications Technologies Pty. Ltd. (ADVC-Australia), a related Australian
company that is wholly-owned by Global Communications Technologies Ltd.
("GCTL"), a 23% shareholder of the Company. These funds were provided in order
to establish operations for ADVC-Australia. The Company advanced $310,000
through June 30, 1999 and additional funds subsequently.
The Company had a consulting agreement with Roger May pursuant to which he
agreed to act as Chief Executive Officer of the Company. Mr. May agreed to
defer amounts owed to him pursuant to the agreement due to the Company's limited
funds. The Company owed Mr. May $111,550 at June 30, 1999 for consulting fees
relating to the agreement.
As of June 30, 1999, the Company owed certain of its principal stockholders
amounts aggregating $422,561. On May 25, 1999, the Company entered into a
settlement agreement with those stockholders to release each other from all
claims. In July 1999, the Company issued 600,000 shares to the stockholders
pursuant to the settlement agreement.
On September 30, 1999, the Company entered into a secured convertible
debenture purchase agreement with two companies which are already stockholders
of the Company and one new shareholder, whereby the Company issued and sold
an aggregate principal amount of $650,000 of the Company's 12% Secured
Convertible Debentures due April 1, 2000 and which are convertibles into shares
of the Company's common stock.
Roche & Holte has performed legal services for the Company regarding
various business matters for the past ten months. Mr. Roche, a director of the
Company, is a principal of Roche & Holte. Roche & Holte has been partially
compensated in restricted common stock for these services and partially in
funds.
Levinson & Lichtman has performed legal services for the Company regarding
various business matters for the past ten months. Mr. Lichtman, a director of
the Company, is a principal of Levinson & Lichtman. Levinson & Lichtman has been
partially compensated in restricted common stock for these services and
partially in funds.
In September 1996, International Reservations Services, Ltd., an entity as
to which Mr. May was a principal officer, filed a Chapter 11 reorganization.
That Chapter 11 reorganization was resolved and International Reservations
Services, Ltd. emerged from bankruptcy in March 1997.
17
<PAGE>
Due to the financial constraints imposed on Mr. May as a result of the
interim financial condition of the Company, in 1997 Mr. May filed personal
Chapter 7 bankruptcy was was discharged.
RISK FACTORS
INVESTORS CANNOT DETERMINE POTENTIAL REVENUES, PROFITS OR FAILURES FROM OUR
HISTORY BECAUSE OUR BUSINESS HAS EXISTED FOR ONLY A SHORT PERIOD OF TIME. Our
executive officers commenced our major line of business relatively recently.
Accordingly, you can evaluate our business, and therefore our future prospects,
based only on a limited operating history. In addition, you must consider our
prospects in light of the risks and uncertainties encountered by companies in an
early stage of development in new and rapidly evolving markets.
WE HAVE NEVER BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE. We
have incurred losses in our business operation since our inception. We expect to
continue to lose money for the foreseeable future, and we do not know when we
will become profitable, if at all. Failure to achieve and maintain
profitability may adversely affect the market price of our common stock.
OUR AUDITORS HAVE ADVISED THAT WE HAVE TO OBTAIN ADDITIONAL CAPITAL TO
CONTINUE IN BUSINESS. Our auditors in their report included in our financial
statements have expressed doubt about our ability to continue as a going
company. That risk is primarily dependent on our ability to raise sufficient
money to undertake our business plan. If we do not continue as a business, our
stock would be worth substantially less.
WE MAY BE UNABLE TO MEET OUR CAPITAL REQUIREMENTS WHICH MAY SLOW DOWN OR
CURTAIL OUR BUSINESS PLANS . If our capital is insufficient to conduct our
business and if we are unable to obtain needed financing, we will be unable to
promote our SpectruCell system, build out communications systems or otherwise
our competitive position. Since we intend to rapidly commence development and
completion of our system, it is certain that we will require additional capital.
We have not thoroughly investigated whether this capital would be available, who
would provide it, and on what terms. If we are unable to raise the capital
required to fund our growth, on acceptable terms, our business may be seriously
harmed or even terminated.
THERE IS A LIMITED PUBLIC TRADING MARKET FOR OUR COMMON STOCK. Our Common
Stock presently trades on the Nasdaq over-the-counter bulletin board under the
symbol ADVC. There can be no assurance, however, that such market will
continue. There can be no assurance that any other market will be established
in the future. There can be no assurance that an investor will be able to
liquidate his or her investment without considerable delay, if at all. The
price of our Common Stock may be highly volatile.
18
<PAGE>
COMPETITION. The wireless telecommunications industry is highly
competitive and affected by the introduction of new services by, and the market
activities of, major industry participants, including AT&T Corp., Pacific Bell,
Sprint and other wireless cellular carriers. Competition in the business is
based upon pricing, customer service, billing services and perceived quality.
Most of our competitors are substantially larger and have greater financial,
technical and marketing resources. Although we believe that we have the human
and technical resources to pursue our strategy and compete effectively in this
competitive environment, our success will depend upon our continued ability to
profitably provide high quality, high value services at prices generally
competitive with those charged by our competitors.
CONCENTRATION OF STOCK OWNERSHIP. As of December 31, 1999, the present
directors and executive officers, and their respective affiliates beneficially
owned approximately 34.9% of our outstanding common stock. As a result of their
ownership, the directors and executive officers and their respective affiliates
collectively are able to significantly influence all matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company.
DEPENDENCE ON MANAGEMENT. Our success depends, to a significant extent,
upon certain key employees and directors, including primarily, Roger May. The
loss of services of one or more of these employees or director could have a
material adverse effect on our business. In addition, we have substantial need
for additional qualified management and marketing personnel. We believe that
our future success will also depend in part upon our ability to attract, retain
and motivate qualified personnel. There can be no assurance that we will be
successful in attracting and retaining such personnel. Competition for such
personnel is intense. We currently do not maintain a policy of key man life
insurance on any employees.
WE RELY ON LICENSES FOR OUR TECHNOLOGY. Our SpectruCell technology is operated
through a license with a related party. The license agreement provides for the
payment of certain fees and is limited to North and South America.
"PENNY STOCK" ISSUES. The shares of the Common Stock are "penny stocks" as
defined in the Exchange Act, which are traded on the OTC Bulletin Board. As a
result, an investor may find it more difficult to dispose of or obtain accurate
quotations as to the price of the shares of the Common Stock being registered
hereby. In addition, the "penny stock" rules adopted by the Commission under
the Exchange Act subject the sale of the shares of the Common Stock to certain
regulations which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling such securities must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in such securities. Furthermore, if the person purchasing the
securities is someone other than an accredited investor or an established
customer of the broker-dealer, the broker-dealer must also approve the potential
customer's account by obtaining information concerning the customer's financial
situation, investment experience and investment objectives. The broker-dealer
must also make a determination whether the transaction is suitable for the
customer and whether the customer has sufficient knowledge and experience in
financial matters to be reasonably expected to be capable of evaluating the risk
of transactions in such securities. Accordingly, the Commission's rules may
limit the number of potential purchasers of the shares of the Common Stock.
19
<PAGE>
If the Company can meet the listing requirements in the future, management
intends to apply to include the shares of the Common Stock being registered
hereby for quotation on The NASDAQ SmallCap Market operated by The NASDAQ Stock
Market. The Common Stock has not yet been approved for quotation on The NASDAQ
SmallCap Market and there can be no assurance that an active trading market will
develop or if such market is developed that it will be sustained. The NASDAQ
Stock Market recently approved changes to the standards for companies to become
listed on The NASDAQ SmallCap Market, including, without limitation, new
corporate governance standards, a new requirement that companies seeking listing
have net tangible assets of $2,000,000, market capitalization of $35,000,000 or
net income of $500,000 and other qualitative requirements. If the Company is
unable to satisfy the requirements for quotation on The NASDAQ SmallCap Market,
trading in the Common Stock being registered hereby would continue to be
conducted on the OTC Bulletin Board. Even if the shares of the Common Stock are
listed for quotation on The NASDAQ SmallCap Market, the market price of the
shares must remain above $5.00 per share or else such shares will be subject to
the "penny stock" rules of the Commission discussed above. If the market price
of such shares falls below $1.00 per share, such shares will be delisted from
The NASDAQ SmallCap Market and will once again be quoted on the OTC Bulletin
Board.
In addition to the recent changes in The NASDAQ SmallCap Market listing
requirements discussed above, the National Association of Securities Dealers,
Inc. (the "NASD") has recently announced changes in the requirements for
continued quotation on the OTC Bulletin Board. Essentially the new rules
require OTC Bulletin Board companies to file quarterly and annual reports,
required under the Exchange Act, with the Commission or appropriate banking or
insurance regulators. If companies currently quoted on the OTC Bulletin Board
do not comply with the new NASD rules, their shares will only be quoted in the
less automated "Pink Sheets", a system run by the National Quotation Bureau,
Inc. If for some reason the Company should not file its required reports
pursuant to the Exchange Act, it is possible that the Company would no longer be
eligible for quotation on the OTC Bulletin Board and would be relegated to the
"Pink Sheets", There can be no assurance that an active trading market will
develop for the shares of the Common Stock in the "Pink Sheets" or if such
market is developed that it will be sustained.
RESALE RESTRICTIONS. Various state securities laws impose restrictions on
transferring "penny stocks" and as a result, investors in the Common Stock may
have their ability to sell their shares of the Common Stock impaired. For
example, the Utah Securities Commission prohibits brokers from soliciting buyers
for "penny stocks", which makes selling them more difficult.
NO DIVIDENDS. The Company has never paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
The payment of dividends by the Company will depend on its earnings, financial
condition and other business and economic factors affecting the Company at that
time as the Board of Directors may consider relevant. The Company currently
intends to retain any earnings to provide for the development and growth of the
Company.
20
<PAGE>
POTENTIAL REVENUE AND STOCK PRICE VOLATILITY. The Company's future
operating results may vary substantially from quarter to quarter. Revenues in
any quarter are substantially dependent on receipt of orders and installations
in that quarter and the Company's staffing and operating expenses are based on
anticipated revenue levels from these orders. Since a high percentage of this
Company's costs are fixed, the loss of any one order or the failure to obtain
new orders as existing orders are completed could cause significant fluctuations
in the Company's revenue and cash flow from quarter to quarter. Due to these
and other factors, including the general economy, stock market conditions or
announcements by the Company or its competitors, the market price of the Common
Stock may be highly volatile.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. Management believes that
this Report on Form 8-K contains forward-looking statements, including
statements regarding, among other items, the Company's future plans and growth
strategies and anticipated trends in the industry in which the Company operates.
These forward-looking statements are based largely on the Company's control.
Actual results could differ materially from these forward-looking statements as
a result of factors described herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Exchange Agreement and delivery of the ADVC shares to
MRC as the sole shareholder of SICI, pursuant to Rule 12g-3(a) of the General
Rules and Regulations of the Securities and Exchange Commission, ADVC became the
successor issuer to SICI for reporting purposes under the Securities Exchange
Act of 1934 and elected to report under the Act effective January 31, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
21
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements of ADVC (and its predecessor Media Forum
International, Inc.) for the fiscal years ending June 30, 1998 and June 30, 1999
and for the nine months ended March 31, 1999 are included herein. In addition,
pro forma financial statements reflecting the combined financial statements of
SICI and ADVC at November 30, 1999 are included herein.
MEDIA FORUM INTERNATIONAL, INC.
FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
MEDIA FORUM INTERNATIONAL, INC.
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEETS AT MARCH 31, 1999 AND JUNE 30, 1998
PAGE 3 STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
MARCH 31, 1999 AND FOR THE YEAR ENDED JUNE 30, 1998
PAGE 4 STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JULY 1, 1997 TO MARCH 31, 1999
PAGE 5 - 6 STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
MARCH 31, 1999 AND FOR THE YEAR ENDED JUNE 30, 1998
PAGES 7 - 20 NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Media Forum International, Inc.
We have audited the accompanying balance sheets of Media Forum International,
Inc. as of March 31, 1999 and June 30, 1998 and the related statements of
operations, changes in stockholders' deficiency and cash flows for the nine
months ended March 31, 1999 and the year ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Media Forum International, Inc. as
of March 31, 1999 and June 30, 1998, and the results of its operations and its
cash flows for the nine months ended March 31, 1999 and for the year ended June
30, 1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company's significant operating losses and working
capital deficiency at March 31, 1999 and June 30, 1998 of $ 970,049 and $895,547
respectively, raise substantial doubt about its ability to continue as a going
concern. Management's plans in regards to these matters are also described in
Note 13. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
January 20, 2000
23
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Interest receivable $ - $ 4,500
Marketable securities 48,750 46,800
----------- -----------
TOTAL ASSETS $ 48,750 $ 51,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
CURRENT LIABILITIES
Cash overdraft $ 14 $ 14
Accounts payable 252,825 252,825
Accrued compensation 131,550 91,550
Interest payable 46,849 29,897
Advances payable 15,000 -
Note payable 150,000 150,000
Due to stockholders 422,561 422,561
---------- ----------
TOTAL CURRENT LIABILITIES 1,018,799 946,847
--------- ----------
STOCKHOLDERS' DEFICIENCY
Common stock, no par value, 100,000,000 shares
authorized, 6,733,803 and 5,158,803 shares
issued and outstanding as of March 31, 1999
and June 30, 1998, respectively 2,834,490 2,616,240
Accumulated deficit (3,726,539) (3,386,783)
Accumulated other comprehensive loss (78,000) (79,950)
------------ ------------
(970,049) (850,493)
------------ ------------
Less subscriptions receivable - (45,054)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (970,049) (895,547)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
$ 48,750 $ 51,300
=========== ============
</TABLE>
See accompanying notes to financial statements
24
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1999 JUNE 30, 1998
<S> <C> <C>
SALES $ - $ 160,865
COST OF SALES - 122,597
-------------- --------------
GROSS PROFIT - 38,268
-------------- -------------
OPERATING EXPENSES
Bad debt expense 45,054 -
Compensation expense 7,800 163,750
Commissions - 10,900
Consulting fees 257,650 625,997
Depreciation and amortization - 293,086
Loss on impairment of fixed and intangible assets - 494,451
Professional fees 7,800 13,400
Rent and lease expense - 23,490
Other selling, general and administrative expenses - 157,973
-------------- -------------
TOTAL OPERATING EXPENSES 318,304 1,783,047
-------------- -------------
NET LOSS FROM OPERATIONS (318,304) (1,744,779)
--------------- --------------
OTHER INCOME/(EXPENSE)
Interest expense (21,452) (23,000)
Interest income - 4,528
-------------- -------------
TOTAL OTHER INCOME/ (EXPENSE) (21,452) (18,472)
--------------- -------------
NET LOSS $ (339,756) $ (1,763,251)
================ ===============
Net loss per share - basic and diluted $ (0.06) $ (0.35)
================ ===============
Weighted average number of shares
outstanding during the period -
basic and diluted 5,829,077 5,000,292
================ ==============
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JULY 1, 1997 TO MARCH 31, 1999
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ACCUMULATED SUBSCRIPTIONS COMPREHENSIVE
SHARES AMOUNT DEFICIT RECEIVABLE LOSS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 4,483,170 $2,648,382 $(1,623,532) $(45,054) $(99,450) $ 880,346
Common stock issuance to founders 800,000 80,000 - - - 80,000
Common stock issuance for cash 8,000 10,000 - - - 10,000
Common stock issuance for services 382,633 649,608 - - - 649,608
Common stock issuance for equipment 15,000 45,000 - - - 45,000
Common stock issuance subject to litigation 75,000 - - - - -
Conversion of shares pursuant to settlement
agreement (605,000) (816,750) - - - (816,750)
Net loss for the year ended June 30, 1998 - - (1,763,251) - - (1,763,251)
Unrealized gain on marketable
securities - - - - 19,500 19,500
--------- --------- ---------- ------- -------- ----------
BALANCE, JUNE 30, 1998 5,158,803 2,616,240 (3,386,783) (45,054) (79,950) (895,547)
Common stock issuance for services 875,000 183,250 - - - 183,250
Common stock issuance in exchange for 35,000
elated party debt 700,000 35,000
Write off of uncollectible receivable - - - 45,054 - 45,054
Net loss for the nine months ended
ended March 31, 1999 - - (339,756) - - (339,756)
Unrealized gain on marketable securities - - - - 1,950 1,950
---------- ---------- ------------ -------- --------- ------------
BALANCE, MARCH 31, 1999 6,733,803 $2,834,490 $(3,726,539) $ - $(78,000) $ (970,049)
========== ========== ============ ======== ========= ============
</TABLE>
See accompanying notes to financial statements
26
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, 1999 JUNE 30, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (339,756) $ (1,763,251)
Adjustments to reconcile net loss to net cash used in ---------------- ---------------
operating activities:
Depreciation and amortization - 293,086
Expenses incurred in exchange for common stock 218,250 729,608
Loss on impairment of fixed and intangible assets - 494,451
Bad debt expense 45,054 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid rent - 2,125
Interest receivable 4,500 (4,500)
Security deposits - 11,628
Organizational costs - 1,264
Increase (decrease) in:
Accounts payable - 97,235
Interest payable 16,952 22,500
Accrued compensation 55,000 91,550
Cash overdraft - 14
Total adjustments to reconcile net loss to net cash used in --------------- -----------
operating activities 339,756 1,738,961
--------------- -----------
Net cash used in operating activities - (24,290)
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
NET CASH PROVIDED BY INVESTING ACTIVITIES - -
--------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of monies due to stockholders - (11,420)
Proceeds from issuance of common stock - 10,000
-------------- ------------
NET CASH USED IN FINANCING ACTIVITIES - (1,420)
-------------- ------------
NET INCREASE (DECREASE) IN CASH - (25,710)
Cash and cash equivalents at beginning of period - 25,710
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ - $ -
=============== ===============
</TABLE>
27
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, 1999 JUNE 30, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (339,756) $ (1,763,251)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization - 293,086
Expenses incurred in exchange for common stock 218,250 729,608
Loss on impairment of fixed and intangible assets - 494,451
Bad debt expense 45,054 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Prepaid rent - 2,125
Interest receivable 4,500 (4,500)
Security deposits - 11,628
Organizational costs - 1,264
Increase (decrease) in:
Accounts payable - 97,235
Interest payable 16,952 22,500
Accrued compensation 55,000 91,550
Cash overdraft - 14
Total adjustments to reconcile net loss to net cash used in
operating activities 339,756 1,738,961
Net cash used in operating activities - (24,290)
CASH FLOWS FROM INVESTING ACTIVITIES
NET CASH PROVIDED BY INVESTING ACTIVITIES - -
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of monies due to stockholders - (11,420)
Proceeds from issuance of common stock - 10,000
NET CASH USED IN FINANCING ACTIVITIES - (1,420)
NET INCREASE (DECREASE) IN CASH - (25,710)
Cash and cash equivalents at beginning of period - 25,710
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ - $ -
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
The Company's marketable securities are carried at their fair value based upon
the quoted market prices of those investments at March 31, 1999 and June 30,
1998. Accordingly, unrealized gains and losses are included in stockholders'
deficiency (See Note 3). The unrealized losses at March 31, 1999 and June 30,
1998 were $1,950 and $19,500, respectively.
During January 1998, the Company acquired computer equipment from an individual
in exchange for 15,000 shares of the Company's common stock at $3.00 per share.
The equipment was valued at $45,000 (See Note 4).
In February 1998, the Company entered into an amended agreement with UCM, Ltd.
("UCM") to reduce the original purchase price of the February 1997 agreement
(See Note 5). UCM relinquished the 1,150,000 shares previously issued in its
name and received 545,000 shares of restricted common stock. At this time, a
reduction in the value of the intangibles of $816,750 was recorded and charged
to equity since the substance of the transaction was an amendment to the
purchase price.
See accompanying notes to finanacial statements
28
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
Media Forum International, Inc. (the "Company"), was incorporated in the State
of Florida on March 6, 1997 to develop, market and support commercial Internet
and Intranet services, software solutions and applications which enables small
and large businesses alike to reach their target markets on a global basis. The
Company's fiscal year end is June 30.
On May 30, 1997, the Company merged with Imaging Systems Synergies, Inc.
("ISS"), a Delaware corporation. The shareholders of ISS, who were also
shareholders of the Company prior to the merger, received stock of the Company
on a one-for-one basis. The merger was accounted for as a combination of
entities under common control and a recapitalization of the Company.
(B) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results could differ
from those estimates.
(C) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
(D) ORGANIZATION COSTS
During the fiscal year ended June 30, 1998, the Company elected early adoption
of Statement of Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up
Activities." SOP 98-5 states that costs of start-up activities, including
organization costs, should be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Earlier application is encouraged in fiscal years for which annual financial
statements have not been issued. The cumulative effect of this accounting
change during the fiscal year ended June 30, 1998 was not material.
(E) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of information about
the fair value of certain financial instruments for which it is practicable to
estimate the value.
29
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties other than in a forced sale or
liquidation.
The carrying amounts of the Company's financial instruments, including
accounts payable, accrued liabilities, and loans payable approximates fair value
due to the relatively short period to maturity for these instruments.
(F) MARKETABLE SECURITIES
The Company accounts for investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") which is the
pronouncement on accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. Except for debt securities classified as held-to-maturity
securities, which are reported at amortized cost, SFAS 115 requires that
investments in debt and equity securities be reported at fair value and that the
fair value of held-to-maturity securities be disclosed.
Management determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance sheet
date. Available-for-sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Investments classified as held-to-maturity are carried at amortized
cost. In determining realized gains and losses, the cost of the securities sold
is based on the specific identification method.
(G) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
double-declining balance method over the estimated economic useful lives of 5
years. Expenditures for maintenance and repairs are charged to expense as
incurred. Major improvements are capitalized.
(H) INTANGIBLES
Intangible assets included copyrights, customer lists, licenses, a
non-compete agreement and miscellaneous other intangibles acquired from a
company in February 1997 (See Note 5). The intangible assets were being
amortized over three years beginning March 1, 1997 using the straight-line
method. Amortization expense for the year ended June 30, 1998 was $258,750.
There was no amortization expense during the nine months ended March 31, 1999,
since the intangible assets were written down due to impairment (See Note 5).
30
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(I) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. There was no current or deferred income tax
expense in the periods ended March 31, 1999 and June 30, 1998 due to the net
losses. The deferred tax asset of approximately $802,000 as of March 31, 1999
and $757,000 as of June 30, 1998 arising from net operating loss carryforwards
of approximately $2,360,000 and $2,228,000 respectively, has been fully offset
by a valuation allowance.
(J) 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.
(K) LOSS PER SHARE
Net loss per common share for the nine months ended March 31, 1999 and for
the year ended June 30, 1998 is computed based upon the weighted average common
shares outstanding as defined by Financial Accounting Standards No. 128,
"Earnings Per Share". At March 31, 1999 and June 30, 1998 there were 150,000
common stock equivalents in the form of convertible debt. Such convertible debt
is subject to litigation (See Note 7). The common stock equivalents have not
been included in the computation of the loss per share since at March 31, 1999
and June 30, 1998 the effect was anti-dilutive.
(L) REVENUE RECOGNITION
The Company recognizes revenue as earned. During the fiscal year ended June 30,
1998, the Company's revenues were primarily derived from the development of web
sites and production of informational and promotional CDs for product launches
of their customers. The Company was inactive during the nine months ended March
31, 1999.
31
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(M) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December 15, 1997.
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial statements
for periods beginning after December 15, 1997. Statement No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits" revises
employers' disclosure requirements about pension and other post-retirement
benefit plans and is effective for fiscal years beginning after December 15,
1997. Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by Statement No. 137, establishes accounting and
reporting standards for derivative instruments and related contracts and hedging
activities. This statement is effective for all fiscal quarters and fiscal
years beginning after June 15, 2000. The Company's adoption of pronouncements
No. 130, 131, and 132 did not have a material effect on the Company's financial
position or results of operations. The Company believes that its adoption of
pronouncement No. 133, as amended by No. 137, will not have a material effect on
the Company's financial position or results of operations.
NOTE 2 INTEREST RECEIVABLE
Interest receivable was comprised of interest accrued on the stock subscription
receivable of $45,054 that was recorded prior to July 1, 1997. Interest income
of $4,500 was accrued as of June 30, 1998. An additional $3,379 was accrued
during the nine months ended March 31, 1999 resulting in a total interest
receivable of $7,879. At March 31, 1999, the interest receivable and
subscription receivable were written off because management deemed them to be
uncollectible.
NOTE 3 MARKETABLE SECURITIES
The Company's marketable securities are comprised of equity securities, all
classified as available-for-sale securities, which are carried at their fair
value based upon the quoted market prices of those investments at March 31, 1999
and June 30, 1998. Accordingly, unrealized gains and losses are included in
stockholders' deficiency.
The composition of marketable equity securities at March 31, 1999 and June 30,
1998 is as follows:
32
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999 June 30, 1998
Gross Gross
Unrealized Fair Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
-------------------------------------- ---------------------------------
Available-for-sale
Securities:
Common Stock $126,750 $(78,000) $48,750 $126,750 $(79,950) $46,800
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
On May 30, 1997 the Company merged with ISS (See Note 1(A)) which was accounted
for as a combination of entities under common control and a recapitalization of
the Company. The Company recorded fixed assets in the amount of $176,635 and
leasehold improvements in the amount of $9,173 as a result of the merger. As a
result of the Company's subsequent inactivity and potential of merging with
another, dissimilar company (See Note 14(A)), the fixed assets were no longer
useful to the Company. The Company wrote down the fixed assets against
operations during the year ended June 30, 1998 due to the impairment in their
value resulting in a net loss on impairment of $146,951.
During January 1998, the Company acquired computer equipment from an individual
in exchange for 15,000 shares of the Company's common stock at $3.00 per share.
The equipment was valued at $45,000. As a result of the Company's subsequent
inactivity and potential of merging with another, dissimilar company, the fixed
assets were no longer useful to the Company. The Company wrote down the fixed
assets against operations during the year ended June 30, 1998 due to the
impairment in their value resulting in a net loss on the impairment of $45,000.
NOTE 5 INTANGIBLE ASSETS
In February 1997, ISS (See Note 1(A)) acquired a group of intangible assets
from UCM, Ltd. ("UCM"). ISS issued 1,150,000 shares of common stock, valued at
$1,552,500, based on the discounted quoted trading price of ISS at the
acquisition date, in exchange for the intangibles. The intangibles consisted of
copyrights, customer lists, licenses, a non-compete agreement and miscellaneous
other intangibles.
In February 1998, the Company entered into an agreement with UCM (which was
in administrative receivership and liquidation at the time) to amend the
original agreement between the parties in order to reduce the original purchase
price. Pursuant to this agreement, UCM relinquished the 1,150,000 shares
previously issued in its name and received 545,000 shares of restricted common
stock. At that time, a reduction in the value of the intangibles of $816,750
was recorded and charged to equity since the substance of the transaction was an
amendment to the purchase price.
33
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 199 AND JUNE 30, 1998
The Company was inactive during the nine months ended March 31, 1999 and merged
with another company in April 1999 (See Note 14 (A)). The newly formed
company's revenue streams will be based on new technology that is being
developed. The intangible assets that ISS acquired were no longer useful to the
Company as of June 30, 1998. The Company determined that the carrying value of
the intangible assets was no longer recoverable since the fair value of the
intangibles was estimated to be zero. The $304,500 carrying value of the
intangibles (reduced carrying value of $735,750 less accumulated amortization of
$431,250 through June 30, 1998) has been written down to zero and an impairment
loss of $304,500 has been charged to operations in 1998.
NOTE 6 ACCRUED COMPENSATION
The Company has a consulting agreement with an individual to serve as the Chief
Executive Officer of the Company (See Note 12 (A)). The individual agreed to
defer payment of the amounts owed pursuant to the agreement due to the Company's
lack of funds. During the nine months ended March 31, 1999, the Company issued
700,000 shares of its common stock at $.05 per share, which represents the fair
market value of the common stock at that time as determined by the Company's
Board of Directors, to satisfy $35,000 of the amounts due to the individual.
The Company owed the individual $131,550 at March 31, 1999 and $91,550 at June
30, 1998 for consulting fees relating to this agreement.
NOTE 7 NOTE AND INTEREST PAYABLE
On December 6, 1996, ISS (See Note 1 (A)) signed a promissory note to a company
($75,000) and an individual ($25,000) ("the payees") for a total amount of
$100,000 due January 30, 1997 with interest accruing on the outstanding
principal balance at the rate of 15 percent per year. The note could also be
converted, at the payee's option, into the common stock of ISS into the number
of shares that could be purchased at a conversion price equal to $2.00 per
conversion share.
The due date of the note was extended to May 16, 1997. On May 20, 1997 an
amendment to the convertible promissory note was made which assigned the
individual's portion of the promissory note ($25,000) to Media Forum
International, Inc. In addition, the company who previously loaned $75,000 made
an additional loan to ISS in the amount of $75,000. The amendment also
stipulated a change in the conversion price per share to $1.00 per share. When
Media Forum International, Inc. and ISS merged, the $25,000 note assigned to the
Company was nullified leaving a remaining convertible note payable balance of
$150,000 as of May 30, 1997.
During December 1997, the Company issued 75,000 common shares to settle the
amounts due to the payee. However, a dispute arose as to whether the payee
authorized the issuance of the shares. The payee filed a lawsuit in December
1997 to enforce the convertible promissory note. The note payable has not been
removed from the financial statements due to the ongoing lawsuit. The Company
and its counsel cannot predict the results of these actions but believes that
the likelihood of an unfavorable outcome is greater than 50%. Although the
Company has some viable defenses to the lawsuit, it is more likely than not that
the court will find monetary sums are due to the payee under the convertible
promissory note. The Company has recorded interest payable in the amounts
34
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
of $7,397, $29,897, and $46,849 as of June 30, 1997, June 30, 1998, and March
31, 1999, respectively. The total payable of principal and accrued interest at
March 31, 1999 totaled $196,849. Pursuant to the Company's legal counsel, the
range of the potential loss is believed to be between $175,000 and $250,000.
Management believes that the amount recorded on its financial statements at
March 31, 1999 and June 30, 1998 fairly reflects its potential liability.
NOTE 8 DUE TO STOCKHOLDERS
As of March 31, 1999 and June 30, 1998, the Company owed certain of its
principal stockholders amounts aggregating $422,561. On May 25, 1999, the
Company entered into a settlement agreement with those stockholders to release
each other of all known and unknown, fixed or contingent claims (See Note 14
(B)). In July of 1999, 600,000 shares were issued to the stockholders pursuant
to the agreement to settle the debt owed (See Note 14 (B)).
NOTE 9 ADVANCES PAYABLE
During the nine months ended March 31, 1999, Advanced Communications
Technologies, Inc. (See Note 14 (A)) paid for certain expenses on behalf of the
Company. The total of the payments aggregated $15,000 at March 31, 1999.
NOTE 10 STOCKHOLDERS' DEFICIENCY
(A) COMMON STOCK
The Company was originally authorized to issue 10,000,000 shares of common
stock at no par value. On April 7, 1999, the Company filed an amendment to
their articles of incorporation and changed the maximum number of shares
authorized to 100,000,000. The accompanying financial statements have been
retroactively adjusted for this amendment. There were 6,733,803 and 5,158,803
shares of common stock issued and outstanding as of March 31, 1999 and June 30,
1998, respectively.
(B) PRIVATE PLACEMENTS
(i) On October 7, 1996, Imaging Systems Synergies, Inc. (See Note 1 (A))
issued an offering memorandum for the sale of 100,000 units at $2.50 a Unit.
Each unit consisted of one share of Common Stock, no par value per share, and
three Stock Purchase Warrants. Each Warrant entitled the holder to purchase one
share of Common Stock of the Company at a purchase price of $2.50. There were
84,100 shares and 252,300 warrants issued under this offering. The warrants
expired October 7, 1997.
(ii) On March 24, 1997, the Company issued an offering memorandum for the
sale of 60,000 units at $2.50 a Unit. Each unit consisted of one share of
Common Stock, no par value per share, and three Stock Purchase Warrants Each
35
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
Warrant entitled the holder to purchase one share of Common Stock of the Company
at a purchase price of $2.50. There were 30,000 shares and 90,000 warrants
issued under this offering. The warrants expired January 7, 1998.
NOTE 11 AFFILIATED COMPANIES AND RELATED PARTIES
(A) GLOBAL COMMUNICATIONS TECHNOLOGY CONSULTANTS, INC.
The individual who owns Global Communications Technologies Ltd, a 17%
stockholder of the Company, wholly owns global Communications Technology
Consultants, Inc., a related party (See Note 12(A)).
(B) LEGAL COUNSEL
Certain of the Company's legal counsel are also stockholders of the
Company.
NOTE 12 COMMITMENTS AND CONTINGENCIES
(A) CONSULTING / EMPLOYMENT AGREEMENT
On November 21, 1997, the Company entered into an agreement with Global
Communications Technology Consultants, Inc. ("GCTC") (See Note 11) whereby the
Company engaged GCTC as consultants to the Company, and hired a GCTC employee as
Chief Executive Officer ("CEO") of the Company with the primary duties of
identifying suitable acquisitions, procuring new financing and assisting with
any of the Company's fund raising efforts in order to build and establish a
substantial revenue and earnings stream for the Company.
The agreement had a term of one year and at the expiration of that term
continued on a month to month basis. In consideration for the agreement the
Company agreed to pay GCTC an annual consulting fee of $150,000 for the services
of the CEO during the term of the agreement; the Company paid a one time signing
fee of $10,000; and the Company issued the consultant 250,000 shares of
restricted stock on the signing of the agreement and an additional 250,000
shares six months after the execution date of the agreement.
On July 1, 1998, the board of directors made a resolution to extend this
agreement for an indefinite period of time for a fee of $10,000 per month or
$120,000 per year. The Company is currently negotiating a long-term employment
agreement with the individual.
The Company charged $90,000 and $97,500 to consulting expense pursuant to the
consulting agreement during the nine months ended March 31, 1999 and the year
ended June 30, 1998, respectively. The Company accrued the majority of the fees
due to the individual due to lack of funding (See Note 6). As of March 31, 1999
36
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
and June 30, 1998, the Company owed the individual $131,550 and $91,550,
respectively.
(B) EMPLOYMENT AGREEMENTS
(i) On January 28, 1997 ISS entered into an employment agreement
with an individual for the position of office manager. The term was for one
year with an annual salary of $36,000. In addition to the salary, the
individual received 5,000 shares of stock in ISS, which was converted to 5,000
shares of the Company valued at $12,500 based upon recent private placement
offering prices at that time.
On February 26, 1998, the Board of Directors extended the
employment term until April 30, 1998. On April 30, 1998, the Company verbally
extended the employment term for an indefinite period of time.
(ii) On April 22, 1997, the Company entered into an employment
agreement with an individual for the position of account and sales executive.
The term was for 12 months at an initial rate of $5,500 per month with
commissions on sales of between 3-5% of the individual's gross sales dependent
on the individual sale profitability. The contract was not extended past its
initial term. As of March 31, 1999 and June 30, 1998, the Company owed the
individual $11,580 for services rendered which is included in accounts payable.
In June 1999, the Company issued 40,000 shares in full payment of the
obligation.
(C) CONSULTING AGREEMENT
On March 4, 1999, the Company entered into a consulting agreement with an
investment resource company to arrange for funding of a reverse merger of a
target into the Company (See Note 14 (A)). Upon successful completion of the
merger, the consulting firm will also structure for funding a Regulation D, Rule
504 offering up to $1,000,000. The Company will compensate the consultant in
the amount of 10% of the gross amount funded to the Company and 3% in
non-accountable expenses.
The Company received $1,060,500 in total during the period to April 1999 to
July 1999 pursuant to this agreement. (See Note 14(J)). In lieu of the
non-accountable expenses due to the consulting firm, the Company issued 33,750
shares of common stock having a fair value of $10,800, based on the quoted
trading price of such common stock, to the consultants in June 1999.
NOTE 13 GOING CONCERN
The Company's financial statements for the nine months ended March 31, 1999 and
the year ended June 30, 1998 have been prepared on a going concern basis which
contemplates the realization of assets and the settlement of liabilities and
37
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
commitments in the normal course of business. The Company incurred net losses
of $339,756 and $1,763,351 for the nine months ended March 31, 1999 and the year
ended June 30, 1998, respectively. The Company's working capital deficiency of
$970,049 and $895,547 at March 31, 1999 and June 30, 1998 may not enable it to
meet such objectives as presently structured.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its business plan.
Management's plans include merging with a target company (See Note 14 (A)) and
raising additional funds pursuant to a Regulation D, Rule 504 offering (See Note
12 (C)). Management anticipates that the merger and additional funding will
generate sufficient resources to assure continuation of the Company's
operations.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE 14 SUBSEQUENT EVENTS
(A) MERGER AGREEMENT
On April 7, 1999, the Company acquired Advanced Communications Technologies,
Inc. ("ACT"), a Nevada corporation that owns the entire rights and interests,
for the region of continental North and South America, to a development project
called Universal Wide Spectrum Cellular ("UWSC") which will be marketed under
the name "Spectrucell". The merger agreement stipulated that the Company issue,
to the shareholders of ACT, nine shares of its common stock for every one share
held by MFI stockholders. As a result of the merger, the shareholders of ACT
received 60,224,227 common shares and became shareholders of approximately 90%
of the Company. Generally accepted accounting principles require that the
company whose shareholders retain a majority voting interest in a combined
business be treated as the acquirer for accounting purposes. As a result, the
merger will be treated as an acquisition of the Company by ACT, and a
recapitalization of ACT. Accordingly, the Company's financial statements will
include the following: (1) the balance sheet will consist of ACT's net assets
at historical cost and the Company's net assets at historical cost and (2) the
statement of operations will include ACT's operations for the period presented
and the operations of the Company from the date of merger.
The Company subsequently changed its name to Advanced Communications
Technologies, Inc. Concurrent with the merger, the Company sold 5,000,000
shares of Regulation D, Rule 504D common stock for $1,060,500 (See Note 14 (J)).
(B) SETTLEMENT AGREEMENT
On May 25, 1999, the Company, along with two of its principal stockholders
and directors (herein called the "First Party"), entered into a settlement
agreement with three former officers and directors who were also stockholders
38
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(herein called the "Second Party") to settle litigation filed by the First Party
against the Second Party. The Second Party agreed to cease and desist from
purporting to represent the Company in any capacity, making any statements or
other communications on behalf of the Company, and taking any actions on behalf
of the Company. The Second Party also releases, remises and acquits the First
Party from any and all known or unknown, fixed or contingent claims, demands,
actions or causes of action existing as of the date hereto and agrees not to
institute any lawsuits or other court proceedings of any nature or king
whatsoever, against the First Party.
In exchange for the Second Party's compliance with the above, the First Party
agreed to dismiss the Complaint for Injunctive Relief and to withdraw the
lawsuits with prejudice. In addition, the Company agreed to release the hold on
all stock in the name of the Second Party once an option agreement (See Note 14
(C)) has been executed by the Second Party and a Third Party, and until all the
stock in the Company has been deposited for sale pursuant to the terms of the
said option agreement. The First Party agreed to issue in the name of the
Second Party, 600,000 additional shares of rule 144 restricted stock of the
Company within five days of the signing of the settlement agreement and the
stock option agreement. The 600,000 shares were issued in the name of the
Second Party on May 25, 1999 and delivered to the Second Party on October 19,
1999.
(C) STOCK OPTION PURCHASE AGREEMENT
On May 25, 1999, three stockholders of the Company (the secondary party
discussed above) entered into a stock option purchase agreement with the third
party mentioned above, whereby the stockholders agreed to sell to the third
party 100% of the stock that they control directly or indirectly in the Company
which would be from 1 to 1.2 million shares of existing stock issued and held.
It was also agreed that 600,000 shares of Rule 144 restricted stock that the
Company issued to the above mentioned stockholders (See Note 14 (B)), will also
be sold to the third party by such stockholders.
(D) SUBSIDIARY FORMATION
On July 20, 1999, Advanced Global Communications, Inc. ("AGC") was incorporated
in the State of Florida. AGC issued 1,000 shares of its common stock to the
Company at $1.00 per share resulting in AGC becoming a wholly owned subsidiary
of the Company (See Note 14(H)(ii)).
(E) SUBLEASE AGREEMENT
On July 24, 1999, the Company entered into a sublease agreement for the
rental of its business offices. The rental payments will be $1,250 per month
with a lease term of six months commencing on the first day of August 1999 with
an automatic extension. The sublease agreement was amended effective December
15, 1999 to increase the rental rate to $1,300 per month.
39
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(F) SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
On September 30, 1999, the Company entered into a secured convertible
debenture purchase agreement with two companies, which are already stockholders
of the Company, whereby the Company desires to issue and sell an aggregate
principal amount of $500,000 of the Company's 12% Secured Convertible Debentures
due April 1, 2000 and which are convertible into shares of the Company's Class A
Common Stock. Three secured convertible debentures were issued on September 30,
1999 for a total of $500,000. The debenture is convertible, at the holder's
option, into shares of common stock in whole or in part at any time from time to
time after the original issue date. The number of shares of common stock
issuable upon a conversion shall be determined by dividing the outstanding
principal amount of the debenture to be converted, plus all accrued but unpaid
interest, by the conversion price. The conversion price in effect on any
conversion date shall be 50% of the average of the bid price during the twenty
trading days immediately proceeding the applicable conversion date. In
addition, on September 30, 1999, the Company issued another convertible
debenture to an unrelated party in the amount of $150,000. This debenture has
the same features that the three debentures referred to above contain. The
$60,500 overpayments received from the debenture subscribers as a result of
their purchase of common stock under the private placement (See Note 14(J)) was
applied to amounts due.
The convertible debentures contain a beneficial conversion feature computed at
its intrinsic value which is the difference between the conversion price and the
fair value on the debenture issuance date of the common stock into which the
debt is convertible, multiplied by the number of shares into which the debt is
convertible at the commitment date. Since the beneficial conversion feature is
to be settled by issuing equity, the amount attributed to the beneficial
conversion feature, which in this case equals the same amount as the debt
recorded of $650,000, was recorded as an interest expense and a component of
equity on the issuance date.
(G) EXECUTIVE EMPLOYMENT AGREEMENTS
(i) On November 7, 1999, the Company entered into an employment agreement
with an individual to serve as President of the Company for a term of three
years. The agreement may be extended for additional consecutive one-year
periods by written agreement. The individual was to receive a salary of
$150,000 per year on a monthly basis. As part of the consideration to the
individual, the Company agreed to issue 500,000 shares of restricted Regulation
144 stock upon execution of the agreement (see below). In addition, the
individual was to be granted employee incentive stock options to purchase the
Company's common stock pursuant to an employee incentive stock option plan to be
created by the Company. A total of 750,000 options will be granted over the
employment term (see below).
40
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
On November 16, 1999, the Company signed a residential lease agreement for the
rental of an apartment for the President. The rental payments are $1,380 per
month beginning on December 1, 1999 and terminating on November 30, 2000.
In January 2000, the aforementioned individual resigned from the position of
President. The Company never issued the 500,000 shares of restricted Regulation
144 stock to the individual referred to in the employment agreement or the
employee incentive stock options and is currently negotiating with the
individual as to the amounts and existence of any liabilities for services
rendered.
(ii) On November 29, 1999, the Company entered into and executed an
employment agreement with a consulting organization to provide the functions
customarily provided by a Chief Financial Officer. These functions include
oversight of the Company's financial affairs, assistance in the preparation of
budgets, providing strategic business advice from the financial planning
perspective, and other related responsibilities. As compensation for these
services, the Company will pay the sum of $5,000 per month, payable monthly in
advance, plus 100,000 restricted shares of the Company's common stock. The
issuance of stock will be recorded as consulting expense over the service period
based upon the trading price of the stock at the agreement date. The term of
this agreement shall be the earlier of (a) the execution of a definitive,
renegotiated agreement, and (b) March 31, 2000
(H) ACQUISITIONS
(i) On June 3, 1999, the Company entered into an Acquisition of Interest and
Related Matters agreement with Kentel LLC ("Kentel"), a limited liability
company organized under the laws of the State of California that is in the
communications industry. Kentel required funding to pay overdue expenses and to
fund operations for the next three months. Kentel affirmed that it had numerous
transactions pending that would generate significant revenues in a relatively
short period of time and make Kentel a highly profitable business. The Company
received a 51% equity interest in Kentel pursuant to the Acquisition of Interest
and Related Matters agreement in exchange for the following: (a) a contribution
of the sum of $100,000 to Kentel by June 4, 1999, (b) providing up to an
additional $100,000 in operating capital to Kentel over the next 90 days on an
as-needed/as-agreed basis, commencing on June 15, 1999, and (c) enabling Kentel
to upgrade its switch through providing a guarantee or other financial
accommodations.
During June and July 1999, the Company transferred funds to Kentel in the
amount of $170,000. Subsequently, a dispute arose between the Company, the CEO
of Kentel and Kentel. The Company collected $16,000 on the debt owed to it and
a $154,000 promissory note, dated December 1, 1999, secured by deed of trust
from a member of the CEO's family. The sum of $154,000 plus interest from
November 1, 1999 at the rate of ten percent per year is due on or before
February 1, 2000.
41
<PAGE>
MEDIA FORUM INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND JUNE 30, 1998
(ii) In November of 1999, AGC, the Company's newly formed subsidiary (See
Note 14(D)) entered into an agreement with the Company, World IP Incorporated
("World IP"), Sur Communications, S.A. (a Chilean corporation) ("Sur"), Acinel,
S.A. (an Argentinean corporation) (Acinel), and the former shareholders of World
IP. Under this agreement, AGC subscribed for the purchase of 1,020 shares, or
51%, of World IP common stock for $95,000 cash to be paid by January 12, 2000.
The former shareholders of World IP owned the remaining 49% of World IP. At the
closing date, World IP executed a shareholder agreement with AGC and its former
shareholders. In addition to the cash paid for the stock, AGC will pay up to
$60,000 to World IP which funds will be used to open a point of presence in
Venezuela. As additional consideration for the issuance of the stock, the
Company has issued 500,000 shares of restricted common stock to the former
shareholders of World IP. Sur and Acinel have both issued 100% of their common
stock to World IP. Six months from the closing date of the agreement, AGC and
the Company will measure the combined performance of World IP, Sur and Acinel,
and issue additional common stock to the former shareholders of World IP based
on its performance. The amount of additional shares of ACT common stock to be
issued to the former shareholders of World IP shall be equal to the lesser of
(i) 1,000,000 shares, or (ii) the number of shares according to a schedule based
upon the combined gross monthly income of World IP, Sur and Acinel.
(I) CONSULTING AGREEMENT
On December 6, 1999, the Company entered into a finder's fee agreement with
a company to (i) introduce a target company to the Company to perform a reverse
merger and (ii) find the anticipated funding requirements for the Company, which
are $5 million at the close of the merger, $10 million upon the effectivity of
the S-4 registration statement and a subsequent, ongoing, equity line of $25
million. The finder's fee for the reverse merger shall be 500,000 shares of the
post-merged public company. The shares will contain immediate piggyback
registration rights beginning with the first registration statement after the
first S-4 registration statement.
(J) PRIVATE PLACEMENT
During the period of April 1999 to July 1999, pursuant to a private placement
under Regulation D, Rule 504, the Company issued 5,000,000 shares of common
stock at $0.20 per share. The Company received $1,060,500 from the investors,
which included an overpayment of $60,500. The overpayment was included in
liabilities until such as time as it was credited to the same investors who
subscribed to convertible debentures in September 1999 (See Note 14(F)). The
Company incurred offering expenses of $100,000 cash and 33,750 shares of its
common stock valued at $10,800 based on the quoted trading price of such common
stock. The value of the cash and common stock has been charged to equity as
direct costs of the offering.
42
<PAGE>
ADVANCED COMMUNICATIONS
TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
43
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEET AT JUNE 30, 1999
PAGE 3 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1999
AND FOR THE PERIOD FROM APRIL 30, 1998 (INCEPTION)
TO JUNE 30, 1999
PAGE 4 STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE
PERIOD FROM APRIL 30, 1998 (INCEPTION) TO JUNE 30, 1999
PAGE 5 STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999
AND FOR THE PERIOD FROM APRIL 30, 1998 (INCEPTION) TO
PAGES 6 - 18 NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Advanced Communications Technologies, Inc.
We have audited the accompanying balance sheet of Advanced Communications
Technologies, Inc. (a development stage enterprise) as of June 30, 1999 and the
related statements of operations, changes in stockholders' deficiency and cash
flows for the year ended June 30, 1999 and for the period from April 30, 1998
(inception) to June 30, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Advanced Communications
Technologies, Inc. (a development stage enterprise) as of June 30, 1999, and the
results of its operations and its cash flows for the year ended June 30, 1999
and for the period from April 30, 1998 (inception) to June 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company's significant operating loss and working
capital deficiency at June 30, 1999 of $668,232 raise substantial doubt about
its ability to continue as a going concern. Management's plans in regards to
these matters are also described in Note 13. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
January 28, 2000
45
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 10,020
Stock subscription receivable 373,500
Loans receivable 150,000
Marketable securities 29,250
-------
TOTAL CURRENT ASSETS 562,770
--------
PROPERTY & EQUIPMENT - NET 3,953
--------
OTHER ASSETS
Advances receivable - related party 310,000
--------
TOTAL OTHER ASSETS 310,000
--------
TOTAL ASSETS $876,723
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 318,994
Accrued compensation 111,550
Interest payable 52,397
Note payable 150,000
Other liabilities 175,500
Due to stockholders 422,561
-----------
TOTAL CURRENT LIABILITIES 1,231,002
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, no par value,
100,000,000 shares
authorized, 73,312,280 shares issued
and outstanding 416,183
Accumulated deficit during development stage (672,962)
Accumulated other comprehensive loss (97,500)
-----------
TOTAL STOCKHOLDERS' DEFICIENCY (354,279)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 876,723
===========
</TABLE>
See accompanying notes to financial statements
46
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE
PERIOD FROM
FOR THE YEAR APRIL 30, 1998
ENDED (INCEPTION)
JUNE 30, 1999 TO JUNE 30, 1999
SALES $ - $ -
COST OF SALES - -
------------------- -----------------
GROSS PROFIT - -
-------------------- -----------------
OPERATING EXPENSES
Consulting fees 416,666 416,666
Depreciation expense 2,635 2,635
Professional fees 148,379 148,379
Other selling, general and administrative expenses 105,594 105,594
------------------ ----------------
TOTAL OPERATING EXPENSES 673,274 673,274
------------------ ----------------
NET LOSS FROM OPERATIONS (673,274) (673,274)
------------------- -----------------
OTHER INCOME/(EXPENSE)
Interest expense (5,580) (5,580)
Other income 5,892 5,892
------------------- -----------------
TOTAL OTHER INCOME/ (EXPENSE) 312 312
------------------- -----------------
NET LOSS $ (672,962) $ (672,962)
==================== ==================
Net loss per share - basic and diluted $ (0.01) $ (0.01)
==================== ==================
Weighted average number of shares
outstanding during the period -
basic and diluted 59,050,301 58,924,974
=================== =================
</TABLE>
See accompanying notes to financial statements
47
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ACCUMULATED ACCUMULATED
DEFICIT DURING OTHER
COMMON STOCK DEVELOPMENT COMPREHENSIVE
SHARES AMOUNT STAGE INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------
Founders' stock issued for cash 55,568,011 $ 1,160 $ - $ - $ 1,160
----------- ----------- ----------- -------- ------------
BALANCE, JUNE 30, 1998 55,568,011 1,160 - - 1,160
Stock issued in exchange for cash 4,656,216 56,116 - - 56,116
Contribution of capital - 5,600 - - 5,600
Recapitalization:
Stock issued to Media Forum
International, Inc. stockholders 6,733,803 2,834,490 (3,726,539) (97,500) (989,549)
Reclassification of accumulated deficit - (3,726,539) 3,726,539 - -
Stock issued for services 1,259,250 330,166 - - 330,166
Stock issued in exchange for debt 95,000 25,990 - - 25,990
Stock issued for cash 5,000,000 1,000,000 - - 1,000,000
Offering costs of private placement - (110,800) - - (110,800)
Net loss for the year ended June 30, 1999 - - (672,962) - (672,962)
---------- ----------- ------------ -------- -----------
BALANCE, JUNE 30, 1999 73,312,280 $ 416,183 $ (672,962) $(97,500) $ (354,279)
========== =========== ============ ========= ===========
</TABLE>
See accompanying notes financial statements
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE
PERIOD FROM
FOR THE YEAR APRIL 30, 1998
ENDED (INCEPTION) TO
JUNE 30, 1999 JUNE 30, 1999
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (672,962) $ (672,962)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,635 2,635
Expenses incurred in exchange for common stock 330,166 330,166
Intercompany transaction (15,000) (15,000)
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts payable (7,855) (7,855)
Interest payable 5,548 5,548
Accrued compensation (20,000) (20,000)
Other liabilities 115,000 115,000
-------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (262,468) (262,468)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan to affiliated company (310,000) (310,000)
Purchase of fixed assets (6,588) (6,588)
Investment in Kentel LLC (150,000) (150,000)
-------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (466,588) (466,588)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Offering costs (10,800) (10,800)
Proceeds from issuance of common stock 748,716 749,876
-------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 737,916 739,076
-------------- ---------------
NET INCREASE IN CASH 8,860 10,020
Cash and cash equivalents at beginning of period 1,160 -
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,020 $ 10,020
============== ===============
</TABLE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
On April 7, 1999, the Company merged with Media Forum International, Inc.
("MFI") (See Note 1 (A)). The merger was treated as an acquisition of MFI by
the Company and as a recapitalization of the company. Accordingly, the balance
sheet includes the net assets of the Company at historical cost and the net
assets of MFI at historical cost. In addition, the accumulated deficit of MFI
through March 31, 1999 has been reclassified to the equity of the Company.
See accompanying notes to financial statements
49
<PAGE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES - CONT'D:
- --------------------------------------------------------------------------------
The Company's marketable securities are carried at their fair value based upon
the quoted market prices of those investments at June 30, 1999. Accordingly,
unrealized gains and losses are included in stockholders' deficiency (See Note
4). The unrealized loss at June 30, 1999 was $97,500.
The Company issued 5,000,000 common shares pursuant to a private placement
memorandum at $0.20 per share. The Company received $687,000 towards this
issuance through June 30, 1999 and recorded a subscription receivable in the
amount of $373,500 for the funds received in July 1999. The excess of $60,500
of the funds received under the private placement over the subscription amount
was recorded as a liability at June 30, 1999. In addition, the consulting fee
of $100,000 payable to the consulting firm who arranged for the private
placement was accrued at June 30, 1999.
50
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) ORGANIZATION
Advanced Communications Technologies, Inc. (the "Company" or "ACT") was
incorporated in the State of Nevada on April 30, 1998. The Company was inactive
from April 1998 to June 1998 except for the issuance of founders' shares. The
Company owns the entire rights and interests, for the region of continental
North and South America, to a development project called Universal Wide Spectrum
Cellular which will be marketed under the name of "Spectrucell". The rights and
interests are licensed from the Company's Australian affiliate Advanced
Communications Technologies Pty Ltd. (See Notes 3(i) and 10). The Company's
fiscal year end is June 30.
On April 7, 1999, Media Forum International, Inc. ("MFI"), a Florida
corporation, acquired all of the outstanding stock of ACT. The merger agreement
stipulated that MFI issue to the shareholders of the Company nine shares of
MFI's common stock for every one share held by the Company's stockholders. As a
result of the merger, the shareholders of the Company received 60,224,227 shares
and became shareholders of approximately 90% of MFI. Generally accepted
accounting principles require that the company whose shareholders retain a
majority voting interest in a combined business be treated as the acquirer for
accounting purposes. As a result, the merger will be treated as an acquisition
of MFI by the Company and as a recapitalization of the Company. Accordingly,
the financial statements include the following: (1) the balance sheet consists
of the Company's net assets at historical cost and MFI's net assets at
historical cost and (2) the statement of operations includes the Company's
operations for the period presented and the operations of MFI from the date of
merger.
(B) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results could differ
from those estimates.
(C) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statements, the Company considers all highly
liquid investments with original maturities of three months or less at the time
of purchase to be cash equivalents.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosures of information about
51
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
the fair value of certain financial instruments for which it is practicable to
estimate the value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties other than in a forced sale or
liquidation.
The carrying amounts of the Company's accounts payable, accrued
liabilities, and loans payable approximates fair value due to the relatively
short period to maturity for these instruments. The fair value of noncurrent
receivables is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to such borrowers based on the
remaining maturities, consideration of credit risks, and other business issues
pertaining to such receivables. The carrying amount of the advances receivable
- - related party at June 30, 1999 is $310,000 and the related fair value based on
an effective discount rate of 5.876% is $196,335.
(E) MARKETABLE SECURITIES
The Company accounts for investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") which is the
pronouncement on accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. Except for debt securities classified as held-to-maturity
securities, which are reported at amortized cost, SFAS 115 requires that
investments in debt and equity securities be reported at fair value and that the
fair value of held-to-maturity securities be disclosed.
Management determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance sheet
date. Available-for-sale securities are carried at fair value, with unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Investments classified as held-to-maturity are carried at amortized
cost. In determining realized gains and losses, the cost of the securities sold
is based on the specific identification method.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
double-declining balance method over the estimated economic useful lives of 5
years. Expenditures for maintenance and repairs are charged to expense as
incurred. Major improvements are capitalized.
(G) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
52
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. There was no current income tax expense in the
periods ended June 30, 1999 due to the net loss. The deferred tax asset of
approximately $228,800 as of June 30, 1999 arising from a net operating loss
carryforward of $672,962 has been fully offset by a valuation allowance. In
addition, a net operating loss carryforward of approximately $2,300,000
resulting from the pre-merger losses of Media Forum International, Inc. is
available subject to annual usage limitations under the Internal Revenue Service
Code. Such annual usage limitations may result in a substantial aggregate usage
limitation over the total carryforward period.
(H) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
(I) LOSS PER SHARE
Net loss per common share for the year ended June 30, 1999 and for the
period from April 30, 1998 (inception) to June 30, 1999 is computed based upon
the weighted average common shares outstanding as defined by Financial
Accounting Standards No. 128, "Earnings Per Share". At June 30, 1999 there were
150,000 common stock equivalents in the form of convertible debt. Such
convertible debt is subject to litigation (See Note 7). The common stock
equivalents have not been included in the computation of diluted loss per share
since at June 30, 1999 the effect was anti-dilutive.
(J) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after December 15, 1997.
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial statements
for periods beginning after December 15, 1997. Statement No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits" revises
53
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
employers' disclosure requirements about pension and other post-retirement
benefit plans and is effective for fiscal years beginning after December 15,
1997. Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by Statement No. 137, establishes accounting and
reporting standards for derivative instruments and related contracts and hedging
activities. This statement is effective for all fiscal quarters and fiscal
years beginning after June 15, 2000. The Company's adoption of pronouncements
No. 130, 131, and 132 did not have a material effect on the Company's financial
position or results of operations. The Company believes that its adoption of
pronouncement No. 133, as amended by No. 137, will not have a material effect on
the Company's financial position or results of operations.
NOTE 2 STOCK SUBSCRIPTION RECEIVABLE
Pursuant to a Regulation D, Rule 504 private offering, the Company issued
5,000,000 shares of common stock to investors for proceeds of $1,060,500 (See
Notes 9(B) and 11 (C)). The Company received $687,000 in cash pursuant to this
stock issuance and has recorded a stock subscription receivable in the amount of
$373,500 for the difference. The Company received $90,000 on July 2, 1999 and
$283,500 on July 20, 1999 in payment of this receivable.
NOTE 3 ADVANCES AND LOANS RECEIVABLE
(i) During April through June 1999, the Company advanced funds to a related
Australian company that is wholly owned by a 23% shareholder of the Company.
(See Note 10(B)). These funds were provided in order to establish the related
company's operations. The Company advanced $310,000 through June 30, 1999.
Additional funds have been provided subsequent to June 30, 1999. The Company
believes that these funds are collectable due to the response the Australian
company has received on its private offering attempts (See Note 1(D) for fair
value disclosure).
(ii) On June 3, 1999, the Company entered into an Acquisition of Interest
and Related Matters agreement with Kentel LLC (See Note 12). The Company has
advanced Kentel LLC $150,000 through June 30, 1999 pursuant to this agreement.
NOTE 4 MARKETABLE SECURITIES
The Company's marketable securities are comprised of equity securities, all
classified as available-for-sale securities, which are carried at their fair
value based upon the quoted market prices of those investments at June 30, 1999.
Accordingly, unrealized gains and losses are included in stockholders'
deficiency. The composition of marketable equity securities at June 30, 1999 is
as follows:
Gross Unrealized
Cost Gain (Loss) Fair Value
----------------- ------------ -----------
Available-for-sale
Securities:
Common Stock $ 126,750 $ (97,500) $ 29,250
54
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 5 PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at June 30, 1999:
Computer and office equipment $6,588
Less: Accumulated depreciation (2,635)
------
Property and equipment - net $3,953
======
NOTE 6 ACCRUED COMPENSATION
The Company has a consulting agreement with an individual to serve as the Chief
Executive Officer of the Company (See Note 11 (A)). The individual agreed to
defer payment of the amounts owed to him pursuant to the agreement due to the
Company's lack of funds. The Company owed the individual $111,550 at June 30,
1999 for consulting fees relating to this agreement.
NOTE 7 NOTE AND INTEREST PAYABLE
MFI was obligated to pay $150,000 to a company (the "Payee") pursuant to a
convertible promissory note. During December 1997, MFI issued 75,000 of its
common shares to settle the amounts due to the payee; however, a dispute arose
as to whether the payee authorized the issuance of the shares. The payee filed
a lawsuit during December 1997 to enforce the convertible promissory note. The
note payable has not been removed from the accompanying financial statements due
to the ongoing lawsuit. The Company and its counsel cannot predict the results
of these actions but believes that the likelihood of an unfavorable outcome is
greater than 50%. Although the Company has some viable defenses to the lawsuit,
it is more likely than not that the court will find monetary sums are due to the
payee under the convertible promissory note. MFI owed interest in the amount of
$46,849 as of the merger date. The Company has recorded interest payable in the
amount of $5,548 for the period from the date of the merger to June 30, 1999.
Total interest payable was $52,397 as of June 30, 1999 resulting in the total
principal and accrued interest payable to the payee at June 30, 1999 of
$202,397. Pursuant to the Company's legal counsel, the range of the potential
loss is believed to be between $175,000 and $250,000. Management believes that
the amount recorded on its financial statements at June 30, 1999 fairly reflects
the Company's potential liability.
NOTE 8 DUE TO STOCKHOLDERS
As of June 30, 1999, the Company owed certain of its principal stockholders
amounts aggregating $422,561. On May 25, 1999, the Company entered into a
settlement agreement with those stockholders to release each other of all known
and unknown, fixed or contingent claims (See Note 11 (D)). In July of 1999,
600,000 shares were issued to the stockholders pursuant to the agreement to
settle the debt owed (See Note 11 (E)).
55
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 9 STOCKHOLDERS' DEFICIENCY
(A) COMMON STOCK
The Company was originally authorized to issue 25,000 shares of common
stock at no par value. On April 7, 1999, pursuant to the merger with MFI, the
Company filed an amendment to their articles of incorporation and changed the
maximum number of shares authorized to 100,000,000. The accompanying financial
statements have been retroactively adjusted for this amendment. There were
73,312,280 shares of common stock issued and outstanding as of June 30, 1999.
(B) PRIVATE PLACEMENT
During the period of April 1999 to July 1999, pursuant to a private
placement under Regulation D, Rule 504, the Company issued 5,000,000 shares of
common stock at $.20 per share. The Company received $1,060,500 from the
investors, which included an overpayment of $60,500. The overpayment was
included in other liabilities until such time as it was credited to the same
investors who subscribed to convertible debentures in September 1999 (See Note
14(C)). The Company incurred offering expenses of $100,000 cash and issued
33,705 shares of common stock valued at $10,800, based on the quoted trading
price on the grant date, in lieu of the non-accountable expense reimbursement
(See Note 11(C)). The value of the cash and common stock has been charged to
equity as direct costs to the offering.
(C) CONVERSION OF DEBT
During April 1999, the Company issued 55,000 shares of its common stock to
an individual as payment for amounts owed to the individual. The common stock
was value at $11,990 based on the quoted trading price of the common stock. The
individual was owed $20,303 at the time of issuance. A gain on the
extinguishment of debt was recorded in the amount of $8,312 for the difference
between the fair market value and the actual liability and is included in other
income (See Note 11(D) for additional conversion of debt).
(D) STOCK ISSUED FOR SERVICES
During the year ended June 30, 1999, the Company issued 1,259,250 shares of
common stock for services valued based on the quoted trading price on the grant
date, which aggregated $330,166.
NOTE 10 AFFILIATED COMPANIES AND RELATED PARTIES
(A) GLOBAL COMMUNICATIONS TECHNOLOGY CONSULTANTS, INC.
Global Communications Technology Consultants, Inc., a related party, is wholly
owned by the individual who owns Global Communications Technologies Ltd., a 23%
stockholder of the Company (See Note 11 (A)).
56
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(B) ADVANCED COMMUNICATIONS TECHNOLOGIES PTY LTD.
Advanced Communications Technologies Pty. Ltd., an Australian company, is wholly
owned by Global Communications Technologies Ltd., a 23% stockholder (See Notes 3
(i) and 10 (A)).
(C) LEGAL COUNSEL
Certain of the Company's legal counsel are also stockholders of the Company.
NOTE 11 COMMITMENTS AND CONTINGENCIES
(A) CONSULTING / EMPLOYMENT AGREEMENT
On November 21, 1997, MFI entered into an agreement with Global Communications
Technology Consultants, Inc. ("GCTC") (See Note 10(A)) whereby MFI engaged GCTC
as consultants to MFI, and hired a GCTC employee as Chief Executive Officer
("CEO") of MFI with the primary duties of identifying suitable acquisitions,
procuring new financing and assisting with any of MFI's fund raising efforts in
order to build and establish a substantial revenue and earnings stream for MFI.
The initial agreement stipulated a fee of $12,500 per month until November 1998.
On July 1, 1998, the board of directors of the Company made a resolution to
extend this agreement for an indefinite period of time for a fee of $10,000 per
month or $120,000 per year. The Company is currently negotiating a long-term
employment agreement with the individual.
The Company charged $30,000 to consulting expense pursuant to the consulting
agreement during the period from the merger date through June 30, 1999. The
Company accrued the majority of the fees owed to the individual due to lack of
funding (See Note 6). As of June 30, 1999, the Company owed the individual
$111,550. This consists of $131,550 owed at March 31, 1999 pursuant to MFI's
financial statements; $30,000 accrued on the Company's records and $50,000 paid
during May and June 1999.
(B) EMPLOYMENT AGREEMENTS
On April 22, 1997, MFI entered into an employment agreement with an individual
for the position of account and sales executive. The term was for 12 months at
an initial rate of $5,500 per month with commissions on sales of between 3-5% of
the individual's gross sales dependent on the individual sale profitability.
The contract was not extended past its initial term. As of March 31, 1999, MFI
owed the individual $11,580 for services rendered which was included in accounts
payable. In June 1999, the Company issued 40,000 shares of its common stock
with a fair market value of $14,000, based on the quoted trading price of the
common stock, in full payment of the obligation. A loss on the extinguishment
of debt was recorded in the amount of $2,420 for the difference between the fair
market value and the actual liability and is included in other income.
57
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(C) CONSULTING AGREEMENT
On March 4, 1999, MFI entered into a consulting agreement with an
investment resource company to arrange for funding of a reverse merger of a
target into MFI (See Note 1 (A)). Upon successful completion of the merger, the
consulting firm also structured for funding a Regulation D, Rule 504 investment
up to $1,000,000. MFI agreed to compensate the consultant in the amount of 10%
of the gross amount funded to MFI and 3% in non-accountable expenses.
The Company received an aggregate of $1,060,500 (See Note 9 (B)) during
the period from April 1999 to July 1999 pursuant to this agreement. In lieu of
the non-accountable expense reimbursement due to the consulting firm, the
Company issued 33,750 shares of common stock having a fair value of $10,800 to
the consultants in June 1999 (See Note 9(B)).
(D) SETTLEMENT AGREEMENT
On May 25, 1999, the Company, along with two of its stockholders and
directors (herein called the "First Party"), entered into a settlement agreement
with three stockholders (herein called the "Second Party") to settle litigation
filed by the First Party against the Second Party. The Second Party agreed to
cease and desist from purporting to represent the Company in any capacity,
making any statements or other communications on behalf of the Company, and
taking any actions on behalf of the Company. The Second Party also releases,
remises and acquits the First Party from any and all known or unknown, fixed or
contingent claims, demands, actions or causes of action existing as of the date
hereto and agrees not to institute any lawsuits or other court proceedings of
any nature or king whatsoever, against the First Party.
In exchange for the Second Party's compliance with the above, the First Party
agreed to dismiss the Complaint for Injunctive Relief and to withdraw the
lawsuits with prejudice. In addition, the Company agreed to release the hold on
all stock in the name of the Second Party once an option agreement (See Note 11
(E)) has been executed by the Second Party and a Third Party, and until all the
stock in the Company has been deposited for sale pursuant to the terms of the
said option agreement. The First Party agreed to issue in the name of the
Second Party, 600,000 additional shares of rule 144 restricted stock of the
Company within five days of the signing of the settlement agreement and the
stock option agreement. The option agreement was signed in July 1999 (See Note
11 (E)). The Company recognized an extraordinary gain of approximately $284,561
on the extinguishment of debt.
(E) STOCK OPTION PURCHASE AGREEMENT
On July 15, 1999, three stockholders of the Company (the secondary party
discussed above) entered into a stock option purchase agreement with the third
party mentioned above, whereby the stockholders agreed to sell to the third
party 100% of the stock that they control directly or indirectly in the Company
which would be from 1 to 1.2 million shares of existing stock issued and held.
It was also agreed that 600,000 shares of Rule 144 restricted stock that the
Company issued to the above mentioned stockholders (See Note 11 (D)), will also
be sold to the third party by such stockholders.
58
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(F) OTHER LIABILITIES
Other liabilities include $115,000 of consulting expense that was under dispute
as of the date of this report.
NOTE 12 ACQUISITION
On June 3, 1999, the Company entered into an Acquisition of Interest and
Related Matters agreement with Kentel LLC ("Kentel"), a limited liability
company organized under the laws of the State of California that is in the
communications industry. Kentel required funding to pay overdue expenses and to
fund operations for the next three months. Kentel affirmed that it had numerous
transactions pending that would generate significant revenues in a relatively
short period of time and make Kentel a highly profitable business. The Company
received a 51% equity interest in Kentel pursuant to the Acquisition of Interest
and Related Matters agreement in exchange for the following: (a) a contribution
of the sum of $100,000 to Kentel by June 4, 1999, (b) providing up to an
additional $100,000 in operating capital to Kentel over the next 90 days on an
as-needed/as-agreed basis, commencing on June 15, 1999, and (c) enabling Kentel
to upgrade its switch through providing a guarantee or other financial
accommodations.
The Company transferred funds to Kentel in the amount of $150,000 during
June 1999 and $20,000 during July 1999. Subsequently, a dispute arose between
the Company, the CEO of Kentel and Kentel. The Company collected $16,000 on the
debt owed to it and a $154,000 promissory note, dated December 1, 1999, secured
by deed of trust from a member of the CEO's family. The sum of $154,000 plus
interest from November 1, 1999 at the rate of ten percent per year is due on or
before February 1, 2000.
NOTE 13 GOING CONCERN
The Company's financial statements for the year ended June 30, 1999 have been
prepared on a going concern basis which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. The Company incurred a net loss of $672,962 for the year ended June
30, 1999. The Company's working capital deficiency of $668,232 at June 30, 1999
may not enable it to meet such objectives as presently structured.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its business plan.
Management's plans include merging with a target company (See Note 14 (G)).
Management anticipates that the merger will generate sufficient resources to
assure continuation of the Company's operations.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
59
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
NOTE 14 SUBSEQUENT EVENTS
(A) SUBSIDIARY FORMATION
On July 20, 1999, Advanced Global Communications, Inc. ("AGC") was incorporated
in the State of Florida. AGC issued 1,000 shares of its common stock to the
Company at $1.00 per share resulting in AGC becoming a wholly owned subsidiary
of the Company (See Note 14(E)).
(B) SUBLEASE AGREEMENT
On July 24, 1999, the Company entered into a sublease agreement for the
rental of its business offices. The rental payments were $1,250 per month with
a lease term of six months commencing on the first day of August 1999 with an
automatic extension. The sublease agreement was amended effective December 15,
1999 to increase the rental rate to $1,300 per month.
(C) SECURED CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
On September 30, 1999, the Company entered into a secured convertible
debenture purchase agreement with two companies, which are already stockholders
of the Company, whereby the Company desires to issue and sell an aggregate
principal amount of $500,000 of the Company's 12% Secured Convertible Debentures
due April 1, 2000 and which are convertible into shares of the Company's Class A
Common Stock. Three secured convertible debentures were issued on September 30,
1999 for a total of $500,000. The debenture is convertible, at the holder's
option, into shares of common stock in whole or in part at any time from time to
time after the original issue date. The number of shares of common stock
issuable upon a conversion shall be determined by dividing the outstanding
principal amount of the debenture to be converted, plus all accrued but unpaid
interest, by the conversion price. The conversion price in effect on any
conversion date shall be 50% of the average of the bid price during the twenty
trading days immediately preceding the applicable conversion date. In addition,
on September 30, 1999, the Company issued another convertible debenture to an
unrelated party in the amount of $150,000. This debenture has the same features
that the three debentures referred to above contain. The $60,500 overpayments
received from the debenture subscribers as a result of their purchase of common
stock under the private placement (See Note 14(H)) was applied to amounts due.
The convertible debentures contain a beneficial conversion feature computed at
its intrinsic value which is the difference between the conversion price and the
fair value on the debenture issuance date of the common stock into which the
debt is convertible, multiplied by the number of shares into which the debt is
convertible at the commitment date. Since the beneficial conversion feature is
to be settled by issuing equity, the amount attributed to the beneficial
conversion feature, which in this particular case equals the same amount as the
debt recorded of $650,000, will be recorded as an interest expense and a
component of equity on the issuance date
60
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(D) EXECUTIVE EMPLOYMENT AGREEMENTS
(i) On November 7, 1999, the Company entered into an employment agreement
with an individual to serve as President of the Company for a term of three
years from November 7, 1999 which may be extended for additional consecutive
one-year periods by written agreement. The individual was to receive a salary
of $150,000 per year on a monthly basis. As part of the consideration to the
individual, the Company agreed to issue 500,000 shares of restricted Regulation
144 stock upon execution of the agreement (see below). In addition, the
individual was to be granted employee incentive stock options to purchase the
Company's common stock pursuant to an employee incentive stock option plan to be
created by the Company. A total of 750,000 options were to be granted over the
employment term (see below).
On November 16, 1999, the Company signed a residential lease agreement for the
rental of an apartment for the President. The rental payments are $1,380 per
month beginning on December 1, 1999 and terminating on November 30, 2000.
In January 2000, the aforementioned individual resigned from the position of
President. The Company never issued the 500,000 shares of restricted Regulation
144 stock to the individual referred to in the employment agreement or the
employee incentive stock options and is currently negotiating with the
individual as to the amounts and existence of any liabilities for services
rendered.
(ii) On November 29, 1999, the Company entered into and executed an
employment agreement with a consulting organization to provide the functions
customarily provided by a Chief Financial Officer. These functions include
oversight of the Company's financial affairs, assistance in the preparation of
budgets, providing strategic business advice from the financial planning
perspective, and other related responsibilities. As compensation for these
services, the Company will pay the sum of $5,000 per month, payable monthly in
advance, plus 100,000 restricted shares of the Company's common stock. The
issuance of stock will be recorded as consulting expense over the service period
based upon the trading price of the stock at the agreement date. The term of
this agreement shall be the earlier of (a) the execution of a definitive,
renegotiated agreement, and (b) March 31, 2000.
(E) ACQUISITIONS
In November of 1999, AGC, the Company's newly formed subsidiary (See Note
14 (A)), entered into an agreement with the Company, World IP Incorporated
("World IP"), Sur Comunicaciones, S.A. (a Chilean corporation) ("Sur"), Acinel,
S.A. (an Argentinean corporation) (Acinel), and the former shareholders of World
IP. Under this agreement, AGC subscribed for the purchase of 1,020 shares, or
51%, of World IP common stock for $95,000 cash to be paid by January 12, 2000.
The former shareholders of World IP owned the remaining 49% of World IP. At the
closing date, World IP executed a shareholder agreement with AGC and its former
shareholders. In addition to the cash paid for the stock, AGC will pay up to
$60,000 to World IP which funds will be used to open a point of presence in
61
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
Venezuela. As additional consideration for the issuance of the stock, the
Company has issued 500,000 shares of restricted common stock to the former
shareholders of World IP. Sur and Acinel have both issued 100% of their common
stock to World IP. Six months from the closing date of the agreement, AGC and
the Company will measure the combined performance of World IP, Sur and Acinel,
and issue additional common stock to the former shareholders of World IP based
on its performance. The amount of additional shares of ACT common stock to be
issued to the former shareholders of World IP shall be equal to the lesser of
(i) 1,000,000 shares, or (ii) the number of shares according to a schedule based
upon the combined gross monthly income of World IP, Sur and Acinel.
(F) CONSULTING AGREEMENT
On December 6, 1999, the Company entered into a finder's fee agreement with
a company to (i) introduce a target company to the Company to perform a reverse
merger and (ii) find the anticipated funding requirements for the Company, which
are $5 million at the close of the merger, $10 million upon the effectivity of
the S-4 registration statement and a subsequent, ongoing, equity line of $25
million. The finder's fee for the reverse merger shall be 500,000 shares of the
post-merged public company. The shares will contain immediate piggyback
registration rights beginning with the first registration statement after the
first S-4 registration statement.
(G) MERGER AGREEMENT
The Company is in the process of negotiating an agreement and plan of merger
with a target company. Pursuant to preliminary agreements, the merger would
legally result in the ceasing of the Company's separate existence. However,
since the Company will acquire the majority interest in the merged company, the
Company will be treated as the acquirer for accounting purposes.
(H) ISSUANCE OF COMMON STOCK
During the period subsequent to June 30, 1999, the Company issued approximately
2,300,000 shares of common stock in exchange for services rendered. These
shares were recorded at the quoted trading price of the Company's common stock
on the grant date.
62
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
ADVC as the successor issuer has a fiscal year end of June 30. SICI's
fiscal year was December 31.
EXHIBITS
1.1. Exchange Agreement between MRC Legal Services Corporation and Advanced
Communications Technologies, Inc., dated as of January 31, 2000.
23.1 Consent of Weinberg & Company, P.A., independent public accountants
63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 8-K to be signed on its behalf by
the undersigned hereunto duly authorized.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
/s/ Roger May
----------------------------------
Chief Executive Officer, Director
Date: February 3, 2000
64
<PAGE>
STOCK EXCHANGE AGREEMENT
Agreement dated as of January 31, 2000 between Advanced Communications
Technologies, Inc., a Florida corporation ("ADVC"), on the one hand, and MRC
Legal Services Corporation ("MRC" or the "Shareholder").
1. THE ACQUISITION.
1.1 Purchase and Sale Subject to the Terms and Conditions of this
Agreement. At the Closing to be held as provided in Section 2, ADVC shall sell
the ADVC Shares (defined below) to the Shareholder and the Shareholder shall
purchase the ADVC Shares from ADVC, free and clear of all Encumbrances other
than restrictions imposed by Federal and State securities laws.
1.2 Purchase Price. ADVC will exchange 200,000 shares of its
restricted common stock (the "ADVC Shares") for 2,700,000 shares of Smart
Investment Com, Inc. ("SICI"), representing 100% of the issued and outstanding
common shares of SICI (the "SICI Shares"). The ADVC Shares shall be issued and
delivered to the Shareholder or assigns as set forth in Exhibit "A" hereto.
2. THE CLOSING.
2.1 Place and Time. The closing of the sale and exchange of the ADVC
Shares for the SICI Shares (the "Closing") shall take place at Cutler Law Group,
610 Newport Center Drive, Suite 800, Newport Beach, CA 92660 no later than the
close of business (Orange County California time) on or before February 3, 2000
or at such other place, date and time as the parties may agree in writing.
2.2 Deliveries by the Shareholders. At the Closing, the Shareholder
shall deliver the following to ADVC:
a. Certificates representing the SICI Shares, duly endorsed for transfer to
ADVC and accompanied by appropriate medallion guaranteed stock powers; the
Shareholder shall immediately change those certificates for, and to deliver to
ADVC at the Closing, a certificate representing the SICI Shares registered in
the name of ADVC (without any legend or other reference to any Encumbrance other
than appropriate federal securities law limitations).
b. The documents contemplated by Section 3.
c. All other documents, instruments and writings required by this Agreement
to be delivered by the Shareholder at the Closing and any other documents or
records relating to SICI's business reasonably requested by ADVC in connection
with this Agreement.
<PAGE>
2.3 Deliveries by ADVC. At the Closing, ADVC shall deliver the
following to the Shareholder:
a. The ADVC Shares for further delivery to the Shareholder or assigns as
contemplated by section 1.
b. The documents contemplated by Section 4.
c. All other documents, instruments and writings required by this Agreement
to be delivered by ADVC at the Closing.
3. CONDITIONS TO ADVC'S OBLIGATIONS.
The obligations of ADVC to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by ADVC:
3.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits ADVC's
acquisition of the SICI Shares or the ADVC Shares or that will require any
divestiture as a result of ADVC's acquisition of the SICI Shares or that will
require all or any part of the business of ADVC to be held separate and no
litigation or proceedings seeking the issuance of such an injunction, order or
decree or seeking to impose substantial penalties on ADVC or SICI if this
Agreement is consummated shall be pending.
3.2 Representations, Warranties and Agreements. (a) The
representations and warranties of the Shareholder set forth in this Agreement
shall be true and complete in all material respects as of the Closing Date as
though made at such time, and (b) the Shareholder shall have performed and
complied in all material respects with the agreements contained in this
Agreement required to be performed and complied with by it at or prior to the
Closing.
3.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary for the
consummation of ADVC's acquisition of the SICI Shares shall have been obtained
and shall be in full force and effect.
3.4 Resignations of Director. Effective on the Closing Date, all of
officers and directors shall have resigned as an officer, director and employee
of SICI.
<PAGE>
4. CONDITIONS TO THE SHAREHOLDER'S OBLIGATIONS.
The obligations of the Shareholder to effect the Closing shall be subject
to the satisfaction at or prior to the Closing of the following conditions, any
one or more of which may be waived by the Shareholder:
4.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits ADVC's
acquisition of the SICI Shares or the Shareholder's acquisition of the ADVC
Shares or that will require any divestiture as a result of ADVC's acquisition of
the Shares or the Shareholder's acquisition of the ADVC Shares or that will
require all or any part of the business of ADVC or SICI to be held separate and
no litigation or proceedings seeking the issuance of such an injunction, order
or decree or seeking to impose substantial penalties on ADVC or SICI if this
Agreement is consummated shall be pending.
4.2 Representations, Warranties and Agreements. (a) The
representations and warranties of ADVC set forth in this Agreement shall be true
and complete in all material respects as of the Closing Date as though made at
such time, and (b) ADVC shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing.
4.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary for the
consummation of ADVC's acquisition of the SICI Shares and the Shareholder's
acquisition of the ADVC Shares shall have been obtained and shall be in full
force and effect.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.
The Shareholder represents and warrants to ADVC that, to the Knowledge of
the Shareholder (which limitation shall not apply to Section 5.3), and except as
set forth in an SICI Disclosure Letter:
5.1 Organization of SICI; Authorization. SICI is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Nevada. This Agreement constitutes a valid and binding obligation of the
Shareholder, enforceable against it in accordance with its terms.
<PAGE>
5.2 Capitalization. The authorized capital stock of SICI consists of
25,000,000 authorized shares of stock, par value $.001, and no preferred shares,
of which 2,700,000 common shares are presently issued and outstanding. No
shares have been registered under state or federal securities laws. As of the
Closing Date, all of the issued and outstanding shares of common stock of SICI
are validly issued, fully paid and non-assessable. As of the Closing Date there
will not be outstanding any warrants, options or other agreements on the part of
SICI obligating SICI to issue any additional shares of common or preferred stock
or any of its securities of any kind. Except as otherwise set forth herein,
SICI will not issue any shares of capital stock from the date of this Agreement
through the Closing Date.
5.3 No Conflict as to SICI. Neither the execution and delivery of this
Agreement nor the consummation of the sale of the SICI Shares to ADVC will (a)
violate any provision of the certificate of incorporation or by-laws of SICI or
(b) violate, be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under any
agreement to which SICI is a party or (c) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or other Governmental
Body applicable to SICI.
5.4 Ownership of SICI Shares. The delivery of certificates to ADVC
provided in Section 2.2 will result in ADVC's immediate acquisition of record
and beneficial ownership of the SICI Shares, free and clear of all Encumbrances
subject to applicable State and Federal securities laws. There are no
outstanding options, rights, conversion rights, agreements or commitments of any
kind relating to the issuance, sale or transfer of any Equity Securities or
other securities of SICI.
5.5 No Conflict as to SICI. Neither the execution and delivery of this
Agreement nor the consummation of the sale of the SICI Shares to ADVC will (a)
violate any provision of the certificate of incorporation or by-laws of SICI or
(b) violate, or be in conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
excuse performance by any Person of any of its obligations under, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any Encumbrance upon any property or assets of
SICI under, any material agreement or commitment to which SICI is a party or by
which any of its property or assets is bound, or to which any of the property or
assets of SICI is subject, or (c) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or other Governmental Body
applicable to SICI except, in the case of violations, conflicts, defaults,
terminations, accelerations or Encumbrances described in clause (b) of this
Section 5.5, for such matters which are not likely to have a material adverse
effect on the business or financial condition of SICI.
5.6 Consents and Approvals of Governmental Authorities. Except with
respect to applicable State and Federal securities laws, no consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Body is required to be made or obtained by SICI or ADVC or any of its
Subsidiaries in connection with the execution, delivery and performance of this
Agreement by SICI or the consummation of the sale of the SICI Shares to ADVC.
<PAGE>
5.7 Other Consents. No consent of any Person is required to be obtained
by SICI or ADVC to the execution, delivery and performance of this Agreement or
the consummation of the sale of the SICI Shares to ADVC, including, but not
limited to, consents from parties to leases or other agreements or commitments,
except for any consent which the failure to obtain would not be likely to have a
material adverse effect on the business and financial condition of SICI or ADVC.
5.8 Financial Statements. SICI has delivered to ADVC the consolidated
balance sheet of SICI as at November 30, 1999, and statements of income and
changes in financial position for the period from inception to the period then
ended, together with the report thereon of SICI's independent accountant (the
"SICI Financial Statements"). The SICI Financial Statements are accurate and
complete in accordance with generally accepted accounting principles.
5.9 Title to Properties. SICI owns all the material properties and
assets that it purports to own (real, personal and mixed, tangible and
intangible), including, without limitation, all the material properties and
assets reflected in the SICI Financial Statements, and all the material
properties and assets purchased or otherwise acquired by SICI since the date of
the SICI Financial Statements. All properties and assets reflected in the SICI
Financial Statements are free and clear of all material Encumbrances and are
not, in the case of real property, subject to any material rights of way,
building use restrictions, exceptions, variances, reservations or limitations of
any nature whatsoever except, with respect to all such properties and assets,
(a) mortgages or security interests shown on the SICI Financial Statements as
securing specified liabilities or obligations, with respect to which no default
(or event which, with notice or lapse of time or both, would constitute a
default) exists, and all of which are listed in the SICI Disclosure Letter, (b)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the SICI Financial Statements (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event which, with notice or
lapse of time or both, would constitute a default) exists, (c) as to real
property, (i) imperfections of title, if any, none of which materially detracts
from the value or impairs the use of the property subject thereto, or impairs
the operations of SICI or any of its Subsidiaries and (ii) zoning laws that do
not impair the present or anticipated use of the property subject thereto, and
(d) liens for current taxes not yet due. The properties and assets of SICI and
its Subsidiaries include all rights, properties and other assets necessary to
permit SICI and its Subsidiaries to conduct SICI's business in all material
respects in the same manner as it is conducted on the date of this Agreement.
5.10 Buildings, Plants and Equipment. The buildings, plants, structures and
material items of equipment and other personal property owned or leased by SICI
are, in all respects material to the business or financial condition of SICI
and its Subsidiaries, taken as a whole, in good operating condition and repair
(ordinary wear and tear excepted) and are adequate in all such respects for the
purposes for which they are being used.
<PAGE>
5.11 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or threatened
in writing against or involving SICI which is likely to have a material adverse
effect on the business or financial condition of SICI, ADVC and any of their
Subsidiaries, taken as whole, or which would require a payment by SICI in excess
of $2,000 in the aggregate or which questions or challenges the validity of
this Agreement. SICI is not subject to any judgment, order or decree that is
likely to have a material adverse effect on the business or financial condition
of SICI, ADVC or any of their Subsidiaries, taken as a whole, or which would
require a payment by SICI in excess of $2,000 in the aggregate.
5.12 Absence of Certain Changes. Since the date of the SICI Financial
Statements, SICI has not:
a. suffered the damage or destruction of any of its properties or assets
(whether or not covered by insurance) which is materially adverse to the
business or financial condition of SICI or made any disposition of any of its
material properties or assets other than in the ordinary course of business;
b. made any change or amendment in its certificate of incorporation or
by-laws, or other governing instruments;
c. issued or sold any Equity Securities or other securities, acquired,
directly or indirectly, by redemption or otherwise, any such Equity Securities,
reclassified, split-up or otherwise changed any such Equity Security, or granted
or entered into any options, warrants, calls or commitments of any kind with
respect thereto;
d. organized any new Subsidiary or acquired any Equity Securities of any
Person or any equity or ownership interest in any business;
e. borrowed any funds or incurred, or assumed or become subject to, whether
directly or by way of guarantee or otherwise, any obligation or liability with
respect to any such indebtedness for borrowed money;
f. paid, discharged or satisfied any material claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than in the ordinary course
of business;
g. prepaid any material obligation having a maturity of more than 90 days
from the date such obligation was issued or incurred;
h. canceled any material debts or waived any material claims or rights,
except in the ordinary course of business;
i. disposed of or permitted to lapse any rights to the use of any material
patent or registered trademark or copyright or other intellectual property owned
or used by it;
j. granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any employee benefit plan);
<PAGE>
k. purchased or entered into any contract or commitment to purchase any
material quantity of raw materials or supplies, or sold or entered into any
contract or commitment to sell any material quantity of property or assets,
except (i) normal contracts or commitments for the purchase of, and normal
purchases of, raw materials or supplies, made in the ordinary course business,
(ii) normal contracts or commitments for the sale of, and normal sales of,
inventory in the ordinary course of business, and (iii) other contracts,
commitments, purchases or sales in the ordinary course of business;
l. made any capital expenditures or additions to property, plant or
equipment or acquired any other property or assets (other than raw materials and
supplies) at a cost in excess of $100,000 in the aggregate;
m. written off or been required to write off any notes or accounts
receivable in an aggregate amount in excess of $2,000;
n. written down or been required to write down any inventory in an
aggregate amount in excess of $ 2,000;
o. entered into any collective bargaining or union contract or agreement;
or
p. other than the ordinary course of business, incurred any liability
required by generally accepted accounting principles to be reflected on a
balance sheet and material to the business or financial condition of SICI.
5.13 No Material Adverse Change. Since the date of the SICI Financial
Statements, there has not been any material adverse change in the business or
financial condition of SICI.
5.14 Contracts and Commitments. SICI is not a party to any:
a. Contract or agreement (other than purchase or sales orders entered into
in the ordinary course of business) involving any liability on the part of SICI
of more than $2,000 and not cancelable by SICI (without liability to SICI)
within 60 days;
b. Lease of personal property involving annual rental payments in excess of
$2,000 and not cancelable by SICI (without liability to SICI) within 90 days;
c. Employee bonus, stock option or stock purchase, performance unit,
profit-sharing, pension, savings, retirement, health, deferred or incentive
compensation, insurance or other material employee benefit plan (as defined in
Section 2(3) of ERISA) or program for any of the employees, former employees or
retired employees of SICI;
d. Commitment, contract or agreement that is currently expected by the
management of SICI to result in any material loss upon completion or performance
thereof;
<PAGE>
e. Contract, agreement or commitment that is material to the business of
SICI with any officer, employee, agent, consultant, advisor, salesman, sales
representative, value added reseller, distributor or dealer; or
f. Employment agreement or other similar agreement that contains any
severance or termination pay, liabilities or obligations.
All such contracts and agreements are in full force and effect. SICI is not in
breach of, in violation of or in default under, any agreement, instrument,
indenture, deed of trust, commitment, contract or other obligation of any type
to which SICI is a party or is or may be bound that relates to the business of
SICI or to which any of the assets or properties of SICI is subject, the effect
of which breach, violation or default is likely to materially and adversely
affect the business or financial condition of SICI. ADVC has not guaranteed or
assumed and specifically does not guarantee or assume any obligations of SICI.
5.15 Compliance with Law. The operations of SICI have been conducted in
accordance with all applicable laws and regulations of all Governmental Bodies
having jurisdiction over it, except for violations thereof which are not likely
to have a material adverse effect on the business or financial condition of SICI
or which would not require a payment by SICI in excess of $2,000 in the
aggregate, or which have been cured. SICI has not received any notification of
any asserted present or past failure by it to comply with any such applicable
laws or regulations. SICI has all material licenses, permits, orders or
approvals from the Governmental Bodies required for the conduct of its business,
and is not in material violation of any such licenses, permits, orders and
approvals. All such licenses, permits, orders and approvals are in full force
and effect, and no suspension or cancellation of any thereof has been
threatened.
5.16 Tax Matters.
a. SICI (1) has filed all nonconsolidated and noncombined Tax Returns and
all consolidated or combined Tax Returns required to be filed through the date
hereof and has paid any Tax due through the date hereof with respect to the time
periods covered by such Tax Returns and shall timely pay any such Taxes required
to be paid by it after the date hereof with respect to such Tax Returns and (2)
shall prepare and timely file all Tax Returns required to be filed after the
date hereof and through the Closing Date and pay all Taxes required to be paid
by it with respect to the periods covered by such Tax Returns; (B) all such Tax
Returns filed pursuant to clause (A) after the date hereof shall, in each case,
be prepared and filed in a manner consistent in all material respects (including
elections and accounting methods and conventions) with such Tax Return most
recently filed in the relevant jurisdiction prior to the date hereof, except as
otherwise required by law or regulation. Any such Tax Return filed or required
to be filed after the date hereof shall not reflect any new elections or the
adoption of any new accounting methods or conventions or other similar items,
except to the extent such particular reflection or adoption is required to
comply with any law or regulation.
<PAGE>
b. All Tax Returns (except those described in subparagraph (a) above)
required to be filed by any person through the date hereof that are required or
permitted to include the income, or reflect the activities, operations and
transactions, of SICI for any taxable period have been timely filed, and the
income, activities, operations and transactions of SICI have been properly
included and reflected thereon. SICI shall prepare and file, or cause to be
prepared and filed, all such Tax Returns that are required or permitted to
include the income, or reflect the activities, operations and transactions, of
SICI with respect to any taxable year or the portion thereof ending on or prior
to the Closing Date, including, without limitation, SICI's consolidated federal
income tax return for such taxable years. SICI will timely file a consolidated
federal income tax return for the taxable year ended December 31, 1999 and such
return shall include and reflect the income, activities, operations and
transactions of SICI for the taxable period then ended, and hereby expressly
covenants and agrees to file a federal income tax return, and to include and
reflect thereon the income, activities, operations and transactions of SICI for
the taxable period through the Closing Date. All Tax Returns filed pursuant to
this subparagraph (b) after the date hereof shall, in each case, to the extent
that such Tax Returns specifically relate to SICI or any of its Subsidiaries
and do not generally relate to matters affecting other members of SICI's
consolidated group, be prepared and filed in a manner consistent in all material
respects (including elections and accounting methods and conventions) with the
Tax Return most recently filed in the relevant jurisdictions prior to the date
hereof, except as otherwise required by law or regulation. SICI has paid or
will pay all Taxes that may now or hereafter be due with respect to the taxable
periods covered by such consolidated or combined Tax Returns.
c. SICI has not agreed, or is not required, to make any adjustment (x) under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise or (y) pursuant to any provision of the Tax Reform Act of 1986, the
Revenue Act of 1987 or the Technical and Miscellaneous Revenue Act of 1988.
d. Neither SICI nor any Affiliate has, at any time, filed a consent under
Section 341(f)(1) of the Code, or agreed under Section 341(f)(3) of the Code, to
have the provisions of Section 341(f)(2) of the Code apply to any sale of its
stock.
e. There is no (nor has there been any request for an) agreement, waiver or
consent providing for an extension of time with respect to the assessment of any
Taxes attributable to SICI or its assets or operations and no power of attorney
granted by SICI with respect to any Tax matter is currently in force.
f. There is no action, suit, proceeding, investigation, audit, claim,
demand, deficiency or additional assessment in progress, pending or threatened
against or with respect to any Tax attributable to SICI or its assets or
operations.
<PAGE>
g. All amounts required to be withheld as of the Closing Date for Taxes or
otherwise have been withheld and paid when due to the appropriate agency or
authority.
h. No property of SICI is "tax-exempt use property " within the meaning of
Section 168(h) of the Code nor property that SICI will be required to treat as
being owned by another person pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986.
i. There have been delivered or made available to ADVC true and complete
copies of all income Tax Returns (or with respect to consolidated or combined
returns, the portion thereof) and any other Tax Returns requested by ADVC as may
be relevant to SICI or its assets or operations for any and all periods ending
after December 31, 1998, or for any Tax years which are subject to audit or
investigation by any taxing authority or entity.
j. There is no contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of SICI or its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Section 280G or 162 of the Code.
k. SICI has no liabilities not disclosed in the SICI Financial Statements
or otherwise.
5.18 Representations and Warranties. None of the representations or
warranties made by SICI herein or in any Schedule hereto, or in any certificate
furnished by SICI pursuant to this Agreement, or the SICI Financial Statements,
when all such documents are read in their entirety, contains or will contain at
the time of closing any untrue statement of a material fact, or omits or will
omit at that time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
5.17 Brokers or Finders. Other than Bridgewater Capital Corporation and
James Stubler, SICI has not employed any broker or finder or incurred any
liability for any brokerage or finder's fees or commissions or similar payments
in connection with the sale of the SICI Shares to ADVC.
6. REPRESENTATIONS AND WARRANTIES OF ADVC.
ADVC represents and warrants to the Shareholder that, to the Knowledge of
ADVC (which limitation shall not apply to Section 6.3). Such representations
and warranties shall survive the Closing for a period of two years.
<PAGE>
6.1 Organization of ADVC; Authorization. ADVC is a corporation duly
organized, validly existing and in good standing under the laws of Florida with
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action of
ADVC and this Agreement constitutes a valid and binding obligation of ADVC;
enforceable against it in accordance with its terms.
6.2 Capitalization. The authorized capital stock of ADVC consists of
100,000,000 shares of common stock, par value $.001 per share, and no shares of
preferred stock. As of the date of this Agreement, ADVC had no more than
80,000,000 shares of common stock issued and outstanding and no shares of of
Preferred Stock issued and outstanding. As of the Closing Date, all of the
issued and outstanding shares of common stock of ADVC are validly issued, fully
paid and non-assessable. The Common Stock of ADVC is presently listed and
trading on the Nasdaq Over-the-Counter Bulletin Board under the symbol "ADVCE."
6.3 Ownership of ADVC Shares. The delivery of certificates to SICI
provided in Section 2.3 will result in the Shareholder or assigns immediate
acquisition of record and beneficial ownership of the ADVC Shares, free and
clear of all Encumbrances other than as required by Federal and State securities
laws.
6.4 No Conflict as to ADVC and Subsidiaries. Neither the execution and
delivery of this Agreement nor the consummation of the sale of the ADVC Shares
to the Shareholders will (a) violate any provision of the certificate of
incorporation or by-laws (or other governing instrument) of ADVC or any of its
Subsidiaries or (b) violate, or be in conflict with, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or excuse performance by any Person of any of its obligations
under, or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any Encumbrance upon any
property or assets of ADVC or any of its Subsidiaries under, any material
agreement or commitment to which ADVC or any of its Subsidiaries is a party or
by which any of their respective property or assets is bound, or to which any of
the property or assets of ADVC or any of its Subsidiaries is subject, or (c)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or other Governmental Body applicable to ADVC or any of its
Subsidiaries except, in the case of violations, conflicts, defaults,
terminations, accelerations or Encumbrances described in clause (b) of this
Section 6.4, for such matters which are not likely to have a material adverse
effect on the business or financial condition of ADVC and its Subsidiaries,
taken as a whole.
6.5 Consents and Approvals of Governmental Authorities. No consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Body is required to be made or obtained by ADVC or any of either of
their Subsidiaries in connection with the execution, delivery and performance of
this Agreement by ADVC or the consummation of the sale of the ADVC Shares to the
Shareholders.
<PAGE>
6.6 Other Consents. No consent of any Person is required to be obtained
by SICI or ADVC to the execution, delivery and performance of this Agreement or
the consummation of the sale of the ADVC Shares to the Shareholders, including,
but not limited to, consents from parties to leases or other agreements or
commitments, except for any consent which the failure to obtain would not be
likely to have a material adverse effect on the business and financial condition
of SICI or ADVC.
6.7 Financial Statements. Prior to closing, ADVC shall have delivered
to the Shareholder consolidated balance sheets of ADVC and its Subsidiaries as
at June 30, 1998, March 31, 1999 and June 30, 1999, and statements of income and
changes in financial position for each of the periods then ended, together with
the report thereon of ADVC's independent accountant (the "ADVC Financial
Statements"). Such ADVC Financial Statements and notes fairly present the
consolidated financial condition and results of operations of ADVC and its
Subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United States accounting
principles consistently applied throughout the periods involved, except as set
forth in the notes thereto, and shall be utilizable in any SEC filing in
compliance with Rule 310 of Regulation S-B promulgated under the Securities Act.
6.8 Brokers or Finders. Other than Bridgewater Capital Corporation and
M. Richard Cutler, ADVC has not employed any broker or finder or incurred any
liability for any brokerage or finder's fees or commissions or similar payments
in connection with the sale of the ADVC Shares to the Shareholders.
6.9 Purchase for Investment. ADVC is purchasing the SICI Shares solely
for its own account for the purpose of investment and not with a view to, or for
sale in connection with, any distribution of any portion thereof in violation of
any applicable securities law.
7. Access and Reporting; Filings With Governmental Authorities; Other
Covenants.
7.1 Access Between the date of this Agreement and the Closing Date.
Each of the Shareholder and ADVC shall (a) give to the other and its authorized
representatives reasonable access to all plants, offices, warehouse and other
facilities and properties of SICI or ADVC, as the case may be, and to its books
and records, (b) permit the other to make inspections thereof, and (c) cause its
officers and its advisors to furnish the other with such financial and operating
data and other information with respect to the business and properties of such
party and its Subsidiaries and to discuss with such and its authorized
representatives its affairs and those of its Subsidiaries, all as the other may
from time to time reasonably request.
7.2 Regulatory Matters. The Shareholder and ADVC shall (a) file with
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the contemplated transaction
and (b) cooperate with each other as they may reasonably request in connection
with the foregoing.
<PAGE>
8. CONDUCT OF SICI'S BUSINESS PRIOR TO THE CLOSING. The Shareholder shall
use its best efforts to ensure the following:
8.1 Operation in Ordinary Course. Between the date of this Agreement
and the Closing Date, SICI shall cause conduct its businesses in all material
respects in the ordinary course.
8.2 Business Organization. Between the date of this Agreement and the
Closing Date, SICI shall (a) preserve substantially intact the business
organization of SICI; and (b) preserve in all material respects the present
business relationships and good will of SICI.
8.3 Corporate Organization. Between the date of this Agreement and the
Closing Date, SICI shall not cause or permit any amendment of its certificate of
incorporation or by-laws (or other governing instrument) and shall not:
a. issue, sell or otherwise dispose of any of its Equity Securities, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its Equity Securities;
b. create or suffer to be created any Encumbrance thereon, or create, sell
or otherwise dispose of any options, rights, conversion rights or other
agreements or commitments of any kind relating to the sale or disposition of any
Equity Securities;
c. reclassify, split up or otherwise change any of its Equity Securities;
d. be party to any merger, consolidation or other business combination;
e. sell, lease, license or otherwise dispose of any of its properties or
assets (including, but not limited to rights with respect to patents and
registered trademarks and copyrights or other proprietary rights), in an amount
which is material to the business or financial condition of SICI except in the
ordinary course of business; or
f. organize any new Subsidiary or acquire any Equity Securities of any
Person or any equity or ownership interest in any business.
8.4 Other Restrictions. Between the date of this Agreement and the
Closing Date, SICI shall not:
a. borrow any funds or otherwise become subject to, whether directly or by
way of guarantee or otherwise, any indebtedness for borrowed money;
b. create any material Encumbrance on any of its material properties or
assets;
c. increase in any manner the compensation of any director or officer or
increase in any manner the compensation of any class of employees;
d. create or materially modify any material bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
e. make any capital expenditure or acquire any property or assets;
<PAGE>
f. enter into any agreement that materially restricts ADVC, SICI or any of
their Subsidiaries from carrying on business;
g. pay, discharge or satisfy any material claim, liability or obligation,
absolute, accrued, contingent or otherwise, other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities or obligations
reflected in the SICI Financial Statements or incurred in the ordinary course of
business and consistent with past practice since the date of the SICI Financial
Statements; or
h. cancel any material debts or waive any material claims or rights.
i. DEFINITIONS.
As used in this Agreement, the following terms have the meanings specified
or referred to in this Section 9.
9.1 "Business Day" C Any day that is not a Saturday or Sunday or a day
on which banks located in the City of New York are authorized or required to be
closed.
9.2 "Code" C The Internal Revenue Code of 1986, as amended.
9.3 "Encumbrances" C Any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership, other than a restriction on transfer arising under
Federal or state securities laws.
9.4 "Equity Securities" C See Rule 3aB11B1 under the Securities
Exchange Act of 1934.
9.5 "ERISA" C The Employee Retirement Income Security Act of 1974, as
amended.
9.6 "Governmental Body" C Any domestic or foreign national, state or
municipal or other local government or multi-national body (including, but not
limited to, the European Economic Community), any subdivision, agency,
commission or authority thereof.
9.7 "Knowledge" C Actual knowledge, after reasonable investigation.
9.8 "Person" C Any individual, corporation, partnership, joint venture,
trust, association, unincorporated organization, other entity, or Governmental
Body.
9.9 "Subsidiary" C With respect to any Person, any corporation of which
securities having the power to elect a majority of that corporation's Board of
Directors (other than securities having that power only upon the happening of a
contingency that has not occurred) are held by such Person or one or more of its
Subsidiaries.
10. TERMINATION.
10.1 Termination. This Agreement may be terminated before the Closing
occurs only as follows:
a. By written agreement of the Shareholder and ADVC at any time.
b. By ADVC, by notice to the Shareholders at any time, if one or more of the
conditions specified in Section 3 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1) would otherwise occur or
if satisfaction of such a condition is or becomes impossible.
<PAGE>
c. By the Shareholder, by notice to ADVC at any time, if one or more of the
conditions specified in Section 4 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1), would otherwise occur
of if satisfaction of such a condition is or becomes impossible.
d. By either the Shareholders or ADVC, by notice to the other at any time
after February 9, 2000, if the transaction has not been completed.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall terminate without any liability or further
obligation of any party to another.
13. NOTICES. All notices, consents, assignments and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when (a) delivered by hand, (b) sent by telex or facsimile (with receipt
confirmed), provided that a copy is mailed by registered mail, return receipt
requested, or (c) received by the delivery service (receipt requested), in each
case to the appropriate addresses, telex numbers and facsimile numbers set forth
below (or to such other addresses, telex numbers and facsimile numbers as a
party may designate as to itself by notice to the other parties).
(a) If to ADVC:
19200 Von Karman, Suite 500
Irvine, CA 92612
Attn: Roger May, President
Facsimile (949) 477-8022
Copy to:
Jack H. Halperin,
317 Madison Avenue
Suite 1421
New York, NY 10017
Facsimile (212) 378-1299
(b) If to the Shareholder:
c/o Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: (949) 719-1988
Attention: M. Richard Cutler, Esq.
<PAGE>
14. MISCELLANEOUS.
14.2 Expenses. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder.
14.3 Captions. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
agreement.
14.4 No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
14.5 Exclusive Agreement; Amendment. This Agreement supersedes all prior
agreements among the parties with respect to its subject matter with respect
thereto and cannot be changed or terminated orally.
14.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
14.7 Governing Law, Venue. This Agreement and (unless otherwise provided)
all amendments hereof and waivers and consents hereunder shall be governed by
the internal law of the State of California, without regard to the conflicts of
law principles thereof. Venue for any cause of action brought to enforce any
part of this Agreement shall be in Orange County, California.
14.8 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns,
provided that neither party may assign its rights hereunder without the consent
of the other, provided that, after the Closing, no consent of SICI shall be
needed in connection with any merger or consolidation of ADVC with or into
another entity.
<PAGE>
IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be executed by their respective offi-cers, hereunto duly authorized, and
entered into as of the date first above written.
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
a Florida corporation
/s/ Roger May
_______________________________________________
By: Roger May, Chief Executive Officer and President
MRC LEGAL SERVICES CORPORATION
/s/ M. Richard Cutler
_______________________________________________
By: M. Richard Cutler, President
<PAGE>
EXHIBIT A
SICI SHAREHOLDER AND ASSIGNS
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form 8-K Current Report of Advanced
Communications Technologies, Inc. our report for the year ended June 30, 1999
and for the period from April 30, 1998 (inception) to June 30, 1999 relating to
the financial statements of Advanced Communications Technologies, Inc. which
appear in such Form 8-K.
We hereby consent to the use in the Form 8-K Current Report of Advanced
Communications Technologies, Inc. our report for the nine months ended March 31,
1999 and the year ended June 30, 1998 relating to the financial statements of
Media Forum International, Inc. (the predecessor of Advanced Communications
Technologies, Inc.) which appear in such Form 8-K.
/s/ Weinberg & Company
WEINBERG & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
February 3, 2000
