UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2000
Commission File No. 000-30486
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
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(Exact Name of Registrant as specified in its charter)
FLORIDA 95-4743438
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
19200 Von Karman Ave., Suite 500, Irvine, CA 92612
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(Address of principal executive offices)
(949) 622-5566
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(Registrant's telephone number)
Securities registered under Section 12(b) of the Act:
Title of each class to be registered: None
Securities registered pursuant to section 12(g) of the Act:
Title of each class to be registered: Common Stock, No Par Value
Name of exchange: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
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The aggregate market value as of September 30, 2000 of the voting common equity
held by non-affiliates is $22,518,429.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING PRECEDING FIVE YEARS
Indicate by checkmark whether the Registrant has filed all documents and reports
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
YES ____ NO ____
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock , as of the latest practicable date. As of September 30, 2000,
there were 82,197,280 shares of the Company's no par value common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
This Form 10-KSB contains "forward-looking statements" relating to the
Registrant which represent the Registrant's current expectations or beliefs
including, but not limited to, statements concerning Registrant's operations,
performance, financial condition and growth. For this purpose, any statements
contained in this Form 10-KSB that are not statements of historical fact are
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "anticipation", "intend", "could", "estimate", or
"continue" or the negative or other comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, such as credit losses, dependence on
management and key personnel and variability of quarterly results, ability of
Registrant to continue its growth strategy and competition, certain of which are
beyond the Registrant's control. Should one or more of these risks or
uncertainties materialize or should the underlying assumptions prove incorrect,
actual outcomes and results could differ materially from those indicated in the
forward-looking statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Organization and Business History
Advanced Communications Technologies, Inc. ("ACT" or the "Company") was
incorporated 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 "SpectruCell". The rights and interests are licensed
from the Company's Australian affiliate, Advanced Communications Pty Ltd.
("ACT-Australia"). 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 shareholders. As a
result of the merger, the shareholders of the Company received 60,224,227 shares
and became shareholders of approximately 90% of MFI. Pursuant to the merger
agreement, MFI was the surviving entity but subsequently changed its name to
Advanced Communications Technologies, Inc.
Upon completion of the merger with MFI, 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. On January 31, 2000,
the Company acquired Smart Investments.com, Inc. ("SICI") through a stock
exchange with SICI's sole shareholder. Immediately upon completion of that
acquisition, the Company 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.
On July 20, 1999 Advanced Global Communications, Inc. ("AGC") was incorporated
in the State of Florida as a wholly-owned subsidiary of the Company. AGC was
formed as the operational arm of the Company for all telecommunications
operations and network development and is the holding company for all future
planned acquisitions of other switching and telecommunications companies. The
Company through AGC, plans to aggressively pursue the acquisition of smaller
telecommunications enterprises which specialize in providing international
origination and termination telephone services via
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ATM switching and VoIP. Presently, AGC has established an international long
distance telephone service connection from the U.S. to Pakistan.
On November 10, 1999, the Company's wholly-owned subsidiary, AGC entered into an
agreement (the "World Agreement") with the shareholders of World IP Incorporated
("World") and its wholly-owned foreign subsidiaries Sur Comunicaciones, S.A. (A
Chilean Corporation) and Acinel, S.A. (An Argentinean Corporation), hereinafter
the "World Group", to acquire a 51% controlling interest in the World Group.
Under the terms of the World Agreement, 500,000 shares of the Company's
restricted common stock plus $95,000 in cash was exchanged for 1,020 shares of
stock representing 51% of the then issued and outstanding shares of World. The
500,000 shares of restricted common stock were valued at the trading price on
the closing date and together with the cash consideration resulted in a purchase
price of $470,000.
The World Group provides wholesale international telephone services from the
U.S. to Chile and Argentina.
On October 4, 2000, the Company notified World's management and shareholders
that it intends to rescind the World Agreement because the Company was unable,
after repeated requests, to obtain from World's management financial records and
audited financial statements. Consequently, the Company's management deemed that
it was in its best interest to unilaterally rescind the World Agreement. On
October 6, 2000, the Company filed suit in the Circuit Court in and for Palm
Beach County, Florida against the World Group and its shareholders for
rescission of the World Agreement and for monetary damages resulting from World
and its management's breach of the World Agreement.
On April 5, 2000 the Company entered into a Stock Purchase Agreement (the
"Agreement") with Advanced Communications Technologies (Australia) Pty Ltd.
("ACT-Australia"). Under the Agreement, the Company will receive 20% of the
outstanding shares of ACT-Australia in exchange for 5,000,000 shares of the
Company's Common Stock and $7,500,000 payable in installments.
On July 24, 2000, the Company formed Australon USA, Inc., a Delaware Corporation
owned 50% by the Company and 50% by Australon Enterprises Pty., Ltd., an 80%
owned subsidiary of ACT-Australia, for the purpose of marketing and selling the
Australon suite of products in the U.S., Canada and South America.
Industry Background
Growth of the Wireless Telecom Industry
The wireless telecom industry is one of the most rapidly growing business
sectors in the world today, driven by the dramatic increase in wireless
telephone usage, as well as strong demand for wireless Internet and other data
services. Since 1992, wireless has been the fastest-growing telecom market
sector, according to Forrester Research. International Data Corporation expects
that by 2003, the U.S. wireless subscriber base
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will grow to over 185 million, generating revenues in excess of $68 billion. In
April 1999, Dataquest estimated that the number of users of wireless handsets
worldwide will grow to over 500 million by 2002. The demand for wireless
Internet access and other data services is accelerating the adoption of new
technologies such as those embodied in the emerging third-generation (3G)
standard. High speed fiber networks are being coupled with broadband wireless
technologies to deliver enhanced telecom capabilities and features to new
customers and markets. According to Dataquest in February 1999, the market for
broadband wireless access services in North America alone is expected to
generate $7.8 billion in revenue by 2003.
Wireless carriers must continuously upgrade their networks with new technologies
and expand into new geographic regions in order to remain competitive and
satisfy the demand for seamless wireless service. Additionally, new carriers are
entering the market as a result of deregulation, the issuance of new licenses
and the demand for new services, fueling the development of new networks. As a
result, carriers are deploying new network equipment both in the U.S. and
internationally. In April 1999, Dataquest estimated that worldwide sales of
wireless telecom equipment will reach $31.8 billion in the calendar year 1999.
New technologies, such as broadband wireless, are helping to fuel demand for
more advanced wireless equipment. In February 1999, Dataquest estimated that the
market for broadband wireless equipment in North America would grow from $90.7
million in 1998 to $901.3 million in 2002, a compound annual growth rate of
77.5%.
Changes in the Wireless Telecom Industry
Carriers face significant competition as they deploy their networks. The
competitive landscape has changed for wireless carriers through privatization in
the 1980s and deregulation in the 1990s, both domestically and internationally.
For carriers to differentiate themselves and remain competitive in this new
environment, they are deploying networks to:
o provide seamless nationwide coverage and avoid expensive roaming
costs on competitors' networks in markets where carriers do not
currently own infrastructure;
o offer PCS service in new geographic markets;
o offer enhanced services, such as one rate plans, calling party pays,
caller ID, text messaging and emergency 911 locator services;
o implement the new third-generation (3G) network standard to deliver
wireless broadband data services, including Internet access and
two-way e-mail;
o introduce other emerging data networking and broadband technologies,
such as LMDS, MMDS and other point-to-multipoint architectures, for
the provision of high speed data wireless Internet access and other
broadband services; and
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o offer wireless local loop systems domestically to bypass incumbent
wireline competitors and in developing countries lacking modern
wireline telephone infrastructure.
The convergence of traditional wireless, wireline and cable services is also
adding complexity to the telecom environment as carriers deploy networks
spanning traditional wireless/wireline boundaries to offer these enhanced
services and new technologies.
New Challenges for Wireless Carriers and Equipment Vendors
Due to this increasingly competitive environment, carriers need to focus on
satisfying customer demand for enhanced services, seamless and comprehensive
coverage, better quality, more bandwidth and lower prices. The proliferation of
carriers and new technologies has created an environment where speed to market
is an essential element of a wireless carrier's success. Carriers are also
experiencing challenges managing increasingly complex networks and technologies.
For example, the introduction of wireless Internet technologies and the growth
in broadband wireless services requiring the transmission of large amounts of
data creates additional new technological hurdles for carriers establishing or
upgrading their networks. In this dynamic environment, customer acquisition and
retention are the most important determinants of success. This has led carriers
to increasingly prioritize their resources, focusing on mission critical revenue
generating activities such as marketing, billing and customer care and
outsourcing whenever they can do so effectively.
The changing environment is also placing significant operational challenges on
carriers. Carriers must make critical decisions about which geographic markets
to serve and which services and technologies to offer. They are striving to
avoid the cost uncertainties and considerable operational challenges associated
with the staffing and process implementation software for the deployment and
management of their networks. Furthermore, the rapidly changing and increasingly
complex nature of wireless technologies has made it difficult for carriers to
optimize employee training and utilization for what are often one-time upgrades
for each generation of new technology. Additionally, networks are being
implemented with equipment from unrelated vendors, posing system integration
challenges. This situation is exacerbated by consolidation in the industry,
which often entails the integration of disparate networks.
Equipment vendors are facing numerous challenges in the current environment, as
carriers are requiring them to develop new generations of equipment that are
capable of handling increased features and functionality. In addition, vendors
must provide equipment that can be deployed within a carrier's existing network
and integrate with equipment offered by other vendors. Carriers are more likely
to select a vendor that provides a full suite of products and deployment
services. Given the rapid pace of technological change, equipment vendors are
finding it increasingly difficult to justify using resources for the deployment,
integration and optimization of their current generation of products. This has
increasingly led equipment vendors to focus on their core competencies to offer
competitive solutions in this rapidly changing technological environment and to
outsource network design, deployment and management services.
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Conventional 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.
The Company's Technologies
SpectruCell
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 ACT-Australia "Vision Team" in collaboration with the
Department of Computer Systems Engineering at RMIT.
ACT-Australia has developed and is currently testing 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 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, a distinct departure from current
technology. For example, Telstra Australia's recently spent approximately $500
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.
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The SpectruCell system architecture is a distinct departure from conventional
Cellular/PCS network structure. The SpectruCell architecture provides a method
of transmitting the entire base bank 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
(CDMA, TDMA, 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 (i.e. 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 sites, 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 bandwidth, 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.
Benefits of the SpectruCell network include:
o significantly lower rollout cost due to the network being wireless;
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o cost effective upgrades to existing networks to handle additional
protocols through utilization of existing network infrastructure
rather than creating a new structure;
o fewer 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
centralized switching facility; and
o direct access to Internet services for cellular subscribers via
mobile IP and other evolving data protocols (such as ITU 3G).
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.
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.
Spectrum Efficient Microwave ("SEM")
Under current cellular network technology, 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 fiber 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 throughout, and have been expensive to implement
because they use a large component of radio spectrum. Radio spectrum must be
licensed and is costly.
In an effort to mitigate these constraints and problems, ACT-Australia is in the
process of developing an enhanced microwave link with spectral efficiency of
approximately six times current technology, with a data rate of 155 MB's, which
is substantially equivalent to fiber optic cable backbones. The SEM technique
has applications in the provision of the medium and high rate backbones
necessary for the deployment of mobile communications networks.
One advantage of the 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
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same spectrum by as much as six times. The Company 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 greenfield installation an efficient point-to-point
microwave link could further enhance the attraction of a distributed SpectruCell
network.
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. The Company's management 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.
LonWorks
Australon is the only accredited LonWorks Independent Developer (L.I.D) in
Australia. LonWorks is a technology developed by Echelon Corporation which was
recently adopted by Cisco Corporation as its Internet integration technology of
choice. LonWorks is based upon a Neuron Chip that is manufactured by Motorola
and Toshiba under license from Echelon. It provides a foundation to develop
numerous control systems and monitoring applications that can be accessed via
the Internet.
Australon has developed a Neuron generic interface card module based around the
LonWorks technology that allows for Australon to rapidly build and deploy
specifically designed independent units for control applications in spread
monitoring applications. Applications include:
o Smart Office Buildings. Australon is able to perform such specific
functions as turning the lights on and off, opening and locking
security doors, starting and stopping elevators and connecting all
functions to a central locking system;
o Homeowners. An array of services can be performed from operating the
VCR to the sprinkler system from a touch-tone phone from any remote
location;
o Factories. Control over conveyer belts, inventory, pump valves,
emergency stop systems or even fire control systems remotely in mine
systems; and
o Marine Navigation Beacons. Beacons have been developed that operate
from a central location with an alarm and fault diagnostic service
capability.
Custom built units can be produced and maintained by adding hardware and
software modifications to the generic model. LonWorks is also able to interface
a range of products from different manufacturers by utilizing a system known as
Standard Network Variable Types. This enables LonWorks to be placed into
existing networks enabling them to achieve an increased level of intelligence.
The potential advantages of Australon's LonWorks product include:
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o Cost Effective Implementation. A control network can be implemented
that does not rely on a centralized controller; the network is
centrally monitored but does not have a central point of failure;
o Simple Upgrades. The product is upgradeable via software, which can
be implemented by the customer without the help of a specialized
technical programmer; and
o Integration. Utilizing the Australon product enables products to be
integrated into the control network and monitored over the Internet.
Australon intends to establish a distribution center for LonWorks devices,
training facilities, testing and support networks, and a focused marketing and
integration plan to expand Australon/LonWorks technology sales into Australian
developers. Currently negotiations are being conducted with several companies
worldwide for the marketing and distribution rights to the Australon developed
LonWorks products.
Australon and the Company have formed a Delaware corporation owned 50% by each
of them to market LonWorks products in the United States and North and South
America.
Australon has been appointed an official beta tester for CISCO's i.Lon LonWorks
Internet gateway. Developed and certified under the Cisco NetWorks* program, the
i.LON 1000 is a new product that can bring everyday devices into the Internet-or
an Internet Protocol (IP) based intranet, LAN, or WAN. Already the i.Lon 1000 IP
Server enables everyday devices networked worldwide with Echelon's LonWorks
technology in homes, buildings, factories, and transportation systems to become
part of the Web, delivering cost, revenue, quality, and productivity
improvements and paving the way for new markets and applications for industry
and consumers alike.
Marketing Strategy
The Company intends to conduct marketing focused directly at the executive level
of prospective customers utilizing the relationships that the Company management
has established within the telecommunication industry. The direct emphasis will
be focused on:
o Third World Countries. SpectruCell has the ability to provide "greenfield"
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
a reduced cost, and in a shorter time frame than an equivalent land-based
network;
o Major Telecommunication Companies. ACT-Australia will look to partner with
major telecommunication companies in each region. The SpectruCell unit has
advantages due to its capability of handing multiple protocols; and
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o Test Market through Advanced Global Communications. AGC will provide the
platform for the Company to launch its prototype in late 2000. The test
phase will be supervised personally by Roger May and James Rennie. AGC was
formed to become the operational arm of the Company 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
The Company plans to take advantage of the established sales and distribution
channels that are already established within other companies. As such, the
Company 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 cannot be
established, the Company will look to establish its own regional or national
distributors.
Sources of Revenue
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.
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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 domestic networks. Another
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.
Patents
ACT-Australia is currently preparing Patent applications for the SpectruCell
technology and expects to file the applications shortly. ACT-Australia is
confident that its applications for patent protection will be granted by the
Australian regulatory authorities.
Employees and Consultants
As of September 30, 2000, the Company has eight full time employees and
consultants. ACT-Australia and its affiliates had 79 full time employees of
which 49 are engaged in
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research and development and technical support and 30 in management, sales and
administration. Of these employees, ten are sales, marketing and management
executives, seven are involved in information technology and 13 work in
administrative offices. None of the Company's or ACT-Australia's employees are
covered by any collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
Facilities
Our principal executive offices are located at 19200 Von Karman, Suite 500,
Irvine, California 92612. The Company has a one-year lease for such offices
expiring in March 2001 for offices in Irvine California. The monthly rent is
$5,525.00. At the end of the lease's term for our rental space, the Company
believes that it can lease the same or comparable offices at approximately the
same monthly rate.
ITEM 3. LEGAL PROCEEDINGS
Pending Litigation
The Company is a defendant in four pending lawsuits. The first, Nancy Needham et
al v. Advanced Communications Technologies, Inc. et al is an action brought in
state court in Florida seeking (i) injunctive relief against the Company and
others requiring it to permit the transfer of shares of the Company's Common
Stock held by two shareholders (who are former officers and directors of the
Company) and (ii) damages in an unspecified amount. The lawsuit is at an early
stage and the Company is unable, at the present time, to predict its outcome.
The second action was brought by Bank Insinger, the holder of $150,000 principal
amount of the Company's 12% Secured Convertible Debentures, for breach of
contract and other claims. The Company is in default with respect to $650,000 of
its 12% Secured Convertible Debentures. The action is brought in Federal Court
in the Eastern District of New York. The Company intends, following the
effectiveness of its registration statement, to offer Bank Insinger registered
shares of its Common Stock or cash in settlement of its claim. There can be no
assurance that the Company will be able to effectuate such settlement on terms
it deems acceptable.
The third action is Star Multi Care Services, Inc v Advanced Communications
Technologies, Inc filed in the Fifteenth Judicial Circuit in the State of
Florida on September 18, 2000. The suit has been filed by Star Multi Care
Services, Inc ("Star") against the Company for alleged breach of contract and
the recovery of a break-up or termination fee in excess of $50,000 in
conjunction with the Company's failure to consummate a proposed merger with Star
in January 2000. The Company believes that the suit is without basis and will
vigorously defend the alleged claim.
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The fourth action brought against the Company is Grassland Capital Group v Media
Forum International, Inc filed in the State of Florida against Media Forum
International, Inc., the Company's predecessor for enforcement of a convertible
promissory note. In May 2000, the parties agreed to settle the matter for a
fixed sum of $200,000 of which the Company paid $50,000. As part of the
settlement agreement, the plaintiff agreed to release to the Company 75,000
shares of the Company's restricted common stock held in escrow. The Company was
to pay the remaining balance due from proceeds to be derived from the sale of
the 75,000 shares. The Company neither sold the shares nor paid the balance of
the amounts due. In August 2000 the plaintiff filed and received a judgment
against the Company for the $150,000 outstanding amount due.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no votes submitted during the fiscal year end.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
Our common stock is currently traded on the National Association of Securities
Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB")
under the symbol "ADVC". As of September 30, 2000, there were 82,197,280 common
shares outstanding. There is limited trading activity in our securities, and
there can be no assurance a regular trading market for our common stock will be
sustained.
The following table sets forth, for the fiscal periods indicated, the bid price
range of our common stock:
High Bid Low Bid
-------- -------
1999
Quarter Ended September 30, 1998 $ 1.03 $ .12
Quarter Ended December 31, 1998 .25 .01
Quarter Ended March 31, 1999 1.28 .06
Quarter Ended June 30, 1999 .62 .14
2000
Quarter Ended September 30, 1999 $ .72 $ .24
Quarter Ended December 31, 1999 5.50 .31
Quarter Ended March 31, 2000 7.19 2.00
Quarter Ended June 30, 2000 2.62 1.03
Quarter Ended September 30, 2000 1.25 .56
15
<PAGE>
Such market quotations reflect the high bid and low prices as reflected by the
OTCBB or by prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions.
(b) HOLDERS
As of September 30, 2000 there were approximately 301 holders of record of our
common stock.
(c) DIVIDENDS
We have not paid any cash dividends since our inception, and the Board of
Directors does not contemplate doing so in the near future. Any decisions as to
future payment of dividends will depend on our earnings and financial position
and such other factors, as the Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this Form 10-KSB contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by such forward-looking information due
to factors discussed under "Business" and elsewhere in this Form 10-KSB.
The statements that are not historical constitute "forward-looking statements".
Said forward-looking statements involve risks and uncertainties that may cause
the actual results, performance or achievements of the Company and its
subsidiaries to be materially different from any future results, performance or
achievements, express or implied by such forward-looking statements. These
forward-looking statements are identified by their use of such terms and phrases
as "expects", "intends", "goals", "estimates", "projects", "plans",
"anticipates", "should", "future", "believes", and "scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations. Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this Form
10-KSB will prove to be accurate.
16
<PAGE>
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any person that the objectives
and expectations of the Company will be achieved.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Condensed Consolidated
Statement of Operations Data" and "Condensed Consolidated Balance Sheet Data"
for, and as of the end of, each of the years in the three-year period ended June
30, 2000, are derived from the consolidated financial statements of the Company,
which financial statements have been audited by Weinberg & Company, P.A. our
independent certified public accountants. The audited consolidated financial
statements as of June 30, 2000 and June 30, 1999, and report thereon, are
included in the financial statement section of the Form 10-KSB. When you read
this selected historical financial data, it is important that you read along
with it the historical financial statements and related notes as well as this
Management's Discussion and Analysis of Financial Condition and Operating
Results. Historical results are not necessarily indicative of future results.
For the Years Ended June 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Consolidated Statement of
Operations Data:
Revenue $ -- $ -- $ 160,865
Cost of Revenue -- -- 122,597
------------ ------------ ------------
Gross Profit -- -- 38,268
Selling, General and
Administrative Expenses 4,388,691 673,274 1,783,047
------------ ------------ ------------
Operating Profit (Loss) (4,388,691) (673,274) (1,744,779)
Total Other (Expense) Income/
Extraordinary Gain (355,316) 312 (18,472)
------------ ------------ ------------
(Loss) Before Income Taxes (4,744,007) (672,692) (1,763,251)
Provision for Income Taxes -- -- --
------------ ------------ ------------
Net (Loss) $ (4,744,007) $ (672,692) $ (1,763,251)
============ ============ ============
Net (Loss) Per Share:
Basic $ (.06) $ (.01) $ (.035)
Diluted $ (.06) $ (.01) $ (.035)
Pro Forma Weighted
Average Shares:
Basic 77,107,560 60,619,676 5,000,292
============ ============ ============
Diluted 77,107,560 60,619,676 5,000,592
============ ============ ============
For the Years Ended June 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Consolidated Balance
Sheet Data:
Cash and Cash
Equivalents $ 36,979 $ 39,270 $ 46,800
17
<PAGE>
Working Capital 36,979 412,770 --
Total Assets 19,961,117 876,723 51,300
Total Debt 9,007,570 1,231,002 946,847
Total Stockholders'
(Deficiency)/Equity 10,953,547 (354,279) (895,547)
(a) RESULTS OF OPERATIONS
Comparison of Results for the Year Ended June 30, 2000 to the Year Ended June
30, 1999
Revenue. The Company realized no revenue during either the fiscal year ended
June 30, 2000 nor the year ended June 30, 1999. The Company is entitled to
license and distribution revenue for products currently under development by
ACT-Australia. Such products were still in the development stage as of June 30,
2000. In addition, the Company, through AGC, has developed a wholesale
telecommunications network for service into Pakistan which was not fully
operational as of June 30, 2000
General and Administrative Expenses. General and administrative expenses for the
fiscal years ended June 30, 2000 and June 30, 1999 were $4,388,691 and $673,274
respectively. Of these amounts, $3,409,038 and $148,379, or 78% and 22%
respectively, were for professional services rendered to the Company of which
$3,009,388 (88%) during the fiscal year ended June 30, 2000 was paid via the
issuance of restricted common stock and represent a non-cash expense. During the
fiscal years ended June 30, 2000 and June 30, 1999, the Company paid $215,756
and $148,378 respectively, in cash fees for professional services rendered.
Professional fees increased substantially from the prior year due principally to
the fact that a majority of the Company's shares issued in the current fiscal
year in exchange for services were issued when the stock was trading in the
price range of $2.50 to $4 per share.
Consulting fees, which includes employee payments, increased $146,877 from the
prior year due principally to an increase in staff and the issuance of
restricted common stock at a higher market price to third party marketing and
promotional organizations. For the fiscal years ended June 30, 2000 and June 30,
1999, $259,970 and $330,166 respectively, was paid via the issuance of
restricted common stock and represents a non-cash expense.
Other general and administrative expenses (exclusive of professional fees,
consulting expenses and other non-cash charges) amounted to $412,110 for the
fiscal year ended June 30, 2000, an increase of $306,516 from the fiscal year
ended June 30, 1999. This increase is attributable to additional corporate
overhead expenses resulting from the expansion of the Company's corporate
headquarters in California and the $125,000 bad debt reserve for the World IP
receivable.
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<PAGE>
Interest expense increased from $5,580 to $747,110 or by $741,530 from the
fiscal year ended June 30, 1999 as a result of the issuance of the Secured
Convertible Debentures in September 1999. Approximately $650,000 of the
Company's interest expense of $741,530 for the fiscal year ended June 30, 2000
is attributable to the intrinsic value of the convertible debentures executed by
the Company. Bond issuance costs being amortized during the current fiscal year
accounted for an additional $65,000 charged to interest expense.
Other income (loss) includes a ($85,818) loss (expressed in U.S. dollars) from
the Company's investment in ACT-Australia for the period April 5, 2000 through
June 30, 2000, as determined under the equity method of accounting.
Extraordinary Gains (Losses). Extraordinary Gains (Losses) include $242,561 of
gain on the extinguishments of prior shareholder loans in exchange for 600,000
of the Company's restricted common stock, a gain of $8,070 on the recovery of
the Kentel loan receivable and a gain of $34,507 on settlement of the Grassland
loan payable. In addition, $192,474 of other income was recognized on the
abandonment of certain accounts payable and accrued expenses of MFI.
(b) LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our operations through the sale
of common stock and convertible debentures. We have raised $1,650,000 before
offering costs through the sale of these securities.
At June 30, 2000, the Company's cash and cash equivalents balance was $36,979, a
decrease of $2,291 from the balance of $39,270 at June 30, 1999. During the year
ended June 30, 2000, cash provided by (used in) operations and investing
activities amounted to ($777,526) and ($215,390), respectively. Cash provided by
financing activities during the fiscal year ended June 30, 2000, amounted to
$1,013,050 and consisted of loans from the Company's principal shareholder and
the sale of common stock and convertible debentures. In July 1999, the Company
realized $273,500 net of offering costs from the sale of common stock. In
December 1999, the Company received $488,050 net of offering costs from the sale
of convertible debentures.
During the year the Company terminated financing agreements that it entered into
with Bridgewater Capital Corporation and Trinity Capital Advisors, Inc.
On June 27, 2000, the Company entered into an agreement with Ladenburg Thalmann
& Co., Inc. ("LTCO") pursuant to which LTCO will use its best efforts to raise
up to $12,000,000 for the Company through the sale of Common Stock. The
financing is proposed to be raised tranches of $500,000 each at a price equal to
85% of the Average Daily Price for the Draw Down Pricing Period as such terms
are defined in the Company's agreement with LTCO.
We believe that our cash and cash equivalent balances, and the net proceeds from
the LTCO offering (which will be included in a S-1 Registration Statement to be
filed shortly) will be sufficient to satisfy our cash requirements for at least
the next twelve months. The estimate for the period for which we expect the net
proceeds from the LTCO
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<PAGE>
offering, together with our available cash balances, to be sufficient to meet
our capital requirements is a forward-looking statement that involves risks and
uncertainties. The amount of our capital requirements will depend on numerous
factors, including the timing of the commercialization of the SpectruCell
technology, the possible acquisitions of complementary businesses or
technologies, the financial resources we dedicate to new technologies and new
markets and market demand for our suite of services.
We may need to raise additional capital if we expand more rapidly than initially
planned, undertake development of other unplanned technologies and/or services
to respond to new competitive pressures, or acquire complementary businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, such securities may have rights, preferences or
privileges senior to those of our stockholders, who may also experience
additional dilution. There can be no assurance that additional financing will be
available or on terms favorable to us. If adequate funds are not available or
are not available on acceptable terms, our ability to fund our expansion, take
advantage of unanticipated opportunities, expand our suite of services or
otherwise respond to competitive pressures could be significantly limited and
our business may be harmed by such limitations.
(c) ACQUISITIONS
On November 10, 1999, the Company's wholly-owned subsidiary, AGC entered into an
agreement with the shareholders of World IP Incorporated ("World") and its
wholly-owned foreign subsidiaries Sur Comunicaciones, S.A. (A Chilean
Corporation) and Acinel, S.A. (An Argentinean Corporation), hereinafter the
"World Group", to acquire a 51% controlling interest in the World Group. The
World Group provides wholesale international telephone services from the U.S. to
Chile and Argentina. On October 4, 2000, the Company notified World's management
and shareholders that it intends to rescind the November 10, 1999 Agreement
because the Company was unable, after repeated requests, to obtain from World's
management financial records and audited financial statements. Consequently, the
Company's management deemed that it was in its best interest to unilaterally
rescind the Agreement. On October 6, 2000 the Company filed suit in the Circuit
Court in and for Palm Beach County, Florida against the World Group and its
shareholders for rescission of the Agreement and for monetary damages resulting
from World and its management's breach of the Agreement. As of June 30, 2000,
the Company is owed $125,000 from World IP which it will seek to recover and has
fully reserved against.
On January 31, 2000, the Company acquired all of the issued and outstanding
shares of SmartInvestment.com. Inc., an inactive reporting company fully in
compliance with reporting requirements of the Securities Exchange Act of 1934,
for 200,000 shares of its restricted Common Stock. A Form 8-K was filed on
February 3, 2000 disclosing this acquisition. Under generally accepted
accounting principles, the Company treated the purchase as a recapitalization
and did not record any goodwill associated with the acquisition.
20
<PAGE>
On April 5, 2000, the Company pursuant to a Stock Purchase Agreement with
ACT-Australia acquired a 20% equity interest in ACT-Australia for $7,500,000 in
cash and 5,000,000 shares of the Company's restricted common stock.
The Company's strategy is to generate substantial revenue through the licensing
of the SpectruCell product being developed and tested by ACT-Australia, through
the marketing of Australon's LonWorks based products and through the acquisition
of telephone network distribution companies. As part of this growth strategy,
the Company will continue to evaluate and pursue opportunities to acquire other
companies, assets and product lines that either complement or expand the
Company's existing businesses. The Company intends to use available cash from
operations, if any, and authorized but presently unissued common stock to
finance any such acquisitions, including funds raised through the LTCO offering.
(d) SUBSEQUENT EVENTS
On September 29, 2000 the Company's board of directors adopted a resolution to
issue 5,000,000 shares of the Company's restricted common stock to ACT-Australia
in partial repayment of the Company's $7.5 million obligation. The 5,000,00
shares were valued at $.70 per share resulting in a $3.5 million repayment.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are submitted as a separate section of
this Form 10-KSB on pages F-1 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL REPORTING
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names and ages of the current directors and
executive officers of the Company, their principal offices and positions and the
date each such person became a director or executive officer. Our executive
officers are elected annually by the Board of Directors. Our directors serve
one-year terms until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships or
21
<PAGE>
understandings between any of the directors and executive officers. In addition,
there was no arrangement or understanding between any executive officer and any
other person pursuant to which any person was selected as an executive officer.
Our directors and officers are as follows:
<TABLE>
<CAPTION>
Name and Address Age Position
---------------- --- --------
<S> <C> <C>
Roger May, 19200 Von Karman Ave., Irvine, CA 92612 54 Chief Executive Officer,
Chairman of the Board
and Director
Wayne I. Danson, 420 Lexington Ave., New York, NY 10170 47 Chief Financial Officer
and Director
Jonathan J. Lichtman, 4800 N. Federal Hwy., Boca Raton, FL 33431 48 Director
Dr. Michael Finch, 37 Walnut Street, Wellesley, MA 02481 52 Director
Randall Prouty, 19200 Von Karman Ave., Irvine, CA 92612 48 Director
Wilbank J. Roche, 2530 Wilshire Blvd., Santa Monica, CA 90403 54 Director
</TABLE>
The directors named above will serve until the next annual meeting of our
shareholders or until their successors shall be elected and accept their
positions. Mr. May is a party to a written employment agreement with the Company
that entitles him to a salary of $120,000 per year. Mr. Danson is party to a
written consulting agreement as extended orally that pays him $5,000 per month
for the period December 1, 1999 through March 31, 2000 and $10,000 per month
thereafter. Both Mr. May and Mr. Danson are reimbursed for reasonable
out-of-pocket expenses relating to their activities for the Company. In
addition, Mr. May is reimbursed for his automobile expenses in connection with
Company business.
The Company currently does not pay any fees to its directors. However, all
directors are reimbursed for out-of-pocket expenses incurred in connection with
the rendering of services as a director.
The Company has no deferred compensation, stock options, SAR or other bonus
arrangements for its employees and/or directors. During the fiscal year ended
June 30, 2000, all decisions concerning executive compensation were made by the
Board of Directors.
Roger May, Chief Executive Officer, Chairman of the Board and Director. Roger
May has been the Chairman and Chief Executive Officer of the Company since March
10, 1997. In 1991 he founded America's first nationwide central reservation
system known as Independent Reservation Services Ltd. ("IRSL") In 1997 Mr. May
negotiated the sale of IRSL to a Florida public company, Teleservices
International Group. In 1987, Mr. May began his 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
22
<PAGE>
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 exporting company and then
purchased a franchise for International Business Exchange, Inc., a barter
exchange company. Mr. May began 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. Mr. Danson has served as
the Company's Chief Financial Officer since December 1, 1999 and was appointed a
director on January 3, 2000. Mr. Danson is the Managing Director and Founder of
Danson Partners, LLC a financial advisory and investment banking firm
specializing in middle market companies in the real estate and technology
industries. Prior to forming Danson Partners, LLC 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
1988 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. He is a certified public accountant and a
member of the AICPA and the New York State Society of CPAs.
Jonathan J. Lichtman, Director. Mr. Lichtman was appointed a Director of the
Company on November 9, 1999 and 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, North Carolina and Florida. Prior to forming his current firm, Mr.
Lichtman was an attorney since 1988 with English, McCaughan and O'Bryan, PA,
where he performed legal work for domestic and international clients as well as
real estate partnerships and development. Mr. Lichtman obtained his J.D. degree,
cum laude, from Syracuse University College of Law and his LLM degree in
taxation from the University of Miami School of Law. He is also a certified
public accountant and is licensed to practice law in Florida and New York.
Dr. Michael Finch, Director. Dr. Finch was appointed a Director of the Company
on March 10, 1997 and since 1998, has been Chief Technology Officer of New Media
Solutions, responsible for the conception, planning, creation, execution and
deployment of all software products and projects. For the four years before
that, he was employed by Media Forum (first in the UK, and then in the US) as
Director of Product Development. He was responsible for developing and
implementing Media Forum's software capabilities and strategy, managing
technical and complex software projects for high-end clients, and pre-sales
demonstrations to clients of Media Forum's software stance and expertise. From
1983 to 1993 Dr. Finch was a Financial Software Engineer, who
23
<PAGE>
designed, wrote and implemented sophisticated real-time computer programs for
trading Financial Instruments and Commodities on the Chicago and New York
Futures exchanges. Prior to 1983 Dr. Finch was a research scientist and
mathematician, with an academic career at four UK universities. He obtained a
Doctorate of Mathematics at Sussex University for original research into
Einstein's Theory of General Relativity and its application to Neutron Stars. He
lectured at Queen Mary's College London on advanced mathematics.
Randall Prouty, Director. Mr. Prouty, a co-founder of the Company and Director
since March 10, 1997, is currently the President and CEO of World Associates,
Inc. a publicly traded development stage company. He is also the sole owner of
Bristol Capital, Inc., a firm active in consulting and business development work
for companies seeking access to capital markets, and through which he is
incubating other e-business ventures. Mr. Prouty is a licensed real estate and
mortgage broker in the State of Florida and is considered an expert in real
estate finance. His technical background includes being a qualified webmaster
and developing e-businesses on the web.
Wilbank J. Roche, Director. Mr. Roche was appointed a Director of the Company on
March 25, 1999 and is currently a principal with the law firm of Roche & Holt in
Santa Monica, California. Mr. Roche was an honors graduate from the University
of California in 1976 as well as from Loyola University School of Law, Los
Angeles, in 1979. He was admitted to the California State Bar in 1979 and has
been practicing law actively since that time. Mr. Roche worked for law firms in
the Los Angeles area from 1976 to 1983, when he opened his own office. In 1985,
he formed Roche & Holt. Mr. Roche's law practice has revolved largely around
representing small businesses and their owners. In that regard, he has provided
legal services in connection with the formation, purchase, sale, and dissolution
of numerous entities, as well as in connection with their on-going operations.
In the past several years, he has devoted substantial time to clients in the
telecommunications business.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table shows certain compensation information
for services rendered in all capabilities for the three fiscal years ended June
30, 1998, 1999 and 2000. Other than as set forth herein, no executive officer's
cash salary and bonus exceeded $100,000 in any of the applicable years. The
following information includes the dollar value of base salaries, bonus awards,
the number of restricted shares granted and certain other compensation, if any,
whether paid or deferred.
24
<PAGE>
June 30, 1998 June 30, 1999 June 30, 2000
------------- ------------- -------------
Roger May, CEO $ 91,550(1) $120,000(2) $120,000(3)
Wayne I. Danson, CFO -- -- 50,000(4)
----------
(1) Accrued and unpaid compensation. No cash was received by Mr. May during
the fiscal year ended June 30, 1998. Mr. May did receive 500,000 shares of
the Company's stock valued at $25,000 as a signing bonus.
(2) $20,000 of this amount remains unpaid. During the fiscal year ended June
30, 1999, Mr. May received cash compensation of $65,000 and in exchange
for $35,000 of accrued and unpaid compensation, received 700,000 shares of
Company stock.
(3) Mr. May's compensation for the fiscal year ended June 30, 2000 is accrued
and unpaid. Effective July 1, 2000, Mr. May's salary has been increased to
$180,000 per annum.
(4) Mr. Danson became Chief Financial Officer of the Company on December 1,
1999 and such amount reflects the cash compensation (exclusive of
reimbursement of expenses) paid to him during the period December 1, 1999
- June 30, 2000. Mr. Danson also received 100,000 shares of the Company's
stock as a signing bonus.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information about the beneficial ownership of our
common stock as of September 30, 2000 for:
o each person who beneficially owns more than five percent of the
common stock;
o each of our directors;
o the named executive officers; and
o all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named below is
c/o Advanced Communications Technologies, Inc., 19200 Von Karman Ave., Suite
500, Irvine, CA 92612.
25
<PAGE>
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentage of beneficial
ownership is based on 82,197,280 shares of common stock outstanding as of
September 30, 2000.
Number of Shares Percentage of
Beneficially Shares
Owned Outstanding
---------------- -----------
Roger May 30,520,000(1)(2) 37.1%
Nancy Needham 11,958,801(3)* 14.6%
R.H. Du Pont 6,200,383(4)* 7.5%
Wayne Danson 160,000 **
Jonathan J. Lichtman 875,000(5) 1.06%
Dr. Michael Finch 100,000 **
Randall Prouty 1,057,500 1.3%
Wilbank J. Roche 50,000 **
All Officers and Directors as a Group 32,762,500 39.9%
----------
(1) No shares are owned directly by Mr. May. All shares beneficially owned by
Mr. May are owned through affiliated entities and/or by family members.
(2) Includes 5,000,000 shares beneficially owned through Advanced
Communications Technologies Pty Ltd.
(3) Includes 4,790,347 shares held by Mrs. Needham's adult children.
(4) Includes 5,173,572 shares held by Mr. DuPont's adult children and in trust
for Rhett DuPont, a minor.
(5) Includes 130,000 shares beneficially owned through various family trusts.
* The Company presently is disputing the ownership of these shares.
** Less than 1%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. May, the Company's principal shareholder, through a family trust established
in Australia by the May family, indirectly owns a majority interest in
ACT-Australia.
During the year, the Company acquired a 20% equity interest in ACT-Australia, an
entity that is majority owned by the May family, for 5,000,000 restricted shares
of common stock and a note for $7,500,000. In addition, as of June 30, 2000, the
Company advanced $552,125 to ACT-Australia in partial support of its development
activities.
26
<PAGE>
During the fiscal year ended June 30, 2000, the Company was indebted to Global
Communications Technologies Ltd., an entity owned by Mr. May for $251,500 for
advances made to the Company. In addition, Mr. May has deferred receiving his
annual compensation and is owed $231,550 in accrued and unpaid compensation as
of June 30, 2000.
Effective July 1, 2000, the Company and Mr. May entered into a revised oral
employment agreement that provides for Mr. May to receive $15,000 per month in
compensation and a special bonus of $50,000.
On September 1, 2000, Mr. Danson entered into a one year consulting agreement
with the Company for the period September 1, 2000 through August 31, 2001. Under
the terms of the consulting agreement, Mr. Danson will receive $10,000 per month
in cash and $10,000 per month in stock for his services.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
ITEM 13A.
Not applicable.
ITEM 13B.
Not applicable.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Registrant:
Advanced Communications Technologies, Inc.
/s/ Roger May October 11, 2000
------------------------------------------
By: Roger May
Chief Executive Officer
/s/ Wayne I. Danson October 11, 2000
------------------------------------------
By: Wayne I. Danson
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Randall Prouty October 11, 2000
------------------------------------------
Randall Prouty
Director
/s/ Jonathan Lichtman October 11, 2000
------------------------------------------
Jonathan Lichtman
Director
/s/ Michael Finch October 11, 2000
------------------------------------------
Michael Finch
Director
/s/ Wilbank Roche October 11, 2000
------------------------------------------
Wilbank Roche
Director
28
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
INDEX TO FINANCIAL STATEMENTS
Page(s)
-------
Independent Auditor's Report F-1
Consolidated Balance Sheet as of June 30, 2000 F-2
Consolidated Statements of Operations for the Years
Ended June 30, 2000 and 1999 and for the Period
April 30, 1998 (Inception) through
June 30, 2000 F-3
Consolidated Statement of Changes in Stockholders'
Equity for the Period April 30, 1998 (Inception)
through June 30, 2000 F-4
Consolidated Statements of Cash Flows for the Years
Ended June 30, 2000 and 1999 and for the Period
April 30, 1998 (Inception) through June 30, 2000 F-5, F-6
Notes to Consolidated Financial Statements F-7-F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Advanced Communications Technologies, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Advanced
Communications Technologies, Inc., and Subsidiary (a development stage
enterprise) as of June 30, 2000 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years ended
June 30, 2000 and 1999, for the period from April 30, 1998 (inception) to June
30, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Advanced
Communications Technologies, Inc. and Subsidiary (a development stage
enterprise) as of June 30, 2000, and the results of its operations and its cash
flows for the years ended June 30, 2000 and 1999 and for the period from April
30, 1998 (inception) to June 30, 2000 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company's significant cumulative
losses, of $5,416,969 through June 30, 2000, and working capital deficiency at
June 30, 2000, of $1,424,473, 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 16. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
September 27, 2000
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2000
ASSETS
CURRENT ASSETS
Cash $ 30,154
Marketable securities 6,825
Prepaid expenses 46,118
------------
TOTAL CURRENT ASSETS 83,097
------------
PROPERTY & EQUIPMENT - NET 16,188
------------
OTHER ASSETS
Due from affiliate 552,125
Investment in affiliate 19,264,182
Deposits 45,525
------------
TOTAL OTHER ASSETS 19,861,832
------------
TOTAL ASSETS $ 19,961,117
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 210,970
Accrued compensation 231,550
Deferred revenue 50,000
Note payable 150,000
Loan payable to affiliate 251,500
Convertible debentures 613,550
------------
TOTAL CURRENT LIABILITIES 1,507,570
LONG-TERM LIABILITIES
Notes payable-affiliate 7,500,000
------------
TOTAL LIABILITIES 9,007,570
------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000
shares authorized, 82,227,280 shares
issued and outstanding 16,865,441
Accumulated deficit during development stage (5,416,969)
Accumulated other comprehensive loss (119,925)
Less: Common stock advances (375,000)
------------
TOTAL STOCKHOLDERS' EQUITY 10,953,547
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,961,117
============
See accompanying notes to consolidated financial statements
F-2
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE FOR THE APRIL 30, 1998
YEAR ENDED YEAR ENDED (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING EXPENSES
Consulting fees $ 563,543 $ 416,666 $ 980,209
Depreciation and amortization 4,000 2,635 6,635
Professional fees 3,409,038 148,379 3,557,417
Other selling, general,
administrative expenses 412,110 105,594 517,704
------------ ------------ ------------
Total Operating Expenses 4,388,691 673,274 5,061,965
------------ ------------ ------------
LOSS FROM OPERATIONS (4,388,691) (673,274) (5,061,965)
------------ ------------ ------------
OTHER INCOME/(EXPENSE)
Interest expense (747,110) (5,580) (752,690)
Loss from investment in affiliate (85,818) -- (85,818)
Other income -- 5,892 5,892
------------ ------------ ------------
Total Other Income/(Expense) (832,928) 312 (832,616)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY GAINS (5,221,619) (672,962) (5,894,581)
EXTRAORDINARY GAINS
Gains on extinguishments of debt 477,612 -- 477,612
------------ ------------ ------------
NET LOSS $ (4,744,007) $ (672,962) $ (5,416,969)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on marketable
securities (22,425) (97,500) (119,925)
------------ ------------ ------------
COMPREHENSIVE LOSS (4,766,432) (770,462) (5,536,894)
============ ============ ============
Net loss per share - basic
and diluted $ (0.06) $ (0.01) $ (0.08)
============ ============ ============
Weighted average number of shares
outstanding during the period -
basic and diluted 77,107,560 60,619,676 68,426,745
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 30, 1998 (INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
DEFICIT DURING OTHER COMMON
COMMON STOCK DEVELOPMENT COMPREHENSIVE STOCK
SHARES AMOUNT STAGE LOSS ADVANCES TOTAL
---------- ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
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 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 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)
Stock issued for services 2,585,000 3,384,358 -- -- -- 3,384,358
Stock issued for office
furniture 30,000 9,900 -- -- -- 9,900
Stock issued for debt 600,000 180,000 -- -- -- 180,000
Stock issued for acquisitions 5,700,000 12,225,000 -- -- -- 12,225,000
Change in unrealized loss on
securities for sale -- -- -- (22,425) -- (22,425)
Interest on beneficial
conversion of debentures -- 650,000 -- -- -- 650,000
Common stock advances (375,000) (375,000)
Net loss for the year ended
June 30, 2000 -- -- (4,744,007) -- -- (4,744,007)
---------- ------------ ------------ ------------ --------- ------------
BALANCE, JUNE 30, 2000 82,227,280 $ 16,865,441 $ (5,416,969) $ (119,925) $(375,000) $ 10,953,547
========== ============ ============ ============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 30, 1998
FOR THE YEAR ENDED FOR THE YEAR ENDED (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
------------------ ------------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,744,007) $ (672,962) $(5,416,969)
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 4,000 2,635 6,635
Interest expense - amortization of debt costs 65,000 -- 65,000
Expenses incurred in exchange for common stock 3,384,358 330,166 3,714,524
Inter-company transaction -- (15,000) (15,000)
Interest for beneficial conversion feature 650,000 -- 650,000
Gain on extinguishment of debt (477,612) -- (477,612)
Loss on minority interest in affiliate 85,818 -- 85,818
Provision for doubtful account 125,000 -- 125,000
Changes in operating assets and liabilities:
(Increase) decrease in assets
Prepaid expense (46,118) -- (46,118)
Other deposits (40,000) -- (40,000)
Security deposits (5,525) -- (5,525)
Increase (decrease) in liabilities:
Accounts payable 184,450 (7,855) 176,595
Interest payable (17,890) 5,548 (12,342)
Accrued compensation 120,000 (20,000) 100,000
Other liabilities (115,000) 115,000 --
Deferred revenue 50,000 -- 50,000
----------- ----------- -----------
Net cash used in operating activities (777,526) (262,468) (1,039,994)
----------- ----------- -----------
Cash flows from investing activities
Loan to affiliated company (242,125) (310,000) (552,125)
Purchase of fixed assets (6,335) (6,588) (12,923)
Investment in Kentel LLC 158,070 (150,000) 8,070
Investment in World IP (125,000) -- (125,000)
----------- ----------- -----------
Net cash used in investing activities (215,390) (466,588) (681,978)
----------- ----------- -----------
Cash flows from financing activities
Loan proceeds from affiliate 251,500 -- 251,500
Offering costs -- (10,800) (10,800)
Proceeds from issuance of common
stock, net of offering costs 273,500 748,716 1,023,376
Proceeds from issuance of convertible
debt, net 488,050 -- 488,050
----------- ----------- -----------
Net cash provided by financing activities 1,013,050 737,916 1,752,126
----------- ----------- -----------
Net increase in cash 20,134 8,860 30,154
Cash and cash equivalents at beginning
of period 10,020 1,160 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,154 $ 10,020 $ 30,154
=========== =========== ===========
</TABLE>
F-5
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended June 30, 2000, the Company acquired 20% of the common
stock of Advanced Communications Technologies, Pty, an Australian corporation.
This resulted in an investment totaling $19,350,000, comprised of a note payable
of $7,500,000 and the issuance of 5,000,000 shares of restricted common stock
for $11,850,000. (See note 3).
During the year ended June 30, 2000, the Company issued 500,000 shares of common
stock, valued at $375,000, related to a rescinded acquisition. (See note 13). As
of June 30, 2000, the Company has not received the funds for these shares;
therefore, a common stock advance has been recorded in the equity section, in
the amount of $375,000, to offset the value of the shares that were issued at
year end.
On January 31, 2000 the Company issued 200,000 shares of common stock to acquire
100% of Smart Investment.com Inc. (see Note 1(A)).
During the year ended June 30, 2000, the Company accrued interest of $32,110 on
a note payable. The terms of the obligation were renegotiated and an interest
accrual of $34,507 was incorporated in the gain on extinguishment of debt.
See accompanying notes to consolidated financial statements
F-6
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
Advanced Communications Technologies, Inc. (the "Company"), a
development stage enterprise which is in the telecommunication
industry, and was incorporated 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 rights for North and South America, to a
development project called Universal Wide Spectrum Cellular
which will be marketed under the name of "Spectrucell". The
rights are licensed from the Company's Australian affiliate,
Advanced Communications Technologies Pty Ltd. ("ACT Pty.").
(See notes 2, 3 and 11).
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. MFI then changed its name to Advanced Communications
Technologies, Inc. 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 was
treated as an acquisition of MFI by the Company and as a
recapitalization of the Company. Accordingly, the consolidated
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.
On January 31, 2000 the Company acquired all the issued and
outstanding shares of SmartInvestment.com Inc. an inactive
reporting company for 200,000 shares of its restricted common
stock. The Company elected successor issuer status to become a
fully reporting company. The Company treated the purchase as a
recapitalization, and has not recorded any goodwill associated
with the acquisition.
On April 5, 2000, the Company acquired 20% of the common stock
of ACT Pty. (See note 3).
F-7
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
The Company's activities during the development stage included
the raising of capital, acquisition of intangible assets, and
the funding of its Australian affiliate.
(B) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary,
Advanced Global Communications, Inc. ("AGC"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
(C) Use of Estimates
In preparing consolidated financial statements in conformity
with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the
consolidated financial statements and revenues and expenses
during the reported period. Actual results could differ from
those estimates.
(D) Fair Value of Financial Instruments
The carrying amounts of the Company's accounts payable,
accrued liabilities, and loans payable approximates fair value
due to the relatively short period to maturity for these
instruments.
(E) Marketable Securities
Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such
determination at each balance sheet date. Available-for-sale
securities are carried at fair value, with unrealized losses,
reported as a separate component of stockholders' equity
(F) Property and Equipment
Property and equipment are stated at cost and depreciated,
using accelerated methods, over the estimated economic useful
lives of 5 years.
(G) Long-Lived Assets
During 1995, Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("SFAS 121"), was
issued. SFAS 121 requires the Company to review long-lived
assets and certain identifiable assets related to those assets
for impairment whenever circumstances and situations change
such that there is an
F-8
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
indication that the carrying amounts may not be recoverable.
The adoption of this pronouncement did not have a significant
impact on the Company's financial statements as of June 30,
2000 and 1999.
(H) Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date. There was no current income
tax expense in the periods ended June 30, 2000 due to the net
loss.
The deferred tax asset, of approximately $1,841,769, as of
June 30, 2000, arising from a net operating loss carryforward
of $2,032,611 and stock issued for services of $3,384,358, 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.
(I) Comprehensive Income
The Company accounts for Comprehensive Income (Loss) under the
Financial Accounting Standards Board Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement No. 130"). Statement No. 130 establishes standards
for reporting and display of comprehensive income and its
components, and is effective for fiscal years beginning after
December 15, 1997.
The unrealized gains and losses, net of tax, resulting from
the valuation of available-for-sale marketable securities at
their fair market value at year end are reported as Other
Comprehensive Income (Loss) in the Statement of Operations and
as Accumulated Other Comprehensive Income (Loss) in
Stockholders' Equity and in the Statement of Stockholders'
Equity
(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.
F-9
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(K) Loss Per Share
Net loss per common share is computed based upon the weighted
average common shares outstanding.
At June 30, 2000 there was an estimated 4,242,820 common stock
equivalents in the form of convertible debt. Such convertible
debt is subject to litigation (See note 8). The common stock
equivalents have not been included in the computation of
diluted loss per share since the effect was anti-dilutive.
(L) Recent Accounting Pronouncements
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by Statement No. 137 and 138,
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 believes that
its adoption of pronouncement No. 133, as amended by No.
137and 138, will not have a material effect on the Company's
financial position or results of operations.
NOTE 2 DUE FROM AFFILIATE
The Company has advanced funds to ACT Pty. that is majority
owned by a principal stockholder of the Company and in which
it has a 20% investment. (See note 3 and 11(B)). These funds
were provided in order to establish the related company's
operations. The Company has advanced $552,125 through June 30,
2000. Additional funds have been provided subsequent to June
30, 2000.
NOTE 3 INVESTMENT IN AFFILIATE
In April 2000, the Company acquired 20% of the common stock of
ACT Pty,, an affiliate (See note 11(B)). This resulted in an
investment of $19,350,000, comprised of a note payable of
$7,500,000 (see note 1(d)) and the issuance of 5,000,000
shares of restricted common stock for $11,850,000. The shares
issued were valued at the average quoted trading price during
the acquisition period. The investment has been recorded using
the equity method of accounting. Therefore, the investment in
affiliate has been reduced by 20% of the prorated net
operating loss of Advanced Communications Technologies, Pty,
for the year ended June 30, 2000, which amounted to $85,818.
The note payable, of $7,500,000, is non-interest bearing with
payments to be made in three equal monthly installments. The
debt is classified as long-term, since the agreement does not
state a specified maturity date.
F-10
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
During September 2000, the Company agreed to issue 5,000,000
shares of restricted common stock, for $3,500,000, as a credit
against the outstanding debt of $7,500,000 owed by the Company
for the 20% equity purchase of ACT Pty. The stock was valued
at the quoted trading price on the grant date.
NOTE 4 MARKETABLE SECURITIES
The Company's marketable securities are comprised of equity
securities, all classified as available-for-sale, which are
carried at their fair value based upon the quoted market
prices of those investments at June 30, 2000. Accordingly,
unrealized gains and losses are included in stockholders'
equity.
The composition of marketable equity securities at June 30,
2000 is as follows:
Gross
Unrealized
Cost (Loss) Fair Value
--------- --------- ----------
Available-for-sale
Securities:
Common Stock $ 126,750 $(119,925) $ 6,825
NOTE 5 PROPERTY AND EQUIPMENT
Computer and office equipment $ 22,823
Less: Accumulated depreciation (6,635)
========
Property and equipment - net $ 16,188
========
Depreciation expense for the year ended June 30, 2000 and 1999
is $4,000 and $2,635, respectively.
NOTE 6 ACCRUED COMPENSATION
The Company has an agreement with an individual to serve as
the Chief Executive Officer of the Company (See note 14 (A)).
The individual agreed to defer payment of the amounts owed him
pursuant to the agreement due to the Company's lack of funds.
The Company owed the individual $231,550 at June 30, 2000.
F-11
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
NOTE 7 NOTE AND LOAN PAYABLE
(A) Note 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 during December 1997 to enforce the convertible
promissory note. Total interest payable was $84,507 as of June
30, 2000 resulting in the total principal and accrued interest
payable to the payee at June 30, 2000 of $234,507. In June
2000, the parties agreed to settle the litigation for a
payment of $200,000. This resulted in a gain on extinguishment
of debt in the amount of $34,507. The Company made a payment
of $50,000 by June 30, 2000. The remainder was to be paid with
proceeds from the 75,000 shares of stock and any remaining
balance to be paid by the Company. The revised obligation was
to be paid by August 14, 2000. The Company is currently in
default on this obligation and a judgement against the Company
has been entered (See note 14(E)(ii). Management believes that
the amount recorded on its consolidated financial statements
at June 30, 2000, in the amount of $150,000, fairly reflects
the Company's potential liability.
(B) Loan Payable to Affiliate
As of June 30, 2000, the Company owed an affiliate $251,500.
These funds were advanced to the Company to provide working
capital for normal business operations.
NOTE 8 CONVERTIBLE DEBENTURES
On September 30, 1999, the Company entered into a secured
convertible debenture purchase agreement with two companies,
who are already stockholders of the Company, whereby the
Company sold $500,000 of 12% Secured Convertible Debentures
due April 1, 2000, and which were convertible into shares of
the Company's Class A Common Stock. In addition, on September
30, 1999, the Company issued another convertible debenture to
an unrelated party in the amount of $150,000. The debentures
are 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 is to 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 is 50%
of the average of the bid price during the twenty trading days
immediately preceding the applicable conversion date. $60,500
overpayments received from the
F-12
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
debenture subscribers as a result of their purchase of common
stock under the private placement (See note 10(B)) was applied
to amounts due. Of the $650,000 total debentures only $613,550
were received. As of the date of the accompanying audit
reports the debentures were not converted and the Company was
in default based on the April 1, 2000 due date (See note
14(E)(i)).
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, of $650,000, was recorded as an interest expense and
a component of equity on the issuance date (See note
14(E)(i)).
For the year ended June 30, 2000, the Company amortized
$65,000 in debenture issuance costs which is included in
interest expense of $747,110.
NOTE 9 SETTLEMENT OF DEBT
As of June 30, 1999, the Company owed certain minority
stockholders $422,561. On May 25, 1999, the Company, along
with two of its stockholders and directors, entered into a
settlement agreement with these stockholders.
The Company agreed to issue 600,000 shares of restricted
common stock within five days of the signing of the settlement
agreement and the stock option agreement. The option agreement
was signed in July 1999 and the shares were issued. The
Company recognized an extraordinary gain of approximately
$242,561 on the extinguishment of debt in the fiscal year
ended June 30, 2000 based on the quoted trading price of the
common stock on the agreement date.
NOTE 10 STOCKHOLDERS' EQUITY
(A) 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 it was credited to the same investors
who subscribed to convertible debentures in September, 1999
(See note 8). The Company incurred offering expenses of
$100,000 cash and issued 33,750 shares of common stock valued
at $10,800, based on the quoted trading price on the grant
date, in lieu of
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ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
the non-accountable expense reimbursement (See note 14(C)).
The value of the cash and common stock has been charged to
equity as direct costs to the offering. (B) Conversion of Debt
During April 1999, the Company issued 55,000 shares of its
common stock to an individual as payment for amounts owed. 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 9 for additional conversion of
debt).
(C) Stock Issued For Services
During the year ended June 30, 2000, the Company issued
3,085,000 shares of common stock for services. The stock was
valued based on the quoted trading price on the grant dates,
which aggregated $3,384,358.
NOTE 11 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 principal stockholder of
the Company.
(B) Advanced Communications Technologies Pty. Ltd.
Advanced Communications Technologies Pty. Ltd., an Australian
company, is majority owned by entities beneficially related to
a principal stockholder.
(C) Legal Counsel
Certain of the Company's legal counsel are stockholders of the
Company.
(See Notes 2, 3, 9, and 14(A) for additional related party
disclosures).
NOTE 12 EXECUTIVE EMPLOYMENT AGREEMENTS
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 individual was to
receive a salary of $150,000 per year on a monthly basis. As
additional consideration, the Company agreed to issue 500,000
shares of restricted
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<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
stock upon execution of the agreement. In addition, the
individual was to be granted 750,000 employee incentive stock
options over the employment term. In January 2000, the
individual resigned from the position of President. The
Company never issued the 500,000 shares of restricted stock or
the employee incentive stock options and transferred 40,000
shares of its restricted common stock to the individual in
full settlement.
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.
As compensation for these services, the Company pays $5,000
monthly in advance, plus 100,000 restricted shares of the
Company's common stock. Starting April 1, 2000, compensation
for these services increased to $10,000 per month. The
issuance of stock was recorded as consulting expense over the
service period based upon the quoted trading price of the
stock at the agreement date.
NOTE 13 ACQUISITIONS
In November of 1999, AGC, the Company's newly formed
subsidiary (See note 14 (A)), entered into an agreement with
World IP Incorporated ("World IP"), Sur Comunicaciones, S.A.
(a Chilean corporation) ("Sur"), Acinel, S.A. (an Argentinean
corporation) (Acinel), and the shareholders of World IP (See
legal matters below). Under this agreement, AGC subscribed for
the purchase of 1,020 shares, or 51%, of World IP common stock
for $95,000 cash paid in January 2000. 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 was to pay $60,000, to World IP, to be used to open
a point of presence in Venezuela. As additional consideration
for the issuance of the stock, the Company issued 500,000
shares of restricted common stock to the former shareholders
of World IP. Six months from the closing date of the
agreement, AGC and the Company were to 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 shareholders of World IP were to 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.
Subsequent to June 30, 2000, the Company rescinded the
acquisition and is pursuing litigation to resolve this matter.
Due to the uncertainty of this event, all related cash
advances, totaling $125,000, have been written off as advances
receivable with a 100% reserve for uncollectable amounts
resulting in a bad debt expense of $125,000 in 2000 (See note
2). The 500,000 common shares issued and valued at $375,000
based upon the quoted trading price during the acquisition
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<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
period are reflected as common stock advanced, a component of
equity. (See note 14(E)(v)).
NOTE 14 COMMITMENTS AND CONTINGENCIES
(A) Consulting / Employment Agreement
On November 21, 1997, MFI entered into an agreement with
Global Communications Technology Consultants, Inc. ("GCTC")
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 Company charged $150,000 to consulting expense pursuant to
the consulting agreement during the period from the merger
date through June 30, 2000. The Company accrued the majority
of the fees owed to the individual due to lack of funding (See
note 6). As of June 30, 2000, the Company owed the individual
$231,550. This consists of $131,500 owed at March 31, 1999
pursuant to MFI's financial statement; $150,000 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 for 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.
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ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
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 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 10(A)).
(D) Sublease Agreement
The Company has an agreement for the rental of its offices, at
$5,525 per month with a lease term of twelve months commencing
on the first day of April 2000 with an option to automatically
extend the lease. The minimum lease payments for the remaining
life of the lease is $44,200.
(E) Legal Matters
(i) As of June 30, 2000, the Company is in default on
its obligation to the debenture holders based on
the April 1, 2000 due date. (See note 8). One of
the debenture holders holding a $150,000 debenture
filed a lawsuit during July 2000 to enforce the
agreement. The outcome of this litigation is
unknown.
(ii) In June 2000, the partners agreed to settle a
dispute regarding the convertible promissory note.
The Company is in default on this obligation. A
judgement against the Company has been entered.
The potential loss is believed to be the recorded
liability at June 30, 2000 of $150,000 (See note
7).
(iii) In July 2000, several stockholders filed an action
against the Company to allow shares of the stock
to be transferred from restrictive to
unrestrictive under a Rule 144 exemption. The
outcome of this litigation is unknown.
(iv) In September 2000, a Third Party complaint was
filed against the Company which alleges that the
Company failed to pay a break-up or termination
fee in excess of $50,000. This allegedly was due
to a failure of the parties to consummate a merger
agreement. The outcome of this litigation is
unknown.
(v) In October 2000, the Company filed suit against
the World Group and its stockholders for the
rescission of the World IP agreement and for
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ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
monetary damages resulting from management's
alleged breach of the agreement. (See note 13).
(F) Common Stock Offering
In June 2000, the Company entered into an agreement with a
placement agent to offer up to $12,000,000 in equity
securities of the Company. In general, the placement agent
will receive 6% warrant coverage as a commitment fee once the
investor executes the agreement, a cash fee payable upon
initial and each subsequent closing equal to 6% of the amount
drawn down by the Company at each closing and $35,000
non-accountable expense allowance. Once the private placement
exceeds $1,000,000, the non-accountable expense allowance will
be waived. This agreement will remain in effect until July
2001.
NOTE 15 ACQUISITION
The Company transferred funds to a potential acquiree (the
"acquiree") in the amount of $150,000 during June 1999 and
$20,000 during July 1999. Subsequently, a dispute arose
between the Company and acquiree. The Company collected
$13,000 and a $157,000 promissory note, dated December 1,
1999, secured by deed of trust from a member of the potential
acquirees CEO's family. The sum of $157,000 plus interest from
November 1, 1999 at ten percent was due on or before February
1, 2000.
In June 2000, the parties entered into a settlement agreement
and the Company received $165,070 in full settlement. The
Company has recorded a gain on the extinguishment of debt for
$8,070 in 2000.
NOTE 16 GOING CONCERN
The Company's consolidated financial statements for the year
ended June 30, 2000 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 $4,744,007 for
the year ended June 30, 2000, and has a working capital
deficiency, of $1,424,473, at June 30, 2000.
The ability of the Company to continue as a going concern is
dependent on the Company's ability to raise additional capital
and implement its business plan. Management anticipates that
the issuance of additional securities will generate sufficient
resources to assure continuation of the Company's operations.
(See note 14(F)).
F-18
<PAGE>
ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
NOTE 17 SUBSEQUENT EVENTS
Effective July 1, 2000, the Company and Chief Executive
Officer entered into an employment agreement that compensates
the individual at $15,000 per month and a bonus of $50,000.
On July 24, 2000, the Company found Australon USA Inc., a
Delaware corporation, owned 50% by the Company and 50% by
Australon Enterprises, Pty, Ltd., an 80% owned subsidiary of
ACT-Pty.
On September 1, 2000, the Company entered into a one year
agreement with the Chief Financial Officer. As compensation,
the individual will receive $10,000 per month in cash and
$10,000 per month in stock.
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