Form 10QSB for ADVANCED COMMUNICATIONS TECHNOLOGIES INC
--------------------------------------------------------------------------------
25-May-2004
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OF OPERATIONS
The following is management's discussion and analysis of certainsignificant factors that will have affected our financial condition and resultsof operations. Certain statements under this section may constitute"forward-looking statements". The following discussion should be read inconjunction with the June 30, 2003 audited financial statements and notesthereto included in the Company's Form 10-KSB.
FINANCIAL CONDITION
We had net losses of $1,869,031 and $4,332,693 during the years endedJune 30, 2003 and 2002, respectively. For the three months ended March 31, 2004,we generated net income of $126,212. As of March 31, 2004, we had cash of$167,659 and current liabilities of $3,991,169. During the three months endedMarch 31, 2004, we reduced our liabilities by approximately $425,000 through acombination of debenture holder conversions, debt forgiveness, settlements withcreditors and the issuance of common stock in satisfaction of creditor claims.On January 14, 2004, we acquired a minority interest in Yorkville AdvisorsManagement, LLC, a privately held investment management partnership. Weanticipate that current and future distributions from this investment andperiodic draw downs, if necessary, of our Equity Line of Credit facility willprovide us with sufficient working capital to meet our current liabilities,continue our operations and to execute our business/investment expansion plans.
Our independent auditors have added an explanatory paragraph to theiraudit opinions issued in connection with the years 2003 and 2002 financialstatements, which states that our ability to continue as a going concern dependsupon our ability to resolve liquidity problems, and generate sufficient revenuesto become profitable. Our ability to implement our business plan and expand ourbusiness and investment interests will determine our ability to continue as agoing concern. Our financial statements do not include any adjustments thatmight result from the outcome of this uncertainty.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 TO THE THREE MONTHS ENDED
MARCH 31, 2003
OVERALL RESULTS OF OPERATIONS
For the three months ended March 31, 2004 we generated net income of$126,212, which was a $463,758 increase from the loss of ($337,546) or ($.002)per share for the comparable period in the prior year.
The substantial increase in net income for the three months ended March31, 2004 over the comparative period was principally a result of the Companygenerating $199,420 of net earnings from its investment in Yorkville AdvisorsManagement, $40,258 of forgiveness of debt income due to favorable settlementswith its accounts payable creditors and the reduction of interest bearing debtduring the quarter which generated an overall reduction in interest expense inthe amount of $49,205 compared with the prior period. In addition, the Companyreduced its overall operating expenses by $144,875 compared with the priorperiod.
REVENUE
No revenues were generated during either the three months ended March31, 2004 or March 31, 2003.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2004, were$82,161 and represent a $144,875 decrease in operating expenses from $227,036for the comparative period ended March 31, 2003. Included in operating expensesfor both periods are $13,125 and $107,875, respectively, of non-cash charges foramortization attributable to deferred financing and commitment fees.Professional and consulting fees for the three months ended March 31, 2004decreased by $28,931 from $93,300 to $64,369 due to the decrease in legal feesas a result of the Company's settlement of all its remaining lawsuits and itswithdrawal from the Australian litigation with Roger May and AdvancedCommunications (Australia) during fiscal 2003.
Other selling, general and administrative expenses decreased by $21,194from the comparative three month period ended March 31, 2003 due to thetermination in November 2003 of the Company's California office lease.
OTHER INCOME (EXPENSE)
During the three months ended March 31, 2004, the Company realized$208,373 of net other income due to the favorable results of the Company'sinvestment in Yorkville Advisors Management and additional forgiveness ofindebtedness income generated from the successful settlement, at a discount, ofcertain accounts payable.
During the three month period ended March 31, 2004, the Companygenerated $199,420 of net earnings from its partnership interest in YorkvilleAdvisors Management that it purchased effective January 1, 2004 and $40,258 offorgiveness of debt income attributable to the favorable settlement of theremainder of the Company's accounts payable and accrued expenses in the amountof $95,758. These income items were offset, in part by net interest expense of$31,305 that was attributable to $7,913 of accrued interest on the Company's 10%Secured Convertible Debentures, the outstanding 5% $1,000,000 ConvertibleDebentures and the 8% Note Payable and $23,438 of debt discount expense treatedas interest attributable to the beneficial conversion feature of the Company's10% Secured Convertible Debentures, net of $46 of interest income.
Interest expense incurred for the three months ended March 31, 2003was $80,510 and was attributable to quarterly interest on the Company's 10%Secured Convertible Debentures due November 2004, the 5% $1,000,000 ConvertibleDebentures due January 2004 and the 8% Note Payable due 2005. During the threemonth period ended March 31, 2003, the Company also recorded, in accordance withparagraphs 8(a) and 35 of FASB 5, $30,000 of expense relating to the settlementof the Staite and Star MultiCare lawsuits. No such expense was incurred duringthe comparative three month period ended March 31, 2004 as the Company settledall of its lawsuits in prior periods.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2004 TO THE NINE MONTHS ENDED
MARCH 31, 2003
OVERALL RESULTS OF OPERATIONS
For the nine months ended March 31, 2004, the Company earned net incomeof $306,271, as compared to an overall net loss of ($1,670,852) or ($.012) pershare for a $1,977,123 increase in earnings over the comparative nine monthperiod. This substantial turnaround in net earnings is attributable tomanagement's successful efforts in restructuring and settling substantially allof the Company's obligations, significantly reducing its ongoing operating andinterest costs and generating a source of ongoing earnings and cash flow throughthe purchase of an interest in a profitable financial services business. Of the$1,977,123 earnings increase, $780,938 is a result of the Company negotiatingand settling a majority of its accounts payable and other liabilities at asubstantial discount and generating forgiveness of debt income along with a$996,765 reduction in interest expense, lawsuit settlements and operatingexpenses. An additional $199,420 of net income was realized through theCompany's investment in the Yorkville Advisors Management investmentpartnership.
REVENUE
No revenues were generated during either the nine months ended March31, 2004 or March 31, 2003.
OPERATING EXPENSES
Operating expenses for the nine months ended March 31, 2004, were$541,775 and represent a $430,406 or 44% decrease in operating expenses of$972,181 for the comparative period ended March 31, 2003. Included in operatingexpenses for both periods are $226,875 and $318,937 respectively, ofdepreciation and amortization attributable to the depreciation of our officeproperty and equipment and amortization attributable to deferred financing andcommitment fees. Professional and consulting fees for the nine months endedMarch 31, 2004 decreased by $319,379 over the comparable nine month period endedMarch 31, 2003 due to the decrease in legal fees associated with the Company'ssettlement of all its remaining lawsuits and its litigation with Roger May andAdvanced Communications (Australia) during the nine months ended March 31, 2003.All of the legal and professional fees that were incurred during the nine monthsended March 31, 2003 were settled at a substantial discount during the ninemonths ended March 31, 2004.
Other selling, general and administrative expenses decreased marginallyby $18,965 from $77,949 to $58,984 for the nine months ended March 31, 2004,.
OTHER INCOME (EXPENSE)
During the nine months ended March 31, 2004, the Company realized$848,046 of net other income due to the favorable results of the Company'sinvestment in Yorkville Advisors Management and substantial forgiveness ofindebtedness income generated from the successful settlement, at a discount, ofcertain of its debts.
During the nine month period ended March 31, 2004, the Companygenerated $199,420 of net earnings from its partnership interest in YorkvilleAdvisors Management that it purchased effective January 1, 2004 and $780,938 offorgiveness of debt income attributable to the favorable settlement of theCompany's accounts payable and accrued expenses at a substantial discount andthe forgiveness of accrued interest by certain 5% convertible bondholders. Theseitems were offset, in part by net interest expense of $132,312 attributable to$62,044 of accrued interest on the Company's 10% Secured Convertible Debentures,the outstanding 5% $1,000,000 Convertible Debentures and the 8% Note Payable and$70,314 of debt discount expense treated as interest attributable to thebeneficial conversion feature of the Company's 10% Secured ConvertibleDebentures, net of $46 of interest income.
Interest expense incurred for the nine months ended March 31, 2003 was$480,177 and was principally attributable to $250,000 of intrinsic interest onthe beneficial conversion feature of the Company's 10% Secured ConvertibleDebentures we issued in November 2002, $216,971 of accrued and penalty intereston the 5% Convertible Debentures due January 2004, $5,359 of interest on the 8%Note Payable due 2005 and $7,847 of interest on the 10% Secured ConvertibleDebentures issued November 2002. During the nine month period ended March 31,2003, the Company settled its remaining lawsuits and recorded $218,494 ofsettlement expense in accordance with paragraphs 8(a) and 35 of FASB 5. No suchexpense was incurred during the comparative nine month period ended March 31,2004.
SIGNIFICANT ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by theSecurities and Exchange Commission, requires all companies to include adiscussion of critical accounting policies or methods used in the preparation offinancial statements. Note 1 of the Notes to the Financial Statements includes asummary of the significant accounting policies and methods used in thepreparation of our Financial Statements. The following is a brief discussion ofthe more significant accounting policies and methods used by us. In addition,Financial Reporting Release No. 61 was recently released by the Securities andExchange Commission to require all companies to include a discussion to address,among other things, liquidity, off-balance sheet arrangement, contractualobligations and commercial commitments.
EARNINGS (LOSS) PER SHARE
-
Basic earnings (loss) per share is computed by dividing income (loss)available to common stockholders by the weighted average number of common sharesoutstanding for the period. Diluted earnings per share reflect the potentialdilution of securities, using the treasury stock method, that could share in theearnings of an entity. During the three and nine months ended March 31, 2004,shares of common stock that could have been issued upon conversion ofconvertible debt were excluded from the calculation of diluted loss per share astheir effect would have been anti-dilutive.
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
The Company accounts for its investment in unconsolidated partnershipand/or joint ventures under the equity method of accounting, as the company doesnot have any management control over this entity. This investment is recordedinitially at cost and subsequently adjusted for equity in net earnings and cashdistributions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, our principal source of liquidity was $167,659 ofcash. On July 16, 2003, we entered into a new Equity Line of Credit Agreementwith Cornell Capital Partners, L.P., a private limited partnership. Pursuant tothe Equity Line of Credit, we may, at our discretion, periodically sell toCornell Capital Partners shares of common stock for a total purchase price of upto $30.0 million. For each share of common stock purchased under the Equity Lineof Credit, Cornell Capital Partners will pay 91% of the lowest closing bid priceof our common stock on the Over-the-Counter Bulletin Board or other principalmarket on which our common stock is traded for the 5 days immediately followingthe notice date. The periodic sale of shares is known as an advance.
During the nine months ended March 31, 2004, the Company made advancesunder the Equity Line of Credit in the aggregate amount of $1,225,000in exchangefor issuing 722,706,505 shares of common stock to Cornell Capital Partners, L.P.The Company netted $1,013,125 from these advances after deducting escrow agent
expenses and other direct costs totaling $211,875 that have been recorded as areduction of additional paid-in capital as of March 31, 2004. On January 14,2004, the Company, through its wholly owned subsidiary, Hudson Street acquired aminority interest in Yorkville Advisors Management, LLC, a privately ownedinvestment management partnership and the portfolio manager of Cornell CapitalPartners, L.P. During the three months ended March 31, 2004, Hudson Streetreceived $160,000 of partnership cash distributions with an additional $100,000distribution received on May 5, 2004. Management anticipates that projecteddistributions from this investment partnership along with the periodic issuanceof securities under its Equity Line of Credit facility, if necessary, as well asother sources of capital, will generate sufficient cash resources for thecontinuation and expansion of the Company's operations.
We anticipate that our cash needs over the next 12 months consist ofgeneral working capital needs of $300,000, plus the repayment of outstandingindebtedness of $2,989,444. These obligations include outstanding ConvertibleDebentures and interest thereon in the amount of $214,046, the repayment ofinstallment debt and interest thereon in the amount of $64,236, the repayment ofshort-term debt in the amount of $2,500,000, as well as accounts payable andaccrued expenses in the amount of $211,162. As of March 31, 2004, we had aworking capital deficiency of $1,323,510.
The Company had total liabilities of $5,840,167 as of March 31, 2004.Included in this total are contractual obligations of $3,053,680. Thesecontractual obligations, along with the dates on which such payments are due,are described below:
PAYMENTS DUE BY PERIOD -------------------------------------------------------------------------------- 1 2-3 4-5 AFTER 5CONTRACTUAL OBLIGATIONS TOTAL YEAR OR LESS YEARS YEARS YEARS--------------------------------------- --------------- ----------------- ------------- ---------------- ---------
Notes Payable and Interest Thereon $2,628,472* $2,564,236 $64,236 $ -- $ --Convertible Debentures and Interest Thereon 214,046 214,046 -- -- --Accounts Payable and Accrued Expenses 211,162 211,162 -- -- -- -- -- -- -- -- ----------- ------------------ ------------- --------------- ------------- Total Contractual Obligations $3,053,680 $2,989,444 $ 64,236 $ -- $ -- =========== ================== ============= =============== =============
* Excludes $1,791,166 due to Advanced Communications (Australia) under the Stock Purchase Agreement dated April 5, 2000. The Company believes that this obligation is not enforceable as a result of Advanced Communications (Australia)'s improper unilateral revocation of the Stock Purchase Agreement and other wrongful acts of Advanced Communications (Australia), Roger May and related parties. Also excludes $1,055,736 due to Roger May and/or Global Communications Technologies Limited and/or Global Communications Technologies Pty Ltd for monies provided to the Company. The Company believes it is not obligated to pay these amounts as a result of wrongful acts of such parties against the Company. On February 5, 2004, the Company filed suit in California seeking a judgment against Advanced Communications (Australia), Roger May, Global Communications Technologies Limited and Global Communications Technologies Pty Ltd to recover damages related to their wrongful acts against the Company. The Company's damages claims exceed the $2,846,902 allegedly due such defendants. The Company also seeks in the action to have its obligations under the Stock Purchase Agreement and other arrangements clarified as to such defendants. This action is currently pending before the court.
During the three months ended March 31, 2004, the Company reduced itscontractual obligations by approximately $425,000 through a combination ofdebenture holders conversions, debt forgiveness, settlements with creditors andthe issuance of common stock.
Below is a discussion of our sources and uses of funds for the ninemonths ended March 31, 2004:
NET CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities was $765,162 and $111,121 for thenine months ended March 31, 2004 and 2003, respectively. The use of cash byoperating activities for the nine months ended March 31, 2004 was principallyfrom a reduction in accounts payable in the amount of $434,420, and an increasein debt forgiveness income offset by non-cash charges for amortization and debtdiscount expense. The use of cash in operating activities for the nine monthsended March 31, 2003 was principally the result of a net loss during the periodreduced by an increase in accounts payable and accrued interest in the amount of$806,177 and by non-cash charges for depreciation and amortization, debtdiscount expense, common stock issued in exchange for services and lawsuitsettlements in the aggregate amount of $747,431.
NET CASH FROM INVESTING ACTIVITIES
No cash was provided by investing activities for the nine months endedMarch 31, 2003. Cash used in investing activities for the nine months endedMarch 31, 2004 was $2,510,000 and was attributable to the Company's investmentin a partnership for $2,625,000 reduced by $160,000 of cash distributions fromthis partnership investment.
NET CASH FROM FINANCING ACTIVITIES
Net cash from financing activities for the nine months ended March 31,2004 of $3,420,294 was from net proceeds on the sale of common stock to CornellCapital Partners, L.P., under the Company's Equity Line of Credit facility inthe amount of $1,013,125 and proceeds of $3,000,000 from the issuance of a shortterm promissory note to Cornell Capital Partners, L.P., offset by the repaymentof short-term and installment debt in the amount of $92,831, and the repaymentof $500,000 on the short term promissory note. Net cash of $100,028 fromfinancing activities for the nine months ended March 31, 2003 was from the netproceeds on the $250,000 10% Secured Convertible Debentures issued in November2002.
COMPANY QUARTERLY STOCK PRICE
PRICE RANGE OF COMMON STOCK
Our common stock is currently traded on the Over-the-Counter BulletinBoard ("OTCBB") under the symbol "ADVC". As of May 1, 2004, there were1,799,365,845 common shares outstanding and approximately 500 holders of record.We believe that the number of beneficial owners is substantially greater thanthe number of record holders because a large portion of our common stock is heldin "broker" or "street names".
The following table sets forth, for the fiscal periods indicated, thebid price range of our common stock:
High Bid Low Bid ------------ ------------ 2003 Quarter Ended September 30, 2002 $ .080 $ .005 Quarter Ended December 31, 2002 .015 .004 Quarter Ended March 31, 2003 .010 .002 Quarter Ended June 30, 2003 .011 .006
Quarter Ended September 30, 2003 $ .007 $.00163 Quarter Ended December 31, 2003 $.00363 $.00169 Quarter Ended March 31, 2004 $.00350 $.00131
Such market quotations reflect the high bid and low prices as reflectedby the OTCBB or by prices, without retail mark-up, markdown or commissions andmay not necessarily represent actual transactions.
UBBFriend: Email this page to someone!
Printer-friendly view of this topic
