UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   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, 2004

                          COMMISSION FILE NO. 000-30486

                   ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

          FLORIDA                                         65-0738251
-------------------------------                      ----------------------
(State or other jurisdiction of                         (I.R.S. employer
incorporation or organization)                       identification number)

                    420 LEXINGTON AVENUE, NEW YORK, NY 10170
                     (Address of principal executive office)

                                 (646) 227-1600
                         (Registrant's telephone number)

              Securities registered under Section 12(b) of the Act:

                                      None

           Securities registered pursuant to section 12(g) of the Act:

           Common Stock, No Par Value, 5,000,000,000 shares authorized

      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. |X|

      The Registrant's revenue for fiscal year ended June 30, 2004 was $605,468.

      The aggregate market value as of October 15, 2004 of the voting common
equity held by non-affiliates is $2,052,328.

<PAGE>

              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

      As of October 15, 2004, there were 2,004,247,731 shares of the Company's
no par value common stock issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      NONE

<PAGE>

                   ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
                                   FORM 10-KSB
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE #

<S>                                                                                       <C>
PART I
           Item 1.    Description of Business.............................................1-6
           Item 2.    Description of Property.............................................6-7
           Item 3.    Legal Proceedings...................................................7
           Item 4.    Submission of Matters to a Vote of Security Holders.................7

PART II
           Item 5.    Market For Common Equity, Related Stockholder Matters and Small
                      Business Issuer Purchases of Equity Securities......................8-11
           Item 6.    Management's Discussion and Analysis of Financial Condition and
                      Results of Operations...............................................11-21
           Item 7.    Financial Statements................................................21
           Item 8.    Changes In and Disagreements with Accountants on Accounting and
                      Financial Disclosure................................................21
           Item 8A.   Controls and Procedures.............................................21
           Item 8B.   Other Information ..................................................21

PART III
           Item 9.    Directors, Executive Officers, Promoters and Control Persons;
                      Compliance with Section 16(a) of the Exchange Act...................22-25
           Item 10.   Executive Compensation..............................................25-27
           Item 11.   Security Ownership of Certain Beneficial Owners and Management......27-29
           Item 12.   Certain Relationships and Related Transaction.......................29
           Item 13.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.....29-34
           Item 14.   Principal Accountant Fees and Services..............................34

ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2004 ....................................F-1 - F-6
</TABLE>

<PAGE>

                           FORWARD-LOOKING STATEMENTS

      Certain   statements   in  the   "Description   of  Business"   (Item  1),
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operation"  (Item  6) and  elsewhere  in  this  Annual  Report  on  Form  10-KSB
constitute  "forward-looking  statements"  (within  the  meaning of the  Private
Securities  Litigation  Reform Act of 1995 (the  "Act"))  relating to us and our
business, which represent our current expectations or beliefs including, but not
limited  to,  statements  concerning  our  operations,   performance,  financial
condition and growth. The Act may, in certain circumstances, limit our liability
in any lawsuit based on forward-looking statements we have made. All statements,
other than  statements  of historical  facts,  included in this Annual Report on
Form 10-KSB that address  activities,  events or developments  that we expect or
anticipate  will or may  occur in the  future,  including  such  matters  as our
projections,   future  capital  expenditures,   business  strategy,  competitive
strengths,  goals, expansion, market and industry developments and the growth of
our businesses and operations are forward looking  statements.  Without limiting
the generality of the foregoing,  words such as "may," "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,  variability  of
quarterly results,  our ability to continue our growth strategy and competition,
certain  of which are  beyond  our  control.  Any or all of our  forward-looking
statements  may  turn  out to be  wrong.  They  may be  affected  by  inaccurate
assumptions  that we might make or by known or unknown  risks or  uncertainties.
Should one or more of these  risks or  uncertainties  materialize  or should the
underlying assumptions prove incorrect, actual outcomes and results could differ
materially from those indicated in the forward-looking statements.

      Additional  factors  that  could  affect  future  results  are  set  forth
throughout  the  "Description  of  Business"  (Item 1)  section,  including  the
subsection  entitled  "Risks  Related to Our  Business,"  and  elsewhere in this
Annual Report on Form 10-KSB. Because of the risks and uncertainties  associated
with  forward-looking  statements,  you should not place undo  reliance on them.
Further, any forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking  statement to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events.

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

      Advanced  Communications  Technologies,  Inc.  ("we,"  "us," "our," or the
"Company") is a New York City-based diversified public holding company. We focus
on high  growth-potential  businesses  through both our  wholly-owned  operating
subsidiaries in the technology  services industry and our strategic  investments
in  diverse  industries.  Through  our  wholly-owned  subsidiary  and  principal
operating  unit,  Encompass  Group  Affiliates,   Inc.  ("Encompass"),   we  own
Cyber-Test,  Inc.,  a  Delaware  corporation  ("Cyber-Test").  Cyber-Test  is an
electronic equipment repair company based in Longwood,  Florida, and is our core
operating business.  Additionally,  through our wholly-owned subsidiary,  Hudson
Street  Investments,  Inc., an investment vehicle, we own a minority interest in
Yorkville Advisors Management,  LLC, an investment management  partnership,  and
through our wholly-owned  subsidiary,  SpectruCell,  Inc., we hold the North and
South American marketing and distribution  rights, which we acquired in 1999, to
SpectruCell,  a  software-defined,   radio-based  wireless  technology  that  is
currently under development in Australia by an unrelated third party.

THE BUSINESS OF ENCOMPASS GROUP AFFILIATES, INC.

      Encompass,  our  principal  operating  unit,  owns  Cyber-Test,  our  core
operating business,  which provides original equipment  manufacturers  ("OEMs"),
retail stores,  national dealers and third-party warranty companies with service
options for repair,  exchange,  parts and warranty  support for office equipment
and  computer  peripheral  products,  including  facsimile  machines,  printers,
scanners, PDAs, laptop computers, monitors, and multi-function units, as well as
the repair of Point of Sale ("POS") equipment.  Cyber-Test offers repair service
for entire pieces of equipment, the component parts of the equipment, and/or the
circuit boards of the equipment.  A 90-day  warranty is included with all entire
equipment  repairs and a one-year  warranty is included  with all circuit  board
repairs.

      Encompass  seeks to  become  a leader  in the  integrated  technology  and
services  industry  through  the  acquisition  of assets and  companies  in that
industry, and then instilling sustainable growth skills as a core competency.

THE BUSINESS OF HUDSON STREET INVESTMENTS, INC.

      In December  2003,  we formed  Hudson Street  Investments,  Inc.  ("Hudson
Street"), our wholly-owned Delaware investment subsidiary,  to purchase and hold
minority investments in selected financial and technology-based  privately-owned
businesses.  On January 14, 2004, Hudson Street purchased a minority interest in
Yorkville  Advisors  Management,   LLC  ("Yorkville  Advisors"),  an  investment
management  partnership and the portfolio  manager of Cornell Capital  Partners,
L.P., for a purchase price of $2,625,000.

      Hudson Street's minority  ownership  interest entitles it to receive a pro
rata share of Yorkville Advisors' net profits from asset management,  investment
banking and financial advisory fees. Hudson Street incurred $45,000 of legal and
professional  fees  associated  with the  purchase of the  partnership  interest
($15,000 of which is to a related party) that has been  capitalized.  As of June
30,  2004,  Hudson  Street  received  $335,000 of cash  distributions  from this
investment and recorded  $439,999 as its  distributive  share of partnership net
earnings.  Hudson Street's  investment in Yorkville Advisors at June 30, 2004 is
$2,774,999 and is reflected on the consolidated balance sheet in "Other Assets."

      In addition to its investment in Yorkville Advisors, Hudson Street made an
investment  of  $37,500  in the  common  stock of a  privately  held  technology
company.  Through  Hudson  Street we will continue to seek  investments  in high
growth-potential businesses in a variety of industries.

CYBER-TEST, INC. HISTORY

      We formed Cyber-Test on May 10, 2004 to purchase  substantially all of the
assets of Cyber-Test, Inc., a Florida corporation ("Cyber-Test Florida"), and on
June 3, 2004, we closed on this acquisition. Cyber-Test Florida was incorporated
in  Florida  as a  privately-owned  corporation  in  December  1986.  Initially,
Cyber-Test  Florida was a prototype  circuit board fixture  facility that tested
prototype  boards for the defense industry to ensure each board was operating at
100% capacity.  Cyber-Test  Florida's founding  principals funded its operations
without  outside capital and developed a management team to oversee the services
that  Cyber-Test  Florida was  providing to large  organizations  such as Martin
Marietta and NASA. Due in part to the slowdown in the economy in the early 1990s
and the  corresponding  softening in the defense  industry,  Cyber-Test  Florida
capitalized  on its test and repair  expertise and re-focused its attention from
repairing  space  and  defense  industry  circuit  boards  to  repairing  office
equipment and computer peripheral products.  Later, Cyber-Test Florida became an
authorized  OEM  service  support  center,  and  has  established  numerous  OEM
relationships  and  authorizations   with  Fortune  500  technology   companies,
including Xerox, Lexmark, Brothers,  HP/Compaq, Epson and Canon providing office
equipment and computer peripheral repairs and services.


                                       1
<PAGE>

THE COMPUTER REPAIR/WARRANTY MANAGEMENT INDUSTRY

      Cyber-Test  continues to operate within the office  equipment and computer
peripheral products repair/warranty  management industry, with its primary focus
on facsimile machines, printers, scanners, PDAs, laptop computers, monitors, and
multi-function  units.  Warranty periods and longer product life cycles demand a
maintenance/repair commitment that can typically support a product for up to ten
(10) years. In addition,  the industry  relationship among OEMs, the integrator,
and the third- and fourth-party  service providers has become more complex.  The
end-user,  or consumer,  must have  assurance  that products are supported by an
after-sales service team capable of providing  preventive  maintenance and/or an
immediate remedy upon equipment failure.

      With  the  technological   advances  and  associated  cost  reductions  in
shipping,  the warranty  manager's  challenge  is to meet and exceed  customer's
expectations with respect to speed of response. The repair/warranty industry has
seen a shift towards  outsourcing  warranty  service to companies  whose primary
purpose and core strength is to manage  complex  demands of the  repair/warranty
chain process. Warranty service companies are expected to be able to:

      o     offer one-stop / turnkey service;
      o     have  the   technical   ability   to   repair   multi-products   for
            multi-vendors;
      o     offer  advance  exchange  of office  equipment  computer  peripheral
            products;
      o     offer distribution  logistics from call management through delivery;
            and
      o     demonstrate supply-line parts management logistics efficiencies.

      In  addition  to  existing   warranty   service   companies,   traditional
distribution  logistics providers (such as UPS, Airborne Express, etc.) are also
entering this industry.  Ultimately,  the success or failure of meeting warranty
commitments  will depend on the ability of the warrantor or its service provider
to have the right  component  in the right place at the right time and the right
skills to effect the necessary repair at the most cost-effective price.

CYBER-TEST'S PRODUCTS AND SERVICES

      The following describes the individual components that make up the current
Cyber-Test family of products and services.

      Repair  and  Exchange.   Cyber-Test  has  offered  board-level  repair  of
technical  products  for more than 17 years,  and offers  service  programs  for
equipment  dealers,  OEMs,  extended  warranty  companies,  retail  outlets  and
end-users. The service programs include:

      o     return to depot repair of office  equipment and computer  peripheral
            products;
      o     advance  exchange  of  office  equipment  and  computer   peripheral
            products;
      o     board-level repair of circuit boards and sub assemblies;
      o     return to depot repair for component-level circuit boards;
      o     OEM warranty exchange and repair programs;
      o     large volume repair and refurbishment; and
      o     call center technical support.

      Cyber-Test repair and exchange service is managed by a proprietary  system
designed  and  developed  by the  management  team of  Cyber-Test  Florida  with
software-tracking  that allows customers or the call center function (whether it
is onsite at Cyber-Test's  facilities or at the customer's  facility) to be able
to track the repair status of the given unit, and provide a delivery date to the
end-user,  while  allowing  executives of Cyber-Test to manage the output volume
and quality of the repair process.


                                       2
<PAGE>

      In  addition,  Cyber-Test's  software  allows  its  clients  to view their
inventory,  parts,  parts used per unit,  and the status of all  equipment  on a
real-time basis via its secure website.  Clients may also change  priorities and
escalate orders directly from this proprietary, customized web portal.

      Parts and Sales. Cyber-Test stocks a full line of parts, accessories,  and
consumables  for its  in-house  repair  needs and offers these parts for sale as
well.  Cyber-Test  stocks over 32,000 parts for  printers,  facsimile  machines,
scanners,  monitors  and PDAs.  Customer's  can view a full  listing of parts at
Cyber-Test's  website (in the  ADVANCEX(TM)  section) and, if any part is not in
stock, it can usually be made available in one business day. Cyber-Test's unique
parts ordering system has the capability to search, order, and buy parts without
an OEM part number.  Cyber-Test's search feature will cross-reference  other OEM
parts that may fit the ordered part from other manufacturers or OEMs.

      In  addition to repair  services,  Cyber-Test  sells parts and  consumable
supplies to dealers and end-users and has a customer base of approximately 1,500
dealers and repair shops,  two OEMs and four major extended  warranty  companies
that service five (5) of the top office equipment /computer retail chains.

      In addition to parts,  Cyber-Test stocks an extensive inventory of new and
refurbished  equipment  available for  purchase.  New equipment is backed with a
full  OEM  warranty,  and  90 day  warranties  are  offered  by  Cyber-Test  for
refurbished units.

      Call Center Technical Support. Cyber-Test offers partial or full (turnkey)
Help Desk support  through its Call Center.  The Call Center has handled as many
as  25,000  calls  per  month  from  its  customers   and   currently   averages
approximately  15,000  calls per month.  The Call Center has a greater  than 50%
phone-fix  rate,  which  significantly   reduces   Cyber-Test's  overall  costs.
Cyber-Test's  Call Center is the sole  technical  help line for  selected  Xerox
copiers and fax machines.

      Reverse  Logistics  and  Outsourcing.  Cyber-Test  offers its customers an
outsourcing  service of  inventory,  warehousing,  and shipping of parts and end
products  for  warranty  fulfillment,  with  full  refurbishing  and  inspection
programs  including  "A" and "B"  goods  logistics.  OEMs can  direct  all store
returns to Cyber-Test  for  inspection.  If units have not been taken out of the
box,  those items can be inspected  and resold out as "A" goods.  Products  that
have been used or are defective are processed through the refurbishment  process
and repackaged  and resold as "B" goods.  Cyber-Test can assist the OEM with "B"
goods distribution and resale.

      Cyber-Test  offers  its "B" goods  for  resale  through a web site  portal
hyper-linked to the OEM web site.  This eliminates the need to ship  refurbished
equipment back to the OEM.  Orders are placed  directly with  Cyber-Test via the
web site and products are delivered directly to the dealer or end-user.

      Cyber-Test  also has a salvage  division that receives  extended  warranty
products that were "bought out" by the warranty  provider.  This asset  recovery
program is one of the fastest  growing  divisions  of  Cyber-Test.  Products are
received, sorted and palletized for resale to wholesalers worldwide.

      Service Contracts. In addition to OEMs and major retailers, Cyber-Test has
established  relationships with a number of insurance  companies and third-party
service  providers  to provide  full  repair and call  center  support  service.
Extended manufacturer's warranties sold at retail stores are typically backed by
a third party  insurance  company.  In other  cases,  the  extended  warranty is
managed by the retailer  itself.  If a product covered in a service  contract is
determined to be in need of repair by the Call Center, a replacement unit may be
sent directly to the end-user via ADVANCEX(TM).  Cyber-Test  manages the process
from call receipt and receiving the defective product back from the customer, to
tracking  the  product,  repairing  the returned  units,  and  managing  against
customer fraud.

      Cyber-Test also offers an "Advance Exchange" program known as ADVANCEX(TM)
that  provides  same day service to its  customers  on all  products  Cyber-Test
repairs. With the ADVANCEX(TM) program, Cyber-Test can ship an equivalent-to-new
("ETN")  replacement  product directly to the customer if phone support fails to
correct the problem.  The customer then returns the defective unit to Cyber-Test
for repair and  refurbishment  and  subsequent  use for  another  customer.  Its
proprietary  systems allow the OEM to gather failure analysis and failure trends
critical to the release of new products.  This information is collected on line,
while  Cyber-Test  provides level II and III technical  support  directly to the
customer.  Its telephone  support achieves a current phone fix-rate of more than
50%, saving OEMs millions of dollars per year in unnecessary  product  exchange.
Cyber-Test  has a  same-day  fulfillment  up to 5:00  p.m.  Eastern  Time on all
ADVANCEX(TM)  products,  and ships approximately 5,500 repaired units per month.
The ADVANCEX(TM) program has resulted in decreased product returns and increased
customer satisfaction.


                                       3
<PAGE>

COMPETITION

      Cyber-Test's  business is highly  competitive.  Cyber-Test  competes  with
companies  that  provide  repair  services  for office  equipment  and  computer
peripheral  products,  with  companies  that  supply  parts and  consumables  to
end-users  and  repair  companies  of such  equipment  and  products,  and  with
resellers of such equipment and products.

      Competition within the office equipment and computer  peripheral  products
service and repair  industry is based on quality of service,  depth of technical
know-how,  price, availability of parts, speed and accuracy of delivery, and the
ability to tailor  specific  solutions  to customer  needs.  According to a 2004
industry  directory  and  yearbook  published  by National  Electronics  Service
Dealers  Association/International  Society of Certified Electronic Technicians,
there are more than 800  manufacturers of technical  products in the U.S. of the
type Cyber-Test repairs,  more than 1,000 independent companies in the U.S. that
repair products in a manner similar to  Cyber-Test's,  over 350 companies in the
U.S.  that  supply  parts and  components  for use in  repair,  and many tens of
thousands  of  independent  service  technicians  that  do  on-site  repair.  In
addition, there are thousands of companies that sell technical products that may
need repair, and many of these do their own repair or service work.

      Many of  Cyber-Test's  competitors  are  larger  in size and have  greater
financial and other  resources,  such as Decision One, Depot America,  Teleplan,
DataTech America, and DEX.

      Cyber-Test  also  competes with  manufacturers  and OEMs that do their own
repair work,  as well as large  distribution  and  logistics  companies  such as
United Parcel Service and Airborne Logistics.

      Cyber-Test  currently  relies  on a few  large  customers  to  generate  a
significant portion of its revenues.  The loss of one or more of these customers
would have a material adverse effect on our business,  results of operations and
financial condition.  Management believes it is essential to expand Cyber-Test's
customer  base to minimize  this  dependency.  Cyber-Test's  ability to do so is
dependent upon many variables including its ability to successfully  attract and
retain  technicians  that are  capable  of  performing  repair on all brands and
models of office  equipment  and  computer  peripherals  at prices  which remain
competitive.

COMPANY HISTORY

      We were  incorporated  in Florida  on April 30,  1998 under the name Media
Forum  International,  Inc. ("Media Forum"). We were inactive from April 1998 to
June 1998,  except for the issuance of founders' shares during such time period.
On  April  7,  1999,  Advanced  Communications  Technologies,   Inc.,  a  Nevada
corporation  ("Advanced  Communications  (Nevada)")  merged  with  and  into us.
Pursuant to this merger,  the shareholders of Advanced  Communications  (Nevada)
(of which Mr. Roger May, our former Chief Executive  Officer and Chairman of the
Board of  Directors  until  November 30, 2001,  was the  principal  shareholder)
received  90% of our  outstanding  common  stock and we received all of Advanced
Communications  (Nevada)'s  assets.  These assets  included all of the North and
South  American  rights  to  market  and  distribute  SpectruCell,   a  wireless
software-defined  radio  ("SDR")-based  communications  platform  that is  being
developed to offer mobile  communications  network  providers the flexibility of
processing and transmitting multiple wireless communications signals through one
base  station.  We are  not  aware  of any  formal  oral  or  written  agreement
documenting  the transfer of the rights of Advanced  Communications  (Nevada) in
SpectruCell  to the Company at the time of the merger  except for the  Company's
Proxy Statement prepared for a shareholders  meeting held on March 25, 1999 (the
"Proxy  Statement").  Proposal #6 of the Proxy  Statement  stated that  Advanced
Communications  (Nevada)  would merge all of its assets into the Company,  which
included all of the rights to a product being developed called SpectruCell.  Mr.
May and his related  entities,  including Global  Communications  Technology Pty
Ltd, of which Mr. May was the sold  shareholder,  as majority owners of Advanced
Communications (Nevada),  received approximately 42,000,000 shares of our common
stock under the share exchange.  We were the surviving entity of the merger, and
we  subsequently  changed our name from Media  Forum to Advanced  Communications
Technologies,  Inc. Upon completion of the merger, we changed our trading symbol
to "ADVC." As a result of the merger, Advanced Communications (Nevada) ceased to
exist as a separate entity.


                                       4
<PAGE>

      On July 20, 1999, we formed Advanced Global Communications,  Inc. ("AGC"),
a Florida  corporation.  AGC was formed to develop and operate our international
telecommunications network from the United States to Pakistan and India, as well
as to acquire other switching and telecommunications  companies. The network was
established  in 2000 and operated  until 2001,  when the  regulatory  climate in
Pakistan  and India made it legally  and  economically  impractical  to operate.
During  the  fiscal  year  ended  June  30,  2001,  we  ceased  operating  AGC's
international  telecommunications network and wrote-off our entire investment in
various  telephone  equipment and network costs.  AGC still exists as a separate
entity, but has been inactive since July 1, 2001.

      On January 31, 2000, we acquired  Smart  Investments.com,  Inc.  through a
stock  exchange  with Smart  Investments'  sole  shareholder.  Immediately  upon
completion of that acquisition, we elected successor issuer status in accordance
with Rule  12g-3  promulgated  under the  Securities  Exchange  Act of 1934,  as
amended, and consequently became a "reporting company" under Securities Exchange
Act of 1934, as amended.

      On April 5, 2000, we entered into a Stock Purchase Agreement with Advanced
Communications  Technologies,  Pty. Ltd  (Australia)  ("Advanced  Communications
(Australia)") to acquire a 20% interest in Advanced  Communications  (Australia)
for $19,350,000.  The majority owner of Advanced Communications  (Australia) was
Mr. May. In consideration for our purchase of the stock, we issued (i) 5,000,000
shares of our common stock having a value of  $11,850,000  and (ii) a $7,500,000
unsecured  non-interest  bearing note payable in installments.  The note payable
was payable in three equal monthly  installments  commencing May 31, 2000. Under
the terms of the April 2000 Stock Purchase  Agreement,  the monthly  installment
deadline was extended  indefinitely,  without interest, to allow us to raise the
cash portion of the purchase price through the sale of securities.  Upon raising
such funds,  we were  obligated to repay Advanced  Communications  (Australia)'s
note payable after deducting for reserves needed to fund our current operations,
our working  capital and the development and expansion of our operations and the
operations of our  subsidiaries,  as  determined  by our board of directors.  On
November  11,  2002,  Advanced  Communications  (Australia)  issued a Notice  of
Termination  to the  Company  which  stated  that the April 2000 Stock  Purchase
Agreement was terminated immediately due to the Company's insolvency. We believe
that we have no further obligation to pay the unsecured note payable because the
Stock Purchase Agreement was unilaterally  terminated by Advanced Communications
(Australia).  On  February  5, 2004,  we filed suit in  Superior  Court,  Orange
County,  California  against  Advanced  Communications  (Australia),  Roger May,
Global   Communications   Technologies   Limited   and   Global   Communications
Technologies Pty Ltd to recover damages incurred as a result of wrongful actions
by such  defendants  against us and to clarify the status of our  obligations to
such defendants under various agreements and other  arrangements,  from which we
believe we have been relieved as a result of such wrongful  actions.  In May and
August  2004,  the court  issued an entry of default  judgment  in our favor and
against  all of the above  defendants.  On October  22,  2004,  the court held a
hearing  for  final  determination  of the above  action.  The court has not yet
issued its final determination based on that hearing.

      In November 2000, we formed Advanced Network  Technologies  (USA), Inc., a
Delaware  corporation  ("Advanced  Network  USA"),  owned  70% by us and  30% by
Advanced  Network  Technologies  Pty. Ltd. It was our intention to have Advanced
Network USA acquire wireless network  infrastructure  in North and South America
to help showcase SpectruCell within a working network  environment.  To date, no
acquisitions  have been made.  Advanced Network USA, Inc. is presently  inactive
and had no  revenues  or  expenses  for the fiscal  years ended June 30, 2004 or
2003.

      In 2002,  we closed  operations  relating  to  SpectruCell,  significantly
reduced our expenses,  and shifted to a holding company structure,  as it became
uncertain whether SpectruCell's  development would ever be completed and brought
to market in the U.S. On December  17,  2003,  we formed  SpectruCell,  Inc.,  a
wholly-owned  Delaware  subsidiary,  and  transferred  all of our  rights in the
SpectruCell  technology  to this  subsidiary.  SpectruCell,  Inc.  is  presently
inactive.

RECENT ACQUISITIONS

O     CYBER-TEST, INC.

      On  April  13,  2004,  we  formed   Encompass   Group   Affiliates,   Inc.
("Encompass"),  our  wholly-owned  subsidiary,  in the State of Delaware for the
purpose  of  becoming  our  principal   operating  unit.  On  June  3,  2004,  a
wholly-owned and newly formed Delaware subsidiary of Encompass, Cyber-Test, Inc.
("Cyber-Test")  acquired  the  business  and  assets  of  Cyber-Test,   Inc.,  a
Florida-based,  electronic  equipment  repair  company  ("Cyber-Test  Florida"),
pursuant to the terms of an Asset Purchase Agreement, dated May 27, 2004, by and
among Cyber-Test Florida,  Cyber-Test and the shareholders of Cyber-Test Florida
(the  "Asset  Purchase  Agreement").   Upon  consummation  of  the  acquisition,
Cyber-Test became the core operating business of Encompass with 85 employees and
annual sales of  approximately  $6,000,000.  This  acquisition  is the Company's
first step in  expanding  the  businesses  of the  Company's  subsidiaries  into
vertically integrated technology and service businesses.  Under the terms of the
Asset  Purchase  Agreement,  Cyber-Test  acquired all of the  operating  assets,
tangible and intangible property, rights and licenses, good-will and business of
Cyber-Test  Florida,  for a total  purchase  price of  $3,498,469  consisting of
$3,000,000 in cash, and a $498,469 three-year 6% unsecured installment note. The
Company also incurred  $234,108 of capitalized  transaction  costs  inclusive of
$125,000 of broker fees for a total acquisition cost of $3,732,577. In addition,
under the terms of the Asset  Purchase  Agreement,  the  Company  has  agreed to
contingently increase the purchase price by $500,000 by agreeing to issue to the
sellers,  50,000,000 shares of restricted common stock priced at $.01 per share,
to be earned on a pro rata basis over the next three years  based on  Cyber-Test
meeting  certain  revenue  and  earnings  milestones  and if  certain  events of
forfeiture do not occur (the "Contingent Stock Consideration"). Milestones means
the following  revenue and EBITDA (earnings before income tax,  depreciation and
amortization) goals of Cyber-Test for the applicable year:


                                       5
<PAGE>

           FISCAL YEAR END        REVENUES            EBITDA
--------------------------------------------------------------------------------
            June 30, 2005        $ 6,600,000         $  500,000
            June 30, 2006        $ 8,600,000         $  860,000
            June 30, 2007        $11,600,000         $1,400,000

      The  Contingent  Stock  Consideration  is  subject  to  forfeiture  in its
entirety,  at  any  time,  if  Lisa  Welton,  the  Chief  Executive  Officer  of
Cyber-Test,  is terminated for cause, or resigns from the Company. prior to June
30, 2007.

      The Company  accounted for this  acquisition  using the purchase method of
accounting in accordance with the provisions of SFAS 141. and, accordingly,  the
operating  results have been included in the Company's  consolidated  results of
operations  from the date of  acquisition.  The Company  acquired  net  tangible
assets valued at $1,286,985. The excess of the consideration given over the fair
value of net assets  acquired has been recorded as goodwill of  $2,445,592.  The
Company  will  account  for  the  purchased  goodwill  in  accordance  with  the
provisions  of SFAS 142.  The  future  liability,  if any,  associated  with any
Contingent  Stock  Consideration  issuable in conjunction  with this acquisition
based  on the  achievement  of  certain  revenue  and  earnings  results  over a
three-year  period will be recorded as additional  goodwill in fiscal 2007 after
the event of forfeiture (Ms. Welton's continued  employment with us for a period
of three years after consummation of the acquisition) lapses.

O     HY-TECH TECHNOLOGY GROUP, INC. INTANGIBLE LICENSES

      In June 2004,  Encompass  acquired  certain  licensing  rights from Innova
Holdings, Inc. (formerly known as Hy-Tech Technology Group, Inc. ("Hy-Tech")), a
custom  systems  builder and authorized  distributor of computer  components and
peripherals.   The   licensing   rights   include  the   exclusive,   worldwide,
royalty-free,  perpetual,  non-terminable  and  irrevocable  right to  Hy-Tech's
customer base,  corporate web addresses,  and the  entitlement to hire Hy-Tech's
former Chief Executive Officer,  Mr. Martin Nielson,  as Chief Executive Officer
of Encompass.  The  consideration  paid for these rights  consists solely of the
retirement of certain of Hy-Tech's Senior Secured Convertible  Debentures by the
payment  in  cash of  $203,300  and  the  issuance  of the  Company's  Series  B
Convertible Preferred Stock with a liquidation preference of $300,000.

EMPLOYEES

      As of  October  1,  2004 the  Company  had 92  full-time  and 3  part-time
employees.

ITEM 2. DESCRIPTION OF PROPERTY

      On August 1, 2002, the Company  relocated its principal  executive  office
from  California to 420 Lexington  Avenue,  New York,  New York 10170 within the
office facility of Danson Partners,  LLC, a privately-owned company that employs
our  President and Chief  Financial  Officer.  No rent or facility  usage fee is
charged to the Company by Danson  Partners,  LLC. As of November 25,  2003,  the
Company's  lease  obligation  of $250,734  consisting of $141,100 of unpaid past
rent and $109,634 of future rent for the  California  office was  terminated and
settled for $35,000.


                                       6
<PAGE>

      The  Company's  core  operating  business,  Cyber-Test  is  located at 448
Commerce Way, Longwood,  Florida 32750. This 29,000 square foot office/warehouse
facility  has a one-year  triple net lease that  commenced on August 1, 2004 and
ends on July 31, 2005,  at a monthly lease  obligation of $13,500.  The lease is
renewable on a year-to-year  basis by providing  written notice 60 days prior to
the expiration of the then current term.

ITEM 3. LEGAL PROCEEDINGS

      During the fiscal year ended June 30, 2004, the Company settled a majority
of its accounts payable and accrued liabilities at a substantial  discount,  the
financial  results of which have been  recorded in the  Company's  June 30, 2004
consolidated  financial statements.  The Company has been, and may in the future
be,  involved as a party to various legal  proceedings,  which are incidental to
the  ordinary  course  of  business.   Management   regularly  analyzes  current
information and, as necessary, provides accruals for probable liabilities on the
eventual  disposition of these matters.  In the opinion of management as of June
30, 2004,  there were no  threatened  or pending legal matters that would have a
material impact on the Company's  consolidated results of operations,  financial
position or cash flows.

      On February 5, 2004, the Company filed suit in California against Advanced
Communications  (Australia),   Roger  May,  Global  Communications  Technologies
Limited  and  Global  Communications  Technologies  Pty Ltd to  recover  damages
incurred as a result of wrongful actions of such defendants  against the Company
and to clarify the status of the Company's  obligations to such defendants under
various  agreements and other  arrangements,  from which the Company believes it
has been relieved as a result of such wrongful actions.  In May and August 2004,
the court issued an entry of default judgment for the Company and against all of
the above  defendants.  On October 22, 2004,  the court held a hearing for final
determination  of the  above  action.  The court  has not yet  issued  its final
determination based on that hearing.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       7
<PAGE>

PART II

ITEM 5. MARKET  FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS  AND SMALL
        BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

PRICE RANGE OF COMMON STOCK

      Our common  stock is  currently  traded on the  Over-the-Counter  Bulletin
Board  ("OTCBB")  under the symbol  "ADVC." As of  October  15,  2004 there were
2,004,247,731 common shares issued and outstanding and approximately 505 holders
of record.  We believe  that the number of  beneficial  owners is  substantially
greater than the number of record holders  because a large portion of our common
stock is held in "broker" or "street names".

      The following table sets forth, for the fiscal periods indicated,  the bid
price range of our common stock, as reported by Bloomberg Financial Markets:

--------------------------------------------------------------------------------
                                                       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

--------------------------------------------------------------------------------
     2004
--------------------------------------------------------------------------------
     Quarter Ended September 30, 2003                $  .007           $.00163
     Quarter Ended December 31, 2003                  .00363            .00169
     Quarter Ended March 31, 2004                      .0025            .00131
     Quarter Ended June 30, 2004                       .0015            .00081

      Such  market  quotations  reflect   inter-dealer  prices  retail  mark-up,
markdown or commissions and may not necessarily represent actual transactions.

      We did not pay any  dividends  during  fiscal 2004 and have never paid any
dividends on our capital stock.  We currently  expect that we will retain future
earnings  for use in the  operation  and  expansion  of our  business and do not
anticipate paying any cash dividends in the foreseeable  future. Any decision on
the future  payment of  dividends  will  depend on our  earnings  and  financial
position  at that time and such other  factors as our Board of  Directors  deems
relevant.

RECENT SALES OF UNREGISTERED SECURITIES

      All  issuances of  restricted  stock have been valued based on the closing
price of the stock as of the date the Company's Board of Directors  approved the
grant of shares or under the terms of our Convertible Debentures.

      In order to finance our  acquisition  of the assets of Cyber-Test  Florida
and to pay the cash portion of our acquisition of certain  licensing rights from
Innova Holdings,  Inc. (formerly known as Hy-Tech Technology,  Inc. ("Hy-Tech"))
and its subsidiary  Hy-Tech Computer  Systems,  Inc., on May 28, 2004, we issued
4,200 shares of our non-voting Series A Convertible  Preferred Stock,  $0.01 par
value per share (the "Series A Preferred  Stock"),  to Cornell Capital Partners,
L.P. The Series A Preferred Stock ranks senior to our common stock and all other
series of our  preferred  stock.  The Series A  Preferred  Stock is  entitled to
receive  dividends and  distributions  on a pro rata basis,  prior to any of our
other outstanding securities,  when and if declared by the Board of Directors of
the Company. Upon our liquidation,  dissolution or winding up, holders of Series
A Preferred  Stock would  receive  $1,000 per share (the  "Series A  Liquidation
Amount") of Series A Preferred  Stock.  Holders of the Series A Preferred  Stock
have the right, at any time and from time to time after May 21, 2005, to convert
the Series A Preferred  Stock into shares of our common  stock,  at a conversion
price equal to either (a) $0.01 per share  (which shall be adjusted in the event
of a subdivision, or combination of shares), or (b) 100.0% of the average of the
three (3) lowest closing bid prices of our common stock for the ten (10) trading
days  immediately  preceding  the date of  conversion,  whichever is lower.  The
Series A Preferred Stock shall  automatically  convert into shares of our common
stock,  upon the  consummation of an acquisition of our stock by, or the merger,
consolidation,  or reorganization of us into or with, another entity through one
or a series of related  transactions,  or the sale, transfer, or lease of all or
substantially  all of our assets to another  entity.  Upon ten (10) days'  prior
written notice,  we have the right to redeem each outstanding  share of Series A
Preferred Stock at an amount equal to 120% of the Series A Liquidation Amount.


                                       8
<PAGE>

      In  connection  with the  acquisition  of certain  licensing  rights  from
Hy-Tech and its subsidiary Hy-Tech Computer Systems,  Inc., on June 27, 2004, we
issued 300 shares of our non-voting Series B Convertible  Preferred Stock, $0.01
par value per share (the "Series B Preferred Stock"),  plus $203,300 in cash, to
certain  holders  of  Hy-Tech   Convertible   Debentures  in  exchange  for  our
assumption,  and  cancellation,  of all amounts due and owing,  or $503,300,  by
Hy-Tech under the  Convertible  Debentures.  The Series B Preferred  Stock ranks
junior to the Series A  Preferred  Stock and senior to our common  stock and all
other series of our preferred  stock,  other than the Series A Preferred  Stock.
Subject to the rights of the Series A  Preferred  Stock,  the Series B Preferred
Stock is entitled to receive  dividends and  distributions  on a pro rata basis,
after the Series A Preferred  Stock,  but prior to any of our other  outstanding
securities,  when and if declared by the Board of Directors of the Company. Upon
a liquidation,  dissolution or winding up, subject to the rights of the Series A
Preferred  Stock,  holders of Series B Preferred  Stock would receive $1,000 per
share (the "Series B Liquidation  Amount") of Series B Preferred Stock.  Holders
of the Series B  Preferred  Stock  have the right,  at any time and from time to
time after June 23, 2005, to convert the Series B Preferred Stock into shares of
our common  stock,  at a  conversion  price  equal to either (a) $0.01 per share
(which  shall be  adjusted  in the event of a  subdivision,  or  combination  of
shares), or (b) 100.0% of the average of the three (3) lowest closing bid prices
of our common stock for the ten (10) trading days immediately preceding the date
of  conversion,   whichever  is  lower.  The  Series  A  Preferred  Stock  shall
automatically  convert into shares of our common stock, upon the consummation of
an acquisition of our stock by, or the merger, consolidation,  or reorganization
of us  into  or  with,  another  entity  through  one  or a  series  of  related
transactions, or the sale, transfer, or lease of all or substantially all of our
assets to another entity.  Upon ten (10) days' prior written notice, we have the
right to redeem each outstanding  share of Series B Preferred Stock at an amount
equal to 120% of the Series B Liquidation Amount.

      On June 30, 2004, our Board of Directors approved the separate issuance of
10,000,000 and 5,000,000  shares of our restricted  common stock,  or 15,000,000
shares in the aggregate, having a value of $10,000 and $5,000, respectively,  or
$15,000  in  the  aggregate,   to  Mr.  Martin  Nielson  and  Jackson   Steinem,
respectively,  at $.001 per  share,  for  consulting  services  rendered  to the
Company in connection with the acquisition of Cyber-Test Florida.

      On March 9,  2004,  our  Board  of  Directors  approved  the  issuance  of
10,000,000  shares of our  restricted  common stock having a value of $18,000 or
$.0018 per share, to DDInvestor.com, Inc. in full satisfaction and settlement of
outstanding indebtedness owed by us to them.

      On  January 8, 2004,  our Board of  Directors  approved  the  issuance  of
1,000,000 shares of restricted  common stock to Mr. Steve Black for professional
services  rendered to the Company.  The stock was valued at $.00281 per share or
$2,810,  the closing bid price of the stock on the date approved by our Board of
Directors.

      On January 5, 2004,  January 7, 2004,  January 15, 2004,  January 22, 2004
and  February 2, 2004,  holders of our  outstanding  5%  convertible  debentures
elected  to  convert   $25,000,   $50,000,   $75,000,   $75,000  and   $103,861,
respectively,  or $328,861 in the aggregate,  of principal and accrued interest,
at conversion prices of $.001676,  $.001776,  $.002076, $.00238 and $.002314 per
share, into 14,916,468, 28,153,153, 36,127,168, 31,512,605 and 44,883,751 shares
of our common stock, respectively,  or 155,593,145 shares of common stock in the
aggregate.

      On December 3, 2003 and December 17, 2003, our Board of Directors approved
the  issuance  of  8,142,857  shares  of our  restricted  common  stock,  in the
aggregate,  having a value of $17,000, or $.0020 per share, to various creditors
in full satisfaction of their claims against us.

      On December 3, 2003,  holders of our 5% Convertible  Debentures elected to
convert  $85,252 of principal  and accrued  interest,  at a conversion  price of
$.001716 per share, into 49,680,653 shares of our common stock.

      On November 3, 2003 and November 10, 2003,  holders of our 5%  Convertible
Debentures elected to convert $25,000 and $156,000,  respectively,  or $181,000,
in the aggregate,  of principal and accrued  interest,  at conversion  prices of
$.00189 and $.0016,  respectively,  per share,  into  13,227,513  and 97,500,000
shares of our common stock, respectively,  or 110,727,513 shares of common stock
in the aggregate.


                                       9
<PAGE>

      On October 31,  2003,  our Board of  Directors  approved  the  issuance of
39,583,333  shares, in the aggregate,  of our restricted common stock,  having a
value of $95,000 in the aggregate,  to various officers and directors in partial
satisfaction of professional services previously rendered to us. The shares were
valued based on the closing price of our common stock  immediately  prior to its
issuance,  or $.0024 per share.  The shares were issued on November 4, 2003.  On
that same date,  our Board of Directors  also approved the issuance of 8,833,333
shares of restricted  common stock to various  creditors in full satisfaction of
their  claims  against  us.  Those  shares of common  stock were also  valued at
$21,200, or $.0024 per share.

      On October 7, 2003,  October 20, 2003 and October 21, 2003, holders of our
5% Convertible  Debentures  elected to convert  $188,746,  $201,447 and $50,000,
respectively,  or $440,193,  in the aggregate,  at conversion prices of $.00207,
$.00211 and $.00218 per share,  respectively,  of principal  and  interest  into
91,181,642,  95,472,510 and 22,935,780 shares of our common stock, respectively,
or 209,589,932 shares of common stock in the aggregate.

      On  September  24, 2003,  our Board of Directors  approved the issuance of
85,714,285  shares, in the aggregate,  of our restricted common stock,  having a
value of  $240,000 in the  aggregate,  to various  officers  and  directors,  in
partial  satisfaction of professional  services  previously  rendered to us. The
shares were valued based on the closing price of the stock  immediately prior to
its issuance, or $.0028 per share. The shares were issued on October 3, 2003.

      On September 4, 2003, holders of our 5% Convertible  Debentures elected to
convert  $82,375 of principal  and accrued  interest,  at a conversion  price of
$.00138 per share, into 59,692,027 shares of our common stock.

      With respect to the sale of unregistered  securities referenced above, all
transactions  were exempt  from  registration  pursuant to Rule 506  promulgated
under the  Securities  Act of 1933 (the "1933 Act").  These  offerings  may have
qualified  for other  exemptions as well.  In each  instance,  the purchaser had
access to sufficient information regarding the Company so as to make an informed
investment  decision.  More specifically,  the Company had a reasonable basis to
believe  that  each  purchaser  was  an  "accredited  investor"  as  defined  in
Regulation D under the 1933 Act, which information was based on  representations
received from such investors,  and otherwise had the requisite sophistication to
make an investment in the Company's securities.

      We did not make any purchases of equity  securities during the fiscal year
ended June 30, 2004.


                                       10
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
                                                       FOR THE YEARS ENDED JUNE 30,
                                         ------------------------------------------------------
                                              2004                 2003             2002
                                         ----------------   ----------------   ----------------
<S>                                      <C>                <C>                <C>
Revenue                                  $       605,468    $            --    $            --
Cost of Revenue                                  400,265                 --                 --
Gross Profit                                     205,203                 --                 --
Operating Expenses                               788,261          1,216,776          2,314,570
Operating (Loss)                                (583,058)        (1,216,776)        (2,314,570)
Income (Loss) from Goodwill Impairment                --                 --         (1,700,000)
Other Income (Expense)                         1,058,878           (652,255)          (318,123)
Income (Loss) Before Income Taxes                475,820         (1,869,031)        (4,332,693)
Provision for Income Taxes                            --                 --                 --
Net Income (Loss)                                475,820         (1,869,031)        (4,332,693)
Net Income (Loss) Per Share:
  Basic and Diluted                      $           .00    $          (.01)   $          (.04)
Weighted Average Shares:
  Basic and Dilutive                       1,084,885,437        152,960,499        100,576,484

Cash                                     $     1,193,170    $        22,527    $        11,093
Working Capital (Deficiency)                  (2,197,667)        (4,044,795)        (3,252,643)
Total Assets                                   7,996,339             70,748            114,852
Total Liabilities                              6,571,877          6,030,922          5,054,902
Stockholders' Equity (Deficiency)              1,424,462         (5,960,174)        (4,940,050)
</TABLE>

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following  discussion should be read in conjunction with our financial
statements and the related notes and the other financial  information  appearing
elsewhere in this report. In addition to historical  information,  the following
discussion  and  other  parts  of this  Annual  Report  contain  forward-looking
information that involves risks and uncertainties.

      We are a New York-based  holding  company that,  through our  wholly-owned
subsidiaries,  specializes  in the repair of computer  peripheral  products  and
other electronic  equipment,  and seek to make strategic minority investments in
privately held companies in diverse industries.

      We intend to pursue the  acquisition  of, and  investment  in,  technology
and/or brand differentiated companies with significant growth-potential. We seek
to make the process of growth,  through both organic and inorganic means, a core
competency of each company which we acquire or in which we invest.

      We have three principal means of diversifying our business,  each of which
is designed to give shareholders a strong value driver. Encompass, our principal
operating   subsidiary,   intends  to  acquire  synergistic   companies  in  the
technologies  and services  arena.  Hudson Street is a partner in the management
firm of an institutional  investment  company.  The Company itself also seeks to
make  minority  investments  in  technology  specific  or highly  differentiated
companies with significant growth-potential.

YEAR ENDED JUNE 30, 2004 COMPARED TO YEAR ENDED JUNE 30, 2003

      OVERALL RESULTS OF OPERATIONS

      For the fiscal year ended June 30, 2004, our financial  results reflect an
overall profit of $475,820 or $.00 per share which was a substantial increase of
$2,344,851 from the net loss of $(1,869,031) or $(.012) per share for the fiscal
year ended  June 30,  2003.  This  substantial  turnaround  in net  earnings  is
attributable to management's successful efforts during the year in restructuring
and settling  substantially all of our obligations,  significantly  reducing our
ongoing operating and interest costs and generating a source of ongoing earnings
and cash flow  through the  purchase of an  interest in a  profitable  financial
services  business and the purchase of the  Cyber-Test  Florida  business as our
core operating business. Of the $2,344,851 increase in net income, $780,938 is a
result of us  negotiating  and settling a majority of our  accounts  payable and
other liabilities at a substantial  discount and generating  forgiveness of debt
income along with a $918,711 reduction in interest expense,  lawsuit settlements
and  operating  expenses.  An  additional  $439,999  of net income was  realized
through our investment in the Yorkville Advisors investment partnership.


                                       11
<PAGE>

      REVENUE

      Revenue  for the  fiscal  year ended June 30,  2004 was  $605,468  and was
entirely  attributable  to  Cyber-Test's  operations  for the period from June 3
through June 30, 2004.  We did not  recognize  any revenue for fiscal year ended
June 30, 2003.  All revenue was generated  from the repair and service of office
equipment and computer peripheral products, extended warranty sales and the sale
of computer parts and accessories.

      OPERATING EXPENSES

      Total operating expenses for the fiscal years ended June 30, 2004 and June
30, 2003 were $788,261 and $1,216,776, respectively, representing a 35% decrease
for fiscal  year ended June 30,  2004 as  compared to fiscal year ended June 30,
2003.  Of these  amounts  $292,633 and $648,328 were paid during the fiscal year
ended June 30,  2004 and fiscal  year ended  June 30,  2003,  respectively,  for
professional  services  rendered,  of which $2,810 and $5,000  during the fiscal
years 2004 and 2003,  respectively,  was paid through the issuance of restricted
common stock and represents a non-cash expense. Professional and consulting fees
for the fiscal year ended June 30, 2004  decreased by $355,695 or 55% versus the
prior  fiscal  year ended due to the overall  reduction  in legal fees and other
expenses  associated with our settlement of all of our remaining lawsuits during
fiscal year ended June 30, 2004,  including  our  litigation  with Roger May and
Advanced Communications (Australia).

      Depreciation and  amortization  expense for the fiscal year ended June 30,
2004  decreased by $196,709 to $229,103  from $425,812 for the fiscal year ended
June 30, 2003 due to deferred  commitment  fees and financing  costs being fully
amortized in fiscal year 2004.

      Other  general and  administrative  expenses  amounted to $266,525 for the
fiscal year ended June 30,  2004,  which is a $138,163  increase  from the prior
fiscal year due principally to the addition of the Cyber-Test operating business
overhead in June 2004.  Such overhead  expenses  include the one month  overhead
operation and cost  associated  with  employing  approximately  85 employees and
operating a 29,000 square foot office and warehouse facility.

      OTHER INCOME (EXPENSES)

      During the fiscal year ended June 30, 2004, we realized  $1,058,878 of net
other  income  due to the  favorable  results  of our  investment  in  Yorkville
Advisors,  which generated $439,999 of net income and $780,938 of forgiveness of
indebtedness income generated from the successful settlement,  at a discount, of
certain of our debts.  These items were offset, in part by, net interest expense
of  $162,059  attributable  to $69,032 of accrued  interest  on our 10%  Secured
Convertible Debentures,  the remaining 5% Convertible Debentures and the 8% Note
Payable and $93,752 of debt discount expense treated as interest attributable to
the beneficial conversion feature of our 10% Secured Convertible Debentures, net
of $725 of interest income.

      Interest  expense  incurred  for the fiscal  year ended June 30,  2003 was
$428,761 and was principally  attributable to $119,721 of discount  amortization
relating to the  beneficial  conversion  feature of our 10% Secured  Convertible
Debentures,  $283,139  of accrued and  penalty  interest  on the 5%  Convertible
Debentures  paid in January 2004,  $8,829 of interest on the 8% Note Payable and
$12,522 of interest on the 10% Secured Convertible Debentures.  Overall interest
expense  decreased from $428,761 in fiscal 2003 to $162,059 in fiscal 2004 for a
$266,702  reduction  in  interest  expense  due to the lower  levels of interest
bearing  debt in fiscal  2004  compared to fiscal  2003.  During the fiscal year
ended June 30, 2003, we settled our remaining  lawsuits and recorded $223,494 of
settlement  expense.  No such expense was incurred  during the fiscal year ended
June 30, 2004.


                                       12
<PAGE>

SIGNIFICANT ACCOUNTING POLICIES

      Financial  Reporting  Release No. 60, which was  recently  released by the
Securities  and  Exchange  Commission,  requires  all  companies  to  include  a
discussion of critical accounting policies or methods used in the preparation of
financial  statements.   The  following  is  a  brief  discussion  of  the  more
significant  accounting policies and methods used by us. In addition,  Financial
Reporting  Release No. 61 was recently  released by the  Securities and Exchange
Commission to require all  companies to include a discussion  to address,  among
other things, liquidity, off-balance sheet arrangements, contractual obligations
and commercial commitments.

USE OF ESTIMATES

      The preparation of the consolidated financial statements of the Company in
conformity with generally accepted accounting  principles requires management to
make  estimates and  assumptions  that affect the reported  amount of assets and
liabilities at the date of the financial  statements and the reported  amount of
revenues and expenses during the period.  In particular,  significant  estimates
are required to value inventory and estimate the future cost associated with the
Company's  warranties.  If the actual value of the Company's inventories differs
from  these  estimates,  the  Company's  operating  results  could be  adversely
impacted.  The actual  results with regard to warranty  expenditures  could also
have an adverse  impact on the Company if the actual  rate of repair  failure or
the cost to  re-repair  a unit is  greater  than  what the  Company  has used in
estimating the warranty expense accrual.

INVENTORY

      Inventory  consists  primarily of repair  parts,  consumable  supplies for
resale and used machines that are held for repair and/or resale,  and are stated
at the lower of weighted  average cost or market.  The weighted  average cost of
inventory  approximates  the first-in,  first-out  ("FIFO")  method.  Management
performs   periodic   assessments   to  determine  the  existence  of  obsolete,
slow-moving and nonsalable  inventory and records necessary provisions to reduce
such inventory to net realizable value.

PROPERTY AND EQUIPMENT

      Property,  plant and equipment are stated at cost.  Assets are depreciated
using the  straight-line  method for both  financial  statement and tax purposes
based on the following estimated useful lives:

      Leasehold improvements             15 to 40 years
      Machinery and equipment            3 to 7 years
      Furniture and fixtures             5 to 7 years

      Maintenance and repairs are charged to expense when incurred.

WARRANTY RESERVE

      Refurbished peripheral computer equipment sold to customers and the repair
of customer  owned  equipment is guaranteed  for a period of ninety days and the
repair of circuit boards is guaranteed for a period of 12 months.  Any defective
refurbished equipment is replaced free of charge and customer owned equipment is
repaired  without  charge  during the  warranty  period.  Cyber-Test  provides a
reserve for warranty repairs based on historical failure rates and the estimated
cost to repair.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The  Company  makes  judgments  as to its  ability to collect  outstanding
receivables  and  provides  allowances  for  the  portion  of  receivables  when
collection becomes doubtful. Provisions are made based upon a specific review of
all  significant  outstanding  invoices.  For those  invoices  not  specifically
reviewed,  provisions are provided at differing rates, based upon the age of the
receivable.   In  determining  these  percentages,   the  Company  analyzes  its
historical  collection experience and current economic trends. If the historical
data the Company uses to calculate the allowance  provided for doubtful accounts
does  not  reflect  the  future  ability  to  collect  outstanding  receivables,
additional provisions for doubtful accounts may be needed and the future results
of operations  could be materially  affected.  During the fiscal year ended June
30, 2004,  accounts in the amount of $8,914 were determined to be  uncollectible
and were charged to the  allowance for doubtful  accounts.  As of June 30, 2004,
accounts  receivable  from two major  customers  aggregated  $253,847  or 63% of
accounts receivable.


                                       13
<PAGE>

LONG-LIVED ASSETS

      Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  If such review  indicates  that the asset is impaired,
when the carrying amount of an asset exceeds the sum of its expected future cash
flows, on an undiscounted  basis, the asset's carrying amount is written down to
fair value.  Long-lived  assets to be  disposed of are  reported at the lower of
carrying amount or fair value less cost to sell.

EXCESS OF COST OVER NET ASSETS ACQUIRED

      In accordance with SFAS No. 141, the Company  allocates the purchase price
of its  acquisitions to the tangible assets,  liabilities and intangible  assets
acquired based on their  estimated fair values.  The excess  purchase price over
those fair values is recorded as "Excess of Cost Over Net Assets Acquired".  The
fair value assigned to intangible  assets acquired is either based on valuations
prepared  by  independent  third  party  appraisal  firms  using  estimates  and
assumptions  provided by management or  negotiated  at  arms-length  between the
Company and the seller of the acquired assets.  In accordance with SFAS No. 142,
goodwill and purchase  intangibles with indefinite lives acquired after June 30,
2001,  are not  amortized  but will be  reviewed  periodically  for  impairment.
Purchased  intangibles  with finite lives will be  amortized on a  straight-line
basis over their respective useful lives.

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 shares
outstanding  for the period.  Diluted  earnings per share  reflect the potential
dilution of securities, using the treasury stock method, that could share in the
earnings  of an entity.  During the year ended June 30,  2004,  shares of common
stock that could have been  issued  upon  conversion  of  convertible  debt were
excluded  from the  calculation  of diluted  earnings  (loss) per share as their
effect would have been anti-dilutive.

BUSINESS SEGMENTS

      The Company applies  Statement of Financial  Accounting  Standards No. 131
"Disclosures  about Segments of an Enterprise and Related  Information".  During
the fiscal year ended June 30,  2004,  the  Company  operated in one segment and
therefore segment information is not presented.

      Management has determined that it is not meaningful to provide  geographic
segment  disclosures  for revenues  and  long-lived  assets  because the Company
performs services for and generates revenue from customers throughout the U.S.

REVENUE RECOGNITION

      The  Company  recognizes  revenue  from the sale of  refurbished  computer
equipment and related  products  upon delivery of goods to a common  carrier for
delivery to the customer.  Revenue for the repair of customer owned equipment is
recognized upon  completion of the repair.  The Company assumes the risk of loss
due to damage or loss of products during shipment.  The Company is reimbursed by
the common  carriers for shipping  damage and lost  products.  The Company sells
extended  warranty  and  product  maintenance  contracts.   Revenue  from  these
contracts is deferred and recognized as income on a straight-line basis over the
life of the  contract,  which  typically  is for a period of one  year.  Service
warranty  and  product  maintenance  revenue  represented  less  than  5% of the
Company's  total revenue for the period June 2, 2004 through June 30, 2004,  our
period of ownership.

INVESTMENT IN UNCONSOLIDATED PARTNERSHIP

      The Company accounts for its investment in an  unconsolidated  partnership
under  the  equity  method  of  accounting,  as the  Company  does  not have any
management  control over this entity.  This investment is recorded  initially at
cost  and   subsequently   adjusted   for  equity  in  net   earnings  and  cash
distributions.


                                       14
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

      In March 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff Accounting
bulletin  ("SAB")  No.  105,  "Loan  Commitments  Accounted  for  as  Derivative
Instruments".  This  bulletin  contains  specific  guidance  on the  inputs to a
valuation-recognition  model to measure loan  commitments  accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed  interest rate in the loan  commitment and market  interest rate,
excluding any expected future cash flows related to the customer relationship or
loan  servicing.  In addition,  SAB105 requires the disclosure of the accounting
policy for loan commitments,  including methods and assumptions used to estimate
the fair value of loan commitments,  and any associated hedging strategies.  SAB
105 is effective for derivative instruments entered into subsequent to March 31,
2004 and should  also be applied to existing  instruments  as  appropriate.  The
Company has not yet completed its evaluation of SAB 105, but does not anticipate
a material impact on its financial statements.

LIQUIDITY AND CAPITAL RESOURCES

      We  have  financed  our  acquisitions  and  investments  principally  with
short-term  borrowings,  which were provided to us by Cornell Capital  Partners,
L.P., a private limited partnership  ("Cornell  Capital"),  and cash received in
exchange  for the  issuance of 4,200  shares of our Series A Preferred  Stock to
Cornell   Capital.   We  have  funded  our  ongoing   operations   through  cash
distributions  received  from  (i) our  investment  in  Yorkville  Advisors,  an
investment  management  partnership,  and  (ii)  working  capital  generated  by
Cyber-Test,  our core operating business.  Our cash and cash equivalents totaled
$1,193,170 at June 30, 2004.

      On July 16, 2003, we entered into an Equity Line of Credit  Agreement with
Cornell Capital Partners,  L.P., a private limited partnership.  Pursuant to the
Equity Line of Credit, the Company may, at its discretion,  periodically sell to
Cornell Capital Partners shares of common stock for a total purchase price of up
to  $30,000,000.  For each share of common stock purchased under the Equity Line
of Credit, Cornell Capital Partners will pay 91% of the lowest closing bid price
of the Company's  common stock on the  Over-the-Counter  Bulletin Board or other
principal  market on which  the  common  stock is  traded  for the five (5) days
immediately  following  the notice date.  The  effectiveness  of the sale of the
shares under the Equity Line of Credit is conditioned  upon us  registering  the
shares  of  common  stock  with  the  Securities  and  Exchange  Commission.  In
accordance  with the terms of the Equity  Line of Credit  with  Cornell  Capital
Partners,  Cornell is not  permitted  to own more than 9.99% of the  outstanding
common  stock at any one  time;  however  Cornell  is  permitted  to waive  such
restriction,  which waiver is  effective  on the 61st day after  delivery of the
waiver to the Company.

      During the fiscal year ended June 30,  2004,  we made  advances  under the
Equity  Line of Credit in the  aggregate  amount of  $725,000  in  exchange  for
issuing  361,956,145  shares of common stock to Cornell  Capital  Partners.  The
Company  netted  $684,125  from these  advances  after  deducting  escrow  agent
expenses and other direct costs  totaling  $40,875 that have been  recorded as a
reduction of common stock as of June 30, 2004.  These advances were  principally
used to provide a source of working  capital to sustain our  limited  operations
and  enabled  us to  restructure  and  settle  a  majority  of  our  outstanding
obligations.  During the fiscal year ended June 30, 2004, Hudson Street received
$335,000 of partnership cash distributions from Yorkville  Advisors.  We believe
that our  existing  sources  of  liquidity  including  cash  resources  and cash
provided by operating activities, supplemented as necessary with funds available
under our Equity  Line of Credit  arrangement,  and  distributions  from  Hudson
Street's  investment will provide  sufficient  resources to meet our present and
future working capital and cash requirements for at least the next 12 months.

      The Company  had total  liabilities  of  $6,571,877  as of June 30,  2004.
Included  in  this  total  are  contractual  obligations  of  $3,724,975.  These
contractual  obligations,  along with the dates on which such  payments are due,
are described below:


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                        PAYMENTS DUE BY PERIOD (FROM JUNE 30, 2004)
                                              -----------------------------------------------------------
                                                                1            2-3         4-5      AFTER 5
CONTRACTUAL OBLIGATIONS                         TOTAL       YEAR OR LESS    YEARS       YEARS      YEARS
-----------------------                       -----------   ------------  ----------   --------   --------
<S>                                           <C>            <C>          <C>          <C>        <C>
Notes Payable and Interest Thereon            $3,004,254*    $2,606,548   $  397,706   $     --   $     --
Convertible Debentures and Interest Thereon      181,744        181,744           --         --         --
Accounts Payable and Accrued Expenses            194,540        194,540           --         --         --
Other Current Liabilities                        344,437        344,437           --         --         --
  Total Contractual Obligations               $3,724,975     $3,327,269   $  397,706   $     --   $     --
</TABLE>

----------
      * 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.  In May and  August  2004,  the  court  issued  an entry of  default
judgment in favor of the Company  and  against all of the above  defendants.  On
October 22, 2004, the court held a hearing for final  determination of the above
action.  The court has not yet  issued  its  final  determination  based on that
hearing.

      During  the fiscal  year ended June 30,  2004,  the  Company  reduced  its
contractual  obligations by  approximately  $2,250,000  through a combination of
debenture holders' conversions, debt forgiveness, settlements with creditors and
the issuance of shares of its common  stock.  At June 30, 2004, we had a working
capital  deficiency of  $2,197,667.  In September and October 2004,  the Company
repaid $375,000 of its short-term note payable to Cornell Capital Partners, L.P.
through  the  issuance  of  172,881,526  shares of our  common  stock  valued at
$100,000 and the payment of cash in the amount of $275,000.

      Below is a discussion of our sources and uses of funds for the fiscal year
ended June 30, 2004:

NET CASH USED IN OPERATING ACTIVITIES

      Net cash used in  operating  activities  was $829,775 and $123,566 for the
fiscal  years ended June 30, 2004 and June 30,  2003,  respectively.  The use of
cash in  operating  activities  for the  fiscal  year  ended  June 30,  2004 was
principally  from net  income of  $475,820  offset by a  reduction  in  accounts
payable in the amount of $419,696,  and an increase in debt  forgiveness  income
offset by non-cash charges for amortization and debt discount expense in the net
aggregate  amount of $458,083.  The use of cash in operating  activities for the
fiscal year ended June 30, 2003 was  principally the result of a net loss during
the period  reduced by an increase in accounts  payable and accrued  interest in
the  amount  of  $942,162  and  by  non-cash   charges  for   depreciation   and
amortization,  debt  discount  expense,  common  stock  issued in  exchange  for
services and lawsuit settlements in the aggregate amount of $773,577.

NET CASH USED IN INVESTING ACTIVITIES

      No cash was provided from  investing  activities for the fiscal year ended
June 30, 2003. Cash used in investing  activities for the fiscal year ended June
30, 2004 was $5,176,376 and was  attributable  to the Company's  investment in a
partnership for $2,670,000  reduced by $335,000 of cash  distributions from this
partnership  investment and our purchase of the Cyber-Test Florida business, net
of cash acquired, in the amount of $2,841,376.

NET CASH FROM FINANCING ACTIVITIES

      Net cash of $7,176,794 from financing activities for the fiscal year ended
June 30, 2004 was from net  proceeds of $513,125  from the sale of shares of the
Company's  common stock to Cornell Capital  Partners,  L.P., under the Company's
Equity Line of Credit  facility,  proceeds of $3,000,000  from the issuance of a
short-term  promissory note to Cornell Capital Partners,  L.P., and net proceeds
of $3,756,500 from the issuance of shares of the Company's  Series A Convertible
Preferred Stock to Cornell Capital  Partners,  L.P.,  offset by the repayment of
short-term and installment  debt in the amount of $92,831.  Net cash of $135,000
from  financing  activities for the fiscal year ended June 30, 2003 was from the
10% Secured Convertible Debentures issued in November 2002 and the issuance of a
$35,000.00 short-term promissory note to Cornell Capital Partners, L.P.


                                       16
<PAGE>

CHANGE IN NET ASSETS

      As of and through June 30, 2004, the Company experienced  material changes
to its net assets  from its prior  fiscal year ended June 30,  2003.  During the
fiscal  year ended  June 30,  2004,  the  Company  purchased  the  business  and
operating assets of Cyber-Test  Florida and through its wholly-owned  investment
subsidiary,  Hudson  Street,  made  a  minority  investment  in  the  amount  of
$2,670,000 in Yorkville Advisors, an investment partnership.  As a result of the
Cyber-Test   Florida   acquisition,   the  Company   acquired  total  assets  of
approximately $1.6 million, consisting principally of cash ($643,195),  accounts
receivable  ($391,101),  inventory  ($350,480)  and fixed assets  ($166,516) and
assumed $313,091 of liabilities, which consisted principally of accounts payable
and  accrued  expenses.  The  Company  also  recorded  goodwill in the amount of
$2,445,592  associated  with the Cyber-Test  Florida  acquisition.  In addition,
during  this  period,  the  Company  acquired  the  license  rights  to  certain
intangible assets of Innova Holdings, Inc. (formerly known as Hy-Tech Technology
Group, Inc.) and its wholly-owned  subsidiary Hy-Tech Computer Systems, Inc. for
$503,300,  and settled  approximately  $2.2 million of liabilities for stock and
cash  resulting in $780,938 of  forgiveness  of debt  income.  The net effect of
these  transactions  on the  balance  sheet was to  increase  our net  assets by
approximately $7.9 million.

OFF-BALANCE SHEET ARRANGEMENTS

      We do not have any off-balance sheet arrangements.

RISKS RELATED TO OUR BUSINESS

      In addition to historical facts or statements of current  condition,  this
Annual   Report   on   Form   10-KSB   contains   forward-looking    statements.
Forward-looking  statements  provide our current  expectations  or  forecasts of
future events.

      The  following  discussion  outlines  certain  factors that we think could
cause  our  actual   outcomes  and  results  to  differ   materially   from  our
forward-looking  statements  as well as impact our future  overall  performance.
These factors are in addition to those set forth elsewhere in this Annual Report
on Form 10-KSB.

      WE HAVE A HISTORY OF LOSSES, AND MAY INCUR ADDITIONAL LOSSES.

      We are a holding company with a limited history of operations. We achieved
profitability  for the first time in fiscal  year 2004.  While we have  achieved
profitability, we cannot be sure that we will maintain revenue sufficient for us
to continue to remain profitable.

      WE MAY NEED ADDITIONAL CAPITAL.

      To pursue our objectives,  we may need additional capital which may not be
available to us. This may delay our progress in achieving our goals.

      We will require funds in excess of our existing cash resources:

            o     to  seek  out  and  find  investment   opportunities  in  high
                  growth-potential companies;

            o     to  acquire   the   assets  or  stock  of   technology-related
                  companies;

            o     to hire and retain highly  skilled  employees who  understand,
                  and can implement, our business model; and

            o     to finance the growth of our current operations.


                                       17
<PAGE>

      In the past,  we have  funded  all of our growth  through  equity and debt
financings.  We anticipate that our existing capital resources will enable us to
maintain  currently  planned  operations  through the next  twelve (12)  months.
However,  this  expectation is based on our current  operating plan, which could
change as a result of many factors,  and we may need  additional  funding sooner
than   anticipated.   Because  our  operating  and  capital   resources  may  be
insufficient to meet future requirements,  we may need to raise additional funds
in the near future to continue our business expansion plans.

      It is possible that we will be unable to obtain additional  funding as and
when we need it.  If we are  unable  to obtain  additional  funding  as and when
needed,  we could be forced  to delay the  progress  of our  business  expansion
plans.

      NEW EQUITY FINANCING COULD DILUTE CURRENT STOCKHOLDERS.

      If we raise funds  through  equity  financing to meet the needs  discussed
above,  it will have a  dilutive  effect on  existing  holders  of our shares by
reducing their percentage  ownership.  The shares may be sold at a time when the
market price is low because we need the funds. This will dilute existing holders
more than if our stock price was higher.  In addition,  equity  financings often
involve shares sold at a discount to the current market price.

      THE LOSS OF ANY ONE OF  CYBER-TEST'S  KEY CUSTOMERS  COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.

      Cyber-Test  relies heavily on the business of a few key  customers.  While
all these key customers are contractually committed to purchase parts or service
from Cyber-Test, these contracts are terminable within 60 to 90 days. If any one
(or all) of these key customers terminates its relationship with Cyber-Test,  it
could have a material adverse effect on our business.

      WE AND OUR SUBSIDIARIES OPERATE IN COMPETITIVE INDUSTRIES.

      Cyber-Test's  business is highly  competitive.  Cyber-Test  competes  with
companies  that  provide  repair  services  for office  equipment  and  computer
peripheral  products,  with  companies  that  supply  parts and  consumables  to
end-users  and  repair  companies  of such  equipment  and  products,  and  with
resellers of such equipment and products.

      Competition within the office equipment and computer  peripheral  products
service and repair  industry is based on quality of service,  depth of technical
know-how,  price, availability of parts, speed and accuracy of delivery, and the
ability to tailor  specific  solutions to customer  needs.  Many of Cyber-Test's
competitors are larger in size and have greater  financial and other  resources,
such as Decision  One,  Depot  America,  Teleplan,  DataTech  America,  and DEX.
Cyber-Test  also competes with  manufacturers  and OEMs that do their own repair
work,  as well as large  distribution  and  logistics  companies  such as United
Parcel Service and Airborne Logistics.

      Management  believes  Cyber-Test has a competitive  advantage over many of
its competitors, but Cyber-Test's ability to maintain such competitive advantage
is dependent upon many variables  including its ability to successfully  attract
and retain  technicians that are capable of performing  repair on all brands and
models of office  equipment  and  computer  peripherals  at prices  which remain
competitive.  We can provide no assurances that Cyber-Test will continue to have
the resources to successfully compete in the technology repair service industry.

      OUR BUSINESS COULD SUFFER IF THERE IS A PROLONGED ECONOMIC DOWNTURN.

      We derive a  substantial  amount of our net  revenue  from the  repair and
resale by  Cyber-Test  of office  equipment  and computer  peripheral  products.
Revenue  from the  repair  and  resale  of such  equipment  does  not  generally
fluctuate widely with economic cycles. However, a prolonged national or regional
economic recession could have a material adverse effect on our business.

      We  also  derive  a  substantial  amount  of our  net  revenue  from  cash
distributions  received by us from our  investments  in  companies  operating in
diverse  industries.  A prolonged  economic downturn could hinder the ability of
these  companies  to  provide  us  with a  substantial,  or any,  return  on our
investments.


                                       18
<PAGE>

      FLUCTUATIONS IN THE PRICE OR  AVAILABILITY  OF OFFICE  EQUIPMENT PARTS AND
      COMPUTER PERIPHERAL PRODUCTS COULD MATERIALLY ADVERSELY AFFECT US.

      The price of office equipment parts and computer  peripheral  products may
fluctuate  significantly  in the future.  Changes in the supply of or demand for
such parts and  products  could  affect  delivery  times and  prices.  We cannot
provide any  assurances  that  Cyber-Test  will  continue to have access to such
parts and products in the necessary  amounts or at reasonable prices or that any
increases  in the cost of such  parts  and  products  will  not have a  material
adverse effect on our business.

      WE  COULD  BE   MATERIALLY   AFFECTED  BY   TURNOVER   AMONG  OUR  SERVICE
      REPRESENTATIVES.

      Cyber-Test  depends on its ability to identify,  hire,  train,  and retain
qualified service personnel as well as a management team to oversee the services
that Cyber-test  provides.  A loss of a significant  number of these experienced
personnel  would  likely  result in reduced  revenues for  Cyber-Test  and could
materially  affect our  business.  Cyber-test's  ability  to attract  and retain
qualified service representatives depends on numerous factors, including factors
that  Cyber-Test  cannot  control,  such as conditions  in the local  employment
markets in which it operates.  We cannot provide and assurances  that Cyber-Test
will be able to hire or retain a sufficient number of service representatives to
achieve its financial objectives.

      TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH.
      OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

      Our ability to make  payments  on our  indebtedness,  and to fund  planned
capital  expenditures  will  depend on our  ability  to  generate  cash from our
operations  in the  future.  This,  to a certain  extent,  is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based on our current level of operations, we believe our
cash flow from  operations,  available cash and available  borrowings  under our
credit facility with Cornell Capital Partners, L.P. will be adequate to meet our
future liquidity needs for at least the next twelve (12) months.

      We cannot provide any assurances, however, that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to us in an amount  sufficient to enable us to pay our  indebtedness  or to fund
our other  liquidity  needs.  We may need to refinance or  restructure  all or a
portion of our indebtedness on or before maturity. We cannot make any assurances
that  we  will be able to  refinance  any of our  indebtedness  on  commercially
reasonable terms or at all. If we cannot service our  indebtedness,  we may have
to take actions such as selling assets, seeking additional equity or reducing or
delaying  capital   expenditures,   strategic   acquisitions,   investments  and
alliances.  We cannot make any assurances  that any such actions,  if necessary,
could be effect on commercially reasonable terms, or at all.

      THE  FUTURE  CONVERSION  OF OUR  OUTSTANDING  SERIES  A AND B  CONVERTIBLE
      PREFERRED  STOCK WILL CAUSE DILUTION TO OUR EXISTING  SHAREHOLDERS,  WHICH
      MEANS THAT OUR PER-SHARE INCOME AND STOCK PRICE COULD DECLINE

      The  issuance  of shares  upon any future  conversion  of the  outstanding
Series A Convertible  Preferred  Shares and B Convertible  Preferred Shares will
have a dilutive  impact on our  stockholders.  We currently  have  $4,500,000 of
outstanding  Series A Convertible  Preferred Shares and B Convertible  Preferred
Shares that are convertible  into shares of our common stock no earlier than May
2005 and June 2005, respectively. Both the Series A Convertible Preferred Shares
and B Convertible Preferred Shares are convertible at a price of $0.01 per share
or 100% of the  average  of the three  lowest  closing  bid  prices  for the ten
trading days immediately  preceding the date of conversion,  whichever is lower.
If our  share  price is equal to or  greater  than $.01 per share at the time of
conversion,  the  Series  A  Convertible  Preferred  Shares  and  B  Convertible
Preferred Shares would be convertible into an aggregate of 450,000,000 shares of
our common  stock.  In the event the price of our common stock is less than $.01
per share at the time of  conversion,  the number of shares of our common  stock
issuable would be greater than 450,000,000.  If such conversions had taken place
at  $0.001,  our  recent  stock  price,  then  holders  of  our  Series  A and B
Convertible  Preferred  shares would have received  4,500,000,000  shares of our
common  stock.  As a result,  our net income per share could  decrease in future
periods, and the market price of our common stock could decline.


                                       19
<PAGE>

      THE CONVERSION OF OUR SERIES A CONVERTIBLE  PREFERRED  STOCK COULD CAUSE A
      CHANGE OF CONTROL

      The  issuance of shares upon the  conversion  of our Series A  Convertible
Preferred Stock could result in a change of control.  Cornell Capital  Partners,
L.P.  holds our Series A  Convertible  Preferred  Stock,  which if  converted at
current  prices  on  or  after  May  2005,  would  result  in  the  issuance  of
4,500,000,000  shares of our  common  stock.  After  such  conversions,  Cornell
Capital Partners, L.P. would own in excess of 60% of our then outstanding shares
of Common  Stock,  computed  based on  5,000,000,000  shares that are  currently
authorized to be issued. In such event, Cornell Capital Partners,  L.P. would be
our largest  shareholder and would be able to exercise control of us by electing
directors,  increasing  the number of authorized  shares of common stock that we
could issue or otherwise.

      WE HAVE A WORKING CAPITAL DEFICIT,  WHICH MEANS THAT OUR CURRENT ASSETS ON
      JUNE 30, 2004 WERE NOT  SUFFICIENT TO SATISFY OUR CURRENT  LIABILITIES  ON
      THAT DATE

      We had a working capital deficit of $2,197,667 as of June 30, 2004,  which
means that our current  liabilities  exceeded our current  assets by $2,197,667.
Current assets are assets that are expected to be converted into cash within one
year and, therefore,  may be used to pay current liabilities as they become due.
Our working  capital deficit means that our current assets on June 30, 2004 were
not sufficient to satisfy all of our current liabilities on that date.

      OUR  INDEPENDENT  AUDITORS  HAVE  ADDED A  GOING  CONCERN  OPINION  TO OUR
      FINANCIAL  STATEMENTS,  WHICH  MEANS  THAT WE MAY NOT BE ABLE TO  CONTINUE
      OPERATIONS UNLESS WE OBTAIN ADDITIONAL FUNDING

      Our  independent  auditors  have added an  explanatory  paragraph to their
audit  opinions  issued in  connection  with the years  2004 and 2003  financial
statements, which states that our ability to continue as a going concern depends
upon  our  ability  to  resolve  liquidity  problems  by  generating  sufficient
operating profits to provide additional  working capital.  Our ability to obtain
additional  funding and pay off our  obligations  will  determine our ability to
continue  as a going  concern.  Our  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.

      THE PRICE OF OUR COMMON STOCK MAY BE AFFECTED BY A LIMITED  TRADING VOLUME
      AND MAY FLUCTUATE SIGNIFICANTLY

      There is a limited  public market for our common stock and there can be no
assurance that an active  trading market will continue.  An absence of an active
trading  market could  adversely  affect our  stockholders'  ability to sell our
common stock in short time periods, or at all. Our common stock has experienced,
and is  likely  to  experience  in the  future,  significant  price  and  volume
fluctuations  that could  adversely  affect the market price of our common stock
without  regard to our  operating  performance.  In  addition,  we believe  that
factors such as quarterly  fluctuations in our financial  results and changes in
the overall  economy or the condition of the  financial  markets could cause the
price of our common stock to fluctuate substantially.

      OUR  COMMON  STOCK IS DEEMED TO BE "PENNY  STOCK,"  WHICH MAY MAKE IT MORE
      DIFFICULT  FOR   INVESTORS  TO  SELL  THEIR  SHARES  DUE  TO   SUITABILITY
      REQUIREMENTS

      Our common stock is deemed to be "penny  stock" as that term is defined in
Rule 3a51-1  promulgated under the Securities  Exchange Act of 1934, as amended.
These  requirements  may reduce  the  potential  market for our common  stock by
reducing the number of potential investors.  This may make it more difficult for
investors  in our common  stock to sell shares to third  parties or to otherwise
dispose of them.  This could cause our stock price to decline.  Penny stocks are
stock:

            o     With a price of less than $5.00 per share;

            o     That are not traded on a "recognized" national exchange;

            o     Whose prices are not quoted on the Nasdaq automated  quotation
                  system  (Nasdaq  listed  stock  must still have a price of not
                  less than $5.00 per share); or

            o     In issuers with net tangible  assets of less than $2.0 million
                  (if the issuer has been in  continuous  operation for at least
                  three years) or $5.0 million (if in  continuous  operation for
                  less than three years),  or with average revenues of less than
                  $6.0 million for the last three years.


                                       20
<PAGE>

      Broker/dealers  dealing in penny stocks are required to provide  potential
investors  with a  document  disclosing  the  risks of penny  stocks.  Moreover,
broker/dealers  are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.

      WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL

      Our  success   largely  depends  on  the  efforts  and  abilities  of  key
executives,  including  Mr. Wayne  Danson,  our  President  and Chief  Financial
Officer, Mr. Martin Nielson, our Senior Vice President-Acquisitions and Ms. Lisa
Welton, our President and Chief Executive Officer of Cyber-Test. The loss of the
services of Mr.  Danson,  Mr. Nielson or Ms. Welton could  materially  adversely
affect our business  because of the cost and time necessary to replace and train
a replacement.  Such a loss would also divert  management's  attention away from
operational  issues. We maintain a $2,000,000  key-man life insurancE policy for
each of Mr. Danson, Mr. Nielson and Ms. Welton.

ITEM 7. FINANCIAL STATEMENTS

      The  financial  statements  required  by item 7 are  included  in the Form
10-KSB beginning on page F-1.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL REPORTING

      None.

ITEM 8A.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL REPORTING

      (A)   EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:

      As of June 30, 2004, we carried out an evaluation,  under the  supervision
and with the  participation  of our acting  Chief  Executive  Officer  and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls  and  procedures.  Based  on  this  evaluation,  our  Chief
Executive  Officer and Chief  Financial  Officer  concluded that, as of June 30,
2004,  our disclosure  controls and procedures are effective in timely  alerting
them to material  information  required to be included in our  periodic  reports
that are filed with the Securities and Exchange  Commission.  It should be noted
that the  design  of any  system  of  controls  is based  in part  upon  certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future  conditions,  regardless  of how remote.  In  addition,  we reviewed  our
internal  controls,  and there have been no significant  changes in our internal
controls or in other  factors that could  significantly  affect  those  controls
subsequent to the date of their last valuation.

      (B)   CHANGES IN INTERNAL CONTROLS:

      There were no significant  changes in the Company's internal controls over
financial  reporting or in other factors that could  significantly  affect these
controls  during the fiscal  year  covered by this Report or from the end of the
reporting period to the date of this Form 10-KSB.

ITEM 8B. OTHER INFORMATION

Not applicable.


                                       21
<PAGE>

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth the names and ages of our current directors
and executive officers,  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 and serve terms of one year or until
their death,  resignation  or removal by the Board of  Directors.  Our directors
serve  one-year terms until their  successors  are elected.  There are no family
relationships  or  understandings  between any of the  directors  and  executive
officers. In addition, except for the arrangement with Mr. Nielson, as described
in  Mr.  Nielson's  profile  set  forth  below,  there  was  no  arrangement  or
understanding  between any  executive  officer and any other person  pursuant to
which any person was selected as an executive officer.

      Our directors and executive officers are as follows:

      NAME AND ADDRESS         AGE        POSITION
      -----------------------  ---        ----------------------------------

      Wayne I. Danson           51        President, Chief Financial Officer
      420 Lexington Avenue                and Director
      New York, NY 10170

      Dr. Michael Finch         56        Director
      37 Walnut Street
      Wellesley, MA 02481

      Jonathan J. Lichtman      52        Secretary and Director
      120 Palmetto Park Road
      Boca Raton, FL 33432

      Martin Nielson            52        Senior Vice President-Acquisitions
      420 Lexington Avenue                and Director
      New York, NY 10170

      Randall Prouty            52        Director
      420 Lexington Avenue
      New York, NY 10170

      Wilbank J. Roche          58        Director
      2530 Wilshire Boulevard
      Santa Monica, CA 90403

      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.

      WAYNE I. DANSON,  PRESIDENT,  CHIEF  FINANCIAL  OFFICER AND DIRECTOR.  Mr.
Danson has served as our Chief  Financial  Officer since  December 1, 1999, as a
Director  since  January 3, 2000,  and as President  since April 30,  2002.  Mr.
Danson  also serves as Chairman  of the Board of  Encompass.  Mr.  Danson is the
Managing Director and Founder of Danson Partners, LLC, a financial advisory firm
specializing  in middle  market  companies  in the real  estate  and  technology
industries.  Prior to forming Danson  Partners,  LLC in May 1999, Mr. Danson was
co-head  and  Managing  Director  of  PricewaterhouseCoopers  LLP's Real  Estate
Capital Markets Group.  Prior to rejoining  PricewaterhouseCoopers  in 1996, 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 in 1988, 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.


                                       22
<PAGE>

      MARTIN NIELSON, SENIOR VICE PRESIDENT-ACQUISITIONS,  DIRECTOR. Mr. Nielson
was appointed  Senior Vice  President-Acquisitions  in June 2004 and Director in
August 2004.  Mr. Nielson also serves as Chief  Executive  Officer of Encompass,
our  wholly-owned  subsidiary and principal  operating unit. From 2003 until his
appointment to the foregoing offices,  he was Chairman of Innova Holdings,  Inc.
(formerly known as Hy-Tech  Technology Group,  Inc.). He also served as Chairman
of Inclusion  Technologies,  Inc. from 2000 to 2002. Since 1994, he has been the
Chairman and Chief Executive  Officer of Altos Bancorp,  Inc., a  privately-held
mergers and  acquisition  company.  In 1991,  Mr.  Nielson was founder and Chief
Executive  Officer of The  Business  Superstore,  an office  supply and computer
superstore/telesales company in London that merged with Office World in 1993. In
1982,  Mr.  Nielson was part of the founding  team and served until 1991 as Vice
President of Businessland,  Inc., a New York Stock Exchanged listed computer and
networking reseller.  From 1972 until 1981, Mr. Nielson was employed as a senior
officer of The Gap Stores.  Mr. Nielson graduated from San Jose State University
with  a BS in  business  management  with a  concentration  in  mathematics  and
engineering,  and attended San Francisco State  University's  Graduate School of
Business with a concentration in operations research.

      JONATHAN J. LICHTMAN, SECRETARY AND DIRECTOR. Mr. Lichtman has served as a
Director  since  November 9, 1999 and is currently a partner 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 Levinson and Lichtman
LLP, Mr. Lichtman was an attorney 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 has served as a Director  since
March 10, 1997.  For the four years before that,  he was employed by Media Forum
(first in the UK,  and then in the U.S.) as  Director  of  Product  Development.
Since  1998,  he has been  Chief  Technology  Officer  of New  Media  Solutions,
responsible for the conception,  planning, creation, execution and deployment of
all software  products and  projects.  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 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 has served as a Director since March
10,  1997.  Mr.  Prouty  served as our  Chairman  from  November  30, 2001 until
December 12, 2002.  Mr. Prouty is also  currently the President and CEO of World
Associates,  Inc., a publicly traded real estate development 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.  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 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
Southern  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.


                                       23
<PAGE>

OTHER SIGNIFICANT EMPLOYEES

LISA A. WELTON,  PRESIDENT AND CHIEF EXECUTIVE  OFFICER OF CYBER-TEST,  INC. AND
EXECUTIVE VICE PRESIDENT OF ENCOMPASS GROUP  AFFILIATES,  INC. From 1990 to June
3,  2004,  Ms.  Welton  served as  President  and  Chief  Executive  Officer  of
Cyber-Test  Florida,  where she was  responsible  for  overseeing  the company's
operational,  marketing,  contractual,  and  communications  efforts,  including
business  development and growth.  Upon our acquisition of Cyber-Test  Florida's
assets,  Ms.  Welton  was  appointed  to the same  offices  and  given  the same
responsibilities  with  Cyber-Test.  Ms.  Welton was  appointed  Executive  Vice
President  of  Encompass  in June 2004 and  assists  in the  overall  vision and
implementation  of the  business.  From 1987 to 1989,  Ms.  Welton served as the
National Director of Business  Development for Charlan Brock and Associates,  an
International architectural firm specializing in hotels and high-end custom home
developments,  where she secured architectural  contracts for the firm's clients
in the  United  States  and  Europe.  From 1985 to 1987,  Ms.  Welton was Senior
Account Manager at Robison,  Yesawich and Pepperdine,  an advertising and public
relations  firm,  where she  coordinated  hotel  property grand openings and all
subsequent  press events.  Ms. Welton graduated from the University of Wisconsin
with a BS degree in advertising and marketing.

THOMAS SUTLIVE,  VICE PRESIDENT OF CYBER-TEST,  INC. From August 1995 to June 3,
2004,  Mr. Sutlive was employed by Cyber-Test  Florida,  where he served as Vice
President,  since  January 2004,  and was  responsible  for the overall  service
structure and  establishment  of purchasing  policies and  procedures.  Upon our
acquisition  of Cyber-Test  Florida's  assets,  Mr. Sutlive was appointed to the
same offices and given the same responsibilities  with Cyber-Test.  Prior to Mr.
Sutlive's  appointment to Vice President,  he served as Cyber-Test's Director of
Operations  from  September  1999 to January  2004 and  Purchasing  Manager from
August 1995 to September  1999. From 1989 to 1995, Mr. Sutlive was Lead Electric
Technician with Sprague Electric,  where he handled the operational readiness of
specialized precision manufacturing  equipment.  Mr. Sutlive previously held the
position of Systems  Analyst with Dyncorp,  a defense  contractor,  where he was
responsible for generating  failure analyses for naval missile tracking systems.
Mr. Sutlive earned a bachelors  degree from the University of Georgia and served
six honorable years with the United States Navy.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS.

      Our  business  affairs are  managed  under the  direction  of the Board of
Directors.  During the fiscal year ended June 30,  2004,  our Board of Directors
held four (4)  meetings  and took  action by  written  consent  eight (8) times.
During the fiscal year ended June 30, 2004, all of the directors attended all of
the Board of Directors meetings that were held.

      The  Board  of  Directors  has   established  an  Audit  Committee  and  a
Compensation Committee.

      The Audit  Committee was  established  May 15, 2001.  The Audit  Committee
reports to our Board of Directors  regarding the  appointment of our independent
public accountants,  the scope and results of our annual audits, compliance with
our accounting and financial  policies and management's  procedures and policies
relative  to the  adequacy  of  our  internal  accounting  controls.  The  Audit
Committee is comprised of Messrs. Prouty and Finch.

      The Compensation  Committee was established May 15, 2001. The Compensation
Committee of our Board of  Directors  reviews and makes  recommendations  to our
Board  of  Directors  regarding  our  compensation  policies  and all  forms  of
compensation  to be  provided  to  our  executive  officers.  In  addition,  the
compensation committee will review bonus and stock compensation arrangements for
all  employees.  The  compensation  committee is comprised of Messrs.  Roche and
Prouty.

      The Board of Directors also has established an Acquisitions  Committee and
an  Advanced  Communications  (Australia)  Committee.  Messrs.  Prouty,  Danson,
Lichtman and Roche  currently  serve on the  Acquisitions  Committee and Messrs.
Prouty, Danson,  Lichtman,  Roche and Finch serve on the Advanced Communications
(Australia)  Committee,  which will address and make all  decisions  relating to
SpectruCell matters.


                                       24
<PAGE>

AUDIT COMMITTEE FINANCIAL EXPERT

      Our  Audit  Committee  does  not  currently  have at an  "audit  committee
financial  expert" as defined under Item 401(e) of Regulation  S-B. Our Board of
Directors is actively seeking to appoint an individual to the Board of Directors
and the Audit Committee who would be deemed an audit committee  financial expert
and who  would  be  independent  as that  term  is used in Item  7(d)(3)(iv)  of
Schedule 14A.

CORPORATE GOVERNANCE

      In April 2004, we  established a Code of Business  Conduct and Ethics (the
"Code"), applicable to all of our employees,  including our principal executive,
accounting  and  financial  officers,  which states that we are committed to the
highest  standards  of legal and  ethical  conduct.  This  Code  sets  forth our
policies with respect to the way we conduct  ourselves  individually and operate
our business.  The provisions of this Code are designed to deter  wrongdoing and
to  promote  honest  and  ethical  conduct  among our  employees,  officers  and
directors.  The Code is attached hereto as Exhibit 14.1 and can also be found on
our corporate website at www.advancedcomtech.net. We will satisfy our disclosure
requirement  under Item 5.05 of Form 8-K  regarding  certain  amendments  to, or
waivers  of,  any  provision  of our Code by  posting  such  information  on our
corporate website.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended (the
"Exchange  Act")  requires that our  directors  and  executive  officers and any
persons  who own more than ten  percent  of our  common  stock file with the SEC
initial  reports of ownership  and reports of changes in ownership of our common
stock and other equity securities.  Such persons are required by SEC regulations
to furnish us with copies of all such reports that they file. To our  knowledge,
based upon our review of these  reports,  all Section 16 reports  required to be
filed by our directors and executive  officers during the fiscal year ended June
30, 2004 were filed on a timely basis.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

      The following table shows all cash compensation  accrued and/or paid by us
to our two executive  officers,  as well as certain other  compensation  paid or
accrued,  for the fiscal years ended June 30, 2004,  2003 and 2002.  Mr. Nielson
became an executive  officer in June 2004.  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 value of restricted  shares issued in lieu of cash
compensation and certain other compensation, if any, whether paid or deferred.

<TABLE>
<CAPTION>
                                      ANNUAL COMPENSATION                     LONG-TERM COMPENSATION
                               -------------------------------------  ---------------------------------------------
                                                                                AWARDS        PAYOUTS
                                                                      ----------------------  -------
                                                          OTHER       RESTRICTED
                                                          ANNUAL          STOCK     OPTIONS/   LTIP     ALL OTHER
NAME AND                        SALARY         BONUS    COMPENSATION     AWARD(S)     SARS    PAYOUTS  COMPENSATION
PRINCIPAL POSITION      YEAR      ($)           ($)         ($)            ($)        (#)      ($)         ($)
------------------      ----   -----------    -------    -------       ------------  ----      ----       ----
<S>                     <C>    <C>            <C>        <C>           <C>           <C>       <C>        <C>
Wayne I. Danson,        2004   $150,000       $    --    9,12(1)       $     --      $ --      $ --       $ --
President and CFO       2003    190,138(2)         --      --                --        --        --         --
                        2002    149,933(3)         --      --           110,000 (3)    --        --         --
Martin Nielson,         2004     16,667        15,000      --                --        --        --         --
Sr. VP-Acquisitions     2003       --              --      --                --        --        --         --
                        2002       --              --      --                --        --        --         --
</TABLE>

----------
(1)   Represents  reimbursement  of  out-of-pocket  expenses,  net of a  $35,000
      write-off,  received by Mr. Danson through Danson Partners, LLC, an entity
      owned and operated by Mr. Danson.

(2)   Represents  accrued fees and out-of-pocket  expenses.  Mr. Danson received
      $3,000 in cash and $1,000 in stock for fiscal 2003 services rendered.

(3)   Represents  accrued fees and out-of-pocket  expenses.  Mr. Danson received
      $65,000 in cash for fiscal 2002 services and $32,775 for  reimbursement of
      prior  and  current  out-of-pocket  expenses.  Mr.  Danson  was  appointed
      President on April 30, 2002.


                                       25
<PAGE>

      We have no  deferred  compensation,  stock  options,  SAR or  other  bonus
arrangements  for our employees and/or  directors.  During the fiscal year ended
June 30, 2004, all decisions concerning executive  compensation were made by our
Compensation Committee.

      EMPLOYMENT AGREEMENTS

      Mr.  Danson  is  party  to a  written  consulting  agreement  with us that
entitled him to $20,000 per month in cash and stock for the period  September 1,
2000  through  August 31, 2001 and, as extended  orally,  to December  31, 2001.
Effective  January 1, 2002,  Mr. Danson  agreed to orally extend his  consulting
agreement  with us through  December 31, 2003 at a monthly  rate of $12,500.  On
January 1, 2004,  Mr. Danson agreed to extend his oral  agreement  indefinitely,
and  our  Compensation  Committee  is  currently  negotiating  with  Mr.  Danson
regarding a two-year  employment  agreement.  The terms and  conditions  of this
agreement  are not yet  finalized.  Mr.  Danson  is  reimbursed  for  reasonable
out-of-pocket  expenses  relating to  activities  for us. We have  provided  Mr.
Danson with a $2 million life  insurance  policy for his benefit and also insure
Mr. Danson under a $2 million key man life insurance policy.

      On June 24, 2004,  we entered into a two year  employment  agreement  with
Martin   Nielson,   our  Senior  Vice   President-Acquisitions   (the   "Nielson
Agreement").  Under the terms of the Nielson Agreement,  Mr. Nielson is employed
as  Encompass'   President  and  Chief  Executive  Officer  and  a  Senior  Vice
President-Acquisitions  of the  Company.  Mr.  Nielson is entitled to a $200,000
annual  salary and the right to earn up to 50,000,000  shares of our  restricted
common  stock  valued at $.01 per share,  or  $500,000,  to vest over a two-year
period. Mr. Nielson is also entitled to receive an Incentive Bonus determined at
the discretion of our  Compensation  Committee based on his  contribution to our
overall  performance as well as a bonus based on the overall  separate  business
and  financial   performance  of  Encompass  and  its   wholly-owned   operating
subsidiaries.  In addition,  we have provided Mr. Nielson with a $1 million life
insurance  policy for his benefit and also insure Mr. Nielson under a $2 million
key man life insurance  policy.  If Mr. Nielson's  employment with us terminates
for any reason other than by us for "cause," Mr.  Nielson is entitled to receive
an  additional  amount of base  salary  equal to the  amount of base  salary Mr.
Nielson  would  have  received  during  the six  (6)  month  period  immediately
following the date of his termination.  The severance payment is payable in cash
in equal monthly installments of the first business day of each month during the
six (6) month period  immediately  following the date of his termination.  Under
Mr. Nielson's employment agreement,  "cause" means the following: (i) any act or
omission by Mr. Nielson that constitutes malfeasance, misfeasance or nonfeasance
in the course of his duties, or in the judgment of our Board of Directors or our
Chief  Executive  Officer,  Mr.  Nielson has been grossly  negligent  (including
habitual  neglect of duties),  incompetent or  insubordinate in carrying out his
duties,  (ii) a material breach by Mr. Nielson of his employment  agreement that
is not cured  within  ten (10) days of  receipt  of  notice  thereof,  (iii) Mr.
Nielson's  breach of a fiduciary duty owed to us or our affiliates,  or (iv) Mr.
Nielson's  conviction of, or pleading nolo contendere to, a criminal  offense or
crime  constituting a misdemeanor or felony, or conviction in respect to any act
involving  fraud,  dishonesty  or moral  turpitude  (other  than  minor  traffic
infractions or similar minor offenses).

      On June 3, 2004, we entered into a three-year  employment  agreement  with
Lisa Welton. In accordance with the terms of Ms. Welton's employment  agreement,
Ms. Welton will hold the offices of President and Chief Executive  Officer,  and
be a  director,  of  Cyber-Test,  as  well  as  hold  the  office  of  Executive
Vice-President of Encompass. Ms. Welton is entitled to a $120,000 annual salary.
Ms.  Welton is also  entitled to receive an incentive  bonus  determined  at the
discretion  of our  Compensation  Committee  based  on her  contribution  to our
overall  performance as well as a bonus based on the overall  separate  business
and financial performance of Cyber-Test. In addition, we insure Ms. Welton under
a $2 million key man life insurance policy.  If Ms. Welton's  employment with us
terminates  for any reason other than by us for "cause," Ms.  Welton is entitled
to  receive  an  additional  amount of base  salary  equal to the amount of base
salary  Ms.  Welton  would  have  received  during  the  six  (6)  month  period
immediately  following the date of her  termination.  The  severance  payment is
payable in cash in equal monthly  installments of the first business day of each
month  during the six (6) month  period  immediately  following  the date of her
termination.   Under  Ms.  Welton's  employment  agreement,  "cause"  means  the
following:  (i) any act or omission by Ms. Welton that constitutes  malfeasance,
misfeasance or  nonfeasance  in the course of her duties,  or in the judgment of
our Board of  Directors  or our Chief  Executive  Officer,  Ms.  Welton has been
grossly  negligent  (including  habitual  neglect  of  duties),  incompetent  or
insubordinate  in carrying out her duties,  (ii) a material breach by Ms. Welton
of her employment agreement that is not cured within ten (10) days of receipt of
notice thereof,  (iii) Ms. Welton's breach of a fiduciary duty owed to us or our
affiliates,  or (iv) Ms. Welton's conviction of, or pleading nolo contendere to,
a criminal offense or crime  constituting a misdemeanor or felony, or conviction
in respect to any act involving fraud, dishonesty or moral turpitude (other than
minor traffic infractions or similar minor offenses).


                                       26
<PAGE>

      On June 3, 2004, we entered into a three-year  employment  agreement  with
Thomas  Sutlive.  In  accordance  with  the  terms of Mr.  Sutlive's  employment
agreement, Mr. Sutlive will hold the office of Vice-President of Cyber-Test. Mr.
Sutlive is entitled to a $110,000 annual salary. Mr. Sutlive is also entitled to
receive an incentive  bonus  determined at the  discretion  of our  Compensation
Committee  based on his  contribution  to our overall  performance  as well as a
bonus  based on the overall  separate  business  and  financial  performance  of
Cyber-Test.  If Mr. Sutlive's employment with us terminates for any reason other
than by us for "cause," Mr. Sutlive is entitled to receive an additional  amount
of base  salary  equal to the  amount of base  salary  Mr.  Sutlive  would  have
received during the six (6) month period  immediately  following the date of his
termination.  The  severance  payment  is  payable  in  cash  in  equal  monthly
installments  of the first  business  day of each month during the six (6) month
period  immediately  following the date of his termination.  Under Mr. Sutlive's
employment  agreement,  "cause" means the following:  (i) any act or omission by
Mr.  Sutlive that  constitutes  malfeasance,  misfeasance  or nonfeasance in the
course of his duties,  or in the judgment of our Board of Directors or our Chief
Executive Officer,  Mr. Sutlive has been grossly negligent  (including  habitual
neglect of duties),  incompetent  or  insubordinate  in carrying out his duties,
(ii) a material  breach by Mr. Sutlive of his  employment  agreement that is not
cured  within ten (10) days of receipt of notice  thereof,  (iii) Mr.  Sutlive's
breach of a fiduciary duty owed to us or our affiliates,  or (iv) Mr.  Sutlive's
conviction  of, or  pleading  nolo  contendere  to, a criminal  offense or crime
constituting  a  misdemeanor  or  felony,  or  conviction  in respect to any act
involving  fraud,  dishonesty  or moral  turpitude  (other  than  minor  traffic
infractions or similar minor offenses).

      Each  of  the  foregoing  agreements  contains  standard  confidentiality,
noncompete and work-for-hire provisions.

      Our  directors  did not receive any cash or stock  compensation  for their
services as a director in fiscal 2004 or 2003,  but were  reimbursed  for all of
their  out-of-pocket  expenses  incurred in  connection  with the  rendering  of
services as a director. For fiscal 2005, each of the independent  directors,  as
defined  under  NASDAQ  Rules and  Regulations,  will  receive  $25,000  in cash
compensation, payable $6,250 per quarter of service. Messer. Prouty will receive
an additional $5,000 for serving as Chairman of the Compensation Committee.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

      The following table contains information about the beneficial ownership of
our common stock as of October 15, 2004 for:

            o     each of our directors;
            o     each  of  our   executive   officers   named  in  the  summary
                  compensation table in item 10; and
            o     all directors and executive officers as a group.

      We are not aware of any person  who at June 30,  2004 owned more than five
percent of our common stock.  Unless otherwise  indicated,  the address for each
person or entity named below is c/o Advanced Communications Technologies,  Inc.,
420 Lexington Avenue, New York, NY 10170.

      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  2,004,247,731  shares of common stock  outstanding  as of


                                       27
<PAGE>

                                                       COMMON STOCK
                                                     BENEFICIALLY OWNED
                                               -----------------------------
NAME/TITLE                                       NUMBER          PERCENT (1)
-------------------------------------------    -----------       -----------

Wayne I. Danson, President, CFO & Director     65,158,832 (2)          3.25%
Martin Nielson, Sr. VP-Acq. & Director         10,000,000                *
Jonathan J. Lichtman, Secretary & Director     30,710,334 (3)          1.53%
Dr. Michael Finch, Director                       591,334                *
Randall Prouty, Director                       13,527,080                *
Wilbank Roche, Director                        18,507,143                *
                                              -----------       -----------

All Executive Officers and Directors as a
Group (6 persons)                             138,494,723             6.91%
                                              ===========       ===========

(1)   Percentage  of  outstanding  shares  is based on  2,004,247,731  shares of
      common  stock  outstanding  as of October 15, 2004,  together  with shares
      deemed  beneficially  owned by each shareholder.  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.

(2)   Includes  64,808,832 shares  beneficially owned by Mr. Danson's affiliated
      entity, spouse and adult children.

(3)   Excludes 396,666 shares held by various family trusts. Mr. Lichtman has no
      beneficial ownership in these shares.

*     Less than 1%.

      Although  pursuant to the terms of our Equity Line of Credit with  Cornell
Capital  Partners  Cornell  is not  permitted  to own  more  than  9.99%  of our
outstanding  common  stock at any one time,  Cornell is  permitted to waive such
restriction,  which waiver is  effective  on the 61st day after  delivery of the
waiver to us. Accordingly, there are a sufficient number of shares of our common
stock  issuable  under the Equity Line of Credit,  such that by delivering  such
waiver  Cornell  could  affect  a change  of  control  on or after  the 61st day
following delivery.

EXISTING STOCK COMPENSATION PLANS

      The following  table sets forth  information as of June 30, 2004 regarding
our  existing  compensation  plans  and  individual  compensation   arrangements
pursuant to which our equity securities are authorized for issuance to employees
or non-employees  (such as directors,  consultants and advisors) in exchange for
consideration in the form of services:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                                     Number of securities
                                                                                   remaining available for
                                                                                    future issuance under
                              Number of securities to        Weighted-average        equity compensation
                              be issued upon exercise       exercise price of          plans (excluding
                              of outstanding options,      outstanding options,    securities reflected in
       Plan Category            warrants and rights        warrants and rights           column (a))
------------------------------------------------------------------------------------------------------------
                                         (a)                       (b)                      (c)
------------------------------------------------------------------------------------------------------------
<S>              <C>                 <C>                            <C>                  <C>
Equity compensation
plans approved by
security holders                              0                         0                         0
Equity compensation
plans not approved by
security holders (1)                 50,000,000                     $0.01                50,000,000
------------------------------------------------------------------------------------------------------------
Total                                50,000,000                     $0.01                50,000,000
------------------------------------------------------------------------------------------------------------
</TABLE>


                                       28
<PAGE>

      (1)  Pursuant  to the terms of Mr.  Nielson's  employment  agreement,  Mr.
Nielson is entitled to receive  50,000,000  shares of the  Company's  restricted
common  stock,  priced at $.01 per share,  of which (i)  12,500,000  shares will
fully vest on July 1, 2005, and (ii)  37,500,000  shares will fully vest on July
1, 2006; provided that, as to each vesting traunch, Mr. Nielson is then employed
by the Company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      As of August 1, 2002, the Company relocated its principal executive office
from  California to 420 Lexington  Avenue,  New York, NY 10170 within the office
facility of Danson  Partners,  LLC, a  privately-owned  company that employs our
President and Chief Financial  Officer Wayne I. Danson.  No rent or facility use
fee is charged to the Company by Danson Partners, LLC.

      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 received $10,000
per month in cash and $10,000 per month in stock for his  services.  Immediately
prior to the  agreement's  expiration  on August 31, 2001,  Mr. Danson agreed to
orally  extend his  consulting  agreement  with the  Company  indefinitely  at a
monthly  rate of  $12,500,  plus  reimbursement  for  reasonable  out of  pocket
expenses.  As of June 30,  2004,  no money is owed to Danson  Partners,  LLC for
consulting fees and expenses.  The Company's Compensation Committee is presently
in  contract  discussions  with  Mr.  Danson  to  extend a  two-year  employment
agreement to him. The terms and conditions of Mr. Danson's agreement are not yet
finalized.

      Jonathan  J.  Lichtman,  Secretary  and a director  of the  Company,  is a
partner at  Levinson &  Lichtman,  LLP,  a law firm in Boca  Raton,  FL that the
Company  retained to provide legal  services  during fiscal years 2004 and 2003.
The  Company  paid  Levinson & Lichtman,  LLP  $93,612 and  $105,000 in cash and
stock,  respectively,  during fiscal 2004,  and $0 and $1,000 in cash and stock,
respectively,  during fiscal 2003 for legal  services  rendered.  As of June 30,
2004,  the Company  owes  Levinson &  Lichtman,  LLP $40,706 in cash for current
legal services.

      Wilbank Roche, a director of the Company,  is a partner at Roche & Holt, a
law firm in Los Angeles,  CA that the Company retained to provide legal services
during  fiscal  years 2004 and 2003.  The Company  paid Roche & Holt $56,392 and
$50,000 in cash and stock, respectively, during fiscal 2004 and $0 and $1,000 in
cash and stock, respectively, during fiscal 2003 for legal services rendered. As
of June 30,  2004,  the  Company  owes Roche & Holt  $26,930 in cash for current
legal services rendered.

      Effective  July 1, 2002, the Company  entered into a six-month  consulting
agreement with Randall Prouty, a director of the Company,  pursuant to which Mr.
Prouty  has  agreed  to  provide  certain  business  services,  such as  dispute
resolution,  corporate communications  strategies,  and business acquisitions to
the  Company.  Pursuant to the terms of the  consulting  agreement,  Mr.  Prouty
accrued $10,000 in monthly  compensation  for services  provided to the Company.
During the fiscal year ended June 30,  2004,  the  Company  again  extended  Mr.
Prouty's contract for an additional six-month period commencing November 1, 2003
and  ending  April 30,  2004 at the rate of $4,167  per month or  $25,000 in the
aggregate.  During the fiscal year ended June 30,  2004,  the  Company  paid Mr.
Prouty $18,000 and $30,000 in cash and stock, respectively, for past and current
services  rendered.  As of June 30, 2004, the Company owed Mr. Prouty $20,073 in
cash for current services rendered.

      During  the fiscal  year ended June 30,  2004,  the  Company  engaged  the
services of Dr.  Michael  Finch,  a director,  to evaluate  certain  third party
software programs and proposed business and investment  candidates.  The Company
incurred $10,000 of expenses to Dr. Finch for his services,  of which $6,666 was
paid as of June 30, 2004.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (A) EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

            (i) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
1.1                  Exchange Agreement between MRC Legal Services           Incorporated by reference to Exhibit 1.1 to
                     Corporation and Advanced Communications Technologies,   Company's Form 8-K filed on February 4, 2000
                     Inc. dated as of January 31, 2000
</TABLE>


                                       29
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
2.1                  Asset Purchase Agreement dated May 27, 2004, by and     Incorporated by reference to Exhibit 10.1 to
                     between Cyber-Test, Inc., a Delaware corporation and    the Company's Form 8-K filed on June 3, 2004
                     Cyber-Test, Inc., a Florida corporation.

3.1.1                Articles of Incorporation of Media Forum                Incorporated by reference to Exhibit 2.1 to
                     International, Inc.                                     the Company's Form S-8 filed on February 9,
                                                                             2000

3.1.2                Second Amendment to Articles of Incorporation of        Incorporated by reference to Exhibit 2.2 to
                     Telenetworx, Inc.                                       the Company's Form S-8 filed on February 9,
                                                                             2000

3.1.3                Third Amendment to Articles of Incorporation of Media   Incorporated by reference to Exhibit 2.3 to
                     Forum International, Inc.                               the Company's Form S-8 filed on February 9,
                                                                             2000

3.1.4                Fourth Amendment to Articles of Incorporation           Incorporated by reference to Exhibit 2.7 to
                                                                             the Form SB-2 filed with the SEC on March 5,
                                                                             2002
3.1.5                Fifth Amendment to Articles of Incorporation            Incorporated by reference to Exhibit 2.8 to
                                                                             the Form SB-2 filed with the SEC on July 16,
                                                                             2003

3.1.6                Sixth Amendment to Articles of Incorporation            Provided herewith

3.1.7                Seventh Amendment to Articles of Incorporation          Provided herewith

3.2                  Bylaws of the Company                                   Incorporated by reference to Exhibit 2.4 to
                                                                             the Company's Form S-8 filed on February 9,
                                                                             2000

10.1                 Lease Agreement dated as of November 27, 2001 between   Incorporated by reference to Exhibit 10.1 to
                     the Company and Continental Development, L.P. II        the Form SB-2 filed with the SEC on March 5,
                                                                             2002

10.2                 Stock Purchase Agreement between Advanced               Incorporated by reference to Exhibit 10.2 to
                     Communications Technologies, Inc. and Advanced          the Form S-1 Registration Statement filed on
                     Communications Technologies (Australia) Pty Ltd.        August 14, 2001

10.3                 Agreement dated June 27, 2000, between Ladenburg        Incorporated by reference to Exhibit 10.3 to
                     Thalmann & Co. and the Company                          the Company's Form S-1 Registration Statement
                                                                             filed on August 14, 2001

10.4                 Common Stock Purchase Agreement dated December 14,      Incorporated by reference to Exhibit 10.4 to
                     2000, between the Company and Wanquay Ltd.              the Company's Form S-1 Registration Statement
                                                                             filed on August 14, 2001

10.5                 Registration Rights Agreement dated December 14,        Incorporated by reference to Exhibit 10.5 to
                     2000, between the Company and Wanquay Ltd.              the Company's Form S-1 Registration Statement
                                                                             filed on August 14, 2001

10.6                 Escrow Agreement dated December 14, 2000, among the     Incorporated by reference to Exhibit 10.6 to
                     Company, Wanquay Ltd. and Epstein Becker & Green        the Company's Form S-1 Registration Statement
                                                                             filed on August 14, 2001
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
10.7                 Consulting Agreement with M. Richard Cutler dated       Incorporated by reference to Exhibit 10.1 to
                     January 31, 2000                                        the Company's Form S-8 filed on February 9,
                                                                             2000

10.8                 Stock Purchase Agreement dated April 5, 2000, between   Incorporated by reference to Exhibit 10.5 to
                     Advanced Communications Technologies, Inc. and          the Company's Form 10-QSB filed on May 24,
                     Advanced Communications Technologies Pty Ltd.           2000

10.9                 Securities Purchase Agreement dated January 10, 2002,   Incorporated by referenced to Exhibit 10.9 to
                     by and among Advanced Communications Technologies,      the Company's Form 10-QSB filed on February
                     Inc. and Buyers                                         12, 2002

10.10                Investor Registration Rights Agreement dated January    Incorporated by reference to Exhibit 10.10 to
                     10, 2002, by and among Advanced Communications          the Company's Form 10-QSB filed on February
                     Technologies, Inc. and Investors                        12, 2002

10.11                Transfer Agent Instructions                             Incorporated by reference to Exhibit 10.11 to
                                                                             the Company's Form 10-QSB filed on February
                                                                             12, 2002

10.12                Escrow Agreement dated January 10, 2002, by and among   Incorporated by reference to Exhibit 10.12 to
                     Advanced Communications Technologies, Inc., Buyers      the Company's Form 10-QSB filed on February
                     and First Union National Bank                           12, 2002

10.13                Equity Line of Credit Agreement dated July 2003, by     Incorporated by reference to Exhibit 10.13 to
                     and between Cornell Capital Partners, LP and Advanced   the Form SB-2 filed with the SEC on July 16,
                     Communications Technologies, Inc.                       2003

10.14                Registration Rights Agreement dated July 2003, by and   Incorporated by reference to Exhibit 10.14 to
                     between Advanced Communications Technologies, Inc.      the Form SB-2 filed with the SEC on July 16,
                                                                             2003

10.15                Placement Agent Agreement dated July 2003, by and       Incorporated by reference to Exhibit 10.15 to
                     between Advanced Communications Technologies, Inc.      the Form SB-2 filed with the SEC on July 16,
                     and Westrock Advisors, Inc.                             2003

10.16                Escrow Agreement dated July 2003, by and among          Incorporated by reference to Exhibit 10.16 to
                     Advanced Communications Technologies, Inc., Cornell     the Form SB-2 filed with the SEC on July 16,
                     Capital Partners, LP, Butler Gonzalez LLP and First     2003
                     Union National Bank

10.17                License and Distribution Agreement dated as of          Incorporated by reference to Exhibit 10.17 to
                     July 5, 2000, between Advanced Communications           the Company's Amendment to Form 10-KSB filed
                     Technologies, Inc. and Advanced Communications          on May 23, 2002
                     Technologies (Australia) Pty. Ltd.

10.18                Letter of Intent dated September 7, 2001 re: Purchase   Incorporated by reference to Exhibit 10.18 to
                     of Advanced Communications (Australia)                  Amendment No. 1 to the Company's Form 10-QSB
                                                                             for the quarter ended December 31, 2001

10.19                Securities Purchase Agreement, dated November 2002,     Incorporated by reference to Exhibit 10.19 to
                     by and among Advanced Communications and Buyers         the Company's Form 10-KSB for the year ended
                                                                             June 30, 2002 filed on December 6, 2002
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
10.20                Investor Registration Rights Agreement, dated           Incorporated by reference to Exhibit 10.20 to
                     November 2002, by and among Advanced Communications     the Company's Form 10-KSB for the year ended
                     and Investors                                           June 30, 2002 filed on December 6, 2002

10.21                Secured Convertible Debenture                           Incorporated by reference to Exhibit 10.21 to
                                                                             the Company's Form 10-KSB for the year ended
                                                                             June 30, 2002 filed on December 6, 2002

10.22                Escrow Agreement, dated November 2002, by and among     Incorporated by reference to Exhibit 10.22 to
                     Advanced Communications, Buyers, and Wachovia Bank,     the Company's Form 10-KSB for the year ended
                     N.A.                                                    June 30, 2002 filed on December 6, 2002

10.23                Irrevocable Transfer Agent Instructions, dated          Incorporated by reference to Exhibit 10.23 to
                     November 2002                                           the Company's Form 10-KSB for the year ended
                                                                             June 30, 2002 filed on December 6, 2002

10.24                Security Agreement, dated November 2002, by and among   Incorporated by reference to Exhibit 10.24 to
                     Advanced Communications and Buyers                      the Company's Form 10-KSB for the year ended
                                                                             June 30, 2002 filed on December 6, 2002

10.25                Middletons Lawyers Letter, dated November 11, 2002,     Incorporated by reference to Exhibit 10.25 to
                     terminating the April 2000 Stock Purchase Agreement     the Company's Form 10-KSB for the year ended
                     between Advanced Communications Technologies, Inc.      June 30, 2002 filed on December 6, 2002
                     and Advanced Communications (Australia)

10.26                Consulting Agreement dated July 1, 2002, between        Incorporated by reference to Exhibit 10.26 to
                     Advanced Communications and Randall H. Prouty           the Company's Third Amended Form 10-KSB for
                                                                             the year ended June 30, 2002 filed on
                                                                             June 13, 2003

10.27                Proxy Statement, dated March 25, 1999                   Incorporated by reference to Exhibit 10.27 to
                                                                             the Company's Third Amended Form 10-KSB for
                                                                             the year ended June 30, 2002 filed on
                                                                             June 13, 2003

10.28                Termination of Lease Agreement, dated November 25,      Incorporated by reference to Exhibit 10.28 to
                     2003, by and between Continental Development, L.P. II   the Company's Form 10-QSB filed on February
                     (Lessor) and Advanced Communications                    13, 2004

10.29                6% Senior Unsecured Promissory Note, in the original    Incorporated by reference to Exhibit 10.2 to
                     principal amount of $547,000 issued on June             the Company's Form 8-K filed on June 3, 2004
                     3, 2004 by Cyber-Test, Inc., a Delaware corporation
                     in favor of Cyber-Test, Inc., a Florida corporation.

10.30                Escrow Agreement, June 3, 2004, by and between          Incorporated by reference to Exhibit 10.3 to
                     Cyber-Test, Inc., a Delaware corporation and            the Company's Form 8-K filed on June 3, 2004
                     Cyber-Test, Inc., a Florida corporation.
</TABLE>


                                       32
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
10.31                NonCompetition Agreement, June 3, 2004, by and          Incorporated by reference to Exhibit 10.4 to
                     between Cyber-Test, Inc., a Delaware corporation, and   the Company's Form 8-K filed on June 3, 2004
                     Cyber-Test, Inc., a Florida corporation and the
                     shareholders of Cyber-Test Florida.

10.32                Employment Agreement, June 3, 2004, by and between      Incorporated by reference to Exhibit 10.5 to
                     Cyber-Test, Inc., a Delaware corporation and Lisa       the Company's Form 8-K filed on June 3, 2004
                     Welton.

10.33                Employment Agreement, June 3, 2004, by and between      Incorporated by reference to Exhibit 10.6 to
                     Cyber-Test, Inc., a Delaware corporation and Thomas     the Company's Form 8-K filed on June 3, 2004
                     Sutlive.

10.34                [RESERVED]

10.35                Amendment No. 1 to 6% Unsecured Promissory Note dated   Provided herewith
                     August 10, 2004

10.36                Agreement, dated May 27, 2004, by and among             Provided herewith
                     Encompass Group Affiliates, Inc. , Hy-Tech Technology
                     Group, Inc. and Hy-Tech Computer Systems, Inc.

10.37                Customers Lists License Agreement, dated June 24,       Provided herewith
                     2004, by and among Encompass Group Affiliates, Inc.,
                     Hy-Tech Technology Group, Inc. and Hy-Tech Computer
                     Systems, Inc.

10.38                Websites License Agreement, dated June 24, 2004, by     Provided herewith
                     and among Encompass Group Affiliates, Inc. , Hy-Tech
                     Technology Group, Inc. and Hy-Tech Computer Systems,
                     Inc.

10.39                NonCompetition and Nondisclosure Agreement by and       Provided herewith
                     among Encompass Group Affiliates, Inc. , Hy-Tech
                     Technology Group, Inc. and Hy-Tech Computer Systems,
                     Inc.

10.40                Form of Exchange Agreement, dated June 24, 2004, by and Provided herewith
                     between Advanced Communication and certain debenture
                     holders of Hy-Tech Technology Group, Inc.

10.41                Employment Agreement dated June 24, 2004 by and         Provided herewith
                     between Encompass Group Affiliates, Inc., Advanced
                     Communications Technologies, Inc. and Martin Nielson

10.42                Escrow Agreement dated May 28, 2004 by and among        Provided herewith
                     Advanced Communications Technologies, Inc., Buyers
                     and Butler Gonzalez, LLP, Escrow Agent

10.43                Investment Agreement dated May 28, 2004 by and among    Provided herewith
                     Advanced Communications Technologies, Inc. and
                     Cornell Capital Partners, L.P.
</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION                                             LOCATION
-----------          -----------------------------------------------------   ---------------------------------------------
<S>                  <C>                                                     <C>
10.44                Registration Rights Agreement dated May 28, 2004 by     Provided herewith
                     and among Advanced Communications Technologies, Inc.
                     and Cornell Capital Partners, L.P.

14.1                 Code of Business Conduct and Ethics for Advanced        Provided herewith
                     Communications

31.1                 Certification by President and Chief Financial          Provided herewith
                     Officer pursuant to Sarbanes-Oxley Section 302

32.1                 Certification by President and Chief Financial          Provided herewith
                     Officer  pursuant to 18 U.S.C. Section 1350:

                    (b) Reports on Form 8-K:
</TABLE>

      On June 3, 2004, the Company filed a report on Form 8-K disclosing that on
June 2, 2004, through its wholly-owned  subsidiary,  Encompass Group Affiliates,
Inc., it acquired all of the operating assets, tangible and intangible property,
rights and licenses,  goodwill, trade name and business of Cyber-Test,  Inc., an
electronic  equipment  repair company,  for a total purchase price consisting of
$3,000,000  in  cash,  a  $498,469  three-year  unsecured  installment  note and
50,000,000 shares of restricted Company common stock that may be earned pro rata
over a  three-year  period if  Cyber-Test  meets  certain  revenue and  earnings
milestones and no event of forfeiture occurs.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      AUDIT FEES. The aggregate fees billed for professional  services  rendered
was  $59,795  and  $66,102  for the  audit  of the  Company's  annual  financial
statements for the fiscal years ended June 30, 2004 and 2003, respectively,  and
the reviews of the financial  statements  included in the Company's Forms 10-QSB
for those fiscal years.

      AUDIT-RELATED  FEES. The aggregate fees billed for  professional  services
rendered  was $15,271  and $0 in  connection  with due  diligence  services  for
Cyber-Test,   Inc.   for  the  fiscal  years  ended  June  30,  2004  and  2003,
respectively.

      FINANCIAL  INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. None of the
professional  services  described  in  Paragraphs  (C)(4)(ii)  of  Rule  2-01 of
Regulation  S-X were  rendered by the principal  accountant  for the fiscal year
ended June 30, 2004.

      TAX FEES.  No fees were  billed in each of the last two  fiscal  years for
professional  services rendered by the principal  accountant for tax compliance,
tax advice and tax planning services.

      ALL OTHER FEES.  Other than the services  described  above,  the aggregate
fees billed for services  rendered by the  principal  accountant  was $2,818 and
$16,099 for the fiscal years ended June 30, 2004 and 2003,  respectively.  These
fees  related to the review of the  Company's  Registration  Statement in fiscal
years 2004 and 2003, and 424B filing in fiscal 2004

      POLICY FOR PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES

      All engagements of our  independent  auditor to perform any audit services
and non-audit  services were approved by the Audit  Committee in accordance with
its normal functions.  The Board of Directors and the Audit Committee are in the
process of creating a policy to pre-approve all audit services and all non-audit
services  that our  independent  auditor  will  perform for us under  applicable
federal securities regulations.  As permitted by the applicable regulations,  we
anticipate  that the Audit  Committee's  policy will  utilize a  combination  of
specific  pre-approval on a case-by-case basis of individual  engagements of our
independent   auditor  and  general   pre-approval  of  certain   categories  of
engagements up to predetermined dollar thresholds that will be reviewed annually
by the Audit Committee.


                                       34
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused  this  amended  report  to be signed  on its  behalf by the  undersigned,
thereunto duly authorized.

                                    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.

                                    By:    /s/ Wayne I. Danson
                                       -----------------------------------------
                                    Name:  Wayne I. Danson
                                    Title: President and Chief Financial Officer
                                    Date:  November 3, 2004

      In accordance  with the Exchange Act, this amended  report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                     TITLE                                                     DATE
---------                     -----                                                     ----

<S>                           <C>                                                    <C>
/s/ Wayne I. Danson           President (Principal Executive Officer), Chief
----------------------------  Financial Officer (Principal Accounting Officer)       November 3, 2004
Wayne I. Danson               and Director

/s/ Martin Nielson
----------------------------
Martin Nielson                Senior Vice President-Acquisitions and Director        November 3, 2004

/s/ Jonathan Lichtman, Esq.
----------------------------
Jonathan Lichtman, Esq.       Secretary and Director                                 November 3, 2004

/s/ Dr. Michael Finch
----------------------------
Dr. Michael Finch             Director                                               November 3, 2004

/s/ Randall Prouty
----------------------------
Randall Prouty                Director                                               November 3, 2004

/s/ Wilbank J. Roche, Esq.
----------------------------
Wilbank J. Roche, Esq.        Director                                               November 3, 2004
</TABLE>


                                       35
<PAGE>

                             ADVANCED COMMUNICATIONS
                       TECHNOLOGIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

<PAGE>

                   ADVANCED COMMUNICATIONS TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                                    CONTENTS

PAGE        F-1       INDEPENDENT AUDITORS' REPORT

PAGE        F-2       CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND 2003

PAGE        F-3       CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
                      JUNE 30, 2004 AND 2003

PAGE        F-4       CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS'
                      EQUITY (DEFICIENCY) FOR THE YEARS ENDED
                      JUNE 30, 2004 AND 2003

PAGE     F-5 - F-6    CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
                      JUNE 30, 2004 AND 2003

PAGES     F7 - F-19   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF
                      JUNE 30, 2004


                                       ii
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
      Advanced Communications Technologies, Inc. and Subsidiaries

We have  audited  the  accompanying  consolidated  balance  sheets  of  Advanced
Communications  Technologies,  Inc., and Subsidiaries ("Company") as of June 30,
2004 and 2003 and the related consolidated statements of operations,  changes in
stockholders' equity (deficiency) and cash flows for the years then ended. 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  auditing  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits 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 Subsidiaries as of June 30, 2004 and 2003,
and the  results  of their  operations  and their  cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As discussed in Note 12 to
the consolidated  financial  statements,  the Company's  negative cash flow from
operations of $829,775 and working  capital  deficiency of $2,197,667 as of June
30,  2004,  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 12. 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
August 20, 2004


                                      F-1
<PAGE>

           ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       JUNE 30, 2004   JUNE 30, 2003
                                                                                       -------------   -------------
<S>                                                                                     <C>             <C>
ASSETS

  Current Assets
    Cash                                                                                $  1,193,170    $     22,527
    Accounts Receivable (less allowance for doubtful accounts of
     $8,914 and 0)                                                                           400,747              --
    Inventory                                                                                350,963              --
    Other Receivables and Prepaid Expenses                                                    81,863              --
                                                                                        ------------    ------------
  Total Current Assets                                                                     2,026,743          22,527
                                                                                        ------------    ------------
  Property and equipment (net of accumulated depreciation of
   $1,082 and 0)                                                                             165,434              --
                                                                                        ------------    ------------
  Other Assets
    Investment in Partnership                                                              2,774,999              --
    Licensed Intangibles and rights                                                          400,000              --
    Deferred financing costs, net of accumulated amortization                                     --          40,521
    Excess of Purchase Price over Fair Market Value of Assets Acquired                     2,611,055              --
    Security deposits                                                                             --           7,700
    Other Deferred Costs                                                                      18,108              --
                                                                                        ------------    ------------
  Total Other Assets                                                                       5,804,162          48,221
                                                                                        ------------    ------------
TOTAL ASSETS                                                                            $  7,996,339    $     70,748
                                                                                        ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

LIABILITIES

  Current Liabilities
    Accounts payable and accrued expenses                                               $    194,540    $  1,560,165
    Accrued compensation                                                                     152,343         172,183
    Notes and Loans Payable-Current                                                        3,488,567       1,148,567
    5% Convertible Debentures                                                                     --         944,000
    10% Secured Convertible Debentures, net of discount of $36,977                           150,523              --
    Accrued Interest payable                                                                  46,343         242,407
    Warranty Reserve                                                                         120,977              --
    Other Liabilities                                                                         71,117              --
                                                                                        ------------    ------------
    Total Current Liabilities                                                              4,224,410       4,067,322
                                                                                        ------------    ------------
  Long-Term Liabilities
    10% Secured Convertible Debentures, net of discount of $130,729                               --          56,771
    Notes and Loans Payable-Non Current                                                    2,347,467       1,906,829
                                                                                        ------------    ------------
  Total Long Term Liabilities                                                              2,347,467       1,963,600
                                                                                        ------------    ------------
TOTAL LIABILITIES                                                                          6,571,877       6,030,922
                                                                                        ------------    ------------
COMMITMENTS AND CONTINGENCIES                                                                     --              --

STOCKHOLDERS' EQUITY (DEFICIENCY)

  Preferred Stock, $.01 par value, 25,000 shares authorized:
    Series A Convertible Preferred stock, $.01 par value, 4,200
    shares issued                                                                                 42              --
    Series B Convertible Preferred stock, $.01 par value, 300 shares
    issued                                                                                         3              --
  Common stock, no par value, 5,000,000,000 and 200,000,000
  shares authorized, 1,994,365,845 and 198,852,622 shares
  issued and outstanding, respectively                                                    28,745,253      25,945,005
  Additional Paid in Capital                                                               4,056,455              --
  Deferred commitment and equity financing fees, net of accumulated amortization            (135,432)       (187,500)
  Accumulated deficit                                                                    (31,241,859)    (31,717,679)
                                                                                        ------------    ------------
  Total Stockholders' Equity (Deficiency)                                                  1,424,462      (5,960,174)
                                                                                        ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                                 $  7,996,339    $     70,748
                                                                                        ============    ============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-2
<PAGE>

           ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                         2004               2003
                                                     ---------------    ---------------
<S>                                                  <C>                <C>
REVENUE                                              $       605,468    $            --
COST OF SALES                                                400,265                 --
                                                     ---------------    ---------------

GROSS PROFIT ON SALES                                $       205,203    $            --
                                                     ---------------    ---------------

OPERATING EXPENSES
  Depreciation and amortization                              229,103            425,812
  Professional and consulting fees                           292,633            648,328
  Impairment of Fixed Assets                                      --             14,274
  Other selling, general and administrative expenses         266,525            128,362
                                                     ---------------    ---------------

TOTAL OPERATING EXPENSES                                     788,261          1,216,776
                                                     ---------------    ---------------

Loss From Operations                                        (583,058)        (1,216,776)
                                                     ---------------    ---------------

OTHER INCOME (EXPENSES)
  Forgiveness of debt                                        780,938                 --
  Lawsuit settlements                                             --           (223,494)
  Distributable share of partnership income                  439,999                 --
  Interest (expense), net                                   (162,059)          (428,761)
                                                     ---------------    ---------------

TOTAL OTHER INCOME (EXPENSES)                              1,058,878           (652,255)
                                                     ---------------    ---------------

NET INCOME (LOSS)                                    $       475,820    $    (1,869,031)
                                                     ===============    ===============

Net income (loss) per share-basic and dilutive       $          0.00    $        (0.012)
                                                     ===============    ===============

Weighted average number of shares
  outstanding during the period-basic and dilutive     1,084,885,437        152,960,499
                                                     ===============    ===============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-3
<PAGE>

           ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                                           DEFERRED
                                       COMMON STOCK         PREFERRED  STOCK  ADDITIONAL                  COMMITMENT
                                 ------------------------------------------    PAID IN      ACCUMULATED   AND EQUITY
                                    SHARES       AMOUNT      SHARES    AMOUNT   CAPITAL      DEFICIT     FINANCING FEES   TOTAL
                                 ---------------------------------------------------------------------------------------------------
<S>                              <C>            <C>          <C>        <C>    <C>         <C>             <C>          <C>
BALANCE AT JUNE 30, 2002           114,102,622  $25,471,098     --      $--    $       --  $(29,848,648)   $(562,500)   $(4,940,050)
                                 ---------------------------------------------------------------------------------------------------

Stock issued for services              500,000        5,000     --       --            --            --           --          5,000
Stock issued for conversion of
convertible debt                    84,250,000      218,907     --       --            --            --           --        218,907
Interest on beneficial
conversion-Convertible Debentures           --      250,000     --       --            --            --           --        250,000
Amortization of deferred
commitment fees                             --           --     --       --            --            --      375,000        375,000

Net loss for the year                       --           --     --       --            --    (1,869,031)          --     (1,869,031)
                                 ---------------------------------------------------------------------------------------------------

BALANCE AT JUNE 30, 2003           198,852,622  $25,945,005     --      $--    $       --  $(31,717,679)   $(187,500)   $(5,960,174)
                                 ---------------------------------------------------------------------------------------------------

Common Stock issued for cash, net  361,956,145      648,557     --       --            --            --     (135,432)       513,125
Preferred Stock-Series A issued
for cash, net                               --           --  4,200       42     3,756,458            --           --      3,756,500
Stock issued for conversion of
convertible debt                            --           --     --       --            --            --           --             --
  and accrued interest             585,283,270    1,117,681     --       --            --            --           --      1,117,681
Amortization of deferred
commitment fees                             --           --     --       --            --            --      187,500        187,500

Stock issued for professional
services                            16,000,000       17,810     --       --            --            --           --         17,810

Stock issued to settle trade
creditors                          125,297,618      335,000     --       --            --            --           --        335,000

Stock issued to settle creditor
claims                              26,976,190       56,200     --       --            --            --           --         56,200
Preferred Stock-Series B issued
for licensed intangibles                    --           --    300        3       299,997            --           --        300,000

Escrowed stock                     162,999,640           --     --       --            --            --           --             --
Stock issued in partial payment
of short term note                 517,000,360      625,000     --       --            --            --           --        625,000

Net income for the year                     --           --     --       --            --       475,820           --        475,820
                                 ---------------------------------------------------------------------------------------------------

BALANCE AT JUNE  30, 2004        1,994,365,845  $28,745,253  4,500      $45    $4,056,455  $(31,241,859)   $(135,432)   $ 1,424,462
====================================================================================================================================
</TABLE>

           See accompanying notes to consolidated financial statements


                                      F-4
<PAGE>

           ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                              2004          2003
                                                                           -----------    -----------
<S>                                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                          $   475,820    $(1,869,031)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
  Depreciation and amortization                                                229,103        425,812
  Stock issued in exchange for services                                          2,810          5,000
  Impairment of Fixed Assets                                                        --         14,274
  Lawsuit settlements                                                               --        223,494
  Debt discount expense                                                         93,752        119,271
  Forgiveness of debt                                                         (780,938)            --
  Distributive share of partnership income                                    (439,999)            --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
  Deferred Costs and Other Receivables                                         (58,619)            --
  Inventory                                                                       (483)            --
  Prepaid expense/security deposits                                              5,486         15,452
Increase (decrease) in liabilities:
  Accounts payable and accrued expenses                                       (419,696)       637,672
  Interest payable                                                              62,989        304,490
                                                                           -----------    -----------
Net cash (used in) operating activities                                       (829,775)      (123,566)
                                                                           -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in partnership                                                   (2,670,000)            --
Partnership distributions                                                      335,000             --
Purchase of business                                                        (3,484,571)            --
Cash Acquired on business asset purchase                                       643,195             --
                                                                           -----------    -----------
Net cash flow (used) in investing activities                                (5,176,376)            --
                                                                           -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loan                                                       --         35,000
Proceeds from issuance of common stock, net                                    513,125             --
Proceeds from the issuance of Series A Preferred Stock, net                  3,756,500             --
Proceeds from short term promissory note                                     3,000,000             --
Repayment of short term and installment debts                                  (92,831)            --
Proceeds from issuance of convertible debt                                          --        100,000
                                                                           -----------    -----------
Net cash provided by financing activities                                    7,176,794        135,000
                                                                           -----------    -----------

Net increase in cash                                                       $ 1,170,643    $    11,434
Cash at beginning of year                                                       22,527         11,093
                                                                           -----------    -----------
CASH AT END OF YEAR                                                        $ 1,193,170    $    22,527
                                                                           ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest Paid                                                              $     6,043    $         0

Income Taxes Paid                                                          $         0    $         0
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During  the fiscal  year ended June 30,  2004,  the  Company  recorded  $391,200
representing  152,273,808  shares of  restricted  common  stock issued for prior
unpaid accrued professional fees and various creditor settlements.

During the fiscal year ended June 30, 2004, debenture holders converted $944,000
and $173,681 of principal  and  interest,  respectively,  into  492,801,173  and
92,482,097 shares of common stock respectively in full payment of this debt.

During the fiscal year ended June 30, 2004, the 5% convertible debenture holders
forgave $85,372 of accrued interest.

During the fiscal year ended June 30, 2004, the Company issued 16,000,000 shares
of restricted common stock valued at $17,810 for professional services rendered,
of which $2,810 was expensed and $15,000 was  capitalized as part of the Hy-Tech
acquisition.

During the year ended June 30, 2004,  the Company issued  517,000,360  shares of
common  stock for the  repayment  of $625,000 of  short-term  loans and escrowed
162,999,640 shares of common stock for future payment of such loan.

During the fiscal year ended June 30, 2003, the Company issued  4,250,000 shares
of  restricted  common  stock  valued  at  $100,407  in full  settlement  of the
September 1999 12% Senior Secured Convertible Debentures.

           See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>

During the fiscal year ended June 30, 2003, the Company issued 500,000 shares of
restricted common stock valued at $5,000 in partial satisfaction of unpaid prior
legal and consulting fees.

During the fiscal year ended June 30, 2003,  the Company  converted  $125,000 of
accrued interest into 10% Secured Convertible Debentures and incurred $25,000 of
financing costs associated with the issuance of its 10% Convertible Debentures.

During the fiscal year ended June 30, 2003,  the Company  issued  17,500,000 and
62,500,000  shares  of  common  stock  valued  at  $56,000  and  $62,500  on the
conversion  of  5%  convertible  debentures  and  10%  convertible   debentures,
respectively.


                                      F-6
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

NOTE 1. BASIS OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES

(A) Organization

      Unless the context  requires  otherwise,  "we",  "us",  or "our" refers to
Advanced Communications Technologies,  Inc. and its subsidiaries (the "Company")
on a consolidated basis.

      Advanced  Communications  Technologies,  Inc., a Nevada  corporation,  was
incorporated on April 30, 1998 and was inactive from its date of formation until
April 1999 when it merged with and into the Company, a Florida corporation, in a
reverse merger. In consideration  for 90% of the stock of the Company,  Advanced
Communications  Technologies,  Inc.  (Nevada)  (of which  Roger May,  our former
Chairman and CEO was the principal  shareholder)  transferred all of its assets,
which included all of the rights and interest in the SpectruCell  technology for
the North and South American  territories.  For accounting purposes,  the merger
was  treated  as an  acquisition  of all of the assets of the  Company  and as a
recapitalization  of the  Company.  In July 1999,  the Company  formed  Advanced
Global Communications,  Inc. ("AGC") as a wholly owned subsidiary to conduct its
international  telephone  network  distribution  business.  On July 1, 2001, AGC
ceased  operations  and has been inactive  since this date. On January 31, 2000,
the  Company  acquired  all  of  the  then  issued  and  outstanding  shares  of
SmartInvestment.com,  Inc. ("Smart"), an inactive reporting company, for 200,000
shares of restricted  common stock. The Company elected  successor issuer status
to become a fully reporting company.  On December 9, 2003 and December 17, 2003,
the Company  formed  Hudson  Street  Investments,  Inc.  ("Hudson  Street")  and
SpectruCell, Inc., respectively,  both wholly owned subsidiaries.  Hudson Street
was formed for the  purpose of holding the  Company's  investment  in  Yorkville
Advisors   Management  LLC  (see  Note  3)  and  other  future  investments  and
SpectruCell,  Inc. was formed for the purpose of holding the Company's rights in
the SpectruCell technology acquired in the above-referenced merger. In May 2004,
the Company formed Encompass Group Affiliates,  Inc, a Delaware  corporation for
the purpose of acquiring the business and assets of Cyber-Test,  Inc.,  based in
Longwood,  Florida,  and operating our core business as a vertically  integrated
technology and service business.

      Business  Activity.  The Company's  wholly owned  subsidiary,  Cyber-Test,
operates as an independent  service  organization  providing  repair service for
facsimile machines,  printers,  scanners,  monitors,  laptop computers, PDAs and
multifunction units and other consumer electronics. The repairs are performed on
entire  machines  and/or  circuit  boards.  A 90-day  warranty  is given for all
machine  repairs  and  a  one-year  warranty  for  all  circuit  board  repairs.
Cyber-Test provides office equipment dealers,  original  manufacturers and third
party  warranty  companies  a turnkey  alternative  for  additional  revenue  by
providing repair service for their customers.  A majority of Cyber-Test's  sales
are from customers in the U.S. with minor foreign sales.

      Major  Customers.  During the fiscal year ended June 30, 2004,  Cyber-Test
sales to two customers  accounted for 70% of its sales from June 2, 2004 to June
30, 2004, the period of our ownership of the Cyber-Test business.

(B) PRINCIPLES OF CONSOLIDATION

      The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and balances have been eliminated in consolidation.

(C) USE OF ESTIMATES

      The preparation of the consolidated financial statements of the Company in
conformity with generally accepted accounting  principles requires management to
make  estimates and  assumptions  that affect the reported  amount of assets and
liabilities at the date of the financial  statements and the reported  amount of
revenues and expenses during the period.  In particular,  significant  estimates
are required to value inventory and estimate the future cost associated with the
Company's  warranties.  If the actual value of the Company's inventories differs
from  these  estimates,  the  Company's  operating  results  could be  adversely
impacted.  The actual  results with regard to warranty  expenditures  could also
have an adverse  impact on the Company if the actual  rate of repair  failure or
the cost to  re-repair  a unit is  greater  than  what the  Company  has used in
estimating the warranty expense accrual.


                                      F-7
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

(D) INVENTORY

      Inventory  consists  primarily of repair  parts,  consumable  supplies for
resale and used machines  that are held for resale,  and are stated at the lower
of weighted  average  cost or market.  The  weighted  average  cost of inventory
approximates  the  first-in,  first-out  ("FIFO")  method.  Management  performs
periodic  assessments  to determine the existence of obsolete,  slow-moving  and
nonsalable  inventory and records necessary  provisions to reduce such inventory
to net realizable value.

(E) PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost.  Assets are  depreciated  using
the straight-line  method for both financial statement and tax purposes based on
the following estimated useful lives:

      Leasehold improvements                      15 to 40 years
      Machinery and equipment                     3 to 7 years
      Furniture and fixtures                      5 to 7 years

      Maintenance and repairs are charged to expense when incurred.

(F) WARRANTY RESERVE

      Refurbished peripheral computer equipment sold to customers and the repair
of customer  owned  equipment  is  guaranteed  for a period of ninety days and a
period of 12 months for the repair of circuit boards. Any defective  refurbished
equipment is replaced  free of charge and customer  owned  equipment is repaired
without  charge during the warranty  period.  Cyber-Test  provides a reserve for
warranty  repairs  based on historical  failure rates and the estimated  cost to
repair.

(G) FAIR VALUE OF FINANCIAL INSTRUMENTS

      The  carrying  amounts  of  the  Company's   accounts   payable,   accrued
liabilities,  debentures,  and loans payable  approximate  fair value due to the
relatively short period to maturity for these instruments.

(H) ALLOWANCE FOR DOUBTFUL ACCOUNTS

      We make judgments as to our ability to collect outstanding receivables and
provide  allowances  for the  portion of  receivables  when  collection  becomes
doubtful.  Provisions are made based upon a specific  review of all  significant
outstanding invoices. For those invoices not specifically  reviewed,  provisions
are  provided  at  differing  rates,  based upon the age of the  receivable.  In
determining these percentages,  we analyze our historical  collection experience
and current  economic  trends.  If the  historical  data we use to calculate the
allowance  provided for doubtful accounts does not reflect our future ability to
collect outstanding receivables, additional provisions for doubtful accounts may
be needed and the future  results of operations  could be  materially  affected.
During the fiscal year ended June 30, 2004, the Company established an allowance
for doubtful accounts for $8,914. As of June 30, 2004,  accounts receivable from
two major customers aggregated $253,847 or 63% of accounts receivable.

(I) LONG-LIVED ASSETS

      Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  If such review  indicates  that the asset is impaired,
when the carrying amount of an asset exceeds the sum of its expected future cash
flows, on an undiscounted  basis, the asset's carrying amount is written down to
fair value.  Long-lived  assets to be  disposed of are  reported at the lower of
carrying amount or fair value less cost to sell.

(J) EXCESS OF COST OVER NET ASSETS ACQUIRED

      In accordance with SFAS No. 141, the Company  allocates the purchase price
of its  acquisitions to the tangible assets,  liabilities and intangible  assets
acquired based on their  estimated fair values.  The excess  purchase price over
those fair values is recorded as "Excess of Cost Over Net Assets Acquired".  The
fair value assigned to intangible  assets acquired is either based on valuations
prepared  by  independent  third  party  appraisal  firms  using  estimates  and
assumptions  provided by management or  negotiated  at  arms-length  between the
Company and the seller of the acquired assets.  In accordance with SFAS No. 142,
goodwill and purchased intangibles with indefinite lives acquired after June 30,
2001  are not  amortized,  but will be  reviewed  periodically  for  impairment.
Purchased  intangibles  with finite lives will be  amortized on a  straight-line
basis over their respective useful lives.


                                      F-8
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

(K) INCOME TAXES

      The Company  accounts for income taxes under SFAS No. 109  "Accounting for
Income  Taxes".  Under SFAS No. 109,  deferred  tax assets and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect on deferred tax assets and  liabilities  of a change in
tax rates is  recognized  in income in the period that  includes  the  enactment
date.

      The Company has made no current  provision  (benefit)  for Federal  income
taxes  because of  financial  statement  and tax losses since its  inception.  A
valuation  allowance has been used to offset the recognition of any deferred tax
assets arising from net operating loss  carryforwards  due to the uncertainty of
future  realization.  The use of any tax loss carryforward  benefits may also be
limited as a result of changes in Company ownership.

(L) CONCENTRATION OF CREDIT RISK

      The Company maintains its cash in bank deposit accounts,  which, at times,
may exceed federally insured limits.  The Company has not experienced any losses
in such accounts and believes it is not exposed to any  significant  credit risk
on cash and cash equivalents.

(M) 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 shares
outstanding  for the period.  Diluted  earnings per share  reflect the potential
dilution of securities, using the treasury stock method, that could share in the
earnings  of an entity.  During the year ended June 30,  2004,  shares of common
stock that could have been  issued  upon  conversion  of  convertible  debt were
excluded  from the  calculation  of diluted  earnings  (loss) per share as their
effect would have been anti-dilutive.

(N) BUSINESS SEGMENTS

      The Company applies  Statement of Financial  Accounting  Standards No. 131
"Disclosures  about  Segments of an  Enterprise  and Related  Information".  The
Company  operates  in one  segment  and  therefore  segment  information  is not
presented.

      Management has determined that it is not meaningful to provide  geographic
segment  disclosures  for revenues  and  long-lived  assets  because the Company
performs services for and generates revenue from customers throughout the U.S.

(O) REVENUE RECOGNITION

      The  Company  recognizes  revenue  from the sale of  refurbished  computer
equipment and related  products  upon delivery of goods to a common  carrier for
delivery to the customer.  Revenue for the repair of customer owned equipment is
recognized upon  completion of the repair.  The Company assumes the risk of loss
due to damage or loss of products during shipment.  The Company is reimbursed by
the common  carriers for  shipping  damage and lost  products.  The Company also
sells extended warranty and product  maintenance  contracts.  Revenue from these
contracts is deferred and recognized as income on a straight-line basis over the
life of the  contract,  which is  typically  for a period of one  year.  Service
warranty  and  product  maintenance  revenue  represented  less  than  5% of the
Company's  total revenue for the period June 2, 2004 through June 30, 2004,  our
period of ownership.


                                      F-9
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

(P) INVESTMENT IN UNCONSOLIDATED PARTNERSHIP

      The Company accounts for its investment in an  unconsolidated  partnership
under  the  equity  method  of  accounting,  as the  Company  does  not have any
management  control over this entity.  This investment was recorded initially at
cost and subsequently adjusted for equity in net earnings and cash distributions
(See Note 3).

(Q) RECENT ACCOUNTING PRONOUNCEMENTS

      In March 2004, the U.S. Securities and Exchange Commission's Office of the
Chief Accountant and the Division of Corporate Finance released Staff Accounting
bulletin  ("SAB")  No.  105,  "Loan  Commitments  Accounted  for  as  Derivative
Instruments".  SAB  No.  105  contains  specific  guidance  on the  inputs  to a
valuation-recognition  model to measure loan  commitments  accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed  interest rate in the loan  commitment and market  interest rate,
excluding any expected future cash flows related to the customer relationship or
loan  servicing.  In  addition,  SAB No.  105  requires  the  disclosure  of the
accounting policy for loan  commitments,  including methods and assumptions used
to  estimate  the fair value of loan  commitments,  and any  associated  hedging
strategies.  SAB No. 105 is effective for  derivative  instruments  entered into
subsequent to March 31, 2004 and should also be applied to existing  instruments
as appropriate. The Company has not yet completed its evaluation of SAB No. 105,
but does not anticipate a material impact on the financial statements.

NOTE 2. PROPERTY AND EQUIPMENT

                                                  2004                   2003
                                                --------------------------------
Computer, office equipment and fixtures         $  38,123              $ 32,909
Machinery and equipment                            16,652                    --
Leasehold improvements                            111,741                    --
Less: Accumulated depreciation                     (1,082)              (18,635)
      Impairment loss                                  --               (14,274)
                                                --------------------------------
PROPERTY AND EQUIPMENT, NET                     $ 165,434              $     --
                                                ================================

      Depreciation expense for the years ended June 30, 2004 and 2003 was $1,082
and $3,000  respectively.  The Company determined that certain fixed assets were
no longer used in its operations,  and consequently  recorded on impairment loss
of $14,274 during fiscal 2003.

NOTE 3. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP

      On January 14, 2004, the Company's wholly owned subsidiary,  Hudson Street
purchased,  for $2,625,000 a minority interest in Yorkville Advisors  Management
LLC,  ("Yorkville") a privately owned investment management  partnership and the
portfolio manager of Cornell Capital  Partners,  L.P. The purchase was effective
as of January 1, 2004.  Hudson Street incurred $45,000 of legal and professional
fees  associated  with the purchase of the  partnership  interest  that has been
capitalized.  During the fiscal year ended June 30, 2004, Hudson Street received
$335,000 of cash distributions from this investment and recorded $439,999 as its
distributive  share of  partnership  net earnings.  As of June 30, 2004,  Hudson
Street's  investment in Yorkville amounted to $2,774,999 under the equity method
of  accounting  and is reflected  on the  consolidated  balance  sheet in "Other
Assets".

NOTE 4. CREDITOR SETTLEMENTS AND DEBT FORGIVENESS

      During  the  fiscal  year ended June 30,  2004,  the  Company  negotiated,
settled  and/or  converted  approximately  $2,250,000  of  accounts  payable and
accrued  liabilities  and  convertible  debentures  at  a  discount,  generating
$780,938 of forgiveness of debt income.  The Company settled these  liabilities,
in part, with cash and in part,  through the issuance of restricted common stock
(See Note 9(B) and (C)).


                                      F-10
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

NOTE 5.  NOTES AND LOAN PAYABLE

                                                   JUNE 30,
                                        2004                     2003
                                        ----                     ----
CURRENT:

8% Note Payable-Current            $   57,831                    $   57,831
12% Note Payable                           --                        35,000
Loan Payable-Shareholder            1,055,736                     1,055,736
Note Payable-Cornell Capital        2,375,000                            --
                                   ----------                    ----------

Notes Payable-Current              $3,488,567                    $1,148,567
                                   ==========                    ==========

LONG-TERM:

6% Unsecured Note                  $  498,469                    $       --
Note Payable-ACT Australia          1,791,166                     1,791,166
8% Note Payable-Non Current            57,832                       115,663
                                   ----------                    ----------

Notes Payable-Long-Term            $2,347,467                    $1,906,829
                                   ==========                    ==========

      Future  maturities  of long-term  debt as of June 30, 2004,  excluding the
note  payable to ACT  Australia,  and the loan  payable to  shareholders  are as
follows:

                               DATE          AMOUNT
                           -------------   ------------
                           June 30, 2005   $  2,598,988
                           June 30, 2006        223,987
                           June 30, 2007        166,157
                                           ------------
                               TOTAL       $  2,989,132
                                           ============

(A) 8% NOTE PAYABLE

      On  November  14,  2002,  the  Company  settled  its  litigation  with the
Needham/DuPont  plaintiffs  by agreeing to release  the  plaintiffs'  stock from
restriction and issued a three-year 8% promissory  note in the principal  amount
of $173,494 to  reimburse  the  plaintiffs  for their legal  costs.  The note is
payable in three equal annual installments of principal and interest,  the first
of which  was due on  December  1,  2003  with  additional  installments  due on
December 1, 2004 and December 1, 2005.  The current  portion of the note payable
of $57,831 has been classified as a current liability on the balance sheet.

      On November  24,  2003,  the Company  paid the first loan  installment  of
$57,831 plus accrued interest of $4,855.

      As of June 30, 2004, $115,662 is outstanding, of which $57,831 is recorded
as a current  liability as 8% Note Payable Current Portion.  Accrued interest of
$15,122, as of June 30, 2004, is included in Interest Payable.

(B) NOTE PAYABLE TO ADVANCED COMMUNICATIONS (AUSTRALIA)

      The  Company had a  non-interest  bearing and  unsecured  note  payable to
Advanced Communications  (Australia) of $7,500,000 as of April 5, 2000. The note
was payable in three equal  monthly  installments  commencing  on May 31,  2000.
Under the terms of an April 5,  2000  Stock  Purchase  Agreement  with  Advanced
Communications  (Australia)  (the  `Stock  Purchase  Agreement"),   the  monthly
installment  payments were extended  indefinitely  without interest to allow the
Company,  on a best  efforts  basis,  to raise the cash  portion of the purchase
price through a private or public offering of securities.  There are no default,
penalty  or  acceleration  provisions  under  the  terms of the  Stock  Purchase
Agreement.  Upon raising  funds  pursuant to a private or public  offering,  the
Company was obligated to repay Advanced  Communications  (Australia)'s note with
those  funds   remaining   after  deduction  for  reserves  needed  for  current
operations,  working capital and the development and expansion of its operations
and the operations of its subsidiaries,  as determined by the Company's Board of
Directors.


                                      F-11
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      On November 11, 2002, Advanced Communications  (Australia) issued a Notice
of Termination to the Company which stated that the Stock Purchase Agreement was
terminated immediately due to the Company's insolvency. The effect of the Notice
of  Termination   was  to  cancel  the  Company's  stock  interest  in  Advanced
Communications  (Australia).  Management  is of the  belief  that as a result of
Advanced  Communications   (Australia)'s   termination  of  the  Stock  Purchase
Agreement,  no  further  money is owed,  and we have no  further  obligation  to
Advanced Communications (Australia). The financial statements reflect $1,791,166
as a long-term  liability until such time as the Company  obtains  evidence that
the above amount has been extinguished. In February 2004, the Company filed suit
in Superior Court, Orange County,  California,  against Advanced  Communications
(Australia),  Mr.  May,  our  former  Chairman  and CEO,  Global  Communications
Technologies, Limited and Global Communications Technologies Pty Ltd. to recover
damages incurred as a result of wrongful actions by such defendants  against the
Company  and  to  clarify  the  status  of the  Company's  obligations  to  such
defendants under the above arrangement. In May and August 2004, the court issued
an entry of  default  judgment  for the  Company  and  against  all of the above
defendants.

(C) LOAN PAYABLE TO SHAREHOLDER

      As of June 30,  2004 and 2003,  the  Company  owed  Global  Communications
Technology Pty, an Australian company  wholly-owned by Mr. May, a former officer
and director of the Company,  $1,055,736,  for funds  advanced to the Company to
provide working capital.  This loan is non-interest  bearing and unsecured,  and
has no scheduled date for repayment.  The Company  believes that the loan is not
due upon demand.  However,  since the actual  repayment terms are not known with
any specificity  because the terms are not confirmed in a written document,  the
loan has been classified as a current  liability.  In February 2004, the Company
filed suit in  Superior  Court,  Orange  County,  California,  against  Advanced
Communications (Australia), Mr. May, Global Communications Technologies, Limited
and Global Communications Technologies Pty Ltd. to recover damages incurred as a
result of wrongful actions by such defendants against the Company and to clarify
the  status of the  Company's  obligations  to such  defendants  under the above
arrangement.  In May and  August  2004,  the court  issued  an entry of  default
judgment for the Company and against all of the above defendants.

(D) NOTE PAYABLE-CORNELL CAPITAL PARTNERS, L.P.

      During January 2004, the Company entered into a six-month  promissory note
with Cornell Capital  Partners,  L.P. in the amount of $3,000,000,  of which the
net proceeds of  $2,829,000  were used to purchase its minority  interest in the
Yorkville  Advisors  partnership.  Under the terms of the  promissory  note, the
Company  agreed to repay the note either in cash or through the net  proceeds to
be  received  by the Company  under its Equity  Line of Credit  facility  over a
24-week period commencing February 23, 2004. The promissory note is non-interest
bearing  and only  becomes  interest-bearing,  at the rate of 24% or the highest
rate  permitted by law, if lower,  in the event that the note is not repaid when
due. As of June 30, 2004, the Company repaid  $625,000 of the note from proceeds
on the issuance of  517,000,360  shares of common stock under its Equity Line of
Credit  facility.  During July 2004,  the Company  repaid $75,000 of the note by
issuing  162,999,640  shares of common stock  previously held in escrow.  During
September  2004, the Company repaid an additional  $25,000 by issuing  9,881,886
shares of  common  stock  under  the  Equity  Line of  Credit  facility.  During
September and October  2004,  the Company  repaid an additional  $275,000 of the
note  payable in cash.  No interest is accrued on or owed under the terms of the
original $3,000,000 short-term obligation.

(E) 6% UNSECURED NOTE PAYABLE

      Pursuant to the terms of the Cyber-Test, Inc. acquisition (See Note 7), on
June 2, 2004, the Company issued a $498,469 three year 6% unsecured  installment
note to the  shareholders  of  Cyber-Test,  Inc. as part of the  purchase of the
Cyber-Test  assets.  The note  matures on June 2, 2007,  and is payable in three
equal annual installments of $166,156 plus accrued interest.


                                      F-12
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

NOTE 6. CONVERTIBLE DEBENTURES

(A) 5% CONVERTIBLE DEBENTURES DUE JANUARY 2004

      In January 2002, the Company  issued,  in the aggregate,  $1 million of 5%
convertible  debentures due 2004 to Cornell  Capital  Partners,  LP and 15 other
accredited individual investors.

      These  debentures were  convertible into shares of common stock at a price
equal to either  (a) an  amount  equal to 120% of the  closing  bid price of the
common  stock as of the closing  date or $.40,  whichever  is higher,  or (b) an
amount equal to 80% of the average of the four lowest  closing bid prices of the
common stock for the five  trading days  immediately  preceding  the  conversion
date. These  convertible  debentures  accrued interest at a rate of 5% per year,
were convertible at the holder's option and had a term of two years. The Company
incurred   $80,000  of  financing  costs  associated  with  the  5%  convertible
debentures   that  have  been  amortized  over  the  life  of  the   debentures.
Amortization of $30,000 and $40,000 related to these debentures was expensed for
the fiscal years ended June 30, 2004 and 2003.

      On October 28, 2003 and November 10, 2003,  holders of the 5%  convertible
debentures agreed to forgive $85,372 of accrued interest, in the aggregate.

      During the year ended June 30, 2004,  the  bondholders  elected to convert
$944,000 of principal  and $173,681 of accrued  interest  into  492,801,173  and
92,482,047 shares of common stock, respectively,  which resulted in the complete
liquidation of the debt under the 5% debentures.

      As of June 30, 2004 and 2003,  interest of $37,997 and  $221,056  has been
expensed on these debentures.

(B) 10% SECURED CONVERTIBLE DEBENTURES DUE NOVEMBER 2004

      On November 22,  2002,  the Company  entered  into a  Securities  Purchase
Agreement with Cornell Capital  Partners,  L.P.,  whereby it agreed to issue and
sell Two Hundred Fifty Thousand  Dollars  ($250,000) of 10% secured  convertible
debentures.  These secured  convertible  debentures have a term of two years and
are convertible into shares of common stock at a price equal to $.001 per share.
These secured  convertible  debentures accrue interest at a rate of 10% per year
and are  convertible  at the holder's  option.  At the Company's  option,  these
debentures  may be paid  in  cash or  redeemed  at a 20%  premium  on or  before
December  15, 2002 and at a 50%  premium  after  December  15, 2002 and prior to
November 2004. In connection with the Securities Purchase Agreement, the Company
entered into a Security  Agreement in favor of Cornell  Capital  Partners,  L.P.
whereby it granted a security  interest in all of its assets as security for its
obligations  under  the  secured  convertible  debentures,  as well as all other
obligations of the Company to Cornell  Capital  Partners,  L.P.  whether arising
before,  on or after  the date of the  Security  Agreement,  including,  without
limitation,  those obligations of the Company to Cornell Capital Partners,  L.P.
under the 5% convertible debentures dated January 2002.

      The 10% convertible  debentures  contain a beneficial  conversion  feature
computed at its intrinsic  value that 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.  The amount  attributable  to the
beneficial  conversion feature of $250,000 is recorded as a discount on the debt
and accreted over a 24-month period as interest  expense in accordance with EITF
00-27.  For the fiscal years ended June 30, 2004 and 2003, the Company  accreted
$93,752 and $61,979, respectively, of debt discount as interest expense.

      The Company received  $100,000 in cash from the sale of these  debentures,
paid  $125,000 in accrued  interest  due on the 5%  convertible  debentures  and
incurred $25,000 of financing costs that has been amortized over the life of the
10% secured convertible  debentures.  Amortization expense of $10,521 and $7,812
related to these  debentures  was  recorded  for the fiscal years ended June 30,
2004 and 2003, respectively.

      On January 22, 2003,  Cornell Capital  Partners,  L.P.  elected to convert
$62,500 of 10% secured convertible debentures at a conversion price of $.001 per
share into  62,500,000  shares of restricted  common stock. As of June 30, 2004,
the  $187,500  balance  due  on  these  debentures,   after  the  aforementioned
conversion,  net of the  related  debt  discount  in the amount of  $36,977,  is
$150,523.


                                      F-13
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      As of June 30, 2004 and 2003,  interest of $31,221 and $12,522, is accrued
on these debentures, respectively.

NOTE 7. ACQUISITION OF CYBER-TEST, INC.

      On June 2, 2004, our wholly owned subsidiary,  Encompass Group Affiliates,
Inc.  ("Encompass"),  acquired the business  and assets of  Cyber-Test,  Inc., a
Florida-based,  electronic equipment repair company.  Cyber-Test became the core
operating   business  of  Encompass  with  85  employees  and  annual  sales  of
approximately  $6,000,000.  The Company accounted for this acquisition using the
purchase method of accounting in accordance with the provisions of SFAS 141.This
acquisition  is the  Company's  first step in expanding  the  businesses  of the
Company's  subsidiaries  into a  vertically  integrated  technology  and service
business. Under the terms of the Asset Purchase Agreement between Cyber-Test and
Encompass,  Encompass  acquired  all  of  the  operating  assets,  tangible  and
intangible property, rights and licenses,  good-will and business of Cyber-Test,
for a total purchase price of $3,498,469 consisting of $3,000,000 in cash, and a
$498,469  three year 6% unsecured  installment  note.  The Company also incurred
$234,108 of capitalized  transaction  costs inclusive of $125,000 of broker fees
for a total acquisition cost of $3,732,577.  In addition, under the terms of the
Asset Purchase  Agreement,  the Company has agreed to contingently  increase the
purchase  price by  $500,000 by  agreeing  to issue to the  sellers,  50,000,000
shares of  restricted  common stock priced at $.01 per share,  to be earned on a
pro rata basis over the next  three  years  based on  Cyber-Test,  Inc.  meeting
certain  revenue and earning  milestones and certain events of forfeiture do not
occur (the  "Contingent  Stock  Consideration").  Milestones  mean the following
revenue and earnings  before  interest,  taxes,  depreciation  and  amortization
("EBITDA") goals of Cyber-Test for the applicable year:

           FISCAL YEAR END           REVENUES              EBITDA
--------------------------------------------------------------------------------

            June 30, 2005          $ 6,600,000          $   500,000
            June 30, 2006          $ 8,600,000          $   860,000
            June 30, 2007          $11,600,000          $ 1,400,000

      The  Contingent  Stock  Consideration  is  subject  to  forfeiture  in its
entirety,  at  any  time,  if the  Chief  Executive  Officer  of  Cyber-Test  is
terminated for cause, or resigns from the Company prior to June 30, 2007.

      This  acquisition  has  been  accounted  for by  the  purchase  method  of
accounting  and,  accordingly,  the operating  results have been included in the
Company's  consolidated results of operations from the date of acquisition.  The
Company  acquired net tangible  assets valued at  $1,286,985.  The excess of the
consideration given over the fair value of net assets acquired has been recorded
as goodwill of $2,445,592.  The Company will account for the purchased  goodwill
in accordance  with the  provisions of SFAS 142. The future  liability,  if any,
associated with any Contingent Stock Consideration  issuable in conjunction with
this acquisition  based on the achievement of certain revenue and EBITDA results
over a three year period will be recorded as additional  goodwill in fiscal 2007
after all events of forfeiture lapse.

      The purchase price  allocation  recorded for the acquisition of the assets
and liabilities assumed of Cyber-Test is as follows:

     Cash                                                             $  643,195
     Accounts receivables, net                                           391,101
     Inventory                                                           350,480
     Prepaid expenses and other assets                                    48,784
     Property and equipment                                              166,516

                                                                      ----------
     Total assets                                                     $1,600,076
                                                                      ----------
     Liabilities assumed:

     Accounts payable & accrued expenses                                 206,973
     Accrued vacation pay                                                 71,200
     Other current liabilities                                            34,918
                                                                      ----------

     Total liabilities assumed                                           313,091
                                                                      ----------

     Excess of assets acquired over liabilities assumed                1,286,985
     Purchase price                                                    3,732,577
                                                                      ----------

     Goodwill                                                         $2,445,592
                                                                      ==========


                                      F-14
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      The following  unaudited pro forma consolidated  results of operations are
presented as if the  acquisition of Cyber-Test had been made at the beginning of
the periods presented:

                                          FISCAL YEAR ENDED   FISCAL YEAR ENDED
                                            JUNE 30, 2004        JUNE 30, 2003

Net sales                                   $ 6,096,547         $ 6,037,476
Net earnings (loss)                         $   498,247         $(1,600,486)
Basic and diluted earnings (loss)
  per common shares                         $      (.00)        $      (.01)

      The following  unaudited pro forma  consolidated  balance sheet as of June
30, 2003, is presented as if the  acquisition of Cyber-Test had been made at the
beginning of the fiscal year ended June 30, 2003:

                         CONSOLIDATED BALANCE SHEET DATA

Assets:

Cash                                                                $   665,722
Accounts Receivable, Net                                                400,747
Inventory                                                               350,963
Other receivables                                                        81,863
                                                                    -----------
Current Assets                                                        1,499,295
                                                                    -----------

Property and Equipment, Net                                             165,434
Prepaid Expenses and Other Assets                                        48,221

Excess of Cost Over Net Assets Acquired                               2,445,592
                                                                    -----------

Total Assets                                                        $ 4,158,542
                                                                    ===========

Liabilities:

Accounts Payable and Accrued Expenses                               $ 1,767,138
Accrued Compensation                                                    172,183
Notes and Interest Payable                                              335,238
Vacation Pay                                                             71,200
Loan Payable to Shareholder                                           1,055,716
5% Convertible Debentures                                               944,000
                                                                    -----------

Current Liabilities                                                   4,345,475
                                                                    -----------

Long-Term Liabilities
10% Convertible Debentures                                               56,771
8% Note Payable-Non Current Portion                                     115,663
Note Payable ACT (Australia)                                          1,791,166
                                                                    -----------

Total Liabilities                                                     6,309,075

Stockholders' Deficiency                                             (2,150,533)
                                                                    -----------

Total Liabilities and Stockholders' Deficiency                      $ 4,158,542
                                                                    ===========


                                      F-15
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      The unaudited pro forma  information is not necessarily  indicative of the
results of operations that would have occurred had the purchase been made at the
beginning  of the  periods  presented  or the  future  results  of the  combined
operations.

NOTE 8. LICENSED INTANGIBLES

      On May 27, 2004 the Company's  wholly-owned  subsidiary,  Encompass  Group
Affiliates,  Inc. entered into an Agreement with Hy-Tech  Technology  Group, Inc
and Hy-Tech Computer Systems, Inc (collectively "Hy-Tech") to license and use on
an exclusive, worldwide, royalty-free, perpetual, non-terminable and irrevocable
right basis various  intangible  assets of Hy-Tech  including its customer lists
and  corporate  web  addresses.  In  addition,  and as  part  of the  Agreement,
Encompass  acquired all of Hy-Tech's  rights to  negotiate  and acquire  certain
business and assets of three independent companies in the technology and service
business  as well as the  exclusive  right to extend an offer of  employment  to
Martin Nielson, to become an executive officer of Encompass. In exchange for the
above, Encompass agreed to assume $503,300 of Hy-Tech's convertible  debentures.
On June 23,  2004,  the Company  closed on the  Agreement  and  entered  into an
Exchange  Agreement with the Hy-Tech  debenture holders wherein the Company paid
$203,300  to the  debenture  holders  in  cash  and  issued  300  shares  of its
non-voting Convertible Preferred Shares having a liquidation value of $1,000 per
share in full satisfaction of the convertible debentures. See Note 9(E).

      The Company  recorded  $400,000 of licensed  intangibles  and  $165,463 of
goodwill (inclusive of $62,163 of capitalized transaction costs).

NOTE 9. STOCKHOLDERS' EQUITY

      On July 9, 2003,  the  Company's  stockholders  authorized a change in the
Company's  Articles of  Incorporation  increasing  the  authorized  no par value
common  shares from  200,000,000  to  5,000,000,000  shares.  A  Certificate  of
Amendment to the Company's  Articles of Incorporation  reflecting the change was
filed with the Florida Secretary of State on July 10, 2003.

(A) EQUITY LINE OF CREDIT FACILITY

      In July 2003, the Company entered into a $30 million Equity Line of Credit
facility  with  Cornell  Capital  Partners,  LP.  Pursuant to the Equity Line of
Credit,  the Company  may,  at its  discretion,  periodically  issue and sell to
Cornell Capital Partners,  LP shares of common stock for a total purchase of $30
million.  The amount of each advance is subject to an aggregate  monthly maximum
advance amount of $2 million in any 30-day period.  Cornell Capital Partners, LP
will purchase the shares of common stock for a 9% discount to the lowest closing
bid price of the Company's common stock during the 5 trading days after a notice
date. In addition,  Cornell Capital Partners,  LP will retain 3% of each advance
under the Equity  Line of Credit,  together  with a one-time  commitment  fee of
$750,000, paid in 2,960,000 shares of common stock. Cornell Capital Partners, LP
intends  to sell  any  shares  under  the  Equity  Line of  Credit  at the  then
prevailing  market  price.  On July 31,  2003,  the SEC declared  effective  the
Company's Registration Statement.


                                      F-16
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      For the fiscal  years ended June 30, 2004 and 2003,  the Company  recorded
amortization  expense of $187,500 and $375,000  respectively  in connection with
the  $750,000  two year  commitment  fee and the balance as of June 30, 2003 was
recorded as deferred  commitment  fees and  classified as part of  stockholders'
equity.

      During the fiscal year ended June 30, 2004, the Company issued 361,956,145
shares of common stock under the Equity Line of Credit  facility  for  $725,000.
The Company netted $684,125 from these  issuances  after deducting  escrow agent
expenses  and other direct costs  totaling  $40,875 that has been  recorded as a
reduction of common stock as of June 30, 2004.

(B) STOCK ISSUED FOR CONVERTIBLE DEBENTURES

During the fiscal year ended June 30, 2004, the 5% convertible debenture holders
converted   $944,000  of  debentures  and  $173,681  of  accrued  interest  into
492,801,173 and 92,482,097 shares of common stock, respectively.

(C) STOCK ISSUED FOR NOTE PAYABLE

      During the fiscal year ended June 30, 2004, the Company issued 517,000,360
shares of common  stock in partial  repayment of the note payable due to Cornell
Capital Partners, L.P. (See Note 5(D)).

(D) STOCK ISSUED FOR SERVICES

      During  January  2004,  the  Company's  Board of  Directors  approved  the
issuance  of  1,000,000  shares  of  restricted  common  stock to a third  party
consultant  having a value of $2,810 in consideration  of professional  services
rendered to the  Company.  During  June 2004 the  Company's  Board of  Directors
approved the issuance of 15,000,000  shares of restricted  common stock having a
value of $15,000 to two consultants for services rendered in connection with the
Cyber-Test acquisition.  During the fiscal year ended June 30, 2004, the Company
issued  152,273,808  shares of  restricted  common  stock to various  creditors,
including certain insiders, to settle prior unpaid accounts payable and creditor
claims aggregating $391,200.

(E) PREFERRED STOCK

      O     SERIES A CONVERTIBLE PREFERRED STOCK

      The Company has 25,000 shares of preferred  stock  authorized for issuance
in one or more series, at a par value of $.01 per share. In conjunction with the
acquisition  of the  Cyber-Test  business,  the Company  issued  4,200 shares of
Series A Convertible  Preferred Stock (the "Series A Preferred Shares") having a
liquidation  value of $1,000 per share, to Cornell Capital  Partners,  L.P. (the
"Holder").  The Holder of the Series A  Preferred  Shares is entitled to receive
cash dividends on a cumulative basis, in arrears,  at the annual rate of 5% when
and if a dividend is scheduled by the Company's board of directors. The Series A
Preferred Shares are convertible,  in whole or in part, on or after May 21, 2005
into shares of common  stock at the fixed price of $.01 per share or 100% of the
average  of the  three  lowest  closing  bid  prices  for the ten  trading  days
immediately preceding the date of conversion, whichever is lower.

      The Series A Preferred  Shares are nonvoting and  redeemable at the option
of the Company, in whole or in part, at any time at a 20% premium to liquidation
value.

      In any liquidation of the Company,  each of the Series A Preferred  Shares
will be entitled to a liquidation preference before any distribution may be made
on the  Company's  common stock or any series of capital stock that is junior to
the Series A Preferred Shares.  In the event of a fundamental  change in control
of the Company or its current  management,  the Holder of the Series A Preferred
Shares has the immediate  right to convert their Series A Preferred  Shares into
common stock of the Company.

      O     SERIES B CONVERTIBLE PREFERRED STOCK


                                      F-17
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

      During the fiscal  year ended June 30,  2004 and in  conjunction  with the
Company's  license of certain  intangible assets (see Note 8) the Company issued
300 shares of  nonvoting  Series B  Convertible  Preferred  Stock (the "Series B
Preferred Shares"), having a liquidation value of $1,000 per share. The Series B
Preferred  Shares have the same terms and  privileges  as the Series A Preferred
Shares,  but are  junior  to the  Series A  Preferred  Shares  in the event of a
liquidation  of the Company,  and are  convertible,  in whole or in part,  on or
after June 24, 2005 into shares of common  stock on the same terms of the Series
A Preferred Shares.

NOTE 10. COMMITMENTS AND CONTINGENCIES

(A) LEGAL MATTERS

      During the fiscal year ended June 30, 2004, the Company settled a majority
of its accounts payable and accrued  liabilities at substantial  discounts,  the
financial  results of which have been  recorded in the  Company's  June 30, 2004
consolidated  financial statements.  The Company has been, and may in the future
be involved as, a party to various legal  proceedings,  which are  incidental to
the  ordinary  course  of  business.   Management   regularly  analyzes  current
information and, as necessary, provides accruals for probable liabilities on the
eventual disposition of these matters. In the opinion of management,  as of June
30, 2004,  there were no  threatened  or pending legal matters that would have a
material impact on the Company's  consolidated results of operations,  financial
position or cash flows.

      On February  5, 2004,  the Company  filed suit in Superior  Court,  Orange
County,  California,  against Advanced  Communications  (Australia),  Roger May,
Global   Communications   Technologies   Limited   and   Global   Communications
Technologies Pty Ltd to recover damages incurred as a result of wrongful actions
of such  defendants  against  the  Company  and to  clarify  the  status  of the
Company's  obligations  to such  defendants  under various  agreements and other
arrangements,  from which the  Company  believes  it has been  relieved  of as a
result of such  wrongful  actions.  In May and August 2004,  the court issued an
entry  of  default  judgment  for  the  Company  and  against  all of the  above
defendants.

(B) OPERATING LEASE COMMITMENT

      Cyber-Test,  the Company's  operating  subsidiary,  leases on a triple net
basis,  approximately  29,000  square  feet of  office  and  warehouse  space in
Longwood,  Florida.  The lease  period runs from August 1, 2004 through July 31,
2005 at the rate of $13,500 per month or $162,000 for the remaining  term of the
lease.

NOTE 11. RELATED PARTIES

(A) LEGAL COUNSEL

      Certain of the Company's legal counsel are  stockholders  and directors of
the Company.  The Company has paid these attorneys,  for current and prior legal
services,  an  aggregate  of $150,004 in cash and  $155,000 in stock  during the
fiscal  year  2004,  and $0 in cash and $2,000 in stock  during the fiscal  year
2003.  At June 30,  2004,  the Company  owes these  attorneys  an  aggregate  of
$67,636, which is included in accounts payable and accrued expenses.

(B) PRESIDENT AND CHIEF FINANCIAL OFFICER

      The  Company's  President  and  Chief  Financial  Officer,  who is  also a
director and stockholder of the Company,  and Managing Director and Founder of a
separate  company,  has  been  contracted  to  provide  business  and  financial
consulting  services to the  Company.  The  Company  paid this  consultant,  for
current  and  prior  executive  and  financial  services,  $279,794  in cash and
$150,000 in stock  during  fiscal  2004,  and $3,000 in cash and $1,000 in stock
during fiscal 2003. At June 30, 2004, the Company does not owe an amount to this
consultant.

(C) INDEPENDENT DIRECTORS

      Certain of the Company's  independent directors were contracted to provide
business services to the Company. The Company paid these independent  directors,
for current and prior  business  services,  an  aggregate of $24,666 in cash and
$30,000 in stock during  fiscal 2004,  and $0 in cash and $2,000 in stock during
fiscal 2003. At June 30, 2004, the Company owes these  independent  directors an
aggregate of $23,406 which is included in accounts payable and accrued expenses.


                                      F-18
<PAGE>

    ADVANCED COMMUNICATIONS TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               AS OF JUNE 30, 2004

NOTE 12. GOING CONCERN

      The Company's  consolidated financial statements for the fiscal year ended
June 30, 2004, 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's negative cash flow from operations
of $829,775 and working  capital  deficiency  of $2,197,667 as of June 30, 2004,
raise substantial doubt about its ability to continue as a going concern.

      The ability of the Company to continue as a going  concern is dependent on
the Company's  ability to resolve  liquidity  problems by generating  sufficient
operating profits to provide an additional source of working capital.

      The consolidated  financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


                                      F-19