**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, 2007**





**Commission
      File No. 000-30486**





**Advanced
      Communications Technologies, Inc.**


(Name
      of
      small business issuer in its charter)





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





**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 under Section 12(g) of the Act:





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





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15((d) of the Exchange Act. o




Check
      whether the issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
      for such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
      Yes x No
o




Check
      if
      there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-B contained in this form and no disclosure will 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. o















Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act). Yes o No
x




The
      issuer's revenue for fiscal year ended June 30, 2007 was
      $9,243,992.




The
      aggregate market value as of September 24, 2007 of the voting common equity
      held
      by non-affiliates is $3,097,305




**Issuers
      Involved In Bankruptcy**


Proceeding
      During THE PAST Five Years





Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Securities Exchange Act after the distribution
      of
      securities under a plan confirmed by a court. Yes o No
o





**Applicable
      Only To Corporate Registrants**





As
      of
      September 24, 2007, there were 4,997,711,570 shares of the Company’s no par
      value common stock issued and outstanding.




**Documents
      Incorporated By Reference**




Portions
      of the following document are incorporated by reference in the Part of this
      report indicated below:




Part
      III
      of Registrant’s Proxy Statement for Solicitation of Consent In Lieu Of 2007
      Annual Meeting of Stockholders.


Transitional
      Small Business Disclosure Format (check one): Yes o No
x

















**Advanced
      Communications Technologies, Inc. and Subsidiaries**


**Form
      10-KSB**


**Table
      of Contents**





**Page****Part
                I**Item
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Property
            8Item
                3.
            Legal
                Proceedings
            8Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            9**Part
                II**Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            10Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            11Item7.
            Financial
                Statements
            19Item
                8.
            Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure
            20Item
                8a.
            Controls
                and Procedures
            21Item
                8b.
            Other
                Information
            21**Part
                III**Item9.
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            22Item
                10.
            Executive
                Compensation
            22Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            22Item
                12.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            22Item
                13.
            Exhibits
            23Item14.
            Principal
                Accountant Fees and Services
            31ADVANCED
                COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED
                FINANCIAL
              STATEMENTS
                AS OF JUNE 30, 2007 and 2006
            F-1-F-24

















As
      used
      herein, the terms the “Company,” “Advanced Communications Technologies,” “ACT,”
“we,” “us,” or “our” refer to Advanced Communications Technologies, Inc., a
      Florida corporation.




**Forward-Looking
      Statements**




*Certain
      statements in the "Description of Business" (Item 1), "Management’s Discussion
      and Analysis or Plan 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
      terminologies 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 undue 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.*













**Part
      I**




**Item
      1. Description Of Business**




Advanced
      Communications Technologies, Inc., a Florida corporation ("we," "us," "our,"
      “ACT,” or the "Company"), is a public holding company specializing in the
      technology aftermarket service and supply chain known as reverse logistics.
      Our
      wholly-owned subsidiary and principal operating unit, Encompass Group
      Affiliates, Inc., a Delaware corporation ("Encompass"), acquires and operate
      businesses that provide repair of consumer electronics, computers and peripheral
      equipment, distribute parts for those and other products and anticipates
      providing end-of-life cycle services for all such products.




Our
      strategy is to become a market leader in reverse logistics for the electronics
      industry by consolidating a core group of highly synergistic companies to
      provide original equipment manufacturers (“OEMs”), retailers, third party
      administrators (“TPAs”) and end-users with single-source, integrated life-cycle
      reverse logistic management services for technology products. We have chosen
      to
      address the overall market from both the end-user driven product support and
      repair industry and from the manufacturer-driven e-Waste recovery industry.
      While these two industries have different characteristics, they have significant
      back-end operational synergies. We view both markets as essential in order
      to
      present a complete outsourced solution to our customers.  Thus,
      we
      are focused on becoming a full-service provider of repair, refurbishment, parts
      distribution and end-of-life cycle services in the computer peripheral and
      consumer electronics markets. To that end we intend to continue to acquire
      businesses that either repair and refurbish equipment or distribute parts
      typically used in the repair and refurbishment process, as well as those that
      provide e-Waste recovery services. We intend to provide single source life
      cycle
      professional management services for technology products to businesses and
      consumers in the North American market initially, and then on a more worldwide
      basis.





Encompass
      owns Cyber-Test, Inc., a Delaware corporation ("Cyber-Test"), a depot repair
      and
      refurbishment company based in Florida that has heretofore been our principal
      operating business. Cyber-Test operates as an independent service organization.
      From its roots in the space industry more than 20 years ago, Cyber-Test gained
      the expertise to provide board-level repair of technical products to third-party
      warranty companies, OEMs, national retailers and national office equipment
      dealers. Service options include advance exchange, depot repair, call center
      support, parts supply and warranty management. Cyber-Test's technical competency
      extends from office equipment and fax machines to printers, scanners, laptop
      computers, monitors, multi-function units and high-end consumer electronics
      such
      as PDAs and digital cameras. Services are delivered nationwide through
      proprietary systems that feature real-time electronic data interchange (“EDI”),
      flexible analysis tools and repair tracking.





On
      August
      17, 2007, Encompass completed the acquisition of Vance Baldwin, Inc., an OEM
      parts distributor that has been a leader in the industry for over fifty years.
      Vance Baldwin has operations in southern Florida and suburban Atlanta and
      distributes approximately 30,000 different parts (i.e. SKU’s) annually ranging
      from consumer electronics, computers, printers and office supplies. In addition,
      Vance Baldwin provides service aids and industrial products such as cable,
      tools, test equipment, cleaners and other installation equipment. Vance is
      the
      only distributor in the U.S. that supports original replacement parts for all
      the major categories while selling to virtually every national “big box”
retailer and rental organization.





***The
      Reverse Logistics Industry***





Reverse
      Logistics was first implemented in the electronics industry (computing, office
      automation, telecommunications process, etc.) in the early 1980s as a result
      of
      miniaturization and modularization design, with the repair of a product or
      piece
      of equipment performed in the field (i.e., fix in place). More recently, the
      proliferation of large-scale, sophisticated, integrated digital circuits and
      circuit boards, carrying built in diagnostics and defined test points, have
      led
      to increased reliability of the subsystems and components, reducing repair
      time
      through the pull-and-replacement of modules rather than field repair. As the
      value of these components continuously increases, so does the demand for
      solutions that monetize and extend the life of components through repair and
      reallocation. Larger high-cost products, not well suited for off-site repair,
      such as DLP and LCD televisions, continue to drive demand for a field repair
      solution.




1





According
      to D.F. Blumberg, a recognized industry statistician, the consumer electronics
      and computer / Electronic Data Processing (“EDP”) segment of reverse logistics
      was expected to be $4.2 billion in 2006 (an 8.8% increase over 2005) and is
      forecasted to increase at a 10.6% CAGR over the next four years, reaching $6.3
      billion by 2010. The growth in sales of consumer electronics and computer and
      peripheral equipment is driving the need for reverse logistics and repair
      services, representing one of the largest opportunities within the industry.
      The
      Consumer Electronics Association (“CEA”) estimated that 2005 sales of consumer
      electronics and computers and peripheral equipment were $125.7 billion and
      $102.9 billion, respectively. There remains significant opportunity for above
      average company growth within the industry by continuing to increase
      capabilities across the product life cycle.





The
      consumer electronics (including high-tech home appliances), computer and
      computer peripherals segment of the reverse logistics industry can be broken
      down into five segments which span the industry lifecycle, including: parts
      suppliers; repair, refurbishment and returns management companies; remote/onsite
      repair management and service dispatch providers; warranty administrators;
      and,
      e-Waste recovery organizations. These constituencies provide services to OEMs,
      retailers and TPAs that participate at various points along the product
      life-cycle continuum, from the OEMs who manufacture the products and original
      parts to the retailers engaged in marketing and selling of the end-products
      to
      the TPAs which underwrite the extended service plans.




*Parts
      Suppliers* **




Historically,
      parts suppliers tended to be regionally focused, lacking the ability to provide
      clients with a national solution and serving the network of repair centers
      and
      onsite service technicians in their surrounding areas. Today, most part
      suppliers are nationally based, but struggle with the only cost of supporting
      customers nationally due to the minimum service requirement of two day delivery
      and are forced to resort to expensive freight methods such as two day air.
      Some
      parts suppliers have vertically integrated repair operations, leveraging the
      sourcing of parts from their own inventory. Parts companies tend to specialize
      around certain product categories, and/or specific OEMs. Because of the lengthy
      authorization process initiated by the OEM, many parts companies do not cross
      manufacturer lines. OEMs control parts access and in some cases (like Apple
      and
      Sony for certain product lines) make it virtually impossible for independent
      service or parts providers to gain access to their parts. The rise of Asian
      parts suppliers who allow access to “proprietary” OEM parts sold in the U.S. is
      key to gaining market share in the parts support and repair industry. The cost
      of over-runs on the manufacturing of products is also a primary factor driving
      demand for parts distributors. To extend the life of products and to prevent
      inefficient post-manufacturing parts production (after a product line is
      closed), OEMs will apply core charges to circuit boards and other high mortality
      items to extend product life.




*Repair,
      Refurbishment and Returns Management Companies* **




Historic
      repair and refurbishment activities for technology products have been organized
      based on the proximity of the repair center to the users. Examples include
      the
      independent service dealer handling in-warranty authorized repairs for OEMs
      or
      out-of-warranty repairs for end consumers (all walk-in driven). The industry
      has
      witnessed consolidation in service repair centers, as well as groups aligning
      together to create a national network for OEMs. Over the last 20 years, the
      growth of the service contract business has been driven by large insurance
      agencies, acquiring a sizeable piece of the out-of-warranty repair incoming
      volumes and placing them under the service plans they underwrite.




The
      larger scale operations have historically been run by OEMs. Integrated
      circuitry, power source improvements and lifestyle changes are driving products
      toward smaller dimensions. As a result, price pressures from imports, fickle
      consumer demand and manufacturer consolidation have forced OEMs to close these
      large scale facilities and outsource work to external service providers or
      cobble together a network to replicate this operation. The influx of Asian
      OEMs,
      many of which are Chinese manufacturers historically focused on private label
      manufacturing for major US brands (e.g., Panasonic, Sony, etc), have been
      aggressively selling into the U.S. with extremely cost-competitive products.
      However, these OEMs do not possess the requisite US-based service
      infrastructures and, therefore, are driving additional demand toward a group
      of
      smaller external service providers. In addition to pure service delivery, repair
      and refurbishment companies are broadening their offerings to include level
      II
      and III technical support, diagnosing and potentially repairing equipment
      directly over the phone with the end user. As equipment becomes more integrated
      with other systems and software, it has become necessary for the repair centers
      to offer this value added service.




2
 
  ***The
        Equipment Warranty/Repair Management Industry***





Warranty
      periods, including product warranties issued by manufacturers and extended
      life
      warranties issued by third-party insurers, 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:





·
            offer
                one-stop / turnkey service;




·
            have
                the technical ability to repair multi-products for
                multi-vendors;




·
            offer
                advance exchange of office equipment computer peripheral
                products;




·
            offer
                distribution logistics from call management through delivery;
                and




·
            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
      affect the necessary repair at the most cost-effective price.





***Our
      Products and Services*** ****





*Cyber-Test*




Cyber-Test
      operates 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. 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 20 years,
      and
      offers service programs for equipment dealers, OEMs, extended warranty
      companies, retail outlets and end-users. The service programs include:





·
            return
                to depot repair of office equipment and computer peripheral
                products;




·
            advance
                exchange of office equipment and computer peripheral
                products;




3




·
            board-level
                repair of circuit boards and sub assemblies;




·
            return
                to depot repair for component-level circuit
                boards;




·
            OEM
                warranty exchange and repair programs;




·
            large
                volume repair and refurbishment;
                and




·
            call
                center technical support.





Cyber-Test’s
      repair and exchange service is managed by a proprietary information system
      designed and developed by the management team of Cyber-Test 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 track on
      a real-time basis the repair status of any given unit, including a date of
      return delivery to the end-user, while at the same time allowing Cyber-Test
      to
      manage the output volume and quality of the repair process. This 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 accelerate orders directly from this proprietary,
      customized web portal. Repair work is principally performed for OEM’s, retailers
      and TPAs under warranty programs.





*Parts
      and Sales.* Cyber-Test
      stocks a line of parts, accessories, and consumables for its in-house repair
      needs and offers these parts for sale as well. Cyber-Test stocks over 30,000
      parts for printers, facsimile machines, scanners, laptops, monitors and PDAs.
      Customer’s can view a full listing of parts at Cyber-Test’s website (in the
      ADVANCEXTM 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 affords
      the capability to search, order, and buy parts without an OEM part number,
      and
      its search feature will cross-reference to other OEMs or parts manufacturers
      that may fit the desired part.





Further,
      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 5,000 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 printers and fax machines.





*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
      also has a salvage division that receives extended warranty products that were
      "bought out" by the warranty provider. 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 ADVANCEXTM. 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 ADVANCEXTM, which provides
      same day service to its customers on all products Cyber-Test repairs. With
      the
      ADVANCEXTM 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. A special capability
      of
      Cyber-Test’s proprietary system is that it allows the OEM to gather failure
      analysis and failure trends critical to the release of new products. This
      information is collected online while Cyber-Test is providing 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 expenses. Cyber-Test has a same-day
      fulfillment up to 5:00 p.m. Eastern Time on all ADVANCEXTM products, and ships
      approximately 3,500 repaired units per month. The ADVANCEXTM program has resulted
      in decreased product returns and increased customer satisfaction.




4





*Vance
      Baldwin*





*Parts
      and Sales.*As one of the nation’s largest distributors of parts for
      consumer electronics products, computers, printers and fax machines as well
      as
      office supplies, Vance Baldwin currently stocks approximately 25,000 different
      parts and products. Customers can view a full listing of parts at Vance
      Baldwin’s website and, if any part is not in stock, it can usually be made
      available in one business day. Vance Baldwin’s unique parts ordering system
      affords the capability to search, order, and buy parts without an OEM part
      number, and its search feature will cross-reference to other OEMs or parts
      manufacturers that may fit the desired part. Parts and products sold are
      typically backed with a full OEM warranty.





Generally,
      Vance Baldwin serves customers in the Eastern half of the country. Freight
      costs
      make it prohibitively costly to supply customers on a nation-wide basis, hence,
      all competitors with the exception of one other, are substantially smaller
      and
      serve smaller regions.





In
      an
      effort to generate increased parts sales volume, Vance Baldwin has entered
      into
      innovative contractual agreements with several of the country’s largest
      providers of extended warranty plans to consumers. Such plans are purchased
      in
      approximately __% of product purchases consumers make at “big box” retailers and
      others for flat screen TV’s, cell phones, PDAs, printers and laptop computers.
      Vance Baldwin has developed a program, including developing proprietary
      technical information systems, whereby Vance Baldwin supplies parts to the
      thousands of repair businesses like Cyber-Test. The advantage to the extended
      warranty provider is (i) standard pricing for parts and (b) a system that offers
      control over the repair cycle so that the extended warranty provider has the
      ability to monitor the repair cycle status for hundreds of thousands of repair
      jobs, an ability that did not previously exist to and meaningful degree.





*Call
      Center Technical Support*. Vance Baldwin offers customers 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 7,500 calls per month.
      The principal service provided by the Call Center is assisting customers with
      parts searches and purchases.





***Competition***





*Cyber-Test*





Cyber-Test's
      business is highly competitive in each area from which it derives revenue.
      It
      competes with some larger and numerous smaller companies that provide repair
      services for office equipment and computer peripheral products, that supply
      parts and consumables to end-users and other repair companies of such equipment
      and products, and with other sellers of new equipment and resellers of
      refurbished 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. In the U.S., there are hundreds of
      manufacturers of technical products of the type Cyber-Test repairs, hundreds
      of
      independent companies that repair products in a manner similar to Cyber-Test,
      as
      well as hundreds of companies that supply parts and components for use in
      repair, and 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 terms of revenue, customers
      and employees, and have greater financial and other resources than does
      Cyber-Test, such as Decision One, Depot America, DataTech America, and DEX.
      Cyber-Test also competes with OEMs and major retailers that do their own repair
      work, as well as large distribution and logistics companies such as United
      Parcel Service and Airborne Logistics.




5





*Vance
      Baldwin*





Vance
      Baldwin’s business is highly competitive within the geographic area in which it
      operates. Given its relative size compared to others, it competes with numerous
      smaller, more regionally restricted firms. In the Eastern half of the country,
      this has helped Vance Baldwin become (a) the predominant distributor for the
      largest well known Original Equipment Manufacturers such as Panasonic, Samsung,
      Toshiba, RCA, JVC, Sony, Phillips, and many others, and (b) the predominant
      supplier to the largest retailers such as Circuit City, Best Buy and
      Rent-a-Center.





Competition
      within the parts distribution segment of the reverse logistics industry is
      based
      on service, price, availability of parts (fill rate), speed and accuracy of
      delivery, depth of technical know-how and the ability to tailor specific
      solutions to customer needs. Vance Baldwin is very proficient in forging
      technological links with its suppliers and customers to streamline the exchange
      of information for ordering, shipping and paying, something which has given
      a
      clear competitive advantage over others. Freight cost is a major expense
      component affecting all parts distributors. With the move of its warehouse
      operation to a larger facility in April 2006, Vance Baldwin was able to lower
      freight costs with the ability to ship more customers by 2-day land and thereby
      reduce the use of more costly air shipping.





Competitors
      of Vance Baldwin include Andrews Electronics, Tritronics, Herman Electronics,
      Fox International, Union Electronics, Parts Now and Depot
      America.





***Customers***





*Cyber-Test*





Cyber-Test
      currently generates a significant portion of its revenues from two large
      customers. During the fiscal year ended June 30, 2007, Cyber-Test’s sales to two
      customers accounted for approximately 85% of its total sales,
      respectively.  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.





*Vance
      Baldwin*





Vance
      Baldwin, which currently sells to
      approximately 7,000 active customers, many for a decade or more, derives
      approximately 60% of its sales volume from three large customers. The loss
      of
      one or more of these customers would have a material adverse effect on our
      business, results of operations and financial condition.




***C*** ***ompany
      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) 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 under development in Australia by entities
      related to a founding shareholder, to offer mobile communications network
      providers the flexibility of processing and transmitting multiple wireless
      communications signals through one base station. 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.




6




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 and
      the
      technology, to the best of our knowledge, has never been commercially developed
      and/or tested.




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 (the
      “Exchange Act”), and consequently became a "reporting company" under the
      Exchange Act.




On
      April
      13, 2004, we formed Encompass Group Affiliates, Inc. ("Encompass"), a Delaware
      corporation, to be our wholly-owned subsidiary for the purpose of becoming
      our
      principal operating unit. Encompass is the direct parent company to Cyber-Test,
      Inc., our core operating business.




On
      June
      3, 2004, pursuant to the terms of an asset purchase agreement dated May 27,
      2004, Encompass acquired 100% of the assets and business of Cyber-Test, a
      Delaware corporation.




On
      December 30, 2004, we acquired a controlling interest in Pacific Magtron
      International Corp. (“PMIC”) PMIC engaged in the wholesale distribution of
      electronics products, computer components, and computer peripheral equipment
      throughout the United States. On May 11, 2005, PMIC and its subsidiaries filed
      voluntary petitions to reorganize their businesses under Chapter 11 of the
      United States Bankruptcy Code in the United States Bankruptcy Court for the
      Southern District of Nevada. Due to the bankruptcy filing of PMIC and its
      subsidiaries on May 11, 2005, and as of that date, the Company was no longer
      able to exercise management control over PMIC’s business operations.
      Consequently, as of June 30, 2005, the Company accounted for the investment
      in
      PMIC under the cost method of accounting. PMIC and its operating subsidiaries
      have been liquidated under Chapter 11 of the bankruptcy code pursuant to plans
      confirmed by the Bankruptcy Court in August 2005 and January 2006.




On
      August
      17, 2007 we entered into a series of transactions to effect a recapitalization
      which, among other transactions, included the following:




·  the
      acquisition of Vance Baldwin for cash, a convertible note and shares of our
      Series D Convertible Preferred Stock;




·  the
      offer
      and sale of a significant preferred stock investment of more than $6 million
      to
      ACT-DE, LLC, an affiliate of H.I.G. Capital, LLC, which, together with certain
      other parties, received newly designated Series C Convertible Preferred Stock,
      par value $.01, constituting approximately 79.5% of the ownership interest
      in
      the Company (before dilution for stock options issued to management as described
      herein); and




·  the
      issuance of approximately $23.4 million in senior and subordinated notes
      pursuant to a Note Purchase Agreement, for which Sankaty Advisors, LLC is the
      collateral agent.




In
      connection with the above-described recapitalization, the Company offered the
      holders of the Company’s Series A Convertible Preferred Stock, par value $.01
      per share, Series A-1 Convertible Preferred Stock, par value $.01 per share,
      and
      Series B Convertible Preferred Stock, par value $.01 per share, the right to
      exchange such stock for the newly designated Series A-2 Preferred (the
“Exchange”). In the Exchange, the existing preferred stockholders provided a
      full release of any claims against the Company, but were not required to provide
      any other consideration other than the surrender of their outstanding shares
      of
      preferred stock. In connection with the recapitalization, the Company also
      paid
      off outstanding debts to certain creditors with an aggregate payment of
      approximately $3,600,000 in cash. One creditor received a convertible promissory
      note in addition to a cash payment. Certain of these creditors then purchased
      shares of the Series A-2 Preferred from one of the stockholders receiving such
      stock pursuant to the exchange.




7




***Employees***




As
      of
      June 30, 2007, the Company had 110 full-time employees.




**Item
      2. Description Of Property**




The
      Company’s principal executive office is located at 420 Lexington Avenue, Suite
      2739, New York, New York 10170. The Company, through a license agreement
      effective August 15, 2007 with Danson Partners, LLC, a party related to our
      chief executive officer, effectively assumed the Danson Partners’ lease
      obligation for a total of approximately 2,000 square feet of office space
      through May 31, 2010, and licenses for its use all the furniture, fixtures,
      filing cabinets, computers, servers, office equipment, etc. that it needs to
      conduct its business.




Cyber-Test
      leases a 29,000 square foot office/warehouse facility under a one-year triple
      net lease that commenced on January 1, 2007 and ends on July 31, 2008, and
      carries a one-year option. The monthly lease obligations are $14,690 for the
      period January 1, 2007 to July 31, 2007, $15,150 for the period August 1, 2007
      to July 31, 2008 and $15,700 for the option period August 1, 2008 to July 31,
      2009.




Cyber-Test
      also leases an adjacent 10,800 square foot warehouse facility under a one-year
      triple net lease that commenced on January 1, 2007 and ends on July 31, 2008,
      and carries a one-year option. The monthly lease obligations are $5,600 for
      the
      period January 1, 2007 to July 31, 2008, and $5,800 for the option period August
      1, 2008 to July 31, 2009.




Vance
      Baldwin leases 55,985 square foot office/warehouse facility under a lease that
      commenced February 15, 2006 and ends on June 30, 2011, and carries a one-year
      option. The monthly base lease obligations are $8,631 for months 1-8, $17,262
      months 9-16, $17,589 for months 17-28, $17,962 for months 29-40, $18,335 for
      months 41-52 and $18,662 for months 53-64.




Vance
      Baldwin also leases 10,010 square foot office facility under a lease that
      commenced August 10, 2000, as amended by First Amendment to Lease, dated May
      1,
      2006, and ends on April 30, 2008. The monthly lease obligations are $7,508
      for
      the period May 1, 2006 to April 30, 2007, and $7,532 for the period May 1,
      2007
      to April 30, 2008.




The
      Company’s principal operating unit, Encompass was located at 1600 California
      Circle, Milpitas, California 95035 until September 14, 2006, at which time
      it
      was relocated to our principal executive office at 420 Lexington Avenue, Suite
      2739, New York, New York 10170.




**Item
      3. Legal Proceedings**




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, 2007, 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 other than the
      proceedings described below.




On
      May
      11, 2005, we filed a complaint in the United States District Court for the
      Southern District of New York against Theodore S. Li and Hui Cynthia Lee, the
      former officers and principal shareholders of our then majority-owned subsidiary
      Pacific Magtron International Corp. (“PMIC”), for the recovery of damages and
      costs for securities fraud, breach of contract and other counts in connection
      with the Stock Purchase Agreement dated December 10, 2004 among us and Mr.
      Li
      and Ms. Lee. On December 8, 2005, defendants answered the complaint and asserted
      various defenses to the claims set forth therein.




In
      January 2006, Theodore S. Li and Cynthia Lee brought suit against us and certain
      of our officers and directors in the California Superior Court, Santa Clara
      County. In the complaint, plaintiffs alleged, among other things, fraud,
      intentional misrepresentation, breach of contract, breach of implied covenant
      of
      good faith and fair dealing, violation of the California Labor Code, violation
      of the Business of Professions Code of California, and defamation.




8




In
      July,
      2006, we, PMIC, Mr. Li, Ms. Lee and others entered into a Mutual Settlement
      Agreement and Release (the “Settlement Agreement”) with respect to the
      settlement of the above litigation and other potential claims, including the
      termination of their employment contracts, involving us, PMIC, Encompass, Mr.
      Li, Ms. Lee, Martin Nielson, our then Executive Vice President, and Wayne
      Danson, our Chief Executive Officer. PMIC’s entry into the Settlement Agreement
      was conditioned on bankruptcy court approval, which was obtained on August
      11,
      2006 in connection with confirmation of PMIC’s Plan of Reorganization. Under
      PMIC’s Plan of Reorganization, the Company contributed $50,000 on behalf of
      PMIC’s stockholders to effectuate the plan of reorganization and a subsidiary of
      PMIC merged with an unrelated entity, Herborium, Inc. In connection with the
      merger, PMIC changed its name to Herborium Group, Inc. Upon closing of the
      merger, the Company paid an aggregate $325,000 in cash to Mr. Li and Ms. Lee.
      In
      addition, Li and Lee received 4,585,554 shares, in the aggregate, of common
      stock of Herborium Group valued at $175,000. A special stock distribution of
      shares of Herborium Group was made to the holders of our common stock as of
      the
      record date of August 11, 2006 on the basis of a 0.001652911 share of Herborium
      common stock for each share of our common stock.




A
      more
      detailed description of the terms of the Settlement Agreement is contained
      in
      our Current Report on Form 8-K filed with the SEC on August 16, 2006.







**Item
      4. Submission Of Matters To A Vote Of Security Holders**




None.




9




**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 September 17, 2007, there were
      4,997,711,570 common shares issued and outstanding and approximately 510 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:




**High
                Bid**
            
            **Low
                Bid****Fiscal
                Year 2007**Quarter
                Ended September 30, 2006
            
            **$**
            **.0010**
            
            **$**
            **.0008**Quarter
                Ended December 31, 2006
            
            
            **.0008**
            
            
            **.0003**Quarter
                Ended March 31, 2007
            
            
            **.0006**
            
            
            **.0004**Quarter
                Ended June 30, 2007
            
            
            **.0008**
            
            
            **.0005****Fiscal
                Year 2006**Quarter
                Ended September 30, 2005
            
            **$**
            **.0012**
            
            **$**
            **.0006**Quarter
                Ended December 31, 2005
            
            
            **.0011**
            
            
            **.0003**Quarter
                Ended March 31, 2006
            
            
            **.0090**
            
            
            **.0004**Quarter
                Ended June 30, 2006
            
            
            **.0022**
            
            
            **.0010**




Such
      market quotations reflect inter-dealer prices, without retail mark-up, mark-down
      or commissions and may not represent actual transactions.




We
      did
      not pay any dividends during fiscal 2007 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. Our agreements
      with
      the holders of our Senior and Subordinated Notes restrict the payment of
      dividends. In addition, the provisions of our Series C Convertible Preferred
      Stock prohibit the payment of dividends on common stock, or other capital stock
      ranking junior to the Series C Preferred Stock, without the consent of a the
      holders of a majority of the Series C Preferred Stock.




***Recent
      Sales Of Unregistered Securities***




On
      September 25, 2006, under employment agreements entered into with two
      executives, an aggregate of 100,000,000 restricted shares of the Company’s
      common stock were awarded at the closing price per share at the date of grant.
      The shares were valued at $.0009 per share or $90,000 in the aggregate of which
      20% vested immediately, with 30% and 50% to vest on September 26, 2007 and
      September 26, 2008, respectively, subject to continued employment.




On
      September 13, 2006, the Company sold a total of 340 shares of its Series A-1
      Preferred Stock at $1,000 per share to executive officers, one employee and
      one
      outside investor.




In
      addition, subsequent to the end of the fiscal year, we engaged in the
      recapitalization described above under Item 1, Description of Business - Company
      History, and issued certain shares of our Series C, Series D and Series A-2
      Preferred Stock, as well as certain notes. Reference is made to our Current
      Report on Form 8-K filed August 21, 2007, for a description of these
      transactions.




10




With
      respect to the sale of unregistered securities referenced above, all
      transactions were exempt from registration pursuant to Section 4(2) of the
      Securities Act of 1933 (the "Securities 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 Securities 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.




***Issuer
      Purchases of Equity Securities***




We
      did
      not make any purchases of equity securities during the fiscal year ended June
      30, 2007.




**Item
      6. Management’s Discussion And Analysis** **Or
      Plan Of Operation**




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 including the use of words
      such as "estimates," "expects," "anticipates," "believes," "intends," "will,"
      "seek" and other similar expressions, are intended to identify forward-looking
      information that involves risks and uncertainties. In addition, any statements
      that refer to expectations or other characterizations of future events or
      circumstances are forward-looking statements. Actual results and outcomes could
      differ materially as a result of important factors including, among other
      things, general economic conditions, the Company's ability to renew or replace
      key supply and credit agreements, fluctuations in operating results, committed
      backlog, public market and trading issues, risks associated with dependence
      on
      key personnel, competitive market conditions in the Company's existing lines
      of
      business and technological obsolescence, as well as other risks and
      uncertainties.




**GENERAL**




We
      are a
      New York-based public holding company specializing in the technology aftermarket
      service and supply chain, known as reverse logistics. Through our wholly-owned
      subsidiary and principal operating unit, Encompass Group Affiliates, Inc.
      ("Encompass"), our strategy is to acquire and operates businesses that provide
      computer and electronics repair and refurbishment services and end-of-life
      cycle
      services, as well as parts distribution, for such products as laptop computers,
      monitors, multi-function units and high-end consumer electronics such as PDAs
      and digital cameras, as well as office equipment such as fax machines, printers,
      copiers and scanners. Encompass owns Cyber-Test, Inc. ("Cyber-Test"), an
      electronic equipment repair company based in Florida and our principal operating
      business. The Company operated in one business segment, the repair and
      refurbishment component of the reverse logistics industry, for the fiscal years
      ended June 30, 2007 and 2006.




**COMPARISON
      OF THE FISCAL YEAR ENDED JUNE 30, 2007 TO THE FISCAL YEAR ENDED JUNE 30,
      2006**





**FINANCIAL
      CONDITION**





We
      incurred a net loss of $1,250,000 and $574,000 for the years ended June 30,
      2007
      and 2006, respectively, and we had a working capital deficiency of $2,477,000
      and $1,296,000 as of June 30, 2007 and 2006, respectively. Our consolidated
      current liabilities increased from $2,959,000 as of June 30, 2006 to $4,205,000
      as of June 30, 2007. For the year ended June 30, 2007, we funded our ongoing
      operations from working capital generated by Cyber-Test and the issuance of
      Series A-1 Convertible Preferred Stock. However, this amount was not sufficient
      to fund all of our corporate overhead; accordingly, we experienced a substantial
      increase in accounts payable and accrued expenses.




11





As
      of
      June 30, 2007, our ability to continue as a going concern was dependent upon
      achieving profitability and generating sufficient cash flows to meet our
      obligations as they come due, or obtaining financing to meet working capital
      needs or to fund the acquisition of profitable businesses. Our
      independent auditor added an explanatory paragraph to its audit opinion issued
      in connection with the fiscal year 2006 financial statements, which stated
      that
      our losses and working capital deficiency raised substantial doubt as to 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.





In
      April
      2006, w e
      engaged
      Janney Montgomery Scott, LLC, a Philadelphia-based investment banking firm
      to
      assist us in securing equity and debt financing for the purpose of providing
      us
      with funding for several contemplated acquisitions, retirement of certain debt
      and preferred stock, and adequate funding for increased working capital needs
      and additional acquisitions.





On
      August
      17, 2007, the Company entered into a series of transactions to effect a
      recapitalization in connection with the acquisition of a new operating
      subsidiary which included the completion of a preferred stock investment of
      $6,300,000, the issuance of $23.4 million in senior and subordinated notes,
      the
      liquidation of substantially all of the Company’s current liabilities, including
      notes payable, by cash payment or conversion into Series A-2 Convertible
      Preferred Stock, and the conversion of substantially all of the Company’s
      convertible preferred stock, by cash payment or conversion into Series A-2
      Convertible Preferred Stock, which will automatically convert into common stock
      upon stockholder approval to increase the number of authorized shares of common
      stock. Also on August 17, 2007, the Company acquired all of the outstanding
      equity interests in Vance Baldwin, Inc., a privately-held Florida subchapter
      S
      corporation doing business as Vance Baldwin Electronics and engaged in
      distribution and shipping of parts for consumer electronics, printers,
      appliances, and computers (“Vance Baldwin”). Revenue and net income for Vance
      Baldwin for the year ended December 31, 2006 amounted to $48,970,000 and
      $4,551,000, respectively.




**Summary
      of Results Of Operations**





The
      following table sets forth certain selected financial data as a percentage
      of
      sales for the years ended June 30, 2007 and 2006:





2007
            
            2006Net
                sales
            
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            66.3
            
            
            64.9Gross
                profit
            
            
            33.7
            
            
            35.1Operating
                expenses
            
            
            45.7
            
            
            42.9(12.0
            )
            
            (7.8
            )Other
                income (expenses)
            
            
            (1.5
            )
            
            1.6Net
                loss
            
            
            (13.5
            )%
            
            (6.2
            )%





***Net
      Sales***





Net
      sales
      for the fiscal year ended June 30, 2007 amounted to $9,244,000 as compared
      to
      net sales of $9,183,000 for the fiscal year ended June 30, 2006, an increase
      of
      $61,000, or 0.7%. The minor increase in net sales in fiscal 2007 compared to
      fiscal 2006 was due to an increase of $149,000, or 1.6%, in Cyber-Test’s sales
      offset by a decrease of $88,000 in sales by Encompass as final PMIC inventory
      clearing sales were completed in the earlier period. During fiscal 2007,
      Cyber-Test continued to experience the shift in sales mix from its more
      traditional core work such as fax machines, printers and multifunction machines
      repair work to an increased volume of PDA, Blackberry and laptop repair work
      that began in fiscal 2006.




12




***Cost
      of sales***




Our
      cost
      of sales totaled $6,133,000 for the fiscal year ended June 30, 2007 as compared
      to $5,959,000 for the fiscal year ended June 30, 2006 an increase of $174,000,
      or 2.9%. Cost of sales for Cyber-Test increased by 3% as a result of the
      aforementioned 1.7% increase in gross sales and a decrease in gross margin
      for
      the current fiscal year compared to fiscal 2006. Gross margin for Cyber-Test
      was
      33.7% for the year ended June 30, 2007, compared to gross margin of 34.6% in
      2006, with the decrease attributable to lower margin laptop repair work
      representing a greater percentage of volume. In addition to the effect of
      Cyber-Test’s decrease in gross margin on total Company gross margin, which
      decreased from 35.1% for fiscal 2006 to 33.7% for fiscal 2007, the
      aforementioned decrease in sales by Encompass, with no associated cost since
      the
      inventory had been previously written off, had an unfavorable
      impact.




***Operating
      Expenses***




Operating
      expenses for the fiscal years ended June 30, 2007 and 2006 were $4,218,000
      and
      $3,935,000, respectively, representing a $283,000, or 7.2%, increase from the
      fiscal year ended June 30, 2006. The increase was primarily attributable to
      an
      increase in selling, general and administrative expenses of $395,000 and a
      charge for an impairment of an intangible asset of $400,000, partially offset
      by
      a decrease of $488,000 in professional and consulting expenses as compared
      to
      the fiscal year ended June 30, 2006.




Professional
      and consulting fees decreased from $862,000 for the fiscal year ended June
      30,
      2006 to $373,000, or 56.7%, for the fiscal year ended June 30, 2007, primarily
      due to the decrease in legal fees associated with the PMIC bankruptcy and
      litigation that was settled in the first quarter of fiscal 2007.




Other
      selling, general and administrative expenses increased from $2,975,000 for
      the
      year ended June 30, 2006 to $3,370,000, or 13.3%, for the year ended June 30,
      2007. The net increase was primarily due to an increase in corporate
      compensation expense of $445,000 due to the addition of two executives in
      anticipation of the recently completed recapitalization and acquisition of
      Vance
      Baldwin and due to recording a one-time credit to income in fiscal 2006 to
      reverse deferred compensation amortization charges for a terminated executive.




***Other
      Income and Expenses***




Our
      other
      income (expense) amounted to $142,000 of expense for the fiscal year ended
      June
      30, 2007 compared to $137,000 of income for the prior year. We settled
      litigation with two former PMIC’s executives for a $325,000 cash payment in
      exchange for the cancellation of notes totaling $500,000, plus accrued interest,
      payable to the former PMIC’s executives. We recorded a gain of $220,000 for this
      settlement in the year ended June 30, 2006. Net interest expense increased
      by
      $60,000 to $143,000 for the fiscal year ended June 30, 2007 from $83,000 for
      the
      fiscal year ended June 30, 2006. This increase was due to recording interest
      expense in the amount of $85,000 for the beneficial conversion feature
      attributable to the conversion discount of the Series A-1 Convertible Preferred
      Stock issued in fiscal 2007, partially offset by a reduction in the average
      amount of interest-bearing debt outstanding during fiscal 2007 compared to
      fiscal 2006.




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company incurred a net loss of $1,250,000 and $574,000 for the years ended
      June
      30, 2007 and 2006, respectively. The Company had a working capital deficiency
      of
      $2,477,000 and $1,296,000 as of June 30, 2007 and 2006, respectively. Our
      consolidated current liabilities increased from $2,959,000 as of June 30, 2006
      to $4,205,000 as of June 30, 2007. For the year ended June 30, 2007, we funded
      our ongoing operations from working capital generated by Cyber-Test and the
      issuance of Series A-1 Convertible Preferred Stock. However, this amount was
      not
      sufficient to fund all of our corporate overhead; accordingly, we experienced
      a
      substantial increase in accounts payable and accrued expenses.




On
      September 13, 2006, we sold 340 shares of our Series A-1 Preferred Stock for
      proceeds of $340,000. A portion of these proceeds was used to pay the $325,000
      to former PMIC executives.





As
      of
      June 30, 2007, our ability to continue as a going concern was dependent upon
      achieving profitability and generating sufficient cash flows to meet our
      obligations as they come due, or obtaining financing to meet working capital
      needs or to fund the acquisition of profitable businesses. Our
      independent auditor added an explanatory paragraph to its audit opinion issued
      in connection with the fiscal year 2006 financial statements, which stated
      that
      our losses and working capital deficiency raised substantial doubt as to 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.




13





In
      April
      2006, w e
      engaged
      Janney Montgomery Scott, LLC, a Philadelphia-based investment banking firm
      to
      assist us in securing equity and debt financing for the purpose of providing
      us
      with funding for several contemplated acquisitions, retirement of certain debt
      and preferred stock, and adequate funding for increased working capital needs
      and additional acquisitions.





On
      August
      17, 2007, the Company entered into a series of transactions to effect a
      recapitalization in connection with the acquisition of a new operating
      subsidiary which included the completion of a preferred stock investment of
      $6.3
      million, the issuance of $23.4 million in senior and subordinated notes, the
      liquidation of substantially all of the Company’s current liabilities, including
      notes payable, by cash payment or conversion into Series A-2 Convertible
      Preferred Stock, and the conversion of substantially all of the Company’s
      convertible preferred stock, by cash payment or conversion into Series A-2
      Convertible Preferred Stock, which will automatically convert into common stock
      upon stockholder approval to increase the number of authorized shares of common
      stock. Also on August 17, 2007, the Company acquired all of the outstanding
      equity interests in Vance Baldwin, Inc., a privately-held Florida subchapter
      S
      corporation doing business as Vance Baldwin Electronics and engaged in
      distribution and shipping of parts for consumer electronics, printers,
      appliances, and computers (“Vance Baldwin”). Net sales and net income for Vance
      Baldwin for the year ended December 31, 2006 amounted to $48,970,000 and
      $4,551,000, respectively.





In
      connection with the recapitalization and acquisition of Vance Baldwin, we issued
      $12,690,355 in aggregate principal amount of Senior Notes for an aggregate
      purchase price of $12,500,000 and $10,714,286 in aggregate principal amount
      of
      Subordinated Notes for an aggregate purchase price of $10,500,000.





The
      Senior Notes bear interest at LIBOR plus 3.75%, per annum payable quarterly,
      in
      arrears, and have a five-year term through August 17, 2012 (the “Maturity
      Date”). They are repayable in consecutive quarterly installments in an amount
      equal to 1%, or approximately $127,000, through August 17, 2012. At the Maturity
      Date the remaining principal amount and any unpaid and accrued interest on
      the
      Senior Notes shall be due. We are required to prepay the Senior Notes from
      any
      new equity or debt financing, certain excess cash flow or the cash proceeds
      of
      asset sales and casualty events, subject to stipulated exceptions. We may redeem
      the Senior Notes at any time, subject to a redemption premium, as defined.
      The
      Senior Notes are secured by a first priority security interest in substantially
      all of our assets and are guaranteed by our direct or indirect wholly-owned
      subsidiaries.





The
      Subordinated Notes bear interest, payable quarterly, in arrears, at 13% per
      annum, plus an increment of up to 4% based on the debt to equity leverage ratio.
      The Subordinated Notes have a six-year term through August 17, 2013. We may
      redeem the Subordinated Notes only following repayment of the Senior Notes
      in
      full, subject to a redemption premium. The Subordinated Notes are secured by
      a
      second priority security interest in substantially all of our assets and are
      guaranteed by our direct or indirect wholly-owned subsidiaries.





We
      may
      issue up to an additional $2,500,000 in Senior Notes and/or Subordinated Notes
      if it meets a certain financial covenant. Such notes will be Senior Notes,
      Subordinated Notes, or a combination depending upon our performance measured
      against the financial covenant.





We
      anticipate that the revenues from operations and ability to issue additional
      Senior or Subordianted notes will be sufficient to fund our operations and
      corporate overhead for the next 12 months.




14





We
      have
      total contractual obligations of $632,000 as of June 30, 2007. These contractual
      obligations, along with the dates on which such payments are due, are described
      below:





**Contractual
                Obligations****Total**
            
            **1
                Year or Less**
            
            **More
                Than 1 Year**Notes
                payable
            
            $
            617,000
            
            $
            617,000
            
            $
            —Capitalized
                lease obligations
            
            
            15,000
            
            
            15,000
            
            
            —Total
                Contractual Obligations
            
            $
            632,000
            
            $
            632,000
            
            $
            —





***Net
      Cash Provided By Operating Activities***





Net
      cash
      provided by operating activities was $342,000 for the fiscal year ended June
      30,
      2007 compared to $325,000 for the year ended June 30, 2006. Cash provided by
      operating activities in the year ended June 30, 2007 was principally due to
      an
      increase in accounts payable and accrued expenses of $984,000 and non-cash
      charges of $601,000 for depreciation, amortization, stock issued for services,
      beneficial conversion feature and an asset impairment charge, which was
      partially offset by a loss from operations of $1,250,000 and an increase in
      accounts receivable of $59,000.





Net
      cash
      provided by operating activities was $325,000 for the fiscal year ended June
      30,
      2006 was principally due to an increase in accounts payable and accrued expenses
      of $1,170,000, offset by a loss from operations of $574,000, a non-cash gain
      of
      $220,000 attributable from a litigation settlement and an increase in
      replacement parts and equipment.








***Net
      Cash Used In Investing Activities***





Net
      cash used
      in
      investing activities was
      $245,000 for the fiscal year ended June 30, 2007 compared to $336,000 for the
      year ended June 30, 2006. Net
      cash
      used in investing activities of $245,000 for the fiscal year ended June 30,
      2007
      was attributable to deferred legal, accounting and consulting costs of $175,000
      relating to several contemplated acquisitions of targeted businesses and
      purchases of fixed assets of $109,000.





Net
      cash
      used in investing activities of $336,000 for the fiscal year ended June 30,
      2006
      was attributable to deferred legal, accounting and consulting costs of $302,000
      relating to several contemplated acquisitions of targeted businesses and
      purchases of fixed assets of $42,000.





***Net
      Cash Used In Financing Activities***





Net
      cash used
      in
      financing activities was
      $9,000 for the fiscal year ended June 30, 2007 compared to $69,000 for the
      year
      ended June 30, 2006. Net
      cash
      used in financing activities of $9,000 for the fiscal year ended June 30, 2007
      was attributable to principal payments of $349,000 on notes payable and capital
      leases, offset by proceeds of $340,000 from the issuance of Series A-1
      Convertible Preferred Stock.





Net
      cash used
      in financing
      activities of $69,000 for the fiscal year ended June 30, 2006 was attributable
      to principal payments of $104,000 on notes payable and capital leases, offset
      by
      proceeds of $35,000 from a note issued to our executive officer.





**Off-Balance
      Sheet Arrangements**





There
      are
      no off-balance sheet arrangements between the Company and any other entity
      that
      have, or are reasonably likely to have, a current or future effect on the
      Company’s financial condition, changes in financial condition, revenues or
      expenses, results of operations, liquidity, capital expenditures, or capital
      resources. The Company does not have any non-consolidated special purpose
      entities.




**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.




15




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.
      These factors, as well as forward-looking statements providing our current
      expectations or forecasts of future events, should be specifically considered
      in
      light of the material recapitalization and acquisition effective August 17,
      2007
      described elsewhere in this Annual Report on Form 10-KSB




***We
      Have A History Of Losses, And May Incur Additional
      Losses***




For
      the
      fiscal year ended 2007 and 2006, we incurred an overall net loss of $1,250,000
      and $574,000, respectively. Although we cannot be sure that we will be
      profitable in future years given our history of losses and an increase in debt
      service resulting from the recapitalization and acquisition transaction, revenue
      and net income for
      the
      year ended December 31, 2006 for
      the
      business acquired amounted
      to $48,970,000 and $4,551,000, respectively.




***We
      Will Need Additional Capital to Achieve Our Business
      Plans***




We
      will
      need capital to fund transactions with potential acquisition candidates. Delay
      in obtaining this funding for further acquisitions will delay or inhibit our
      progress in achieving our goals. We will likely require additional investment
      funds:




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




·
            to
                acquire the assets or stock of related companies in the reverse logistics
                arena.




It
      is
      possible that we will be unable to obtain additional funding as and when we
      need
      it or on terms that are acceptable to us. 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.




***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 the indebtedness we incurred to fund our recent
      and
      future acquisitions 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 projected level of operations after the
      acquisitions, we believe our cash flow from operations will be adequate to
      meet
      our debt service requirements. We cannot provide any assurances, however, that
      we will have sufficient cash flow to fund our debt service and 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 effected on
      commercially reasonable terms, or at all.




***New
      Equity*** **Financing
      Could Dilute Current Stockholders**




If
      we
      raise additional funds through equity financing to meet the needs discussed
      above, it will have a further 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.




16




***The
      Loss Of Any One Of our Key Customers Could Have A Material Adverse Effect On
      Our
      Business***




Cyber-Test
      and Vance Baldwin rely heavily on the business of a limited number of key
      customers. While some of these key customers are contractually committed, these
      contracts are terminable within 60 to 90 days. If any one (or all) of these
      key
      customers terminates its relationship with Cyber-Test or Vance Baldwin, 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 than Cyber-Test, 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.




Vance
      Baldwin’s business is highly competitive within the geographic area in which it
      operates. Given it relative size compared to others, it competes with numerous
      smaller, more regionally restricted firms. In the Eastern half of the country,
      this has helped Vance Baldwin become (a) the predominant distributor for the
      largest well known Original Equipment Manufacturers such as Panasonic, Samsung,
      Toshiba, RCA, JVC, Sony, Phillips, and many others, and (b) the predominant
      supplier to the largest retailers such as Circuit City, Best Buy and
      Rent-a-Center.





Competition
      within the parts distribution segment of the reverse logistics industry is
      based
      on service, price, availability of parts (fill rate), speed and accuracy of
      delivery, depth of technical know-how and the ability to tailor specific
      solutions to customer needs. Vance Baldwin is very proficient in forging
      technological links with its suppliers and customers to streamline the exchange
      of information for ordering, shipping and paying, something which has given
      a
      clear competitive advantage over others. Freight cost is a major expense
      component affecting all parts distributors. With the move of its warehouse
      operation to a larger facility in April 2006, Vance Baldwin was able to lower
      freight costs with the ability to ship more customers by 2-day land and thereby
      reduce the use more costly air shipping.





Competitors
      for Vance Baldwin include Andrews Electronics, Tritronics, Herman Electronics,
      Fox International, Union Electronics, Marcone, Parts Now, Depot America and
      CP&S.




***Our
      Business Could Suffer If There Is A Prolonged Economic
      Downturn***




We
      have
      derived a substantial amount of our revenue from the repair and resale by
      Cyber-Test of office equipment and computer peripheral products and from the
      resale by Vance Baldwin of parts for consumer electronics, printers, appliances,
      and computers. Revenue from the repair and resale of equipment and distribution
      of parts does not generally fluctuate widely with economic cycles. However,
      a
      prolonged national or regional economic recession could have a material adverse
      effect on our businesses.




17




***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 that Cyber-Test
      purchases and the parts for consumer electronics, printers, appliances, and
      computers that Vance Baldwin purchases 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 and Vance Baldwin 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*** **Qualified
      Technical and Other Personnel**




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




***We
      Could Fail To Attract Or Retain Key Personnel***




Our
      success largely depends on the efforts and abilities of key corporate executives
      as well as key executives at Cyber-Test and Vance Baldwin. The loss of the
      services of these key executives 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
      Could Fail To***  ***Successfully
      Integrate Vance Baldwin’s Business With The Company’s Existing
      Business***





There
      can
      be no assurance that the Company will be able to successfully integrate Vance
      Baldwin’s business with the Company’s existing business. The Company could have
      difficulty retaining and assimilating new personnel, retaining vendors of the
      acquired business, and assimilating the services of the acquired business into
      the Company’s overall operations. These difficulties could disrupt the Company’s
      business, distract its management and employees, increase expenses and adversely
      affect the Company’s business, results of operations and financial condition.




**RISKS
      RELATED TO OUR STOCK**




***The
      Future Conversion Of Our Outstanding Series A-2, Series C and Series D
      Convertible Preferred Stock Will Cause Dilution To Our Existing Stockholders,
      Which Means That Our Per Share Income And Stock Price Could
      Decline***




The
      issuance of shares upon any future conversion of our
      outstanding Convertible Preferred Stock will
      have a dilutive impact on our stockholders. Subject to adjustment, i f
      all of
      the preferred stock were converted on the date of this Report, we would need
      to
      issue approximately 102,800,000,000 shares of common stock  As
      a
      result, our net loss per share could decrease in future periods or net income
      per share could decrease and the market price of our common stock could decline.




18




***We
      Have Not Authorized A Sufficient Number Of Shares Of Our Common Stock To Cover
      The*** **** **Future
      Conversion Of Our Outstanding Series A-2, Series C and And Series D Convertible
      Preferred Stock.**




Our
      Articles of Incorporation require that we reserve and keep available out of
      our
      authorized common stock the full number of shares of our common stock issuable
      upon conversion of each of our Series A and B Convertible Preferred Stock. Depending
      upon certain factors affecting the conversions rates, the conversion of all
      our
      Series A-2, Series C and D Preferred will require us to issue an aggregate
      of
      between approximately 64,100,000,000 and 116,900,000,000 shares of our common
      stock to the holders of such preferred stock. If all of the preferred stock
      were
      converted on the date of this filing, we would need to issue approximately
      102,800,000,000 shares of common stock. In addition, conversion of the
      promissory note issued to one of our creditors (discussed above) as well as
      the
      conversion of a second convertible promissory note issued to the sole
      shareholder of Vance Baldwin, Inc. in connection with our purchase of that
      company will require us to issue an aggregate of 2,010,243,333
      shares .
      In
      order to comply with our obligations under the Articles of Incorporation, our
      stockholders will need to authorize additional shares of common stock. The
      Board
      of Directors anticipates taking action to obtain the stockholderss consent
      to
      increase the number of authorized shares of common stock as soon as practical. If
      such
      shares are not authorized, the investors holding shares of our Convertible
      Preferred Stock could declare a default under the terms of their respective
      agreements with us.




***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 Exchange
      Act .
      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 :




·
            havea
                price of less than $5.00 per share;




·
            are
                not traded on a "recognized" national exchange;




·
            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




·
            include
                stock inissuers 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.




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 **.**




**Item
      7. Financial Statements**




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




19




**Item
      8. Changes In And Disagreements With Accountants On Accounting And Financial** **Disclosure**




On May 3, 2007, the Company received notice that BerensonLLP
      (“Berenson”), the Company’s independent registered public accountants, had
      combined with J.H. Cohn LLP, with J.H. Cohn LLP as the surviving entity (“J.H.
      Cohn” ).
      OnMay
      11,
      2007, the Audit Committee of the Company’s Board of Directors approved the
      engagement of J.H. Cohn as Berenson’s successor to continue as the Company’s
      independent registered public accountants for the fiscal year ending June 30,
      2007.




The
      report of Berensonon the
      financial statements of the Company as of and for the fiscal year ended June
      30,
      2006 did not contain an adverse opinion or a disclaimer of opinion and was
      not
      qualified or modified as to uncertainty, audit scope, or accounting principles,
      except that Berenson’s report on the Company’s financial statements for fiscal
      year ended June 30, 2006 did contain an explanatory paragraph regarding their
      substantial doubt as to the Company’s ability to continue as a going concern,
      and the lack of any adjustments to the financial statements that might result
      from that circumstance.




During
      the Company’s fiscal year ended June 30, 2006 and subsequent interim periods
      preceding the engagement of J.H. Cohn, there were no disagreements between
      the
      Company and Berensonon any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure, which disagreements, if not resolved to the
      satisfaction of Berenson,
      would
      have caused Berensonto make
      reference to the subject matter of the disagreements in connection with its
      audit reports on the Company’s financial statements. During the Company’s past
      fiscal year and the interim period through the engagement of J.H. Cohn, Berenson
      did not advise the Company of any of the matters specified in Item
      304(a)(1)(iv)(B) of Regulation S-B.




On
      January 9, 2006, the Company terminated Weinberg & Co., P.A. ("Weinberg") as
      its auditor.  The
      Company engaged Berenson to serve as the independent public accountants on
      January 11, 2006. During the Company’s fiscal years ended June 30, 2004 and June
      30, 2005, and the interim period through January 11, 2006, the Company had
      no
      consultations with Berenson concerning: (a) the application of accounting
      principles to a specific transaction or the type of opinion that might be
      rendered on the Company’s financial statements as to which the Company received
      oral advice that was an important factor in reaching a decision on any
      accounting, auditing or financial reporting issue; or (b) any disagreements,
      as
      defined in Item 304(a)(1)(iv) of Regulation S-B.




During
      the Company’s fiscal years ended June 30, 2006 and 2005 and subsequent interim
      period preceding the engagement of J.H. Cohn, the Company had no consultations
      with J.H. Cohn regarding (a) the application of accounting principles to a
      specified transaction, either completed or proposed, or the type of audit
      opinion that might be rendered on the Company’s consolidated financial
      statements as to which the Company received oral advice that was an important
      factor in reaching a decision on any accounting, auditing or financial reporting
      issue; or (b) any disagreements, as defined in Item 304(a)(1)(iv) of Regulation
      S-B.





During
      our fiscal years ended June 30, 2004 and June 30, 2005, and the interim period
      through January 9, 2006, we had no disagreements with Weinberg on any matter
      of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedure, which disagreements, if not resolved to Weinberg's
      satisfaction, would have caused Weinberg to make reference to the subject matter
      of the disagreement in connection with its report. During our past two fiscal
      years and the interim period through January 9, 2006, Weinberg did not advise
      us
      of any of the matters specified in Item 304(a)(1)(iv)(B) of Regulation
      S-B.


During
      our fiscal years ended June 30, 2004 and June 30, 2005, and the interim period
      through January 11, 2006, we had no consultations with Berenson concerning:





(a)
      the
      application of accounting principles to a specific transaction or the type
      of
      opinion that might be rendered on our financial statements as to which we
      received oral advice that was an important factor in reaching a decision on
      any
      accounting, auditing or financial reporting issue; or





(b)
      any
      disagreements, as defined in Item 304(a)(1)(iv) of Regulation S-B.





The
      termination of Weinberg and appointment of Berenson as independent public
      accountants was recommended by our Audit Committee and was unanimously approved
      by our Board of Directors




20




**Item
      8A. Controls And Procedures**




***(A)
      Evaluation Of Disclosure Controls And Procedures***




As
      of
      June 30, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures (as
      defined in §240.13a-15(e) or 240.15d-15(e) under the Exchange Act) .
      Based
      on this evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that, as of the
      end
      of the June
      30, 2007
      fiscal year, our
      disclosure controls and procedures are effective in timely alerting him to
      material information required to be included in our periodic reports that are
      filed with the SEC .
      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.




Subsequent
      to the date of our evaluation, each of our Company's CEO and CFO considered
      the
      restatement of the selected financial data, the management's discussion and
      analysis of financial conditions and results of operations, and the restatement
      of the financial statements presented in Part II, Items 6 and 7, respectively,
      included in this Form 10-KSB/A and concluded that such restatements were not
      the
      result of a material weakness relating to the accounting and disclosure for
      complex and non-standard stockholders' equity transactions.




***(B)
      Changes In Internal*** ***Control
      Over Financial Reporting***




There
      were no changes
      in the Company's internal control over
      financial reporting (as
      defined in Section 240.13a-15(f) or 240.15d-15(f)
      of the Exchange Act) during our
      fourth fiscal quarter
      ended June 30, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over
      financial reporting .




**I** **tem** **8B. O** **ther** **I** **nformation**




Not
      applicable.




21




**Part
      III**




**Item
      9. Directors** **,
      Executive Officers** **,
      Promoters, Control Persons and Corporate Governance; Compliance With Section
      16(a) of the Exchange Act**




Refer
      to
      the information under the captions Action No. 4 Election of Directors and
      Corporate Governance in the Company’s definitive Proxy Statement to be filed
      with the Securities and Exchange Commission and delivered to stockholders,
      all
      of which information is incorporated herein by reference.




**Item
      10.** **Executive
      Compensation**




Refer
      to
      the information under the caption Executive
      and Director Compensation in the
      Company’s definitive Proxy Statement to be filed with the Securities and
      Exchange Commission and delivered to stockholders, all of which information
      is
      incorporated herein by reference.




**Item
      11. Security Ownership Of Certain Beneficial Owners And
      Management** **and Related Stockholder Matters**




Refer
      to
      the information under the caption Security
      Ownership Of Certain Beneficial Owners And Management in the
      Company’s definitive Proxy Statement to be filed with the Securities and
      Exchange Commission and delivered to stockholders, all of which information
      is
      incorporated herein by reference.




**Item
      12. Certain Relationships and Related Transaction** **s,
      and Director Independence**




Refer
      to
      the information under the caption Transactions with Related Persons in the
      Company’s definitive Proxy Statement to be filed with the Securities and
      Exchange Commission and delivered to stockholders, all of which information
      is
      incorporated herein by reference.




22




**Item
      13. Exhibits**


Exhibit
                  No.
              Description
              Location(1)2.1
              Asset
                  Purchase Agreement dated May 27, 2004, by and between Cyber-Test,
                  Inc., a
                  Delaware corporation,and Cyber-Test, Inc., a Florida corporation.
              Incorporated
                  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on June18,20042.2
              Stock
                  Purchase Agreement, datedas
                  ofDecember
                  10, 2004, amongAdvanced
                  Communications Technologies, Inc.,
                  Theodore S. Li and Hui Cynthia Lee.
              Incorporated
                  by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on December 14, 20042.3
              Stock
                  Purchase Agreement entered into by and between Encompass Group
                  Affiliates,
                  Inc. and Fred V. Baldwin, dated as of August 17, 2007
              Incorporated
                  by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 20073(i)
              Restated
                  Articles of Incorporation of Advanced Communications Technologies,
                  Inc.
              Filed
                  herewith3(ii)
              Amended
                  Bylaws of Advanced Communications Technologies, Inc.
              Incorporated
                  by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 20074.1
              6%
                  Secured Convertible Promissory Note, dated December 30, 2004, issued
                  to
                  Theodore S. Li.
              Incorporated
                  by reference to Exhibit10.1to
                  the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                  5, 20054.2
              6%
                  Secured Convertible Promissory Note, dated December 30, 2004, issued
                  to
                  Hui Cynthia Lee.
              Incorporated
                  by reference to Exhibit10.2to
                  the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                  5, 20054.3
              Secured
                  Convertible Debenture
              Incorporated
                  by reference to Exhibit 10.21 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on December 6, 20024.4
              Securities
                  Purchase Agreement, dated November 2002, by and among Advanced
                  Communications Technologies, Inc. and Buyers.
              Incorporated
                  by reference to Exhibit 10.19 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on December 6, 20024.5
              Investor
                  Registration Rights Agreement, dated November 2002, by and among
                  Advanced
                  Communications Technologies, Inc. and Investors.
              Incorporated
                  by reference to Exhibit 10.20 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on December 6, 20024.6
              Escrow
                  Agreement, dated November 2002, by and among Advanced Communications
                  Technologies, Inc., Buyers, and Wachovia Bank, N.A.
              Incorporated
                  by reference to Exhibit 10.22 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on December 6,
                  2002
 23
 4.7
                  Irrevocable
                      Transfer Agent Instructions, dated November 2002
                  Incorporated
                      by reference to Exhibit 10.23 to the Company’s Annual Report on Form
                      10-KSB filed with the SEC on December 6, 20024.8
                  Security
                      Agreement, dated November 2002, by and among Advanced Communications
                      Technologies, Inc. and Buyers
                  Incorporated
                      by reference to Exhibit 10.24 to the Company’s Annual Report on 10-KSB
                      filed with the SEC on December 6, 20024.9
                  6%
                      Senior Unsecured Promissory Note, in the original principal
                      amount of
                      $547,000 issued on June 3, 2004 by Cyber-Test, Inc., a Delaware
                      corporation, in favor of Cyber-Test, Inc., a Florida
                      corporation.
                  Incorporated
                      by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                      filed with the SEC on June 18, 20044.10
                  Escrow
                      Agreement, dated June 3, 2004, by and between Cyber-Test, Inc.,
                      a Delaware
                      corporation, and Cyber-Test, Inc., a Florida corporation.
                  Incorporated
                      by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                      filed with the SEC on June 18, 20044.11
                  Amendment
                      No. 1 to 6% Unsecured Promissory Note dated August 10,
                      2004.
                  Incorporated
                      by reference to Exhibit 10.35 to the Company’s Annual Report on Form
                      10-KSB filed with the SEC on November 3, 20044.12
                  Form
                      of Exchange Agreement, dated June 24, 2004, by and among Advanced
                      Communications Technologies, Inc. and certain debenture holders
                      of Hy-Tech
                      Technology Group, Inc.
                  Incorporated
                      by reference to Exhibit 10.40 to the Company’s Annual Report on Form
                      10-KSB filed with the SEC on November 3, 20044.13
                  Escrow
                      Agreement dated May 28, 2004 by and among Advanced Communications
                      Technologies, Inc., Buyers and Butler Gonzalez, LLP, Escrow
                      Agent.
                  Incorporated
                      by reference to Exhibit 10.42 to the Company’s Annual Report on Form
                      10-KSB filed with the SEC on November 3, 20044.14
                  Investment
                      Agreement dated May 28, 2004 by and between Advanced Communications
                      Technologies, Inc. and Cornell Capital Partners, LP.
                  Incorporated
                      by reference to Exhibit 10.43 to the Company’s Annual Report Form 10-KSB
                      filed with the SEC on November 3, 20044.15
                  Registration
                      Rights Agreement dated May 28, 2004 by and between Advanced
                      Communications
                      Technologies, Inc. and Cornell Capital Partners, LP.
                  Incorporated
                      by reference to Exhibit 10.44 to the Company’s Annual Report on Form
                      10-KSB filed with the SEC on November 3,
                      2004
 24
 4.16
                  Investment
                      Agreement dated September 8, 2006 by and between Advanced Communications
                      Technologies, Inc. and the Series A-1 Preferred
                      Stockholders
                  Incorporated
                      by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
                      filed with the SEC on September 19, 20064.17
                  Form
                      of Convertible Promissory Note issued in connection with Exhibit
                      2.3
                  Incorporated
                      by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 20074.18
                  Note
                      Purchase Agreement, dated as of August 17, 2007, by and among
                      Encompass
                      Group Affiliates, Inc. as Issuer, and Advanced Communications
                      Technologies, Inc., Cyber-Test, Inc., Vance Baldwin, Inc.,
                      Hudson Street
                      Investments, Inc. and SpectruCell, Inc. as Guarantors, the
                      Note Purchasers
                      listed therein, and Sankaty Advisors, LLC
                  Incorporated
                      by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 20074.19
                  Form
                      of Senior Note issued in connection with Exhibit 4.18
                  Incorporated
                      by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 20074.20
                  Form
                      of Subordinated Note issued in connection with Exhibit
                      4.18
                  Incorporated
                      by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 20074.21
                  First
                      Lien Pledge and Security Agreement, dated as of August 17,
                      2007, between
                      Encompass Group Affiliates, Inc., Advanced Communications Technologies,
                      Inc., SpectruCell, Inc., Hudson Street Investments, Inc., Cyber-Test,
                      Inc., Vance Baldwin, Inc. and Sankaty Advisors, LLC
                  Incorporated
                      by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 20074.22
                  Second
                      Lien Pledge and Security Agreement , dated August 17, 2007,
                      between
                      Encompass Group Affiliates, Inc., Advanced Communications Technologies,
                      Inc., SpectruCell, Inc., Hudson Street Investments, Inc., Cyber-Test,
                      Inc., Vance Baldwin, Inc. and Sankaty Advisors, LLC
                  Incorporated
                      by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K
                      filed with the SEC on August 21, 200710.1
                  Custodial
                      and Stock Pledge Agreement, dated December 30, 2004, among
                      Advanced
                      Communications Technologies, Inc., Theodore S. Li and Hui Cynthia
                      Lee, and
                      Quarles & Brady Streich Lang LLP.
                  Incorporated
                      by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                      filed with the SEC on January 5,
                      2005





25




10.2
              Employment
                  Agreement, dated December 30, 2004, among Pacific Magtron International
                  Corporation, Inc., Advanced Communications Technologies, Inc.,
                  Encompass
                  Group Affiliates, Inc., and Theodore S. Li.
              Incorporated
                  by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                  filed with the SEC on January 5, 200510.3
              EmploymentAgreement, dated December 30, 2004, amongPacific
                  Magtron International Corporation, Inc.,Advanced
                  Communications Technologies, Inc.,Encompass
                  Group Affiliates, Inc.,and Hui Cynthia Lee
              Incorporated
                  by reference to Exhibit10.5to
                  the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                  5, 200510.4
              IndemnityAgreement, dated December 30, 2004, among Advanced Communications
                  Technologies, Inc., Theodore S. Liand Hui Cynthia Lee.
              Incorporated
                  by reference to Exhibit10.6to
                  the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                  5, 200510.5*
              Form
                  of Grant Instrument under Advanced Communications Technologies,
                  Inc. 2005
                  Stock Plan for Non-Employee Director.
              Incorporated
                  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on July 6, 200510.6*
              Form
                  of Lock-Up Agreement for Executive Officer/Director of Advanced
                  Communications Technologies, Inc.
              Incorporated
                  by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                  filed with the SEC on July 6, 200510.7*
              Form
                  of Grant Instrument under Advanced Communications Technologies,
                  Inc. 2005
                  Stock Plan for Executive Officer/Employee.
              Incorporated
                  by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                  filed with the SEC on July 6, 200610.8*
              Services
                  Agreement entered into on June 7, 2005 by and among Advanced
                  Communications Technologies, Inc., Wayne I. Danson and Danson Partners,
                  LLC.
              Incorporated
                  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on July 13, 200510.9
              Equity
                  Line of Credit Agreement dated July 2003, by and between Cornell
                  Capital
                  Partners, LP and Advanced Communications Technologies,
                  Inc.
              Incorporated
                  by reference to Exhibit 10.13 to the Company’s Form SB-2 Registration
                  Statement filed with the SEC on July 16, 200310.10
              Registration
                  Rights Agreement dated July 2003, by and between Advanced Communications
                  Technologies, Inc. and Cornell Capital Partners, LP.
              Incorporated
                  by reference to Exhibit 10.14 to the Company’s Form SB-2 Registration
                  Statement filed with the SEC on July 16, 200310.11
              Placement
                  Agent Agreement dated July 2003, by and between Advanced Communications
                  Technologies, Inc. and Westrock Advisors, Inc.
              Incorporated
                  by reference to Exhibit 10.15 to the Company’s Form SB-2 Registration
                  Statement filed with the SEC on July 16,
                  2003




26


10.12
              Escrow
                  Agreement dated July 2003, by and among Advanced Communications
                  Technologies, Inc., Cornell Capital Partners, LP, Butler Gonzalez
                  LLP and
                  First Union National Bank.
              Incorporated
                  by reference to Exhibit 10.16 to the Company’s Form SB-2 Registration
                  Statement filed with the SEC on July 16, 200310.13*
              Consulting
                  Agreement dated July 1, 2002 between Advanced Communications Technologies,
                  Inc. and Randall H. Prouty.
              Incorporated
                  by reference to Exhibit 10.26 to the Company’s Annual Report on Form
                  10-KSB/A filed on February 7, 200310.14
              NonCompetition
                  Agreement, dated June 3, 2004, by and among Cyber-Test, Inc., a
                  Delaware
                  corporation, Cyber-Test, Inc., a Florida corporation, and the shareholders
                  of Cyber-Test.
              Incorporated
                  by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                  filed with the SEC on June 18, 200410.15
              Employment
                  Agreement, dated June 3, 2004, by and between Cyber-Test, Inc.,
                  a Delaware
                  corporation, and Lisa Welton.
              Incorporated
                  by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                  filed with the SEC on June 18, 200410.16
              Employment
                  Agreement, dated June 3, 2004, by and between Cyber-Test, Inc.,
                  a Delaware
                  corporation, and Thomas Sutlive.
              Incorporated
                  by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                  filed with the SEC on June 18, 200410.17
              Agreement,
                  dated May 27, 2004, by and among Encompass Group Affiliates, Inc.,
                  Hy-Tech
                  Technology Group, Inc. and Hy-Tech Computer Systems, Inc.
              Incorporated
                  by reference to Exhibit 10.36 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on November 3, 200410.18
              Customer
                  Lists License Agreement, dated June 24, 2004, by and among Encompass
                  Group
                  Affiliates, Inc., Hy-Tech Technology Group, Inc. and Hy-Tech Computer
                  Systems, Inc.
              Incorporated
                  by reference to Exhibit 10.37 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on November 3, 200410.19
              Websites
                  License Agreement, dated June 24, 2004, by and among Encompass
                  Group
                  Affiliates, Inc., Hy-Tech Technology Group, Inc. and Hy-Tech Computer
                  Systems, Inc.
              Incorporated
                  by reference to Exhibit 10.38 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on November 3, 200410.20
              NonCompetition
                  and Nondisclosure Agreement by and among Encompass Group Affiliates,
                  Inc.,
                  Hy-Tech Technology Group, Inc. and Hy-Tech Computer Systems,
                  Inc.
              Incorporated
                  by reference to Exhibit 10.39 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on November 3,
                  2004





27


10.21*
              Employment
                  Agreement dated June 24, 2004 by and among Encompass Group Affiliates,
                  Inc., Advanced Communications Technologies, Inc. and Martin
                  Nielson.
              Incorporated
                  by reference to Exhibit 10.41 to the Company’s Annual Report on Form
                  10-KSB filed with the SEC on November 3, 200410.22*
              January
                  1, 2005 Amendment to Employment Agreement by and among Encompass
                  Group
                  Affiliates, Inc., Advanced Communications Technologies, Inc. and
                  Martin
                  Nielson.
              Incorporated
                  by reference to Exhibit 10.22 to the Company’s Form Annual Report on
                  10-KSB filed with the SEC on October 3, 200510.23*
              Employment
                  Agreement dated September 21, 2006 between Advanced Communications
                  Technologies, Inc. and John E. Donahue
              Incorporated
                  by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K
                  filed with the SEC on September 29, 200610.24*
              Employment
                  Agreement dated September 8, 2006 between Advanced Communications
                  Technologies, Inc. and Steven J. Miller
              Incorporated
                  by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K
                  filed with the SEC on September 29, 200610.25
              Mutual
                  Settlement Agreement and Release effective August 11, 2006 among
                  Pacific
                  Magtron International, Corp., Livewarehouse, Inc., the liquidating
                  estates
                  of Pacific Magtron, Inc. and Pacific Magtron (GA), Inc. by and
                  through
                  their estate representative, Encompass Group Affiliates , Inc.,
                  Advanced
                  Communications Technologies, Inc., Wayne Danson, Martin Nielson,
                  Theodore
                  S. Li and Hui Cynthia Lee
              Incorporated
                  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 16, 200610.26
              Stockholders
                  Agreement by and among Advanced Communications Technologies, Inc.,
                  the
                  holders of the Series C Convertible Preferred Stock and the holders
                  of the
                  Series D Convertible Preferred Stock, dated as of August 17,
                  2007
              Incorporated
                  by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.27
              Purchase
                  Agreement entered into by and among Advanced Communications Technologies,
                  Inc., ACT-DE, LLC and the other Buyers identified on Schedule 1
                  thereto,
                  dated as of August 17, 2007
              Incorporated
                  by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.28
              Registration
                  Rights Agreement entered into by and among Advanced Communications
                  Technologies, Inc., ACT-DE, LLC and the persons and entities identified
                  on
                  Schedule 1 thereto, dated as of August 17, 2007
              Incorporated
                  by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21,
                  2007





28


10.29
              Stockholders
                  Agreement by and among Advanced Communications Technologies, Inc.,
                  ACT-DE,
                  LLC and the persons and entities identified on Schedule 1 thereto,
                  dated
                  as of August 17, 2007
              Incorporated
                  by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.30
              Exchange
                  Agreement entered into by and among Advanced Communications Technologies
                  and the parties listed on the signature pages thereto, dated as
                  of August
                  17, 2007
              Incorporated
                  by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.31*
              2007
                  Amended and Restated Stock Plan
              Incorporated
                  by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.32*
              Form
                  of Option Agreement for Executive Officers under the 2007 Amended
                  and
                  Restated Stock Plan
              Incorporated
                  by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K
                  filed with the SEC on August 21, 200710.33
              Management
                  Agreement entered into by Advanced Communications Technologies,
                  Inc. and
                  H.I.G. Capital L.L.C., dated as of August 17, 2007
              Filed
                  herewith10.34
              Investment
                  Advisory Services Agreement entered into by Advanced Communications
                  Technologies, Inc. and H.I.G. Capital L.L.C., dated as of August
                  17,
                  2007
              Filed
                  herewith10.35
              Letter
                  Agreement between Advanced Communications Technologies, Inc. and
                  YA Global
                  Investments, L.P. dated as of August 17, 2007
              Filed
                  herewith10.36*
              Letter
                  Agreement among Wayne I. Danson, Danson Partners LLC and Advanced
                  Communications Technologies, Inc. dated as of August 17,
                  2007
              Filed
                  herewith10.37*
              Employment
                  Agreement between Wayne Danson and Advanced Communications Technologies,
                  Inc., dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)10.38*
              Employment
                  Agreement between John Donahue and Advanced Communications Technologies,
                  Inc. dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)10.39*
              Employment
                  Agreement between Steven Miller and Advanced Communications Technologies,
                  Inc. dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)





29


10.40*
              Stock
                  Option Agreement between Wayne Danson and Advanced Communications
                  Technologies, Inc., dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)10.41*
              Stock
                  Option Agreement between John Donahue and Advanced Communications
                  Technologies, Inc., dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)10.42*
              Stock
                  Option Agreement between Steven Miller and Advanced Communications
                  Technologies, Inc., dated as of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)10.43
              Side
                  Letter between H.I.G. Capital L.L.C. and Sankaty Advisors, LLC,
                  dated as
                  of August 17, 2007
              Filed
                  herewith (subject to request for confidential
                  treatment)14
              Code
                  of Business Conduct and Ethics for Advanced Communications Technologies,
                  Inc.
              Incorporated
                  by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-KSB
                  filed with the SEC on November 3, 200416
              Letter
                  of Concurrence from Berenson LLP Regarding Change in Certifying
                  Accountant
              Incorporated
                  by reference to Exhibit 16 to the Company’s Current Report on Form 8-K
                  filed with the SEC on May 16, 200721
              Subsidiaries
                  ofAdvanced Communications Technologies, Inc.
              Filed
                  herewith31.1
              Certification
                  byChief
                  Executive Officerpursuant to Sarbanes-Oxley Section 302
              Filed
                  herewith31.2
              Certification
                  by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                  302
              Filed
                  herewith32.1
              Certification
                  byChief
                  Executive Officerpursuant to 18 U.S.C. Section 1350
              Filed
                  herewith32.2
              Certification
                  byChief
                  Financial Officerpursuant to 18 U.S.C. Section 1350
              Filed
                  herewith




*
      Management contract or management compensatory plan or arrangement.




(1)
      In
      the case of incorporation by reference to documents filed by the Company under
      the Exchange Act, the Company’s file number under the Exchange Act is
      000-30486.




30




**Item
      14. Principal Accountant Fees and Services**




***Audit
      Fees***




Our
      independent auditors, J.H Cohn, will bill us $70,000 for the audit of the
      Company’s annual consolidated financial statements for the fiscal year ended
      June 30, 2007 and the review of the Company’s Forms 10-KSB for the fiscal
      year ended June 30, 2007.




Our
      predecessor independent auditors, Berenson, has billed us (a) $60,000 for the
      audit of the Company’s annual consolidated financial statements for the fiscal
      years ended June 30, 2006 and the review of the Company’s Forms 10-KSB for
      the fiscal year ended June 30, 2006 and (b) a total of $42,000 for the reviews
      of our consolidated financial statements included in the Company’s
      Forms 10-QSB for the quarters ended September 30, 2006, December 31, 2006
      and March 31, 2007.




The
      aggregate fees billed for professional services rendered by Weinberg &
Company, P.A., the Company’s prior independent auditors, were (a) $106,520 for
      the audit of the Company’s annual consolidated financial statements for the
      fiscal year ended June 30, 2005 and the reviews of the consolidated financial
      statements included in the Company’s Forms 10-QSB for the fiscal year ended
      June 30, 2005 and (b) $14,745 for the review of the financial statements
      included in the Company’s Forms 10-QSB for the quarter ended September 30,
      2005.






***Audit-Related
      Fees***




For
      the
      fiscal year ended June 30, 2007, the aggregate fees billed for professional
      services rendered by our predecessor independent auditors, Berenson, was
      $2,160 related to correspondence with the Securities and Exchange Commission
      for
      audit related matters and $10,000 for services rendered in connection with
      a
      restatement of certain annual and quarterly financial statements.




The
      aggregate fees billed for professional services rendered by our prior
      independent auditors, Weinberg & Company, P.A., was $1,500 related to the
      filing of our Form 8-K and $12,785 in connection with due diligence services
      for
      PMIC and Cyber-Test, Inc. for the fiscal years ended June 30, 2007 and 2005,
      respectively.




***Tax
      Fees***




No
      fees
      were billed in each of the last two fiscal years for professional services
      rendered by the principal accountants 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 Berenson was $122,000 for the fiscal year ended June 30, 2007.
      These
      fees were related to the audits and due diligence services for acquiring certain
      business targets.




***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. During the fiscal years ended June 30, 2007 and 2006, no
      audit
      services or non-audit services were approved by the Audit Committee pursuant to
      Rule
      2-01(c)(7)(i)(C) of Regulation S-X. 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.





31




**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. DansonTitle:
            President
                and Chief Executive OfficerDate:
            September
                28, 2007




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.




**Signature**
            
            **Title**
            
            **Date***/s/
                Wayne I. Danson*Wayne
                I. Danson
            
            President
                and Chief Executive Officer (Principal Executive Officer) and
                Director
            
            September
                28, 2007*/s/
                John E. Donahue*John
                E. Donahue
            
            Vice
                President and Chief Financial Officer (Principal Accounting
                Officer)
            
            September
                28, 2007*/s/
                John Black*John
                Black
            
            Director
            
            September
                28, 2007*/s/
                J.G. (Pete) Ball*J.G.
                (Pete) Ball
            
            Director
            
            September
                28, 2007*/s/
                Thomas R. Ketteler*Thomas
                R. Ketteler
            
            Director
            
            September
                28, 2007*/s/
                Wilbank J. Roche*Wilbank
                J. Roche
            
            Director
            
            September
                28, 2007*/s/
                William J. Nolan*William
                J. Nolan
            
            Director
            
            September
                28, 2007*/s/
                Gerald E. Wedren**Gerald
                E. Wedren*
            
            Director
            
            September
                28, 2007




32




**EXHIBIT
      INDEX**





Exhibit
                No.
            Description
            
            Location(1)2.1
            Asset
                Purchase Agreement dated May 27, 2004, by and between Cyber-Test,
                Inc., a
                Delaware corporation,and Cyber-Test, Inc., a Florida corporation.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on June18,20042.2
            Stock
                Purchase Agreement, datedas
                ofDecember
                10, 2004, amongAdvanced
                Communications Technologies, Inc.,
                Theodore S. Li and Hui Cynthia Lee.
            
            Incorporated
                by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on December 14, 20042.3
            Stock
                Purchase Agreement entered into by and between Encompass Group Affiliates,
                Inc. and Fred V. Baldwin, dated as of August 17, 2007
            
            Incorporated
                by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20073(i)
            Restated
                Articles of Incorporation of Advanced Communications Technologies,
                Inc.
            
            Filed
                herewith3(ii)
            Amended
                Bylaws of Advanced Communications Technologies, Inc.
            
            Incorporated
                by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20074.1
            6%
                Secured Convertible Promissory Note, dated December 30, 2004, issued
                to
                Theodore S. Li.
            
            Incorporated
                by reference to Exhibit10.1to
                the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                5, 20054.2
            6%
                Secured Convertible Promissory Note, dated December 30, 2004, issued
                to
                Hui Cynthia Lee.
            
            Incorporated
                by reference to Exhibit10.2to
                the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                5, 20054.3
            Secured
                Convertible Debenture
            
            Incorporated
                by reference to Exhibit 10.21 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on December 6, 20024.4
            Securities
                Purchase Agreement, dated November 2002, by and among Advanced
                Communications Technologies, Inc. and Buyers.
            
            Incorporated
                by reference to Exhibit 10.19 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on December 6,
                2002









4.5
            Investor
                Registration Rights Agreement, dated November 2002, by and among
                Advanced
                Communications Technologies, Inc. and Investors.
            
            Incorporated
                by reference to Exhibit 10.20 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on December 6, 20024.6
            Escrow
                Agreement, dated November 2002, by and among Advanced Communications
                Technologies, Inc., Buyers, and Wachovia Bank, N.A.
            
            Incorporated
                by reference to Exhibit 10.22 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on December 6, 20024.7
            Irrevocable
                Transfer Agent Instructions, dated November 2002
            
            Incorporated
                by reference to Exhibit 10.23 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on December 6, 20024.8
            Security
                Agreement, dated November 2002, by and among Advanced Communications
                Technologies, Inc. and Buyers
            
            Incorporated
                by reference to Exhibit 10.24 to the Company’s Annual Report on 10-KSB
                filed with the SEC on December 6, 20024.9
            6%
                Senior Unsecured Promissory Note, in the original principal amount
                of
                $547,000 issued on June 3, 2004 by Cyber-Test, Inc., a Delaware
                corporation, in favor of Cyber-Test, Inc., a Florida
                corporation.
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                filed with the SEC on June 18, 20044.10
            Escrow
                Agreement, dated June 3, 2004, by and between Cyber-Test, Inc., a
                Delaware
                corporation, and Cyber-Test, Inc., a Florida corporation.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                filed with the SEC on June 18, 20044.11
            Amendment
                No. 1 to 6% Unsecured Promissory Note dated August 10,
                2004.
            
            Incorporated
                by reference to Exhibit 10.35 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 20044.12
            Form
                of Exchange Agreement, dated June 24, 2004, by and among Advanced
                Communications Technologies, Inc. and certain debenture holders of
                Hy-Tech
                Technology Group, Inc.
            
            Incorporated
                by reference to Exhibit 10.40 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3,
                2004










4.13
            Escrow
                Agreement dated May 28, 2004 by and among Advanced Communications
                Technologies, Inc., Buyers and Butler Gonzalez, LLP, Escrow
                Agent.
            
            Incorporated
                by reference to Exhibit 10.42 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 20044.14
            Investment
                Agreement dated May 28, 2004 by and between Advanced Communications
                Technologies, Inc. and Cornell Capital Partners, LP.
            
            Incorporated
                by reference to Exhibit 10.43 to the Company’s Annual Report Form 10-KSB
                filed with the SEC on November 3, 20044.15
            Registration
                Rights Agreement dated May 28, 2004 by and between Advanced Communications
                Technologies, Inc. and Cornell Capital Partners, LP.
            
            Incorporated
                by reference to Exhibit 10.44 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 20044.16
            Investment
                Agreement dated September 8, 2006 by and between Advanced Communications
                Technologies, Inc. and the Series A-1 Preferred
                Stockholders
            
            Incorporated
                by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on September 19, 20064.17
            Form
                of Convertible Promissory Note issued in connection with Exhibit
                2.3
            
            Incorporated
                by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20074.18
            Note
                Purchase Agreement, dated as of August 17, 2007, by and among Encompass
                Group Affiliates, Inc. as Issuer, and Advanced Communications
                Technologies, Inc., Cyber-Test, Inc., Vance Baldwin, Inc., Hudson
                Street
                Investments, Inc. and SpectruCell, Inc. as Guarantors, the Note Purchasers
                listed therein, and Sankaty Advisors, LLC
            
            Incorporated
                by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20074.19
            Form
                of Senior Note issued in connection with Exhibit 4.18
            
            Incorporated
                by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20074.20
            Form
                of Subordinated Note issued in connection with Exhibit
                4.18
            
            Incorporated
                by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 20074.21
            First
                Lien Pledge and Security Agreement, dated as of August 17, 2007,
                between
                Encompass Group Affiliates, Inc., Advanced Communications Technologies,
                Inc., SpectruCell, Inc., Hudson Street Investments, Inc., Cyber-Test,
                Inc., Vance Baldwin, Inc. and Sankaty Advisors, LLC
            
            Incorporated
                by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21,
                2007









4.22
            Second
                Lien Pledge and Security Agreement , dated August 17, 2007, between
                Encompass Group Affiliates, Inc., Advanced Communications Technologies,
                Inc., SpectruCell, Inc., Hudson Street Investments, Inc., Cyber-Test,
                Inc., Vance Baldwin, Inc. and Sankaty Advisors, LLC
            
            Incorporated
                by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.1
            Custodial
                and Stock Pledge Agreement, dated December 30, 2004, among Advanced
                Communications Technologies, Inc., Theodore S. Li and Hui Cynthia
                Lee, and
                Quarles & Brady Streich Lang LLP.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                filed with the SEC on January 5, 200510.2
            Employment
                Agreement, dated December 30, 2004, among Pacific Magtron International
                Corporation, Inc., Advanced Communications Technologies, Inc., Encompass
                Group Affiliates, Inc., and Theodore S. Li.
            
            Incorporated
                by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed with the SEC on January 5, 200510.3
            EmploymentAgreement, dated December 30, 2004, amongPacific
                Magtron International Corporation, Inc.,Advanced
                Communications Technologies, Inc.,Encompass
                Group Affiliates, Inc.,and Hui Cynthia Lee
            
            Incorporated
                by reference to Exhibit10.5to
                the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                5, 200510.4
            IndemnityAgreement, dated December 30, 2004, among Advanced Communications
                Technologies, Inc., Theodore S. Liand Hui Cynthia Lee.
            
            Incorporated
                by reference to Exhibit10.6to
                the Company’s Current Report on Form 8-K filed with the SEC onJanuary
                5, 200510.5*
            Form
                of Grant Instrument under Advanced Communications Technologies, Inc.
                2005
                Stock Plan for Non-Employee Director.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on July 6, 200510.6*
            Form
                of Lock-Up Agreement for Executive Officer/Director of Advanced
                Communications Technologies, Inc.
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                filed with the SEC on July 6, 200510.7*
            Form
                of Grant Instrument under Advanced Communications Technologies, Inc.
                2005
                Stock Plan for Executive Officer/Employee.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                filed with the SEC on July 6, 200610.8*
            Services
                Agreement entered into on June 7, 2005 by and among Advanced
                Communications Technologies, Inc., Wayne I. Danson and Danson Partners,
                LLC.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on July 13, 2005









10.9
            Equity
                Line of Credit Agreement dated July 2003, by and between Cornell
                Capital
                Partners, LP and Advanced Communications Technologies,
                Inc.
            
            Incorporated
                by reference to Exhibit 10.13 to the Company’s Form SB-2 Registration
                Statement filed with the SEC on July 16, 200310.10
            Registration
                Rights Agreement dated July 2003, by and between Advanced Communications
                Technologies, Inc. and Cornell Capital Partners, LP.
            
            Incorporated
                by reference to Exhibit 10.14 to the Company’s Form SB-2 Registration
                Statement filed with the SEC on July 16, 200310.11
            Placement
                Agent Agreement dated July 2003, by and between Advanced Communications
                Technologies, Inc. and Westrock Advisors, Inc.
            
            Incorporated
                by reference to Exhibit 10.15 to the Company’s Form SB-2 Registration
                Statement filed with the SEC on July 16, 200310.12
            Escrow
                Agreement dated July 2003, by and among Advanced Communications
                Technologies, Inc., Cornell Capital Partners, LP, Butler Gonzalez
                LLP and
                First Union National Bank.
            
            Incorporated
                by reference to Exhibit 10.16 to the Company’s Form SB-2 Registration
                Statement filed with the SEC on July 16, 200310.13*
            Consulting
                Agreement dated July 1, 2002 between Advanced Communications Technologies,
                Inc. and Randall H. Prouty.
            
            Incorporated
                by reference to Exhibit 10.26 to the Company’s Annual Report on Form
                10-KSB/A filed on February 7, 200310.14
            NonCompetition
                Agreement, dated June 3, 2004, by and among Cyber-Test, Inc., a Delaware
                corporation, Cyber-Test, Inc., a Florida corporation, and the shareholders
                of Cyber-Test.
            
            Incorporated
                by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed with the SEC on June 18, 200410.15
            Employment
                Agreement, dated June 3, 2004, by and between Cyber-Test, Inc., a
                Delaware
                corporation, and Lisa Welton.
            
            Incorporated
                by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                filed with the SEC on June 18, 200410.16
            Employment
                Agreement, dated June 3, 2004, by and between Cyber-Test, Inc., a
                Delaware
                corporation, and Thomas Sutlive.
            
            Incorporated
                by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                filed with the SEC on June 18, 200410.17
            Agreement,
                dated May 27, 2004, by and among Encompass Group Affiliates, Inc.,
                Hy-Tech
                Technology Group, Inc. and Hy-Tech Computer Systems, Inc.
            
            Incorporated
                by reference to Exhibit 10.36 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 200410.18
            Customer
                Lists License Agreement, dated June 24, 2004, by and among Encompass
                Group
                Affiliates, Inc., Hy-Tech Technology Group, Inc. and Hy-Tech Computer
                Systems, Inc.
            
            Incorporated
                by reference to Exhibit 10.37 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3,
                2004









10.19
            Websites
                License Agreement, dated June 24, 2004, by and among Encompass Group
                Affiliates, Inc., Hy-Tech Technology Group, Inc. and Hy-Tech Computer
                Systems, Inc.
            
            Incorporated
                by reference to Exhibit 10.38 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 200410.20
            NonCompetition
                and Nondisclosure Agreement by and among Encompass Group Affiliates,
                Inc.,
                Hy-Tech Technology Group, Inc. and Hy-Tech Computer Systems,
                Inc.
            
            Incorporated
                by reference to Exhibit 10.39 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 200410.21*
            Employment
                Agreement dated June 24, 2004 by and among Encompass Group Affiliates,
                Inc., Advanced Communications Technologies, Inc. and Martin
                Nielson.
            
            Incorporated
                by reference to Exhibit 10.41 to the Company’s Annual Report on Form
                10-KSB filed with the SEC on November 3, 200410.22*
            January
                1, 2005 Amendment to Employment Agreement by and among Encompass
                Group
                Affiliates, Inc., Advanced Communications Technologies, Inc. and
                Martin
                Nielson.
            
            Incorporated
                by reference to Exhibit 10.22 to the Company’s Form Annual Report on
                10-KSB filed with the SEC on October 3, 200510.23*
            Employment
                Agreement dated September 21, 2006 between Advanced Communications
                Technologies, Inc. and John E. Donahue
            
            Incorporated
                by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K
                filed with the SEC on September 29, 200610.24*
            Employment
                Agreement dated September 8, 2006 between Advanced Communications
                Technologies, Inc. and Steven J. Miller
            
            Incorporated
                by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K
                filed with the SEC on September 29, 200610.25
            Mutual
                Settlement Agreement and Release effective August 11, 2006 among
                Pacific
                Magtron International, Corp., Livewarehouse, Inc., the liquidating
                estates
                of Pacific Magtron, Inc. and Pacific Magtron (GA), Inc. by and through
                their estate representative, Encompass Group Affiliates , Inc., Advanced
                Communications Technologies, Inc., Wayne Danson, Martin Nielson,
                Theodore
                S. Li and Hui Cynthia Lee
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 16, 200610.26
            Stockholders
                Agreement by and among Advanced Communications Technologies, Inc.,
                the
                holders of the Series C Convertible Preferred Stock and the holders
                of the
                Series D Convertible Preferred Stock, dated as of August 17,
                2007
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.27
            Purchase
                Agreement entered into by and among Advanced Communications Technologies,
                Inc., ACT-DE, LLC and the other Buyers identified on Schedule 1 thereto,
                dated as of August 17, 2007
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21,
                2007









10.28
            Registration
                Rights Agreement entered into by and among Advanced Communications
                Technologies, Inc., ACT-DE, LLC and the persons and entities identified
                on
                Schedule 1 thereto, dated as of August 17, 2007
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.29
            Stockholders
                Agreement by and among Advanced Communications Technologies, Inc.,
                ACT-DE,
                LLC and the persons and entities identified on Schedule 1 thereto,
                dated
                as of August 17, 2007
            
            Incorporated
                by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.30
            Exchange
                Agreement entered into by and among Advanced Communications Technologies
                and the parties listed on the signature pages thereto, dated as of
                August
                17, 2007
            
            Incorporated
                by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.31*
            2007
                Amended and Restated Stock Plan
            
            Incorporated
                by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.32*
            Form
                of Option Agreement for Executive Officers under the 2007 Amended
                and
                Restated Stock Plan
            
            Incorporated
                by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K
                filed with the SEC on August 21, 200710.33
            Management
                Agreement entered into by Advanced Communications Technologies, Inc.
                and
                H.I.G. Capital L.L.C., dated as of August 17, 2007
            
            Filed
                herewith10.34
            Investment
                Advisory Services Agreement entered into by Advanced Communications
                Technologies, Inc. and H.I.G. Capital L.L.C., dated as of August
                17,
                2007
            
            Filed
                herewith10.35
            Letter
                Agreement between Advanced Communications Technologies, Inc. and
                YA Global
                Investments, L.P. dated as of August 17, 2007
            
            Filed
                herewith10.36*
            Letter
                Agreement among Wayne I. Danson, Danson Partners LLC and Advanced
                Communications Technologies, Inc. dated as of August 17,
                2007
            
            Filed
                herewith10.37*
            Employment
                Agreement between Wayne Danson and Advanced Communications Technologies,
                Inc., dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)









10.38*
            Employment
                Agreement between John Donahue and Advanced Communications Technologies,
                Inc. dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)10.39*
            Employment
                Agreement between Steven Miller and Advanced Communications Technologies,
                Inc. dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)10.40*
            Stock
                Option Agreement between Wayne Danson and Advanced Communications
                Technologies, Inc., dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)10.41*
            Stock
                Option Agreement between John Donahue and Advanced Communications
                Technologies, Inc., dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)10.42*
            Stock
                Option Agreement between Steven Miller and Advanced Communications
                Technologies, Inc., dated as of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)10.43
            Side
                Letter between H.I.G. Capital L.L.C. and Sankaty Advisors, LLC, dated
                as
                of August 17, 2007
            
            Filed
                herewith (subject to request for confidential
                treatment)14
            Code
                of Business Conduct and Ethics for Advanced Communications Technologies,
                Inc.
            
            Incorporated
                by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-KSB
                filed with the SEC on November 3, 200416
            Letter
                of Concurrence from
                Berenson LLP Regarding Change in Certifying Accountant
            
            Incorporated
                by reference to Exhibit 16 to the Company’s Current Report on Form 8-K
                filed with the SEC on May 16, 200721
            Subsidiaries
                ofAdvanced Communications Technologies, Inc.
            
            Filed
                herewith31.1
            Certification
                byChief
                Executive Officerpursuant to Sarbanes-Oxley Section 302
            
            Filed
                herewith31.2
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                302
            
            Filed
                herewith









32.1
            Certification
                byChief
                Executive Officerpursuant to 18 U.S.C. Section 1350
            
            Filed
                herewith32.2
            Certification
                byChief
                Financial Officerpursuant to 18 U.S.C. Section 1350
            
            Filed
                herewith




*
      Management contract or management compensatory plan or arrangement.




(1)
      In
      the case of incorporation by reference to documents filed by the Company under
      the Exchange Act, the Company’s file number under the Exchange Act is
      000-30486.









**Advanced
      Communications Technologies, Inc. And Subsidiaries**




**Contents**





PAGE
            F-1
            REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPAGE
            F-2
            CONSOLIDATED
                BALANCE SHEETS AS OF JUNE 30, 2007 AND 2006PAGE
            F-3
            CONSOLIDATED
                STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2007 AND
                2006PAGE
            F-4
            CONSOLIDATED
                STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE YEARS ENDED JUNE
                30, 2007 AND 2006PAGE
            F-5
            CONSOLIDATED
                STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2007 AND
                2006PAGES
            F6
                - F-24
            NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS





i





REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors of:


Advanced
      Communications Technologies, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Advanced Communications
      Technologies, Inc., and Subsidiaries as of June 30, 2007 and 2006 and the
      related consolidated statements of operations, changes in stockholders'
      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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our 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, 2007 and 2006, 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.





J.H.
      COHN
      LLP




New
      York,
      New York




September
      20, 2007




F-1


**ADVANCED
      COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**June
                30,****2007**
            
            **2006****ASSETS**Current
                AssetsCash
                and cash equivalents
            
            $
            843,721
            
            $
            756,093Accounts
                  receivable, net of allowance for doubtful accounts of $6,919and
                  $4,634 at June 30, 2007 and 2006, respectively
            
            
            429,105
            
            
            372,273Replacement
                parts and equipment
            
            
            371,353
            
            
            414,425Prepaid
                expenses and other current assets
            
            
            84,083
            
            
            119,961Total
                Current Assets
            
            
            1,728,262
            
            
            1,662,752Property
                and equipment, net
            
            
            261,849
            
            
            228,361Other
                AssetsDeferred
                acquisition costs
            
            
            885,364
            
            
            301,921Licensed
                intangibles and rights
            
            
            —
            
            
            400,000Goodwill
            
            
            2,624,388
            
            
            2,624,388Other
                assets
            
            
            7,960
            
            
            7,601Total
                Other Assets
            
            
            3,517,712
            
            
            3,333,910**TOTAL
                ASSETS**
            
            **$**
            **5,507,823**
            
            **$**
            **5,225,023****LIABILITIES
                AND STOCKHOLDERS' DEFICIENCY****LIABILITIES**Current
                LiabilitiesCurrent
                portion of notes payable and capitalized lease obligation
            
            $
            632,409
            
            $
            965,909Accounts
                payable and accrued expenses
            
            
            3,572,707
            
            
            1,993,193Total
                Current Liabilities
            
            
            4,205,116
            
            
            2,959,102Long-term
                Notes and Loans Payable, less Current Portion
            
            
            —
            
            
            15,340Convertible
                Preferred StockSeries
                A convertible preferred stock, $.01 par value
            
            
            3,006,200
            
            
            3,565,200Series
                A-1 convertible preferred stock, $.01 par value
            
            
            340,000
            
            
            —Series
                B convertible preferred stock, $.01 par value
            
            
            40,000
            
            
            60,000**TOTAL
                LIABILITIES**
            
            
            7,591,316
            
            
            6,599,642**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                DEFICIENCY**Common
                  stock, no par value, 5,000,000,000 shares authorized, 4,997,711,570
                  and 4,167,927,006 shares issued and outstanding at June 30, 2007
                  and 2006,
                  respectively
            
            
            31,092,290
            
            
            30,475,040Additional
                paid-in capital
            
            
            1,280,374
            
            
            1,195,374Accumulated
                deficit
            
            
            (34,456,157
            )
            
            (33,045,033
            )Total
                Stockholders' Deficiency
            
            
            (2,083,493
            )
            
            (1,374,619
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY**
            
            **$**
            **5,507,823**
            
            **$**
            **5,225,023**




See
      accompanying notes to consolidated financial statements




F-2


**ADVANCED
      COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**For The Years Ended June 30,****2007**
            
            **2006****NET
                SALES**
            
            $
            9,243,992
            
            $
            9,183,276**COST
                OF SALES**
            
            
            6,132,584
            
            
            5,959,085**GROSS
                PROFIT**
            
            
            3,111,408
            
            
            3,224,191**OPERATING
                EXPENSES**Depreciation
                and amortization
            
            
            75,137
            
            
            98,420Professional
                and consulting fees
            
            
            373,191
            
            
            861,534Other
                selling, general and administrative expenses
            
            
            3,370,100
            
            
            2,975,366Asset
                impairment charge
            
            
            400,000
            
            
            —**TOTAL
                OPERATING EXPENSES**
            
            
            **4,218,428**
            
            
            **3,935,320**Loss
                From Operations
            
            
            (1,107,020
            )
            
            (711,129
            )**OTHER
                INCOME AND (EXPENSES)**Litigation
                settlement
            
            
            —
            
            
            220,083Interest
                expense, net
            
            
            (142,651
            )
            
            (82,795
            )**TOTAL
                OTHER INCOME (EXPENSE), NET**
            
            
            (142,651
            )
            
            137,288**NET
                LOSS**
            
            **$**
            **(1,249,671**
            **)**
            **$**
            **(573,841**
            **)**Loss
                per share:Net
                basic and diluted loss per share
            
            **$**
            **—**
            
            **$**
            **—**Weighted
                  average number of shares outstanding during the year - basic and
                  dilutive
            
            
            **4,821,986,826**
            
            
            **3,514,362,488**





See
      accompanying notes to consolidated financial statements




F-3




**ADVANCED
      COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY**


**FOR
      THE YEARS ENDED JUNE 30, 2007 AND 2006**




**COMMON STOCK**
              
              **ADDITIONAL
                  PAID IN**
              
              **ACCUMULATED**
              
              **DEFFERED**
                **COMMITMENT
                  AND EQUITY**
              
              **DEFERRED****SHARES**
              
              **AMOUNT**
              
              **CAPTIAL**
              
              **DEFICIT**
              
              **FINANCING FEES**
              
              **COMPENSATION**
              
              **TOTAL****BALANCE
                  AT JULY 1, 2005**
              
              
              **3,151,773,731**
              
              **$**
              **29,751,907**
              
              **$**
              **1,570,374**
              
              **$**
              **(32,421,192**
              **)**
              **$**
              **(25,000**
              **)**
              **$**
              **(250,000**
              **)**
              **$**
              **(1,373,911**
              **)**Stock
                  issued on conversion of Series A preferred stock
              
              
              885,994,544
              
              
              634,800
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              634,800Stock
                  issued on conversion of Series B preferred stock
              
              
              63,492,064
              
              
              40,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              40,000Escrow
                  of Contingent stock
              
              
              16,666,667
              
              
              13,333
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              13,333Stock
                  issued for executive bonus
              
              
              50,000,000
              
              
              35,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              35,000Amortization
                  of deferred compensation
              
              
              —
              
              
              —
              
              
              (375,000
              )
              
              —
              
              
              —
              
              
              250,000
              
              
              (125,000
              )Amortization
                  of deferred commitment & financing fees
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              25,000
              
              
              —-
              
              
              25,000Accrued
                  distribution of Herborium Inc.'s common shares to
                  shareholders
              
              
              —
              
              
              —
              
              
              —
              
              
              (50,000
              )
              
              —
              
              
              —
              
              
              (50,000
              )Net
                  loss for the year
              
              
              —
              
              
              —
              
              
              —
              
              
              (573,841
              )
              
              —
              
              
              —
              
              
              (573,841
              )**BALANCE
                  AT JUNE 30, 2006**
              
              
              **4,167,927,006**
              
              
              **30,475,040**
              
              
              **1,195,374**
              
              
              **(33,045,033**
              **)**
              
              **—**
              
              
              **—**
              
              
              **(1,374,619**
              **)**Stock
                  issued on conversion of Series A preferred stock
              
              
              789,784,564
              
              
              559,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              559,000Stock
                  issued on conversion of Series B preferred stock
              
              
              20,000,000
              
              
              20,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              20,000Common
                  stock issued to officers
              
              
              20,000,000
              
              
              38,250
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              38,250Accrued
                  distribution of Herborium Inc.'s common shares to
                  shareholders
              
              
              —
              
              
              —
              
              
              —
              
              
              (161,453
              )
              
              —
              
              
              —
              
              
              (161,453
              )Beneficial
                  conversion feature attributable to Series A-1 preferred
                  stock
              
              
              —
              
              
              —
              
              
              85,000
              
              
              —
              
              
              —
              
              
              —
              
              
              85,000Net
                  loss for the year
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,249,671
              )
              
              —
              
              
              —
              
              
              (1,249,671
              )**BALANCE
                  AT JUNE 30, 2007**
              
              
              **4,997,711,570**
              
              **$**
              **31,092,290**
              
              **$**
              **1,280,374**
              
              **$**
              **(34,456,157**
              **)**
              **$**
              **—**
              
              **$**
              **—**
              
              **$**
              **(2,083,493**
              **)**




See
      accompanying notes to consolidated financial statements




F-4


**ADVANCED
      COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**For the Years Ended June
                30,****2007**
            
            **2006****CASH
                FLOWS PROVIDED BY OPERATIONS:**Net
                loss
            
            $
            (1,249,671
            )
            $
            (573,841
            )Adjustments
                to reconcile net loss to net cash provided by operating activities:Depreciation
                and amortization
            
            
            75,137
            
            
            98,420Allowance
                for doubtful accounts
            
            
            2,285
            
            
            (89
            )Stock
                issued to officers for services
            
            
            38,250
            
            
            (90,000
            )Beneficial
                conversion feature of Series A-1 preferred stock
            
            
            85,000
            
            
            —Asset
                impairment charge
            
            
            400,000
            
            
            —Loss
                on sale of marketable securities
            
            
            4,859
            
            
            —Litigation
                settlement
            
            
            —
            
            
            (220,083
            )Changes
                in operating assets and liabilities:(Increase)
                decrease in assets:Accounts
                receivables
            
            
            (59,117
            )
            
            (7,899
            )Replacement
                parts and equipment
            
            
            43,072
            
            
            (46,972
            )Prepaid
                expense and other assets
            
            
            18,019
            
            
            (4,457
            )Increase
                in liabilities:Accounts
                payable and accrued expenses
            
            
            983,974
            
            
            1,169,722Net
                cash provided by operating activities
            
            
            341,808
            
            
            324,801**CASH
                FLOWS USED IN INVESTING ACTIVITIES:**Purchase
                of fixed assets
            
            
            (108,625
            )
            
            (42,017
            )Deferred
                acquisition costs
            
            
            (175,856
            )
            
            (301,921
            )Funds
                received from PMIC bankruptcy trustee
            
            
            26,500
            
            
            —Proceeds
                from sale of marketable securities
            
            
            12,641
            
            
            7,500Net
                cash used in investing activities
            
            
            (245,340
            )
            
            (336,438
            )**CASH
                FLOWS USED IN FINANCING ACTIVITIES:**Proceeds
                from issuance of promissory note
            
            
            —
            
            
            35,000Principal
                payments on notes payable and capitalized lease
            
            
            (348,840
            )
            
            (104,146
            )Proceeds
                from sale of Series A-1 preferred stock
            
            
            340,000
            
            
            —Net
                cash used in financing activities
            
            
            (8,840
            )
            
            (69,146
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            87,628
            
            
            (80,783
            )Cash
                and cash equivalents at beginning of year
            
            
            756,093
            
            
            836,876**CASH
                AND CASH EQUIVALENTS AT END OF YEAR**
            
            **$**
            **843,721**
            
            **$**
            **756,093**




See
      accompanying notes to consolidated financial statements




F-5
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**
  **NOTE 1.**
              **BASIS
                  OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES**




***(A)
      Organization***




Unless
      the context requires otherwise, “we”, “us”, “our”, “ACT” or the “Company” refers
      to Advanced Communications Technologies, Inc. and its wholly and majority-owned
      subsidiaries on a consolidated basis.




We
      are a
      New York-based public holding company specializing in the technology aftermarket
      service and supply chain, known as reverse logistics. Our wholly-owned
      subsidiary and principal operating unit, Encompass Group Affiliates, Inc.
      ("Encompass"), a Delaware corporation, acquires and operates businesses that
      provide computer and electronic equipment repair and end-of-life cycle services.
      On June 2, 2004, Encompass acquired Cyber-Test, Inc., a Delaware corporation
      ("Cyber-Test"). Cyber-Test, which has been our principal operating business,
      is
      an electronic equipment repair company based in Florida.





Cyber-Test
      operates as an independent service organization. From its roots in the space
      industry more than 19 years ago, Cyber-Test provides board-level repair of
      technical products to third-party warranty companies, OEMs, national retailers
      and national office equipment dealers. Service options include advance exchange,
      depot repair, call center support, parts and warranty management. Cyber-Test's
      technical competency extends from office equipment and fax machines to printers,
      scanners, laptop computers, monitors, multi-function units and high-end consumer
      electronics such as PDAs and digital cameras. Programs are delivered nationwide
      through proprietary systems that feature real-time EDI, flexible analysis tools
      and repair tracking.





We
      seek
      to acquire profitable and growing businesses within our industry. With our
      wholly-owned subsidiary Cyber-Test as the platform, our strategy is to become
      a
      leader in the reverse logistics industry through the acquisition of assets
      and
      companies in that industry. To that end, on August 17, 2007, Encompass completed
      the acquisition of Vance Baldwin, Inc., an Original Equipment Manufacturer
      Parts
      Distributor that has been a leader in the industry for over fifty years. Vance
      Baldwin has operations in southern Florida and suburban Atlanta and distributes
      parts ranging from consumer electronics and computers to printers and office
      supplies. In addition, Vance Baldwin provides service aids and industrial
      products such as cable, tools, test equipment, cleaners and other installation
      equipment. (See Note 16 for further information concerning this acquisition
      and
      the related financings transactions.)





We
      acquired a 62% interest in Pacific Magtron International Corp. (“PMIC”) together
      with its wholly-owned subsidiaries as of December 30, 2004 (see Note 3). PMIC’s
      principal business consisted of the importation and wholesale distribution
      of
      electronics products, computer components, and computer peripheral equipment
      throughout the United States. Through a subsidiary PMIC sold consumer computer
      products through the Internet and distributed certain computer products to
      resellers. As described in Note 3 and Note 11, on May 11, 2005 PMIC and its
      subsidiaries filed voluntary petitions to reorganize their businesses under
      Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
      Court for the Southern District of Nevada. All operations ceased in June
      2005.





***(B)
      Financial Statement Presentation and Principles of
      Consolidation***





The
      consolidated financial statements include the Company and all of its
      wholly-owned subsidiaries. All significant inter-company transactions have
      been
      eliminated in consolidation. The Company consolidates all majority-owned and
      controlled subsidiaries, uses the equity method of accounting for investments
      in
      which the Company is able to exercise significant influence, and uses the cost
      method for all other investments.





***(C)
      Use of Estimates***




The
      preparation of the consolidated financial statements of the Company in
      conformity with accounting principles generally accepted in the United States
      of
      America 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 replacement parts
      and
      equipment and estimate the future cost associated with the Company’s warranties.
      If the actual value of the Company’s replacement parts and equipment 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-6
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




***(D)
      Allowance for Doubtful Accounts***




We
      make
      judgments as to our ability to collect outstanding trade 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.




***(E)
      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, net of disposal costs.





***(F)*** ***Goodwill
          and Intangible Assets***





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 “Goodwill”. The fair value assigned to intangible assets
      acquired is based on valuations prepared by management using certain estimates
      and assumptions or the values 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. During the year ended June 30, 2007, these
      intangible assets were tested for impairment and, as a result, a write off
      in
      the amount of $400,000 was recorded for certain intangible assets determined
      to
      be impaired.





***(G)*** ***Replacement
          Parts and Equipment***





Replacement
      parts and equipment consist primarily of repair parts and used machines that
      are
      held for repair exchange, and are stated at the lower of weighted average cost
      or market. The weighted average cost of replacement parts and equipment
      approximates the first-in, first-out (“FIFO”) method. Management performs
      periodic assessments to determine the existence of obsolete, slow-moving and
      non-usable replacement parts and equipment and records necessary provisions
      to
      reduce such replacement parts and equipment to net realizable
      value.





***(H)
      Loss Per Share***




Basic
      loss per share is computed by dividing loss available to common stockholders
      by
      the weighted average number of common shares outstanding for the period. Diluted
      loss per share reflects the potential dilution of securities using the treasury
      stock method that could share in the earnings of an entity. During the fiscal
      years ended June 30, 2007 and 2006, shares of common stock that could have
      been
      issued upon conversion of convertible preferred stock were excluded from the
      calculation of diluted earnings (loss) per share as their effect would have
      been
      anti-dilutive. As of June 30, 2007 and 2006, the number of shares of common
      stock that would have been issued upon conversion of issued and outstanding
      convertible preferred stock based on the then current stock prices amounted
      to
      4,339,000,000 and 3,645,000,000 shares, respectively.




F-7
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




***(I)
      Property and Equipment***




Property
      and equipment are stated at cost, less accumulated depreciation. Assets are
      depreciated using the straight-line method based on the following estimated
      useful lives:


Machinery
                  and equipment
              3
                  to 7 yearsFurniture
                  and fixtures
              5
                  to 7 years




Maintenance
      and repairs are charged to expense when incurred.





***(J)
      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. During
      fiscal 2007 and 2006, the provision for warranty costs and costs charged against
      the reserve were as follows:




**2007**
            
            **2006**Balance
                at beginning of year
            
            $
            64,000
            
            $
            34,000Provision
                recorded
            
            
            646,000
            
            
            684,000Warranty
                costs incurred
            
            
            638,000
            
            
            654,000Balance
                at end of year
            
            $
            72,000
            
            $
            64,000




***(K)
      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.




***(L)
      Revenue Recognition***





The
      Company recognizes the majority of its revenue from the exchange of refurbished
      computer equipment and related products upon delivery of goods to a common
      carrier for delivery to the customer. In addition, 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 includes shipping costs in cost of sales. Total
      shipping costs included in cost of sales for the years ended June 30, 2007
      and
      2006 were approximately $1,621,000 and $1,469,000, respectively. 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 fiscal 2007 and 2006.




F-8
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




***(M)***  ***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.




***(N)***  ***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.





***(O)*** ***Cash
      and Cash Equivalents***




The
      Company considers all short-term investments with an original maturity date
      of
      three months or less to be cash equivalents. Cash equivalents include commercial
      paper, money market funds and certain certificates of deposit.




***(P)
      Stock Based Compensation***




The
      Company determines the value of grants of restricted common stock to employees
      and others based on the closing price per share at the date of grant and
      amortizes the cost as compensation expense over the period of vesting.




***(Q)
      Recent Accounting Pronouncements***




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      Number 157 - Fair Value Measurements (“SFAS157”). SFAS 157 defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles (“GAAP”), and expands disclosures about fair value
      measurements.





Prior
      to
      SFAS 157, there were different definitions of fair value and limited guidance
      for applying those definitions in GAAP. Moreover, that guidance was dispersed
      among the many accounting pronouncements that require fair value measurements.
      SFAS 157 clarifies that the exchange price is the price in an orderly
      transaction between market participants to sell the asset or transfer the
      liability in the market in which the reporting entity would transact for the
      asset or liability, that is, the principal or most advantageous market for
      the
      asset or liability.





This
      Statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. The Company is currently evaluating the impact, if any, that SFAS 157
      will have on its financial position, results of operations and cash
      flows.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities—Including an Amendment of FASB
      Statement No. 115.” This Standard allows entities to voluntarily choose, at
      specified election dates, to measure many financial assets and financial
      liabilities (as well as certain non-financial instruments that are similar
      to
      financial instruments) at fair value. The election is made on an
      instrument-by-instrument basis and is irrevocable. If the fair value option
      is
      elected for an instrument, the Statement specifies that all subsequent changes
      in fair value for that instrument shall be reported in earnings. SFAS No. 159
      is
      effective beginning on January 1, 2008. We are currently evaluating the
      impact this new Standard could have on our financial position and results of
      operations.





F-9
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




In
      July
      2006 the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by
      prescribing a minimum probability threshold that a tax position must meet before
      a financial statement benefit is recognized. The minimum threshold is defined
      in
      FIN 48 as a tax position that is more likely than not to be sustained upon
      examination by the applicable taxing authority, including the resolution of
      any
      related appeals or litigation processes, based on the technical merits of the
      position. The tax benefit to be recognized is measured as the largest amount
      of
      benefit that is greater than fifty percent likely of being realized upon
      ultimate settlement. Fin 48 must be applied to all existing tax positions upon
      initial adoption. The cumulative effect of applying FIN 48 at adoption, if
      any,
      is to be reported as an adjustment to opening retained earnings for the year
      of
      adoption. Fin 48 is effective for the Company’s 2008 fiscal year, although early
      adoption is permitted. The Company is currently evaluating the impact, if any,
      that FIN 48 will have on its financial statements.




**NOTE
              2.**
            **PROPERTY
                AND EQUIPMENT**




The
      following is a summary of property and equipment as of June 30, 2007 and
      2006:





**2007**
            
            **2006**Computer,
                office equipment and fixtures
            
            $
            236,970
            
            $
            204,249Machinery
                and equipment
            
            
            84,885
            
            
            59,277Leasehold
                improvements
            
            
            109,248
            
            
            58,952431,103
            
            
            322,478Less:
                Accumulated depreciation
            
            
            169,254
            
            
            94,117**Property
                and equipment, net**
            
            $
            261,849
            
            $
            228,361





Depreciation
      and amortization expense for the years ended June 30, 2007 and 2006 was $75,137
      and $73,420, respectively.





**NOTE
                  3.**
                **ACQUISITION
                    OF PACIFIC MAGTRON INTERNATIONAL CORP. AND
                    SUBSIDIARIES**




On
      December 30, 2004, we completed the acquisition of 61.6% of the common stock
      of
      Pacific Magtron International Corp. (“PMIC”) (the "PMIC Shares") for the
      aggregate purchase price of $500,000 from Theodore S. Li and Hui Cynthia Lee
      (collectively, the "Stockholders") pursuant to the terms of a Stock Purchase
      Agreement, dated December 10, 2004, among the Company, Mr. Li and Ms. Lee (the
      "Stock Purchase Agreement"). PMIC was primarily engaged in the business of
      distributing computer peripheral products, such as components and multimedia
      and
      systems networking products, through its wholly-owned subsidiaries. See Note
      11
      for the terms of ensuing litigation and the terms of the settlement agreement
      finalized in fiscal 2007.




**NOTE
              4.**
            **DEFERRED
                ACQUISITION COSTS**




The
      Company has incurred and deferred certain legal, accounting, advisory and
      consulting costs relating to acquiring certain targeted businesses. As described
      further in Note 16, the acquisition of one of the identified businesses was
      completed August 17, 2007. Upon the closing of an acquisition, such deferred
      costs are included with the purchase price in determining the total cost of
      acquiring the assets or capital stock of the acquired business. As of June
      30,
      2007, $885,364 of these acquisition costs have been deferred by the Company
      and
      included in other assets.




**NOTE
              5.**
            **LICENSED
                INTANGIBLES**




On
      May
      27, 2004, Encompass 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. The Company originally recorded $400,000 for these
      licensed intangibles. During the year ended June 30, 2007, these intangible
      assets were tested for impairment and, as a result of a determination that
      these
      assets were impaired, an impairment charge in the amount of $400,000 was
      recorded in fiscal 2007.





F-10
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




**NOTE
              6.**
            **NOTES
                PAYABLE AND CAPITAL LEASE
                OBLIGATIONS**




In
      connection with the recapitalization effective August 17, 2007 as described
      in
      Note 16, all of the following notes (with the exception of the capitalized
      lease
      obligation) and related accrued interest were satisfied in full as of that
      date.




Notes
      payable and capital lease obligations consist of the following at June 30,
      2007
      and 2006:


**2007**
              
              **2006**12%
                  Note Payable (A)
              
              $
              57,832
              
              $
              57,832Note
                  Payable to Officer (B)
              
              
              35,000
              
              
              35,000Note
                  Payable to Cornell Capital (C)
              
              
              275,000
              
              
              275,0006%
                  Unsecured Note (D)
              
              
              249,236
              
              
              249,236Payable
                  to former PMIC’s shareholders (E)
              
              
              —
              
              
              325,000Capitalized
                  Lease (F)
              
              
              15,341
              
              
              39,181Total
                  notes Payable and capital lease obligations
              
              
              632,409
              
              
              981,249Less:
                  current portion
              
              
              (632,409
              )
              
              (965,909
              )Notes
                  payable and capital lease obligations, less current
                  portion
              
              $
              —
              
              $
              15,340




***(A)***  ***12%
      Note Payable***




On
      November 14, 2002, the Company settled its litigation with the noteholder
      plaintiffs by agreeing to release the plaintiffs’ stock from restriction and
      issued a three-year unsecured 8% promissory note in the principal amount of
      $173,494 to reimburse the plaintiffs for their legal costs. The note was 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. On December 2, 2005, the Company entered into an Extension
      Agreement extending the maturity date of the note to February 28, 2006 and
      effective December 1, 2005, increasing the interest rate to 12% from 8%. The
      maturity date was extended several times in fiscal 2007 and 2006. As of June
      30,
      2007, the outstanding amount of the note was $57,832.




***(B)
      Note Payable to Officer/Shareholder***




On
      April
      24, 2006, the Company issued an unsecured promissory note to an
      officer/shareholder of the Company for proceeds of $35,000. The note bears
      interest at 10% per annum. Payments of principal and accrued interest were
      due
      on October 24, 2006. Thereafter, the maturity date was extended indefinitely.




***(C)
      Note Payable to Cornell Capital Partners, L.P.***




During
      January 2004, the Company entered into a six-month unsecured 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 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 fiscal 2004. During the fiscal year
      ended June 30, 2005, the Company repaid a total of $2,100,000 of principal
      on
      the note, of which $100,000 was repaid by issuing 172,881,526 shares of common
      stock and $2,000,000 was repaid in cash leaving an unpaid balance of $275,000.
      On February 10, 2005, the note was modified, extended to June 30, 2005, and
      bears interest at a rate of 10%. The remaining balance of the note was paid
      at
      that date and was in default as of June 30, 2007.





F-11
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




***(D)
      6% Unsecured Note Payable***





Pursuant
      to the terms of the Cyber-Test acquisition, on June 2, 2004 the Company issued
      a
      three-year 6% unsecured installment note in the amount of $498,469 to the
      shareholders of Cyber-Test as part of the purchase of the Cyber-Test assets.
      The
      note, which matured on June 2, 2007, was payable in three equal annual
      installments of $166,156 plus accrued interest. During the fiscal year ended
      June 30, 2005, principal amount of $166,156 plus $9,970 of accrued interest
      were
      paid. During the fiscal year ended June 30, 2006, principal amount of $83,078
      plus $10,004 of accrued interest were paid. As of June 30, 2007, the outstanding
      principal balance of the note in the amount of $249,235 remained
      unpaid.





***(E)
      Payable to Former PMIC’s Shareholders***




On
      December 10, 2004, the Company entered into a Stock Purchase Agreement with
      Theodore S. Li and Hui Cynthia Lee pursuant to which the Company agreed to
      purchase an aggregate of 6,454,300 shares of the common stock of Pacific Magtron
      International Corp. (the "PMIC Shares") for the aggregate purchase price of
      $500,000. Under the terms of the Stock Purchase Agreement, the Company paid
      the
      purchase price for the PMIC Shares by delivering two convertible promissory
      notes in the principal amounts of $166,889 and $333,111 to Mr. Li and Ms. Lee,
      respectively. The notes matured on December 29, 2005, bore interest at 6.0%
      per
      annum and were secured by the PMIC Shares. See Note 11 for a description in
      ensuing litigation between the parties.




On
      August
      11, 2006, the United States Bankruptcy Court for the District of Nevada approved
      the settlement agreement among PMIC, the Company, Encompass, the Company’s
      officers and Mr.
      Li
      and Ms. Lee .
      Pursuant to the settlement agreement, the Company paid Mr. Li and Ms. Lee
      $325,000 in cash on September 18, 2006 in full payment of the promissory notes
      and accrued interest.




***(F)
      Capital Lease Obligations***




The
      Company leases a telephone system and related software under an agreement that
      is classified as a capital lease. The cost of the equipment purchase was $69,678
      and is included in the accompanying balance sheet as property, plant, and
      equipment at June 30, 2007. Accumulated amortization of the leased equipment
      was
      $31,292 as of June 30, 2007. Amortization of assets under capital leases is
      included in depreciation and amortization expense.





The
      future minimum lease payments required under the capital lease and the present
      value of the net minimum lease payments as of June 30 2007, are as
      follows:





**Year
                Ending**
              **June
                30,**
            
            **Amount**Total
                minimum lease payments
            
            2008
            
            $
            15,979Less:
                Amount representing interest
            
            (638
            )Present
                value of net minimum lease payments
            $
            15,341





F-12
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




**NOTE
              7.**
            **PREFERRED
                STOCK**




The
      Company is required to classify its Series A, Series A-1 and Series B issues
      of
      convertible preferred stock as a liability rather than as a component of
      stockholders’ equity since there is no minimum conversion price for each of the
      three issues of convertible preferred stock. An election to convert any or
      part
      of one or more of the issues could result in the conversion into an
      indeterminable number of shares of common stock. Therefore, under the guidance
      in paragraph 20 of EITF 00-19, the Company is prohibited from concluding that
      it
      has sufficient available authorized and unissued shares to meet the issues’
conversion requirements and, therefore, settlement is not within the control
      of
      the Company. Such circumstances require classification of the convertible
      preferred stock issues as a liability rather than as a component of
      stockholders’ equity.




In
      connection with the recapitalization effective August 17, 2007 as described
      in
      Note 16, all shares of Series A, Series A-1 and Series B Convertible Preferred
      Stock issues were exchanged for cash or for shares of a new Series A-2
      Convertible Preferred Stock issued as of that date.




***(A)
      Series A Convertible Preferred Stock***





The
      Company has 25,000 shares of Convertible
      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 assets, 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. During fiscal 2005, a portion of these shares was transferred
      by
      Cornell Capital Partners, L.P. to unrelated parties. Holders of the Series
      A Convertible
      Preferred Stock are
      entitled to receive cash dividends at the annual rate of 5% when and if a
      dividend is scheduled by the Company’s board of directors. The Series A Convertible
      Preferred Stock 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.





Shares
      of
      the Series A Convertible
      Preferred Stock 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 share of the Series A Convertible
      Preferred Stock 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 Convertible
      Preferred Stock .
      In the
      event of a fundamental change in control of the Company or its current
      management, the holders of the Series A Convertible
      Preferred Stock have
      the
      immediate right to convert their shares of Series A Convertible
      Preferred Stock into
      common stock of the Company.





During
      fiscal 2007 and 2006, 559 and 635 shares of Series A Convertible Preferred
      Stock
      were converted into 789,784,564 and 885,994,544 shares of the Company’s common
      stock, respectively. At June 30, 2007, 3,006 shares of Series A Convertible
      Preferred Stock remained outstanding.




***(B)
      Series A-1 Convertible Preferred Stock***





On
      September 13, 2006, the Company amended its articles of incorporation to
      authorize the issuance of up to 1,000 shares of $0.01 par value Series A-1
      Convertible Preferred Stock. The Series A-1 Convertible Preferred Stock
      generally ranks junior to the Series A Convertible Preferred Stock and the
      Series B Convertible Preferred Stock (collectively “the Senior Stock”) and is
      senior to the Company’s common stock and all series of preferred stock other
      than the Senior Stock. Subject to certain adjustments, the Series A-1
      Convertible Preferred Stock is convertible into shares of common stock at a
      conversion price of (a) $0.01 per share, or (b) eighty percent (80%) of the
      average of the three (3) lowest closing bid prices of the common stock for
      the
      ten (10) trading days immediately preceding the date of conversion, whichever
      is
      lower. The Company may redeem the shares of Series A-1 Convertible Preferred
      Stock at any time, upon notice to the holders, for a price equal to 120% of
      the
      amount paid per share upon the Company’s receipt of an aggregate of $35,000,000
      through any combination of debt and equity investments and financing facilities.
      Upon such event, the holders may exercise the right to convert their shares
      of
      Series A-1 Convertible Preferred Stock into shares of the Company’s common
      stock. The Series A-1 Convertible Preferred Stock does not have any voting
      rights. In addition, the holders of Series A-1 Convertible Preferred Stock
      were
      granted certain piggyback registration rights in the event that the shares
      of
      Series A-1 Convertible Preferred Stock are converted into shares of common
      stock.




F-13
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




On
      September 13, 2006, the Company sold 340 shares of Series A-1 Convertible
      Preferred Stock at a $1,000 per share. In connection with the sale of Series
      A-1
      Convertible Preferred Stock, the Company received aggregate gross proceeds
      of
      $340,000 as follows: (a) $275,000 from officers of the Company; and (b) $65,000
      from outside investors. In fiscal 2007, the company recorded interest expense
      in
      the amount of $85,000 for the beneficial conversion feature arising from the
      conversion discount described above.





***(C)
      Series B Convertible Preferred Stock***





In
      conjunction with the Company’s license of certain intangible assets, the Company
      issued 300 shares of nonvoting Series B Convertible Preferred Stock having
      a
      liquidation value of $1,000 per share. The Series B Convertible Preferred Stock
      has 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 23, 2005
      into shares of common stock on the same terms as the Series A Convertible
      Preferred Stock.




During
      fiscal 2007 and 2006, 20 and 40 shares of Series B Convertible Preferred Stock
      were converted into 20,000,000 and 63,492,064 shares of the Company’s common
      stock, respectively. At June 30, 2007, 40 shares of Series B Convertible
      Preferred stock remained outstanding.




**NOTE
                  8.**
                **STOCKHOLDERS’
                    DEFICIENCY**





In
      connection with the recapitalization effective August 17, 2007 as described
      in
      Note 16, the Company’s 2005 Stock Plan was amended and restated as of that
      date.




***(A)
      Stock Issued Under 2005 Stock Plan***




During
      the fiscal year ended June 30, 2005, the Company’s Board of Directors adopted
      the Company’s 2005 Stock Plan (the “Plan”) to provide designated employees of
      the Company and its subsidiaries, certain independent consultants and advisors
      and non-employee members of the Board of Directors with the opportunity to
      receive grants of incentive stock options, nonqualified stock options and
      restricted stock. The Company believes that the Plan will encourage the
      participants to contribute materially to the growth of the Company and its
      business thereby benefiting the Company’s stockholders and will align the
      economic interests of the participants with those of the
      stockholders.




Subject
      to adjustment for stock dividends, splits or recapitalization, the aggregate
      number of shares of common stock of the Company that may be issued or
      transferred under the Plan or upon which awards under the Plan may be granted
      is
      700,000,000 shares, (i) 500,000,000 of which may be issued as Restricted Stock
      and (ii) 200,000,000 of which may be issued as incentive stock options or
      non-incentive stock options, some or all of which may be incentive stock options
      when issued to individuals entitled to receive incentive stock options. The
      shares may be authorized but unissued shares of common stock or reacquired
      shares of common stock, including shares purchased by the Company on the open
      market for purposes of the Plan. If and to the extent Options granted under
      the
      Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered
      without having been exercised, or if any Restricted Stock is forfeited, the
      shares subject to such Grants shall again be available for purposes of the
      Plan,
      unless otherwise provided by the Board.




F-14
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




Under
      employment agreements entered into with two executives on September 25, 2006,
      an
      aggregate of 100,000,000 restricted shares of the Company’s common stock with a
      fair market value of $90,000 were awarded at the closing price of $.0009 per
      share at the date of grant, September 25, 2006, of which 20% vested immediately,
      with 30% and 50% to vest on September 26, 2007 and September 26, 2008,
      respectively, subject to continued employment. The following summaries the
      status of the grant as of June 30, 2007:





**Shares**
            
            **Amount**Restricted
                Shares:Granted
            
            
            100,000,000
            
            $
            90,000Vested
            
            
            42,500,000
            
            $
            38,250Unvested
            
            
            57,500,000
            
            $
            51,750





During
      fiscal 2007, $38,250 was expensed for restricted shares that vested during
      the
      year. During fiscal 2008, $51,750 will be charged to expense for restricted
      shares that vested on an accelerated basis due to the August 17, 2007
      recapitalization and change in control described in Note 16..





***(F)***  ***Performance
      Bonuses***





In
      connection with the employment agreements with two executives of Cyber-Test,
      the
      Company may pay to each executive an annual performance bonus, in cash and/or
      restricted stock of the Company, as determined by the Compensation Committee
      in
      its sole discretion. For fiscal 2007, $50,000 was accrued for such bonuses
      which
      will be paid in cash. During fiscal 2006, the Company issued a total of
      50,000,000 shares of the Company’s common stock valued at $35,000 to the
      executives for performance bonuses.





**NOTE
                9.**
            **INCOME
                TAXES**





The
      Company did not record an income tax benefit or expense for the years ended
      June
      30, 2007 and 2006. The following summarizes the differences between the income
      tax (benefit) expense and the amount computed by applying the federal income
      tax
      rate of 34% in fiscal 2007 and 2006 to income before income taxes:




2007
            
            2006Federal
                income tax benefit at statutory rate
            
            $
            425,000
            
            $
            195,000State
                income tax benefit, net
            
            
            54,000
            
            
            23,000Permanent
                differences
            
            
            31,000
            
            
            25,000Change
                in valuation allowance
            
            
            (510,000
            )
            
            (243,000
            )Income
                tax benefit (expense)
            
            $
            -
            
            $
            -





The
      Company recorded a valuation allowance for its net deferred tax assets,
      including its federal and state net operating loss for the years ended June
      30,
      2007 and 2006. There was no tax benefit recorded relating to the increase in
      deferred tax assets.





As
      of
      June 30, 2007, the Company had total net operating loss carryforwards (NOL)
      available to offset future federal taxable income of approximately $32,000,000
      expiring in the fiscal years from 2016 through 2026. As of June 30, 2007, the
      Company also had approximately $4,000,000 of capital loss carryforwards,
      expiring in fiscal 2008 and 2010 that could be used to offset future federal
      taxable income. As of June 30, 2007, the Company had NOLs available to offset
      future Florida, New York and California taxable income of approximately
      $26,000,000, $17,000,000 and $11,000,000, respectively. The Florida NOL expires
      from fiscal 2019 through 2027 and the New York NOL expires from fiscal 2023
      through 2027.





Deferred
      tax assets and liabilities as of June 30, 2007 and 2006 were comprised of the
      following:





2007
            
            2006Deferred
                tax assets (liabilities):Capital
                loss carryover
            
            $
            1,352,000
            
            $
            1,352,000Net
                operating loss carryover
            
            
            13,965,000
            
            
            13,446,00015,317,000
            
            
            14,798,000Valuation
                allowance
            
            
            (15,110,000
            )
            
            (14,600,000
            )207,000
            
            
            198,000Property
                and equipment
            
            
            (207,000
            )
            
            (198,000
            )Net
                deferred tax assets
            
            $
            —
            
            $
            —




F-15
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




Realization
      of the Company’s deferred tax assets is dependent upon future income in specific
      tax jurisdictions. The Company has evaluated all significant available positive
      and negative evidence, the existence of losses in the recent years and forecast
      of future taxable income (loss) in determining the need for a valuation
      allowance. At June 30, 2007 and 2006, the Company recorded a 100% valuation
      allowance against the net deferred tax assets to reduce them to
      zero.





**NOTE
              10.**
            **MAJOR
                CUSTOMERS**





During
      the fiscal year ended June 30, 2007 and 2006, Cyber-Test’s sales to two
      customers accounted for approximately 44% and 41% and 39% and 51%, respectively,
      of its total sales, respectively. As of June 30, 2007, accounts receivable
      from
      such two major customers aggregated $253,000, or 16% and 42%, respectively,
      of
      accounts receivable.




**NOTE
              11.**
            **LITIGATION
                SETTLEMENT**




On
      May
      11, 2005, PMIC and its subsidiaries filed voluntary petitions to reorganize
      their businesses under Chapter 11 of the United States Bankruptcy Code in the
      United States Bankruptcy Court for the Southern District of Nevada. Also, on
      that date we filed a complaint in the United States District Court for the
      Southern District of New York against Theodore S. Li and Hui Cynthia Lee, the
      former officers and principal shareholders of our then majority-owned subsidiary
      PMIC, for the recovery of damages and costs for securities fraud, breach of
      contract and other counts in connection with the Stock Purchase Agreement dated
      December 10, 2004 among us and Mr. Li and Ms. Lee.




In
      July,
      2006, we, PMIC, Mr. Li, Ms. Lee and others entered into a Mutual Settlement
      Agreement and Release (the “Settlement Agreement”) with respect to the
      settlement of the above litigation and other potential claims, including the
      termination of their employment contracts, involving us, PMIC, Encompass, Mr.
      Li, Ms. Lee, Martin Nielson, our then Executive Vice President, and Wayne
      Danson, our Chief Executive Officer. PMIC’s entry into the Settlement Agreement
      was conditioned on bankruptcy court approval, which was obtained on August
      11,
      2006 in connection with confirmation of PMIC’s Plan of Reorganization. Under
      PMIC’s Plan of Reorganization, ACT contributed $50,000 on behalf of PMIC’s
      stockholders to effectuate the plan of reorganization and a subsidiary of PMIC
      merged with an unrelated entity, Herborium, Inc. ,
      a
      provider of proprietary, natural and complimentary botanical healthcare
      products, on September 18, 2006. In
      connection with the merger, PMIC changed its name to Herborium Group,
      Inc. ,
      which
      became the surviving operating entity post-merger. Upon
      closing of the merger, the Company paid an aggregate $325,000 in cash to Mr.
      Li
      and Ms. Lee. In addition, Li and Lee received certain shares of common stock
      of
      Herborium Group .
      The
      remaining balance on certain promissory notes totaling $175,000 plus accrued
      interest in the amount of $45,083 was cancelled on September 18, 2006. The
      Company recorded income from this litigation settlement of $220,083 in fiscal
      2006. The Company also recorded a charge to accumulated deficit in fiscal 2007
      for $161,453, in addition to a charge to accumulated deficit in fiscal 2006
      for
      the $50,000 contribution. A special stock distribution of shares of Herborium
      Group was made directly to the holders of our common stock as of the record
      date
      of August 11, 2006 on the basis of a 0.001652911 share of Herborium common
      stock for each
      share of our common stock, representing approximately an 8% interest in
      Herborium Group.




F-16
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**





**NOTE
              12.**
            **COMMITMENTS
                AND CONTINGENCIES**





***(A)
      Operating Lease Commitments***




The
      Company, through a license agreement effective December 1, 2004 with Danson
      Partners, LLC, a party related to our chief executive officer, occupies a 499
      square foot office facility having a monthly lease obligation of $1,478, as
      adjusted annually. The term of the Company’s license agreement is a
      month-to-month term and is at fair market rental. In connection with the
      recapitalization effective August 17, 2007 as described in Note 16, this
      agreement was superseded by a new license agreement whereby the Company
      effectively assumed the Danson Partners’ lease obligation for a total of
      approximately 2,000 square feet of office space.




Cyber-Test
      leases a 29,000 square foot office/warehouse facility under a one-year triple
      net lease that commenced on January 1, 2007 and ends on July 31, 2008, and
      carries a one-year option. The monthly lease obligations are $14,690 for the
      period January 1, 2007 to July 31, 2007, $15,150 for the period August 1, 2007
      to July 31, 2008 and $15,700 for the option period August 1, 2008 to July 31,
      2009.




Cyber-Test
      also leases a 10,800 square foot office/warehouse facility under a one-year
      triple net lease that commenced on January 1, 2007 and ends on July 31, 2008,
      and carries a one-year option. The monthly lease obligations are $5,600 for
      the
      period January 1, 2007 to July 31, 2008, and $5,800 for the option period August
      1, 2008 to July 31, 2009.




Future
      minimum lease payments as of June 30, 2007 are approximately as
      follows:





For
                the year ending June 30, 2008
            
            $
            341,000June
                30, 2009
            
            
            122,000June
                30, 2010
            
            
            93,000Total
            
            $
            556,000




***(B)
      Legal Matters***




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 its 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, 2007, 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.
      See Note 11 for a description of certain legal proceeding settled in fiscal
      2007.




***(C)
      Executive Employment Contracts***





On
      June
      7, 2005, the Company entered into a Services Agreement with Wayne I. Danson
      and
      Danson Partners, LLC, a limited liability company of which Mr. Danson is a
      principal (“DPL”), which expired December 31, 2006. Under the Services
      Agreement, effective as of January 1, 2005 and expiring on the second
      anniversary thereof unless earlier terminated in accordance with its terms,
      the
      Company will pay DPL an annual base fee of $250,000 for, among other services,
      Mr. Danson to serve as the Company’s President, Chief Executive Officer and
      Chief Financial Officer (through September 25, 2006). DPL is also entitled
      to
      (i) a cash bonus of $250,000, of which $125,000 has not been paid as of the
      date
      of this report, and (ii) a share bonus of 200,000,000 fully vested shares of
      the
      Company’s Common Stock issued contemporaneously with the execution of the
      Services Agreement. Under certain circumstances in the event of a change in
      control, as defined, DPL shall be entitled to a severance payment equal to
      299%
      of the annual base fee. The Company may grant cash bonuses, restricted shares
      of
      Common Stock, or options to DPL in consideration for Mr. Danson’s services, with
      a vesting schedule and other terms established by the Company’s Compensation
      Committee in its sole discretion. Neither Mr. Danson nor DPL receives
      consideration for Mr. Danson’s service as a director of the Company.





F-17
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




On
      March
      14, 2007, the Company entered into an employment agreement with Mr. Danson
      to
      continue to serve as President and Chief Executive Officer of the Company and
      continue as a member of the Board of Directors. The employment agreement is
      for
      a two-year term beginning January 1, 2007. Under terms of the employment
      agreement, Mr. Danson is entitled to receive a base salary of $350,000 in the
      first year and $400,000 in the second year and a $50,000 signing bonus payable
      on May 15, 2007 or earlier. In the event the acquisitions of several target
      companies and the related financing do not close on or before April 30, 2007,
      then Mr. Danson’s base salary shall be reduced to $275,000 until such time as
      the targets are acquired. The acquisitions did not close on or before April
      30,
      2007; accordingly, Mr. Danson’s base salary was reduced to $275,000. Mr. Danson
      is also entitled to a bonus of between $250,000 and $500,000, as determined
      by
      the Compensation Committee of the Board, upon consummation of certain
      acquisition transactions. This bonus provision was eliminated with the
      subsequent execution of a new employment agreement described below. The Company
      acknowledges accrued compensation owed pursuant to Mr. Danson’s recently expired
      Services Agreement in the amount of $342,575, plus interest on unpaid
      compensation, which was payable on May 15, 2007, or earlier if certain
      financing was received by the Company.




On
      September 25, 2006, the Company entered into two separate, two-year employment
      agreements with a Chief Operating Officer and Chief Financial Officer, with
      each
      agreement having a one-year option at the Company’s election. Under the terms of
      the agreements, the Company is obligated to pay aggregate base salaries of
      $400,000 in the first year, $425,000 in the second year and $450,000 in the
      option year. Under certain circumstances in the event of a change in control,
      as
      defined, the Chief Operating Officer and Chief Financial Officer shall be
      entitled to severance payments equal to 299% of their then current respective
      base salaries. Further, an aggregate of 100,000,000 restricted shares of the
      Company’s common stock were awarded at the closing price per share at the date
      of grant, September 25, 2006, of which 20% vested immediately, with 30% and
      50%
      to vest on September 26, 2007 and September 26, 2008, respectively, subject
      to
      continued employment.





In
      connection with the recapitalization effective August 17, 2007 as described
      in
      Note 16, the Company entered into new employment agreements with these three
      executive officers which replaced all prior employment agreements.





On
      June
      2, 2004, Encompass acquired the business and assets of Cyber-Test, Inc., a
      Florida-based, electronic equipment repair company. In connection therewith,
      we
      entered into a three-year employment agreement with Lisa Welton and Thomas
      Sutlive (“Cyber-Test Executives”). In accordance with the terms of the
      Cyber-Test Executives’ employment agreements, the Cyber-Test Executives are
      entitled to a total of $230,000 annual salaries and incentive bonuses determined
      at the discretion of our Compensation Committee based on their contribution
      to
      our overall performance as well as a bonus based on the overall separate
      business and financial performance of Cyber-Test. The agreements have expired.
      Under the terms of the Asset Purchase Agreement between Cyber-Test and
      Encompass, the seller of Cyber-Test, Ms. Welton, was entitled to receive
      16,666,667 shares of the Company’s common stock provided that Cyber-Test
      achieves certain revenues and EBIDTA milestones in each of the fiscal years
      ended June 30, 2005, 2006 and 2007. These milestones were not achieved in fiscal
      2006 and 2007. During fiscal 2006, the Company has issued and transferred
      16,666,667 shares of its common stock, at its fair value of $13,333 related
      to
      the year ended June 30, 2005.




**NOTE
              13.**
            **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 $0 and $4,051 during the fiscal years 2007 and 2006, respectively.
      At June 30, 2007, the Company owed $1,500 to these attorneys.





***(B)
      President and Chief Executive***




Per
      terms
      of the Service Agreement, payments made to DPL in fiscal 2007 and fiscal 2006
      amounted to $19,737 and $135,700, respectively. At June 30, 2007 and 2006,
      the
      Company owed $357,000 and $257,600, respectively, to DPL for compensatory
      services. At June 30, 2007, the Company also owed $307,000 to Mr. Danson
      directly as an employee, principally accrued and unpaid compensation and amounts
      loaned to or invested in the Company. (See Note 16.)





F-18
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




On
      April
      24, 2006, the Company issued an unsecured promissory note to Mr. Danson for
      loan
      proceeds of $35,000 (see Note 6(B). On September 18, 2006, the Company received
      $50,000 from this executive for the purchase of our Series A-1 Preferred
      Stock.





The
      Company, through a license agreement effective December 1, 2004 with DPL,
      occupies an office facility having a monthly lease obligation of $1,478, as
      adjusted annually. The Company, through a new license agreement effective August
      15, 2007 with DPL, effectively assumed the Danson Partners’ lease obligation for
      a total of approximately 2,000 square feet of space through May 31, 2010, and
      licenses for its use all the furniture, fixtures, filing cabinets, computers,
      servers, office equipment, etc. that it needs to conduct its
      business.





***(C)
      Independent Directors***




Certain
      of the Company’s independent directors were contracted to provide business
      services to the Company. There were no payments for such business services
      made
      to these directors in fiscal 2007 and 2006.





At
      June
      30, 2007, the Company owed these independent directors for director services
      $105,000 for each of the fiscal years ended June 30, 2007 and 2006, and $25,000
      for the three month period ended June 30, 2005, or a total of
      $235,000.





**NOTE
              14.**
            **SEGMENT
                INFORMATION**





The
      Company applies Statement of Financial Accounting Standards No. 131 “Disclosures
      about Segments of an Enterprise and Related Information”. For the fiscal year
      ended June 30, 2007 and 2006, the Company primarily operated in one segment
      -
      Cyber-Test, Inc., a repair and depot exchange of office and consumer
      electronics. During fiscal 2006, the Company also operated Encompass Electronics
      Recovery, an electronic asset recovery and distribution center. For the year
      ended June 30, 2006, the Company’s asset recovery and distribution services
      business had less than 1% of the total revenue and accordingly, the financial
      results have not been separately reported as a business segment.





**NOTE
              15.**
            **SUPPLEMENTAL
                DISCLOSURE OF CASH FLOWS
                INFORMATION**





The
      following are the payments made during the fiscal years ended June 30, 2007
      and
      2006 for income taxes and interest:





**2007**
            
            **2006**Income
                taxes
            
            $
            —
            
            $
            —Interest
            
            $
            3,796
            
            $
            16,328





During
      the fiscal year ended June 30, 2007 and 2006, the Company issued certain common
      shares for consideration other than cash.





Fiscal
      Year Ended June 30, 2007:




(1)
            The
                Company issued 20,000,000 restricted shares of common stock to aChief
                Operating Officer and Chief Financial Officer in accordance with
                the
                provisions of employment agreements with the Company.**


(2)
            615
                shares of Series A Preferred Shares and 20 shares of Series B Preferred
                Shares were converted into 789,884,564 shares and 20,000,000 shares,
                respectively, of the Company’s common
                stock.




F-19
 **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2007**




(3)
              The
                  Company recorded a charge in the amount of $85,000 for the beneficial
                  conversion feature associated with the Series A-1 Convertible Preferred
                  Stock.**
 
 Fiscal
        Year Ended June 30, 2006:
 
 (1)
                The
                    Company issued and transferred 16,666,667 shares of common stock
                    valued at
                    $13,333 into an escrow relating to the Earn-Out Shares.
  (2)
              The
                  Company issued a total of 50,000,000 shares of common stock valued
                  at
                  $35,000 to Ms. Welton and Mr. Sutlive for performance bonuses.
  (3)
              615
                  shares of Series A Preferred Shares and 40 shares of Series B Preferred
                  Shares were converted into 885,994,544 shares and 63,492,064 shares,
                  respectively, of the Company’s common stock.**
 
 **NOTE
                      16.**
                  **SUBSEQUENT
                      EVENT**
  ***(A)
        Acquisition***
 
 On
        August
        17, 2007 (the “Closing Date”), the Company entered into a series of transactions
        to effect a recapitalization which included the acquisition of a new operating
        subsidiary for an aggregate purchase price of $27.3  million
        (including transaction costs), the completion of a significant preferred
        stock
        issuance and the issuance of $23.4 million in senior and subordinated notes.
        On
        the Closing Date, the Company acquired all of the outstanding equity interests
        in Vance Baldwin, Inc., a privately-held Florida subchapter S corporation
        doing
        business as Vance Baldwin Electronics and engaged in distribution and shipping
        of parts for consumer electronics, printers, appliances, and computers (“Vance
        Baldwin”). Management believes that the business and operations of Vance
        Baldwin, which has its headquarters in Ft. Lauderdale, Florida and a substantial
        distribution facility in Lawrenceville, Georgia, will complement the business
        and operations offered by Cyber-Test and significantly expand the Company’s
        presence in the reverse logistics business. No assets or liabilities or results
        of operations of Vance Baldwin are included in the accompanying consolidated
        financial statements of the Company.
 
 Consideration
        consist of the following: (i) $23,920,755 in cash, $750,000 of which was
        placed
        into an escrow account to serve as a source of funds to satisfy any
        indemnification obligations under the VB Purchase Agreement, (ii) 312.50
        shares
        of the Company’s newly designated Series D Convertible Preferred Stock, par
        value $0.01 per share (“Series D Preferred”), and a convertible promissory note
        in the amount of $1,000,000. The note issued to Mr. Baldwin will accrue interest
        at the rate of 7% per annum, payable semi-annually, in arrears, on each January
        30 and July 30, and is due and payable on October 17, 2012 to the extent
        the
        holder has not exercised its conversion rights thereunder. The fair value
        of the
        Series D Convertible Preferred Stock was determined based on the implicit
        value
        of the Series C Convertible Preferred Stock based on the ratio of the amount
        received for the sale of shares of such issue to the equity interest
        sold.
  The
        purchase price of the acquisition is set forth below:
 
 Cash
                  paid to seller
              
              $
              23,920,755Issuance
                  of Series D convertible preferred stock to seller
              
              
              198,113Issuance
                  of convertible note issued to seller
              
              
              1,000,000Total
                  consideration paid to seller
              
              
              25,118,868Additional
                  cash paid for transaction costs
              
              
              2,144,562Total
                  purchase price
              
              
              27,263,430Less:
                  noncash item of issuance of Convertible Common Stock
              
              
              (198,113
              )Less:
                  noncash item of notes issued to seller
              
              
              (1,000,000
              )Less:
                  cash acquired in the acquisition
              
              
              (1,600,000
              )Net
                  cash paid for acquisition
              
              $
              24,465,317
 
 The
        allocation of the purchase price consideration paid at closing to the assets
        acquired and liabilities assumed will be based upon an appraisal of the fair
        market value of the acquired assets and liabilities assumed in accordance
        with
        FAS 141. The fair values assigned to the intangibles acquired will be formulated
        based on an independent third-party evaluation. The business acquired is
        a
        recognized leader in its industry, has had long-term relationships with its
        major vendors and customers, a history of increasing levels of annual sales
        and
        earnings, and introduces a number of favorable strategic opportunities to
        the
        Company; accordingly, the Company believes that the excess of purchase price
        over net assets acquired is justified.
  F-20
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
            OF JUNE 30, 2007**
  The
        preliminary estimate of the fair value of the assets acquired and liabilities
        assumed is set forth below:
  Assets
                  acquired:Current
                  assets
              
              $
              10,614,000Property
                  and equipment
              
              
              250,000Long-term
                  assets
              
              
              37,000Total
                  assets acquired
              
              
              10,901,000Liabilities
                  assumed:Current
                  liabilities
              
              
              4,613,000Non-current
                  liabilities
              
              
              —Total
                  liabilities assumed
              
              
              4,613,000Net
                  tangible assets acquired
              
              
              6,288,000Costs
                  in excess of net tangible assets acquired (recorded goodwill and
                  intangible assets)
              
              
              20,975,000Total
                  fair value of net identifiable assets acquired and goodwill
              
              $
              27,263,000
 
 ***(B)
        Equity***
 
 On
        the
        Closing Date, in connection with the recapitalization and acquisition, the
        Company sold 1,000 shares of its newly designated Series C Convertible Preferred
        Stock, having a par value of $0.01 per share (“Series C Preferred”), for an
        aggregate purchase price of $6,300,000 in immediately available funds, net
        proceeds of $5,965,000 after related transaction expenses of $335,000, to
        certain accredited investors, principally including ACT-DE, LLC, an affiliate
        of
        H.I.G. Capital, LLC (“HIG”), pursuant to a Purchase Agreement. Also on the
        Closing Date, the Company and the holders of the Series C Preferred also
        entered
        into a Registration Rights Agreement and a Stockholders Agreement HIG and
        certain other holders will have certain demand registration rights with respect
        to shares of Common Stock that it may hold, subject to certain limitations,
        and
        that HIG and certain other stockholders, including the holders of Series
        D
        Preferred, will have piggy-back registration rights with respect to shares
        of
        Common Stock that they may hold. The Series C Preferred will rank senior
        to the
        Common Stock and all other currently designated series of preferred stock
        of the
        Company.
 
 Pursuant
        to the formula for determining the Series C Conversion Rate set forth in
        the
        Certificate of Designation for the Series C Preferred, the holders of the
        Series
        C Preferred, in the aggregate, will be entitled to receive shares of Common
        Stock equal to 79.5% on a fully diluted basis except for dilution for stock
        options issued to management as described below. This conversion rate will
        be
        subject to adjustment downward to a floor of 72.5% if the return, or deemed
        return, per share of Series C Preferred meets certain targets. These ranges
        could change if there are new issuances of equity, excluding stock options
        exercised. Dividends shall accrue on a cumulative basis on the Series C
        Preferred at a rate per annum of 12% through the date of a liquidation,
        dissolution or winding up of the Company. The right to dividends on the Series
        C
        Preferred will extinguish upon conversion of the Series C Preferred.
 
 The
        shares of Series C Preferred will be convertible into shares of Common Stock
        following shareholder approval and the requisite state filing of a charter
        amendment (the “Charter Amendment”) that increases the number of authorized
        shares of Common Stock to an amount sufficient for the conversion of Series
        C
        Preferred into a fixed amount of shares of Common Stock at the Series C
        Conversion Rate. Shareholder approval is needed to effect the Charter Amendment.
        The Board of Directors anticipates taking action to organize a stockholders
        meeting, or to obtain stockholders' written consent in lieu of such a meeting,
        for this purpose promptly after the Closing Date.
 
 The
        Series D Preferred will rank senior to the Common Stock and all other currently
        designated series of preferred stock of the Company with the exception of
        the
        Series C Preferred. Pursuant to the formula for determining the Series D
        Conversion Rate as set forth in the Certificate of Designation for the Series
        D
        Preferred, the holders of the Series D Preferred, in the aggregate, will
        be
        entitled to receive shares of Common Stock equal to 8% of the Outstanding
        Amount. This interest could change if there were new issuances of equity,
        excluding current stock options granted. The shares of Series D Preferred
        will
        be convertible into a fixed amount of shares of Common Stock at the Series
        D
        Conversion Rate following shareholder approval and the requisite state filing
        of
        the Charter Amendment that increases the number of authorized shares of Common
        Stock, subject to certain limitations during a two-year period.
 
 F-21
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
            OF JUNE 30, 2007**
  ***(C)
        Long-term Debt***
 
 On
        the
        Closing Date, in connection with the recapitalization and acquisition, the
        Company entered into a Note Purchase Agreement with Sankaty Advisors, LLC.
        Pursuant to the Note Purchase Agreement, the Company issued $12,690,355 in
        aggregate principal amount of Senior Notes for an aggregate purchase price
        of
        $12,500,000 and $10,714,286 in aggregate principal amount of Subordinated
        Notes
        for an aggregate purchase price of $10,500,000. The aggregate discount of
        $404,641 will be amortized using the interest method over the terms of the
        notes. Net proceeds amounted to $22,678,000 after related transaction expenses
        of $322,000, which will be amortized using the straight line method over
        the
        terms of the notes. Under the Note Purchase Agreement, the Company is required
        to meet a Minimum Fixed Charge Coverage Ratio and a Maximum Total Leverage
        Ratio, as defined.
 
 The
        Senior Notes bear interest at LIBOR plus 3.75%, per annum payable quarterly,
        in
        arrears, and have a five-year term through August 17, 2012 (the “Maturity
        Date”). They are repayable in consecutive quarterly installments of 1% of the
        original principal amount, or approximately $127,000, through August 17,
        2012.
        At the Maturity Date the remaining principal amount and any unpaid and accrued
        interest on the Senior Notes shall be due. The Company is required to prepay
        the
        Senior Notes from any new equity or debt financing, certain excess cash flow
        or
        the cash proceeds of asset sales and casualty events, subject to stipulated
        exceptions. The Company may redeem the Senior Notes at any time, subject
        to a
        redemption premium, as defined. The Senior Notes are secured by a first priority
        security interest in the assets of the Company and its subsidiaries and are
        guaranteed by the direct or indirect wholly-owned subsidiaries of the
        Company.
 
 The
        Subordinated Notes bear interest, payable quarterly, in arrears, at 13% per
        annum, plus an increment of up to 4% based on a Maximum Total Leverage Ratio
        financial covenant. The Subordinated Notes have a six-year term through August
        17, 2013. The Company may redeem the Subordinated Notes only following repayment
        of the Senior Notes in full, subject to a redemption premium, as defined.
        The
        Subordinated Notes are secured by a second priority security interest in
        the
        assets of the Company and its subsidiaries and are guaranteed by the direct
        or
        indirect wholly-owned subsidiaries of the Company.
 
 In
        addition, the Company may borrow up to $2,500,000 from Sankaty by issuing
        additional Senior Notes and/or Subordinated Notes. Such notes will be Senior
        Notes, Subordinated Notes, or a combination thereof, depending upon the
        Company’s performance measured against the Maximum Total Leverage Ratio
        financial covenant.
 
 On
        the
        Closing Date, the Company issued an unsecured convertible promissory note
        in the
        amount of $1,000,000 to the seller. The note will accrue interest at the
        rate of
        7% per annum, payable semi-annually, in arrears, on each January 30 and July
        30,
        and is due and payable on October 17, 2012 to the extent the holder has not
        exercised its conversion rights thereunder.
 
 ***(D)
        Management and Investment Advisory Services
        Agreements***
 
 On
        the
        Closing Date, the Company entered into a five-year Management Agreement with
        H.I.G. pursuant to which it will provide management and consulting services
        to
        the Company and its subsidiaries. The Company will pay a cash consulting
        and
        management fee to HIG, currently not to exceed $500,000 per annum. The Company
        also entered into a five-year Investment Advisory Services Agreement with
        HIG
        pursuant to which it will provide certain financial advisory services to
        the
        Company and its subsidiaries. The Company paid HIG a combined investment
        banking
        and supplemental management fee of $525,000 in connection with the acquisition
        and recapitalization.
  F-22
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
            OF JUNE 30, 2007**
  ***(E)
        Exchange of Series A, A-1 and B Preferred Stock for Series A-2 Preferred
        Stock
        and Satisfaction of Certain Debts***
 
 On
        the
        Closing Date, the Company entered into a series of transactions with the
        holders
        of the Company’s Series A Convertible Preferred Stock, Series A-1 Convertible
        Preferred Stock, Series B Convertible Preferred Stock and certain trade
        creditors and note holders of the Company (the “Creditors”) pursuant to which
        the following transactions were effected: (i) the holders of the Series A
        Preferred, the Series A-1 Preferred and Series B Preferred exchanged such
        preferred stock for (a) an aggregate of 8,412.21 shares of the Company’s newly
        designated Series A-2 Convertible Preferred Stock, par value $0.01 per share
        (the “Series A-2 Preferred”) valued at $4.1 million, and (b) a full release of
        all claims against the Company; (ii) the Company satisfied the outstanding
        debts
        to the Creditors with an aggregate payment of approximately $3,600,000 in
        cash
        and the issuance of a convertible promissory note in the approximate amount
        principal amount of $206,146. The terms and conditions of this note are
        substantially the same as those of the convertible promissory note issued
        to the
        Mr. Baldwin. The value of the Series A-2 Convertible Preferred Stock was
        determined based on the market price per share of the Company’s Common Stock on
        August 16, 2007. The exchange of Series A Convertible Preferred Stock, Series
        A-1 Convertible Preferred Stock and Series B Convertible Preferred Stock
        and
        certain obligations for shares of Series A-2 Convertible Preferred Stock
        resulted in an increase in stockholders' deficiency of
        $820,000.
 
 The
        holders of the Series A-2 Preferred include the following members of the
        Company’s management who formerly held 275 shares (or $275,000) of the Series
        A-1 Preferred: Wayne I. Danson, Chief Executive Officer and President, Steven
        J.
        Miller, Chief Operating Officer and John Donahue, Vice President and Chief
        Financial Officer. Additionally, the Company’s Creditors also included the
        aforementioned officers, to whom the Company was obligated to pay approximately
        $1,048,000 for accrued and unpaid compensation, unreimbursed business expenses
        and the outstanding principal balance and accrued interest with respect to
        an
        unsecured promissory note dated April 24, 2006 issued by the Company to Wayne
        Danson. The Company satisfied the outstanding debts with management with
        an
        aggregate payment of approximately $488,000 and an agreement with Mr. Danson’s
        consulting company to pay the consulting company $310,000, plus interest
        accruing at the rate of 7% per annum, upon the earlier of a change of control
        of
        the Company or the six-year anniversary of the closing of the transactions
        described herein. Mr. Danson also agreed to restructure a potential $250,000
        bonus until such time as the Company satisfies certain milestones as described
        in Mr. Danson’s employment agreement.
 
 Pursuant
        to separate agreements between certain of the Creditors and the former majority
        holder of the Series A Preferred, certain of the Creditors purchased an
        aggregate of 1136.69 shares of Series A-2 Preferred from the former holder
        of
        the Series A Preferred for an aggregate purchase price of $682,014.
  The
        shares of Series A-2 Preferred will convert automatically into 8,412,206,667
        shares of Common Stock (at a rate of 1,000,000 shares of Common Stock per
        share
        of Series A-2 Preferred Stock) following the
        aforementioned shareholder approval and the requisite state filing of a charter
        amendment that increases the number of authorized shares of Common Stock.
  ***(F)
        Employment Agreements***
 
 On
        the
        Closing Date, and in connection with the recapitalization, the Company entered
        into three separate, two-year employment agreements with Messrs. Danson,
        Miller
        and Donahue, with each agreement having a one-year option at the Company’s
        election and replacing prior employment agreements. Under the terms of the
        agreements, the Company is obligated to pay aggregate base salaries of $725,000
        in the first year, $750,000 in the second year and $750,000 in the option
        year.
        Under certain circumstances in the event of a change in control, as defined,
        these individuals shall be entitled to severance payments equal to 299% of
        their
        then current respective base salaries. The executives are eligible to receive
        cash “performance” bonuses determined by measuring actual EBITDA against the
        target EBITDA of fiscal year and “exit” bonuses after a “Disposition Event”, as
        defined, restricted shares of Common Stock, or options under the employment
        agreements, with a vesting schedule and other terms established by the Company’s
        Compensation Committee in its sole discretion.
  F-23
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
            OF JUNE 30, 2007**
  In
        addition, as a result of the change in control, the vesting of an aggregate
        of
        80,000,000 shares of restricted stock previously issued to Messrs. Donahue
        and
        Miller as a bonus in connection with the recapitalization was
        accelerated.
 
 Also
        on
        the Closing Date, and in connection with the recapitalization, the Company
        entered into separate, two- or three-year employment agreements with Messrs.
        Baldwin, Coolidge and Scott Cameron, with the three-year agreement having
        a
        one-year option at the Company’s election. Under the terms of the agreements,
        the Company is obligated to pay aggregate base salaries of $590,000 in the
        first
        year, $625,000 in the second year and $350,000 in the third year. Two of
        the
        executives are eligible to receive cash “performance” bonuses determined by
        measuring actual EBITDA against the target EBITDA of fiscal year, and restricted
        shares of Common Stock, or options under the employment agreements, with
        a
        vesting schedule and other terms established by the Company’s Compensation
        Committee in its sole discretion. Further, also on the Closing Date, and
        in
        connection with the recapitalization Messrs. Coolidge and Scott Cameron received
        an aggregate of 687.5 shares of Series D Preferred Stock with a value of
        $435,482.
  ***(G)
        Amended and Restated Stock Plan and Option Grants***
 
 The
        Company has also amended and restated its existing Stock Plan, initially
        adopted
        in 2005. The material revision to the plan was an increase in the number
        of
        shares of Common Stock available for issuance under the Stock Plan from
        700,000,000 shares to 15,000,000,000 shares.
 
 The
        Board
        of Directors of the Company approved the issuance of options to purchase
        shares
        of the Company’s Common Stock under the amended and restated Stock Plan to the
        following executive officers of the Company pursuant to the terms of separate
        option agreements:
 
 Wayne
                  I. Danson,
                President
                  and CEO
              
              
              3,996,603,757John
                  E. Donahue
                VP
                  and CFO
              
              
              1,776,268,336Steven
                  J. Miller,
                COO
              
              
              3,108,469,589
 
 The
        exercise price of these options is $.00075 per share, a price that approximates,
        but is greater than, fair market value. Messrs. Danson’s, Donahue’s, and
        Miller’s options will vest according to the following schedule:
 
 •
              25%
                  of the options awarded will be vested
                  immediately,
 •
              37.5%
                  of the options awarded will vest quarterly in equal increments
                  over three
                  years, and
 •
              37.5%
                  of the options awarded over three years if certain EBITDA targets
                  are
                  met.
 
 In
        addition, the Board of Directors of the Company awarded Robert Coolidge,
        President of Vance Baldwin, options to purchase 444,067,084 shares of the
        Company’s Common Stock under the amended and restated Stock Plan. Mr. Coolidge’s
        options will vest according to the following schedule:
 
 •
              67%
                  of the options awarded will vest quarterly in equal increments
                  over three
                  years, and
 •
              33%
                  of the options awarded will vest over three years if certain EBITDA
                  targets are met.
 
 ***(H)
        Other***
 
 Janney
        Montgomery Scott, LLC (“Janney”) served as financial advisor and investment
        banker for the Company in connection with the acquisition of Vance Baldwin,
        the
        sale of the Series C Preferred and the related transactions. Pursuant to
        a
        financial advisory agreement between the Company and Janney, Janney received
        at
        the closing a fee of $500,000 in cash, $100,000 of which was used to purchase
        166.666667 shares of Series A-2 Preferred. In April 2006, the Company paid
        Janney a $60,000 retainer fee. The financial advisory agreement also provides
        for additional fees upon the consummation of certain types of transactions
        in
        the future. Pursuant to an agreement dated March 7, 2006, approximately six
        months prior to John Donahue joining the Company (and prior to the Company
        discussing the possibility of Mr. Donahue joining the Company), Janney agreed
        to
        pay 5% of its advisory fees to Mr. Donahue, currently the Company’s Chief
        Financial Officer, as a finder’s fee.
  *~
        end
        of filing ~*
 F-24