**U** **NITED** **S** **TATES** **S** **ECURITIES** **A** **ND** **E** **XCHANGE** ****C****OMMISSION****
 **W** **ASHINGTON** **,
        D.C. 20549**





**FORM
      10-KSB/A**


**A** **NNUAL** **R** **EPORT** **P** **URSUANT** **T** **O** **S** **ECTION** **13 O** **R** **15 (D)**
 **O** **F** **T** **HE** **S** **ECURITIES** **E** **XCHANG** **E
          A** **CT** **O** **F** **1934**


**For
      the Fiscal Year Ended June 30, 2006**





**Commission
      File No. 000-30486**


ADVANCEDCOMMUNICATIONSTECHNOLOGIES,
        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. x




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, 2006 was
      $9,183,276.




The
      aggregate market value as of September 15, 2006 of the voting common equity
      held
      by non-affiliates is $3,491,222


ISSUERSINVOLVEDINBANKRUPTCY
 P ROCEEDING D URING T HE P AST F IVE Y EARS





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


APPLICABLEONLYTOCORPORATEREGISTRANTS


As
      of
      September 15, 2006, there were 4,597,302,006 shares of the Company’s no par
      value common stock issued and outstanding.


**D** **OCUMENTS** **I** **NCORPORATED** **B** **Y** **R** **EFERENCE**


None




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

















EXPLANATORY
      NOTE





The
      purpose of this Form 10-KSB/A is to amend Part II, Items 6, 7 and 8A of the
      Annual Report on Form 10-KSB (the "Form 10-KSB") of Advanced Communications
      Technologies, Inc. (the "Company") for its fiscal year ended June 30, 2006,
      as
      filed with the Securities and Exchange Commission on October 12, 2006. Except
      as
      set forth in this Form 10-KSB/A, this Form 10-KSB/A does not reflect any events
      that occurred after the filing of the Form 10-KSB or modify, amend or update
      any
      disclosures contained in the Form 10-KSB to reflect any subsequent events.
      Except as set forth in this Form 10-KSB/A, the Company is not making any changes
      to, or updating any disclosures contained in, the Form 10-KSB.





This
      Form
      10-KSB/A is being filed in response to the Company’s determination that it is
      required to restate certain of its historical financial statements to reclassify
      its issues of convertible preferred stock from stockholders’ equity to
      liabilities.





The
        Company is required to restate certain of its historical financial statements
        to
        account for its issues of Series A and Series B convertible preferred stock
        during the periods subsequent to, and including, June 30, 2004 as a liability,
        not as a component of stockholders’ equity. Conversion of preferred stock into
        shares of common stock is taken at the lower of the fixed price of $.01 per
        share or the three lowest closing bid prices for the ten trading days
        immediately preceding the date of conversion. Since there is no minimum price,
        conversion of each of the individual issues of convertible preferred stock
        could
        result in conversion into an indeterminable number of shares of common stock,
        and, therefore, under the guidance in paragraph 20 of Emerging
        Issues Task Force00-19, *“Accounting for Derivative Financial
        Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock*”
(“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.





As
      discussed in Note 18 of the consolidated financial statements, the Company
      has
      reflected an increase in liabilities, and a decrease in stockholders’
equity/increase in stockholders’ deficiency, and for the years ended June 30,
      2006, 2005 and 2004 in the amount of $3,625,200, $4,300,000 and $4,500,000,
      respectively.





This
      matter does not have an effect on the Company’s reported revenues, expenses or
      cash flows from past or future operations.





In
      addition, this Form 10-KSB/A also updates Part II, Item 8A to reflect
      management's conclusion that the changes reflected in Part II, Items 6 and
      7 of
      this Form 10-KSB/A are not the result of a material weakness relating to the
      accounting and disclosure for complex and non-standard stockholders' equity
      transactions.




















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


**FORM
      10-KSB/A**





**TABLE
      OF CONTENTS**




**PAGE****PART
                I**ITEM
                1.
            Description
                of Business
            
            1-5ITEM
                2.
            Description
                of Property
            
            5ITEM
                3.
            Legal
                Proceedings
            
            5-6ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            6**PART
                II**ITEM
                5.
            Market
                  for Common Equity, Related Stockholder Matters and Small Business
                  Issuer
                  Purchases of Equity Securities
            
            7-8ITEM
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            
            8-16ITEM
                7.
            Financial
                Statements
            
            16ITEM
                8.
            Changes
                  In and Disagreements with Accountants on Accounting and Financial
                  Disclosure
            
            16ITEM
                8A.
            Controls
                and Procedures
            
            16-17ITEM
                8B.
            Other
                Information
            
            17**PART
                III**ITEM
                9.
            Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of the Exchange Act
            
            18-21ITEM
                10.
            Executive
                Compensation
            
            21-26ITEM
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            26-28ITEM
                12.
            Certain
                Relationships and Related Transactions
            
            28ITEM
                13.
            Exhibits
            
            29-34ITEM
                14.
            Principal
                Accountant Fees and Services
            
            34-35ADVANCED
              COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
              FINANCIAL STATEMENTS AS OF JUNE 30, 2006 AND 2005
            
            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. ("we," "us," "our," “ACT,” or the "Company")
      is a public holding company specializing in the technology after market service
      and supply chain known as reverse logistics. Our wholly-owned subsidiary and
      principal operating unit, Encompass Group Affiliates, Inc. ("Encompass"), will
      acquire and operate businesses that provide repair and end-of-life cycle
      services for consumer electronics, computers and peripheral equipment. Encompass
      owns Cyber-Test, Inc. ("Cyber-Test"), a depot repair and refurbishment company
      based in Florida currently our principal operating business.




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 clients.  Thus,
      we
      are focused on becoming a full-service provider of repair, refurbishment, parts
      distribution and end-of-life cycling services in the computer peripheral and
      consumer electronics markets. To that end we have entered into several Letters
      of Intent to acquire businesses that either repair and refurbish equipment
      or
      distribute parts typically used in the repair and refurbishment process. 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.





Cyber-Test,
      a Delaware corporation and wholly owned subsidiary of Encompass, 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, original equipment
      manufacturers (“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. Cyber-Test plans to offer repair and exchange
      services during fiscal 2007 on gaming products including Sony’s PlayStationTM,
      Microsoft’s X-BoxTM and Nintendo’s Game CubeTM consoles. Services are delivered
      nationwide through proprietary systems that feature real-time electronic data
      interchange (“EDI”), flexible analysis tools and repair
      tracking.





***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. Therefore,
      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. However, it should be mentioned that 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.





According
      to D.F. Blumberg, a recognized industry statistician, the consumer electronics
      and computer / Electronic Data Processing (“EDP”) segment of reverse logistics
      is 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
      reverse logistics industry has seen a dramatic increase in demand for services
      such as technical support, repair, asset recovery, end-of-life product
      management, disposal and recycling. This rapidly emerging market is driven
      by
      environmental regulations, outsourcing trends, and accelerating product life
      cycles across numerous technologies.




1




Electronic
      equipment discards are among the fastest growing segments of our nation’s waste
      stream and are increasingly being considered “toxic” waste when dumped into
      landfills. Environmental concerns and regulatory momentum are contributing
      to
      rapid growth in the e-Recycle segment of the reverse logistics industry. Both
      producers and users of electronic products need a single source solution that
      efficiently disassembles this equipment and safely recovers the components
      for
      use in new material manufacturing and properly disposes of unusable parts and
      materials.




***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.





***Cyber-Test’s
      Products and Services***




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;




·
            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.





2


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.




3





***Competition***





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.





***Customers***





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




***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.




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.




4




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 core 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. On
      June 23, 2005 PMIC ceased all business activities except those necessary to
      liquidate its remaining assets.




***Employees***




As
      of
      June 30, 2006, the Company had 102 full-time employees.




**ITEM
      2. DESCRIPTION OF PROPERTY**




The
      Company’s principal executive office is located at 420 Lexington Avenue, Suite
      2738, New York, New York 10170. The Company, through a lease 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. Our lease agreement is on
      a
      month-to-month basis and is at fair market rental.




The
      Company’s core operating business, Cyber-Test is located at 448 Commerce Way,
      Longwood, Florida 32750. This 29,000 square foot office/warehouse facility
      has a
      one-year triple net lease that commenced on August 1, 2004 and ended on July
      31,
      2005, and provides for two one-year options at a monthly lease obligation of
      $13,900. Cyber-Test has exercised its options and extended its lease to July
      31,
      2007.




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
      2738, 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, 2006, 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.




5




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.




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. 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 certain shares of common stock of Herborium Group. If these
      shares do not have a value of $.10 or greater at the end of a 150 day lock-up
      period, the difference will be made up, at our option, by cash payments from
      us
      or delivery of additional 1,750,000 shares of Herborium/PMIC common stock which
      would otherwise be issued to our stockholders under PMIC’s Plan of
      Reorganization. A special stock distribution of shares of Herborium Group will
      be 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.




6





**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 15, 2006, there were
      4,597,302,006 common shares issued and outstanding and approximately 509 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 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****Fiscal
                Year 2005**Quarter
                Ended September 30, 2004
            
            **$**
            **.00119**
            
            **$**
            **.0005**Quarter
                Ended December 31, 2004
            
            
            **.002**
            
            
            **.00038**Quarter
                Ended March 31, 2005
            
            
            **.0015**
            
            
            **.0009**Quarter
                Ended June 30, 2005
            
            
            **.0015**
            
            
            **.0005**




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 2006 and have never paid any dividends
      on
      our capital stock. We currently expect that we will retain future earnings
      for
      use in the operation and expansion of our business and do not anticipate paying
      any cash dividends in the foreseeable future. Any decision on the future payment
      of dividends will depend on our earnings and financial position at that time
      and
      such other factors as our Board of Directors deems relevant.




***Recent
      Sales Of Unregistered Securities***




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.




On
      October 12, 2005 our Board of Directors approved the issuance of 50,000,000
      shares of restricted common stock to two officers of Cyber-Test, Inc as
      incentive compensation for fiscal 2006. The shares were valued at $.0007 per
      share or $35,000 in the aggregate. The shares were issued to the two executives
      on October 19, 2005.




On
      October 12, 2005, our Board of Directors approved the issuance of 16,666,667
      shares of restricted and escrowed stock to Lisa Welton as the first traunche
      of
      the Earn-Out Stock pursuant to the Purchase Agreement between the Company and
      Cyber-Test, Inc. In accordance with Section 3.5.1.3 of the Purchase Agreement,
      the stock has been placed in escrow with Eckert Seamans Cherin & Mellott,
      LLC until June 2007 when all rights of forfeiture will lapse.




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.




7




***Issuer
      Purchases of Equity Securities***




We
      did
      not make any purchases of equity securities during the fiscal year ended June
      30, 2006.




**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.




**RESTATEMENT**




This
      Form
      10-KSB/A and the restated consolidated financial statements included herein
      reflect a correction of our accounting and disclosure primarily related to
      our
      issues of convertible preferred stock. The restatement is being made to
      reclassify our issues of Series A and Series B convertible preferred stock
      during the periods subsequent to, and including, June 30, 2004 as a liability,
      not as a component of stockholders’ equity. As discussed in Note 18 of the
      consolidated financial statements, the Company has reflected an increase in
      liabilities, and a decrease in stockholders’ equity/increase in stockholders’
deficiency, and for the years ended June 30, 2006, 2005 and 2004 in the amount
      of $3,625,200, $4,300,000 and $4,500,000, respectively.





This
      matter does not have an effect the Company’s reported revenues, operating
      expenses or cash flows from past or future operations .




**GENERAL**




We
      are a
      New York-based public holding company specializing in the technology after
      market service and supply chain, known as reverse logistics. Our wholly-owned
      subsidiary and principal operating unit, Encompass Group Affiliates, Inc.
      ("Encompass"), acquires and operates businesses that provide computer and
      electronics repair and end-of-life cycle services. 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, 2006
      and
      2005. Since PMIC, a computer parts and accessory distributor, ceased its
      operations in fiscal 2005 and its results have been reclassified as discontinued
      operations, it has not been presented as a second business
      segment.




**COMPARISON
      OF THE FISCAL YEAR ENDED JUNE 30, 2006 TO THE FISCAL YEAR ENDED JUNE 30,
      2005**





**FINANCIAL
      CONDITION**





We
      incurred a net loss of $574,000 and $736,000 for the years ended June 30, 2006
      and 2005, respectively, and we had a working capital deficiency of $1,296,000
      and $139,000 as of June 30, 2006 and 2005, respectively. Our consolidated
      current liabilities increased from $1,839,000 as of June 30, 2005 to $2,959,000
      as of June 30, 2006. For the year ended June 30, 2006, we have funded our
      ongoing operations from working capital generated by Cyber-Test. However, these
      amounts have not been sufficient to fund all of our corporate overhead. Our
      ability to continue as a going concern is dependent upon achieving profitability
      and generating sufficient cash flows to meet our obligations as they come
      due.




8





Our
      Equity Line of Credit facility with
      Cornell Capital Partners, L.P. was terminated in fiscal 2006. 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.




Due
      to
      the legal matters relating to the PMIC bankruptcy, our legal and professional
      expenses increased from $477,000 for the fiscal year ended June 30, 2005 to
      $862,000 for the year ended June 30, 2006. Our consolidated selling, general
      and
      administrative expenses decreased from $3,849,000 for the year ended June 30,
      2005 to $2,975,000 for the year ended June 30, 2006. The decrease was primarily
      due to certain non-recurring compensation expense and promotion expense incurred
      in the year ended June 30, 2005 but not in the current year.





Cyber-Test,
      our core operating business unit, continued to experience increases in revenue
      and profitability in fiscal 2006. Cyber-Test’s sales increased 21% from
      $7,521,000 for the fiscal year ended June 30, 2005 to $9,094,000 for the year
      ended June 30, 2006. Gross profit from Cyber-Test was 35% of sales in the fiscal
      years ended June 30, 2006 and 2005. Cyber-Test’s operating results reflect, in
      part, management’s successful efforts to increase sales, and control operating
      expenses.





Our
      independent auditors have added an explanatory paragraph to their audit opinions
      issued in connection with the years 2006 and 2005 financial statements, which
      states that our ability to continue as a going concern depends upon our ability
      to resolve liquidity problems by generating sufficient operating profits to
      provide additional working capital. Our ability to obtain additional funding
      and
      pay off our obligations will determine our ability to continue as a going
      concern. Our financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





**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, 2006 and 2005:





2006
              
              2005Net
                  sales
              
              
              100.0
              %
              
              100.0
              %Cost
                  of sales
              
              
              64.9
              
              
              64.9Gross
                  profit
              
              
              35.1
              
              
              35.1Loss
                  from continuing operations before other income (expense)
              
              
              42.9
              
              
              59.2Operating
                  expenses
              
              
              (7.8
              )
              
              (24.1
              )Other
                  income (expenses)
              
              
              1.6
              
              
              30.1Income
                  (loss) from continuing operations
              
              
              (6.2
              )
              
              6.0Loss
                  from discontinued operations, net of minority interest
              
              
              -
              
              
              (15.9
              )Net
                  loss
              
              
              (6.2
              )%
              
              (9.9
              )%





**Net
      Sales**





Net
      sales
      for the fiscal year ended June 30, 2006 amounted to $9,183,000 as compared
      to
      net sales of $7,522,000 for the fiscal year ended June 30, 2005, an increase
      of
      $1,661,000, or 22.1%. The increase in net sales in fiscal 2006 was primarily
      due
      to a shift in Cyber-Test’s 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.




***Cost
      of sales***




Our
      cost
      of sales totaled $5,959,000 for the fiscal year ended June 30, 2006 as compared
      to $4,879,000 for the fiscal year ended June 30, 2005 an increase of $1,080,000,
      or 22.1%. The increase in cost of sales for Cyber-Test was the result of a
      comparable increase in gross sales for the year ended June 30, 2006 as compared
      to 2005. Gross margin was 35.1% for the year ended June 30, 2006, compared
      to
      gross margin of 35.1% in 2005.




9




***Operating
      Expenses***




Operating
      expenses for the fiscal years ended June 30, 2006 and 2005 were $3,935,000
      and
      $4,450,000, respectively, representing a $515,000 decrease from the fiscal
      year
      ended June 30, 2005. The decrease was primarily attributable to a decrease
      in
      selling, general and administrative expenses of $873,000, partially offset
      by an
      increase of $385,000 in professional and consulting expenses as compared to
      the
      fiscal year ended June 30, 2005.




Professional
      and consulting fees increased from $477,000 for the fiscal year ended June
      30,
      2005 to $862,000 for the fiscal year ended June 30, 2006. The increase of
      $385,000 in consolidated professional and consulting fees in fiscal 2006 was
      primarily due to the increase in legal fees associated with the PMIC bankruptcy
      and litigation.




Other
      selling, general and administrative expenses decreased by $873,000 from
      $3,849,000 for the year ended June 30, 2005 to $2,975,000 for the year ended
      June 30, 2006. The net decrease was due to a decrease in compensation expense
      of
      $586,000, as well as a decrease in promotion expenses of $102,000. The decrease
      in compensation expense was primarily due to certain non-recurring charges
      for
      bonus and stock grants to employees, consultants and directors for the fiscal
      year ended June 30, 2005.




***Other
      Income and Expenses***




Our
      other
      income was $137,000 for the fiscal year ended June 30, 2006 compared to
      $2,266,000 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 decreased by $23,000 to $83,000 for the
      fiscal year ended June 30, 2006 from $106,000 for the fiscal year ended June
      30,
      2005. This decrease was due to the reduction in interest-bearing debt in fiscal
      2006 compared to fiscal 2005. During the fiscal year ended June 30, 2005, we
      realized $2.8 million of debt forgiveness gain resulting from the favorable
      judgment against our former CEO and related entities that allowed us to
      discharge these obligations. We also realized $385,000 of investment income
      from
      our partnership investment in Yorkville Advisors, which was offset, in part,
      by
      a $191,000 loss on redemption of our partnership interest. In addition, a
      one-time charge of $669,000 representing the complete write-off of our
      investment in PMIC was recorded in the year ended June 30, 2005.




***Loss
      from Discontinued Operations, Net of minority
      Interest***





In
      fiscal
      2005, we included PMIC’s loss of $1,195,000 from operations, net of minority
      interest, for the period January 1, 2005 through May 11, 2005, the date PMIC
      filed petitions to reorganize its businesses under Chapter 11 of the U.S.
      Bankruptcy Code separately as a loss from discontinued operations. As of the
      May
      11, 2005 bankruptcy filing, 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.




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company incurred a net loss of $574,000 and $736,000 for the years ended June
      30, 2006 and 2005, respectively. The Company had a working capital deficiency
      of
      $1,296,000 and $139,000 as of June 30, 2006 and 2005, respectively. Our
      consolidated current liabilities increased from $1,839,000 as of June 30, 2005
      to $2,959,000 as of June 30, 2006. For the year ended June 30, 2006, we have
      funded our ongoing operations from working capital generated by Cyber-Test.
      However, these amounts have not been sufficient to fund all of our corporate
      overhead. The Company incurred a substantial amount of legal expenses during
      the
      year ended June 2006. Our professional and consulting fees increased from
      $477,000 for the year ended June 30, 2005 to $862,000 for the year ended June
      30, 2006. We also incurred $302,000 of legal, accounting and consulting costs
      relating to the potential acquisition of certain targeted businesses for the
      year ended June 30, 2006. Consequently,
      during the fiscal year ended June 30, 2006 our current liabilities and working
      capital deficit greatly increased. Additionally,
      during fiscal 2006 the Company settled litigation with former PMIC executives
      for $325,000, which was paid, in full, on September 18, 2006 following
      the merger
      described in Item 3 herein.




10




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. Our existing sources of liquidity, including cash
      resources and cash provided by operating activities will not provide us with
      sufficient resources to meet our present and the working capital and cash
      requirements for the next 12 months. Consequently, we are actively pursuing
      but
      have not yet secured a working capital facility to provide us with the necessary
      working capital over the next 12 months. The
      Company’s ability to continue as a going concern is dependent upon achieving
      profitability and generating sufficient cash flows to meet its obligations
      as
      they come due, and obtaining additional equity or debt
      financing.




We
      are
      pursuing additional capital and debt financing and acquisition of profitable
      businesses within our industry. Previously, we had financed our acquisitions
      and
      investments principally with short-term borrowings through
      our $30 million Equity Line of Credit with Cornell Capital Partners, L.P. (“Equity Line”). For the fiscal year ended June 30, 2006, we made
      no advances under the Equity Line prior to our termination of the Equity Line.
      In April 2006, w e
      engaged
      Janney Montgomery Scott, LLC, a Philadelphia-based investment banking firm
      to
      assist us in securing an acquisition debt facility and/or long-term strategic
      equity investors, for the purpose of providing us with acquisition funds and
      funds for ongoing working capital needs and a planned recapitalization of our
      common and preferred stock. There can be no assurance that we will be able
      to
      obtain financing to meet working capital needs at suitable valuations or rates
      of interest, if at all. In addition, there is no guarantee that we will be
      able
      to secure financing to permit us to pursue strategic acquisitions and
      investments.





Our
      independent auditors have added an explanatory paragraph to their audit opinions
      issued in connection with the years 2006 and 2005 financial statements, which
      states that our ability to continue as a going concern depends upon our ability
      to resolve liquidity problems by generating sufficient operating profits to
      provide additional working capital. Our ability to obtain additional funding
      and
      pay off our obligations will determine our ability to continue as a going
      concern. Our financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.





We
      have
      total liabilities and contractual obligations of $2,974,000 as of June 30,
      2006.
      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
            
            $
            942,000
            
            $
            942,000
            
            $
            —Capitalized
                lease obligations
            
            
            39,000
            
            
            24,000
            
            
            15,000**Total
                Contractual Obligations**
            ****
            **$**
            **981,000**
            ****
            **$**
            **966,000**
            ****
            **$**
            **15,000**


***Net
      Cash Provided By (Used In) Operating Activities***





Net
      cash
      provided by operating activities was $325,000 for the fiscal year ended June
      30,
      2006 compared to net cash used in operating activities of $876,000 for the
      year
      ended June 30, 2005. Cash provided by operating activities in the year ended
      June 30, 2006 was principally due to an increase in accounts payable and accrued
      expenses of $1,170,000, which was partially offset by a loss from continuing
      operations of $574,000 and a non-cash gain of $220,000 from a litigation
      settlement.





Net
      cash
      used in operating activities was $876,000 for the fiscal year ended June 30,
      2005. It was principally due to net income from continuing operations of
      $460,000, offset by a net non-cash gain of $1,563,000 attributable to non-cash
      charges for depreciation, amortization, stock issued for services loss on
      partnership redemption and the write off our investment in PMIC and non-cash
      gains from a litigation settlement and net partnership income share, and an
      increase in accounts payable and accrued expenses of $233,000.





11





***Net
      Cash Provided By (Used In) Investing Activities***





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 certain targeted businesses.





Net
      cash
      provided from investing activities of $2,683,000 for the year ended June 30,
      2005 was attributable to $2,689,000 of net cash distributions and redemption
      proceeds from our partnership investment, offset by fixed assets and investment
      securities purchases of $286,000.





***Net
      Cash Provided By (Used In) Financing Activities***





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
      officer/executive.





Net
      cash
      of $2,164,000 used in financing activities for the fiscal year ended June 30,
      2005 was attributable to the repayment of our short-term and installment notes
      to Cornell Capital and others in the amount of $2,233,000, offset by proceeds
      of
      $70,000 from a capital lease.





**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.




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




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




We
      are a
      holding company with a limited history of operations. For the fiscal year ended
      2006 and 2005, we incurred an overall net loss of $574,000 and $736,000,
      respectively. We cannot be sure that we will be profitable in future years.




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




We
      are
      seeking capital to fund the transactions with our current acquisition
      candidates. Delay in obtaining this funding 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.




12




***We
      Need Additional Capital to Fund our Present
      Liabilities***




At
      June
      30, 2006, we had a working capital deficit of $1,296,350. It is unlikely that
      Cyber-Test’s operations will be able to produce sufficient excess working
      capital to fund this deficit in the next 12 months. Therefore, we will be
      required to raise additional debt or equity funds to pay our present
      liabilities. In the event we are not able to raise sufficient funds in
      connection with proposed acquisitions, we may not have any sources of capital
      available to pay these liabilities.




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




***The
      Loss Of Any One Of Cyber-Test's Key Customers Could Have A Material Adverse
      Effect On Our Business***




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




***We
      And Our Subsidiaries Operate In Competitive
      Industries***




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





Competition
      within the office equipment and computer peripheral products service and repair
      industry is based on quality of service, depth of technical know-how, price,
      availability of parts, speed and accuracy of delivery, and the ability to tailor
      specific solutions to customer needs. Many of Cyber-Test's
      competitors are larger in size and have greater financial and other
      resources 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.




13




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




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




***Fluctuations
      In The Price Or Availability Of Office Equipment Parts And Computer Peripheral
      Products Could Materially Adversely Affect Us***




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




***We
      Could Be Materially Affected By Turnover Among Our Service
      Representatives***




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




***We
      Have A Working Capital Deficit, Which Means That Our Current Assets On June
      30,
      2006 Were Not Sufficient To Satisfy Our Current Liabilities On That
      Date***




We
      had a
      working capital deficit of $2,976,000 as of June 30, 2006, which means that
      our
      current liabilities exceeded our current assets by $2,976,000. Current assets
      are assets that are expected to be converted into cash within one year and,
      therefore, may be used to pay current liabilities as they become due. Our
      working capital deficit means that our current assets on June 30, 2006 were
      not
      sufficient to satisfy all of our current liabilities on that date.




***Our
      Independent Auditors Have Added A Going Concern Opinion To Our Financial
      Statements, Which Means That We May Not Be Able To Continue Operations Unless
      We
      Obtain Additional Funding***




Our
      independent auditors have added an explanatory paragraph to their audit opinions
      issued in connection with the years 2006 and 2005 financial statements, which
      states that our ability to continue as a going concern depends upon our ability
      to resolve liquidity problems by generating sufficient operating profits to
      provide additional working capital. Our ability to obtain additional funding
      and
      pay off our obligations will determine our ability to continue as a going
      concern. Our financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




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




Our
      success largely depends on the efforts and abilities of key executives,
      including Mr. Wayne Danson, our President and Chief Executive Officer, Mr.
      Steven Miller, our Chief Operating Officer, Mr. John Donahue, our Chief
      Financial Officer and Ms. Lisa Welton, our President and Chief Executive Officer
      of Cyber-Test. 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 maintain a $2,000,000 key-man life
      insuranc **e** policy
      for each of Mr. Danson and Ms. Welton, and will do so for Mr. Miller and Mr.
      Donahue.




14




**Risks
      Related To Our Stock**




***The
      Future Conversion Of Our Outstanding Series A And B Convertible Preferred Stock
      Will Cause Dilution To Our Existing Shareholders, Which Means That Our Per
      Share
      Income And Stock Price Could Decline***




The
        issuance of shares upon any future conversion of the outstanding Series A
        Convertible Preferred Stock
        and
        B Convertible Preferred Stock will
        have a dilutive impact on our stockholders. As of June 30, 2006, we have
        $3,625,000 of outstanding shares
        of Series
        A
        Convertible Preferred Stock and B
        Convertible Preferred Stock that are
        convertible into shares of our common stock. Both the Series A Convertible
        Preferred Stock and B
        Convertible Preferred Stock are
        convertible at a price of $0.01 per share or 100% of the average of the three
        lowest closing bid prices for the ten trading days immediately preceding
        the
        date of conversion, whichever is lower. If our share price is equal to or
        greater than $.01 per share at the time of conversion, the Series A Convertible
        Preferred Stock
        and
        B Convertible Preferred Stock would be
        convertible into an aggregate of 362,500,000 shares of our common stock.
        In the
        event the price of our common stock is less than $.01 per share at the time
        of
        conversion, the number of shares of our common stock issuable would be greater
        than 362,500,000. If such conversions had taken place at $0.001, our recent
        stock price, then holders of our Series A Convertible
        Preferred Stock and  Series B Convertible Preferred Stock would
        have received 3,625,000,000 shares of our common stock. As a result, our
        net
        loss per share could increase in future periods, and the market price of
        our
        common stock could decline.




**We
        Have Not Authorized a Sufficient Number of Shares Of Our Common Stock To
        Cover
        the Future Conversion Of Our Outstanding Series A and B 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.
        Under
        our Articles of Incorporation, 5,000,000,000 shares of our common stock are
        currently authorized. As of June 30, 2006, 4,167,927,000 shares of our common
        stock were issued and outstanding. At a minimum, the conversion of all of
        our
        issued and outstanding shares of Series A and B Convertible Preferred Stock
        would require us to issue an aggregate of 3,625,000,000 shares of our common
        stock to such investors, 2,973,000,000 shares of which are not currently
        authorized. In order to comply with our obligations under the Articles of
        Incorporation, our stockholders would need to authorize additional shares
        of
        common stock. Although our Board of Directors is contractually obligated
        to
        recommend that our shareholders approve such a measure and to vote any shares
        under the director’s control in favor of such measure, we cannot make any
        assurances that additional shares of our common stock will be authorized.
        If
        such shares are not authorized, the investors holding the shares of our Series
        A
        and B Convertible Preferred Stock could declare a default under the terms
        of
        their respective agreements with us.




***The
      Conversion Of Our Series A Convertible Preferred Stock Could Cause A Change
      Of
      Control***




The
      issuance of shares upon the conversion of our Series A Convertible Preferred
      Stock could result in a change of control. At June 30, 2006, Cornell Capital
      Partners, L.P. holds $2,470,000 of our Series A Convertible Preferred Stock,
      which if converted at current prices would result in the issuance of up to
      2,470,000,000 shares of our common stock. After such conversions, Cornell
      Capital Partners, L.P. would own approximately 25% of our then outstanding
      shares of Common Stock, computed based on 5,000,000,000 shares that are
      currently authorized to be issued. In such event, Cornell Capital Partners,
      L.P.
      would be a major shareholder and might be able to exercise control of us by
      electing directors and increasing the number of authorized shares of common
      stock that we could issue or otherwise.




***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.




15




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.




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




On
      January 9, 2006, we terminated our relationship with Weinberg & Co., P.A.
      ("Weinberg") as the auditor for Advanced Communications Technologies, Inc.
      Effective January 11, 2006, we engaged Berenson LLP ("Berenson") to serve as
      the
      independent public accountants to audit our consolidated financial statements
      for the fiscal year ending June 30, 2006.





Weinberg's
      reports on our consolidated financial statements for the fiscal years ended
      June
      30, 2004 and 2005 did not contain an adverse opinion or a disclaimer of opinion,
      and were not qualified or modified as to uncertainty, audit scope or accounting
      principles, except that Weinberg's reports on our consolidated financial
      statements for the fiscal years ended June 30, 2004 and 2005 did contain a
      modification paragraph that expressed their substantial doubt about our ability
      to continue as a going concern.





During
      our past two fiscal years 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




**ITEM
      8A. CONTROLS AND PROCEDURES**




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




As
      of
      June 30, 2006, 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, 2006
      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.




16




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, 2006 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.




17





**PART
      III**




**ITEM
      9. DIRECTORS** **,
      EXECUTIVE OFFICERS** **,
      PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**




The
      following table sets forth the names and ages of our current directors and
      executive officers , and their
      principal offices .
      Our
      executive officers are elected annually by the Board of Directors and serve
      terms of one year or until their death, resignation or removal by the Board
      of
      Directors. Our directors serve one-year terms until their successors are
      elected. There are no family relationships or understandings between any of
      the
      directors and executive officers. In addition, there was no arrangement or
      understanding between any executive officer and any other person pursuant to
      which any person was selected as an executive officer.




Our
      directors and executive officers are as follows:




**Name
                and Address**
            
            **Age**
            
            **Position**Wayne
                I. Danson
            
            53
            
            President,
                Chief Executive Officer420
                Lexington Avenue
            
            
            
            and
                DirectorNew
                York, NY 10170Steven
                J. Miller
            
            48
            
            Chief
                Operating Officer420
                Lexington Avenue
            
            
            
            (effective
                September 25, 2006)New
                York, NY 10170John
                E. Donahue
            
            57
            
            Vice
                President and Chief Financial Officer420
                Lexington Avenue
            
            
            
            (effective
                September 25, 2006)New
                York, NY 10170Dr.
                Michael Finch
            
            58
            
            Director37
                Walnut StreetWellesley,
                MA 02481Jonathan
                J. Lichtman
            
            54
            
            Secretary
                and Director120
                Palmetto Park RoadBoca
                Raton, FL 33432Martin
                Nielson
            
            54
            
            Senior
                Vice President-Acquisitions and Director420
                Lexington Avenue
            
            
            
            (Resigned
                on July 19, 2006)New
                York, NY 10170Randall
                Prouty
            
            54
            
            Director420
                Lexington AvenueNew
                York, NY 10170Wilbank
                J. Roche
            
            60
            
            Director520
                South Sepulveda BoulevardLos
                Angeles, CA 90049





The
      directors named above, except for Martin Nielson, will serve until the next
      annual meeting of our shareholders or until their successors shall be elected
      and accept their positions.




18




***Wayne
      I. Danson, President, Chief Executive Officer, and Director.*** Mr.
      Danson has served as our Chief Financial Officer since December 1, 1999, as
      a
      Director since January 3, 2000, as President since April 30, 2002, and was
      appointed Chief Executive Officer on June 7, 2005. Mr. Danson also serves as
      Chief Executive Officer and Chairman of the Board of Encompass. Mr. Danson
      has
      served as an officer and director of certain subsidiaries of Pacific Magtron
      International Corporation, Inc. Mr. Danson is the Managing Director and Founder
      of Danson Partners, LLC, a financial advisory firm specializing in middle market
      companies in the real estate and technology industries. Prior to forming Danson
      Partners, LLC in May 1999, Mr. Danson was Managing Director of
      PricewaterhouseCoopers LLP’s Real Estate Capital Markets Group. Prior to
      rejoining PricewaterhouseCoopers in 1996, Mr. Danson was a Managing Tax Partner
      with Kenneth Leventhal & Company in New York and Washington D.C., where he
      was also Kenneth Leventhal’s National Director of its International and Debt
      Restructure Tax Practices. Prior to his involvement with Kenneth Leventhal
      in
      1988, Mr. Danson was a Managing Director with Wolper Ross & Co., Ltd. in New
      York, a closely held financial services company specializing in financial tax,
      pension consulting, designing financial instruments and providing venture
      capital and investment banking services. Mr. Danson graduated with honors from
      Bernard M. Baruch College with a BBA in Accounting and an MBA in Taxation.
      He is
      a certified public accountant and a member of the AICPA and the New York State
      Society of CPAs.




***Steven
      J. Miller, Chief Operating Officer.***  Mr.
      Miller has served as our Chief Operating Officer since September 25, 2006.
      F or
      the
      past ten years Mr. Miller served as Senior Director of Service Operations for
      N.E.W. Customer Service Companies, Inc., the nation’s largest privately held
      third party administrator/reinsurer providing warranty policies for consumer
      electronic goods. There, Mr. Miller built and managed the team that developed
      new service offerings and currently delivers more than 3 million service events
      per year, representing $400 million in claims payments. Prior to this, he was
      the Director of North American Service Operations with Sharp Electronics with
      responsibility for all North American parts distribution, board level repairs
      and product refurbishment operations at Sharp’s headquarters in Romeoville, IL.
      Previously, for ten years he was responsible for shop and field service as
      well
      as parts inventory and parts sales for several large-market locations for
      General Electric/RCA, where he was Area Manager for GE Consumer Services. Mr.
      Miller is currently a Board Member of NESDA (National Servicing Dealers
      Association of America). He earned his Bachelor’s Degree in Business
      Administration from The Detroit Institute of Technology.




***John
      E. Donahue, Vice President and Chief Financial Officer*** .
      Mr.
      Donahue has served as our Chief Financial Officer since September 25, 2006.
      Mr.
      Donahue served as Vice President and Chief Financial Officer of Online Benefits
      Inc., (a privately held HR solutions firm that provides internet based
      applications for administering, communicating and presenting HR related
      information and data) from August 1999 until joining us. Prior to that, Mr.
      Donahue served as an Executive Vice President and Chief Financial Officer of
      Lead America, a marketer of insurance products to customers of financial
      institutions, Managing Director of Oxbridge Incorporated, a boutique investment
      banking firm, Chief Financial Officer at Mast Resources Inc., a merchant bank,
      and Chief Financial Officer at Catalyst Energy Corp., a NYSE-listed independent
      power producer. Mr. Donahue was with Price Waterhouse from September 1972 to
      March 1985, including serving as a Senior Audit Manager. He holds a B.A. in
      Economics from Holy Cross College and an MBA from Rutgers
      University.





***Jonathan
      J. Lichtman, Secretary and Director.*** Mr.
      Lichtman has served as a Director and Secretary since November 9, 1999 and
      is
      currently a partner with the Boca Raton law firm of Levinson & Lichtman,
      LLP, where he specializes in structuring corporate and partnership transactions,
      including real estate syndications. Mr. Lichtman is also currently a general
      partner of several real estate partnerships in New York, North Carolina and
      Florida. Prior to forming Levinson and Lichtman LLP, Mr. Lichtman was an
      attorney with English, McCaughan and O’Bryan, PA, where he performed legal work
      for domestic and international clients, as well as real estate partnerships
      and
      development. Mr. Lichtman obtained his J.D. degree, cum laude, from Syracuse
      University College of Law and his LLM degree in taxation from the University
      of
      Miami School of Law. He is also a certified public accountant and is licensed
      to
      practice law in Florida and New York.





***Dr.
      Michael Finch, Director.*** Dr.
      Finch
      has served as a Director since March 10, 1997. For the four years before that,
      he was employed by Media Forum (first in the UK, and then in the U.S.) as
      Director of Product Development. Since 1998, he has been Chief Technology
      Officer of New Media Solutions, responsible for the conception, planning,
      creation, execution and deployment of all software products and projects. He
      was
      responsible for developing and implementing Media Forum’s software capabilities
      and strategy, managing technical and complex software projects for high-end
      clients, and pre-sales demonstrations to clients of Media Forum’s software
      stance and expertise. From 1983 to 1993, Dr. Finch was a Financial Software
      Engineer, who designed, wrote and implemented sophisticated real-time computer
      programs for trading Financial Instruments and Commodities on the Chicago and
      New York Futures exchanges. Prior to 1983, Dr. Finch was a research scientist
      and mathematician, with an academic career at four UK universities. He obtained
      a Doctorate of Mathematics at Sussex University for original research into
      Einstein’s Theory of General Relativity and its application to Neutron Stars. He
      lectured at Queen Mary’s College London on advanced mathematics.




19




***Randall
      Prouty, Director.*** Mr.
      Prouty has served as a Director since March 10, 1997. Mr. Prouty served as
      our
      Chairman from November 30, 2001 until December 12, 2002. Mr. Prouty is also
      currently the President and CEO of World Associates, Inc., a publicly traded
      real estate development company. He is also the sole owner of Bristol Capital,
      Inc., a firm active in consulting and business development work for companies
      seeking access to capital markets, and through which he is incubating other
      e-business ventures. Mr. Prouty is a licensed real estate and mortgage broker
      in
      the State of Florida. His technical background includes being a qualified
      Webmaster and developing e-businesses on the web.




***Wilbank
      J. Roche, Director.*** Mr.
      Roche
      was appointed a Director on March 25, 1999 and is currently a principal with
      the
      law firm of Roche & Holt in Santa Monica, California. Mr. Roche was an
      honors graduate from the University of Southern California in 1976, as well
      as
      from Loyola University School of Law, Los Angeles, in 1979. He was admitted
      to
      the California State Bar in 1979 and has been practicing law actively since
      that
      time. Mr. Roche worked for law firms in the Los Angeles area from 1976 to 1983,
      when he opened his own office. In 1985, he formed Roche & Holt. Mr. Roche’s
      law practice has revolved largely around representing small businesses and
      their
      owners. In that regard, he has provided legal services in connection with the
      formation, purchase, sale, and dissolution of numerous entities, as well as
      in
      connection with their on-going operations.




***Other
      Significant Employees***




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




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




***Meetings
      And Committees Of The Board Of Directors***




Our
      business affairs are managed under the direction of the Board of Directors.
      During the fiscal year ended June 30, 2006, our Board of Directors held two
      (2) meetings and took action by written consent three (3) times. During the
      fiscal year ended June 30, 2006, all of the directors attended all of the Board
      of Directors meetings that were held.




20




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




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




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




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




***Audit
      Committee Financial Expert***




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




***Corporate
      Governance***




In
      April
      2004, we established a Code of Business Conduct and Ethics (the "Code"),
      applicable to all of our employees, including our principal executive,
      accounting and financial officers, which states that we are committed to the
      highest standards of legal and ethical conduct. This Code sets forth our
      policies with respect to the way we conduct ourselves individually and operate
      our business. The provisions of this Code are designed to deter wrongdoing
      and
      to promote honest and ethical conduct among our employees, officers and
      directors. The Code is incorporated by reference to Exhibit 14.1 to the
      Company’s Form 10-KSB filed with the SEC on November 3, 2004. We will satisfy
      our disclosure requirement under Item 5.05 of Form 8-K regarding certain
      amendments to, or waivers of, any provision of our Code by posting such
      information on our corporate website. We will provide a copy of the Code,
      without charge, upon request. You may request a copy of the Code by writing
      to
      the Company’s corporate office located at 420 Lexington Avenue, Suite 2739, New
      York, NY 10170.




***Section
      16(a) Beneficial Ownership Reporting Compliance***




Section
      16(a) of the Exchange requires that our directors and executive officers and
      any
      persons who own more than ten percent of our common stock file with the SEC
      initial reports of ownership and reports of changes in ownership of our common
      stock and other equity securities. Such persons are required by SEC regulations
      to furnish us with copies of all such reports that they file. To our knowledge,
      based upon our review of these reports, all Section 16 reports required to
      be
      filed by our directors and executive officers during the fiscal year ended
      June
      30, 2006 were filed on a timely basis.




**Item
      10. Executive Compensation**




***Summary
      Compensation Table***




The
      following table shows all cash compensation accrued and/or paid by us to our
      two
      executive officers, as well as certain other compensation paid or accrued,
      for
      the fiscal years ended June 30, 2006, 2005 and 2004. Mr. Nielson became an
      executive officer in June 2004. Other than as set forth herein, no executive
      officer’s cash salary and bonus exceeded $100,000 in any of the applicable
      years. The following information includes the dollar value of base salaries,
      bonus awards, the value of restricted shares issued in lieu of cash compensation
      and certain other compensation, if any, whether paid or deferred.




21




**Long-Term
                Compensation****Annual
                Compensation**
            
            **Awards**
            
            **Payouts****Name
                and**
            
            
            
            **Salary**
            
            **Bonus**
            
            **Other
                Annual Compensation**
            
            **Restricted
                Stock Award(s)**
            
            **Options/SARs**
            
            **LTIP
                Payouts**
            
            **All**
              **Other
                Compensation****Principal
                Position**
            
            **Year**
            
            **($)**
            
            **($)**
            
            **($)**
            
            **($)**
            
            **(#)**
            
            **($)**
            
            **($)**Wayne
                I. Danson,
            
            
            2006
            
            
            125,794
            
            
            —
            
            
            9,884
            **(2)**
            
            —President,
                CEO
            
            
            2005
            
            
            215,000
            
            
            125,000
            
            
            22,476
            **(2)**
            
            140,000
            
            
            —
            
            
            —
            
            
            —2004
            
            
            150,000
            
            
            —
            
            
            9,122
            **(1)**
            
            —
            
            
            —
            
            
            —
            
            
            —Martin
                Nielson,
            
            
            2006
            
            
            175,000
            
            
            —
            
            
            —
            
            
            —Sr.
                VP-Acquisitions (3)
            
            
            2005
            
            
            225,000
            
            
            15,000
            
            
            —
            
            
            125,000
            **(4)**
            
            —
            
            
            —
            
            
            —2004
            
            
            16,667
            
            
            15,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —







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




**(2)**
            Represents
                reimbursement of out-of-pocket
                expenses.




**(3)**
            Mr.
                Nielson resigned on July 19, 2006.




**(4)**
            Represents
                12,500,000 shares of common stock valued at $.01 per share earned
                by Mr.
                Nielson pursuant to the deferred compensation provision of his June
                24,
                2004 employment contract, as
                amended.




Mr.
      Danson’s compensation is paid pursuant to a Services Agreement among Mr. Danson,
      Danson Partners, LLC and the Company. As described below under “Employment
      Agreements,” an annual base fee of $250,000 is payable under the Services
      Agreement. During the fiscal year ended June 30, 2006, Mr. Danson and Danson
      Partners, LLC deferred payment of $124,206 in fees. This amount has been accrued
      on the Company’s consolidated balance sheet as of June 30, 2006. Mr. Danson and
      Danson Partners, LLC have continued to defer all fees through the date of filing
      of this Report.




We
      have
      no stock options, SAR or other bonus arrangements for our employees and/or
      directors. During the fiscal year ended June 30, 2006, all decisions concerning
      executive compensation were made by our Compensation Committee.




***Employment
      Agreements***




**John
      E. Donahue and Steven J. Miller**





On
      September 25, 2006, Advanced Communications Technologies, Inc. (the “Company”)
      entered into employment agreements with John E. Donahue and Steven J. Miller
      pursuant to which Mr. Donahue will serve as the Company’s Chief Financial
      Officer and Mr. Miller will serve as the Company’s Chief Operating Officer. On
      that date, Mr. Donahue was also appointed the Company’s Assistant Secretary. Mr.
      Donahue replaces Wayne I. Danson, who has served as the Company’s Chief
      Financial Officer since December 1999. Mr. Danson will continue as the Company’s
      President and Chief Executive Officer.





Under
      these employment agreements, Mr. Donahue will receive a base salary of $250,000
      in the first and second years of employment and a base salary of $275,000 in
      the
      optional year, if the Company exercises its option. Mr. Miller will receive
      a
      base salary of $175,000 in the first year of employment, $200,000 in the second
      year and $225,000 in the optional year, if the Company exercises its option.
      The
      remaining terms of the employment agreements of Mr. Donahue and Mr. Miller
      are
      identical and are as follows:





·
            Each
                employment agreement is effective as of September 25, 2006 and expires
                on
                the second anniversary thereof unless terminated earlier in accordance
                with its terms. The Company has the option to retain each executive
                for an
                additional one-year period.





·
            At
                the request of the Company’s Board of Directors, each executive will serve
                as a director or officer of any subsidiary of the Company without
                additional compensation.





·
            Each
                executive has received an award of 50,000,000 restricted shares of
                common
                stock, no par value, of the Company, priced at the closing price
                per share
                as of the date of grant, of which (i) 10,000,000 shares shall be
                vested
                immediately upon September 25, 2006, (ii) 15,000,000 shares will
                fully
                vest on September 26, 2007, and (iii) 25,000,000 shares will fully
                vest on
                September 26, 2008; provided, as to each vesting traunche, that the
                executive is then employed by the Company; and provided further that
                the
                number of such shares shall be adjusted accordingly for stock splits,
                reverse stock splits and other recapitalizations effected by the
                Company.




22




·
            For
                each fiscal year or portion thereof during the term of each employment
                agreement, the Company may pay to each executive an annual performance
                bonus, in cash, options to purchase shares of common stock and/or
                restricted shares of common stock, in an amount determined at the
                sole
                discretion of the Compensation Committee. In addition, the Company
                may
                grant cash bonuses, options to purchase shares of common stock and/or
                restricted shares of common stock to each executive, with a vesting
                schedule and other terms established by the Compensation Committee,
                in its
                sole discretion.





·
            The
                Company is obligated to provide a $1,000,000 term life insurance
                policy on
                each executive and to insure each executive under a $2,000,000 key
                man
                life insurance policy.





·
            Each
                employment agreement contains restrictive covenants prohibiting the
                executive from competing with the Company or soliciting the Company’s
                employees or customers for another business during the term of the
                agreement and for a period of two years after termination or the
                end of
                the employment term.





·
            The
                Company may terminate each employment agreement for “cause” as defined
                therein or in the event that the respective executive becomes “Permanently
                Disabled” as defined therein. Each executive may terminate his agreement
                for “Good Reason” as defined therein. Each employment agreement
                automatically terminates upon the respective executive’s death.





·
            In
                the event that the Company terminates the executive’s employment without
                cause, the Company will pay to the executive (i) any accrued base
                salary
                and reimbursement for business expenses incurred prior to the termination
                date and any accrued unpaid bonus for the current and prior fiscal
                years
                (the “Accrued Payments”) and (ii) a severance payment equal to the
                additional amount of base salary which would have been payable to
                the
                executive during the six-month period immediately following the
                termination date (the “Severance Payment”), which Severance Payment will
                be payable in cash to the executive in a lump sum no later than 30
                days
                after the termination date; notwithstanding the foregoing, if such
                Severance Payment exceeds the exempt amount under Section 409A of
                the
                Internal Revenue Code (the “Code”) for an involuntary separation pay
                arrangement, any amount in excess of the exempt amount for involuntary
                separation pay arrangements will be paid to the executive in a lump
                sum on
                the first business day of the seventh month following the termination
                date. If it is determined that the payment of the amount in excess
                of the
                exempt amount in this manner nonetheless violates Code Section 409A,
                then
                such provision shall be deemed void and all such Severance Payments
                will
                be paid to the executive in a lump sum on the first business day
                of the
                seventh month following the termination
                date.





·
            In
                the event that the executive terminates the employment agreement
                for Good
                Reason, the Company will pay the executive the Accrued Payments and
                the
                Severance Payments in a lump-sum on the first business day of the
                seventh
                month following the termination date.





·
            In
                the event that (i) within three months prior to a “Change in Control” (as
                defined in the employment agreement), the Company terminates the
                agreement
                without cause (including the Company’s refusal or failure to exercise the
                option period), or (ii) within three months prior to, or twelve months
                following a Change in Control, the executive terminates the agreement
                with
                Good Reason due to (a) a reduction in base salary or (b) the Company
                is a
                party to a merger or consolidation in which it is not the surviving
                entity, and the surviving or new entity does not undertake to assume
                and
                perform the Company’s obligations under the agreement, the Severance
                Payment will be increased to an amount which, when added to the base
                salary paid to the executive from the date of Change of Control to
                the
                termination date, if any, equals 299% of the amount of base salary
                which
                would have been payable to the executive during the twelve-month
                period
                immediately following the termination date (the “Change in Control
                Benefit”). In addition, upon such a termination, all unvested stock
                options or stock awards held by the executive shall immediately become
                accelerated and vested. Any payment due in the foregoing events shall
                be
                paid in a lump sum on the first business day of the seventh month
                following the last to occur of the termination or Change in
                Control.




23




·
            In
                the event that within twelve months following a Change in Control,
                the
                Company terminates the employment agreement without cause (including
                the
                Company’s refusal or failure to exercise the option period), the Severance
                Payment shall be increased to an amount which equals the Change in
                Control
                Benefit. Any payment due in such event will be paid in a lump sum
                no later
                than 30 days following the termination. In addition, upon such a
                termination, all unvested stock options or stock awards held by the
                executive shall immediately become accelerated and vested.




**Danson
      Services Agreement**




On
      June
      7, 2005, the Company entered into a Services Agreement (the “Services
      Agreement”) expiring December 31, 2006, with Wayne I. Danson and Danson
      Partners, LLC, a limited liability company of which Mr. Danson is a principal
      (“DPL”).





Under
      the
      Services Agreement, DPL will provide Mr. Danson’s services to the Company and
      Mr. Danson will serve as Chief Executive Officer, President and Chief Financial
      Officer of the Company. In addition, the Company will take all necessary action
      to cause Mr. Danson to continue as a member of the Company’s Board of Directors,
      and, if elected, Mr. Danson will continue to serve as a director of the Company.
      The Services Agreement further provides that, at the request of the Company’s
      Board of Directors, Mr. Danson also will serve as a director or officer of
      any
      subsidiary of the Company without additional compensation. The Services
      Agreement is effective as of January 1, 2005 and expires on the second
      anniversary thereof unless earlier terminated in accordance with its
      terms.





Under
      the
      Services Agreement, the Company will pay DPL an annual base fee of $250,000.
      Pursuant to the Services Agreement, DPL is also entitled to (i) a cash bonus
      of
      $250,000, including $50,000, which was paid in July 2004 and $75,000, which
      was
      paid in January 2005 with the remaining $125,000 to be earned as of August
      1,
      2005 and paid on or before August 31, 2005 (this remaining amount 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. Mr. Danson has entered into a Lock-Up
      Agreement with the Company in connection with the issuance of the share bonus.
      For each fiscal year or portion therefore during the term of the Services
      Agreement, the Company may pay to DPL an annual performance bonus, in cash
      and/or restricted shares of Common Stock, in an amount determined at the sole
      discretion of the Compensation Committee, taking into account such factors
      as it
      considers appropriate, including but not necessarily limited to, Mr. Danson’s
      contribution to the Company’s consolidated net earnings and stock appreciation
      during such fiscal year. In addition, 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 will receive additional consideration for Mr. Danson’s service as a director
      of the Company. Under the Services Agreement, the Company is obligated to
      provide a $2,000,000 term life insurance policy on Mr. Danson, the beneficiary
      of which will be Mr. Danson’s wife, and to insure Mr. Danson under a $2,000,000
      key man life insurance policy, the beneficiary of which will be the
      Company.





The
      Company may terminate the Services Agreement for “cause” or in the event that
      Mr. Danson becomes “Permanently Disabled.” The Services Agreement automatically
      terminates upon Mr. Danson’s death. In the event that the Company terminates the
      Services Agreement without cause or Mr. Danson or DPL terminate the Services
      Agreement for “Good Reason,” the Company shall pay to DPL (i) any accrued annual
      base fees and reimbursements for business expenses incurred prior to the
      termination date and any unpaid bonus fees for a prior fiscal year, which
      amounts will be payable in a lump sum no later than 30 days after the
      termination date, and (ii) a severance payment equal to the annual base fee
      for
      the twelve-month period immediately following the termination date, payable
      in a
      lump sum within 30 days of the termination date if Mr. Danson or DPL terminates
      the Services Agreement for “Good Reason” or in twelve equal monthly installments
      if the Company terminates the Services Agreement without cause. If within three
      months prior to, or twelve months following, a “Change of Control,” (i) the
      Company terminates the Services Agreement without cause or (ii) Mr. Danson
      or
      DPL terminate the Services Agreement for certain occurrences constituting “Good
      Reason,” the severance payment will be increased to an amount which, when added
      to the annual base fees paid to DPL from the date of the “Change in Control” to
      the termination date, if any, equals 299% of the amount of annual base fees
      which would have been payable to DPL during the twelve-month period immediately
      following the termination date and will be payable in a lump sum within 30
      days
      of the last to occur of the termination date or the “Change in Control,” and (y)
      all unvested stock options or stock awards held by either DPL or Mr. Danson
      will
      immediately become accelerated and vested.




24





Under
      the
      Services Agreement, the
      following terms have the meanings specified below:





·
              “Cause”
                  means (i) any act or omission by Mr. Danson that constitutes malfeasance,
                  misfeasance or nonfeasance in the course of his duties thereunder,
                  or in
                  the judgment of the Board of Directors, Mr. Danson has been grossly
                  negligent (including habitual neglect of duties), incompetent or
                  insubordinate in carrying out his duties thereunder, (ii) a material
                  breach of the Services Agreement by DPL or Mr. Danson that is not
                  cured
                  within ten (10) days of receipt of notice thereof, (iii) Mr. Danson’s or
                  DPL’s breach of a fiduciary duty owed to the Company or its affiliates,
                  or
                  (iv) Mr. Danson’s or DPL’s conviction of, or pleading nolo contendere to,
                  a criminal offense or crime constituting a misdemeanor or felony,
                  or
                  conviction in respect to any act involving fraud, dishonesty or
                  moral
                  turpitude (other than minor traffic infractions or similar minor
                  offenses);





·
            “Permanently
                Disabled” means becomes disabled or incapacitated as determined under the
                Company's Long Term Disability Policy, whether or not such Policy
                covers
                Mr. Danson, or, in the event the Company does not have a Long Term
                Disability Policy at the relevant time, Mr. Danson's inability to
                fully
                perform his duties and responsibilities thereunder to the full extent
                required by the Company by reason of illness, injury or incapacity
                for 120
                consecutive days or for more than six months during any twelve month
                period;





·
            “Good
                Reason” means the occurrence of any of the following without Mr. Danson’s
                consent: (i) a material reduction in Mr. Danson’s duties or authority, or
                a change in reporting relationship which requires Mr. Danson to report
                to
                any person or persons other than the Board of Directors or a Committee
                of
                the Board, (ii) a requirement that Mr. Danson be relocated to an
                office
                outside of the New York City metropolitan area, (iii) a reduction
                in the
                Base Fees, or (iv) the Company is a party to a merger or consolidation
                in
                which it is not the surviving entity, and the surviving or new entity
                does
                not undertake to assume and perform the Company’s obligations under the
                Services Agreement; and





·
            “Change
                in Control” means any one of the
                following:





(i)
            Any
                “person” as such term is used in Sections 13(d) and 14(d) of the Exchange
                Act (other than the Company, officers and directors of the Company
                as of
                the date of the Services Agreement and certain other persons or entities)
                is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
                Exchange Act), directly or indirectly, of securities of the Company
                representing twenty five percent (25%) or more of the combined voting
                power of the Company’s then outstanding
                securities;





(ii)
            The
                share owners of the Company approve a merger or consolidation of
                the
                Company with any other company that results in a change of ownership
                of
                more than 50% of the combined voting power of the voting securities
                of the
                Company or such surviving entity outstanding immediately after such
                merger
                or consolidation;





(iii)
            The
                share owners of the Company approve a plan of liquidation of the
                Company
                or an agreement for the sale or disposition by the Company of all
                or
                substantially all of the Company’s assets;
                or





(iv)
            The
                Current Director Group constitutes less than 50% of the members of
                the
                Board of Directors.





Notwithstanding
                the foregoing, a “Change in Control” shall not include any transaction
                under subparagraphs (ii) or (iii) unless Mr. Danson and DPL have
                voted
                their shares of the Company against such transaction, or any triggering
                change in the Current Director Group under subparagraph (iv), unless
                Mr.
                Danson, as a Director, shall not have had a vote with respect to,
                or shall
                have voted against, the members whose addition to the Board of Directors
                subsequent to the effective date causes the Current Director Group
                to
                “constitute less 50% of the members of the
                Board.”




25




On
      June
      24, 2004 the Company entered into a two-year employment agreement, as amended
      effective June 1, 2005, with Mr. Martin Nielson, our former Senior Vice
      President, Acquisitions. Mr. Nielson’s employment contract expired by its terms
      on June 23, 2006. Under the terms of the employment agreement Mr. Nielson was
      entitled to earn up to 50,000,000 shares of our restricted stock valued at
      $.01
      per share to vest over a two year period. On July 1, 2005, 12,500,000 shares
      of
      restricted common stock vested and were issued to Mr. Nielson. Under the terms
      of a general release and settlement agreement with Mr. Nielson entered into
      on
      July 19, 2006, the unvested portion of the common stock grant or 37,500,000
      shares valued at $375,000 was forfeited by Mr. Nielson.




***Compensation
      Of Directors***




Our
      directors did not receive any cash or stock compensation for their services
      as a
      director in fiscal 2006, but were reimbursed for all of their out-of-pocket
      expenses incurred in connection with the rendering of services as a director.
      Each of the independent directors is entitled to $25,000 in cash compensation,
      payable $6,250 per quarter of services rendered. In fiscal 2006, our independent
      directors did not receive any cash compensation from the Company. In fiscal
      2005, each of the independent directors received $18,750 in cash compensation,
      payable $6,250 per quarter of service. Mr. Prouty received an additional $5,000
      for serving as Chairman of the Compensation Committee. As of June 30, 2006,
      each
      independent director is owed $31,250, or $125,000 in the aggregate, for director
      services rendered for the year ended June 30, 2006 and for the three months
      ended June 30, 2005. On June 29, 2005, each independent director received
      75,000,000 shares of common stock having a value of $52,500 as compensation
      for
      prior services rendered. The stock grants were made under the Company’s 2005
      Stock Plan. Each independent director entered into a Lock-Up Agreement with
      the
      Company with respect to such stock grant.




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




The
      following table contains information about the beneficial ownership of our
      common stock as of September 15, 2006 for:




·
            any
                person, who at June 30, 2006 owned more than five percent (5%) of
                our
                common stock;




·
            each
                of our directors;




·
            each
                of our executive officers named in theSummary
                Compensation Table in*Part
                III - Item 10. Executive Compensation*of
                this Annual Report on Form 10-KSB;
                and




·
            all
                directors and executive officers as a
                group.





Unless
      otherwise indicated, the address for each person or entity named below is c/o
      Advanced Communications Technologies, Inc., 420 Lexington Avenue, Suite 2738,
      New York, NY 10170.




Beneficial
      ownership is determined in accordance with the rules of the SEC and generally
      includes voting or investment power with respect to securities. Except as
      indicated by footnote, and subject to community property laws where applicable,
      the persons named in the table below have sole voting and investment power
      with
      respect to all shares of common stock shown as beneficially owned by them.
      The
      percentage of beneficial ownership is based on 4,597,302,006 shares of common
      stock outstanding as of September 15, 2006.




26




**Common
                  Stock Beneficially Owned****Name/Title**
              
              **Number**
              
              **Percent
                  (1)**Wayne
                  I. Danson, President, CEO & Director
              
              
              210,158,832
              **(2)**
              
              4.57
              %John
                  E. Donahue, VP & Chief Financial Officer
              
              
              0
              (5)
              
              00.00
              %Steven
                  J. Miller, Chief Operating Officer
              
              
              0
              **(5)**
              
              00.00
              %Jonathan
                  J. Lichtman, Secretary & Director
              
              
              105,710,334
              **(3)**
              
              2.30
              %Dr.
                  Michael Finch, Director
              
              
              75,591,334
              
              
              1.64
              %Randall
                  Prouty, Director
              
              
              88,527,080
              
              
              1.93
              %Wilbank
                  Roche, Director
              
              
              93,507,143
              
              
              2.03
              %David
                  G. Boshart
              
              
              532,585,003
              **(4)**
              
              11.58
              %Total
              
              
              1,106,079,726
              
              
              24.06.
              %All
                  Executive Officers and Directors as a Group (7) persons)
              
              
              573,494,723
              
              
              12.47
              %







**(1)**
            Percentage
                of outstanding shares is based on 4,597,302,006 shares of common
                stock
                outstanding as of September 15, 2006, together with shares deemed
                beneficially owned by each shareholder. Beneficial ownership is determined
                in accordance with the rules of the Securities and Exchange Commission
                and
                generally includes voting or investment power with respect to
                securities.**(2)**
            Includes
                39,808,832 shares beneficially owned by Mr. Danson's affiliated entity
                and
                spouse. Includes 31,500,000 shares held by Mr. Danson’s adult children.
                Mr. Danson has no beneficial ownership in these shares.**(3)**
            Excludes
                396,666 shares held by various family trusts. Mr. Lichtman has no
                beneficial ownership in these shares.**(4)**
            Includes
                shares owned in trust for Mr. Boshart’s adult child and shares held by
                tenants in common with Mr. Boshart’s brother and
                sister.**(5)**
            On
                September 27, 2006 pursuant to their employment contracts, Messrs.
                Donahue
                and Miller were each issued 10,000,000 shares of restricted common
                stock.




Although
      pursuant to the terms of our Series A Convertible Preferred Stock issued to
      Cornell Capital and other investors (the “Holders”), the Holders are not
      permitted to own more than 9.99% of our outstanding common stock at any one
      time, the Holders are permitted to waive such restriction, which waiver is
      effective on the 61 st day
      after delivery of the waiver to us. Accordingly, there are a sufficient number
      of shares of our common stock issuable under the outstanding Series A
      Convertible Preferred Stock, such that by delivering such waiver the Holders
      could affect a change of control of the Company on or after the 61 st day
      following delivery.




27




***Existing
      Stock Compensation Plans***




The
      following table sets forth information as of June 30, 2006 regarding our
      existing compensation plans and individual compensation arrangements pursuant
      to
      which our equity securities are authorized for issuance to employees or
      non-employees (such as directors, consultants and advisors) in exchange for
      consideration in the form of services:




Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)
            
            (b)
            
            (c)Equity
                compensation plans approved bysecurity
                holders
            
            
            0
            
            
            0
            
            
            0Equity
                compensation plans not approved by security holders**(1)**
            
            
            0
            
            
            0
            
            
            200,000,000
            (2)Total
            
            
            0
            
            
            0
            
            
            200,000,000


**(1)**
              Pursuant
                  to the terms of Mr. Nielson's employment agreement, Mr. Nielson
                  is
                  entitled to receive 50,000,000 shares of the Company's restricted
                  common
                  stock, priced at $.01 per share, of which (i) 12,500,000 sharesvestedon
                  July 1, 2005; and (ii) 37,500,000 shares would fully vest on July
                  1,2006,provided
                  that Mr. Nielson was then employed by the Company. The 12,500,000
                  shares
                  were issued to Mr. Nielson onJuly1,2005.The employment contract with Mr. Nielson expired on June 23, 2006
                  and the
                  unvested 37,500,000 shares were forfeited. The terms of Mr. Nielson’s
                  employment agreement are discussed in more detail under*Part
                  III - Item 10. Executive Compensation - Employment
                  Agreement*s.
 **(2)**
                Pursuant
                    to the Company’s 2005 Stock Plan, 200,000,000 shares of the Company’s
                    common stock remain available for issuance as incentive stock
                    options or
                    as nonqualified stock options. A description of the 2005 Stock
                    Plan is set
                    forth in Note 12(E) of the Notes to Consolidated Financial Statements
                    included in this Annual Report on Form
                    10-KSB.


**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION** **S**




Jonathan
      J. Lichtman, Secretary and a director of the Company, is a partner at Levinson
      & Lichtman, LLP, a law firm in Boca Raton, FL that the Company retained to
      provide legal services during fiscal years 2006 and 2005. The Company paid
      Levinson & Lichtman, LLP, $1,538 and $45,705 in fiscal 2006 and 2005,
      respectively, for legal services rendered. As of June 30, 2006, the Company
      had
      no amounts owed to Levinson & Lichtman, LLP.




Wilbank
      Roche, a director of the Company, is a partner at Roche & Holt, a law firm
      in Los Angeles, CA that the Company retained to provide legal services during
      fiscal years 2006 and 2005. The Company paid Roche & Holt $2,513 and $31,177
      during fiscal 2006 and 2005, respectively, for legal services rendered. As
      of
      June 30, 2006, the Company owed $1,100 to Roche & Holt.




During
      the fiscal year ended June 30, 2005, the Company paid Mr. Prouty $20,073 in
      cash
      for past services rendered. There was no payment made to Mr. Prouty in fiscal
      2006. As of June 30, 2006, the Company had no amounts owed to Mr. Prouty.




The
      Company, through a license agreement effective December 1, 2004 with Danson
      Partners, LLC (“DPL”), a party related to our chief executive officer, occupies
      a 499 square foot office facility at 420 Lexington Avenue, New York, NY 10170,
      having a monthly lease obligation of $1,478, as adjusted annually. The Company’s
      license agreement is on a month-to-month basis. Under the Danson Service
      Agreement, the Company paid $135,678 in fiscal 2006 to DPL for the services
      and
      expenses of Mr. Danson. As of June 30, 2006, the Company owed DPL $257,617
      for
      services and reimbursable expenses.




On
      April
      24, 2006, the Company issued an unsecured promissory note to Mr. Wayne Danson,
      our Chief Executive Officer, for proceeds of $35,000. The note bears interest
      at
      10% per annum. Payments of principal and accrued interest are due on October
      24,
      2006.




28




**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 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 Exhibit2.14.1to
                the Company’s Form 8-K filed with the SEC on December 14,
                20043(I)(a)
            
            Articles
                of Incorporation of Media Forum International, Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(b)
            
            Second
                Amendment to Articles of Incorporation of Telenetworx, Inc.
            
            Incorporated
                by reference to Exhibit 2.2 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(c)
            
            Third
                Amendment to Articles of Incorporation of Media Forum International,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.3 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(d)
            
            Fourth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 2.7 to the Form SB-2 filed with the SEC on
                March
                5, 20023(I)(e)
            
            Fifth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 2.8 to the Form SB-2 filed with the SEC on
                July
                16, 20033(I)(f)
            
            Sixth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1.6 the Company’s Form 10-KSB filed with the SEC
                on November 3, 20043(I)(g)
            
            Seventh
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1.7 the Company’s Form 10-KSB filed with the SEC
                on November 3, 20043(I)(h)
            
            Eighth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC
                on September 19, 20063(II)
            
            Bylaws
                of the Company
            
            Incorporated
                by reference to Exhibit 2.4 to the Company’s Form S-8 filed with the SEC
                on February 9, 20004.1
            
            6%
                Secured Convertible Promissory Note, dated December 30, 2004, issued
                to
                Theodore S. Li.
            
            Incorporated
                by reference to Exhibit10.1to
                the Company’s Form 8-K filed with the SEC onJanuary
                5, 2005




29




4.2
            
            6%
                Secured Convertible Promissory Note, dated December 30, 2004, issued
                to
                Hui Cynthia Lee.
            
            Incorporated
                by reference to Exhibit10.2to
                the Company’s 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 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 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 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 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 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 Form 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 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 Form 8-K filed with the SEC
                on June 18, 2004




30




4.11
            
            Amendment
                No. 1 to 6% Unsecured Promissory Note dated August 10,
                2004.
            
            Incorporated
                by reference to Exhibit 10.35 to the Company’s 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 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 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 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 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 Form 8-K filed with the SEC
                on September 19, 200610.1
            
            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 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 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 Form 8-K filed with the SEC onJanuary
                5, 2005




31




10.4
            
            IndemnityAgreement, dated December 30, 2004, amongAdvanced
                Communications Technologies, Inc.,Theodore
                S. Liand Hui Cynthia Lee.
            
            Incorporated
                by reference to Exhibit10.6to
                the Company’s 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 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 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 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 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 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 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 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 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 Form 10-KSB/A filed on
                February 7, 2003




32




10.14
            
            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 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 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 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 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 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 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 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 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 10-KSB filed with the
                SEC on October 3, 2005




33




10.23*
            
            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 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 Form 8-K filed with the SEC
                on September 29, 200614
            
            Code
                of Business Conduct and Ethics for Advanced Communications Technologies,
                Inc.
            
            Incorporated
                by reference to Exhibit 14.1 to the Company’s Form 10-KSB filed with the
                SEC on November 3, 200421
            
            Subsidiaries
                ofAdvanced Communications Technologies, Inc.
            
            Provided
                herewith31.1
            
            Certification
                byChief
                Executive Officerpursuant to Sarbanes-Oxley Section 302
            
            Provided
                herewith31.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                302
            
            Provided
                herewith32.1
            
            Certification
                byChief
                Executive Officerpursuant to 18 U.S.C. Section 1350
            
            Provided
                herewith32.2
            
            Certification
                byChief
                Financial Officerpursuant to 18 U.S.C. Section 1350
            
            Provided
                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.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




***Audit
      Fees***




Our
      independent auditors, Berenson LLP, has billed us (a) $43,853 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 $29,883 for the reviews
      of
      our consolidated financial statements included in the Company’s
      Forms 10-QSB for the quarters ended December 31, 2005 and March 31,
      2006.




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.




34




***Audit-Related
      Fees***




For
      the
      fiscal year ended June 30, 2006, the aggregate fees billed for professional
      services rendered by our independent auditors, Berenson LLC, was $2,160 related
      to correspondence with the Securities and Exchange Commission for audit related
      matters.




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, 2006 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 LLP was $121,863 for the fiscal year ended June 30, 2006.
      These fees were related to the 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, 2006 and 2005, 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.




35




**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:
                June 15, 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*
            
            President
              and Chief
              Executive Officer
            
            June
                15, 2007Wayne
                I. Danson
            
            (Principal
                Executive Officer) and
                Director*/s/
                John E. Donahue*
            
            Vice President
              and
              Chief Financial Officer
            
            June
                15, 2007John
                E. Donahue
            
            (Principal
                Accounting Officer)*/s/
                Jonathan Lichtman*
            
            Secretary
                and Director
            
            June
                15, 2007Jonathan
                Lichtman, Esq.*/s/
                Dr. Michael Finch*
            
            Director
            
            June
                15, 2007Dr.
                Michael Finch*/s/
                Randall Prouty*
            
            Director
            
            June
                15, 2007Randall
                Prouty*/s/
                Wilbank J. Roche*
            
            Director
            
            June
                15, 2007Wilbank
                J. Roche, Esq.




36





**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 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 Exhibit2.14.1to
                the Company’s Form 8-K filed with the SEC on December 14,
                20043(I)(a)
            
            Articles
                of Incorporation of Media Forum International, Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(b)
            
            Second
                Amendment to Articles of Incorporation of Telenetworx, Inc.
            
            Incorporated
                by reference to Exhibit 2.2 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(c)
            
            Third
                Amendment to Articles of Incorporation of Media Forum International,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.3 to the Company’s Form S-8 filed with the SEC
                on February 9, 20003(I)(d)
            
            Fourth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 2.7 to the Form SB-2 filed with the SEC on
                March
                5, 20023(I)(e)
            
            Fifth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 2.8 to the Form SB-2 filed with the SEC on
                July
                16, 20033(I)(f)
            
            Sixth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1.6 the Company’s Form 10-KSB filed with the SEC
                on November 3, 20043(I)(g)
            
            Seventh
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1.7 the Company’s Form 10-KSB filed with the SEC
                on November 3, 20043(I)(h)
            
            Eighth
                Amendment to Articles of Incorporation
            
            Incorporated
                by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC
                on September 19, 2006









3(II)
            
            Bylaws
                of the Company
            
            Incorporated
                by reference to Exhibit 2.4 to the Company’s Form S-8 filed with the SEC
                on February 9, 20004.1
            
            6%
                Secured Convertible Promissory Note, dated December 30, 2004, issued
                to
                Theodore S. Li.
            
            Incorporated
                by reference to Exhibit10.1to
                the Company’s 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 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 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 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 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 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 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 Form 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 Form 8-K filed with the SEC
                on June 18, 2004









4.10
            
            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 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 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 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 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 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 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 Form 8-K filed with the SEC
                on September 19, 200610.1
            
            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 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 Form 8-K filed with the SEC
                on January 5, 2005









10.3
            
            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 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 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 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 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 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 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 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 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 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 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 Form 10-KSB/A filed on
                February 7, 2003









10.14
            
            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 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 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 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 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 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 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 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 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 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 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 Form 8-K filed with the SEC
                on September 29, 2006









14
            
            Code
                of Business Conduct and Ethics for Advanced Communications Technologies,
                Inc.
            
            Incorporated
                by reference to Exhibit 14.1 to the Company’s Form 10-KSB filed with the
                SEC on November 3, 200421
            
            Subsidiaries
                ofAdvanced Communications Technologies, Inc.
            
            Provided
                herewith31.1
            
            Certification
                byChief
                Executive Officerpursuant to Sarbanes-Oxley Section 302
            
            Provided
                herewith31.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section
                302
            
            Provided
                herewith32.1
            
            Certification
                byChief
                Executive Officerpursuant to 18 U.S.C. Section 1350
            
            Provided
                herewith32.2
            
            Certification
                byChief
                Financial Officerpursuant to 18 U.S.C. Section 1350
            
            Provided
                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**
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 **AS
        OF JUNE 30, 2006**
 
  
  i
  **ADVANCED
        COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 
 **CONTENTS**
 
 PAGE
              F-1-F-2
              REPORTS
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMSPAGE
              F-3
              CONSOLIDATED
                  BALANCE SHEETS AS OF JUNE 30, 2006 AND 2005PAGE
              F-4
              CONSOLIDATED
                  STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2006 AND
                  2005PAGE
              F-5
              CONSOLIDATED
                  STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR THE YEARS ENDED JUNE
                  30, 2006 AND 2005PAGE
              F-6
              CONSOLIDATED
                  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2006 AND
                  2005PAGES
              F7
                  - F-24
              NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
  ii
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To
        the
        Board of Directors of:
 Advanced
        Communications Technologies, Inc. and Subsidiaries
 
 We
        have
        audited the accompanying consolidated balance sheet of Advanced Communications
        Technologies, Inc., and Subsidiaries as of June 30, 2006 and the related
        consolidated statements of operations, changes in stockholders' deficiency
        and
        cash flows for the year 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
        audit.
 
 We
        also
        have audited the adjustments described in Note 18 that were applied to restate
        the fiscal 2004 through 2006 financial statements to correct an error. In
        our opinion, such adjustments are appropriate and have been properly applied.
        We
        were not engaged to audit, review, or apply any procedures to the fiscal
        2004
        and 2005 financial statements of the Company other than with respect to the
        adjustments and, accordingly, we do not express an opinion or any other form
        of
        assurance on the fiscal 2004 and 2005 financial statements taken as a
        whole.
 
 We
        conducted our audit in accordance with auditing 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
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall financial statement presentation. We believe that
        our
        audit provides a reasonable basis for our opinion.
 
 In
        our
        opinion, the 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, 2006, and the results
        of
        their operations and their cash flows for the year then ended in conformity
        with
        accounting principles generally accepted in the United States of
        America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 1(B) to
        the
        consolidated financial statements, the Company had a net loss of $573,841
        and
        had a working capital deficiency of $1,296,350 at June 30, 2006. These matters
        raise substantial doubt about its ability to continue as a going concern.
        Management's plans in regards to these matters are also described in Note
        1(B).
        The accompanying consolidated financial statements do not include any
        adjustments that might result from the outcome of this uncertainty.
 
 As
        discussed in Note 18 to the accompanying financial statements, the Company
        has
        restated its fiscal 2004 through 2006 financial statements.
 
 J.H.
        COHN
        LLP
 
 New
        York,
        New York
 
 August
        30, 2006, except for notes 5(B), 9, 10(E), 12(B), 15(C) and 16(B) as to which
        the date is September 25, 2006, and note 18 as to which the date is June
        7,
        2007.
  F-1
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors of:
 Advanced
        Communications Technologies, Inc. and Subsidiaries
 
 We
        have
        audited, before the effects of the adjustments for the correction of the
        error
        described in Note 18, the accompanying consolidated balance sheet of Advanced
        Communications Technologies, Inc., and Subsidiaries (“Company”) as of June 30,
        2005 and the related consolidated statements of operations, changes in
        stockholders’ deficiency and cash flows for the year then ended (the fiscal 2005
        financial statements before the effects of the adjustments discussed in Note
        18
        are not presented herein). 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
        audit.
 
 We
        conducted our audit, before the effects of the adjustments described above,
        of
        these consolidated financial statements in accordance with auditing 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 consolidated financial statements are free of material misstatement.
        An audit includes examining, on a test basis, evidence supporting the amounts
        and disclosures in the consolidated financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement presentation.
        We believe that our audit provides a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above, before
        the
        effects of the adjustments for the correction of the error described in Note
        18,
        present fairly, in all material respects, the financial position and the
        results
        of the operations and cash flows of Advanced Communications Technologies,
        Inc.
        and Subsidiaries for the year ended June 30, 2005 in conformity with accounting
        principles generally accepted in the United States of America.
  The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 1(B) to
        the
        consolidated financial statements included in the Company’s 2005 Form 10-KSB not
        presented herein, the Company’s recurring losses from operations and working
        capital deficiency raised substantial doubt about its ability to continue
        as a
        going concern. Management’s plans in regards to these matters were also
        described in Note 1(B) to those financial statements. The accompanying
        consolidated financial statements do not include any adjustments that might
        result from the outcome of this uncertainty.
 We
          were
          not engaged to audit, review, or apply any procedures to the adjustments
          for the
          correction of the error described in Note 18 and, accordingly, do not express
          an
          opinion or any other form of assurance about whether such adjustments are
          appropriate and have been properly applied. Those adjustments were audited
          by
          the Independent Registered Public Accounting Firm J.H. Cohn
          LLP.
 */s/* WEINBERG
        & COMPANY, P.A.
  Boca
        Raton, Florida
 September
        23, 2005
  F-2
  **ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          BALANCE SHEETS**
 **RESTATED
          (Note 18)**
 **June
                  30,****2006**
              
              **2005****ASSETS**Current
                  AssetsCash
                  and cash equivalents
              
              $
              756,093
              
              $
              836,876Accounts
                  receivable, net of allowance for doubtful accounts of
                  $4,634and
                  $4,723 at June 30, 2006 and 2005, respectively
              
              
              372,273
              
              
              364,285Replacement
                  parts and equipment
              
              
              414,425
              
              
              367,453Prepaid
                  expenses and other current assets
              
              
              119,961
              
              
              130,605Total
                  Current Assets
              
              
              1,662,752
              
              
              1,699,219Property
                  and equipment, net
              
              
              228,361
              
              
              259,764Other
                  AssetsOther
                  assets
              
              
              7,601
              
              
              —Deferred
                  acquisition costs
              
              
              301,921
              
              
              —Licensed
                  intangibles and rights
              
              
              400,000
              
              
              400,000Goodwill
              
              
              2,624,388
              
              
              2,611,055Total
                  Other Assets
              
              
              3,333,910
              
              
              3,011,055**TOTAL
                  ASSETS**
              
              **$**
              **5,225,023**
              
              **$**
              **4,970,038****LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY****LIABILITIES**Current
                  LiabilitiesCurrent
                  portion of notes payable and capitalized lease obligation
              
              $
              965,909
              
              $
              1,020,028Accounts
                  payable and accrued expenses
              
              
              1,993,193
              
              
              818,554Total
                  Current Liabilities
              
              
              2,959,102
              
              
              1,838,582Long-term
                  Notes and Loans Payable, less Current Portion
              
              
              15,340
              
              
              205,367Convertible
                  Preferred StockSeries
                  A convertible preferred stock, $.01 par value
              
              
              3,565,200
              
              
              4,200,000Series
                  B convertible preferred stock, $.01 par value
              
              
              60,000
              
              
              100,000**TOTAL
                  LIABILITIES**
              
              
              6,599,642
              
              
              6,343,949**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS'
                  DEFICIENCY**Common
                  stock, no par value, 5,000,000,000 shares authorized,4,167,927,006
                  and 3,151,773,731 shares issued and outstanding at June 30,
                  2006and
                  2005, respectively
              
              
              30,475,040
              
              
              29,751,907Additional
                  paid in capital
              
              
              1,195,374
              
              
              1,570,374Deferred
                  commitment and equity financing fees, net of accumulated
                  amortization
              
              
              —
              
              
              (25,000
              )Deferred
                  compensation, net of amortization of $500,000 and $250,000
                  atJune
                  30, 2006 and 2005, respectively
              
              
              —
              
              
              (250,000
              )Accumulated
                  deficit
              
              
              (33,045,033
              )
              
              (32,421,192
              )Total
                  Stockholders' Deficiency
              
              
              (1,374,619
              )
              
              (1,373,911
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIENCY**
              
              **$**
              **5,225,023**
              
              **$**
              **4,970,038**
  See
          accompanying notes to consolidated financial statements
  F-3
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENTS OF OPERATIONS**
 **For
                    The Years Ended June 30,****2006**
                
                **2005****NET
                    SALES**
                
                $
                9,183,276
                
                $
                7,521,723**COST
                    OF SALES**
                
                
                5,959,085
                
                
                4,879,081**GROSS
                    PROFIT**
                
                
                3,224,191
                
                
                2,642,642**OPERATING
                    EXPENSES**Depreciation
                    and amortization
                
                
                98,420
                
                
                124,175Professional
                    and consulting fees
                
                
                861,534
                
                
                476,718Other
                    selling, general and administrative expenses
                
                
                2,975,366
                
                
                3,848,642**TOTAL
                    OPERATING EXPENSES**
                
                
                **3,935,320**
                
                
                **4,449,535**Loss
                    From Continuing Operations before Other Income (Expense)
                
                
                (711,129
                )
                
                (1,806,893
                )**OTHER
                    INCOME (EXPENSE)**Litigation
                    settlement
                
                
                220,083
                
                
                2,847,511Loss
                    on partnership redemption
                
                
                —
                
                
                (191,292
                )Distributable
                    share of partnership income
                
                
                —
                
                
                385,233Write-off
                    of investment in Pacific Magtron International Corp.
                
                
                —
                
                
                (668,834
                )Interest
                    expense, net
                
                
                (82,795
                )
                
                (106,184
                )**TOTAL
                    OTHER INCOME (EXPENSE), NET**
                
                
                137,288
                
                
                2,266,434**INCOME
                    (LOSS) FROM CONTINUING OPERATIONS**
                
                **$**
                **(573,841**
                **)**
                **$**
                **459,541****LOSS
                    FROM DISCONTINUED OPERATIONS, NET OF MINORITY
                    INTEREST**
                
                
                **—**
                
                
                **(1,195,374**
                **)****NET
                    LOSS**
                
                **$**
                **(573,841**
                **)**
                **$**
                **(735,833**
                **)**Earnings
                    (loss) per share:Basic
                    and diluted income (loss) per share from continuing
                    operations
                
                **$**
                **—**
                
                **$**
                **—**Basic
                    and diluted loss per share from discontinued operations
                
                **$**
                **—**
                
                **$**
                **—**Net
                    basic and diluted loss per share
                
                **$**
                **—**
                
                **$**
                **—**Weighted
                    average number of sharesoutstanding
                    during the year - basic and dilutive
                
                
                **3,514,362,488**
                
                
                **2,072,211,255**
  See
          accompanying notes to consolidated financial statements
  F-4
 **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY**
 **FOR
            THE YEARS ENDED JUNE 30, 2006 AND 2005**
 **RESTATED
            (Note 18)**
  **COMMON
                  STOCK**
              
              **ADDITIONAL
                  PAID IN**
              
              **ACCUMULATED**
              
              **DEFFERED**
                **COMMITMENT
                  AND EQUITY**
                **FINANCING**
              
              **DEFERRED****SHARES**
              
              **AMOUNT**
              
              **CAPTIAL**
              
              **DEFICIT**
              
              **FEES**
              
              **COMPENSATION**
              
              **TOTAL****BALANCE
                  AT JUNE 30, 2004**
              
              
              **1,994,365,845**
              
              **$**
              **28,745,253**
              
              **$**
              **—**
              
              **$**
              **(31,685,359**
              **)**
              **$**
              **(135,432**
              **)**
              **$**
              **—**
              
              **$**
              **(3,075,538**
              **)**Reversal
                  of escrowed stock issued to pay short term debt
              
              
              (162,999,640
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock
                  issued in partial payment of short term note
              
              
              172,881,526
              
              
              100,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              100,000Stock
                  issued in exchange for services
              
              
              505,000,000
              
              
              357,500
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              357,500Stock
                  issued on conversion of Series B preferred stock
              
              
              400,000,000
              
              
              200,000
              
              
              —
              
              
              
              
              
              
              
              
              
              
              
              200,000Deferred
                  compensation
              
              
              12,500,000
              
              
              125,000
              
              
              375,000
              
              
              —
              
              
              —
              
              
              (500,000
              )
              
              —Amortization
                  of deferred compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              250,000
              
              
              250,000Adjustment
                  to reflect the effect of a change in accountingfrom
                  the equity method to the cost method for theinvestment
                  in Pacific Magtron International Corp. ("PMIC")
              
              
              —
              
              
              —
              
              
              1,195,374
              
              
              
              
              
              —
              
              
              —
              
              
              1,195,374Amortization
                  of deferred commitment & financing fees
              
              
              —
              
              
              (5,872
              )
              
              —
              
              
              —
              
              
              110,432
              
              
              —
              
              
              104,560Stock
                  issued for convertible debt and accrued interest
              
              
              230,026,000
              
              
              230,026
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              230,026Net
                  loss for the year
              
              
              —
              
              
              —
              
              
              —
              
              
              (735,833
              )
              
              —
              
              
              —
              
              
              (735,833
              )**BALANCE
                  AT JUNE 30, 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**
              **)**
 See
          accompanying notes to consolidated financial statements
  F-5
  **ADVANCED
            COMMUNICATIONS TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENTS OF CASH FLOWS**
 **For
                  the Years Ended June 30,****2006**
              
              **2005****CASH
                  FLOWS PROVIDED BY (USED IN) OPERATIONS:**Net
                  loss
              
              $
              (573,841
              )
              $
              (735,833
              )Adjustments
                  to reconcile net income to net cash provided by (used in)
                  operatingactivities:Depreciation
                  and amortization
              
              
              98,420
              
              
              124,175Amortization
                  of deferred compensation
              
              
              (125,000
              )
              
              250,000Allowance
                  for doubtful accounts
              
              
              (89
              )
              
              —Stock
                  issued in payment of accrued interest
              
              
              —
              
              
              40,526Stock
                  issued for services
              
              
              35,000
              
              
              357,500Debt
                  discount expense
              
              
              —
              
              
              36,977Litigation
                  settlement
              
              
              (220,083
              )
              
              (2,847,511
              )Loss
                  on partnership redemption
              
              
              —
              
              
              191,292Distributive
                  share of partnership income
              
              
              —
              
              
              (385,233
              )Write-off
                  of investment in Pacific Magtron International Corp.
              
              
              —
              
              
              668,834Changes
                  in operating assets and liabilities:(Increase)
                  decrease in assets:Accounts
                  receivables
              
              
              (7,899
              )
              
              36,462Deferred
                  Costs and other receivables
              
              
              —
              
              
              (37,252
              )Replacement
                  parts and equipment
              
              
              (46,972
              )
              
              (16,490
              )Prepaid
                  expense and other assets
              
              
              (4,457
              )
              
              12,011Increase
                  (decrease) in liabilities:Accounts
                  payable and accrued expenses
              
              
              1,169,722
              
              
              233,235Net
                  cash provided by (used in) continuing operations
              
              
              324,801
              
              
              (2,071,307
              )Net
                  cash used in discontinued operations
              
              
              —
              
              
              1,195,374Net
                  cash provided by (used in) operating activities
              
              
              324,801
              
              
              (875,933
              )**CASH
                  FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:**Partnership
                  distributions
              
              
              —
              
              
              280,000Purchase
                  of business/fixed assets
              
              
              (42,017
              )
              
              (193,945
              )Proceeds
                  from partnership redemption
              
              
              —
              
              
              2,688,940Deferred
                  acquisition costs
              
              
              (301,921
              )
              
              —Sale
                  of investment securities
              
              
              7,500
              
              
              —Purchase
                  of investment securities
              
              
              —
              
              
              (91,618
              )Net
                  cash provided by (used in) investing activities
              
              
              (336,438
              )
              
              2,683,377**CASH
                  FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:**Proceeds
                  from issuance of promissory note
              
              
              35,000
              
              
              —Principal
                  payments on notes payable and capitalized lease
              
              
              (104,146
              )
              
              (2,233,416
              )Proceeds
                  from capitalized lease
              
              
              —
              
              
              69,678Net
                  cash used in financing activities
              
              
              (69,146
              )
              
              (2,163,738
              )Net
                  decrease in cash and cash equivalents
              
              
              (80,783
              )
              
              (356,294
              )Cash
                  and cash equivalents at beginning of year
              
              
              836,876
              
              
              1,193,170**CASH
                  AND CASH EQUIVALENTS AT END OF YEAR**
              
              **$**
              **756,093**
              
              **$**
              **836,876**
  See
          accompanying notes to consolidated financial statements
  F-6




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF JUNE 30, 2006**




**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 after
      market 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.
      Encompass owns Cyber-Test, Inc., a Delaware corporation ("Cyber-Test"), an
      electronic equipment repair company based in Florida and our principal operating
      business. We seek to acquire profitable and growing businesses within our
      industry.





Encompass,
      with our wholly-owned subsidiary Cyber-Test as its platform, seeks to become
      a
      leader in the reverse logistics industry through the acquisition of assets
      and
      companies in that industry, and then instilling sustainable growth skills as
      a
      core competency. Encompass is focused on eliminating the risks associated with
      environmental compliance in the e-Recycle industry by repairing, refurbishing,
      sorting and selling old components to specialized processors such as smeltering
      plants.





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.





Pacific
      Magtron International Corp. (“PMIC”) together with its wholly-owned subsidiaries
      Pacific Magtron, Inc. (“PMI”), Pacific Magtron (GA), Inc. (“PMIGA”) and Live
      Warehouse, Inc. (“LW”), was our 62% majority-owned subsidiary that was acquired
      as of December 30, 2004 *(See
      Note 9)* .
      PMIC’s
      principal business consisted of the importation and wholesale distribution
      of
      electronics products, computer components, and computer peripheral equipment
      throughout the United States. LW sold consumer computer products through the
      Internet and distributed certain computer products to resellers. On May 11,
      2005
      (the "Petition Date"), PMIC, PMI, PMIGA and LW 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,
      (the "Bankruptcy Court"). The Bankruptcy Court is jointly administering these
      cases as "In re: Pacific Magtron International Corp., et al., Case
      No.BK-S-05-14326 LBR”. Because PMIC was unsuccessful in reaching an agreement
      with one of its secured creditors, on June 23, 2005 it ceased all business
      activities except those necessary to liquidate its remaining
      assets.




On
      June
      21, 2006, PMIC and LW filed the Fourth Amended Plans of Reorganization for
      PMIC
      and LW (collectively, the “Plan”). On August 11, 2006 (the “Confirmation Date”),
      the Court entered an order (Docket No. 910) (“Confirmation Order”) approving and
      confirming the Plan, including the Mutual Settlement Agreement and Release
      (the
“Settlement Agreement”) among the Company, ACT and two terminated executives
      ( *See
      Notes 9 and 15(B)* ).
      The
      effective date of the Plan was September 18, 2006.




***(B)***
            ***Basis
                of Accounting***




The
      Company's consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the settlement
      of liabilities in the normal course of business. The Company incurred a net
      loss
      of $573,841 and $735,833 for the years ended June 30, 2006 and 2005,
      respectively. The Company had a working capital deficiency of $1,296,350 and
      $139,363 as of June 30, 2006 and 2005, respectively. These conditions raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The Company’s ability to continue as a going concern is dependent upon it
      achieving profitability and generating sufficient cash flows to meet its
      obligations as they come due. Management is pursuing additional capital and
      debt
      financing and acquisition of profitable businesses. However, there is no
      assurance that these efforts will be successful. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





F-7


****ADVANCED
        COMMUNICATIONS TECHNOLOGIES, INC. AND
        SUBSIDIARIES****
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF JUNE 30, 2006**


***(C)
       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. In accordance with ARB51 and FAS94, the
      Company’s consolidated financial statements include the consolidated financial
      results of PMIC, a majority-owned and controlled company, and its wholly-owned
      subsidiaries, PMI, PMIGA and LW for the period January 1, 2005 through May
      11,
      2005, the date PMIC and its subsidiaries filed voluntary petitions to reorganize
      their businesses under Chapter 11 of the U.S. Bankruptcy Code.





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 or operations. Effective May 11, 2005, the Company accounted for
      its investment in PMIC under the cost method of accounting *.* At June
      30, 2005, the Company wrote off its entire investment in PMIC. Effective June
      30, 2005, PMIC ceased its operations except for liquidating its assets. The
      financial results of PMIC are reclassified as discontinued operations in the
      accompanying consolidated financial statements.




***(D) 
      Use of Estimates***




The
      preparation of the consolidated financial statements of the Company in
      conformity with generally accepted accounting principles requires management
      to
      make estimates and assumptions that affect the reported amount of assets and
      liabilities at the date of the financial statements and the reported amount
      of
      revenues and expenses during the period. In particular, significant estimates
      are required to value 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.




***(E)
        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.




***(F) 
      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.





***(G)***
            ***Goodwill***





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 quarter ended June 30, 2006,
      these intangible assets were tested for impairment and were determined not
      to be
      impaired.


F-8
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


***(H)***
            ***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.





***(I)  
      Earnings (Loss) Per Share***




Basic
        earnings (loss) per share is computed by dividing income (loss) available
        to
        common stockholders by the weighted average number of common shares outstanding
        for the period. Diluted earnings per share reflect the potential dilution
        of
        securities, using the treasury stock method that could share in the earnings
        of
        an entity. During the fiscal years ended June 30, 2006 and 2005, 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,
        2006
        and 2005, 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 share prices amounted to 3,645,000,000 and 4,300,000,000 shares,
        respectively.





***(J)  
      Property and Equipment***




Property
      and equipment are stated at cost. 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.





***(K)
       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 change and the 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 2006 and 2005, the provision for warranty
        costs and costs charged against the reserve were as follows:


2006
              
              2005Balance
                  at the beginning of
                  year
              
              $
              34,000
              
              $
              21,000Provison
                recorded
              
              
              739,000
              
              
              403,000Warranty
                costs incurred
              
              
              (709,000
              )
              
              (390,000
              )Balance
                at the end of year
              
              $
              64,000
              
              $
              34,000




***(L)
      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.




***(M)
      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, 2006
      and
      2005 were approximately $1,469,000 and $929,000, 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 2006 and 2005.


F-9
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


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




***(O)***  ***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.





***(P) 
      Investment in Unconsolidated Partnership***




The
      Company accounted for its investment in an unconsolidated partnership under
      the
      equity method of accounting, as the Company did not have control over this
      entity. This investment was recorded initially at cost and subsequently adjusted
      for equity in net earnings and cash distributions *(See
      Note 4)* .




***(Q)***
              ***Cash
                  and Cash
                  Equivalents***




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




***(R) 
        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 which
        currently is immmediately.




***(S) 
        Recent Accounting Pronouncements***




In
        December 2004 the Financial Accounting Standards Board (“FASB”) issued SFAS 123,
“Share-Based Payment”(“SFAS No. 123R”), which addresses the accounting for
        share-based payment transactions in which a company receives employee services
        in exchange for (a) equity instruments of the company or (b) liabilities
        that
        are based on the fair value of the company’s equity instruments or that may be
        settled by the issuance of equity instruments. SFAS 123R supercedes APB Opinion
        No. 25 and amends SFAS No. 95, “Statement of Cash Flows”. Under SFAS 123R,
        companies are required to record compensation expense for all share-based
        award
        transactions measured at fair value as determined by an option valuation
        model.
        This statement is effective for the first interim or annual reporting
        period beginning after December 15, 2005. Since the Company currently recognizes
        compensation expense at fair value for share-based transactions in accordance
        with SFAS 123, it does not anticipate adoption of this standard will have
        a
        significant impact on its financial position, results of operations or cash
        flows. However, the Company is still evaluating all aspects of the revised
        standard.




On
      June 7, 2005, the FASB issued Statement No. 154, “Accounting Changes
      and Error Corrections, a replacement of APB Opinion No. 20, Accounting
      Changes,” and Statement No. 3, “Reporting Accounting Changes in Interim
      Financial Statements.” Statement 154 changes the requirements for the accounting
      for and reporting of a change in accounting principle. Previously, most
      voluntary changes in accounting principles required recognition of a cumulative
      effect adjustment within net income of the period of the change. Statement
      154
      requires retrospective application to prior periods’ financial statements,
      unless it is impracticable to determine either the period-specific effects
      or
      the cumulative effect of the change. Statement 154 is effective for accounting
      changes made in fiscal years beginning after December 15, 2005; however,
      the Statement does not change the transition provisions of any existing
      accounting pronouncements. The Company does not believe adoption of Statement
      154 will have a material effect on the Company’s financial position, results of
      operations, or cash flows.


F-10
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


In
      September 2006, the Financial Accounting Standards Board 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.





**NOTE
      2.**  **DISCONTINUED
      OPERATIONS**




Effective
      June 30, 2005, PMIC ceased its operations except for liquidating its
      assets.  For
      financial statement reporting purposes, the operating results of PMIC are
      reclassified as discontinued operations. The operating results of PMIC for
      the
      fiscal year ended June 30, 2005 were as follows:


Net
                  sales
              
              $
              10,701,000Net
                  loss, net of minority interest
              
              $
              (1,195,374
              )


**NOTE
      3.**  **PROPERTY
      AND EQUIPMENT**




The
      following is a summary of property and equipment as of June 30, 2006 and
      2005:





**2006**
            
            **2005**Computer,
                office equipment and fixtures
            
            $
            204,249
            
            $
            $135,494Machinery
                and equipment
            
            
            59,277
            
            
            23,731Leasehold
                improvements
            
            
            58,952
            
            
            121,236322,478
            
            
            280,461Less:
                Accumulated depreciation
            
            
            94,117
            
            
            20,697**Property
                and equipment, net**
            
            $
            228,361
            
            $
            259,764




Depreciation
      expense for the years ended June 30, 2006 and 2005 was $73,420 and $19,615,
      respectively.





**NOTE
      4.**  **INVESTMENT
      IN UNCONSOLIDATED PARTNERSHIP**





On
      January 14, 2004, the Company's wholly-owned subsidiary, Hudson Street,
      purchased a minority interest in Yorkville Advisors Management LLC,
      ("Yorkville"), a privately-owned investment management partnership and the
      portfolio manager of Cornell Capital Partners, L.P., for a purchase price of
      $2,625,000.  During
      the fiscal year ended June 30, 2005, Hudson Street received $280,000 of cash
      distributions from this investment and recorded $385,233 as its distributive
      share of partnership net earnings.


F-11
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**




On
      January 31, 2005, the Managing Member of Yorkville Advisors Management, LLC,
      announced that Yorkville would begin winding up its affairs and was expected
      to
      be dissolved. Subsequently, on February 11, 2005, the Company’s partnership
      interest in Yorkville Advisors Management, LLC was redeemed in full for
      $2,625,000. We recorded a loss of $191,292 on the redemption of our Yorkville
      interest in fiscal 2005.





The
      Company used $1,825,000 of redemption proceeds to reduce its outstanding
      short-term obligation to Cornell Capital Partners, L.P. from $2,000,000 to
      $275,000, after paying extension and legal fees of $100,000. The promissory
      note
      was extended to June 30, 2005 and bears interest at a rate of 10% commencing
      February 10, 2005. Previously, the promissory note was non-interest bearing *(See
      Note 10(C)* .
      The
      Company received the balance of $800,000 of cash proceeds from the redemption
      in
      fiscal 2005.




NOTE
      5.LITIGATION
      SETTLEMENT




On
          February 5, 2004, the Company filed suit in Superior Court, Orange County,
          California, against Advanced Communications (Australia), Roger May, Global
          Communications Technologies Limited and Global Communications Technologies
          Pty
          Ltd to recover damages incurred as a result of wrongful actions of such
          defendants against the Company and to clarify the status of the Company's
          obligations to such defendants under various agreements and other arrangements,
          from which the Company believed it had been relieved as a result of such
          wrongful actions. In May and August 2004, the court entered default judgments
          in
          favor of the Company and against all of the above defendants. On October
          22,
          2004, the court held a hearing to determine the amount the Company was
          entitled
          to recover against the defendants in the action. In November 2004, the
          court
          entered a judgment in favor of the Company in the approximate amount of
          $8
          million. The Company offset against the judgment approximately $2,847,000
          of
          debt carried on its balance sheet as owing to one or more of the defendants
          and
          the Company recognized a gain in that amount.





On
          August
          11, 2006, the United States Bankruptcy Court for the District of Nevada
          approved
          the settlement agreement among ACT, PMIC, Encompass, the Company’s officers and
          two former terminated executives (“Terminated Executives”) of PMIC (See Notes
          10(E) and 15(B)). Among other terms of the settlement agreement, the Company
          paid the Terminated Executives $325,000 in cash on September 18, 2006.
          The
          remaining balance on the 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.




**NOTE
      6.**  **ACQUISITION
      OF CYBER-TEST, INC.**




On
      June
      2, 2004, Encompass acquired the business and assets of Cyber-Test, Inc., a
      Florida-based, electronic equipment repair company. Cyber-Test became the core
      operating business of Encompass and accounted for this acquisition using the
      purchase method of accounting in accordance with the provisions of SFAS 141.
      Under the terms of the Asset Purchase Agreement between Cyber-Test and
      Encompass, Encompass acquired all of the operating assets, tangible and
      intangible property, rights and licenses, goodwill and business of Cyber-Test,
      for a total purchase price of $3,498,469 consisting of $3,000,000 in cash,
      and a
      $498,469 three-year 6% unsecured installment note. The Company also incurred
      $399,571 of capitalized transaction costs, inclusive of $125,000 of broker
      fees,
      for a total acquisition cost of $3,898,040.




This
      acquisition has been accounted for by the purchase method of accounting and,
      accordingly, the operating results have been included in the Company’s
      consolidated results of operations from the date of acquisition. The Company
      acquired net tangible assets valued at $1,286,985. The excess of the
      consideration given over the fair value of net assets acquired has been recorded
      as goodwill of $2,611,055. During fiscal 2006, the Company issued and
      transferred 16,666,667 shares of its common stock, at its fair value of $13,333,
      into escrow for the Earn-Out Shares pursuant to the Asset Purchase Agreement.
      The Company recorded the value of the shares issued as an addition to goodwill.
      The Company accounts for the purchased goodwill in accordance with the
      provisions of SFAS 142.


F-12
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


Under
      the
      terms of the Asset Purchase Agreement between Cyber-Test and Encompass, the
      seller, Ms. Welton, of Cyber-Test is entitled to receive 16,666,667 shares
      (the
“Earn-Out Shares”) of the Company’s common stock provided that Cyber-Test
      achieves certain revenues and EBIDTA milestones (the “Milestones”) in each of
      the fiscal years ended June 30, 2005, 2006 and 2007. In the event that
      Cyber-Test does not achieve the Milestones during any such fiscal year, the
      Earn-Out Shares shall be forfeited unless the Board of Directors at its
      discretion grants these shares. In the event that Ms. Welton’s employment with
      the Company is terminated, for any reason, other than by the Company without
      “cause” or due to death or disability of Ms. Welton, prior to the expiration of
      the employment agreement, the Earn-Out Shares shall be forfeited entirely.
      As of
      June 30, 2006, the Company has issued and transferred 16,666,667 shares of
      its
      common stock, at its fair value of $13,333, into escrow for the year ended
      June
      30, 2005.




**NOTE
      7.**  **DEFERRED
      ACQUISITION COSTS**




The
      Company incurred certain legal, accounting and consulting costs relating to
      acquiring certain targeted businesses. The acquisition of the identified
      businesses is expected to be completed in fiscal 2007. Upon the closing of
      the
      acquisition, these legal, accounting and consulting costs will be capitalized
      as
      transaction costs of the acquired businesses. As of June 30, 2006, the Company
      has capitalized $301,921 of these acquisition costs.




**NOTE
      8.**  **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 recorded $400,000 for these licensed
      intangibles. The licensed intangibles will be amortized over a 5-year period
      using the straight-line method beginning from the closing date of certain
      planned acquisitions that are expected to close in fiscal 2007. The Company
      anticipates amortization expense associated with the licensed intangibles to
      be
      approximately $80,000 annually over a five year period following closing,
      subject to a change in the estimated useful life.


NOTE
        9.PACIFIC
        MAGTRON INTERNATIONAL CORP. AND SUBSIDIARIES




On
      December 30, 2004, we completed the acquisition of 6,454,300 shares 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"). The total purchase price of $500,000 consisted
      of
      two one-year 6% secured notes *(See
      Note 10 (E))* .
      The
      Company also incurred $168,834 of capitalized transaction costs for a total
      acquisition cost of $668,834. The PMIC Shares represented 61.56% of the
      currently issued and outstanding common stock of PMIC. 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. PMIC’s common stock trades on the Over the Counter
      Bulletin Board, and separately files periodic reports with the Securities and
      Exchange Commission under the Securities Exchange Act of 1934, as amended.
      The
      Company accounted for this acquisition using the purchase method of accounting
      in accordance with the provisions of SFAS 141.





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. On April
      12,
      2006, the Company and Theodore S. Li and Hui "Cynthia" Lee entered into a
      binding letter agreement with respect to the settlement of the litigation
      proceedings among the Company, PMIC, Encompass, the Company’s officers and Mr.
      Li and Ms. Lee. On August 11, 2006, the settlement agreement became effective
      upon the entry of the order (the Confirmation Order") of the United States
      Bankruptcy Court for the District of Nevada ("the "Court"), which is jointly
      administering the voluntary petitions filed by PMIC and its wholly-owned
      subsidiaries to reorganize their businesses under Chapter 11 of the United
      States Bankruptcy Code (the "Bankruptcy Proceedings") *(see
      Note 15(B))* for the
      terms of the settlement agreement). On that date, the Court confirmed the
      Fourth Amended Plans of Reorganization of PMIC and its wholly-owned subsidiary,
      LiveWarehouse, Inc. (collectively, the "Plan"), which incorporates the terms
      of
      the settlement agreement.


F-13
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


Pursuant
      to the confirmed and effective Plan, PMIC effected a reverse merger with
      Herborium, Inc., a provider of proprietary, natural and complimentary botanical
      healthcare products, on September 18, 2006 and become the surviving operating
      entity post-merger. The Company has contributed $50,000 on behalf of PMIC's
      shareholders to effectuate the Plan. The existing stock of PMIC was canceled,
      and new stock was issued. With respect to the Company's equity interest in
      PMIC,
      new stock was issued directly to the Company's shareholders, representing
      approximately an 8% interest in Herborium. The Company has recorded a charge
      to
      accumulated deficit for the $50,000 contribution to effectuate the
      Plan.




As
      of
      June 30, 2005, our entire investment of $668,834 in PMIC had been written off
      and is included in other income and (expenses) in the Company’s consolidated
      statement of operations.




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




Notes
      payable and capital lease obligations consist of the following at June 30,
      2006
      and 2005:


**2006**
              
              **2005**12%
                  Note Payable (A)
              
              $
              57,832
              
              $
              57,832Note
                  Payable to Shareholder (B)
              
              
              35,000
              
              
              —Note
                  Payable to Cornell Capital (C)
              
              
              275,000
              
              
              275,0006%
                  Unsecured Note (D)
              
              
              249,236
              
              
              332,314Payable
                  to former PMIC’s shareholders (E)
              
              
              325,000
              
              
              500,000Capitalized
                  Lease (F)
              
              
              39,181
              
              
              60,249Total
                  notes Payable and capital lease obligations
              
              
              981,249
              
              
              1,225,395Less:
                  current portion
              
              
              (965,909
              )
              
              (1,020,028
              )**Notes
                  payable and capital lease obligations,****less
                  current portion**
              
              **$**
              **15,340**
              
              **$**
              **205,367**




***(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 is payable
      in three equal annual installments of principal and interest, the first of
      which
      was due on December 1, 2003 with additional installments due on December 1,
      2004
      and December 1, 2005. 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%. On
      March 6, 2006 and August 1, 2006, the parties agreed to again extend the
      maturity date of the note to May 31, 2006 and September 30, 2006, respectively.
      As of June 30, 2006, 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 are due
      on
      October 24, 2006.




***(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 has not
      been
      paid when due and is currently in default.


F-14
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


***(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 matures on June 2, 2007, and is 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, 2006, the outstanding principal
      balance of the note was $249,236.





***(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 (collectively, the "Stockholders") 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 (the "Notes")
      in
      the principal amounts of $166,889 and $333,111 to Mr. Li and Ms. Lee,
      respectively *(See
      Note 9)* .
      The
      Notes matured on December 29, 2005 and bore interest at 6.0% per annum. The
      holders of the Notes, at their option, could convert into shares of common
      stock
      of the Company at a conversion price per share of $0.01. The Company’s payment
      obligations under the Notes were secured by the PMIC Shares.




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 (See
      Note
      15(B)). 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 resulting in a gain of $220,083.




***(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 equipment purchase was $69,678
      and
      is included in the accompanying balance sheet as property, plant, and equipment
      at June 30, 2006. Accumulated amortization of the leased equipment was $17,420
      as of June 30, 2006. 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 2006, are as
      follows:





**Year
                Ending**
              **June
                30,**
            
            **Amount**2007
            
            $
            27,3922008
            
            
            15,978Total
                minimum lease payments
            
            
            
            
            
            43,370Less:
                Amount representing interest
            
            (4,189
            )Present
                value of net minimum lease payments
            
            39,181Less:
                Current maturities of capital lease obligations
            
            (23,841
            )Long-term
                capital lease obligations
            $
            15,340


F-15
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


Total
      future maturities of long-term debt, including capital lease obligations, as
      of
      June 30, 2006 are as follows:





**Date**
            
            **Amount**June
                30, 2007
            
            
            965,909June
                30, 2008
            
            
            15,340**Total**
            
            **$**
            **981,249**




NOTE
      11.CONVERTIBLE
      DEBENTUREAND
      PREFERRED STOCK




***(A)
      10% Secured Convertible Debenture Due November 2004***




On
      November 22, 2002, the Company entered into a Securities Purchase Agreement
      with
      Cornell Capital Partners, L.P., whereby we agreed to issue and sell a Two
      Hundred Fifty Thousand Dollars ($250,000) 10% secured convertible debenture.
      The
      secured convertible debenture had a term of two years and was convertible into
      shares of common stock at a conversion price
      equal to $.001 per share. The secured convertible debenture accrued interest
      at
      a rate of 10% per year and is convertible at the holder's option. At the
      Company's option, the debenture may be paid in cash or redeemed at a 50%
      premium prior to
      November 2004. In connection with the Securities Purchase Agreement, the Company
      entered into a Security Agreement in favor of Cornell Capital Partners, L.P.
      whereby the
      Company granted to
      Cornell a
      security interest in all of its assets as security for its obligations under
      the
      secured convertible debenture, as well as all other obligations of the Company
      to Cornell Capital Partners, L.P. whether arising before, on or after the date
      of the Security Agreement.





On
      November 22, 2004, the outstanding 10% secured convertible debenture in the
      amount of $187,500 plus accrued interest of $38,588 held by Cornell Capital
      Partners, L.P. matured. On November 22, 2004 and December 27, 2004, Cornell
      Capital Partners, L.P. elected to convert, at $.001 per share, $10,000 and
      $100,000 of principal and $2,000 of accrued interest, respectively, into
      112,000,000 shares of common stock. On May 12, 2005, Cornell Capital Partners,
      L.P. converted the $77,500 plus $40,526 of accrued interest at $.001 per share
      into 118,026,000 shares of common stock. At June 30, 2006, no amount remains
      owed to Cornell Capital Partners, L.P. on the convertible debenture.




***(B)
      Preferred Stock***




**·**  **Series
      A Convertible Preferred Stock**





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





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





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


F-16
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


At
      June
      30, 2005, no preferred shares have been converted into common stock. During
      fiscal 2006, 635 shares of Series A Preferred Shares were converted into
      885,994,544 shares of the Company’s common stock.





**·**  **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
      Preferred Convertible Preferred Stock. The Series A-1 Preferred 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 Preferred 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 Preferred at any time, upon notice to the holders, for a price equal to
      120%
      of the amount paid per share (the “Liquidation Amount”),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 Preferred into shares
      of the Company’s common stock. The Series A-1 Preferred does not have any voting
      rights.





On
      September 13, 2006, the Company sold 340 shares of Series A-1 Preferred Stock
      at
      a $1,000 per share. In connection with the sale of Series A-1 Preferred Stock,
      the Company received aggregate gross proceeds of $340,000 as follows: (a)
      $290,000 from officers of the Company; and (b) $50,000 from an outside investor.
      In addition to the rights applicable to all holders of Series A-1 Preferred,
      the
      holders of Series A-1 Preferred Stock were granted certain piggyback
      registration rights in the event that the shares of Series A-1 Preferred are
      converted into shares of common stock.





**·**  **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 (the “Series
      B Preferred Shares”) having a liquidation value of $1,000 per share. The Series
      B Preferred Shares have the same terms and privileges as the Series A Preferred
      Shares, but are junior to the Series A Preferred Shares in the event of a
      liquidation of the Company, and are convertible, in whole or in part, on or
      after June 23, 2005 into shares of common stock on the same terms as the Series
      A Preferred Shares. On June 23, 2005, holders of 200 shares of Series B
      Convertible Preferred stock elected to convert $200,000 of preferred stock
      at a
      price of $.0005 per share into 400,000,000 shares of common stock. During fiscal
      2006, 40 shares of Series B Preferred Shares were converted into 63,492,064
      shares of the Company’s common stock. At June 30, 2006, 60 shares of Series B
      Convertible Preferred stock remain outstanding




**NOTE
          12.** **STOCKHOLDERS’
          DEFICIENCY**





***(A)
      Equity Line of Credit Facility***





In
      July
      2003, the Company entered into a $30 million Equity Line of Credit facility
      with
      Cornell Capital Partners, LP. Pursuant to the Equity Line of Credit, the Company
      may, at its discretion, periodically issue and sell to Cornell Capital Partners,
      LP shares of common stock for a total purchase of $30 million. The Equity Line
      of Credit facility has been terminated in fiscal 2006.




***(B)
      Stock Issued For Note Payable To Cornell Capital Partners,
      L.P.***





During
      the fiscal year ended June 30, 2005, the Company issued 172,881,526 shares
      of
      common stock having a value of $100,000 in partial repayment of the short-term
      note payable due to Cornell Capital Partners, L.P.


F-17
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


***(C)
      Stock Issued For Convertible Debt***





During
      the fiscal year ended June 30, 2005, the Company issued 230,026,000 shares
      of
      common stock valued at $187,500 and $42,526 of principal and accrued interest,
      respectively, in full payment on the 10% secured convertible debt. No amount
      remains owed to Cornell Capital Partners, L.P. on the convertible debenture
      as
      of June 30, 2006.





***(D)
      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.





On
      May
      24, 2005, the Board of Directors approved the issuance of 75,000,000 shares
      of
      the Company’s common stock to each of the four non-employee directors of the
      Company, or 300,000,000 in the aggregate, having a value of $52,500 each or
      $210,000 in the aggregate, in recognition of the considerable time and effort
      that each non-employee director has devoted to the Company’s business since at
      least October 1999 without adequate compensation and without the protection
      of
      directors and officers liability insurance (the “Stock Grants”). The Stock
      Grants were formally issued pursuant to the terms and conditions of the Plan
      on
      June 29, 2005.





Pursuant
      to the terms of a Services Agreement between Mr. Wayne I. Danson, Danson
      Partners, LLC and the Company, *(See
      Note 15(C))* ,
      on June
      29, 2005 Mr. Danson received a share bonus of 200,000,000 restricted, fully
      vested shares of the Company's Common Stock (the “Stock Bonus”). These shares
      had a value of $140,000 and together with the Stock Grants above, have an
      aggregate value of $350,000 that was charged to earnings as compensation expense
      for the fiscal year ended June 30, 2005.





***(E)
      Stock Issued For Services***





During
      the fiscal year ended June 30, 2005, the Company issued 5,000,000 shares of
      our
      common stock having a value of $7,500 to a third party for professional services
      rendered.





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





In
      connection with the employment agreements with two executives of Cyber-Test,
      the
      Company agreed to set aside for the payment of cash bonuses an amount equal
      to
      10% of net income of Cyber-Test during such fiscal years. For each fiscal year,
      the Company shall pay to each executive an annual performance bonus, in cash
      and/or restricted stock of the Company, equal to a portion of the Cyber-Test
      bonus pool, as determined by the Compensation Committee, in its sole discretion.
      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.


F-18
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**





**NOTE
          13.** **INCOME
          TAXES**





There
      was
      no income tax benefit or expense recorded for the years ended June 30, 2006
      and
      2005. 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 2006 and 2005 to income before income taxes:


**2006**
              
              **2005**Federal
                  income tax benefit at statutory rate
              
              $
              195,000
              
              $
              250,000Change
                  in deferred tax assets
              
              
              48,000
              
              
              (91,000
              )Non-taxable
                  income and expenses
              
              
              —
              
              
              (412,000
              )Change
                  in valuation allowance
              
              
              (243,000
              )
              
              253,000Federal
                  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,
      2006 and 2005. There was no tax benefit recorded relating to the increase in
      deferred tax assets.





As
      of
      June 30, 2006, the Company had total net operating loss carryforwards (NOL)
      available to offset future federal taxable income of approximately $31,000,000
      expiring in the fiscal years from 2016 through 2025. As of June 30, 2006, 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, 2006, the Company had NOLs available to offset
      future Florida, New York and California taxable income of approximately
      $25,000,000, $17,000,000 and $11,000,000, respectively. The Florida NOL expires
      from fiscal 2019 through 2026 and the New York NOL expires from fiscal 2023
      through 2026.





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


Deferred
                  tax assets (liabilities):Capital
                    loss carryover
              
              $
              1,352,000Net
                    operating loss carryover
              
              
              13,446,00014,798,000Valuation
                    allowance
              
              
              (14,600,000
              )198,000Property
                  and equipment
              
              
              (198,000
              )Net
                  deferred tax assets
              
              $
              —





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, 2006 and 2005, the Company recorded a 100% valuation
      allowance against the net deferred tax assets to reduce them to
      zero.





**NOTE
      14. MAJOR CUSTOMERS**





During
      the fiscal year ended June 30, 2006 and 2005, Cyber-Test sales to two customers
      accounted for approximately 90% and 83% of its sales, respectively. As of June
      30, 2006, accounts receivable from two major customers aggregated $303,000,
      or
      81% of accounts receivable.





**NOTE
      15.**  **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.


F-19
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


Cyber-Test
      leases a 29,000 square foot office/warehouse facility under a one-year triple
      net lease that commenced on August 1, 2004 and ends on July 31, 2005, and
      carries two one-year options at a monthly lease obligation of $13,900.
      Cyber-Test exercised its one-year options and extended its lease to July 31,
      2007.  The
      lease is renewable on a year-to-year basis by providing written notice 60 days
      prior to the expiration of the then current term.




***(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, 2006, there were no
      threatened or pending legal matters that would have a material impact on the
      Company's consolidated results of operations, financial position or cash
      flows.




On
      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.




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. 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. To the extent
      permissible, PMIC will reimburse ACT for this payment using available cash
      or
      other assets remaining in the PMIC bankruptcy estate after final distribution
      under the Plan. We currently do not expect PMIC to contribute more than $25,000
      to this reimbursement, and may not contribute any amount. In addition, Li and
      Lee received certain shares of common stock of Herborium Group. If these shares
      do not have a value of $.10 or greater at the end of a 150 day lock-up period,
      the difference will be made up, at our option, by cash payments from us or
      delivery of additional 1,750,000 shares of Herborium/PMIC common stock which
      would otherwise be issued to our stockholders under PMIC’s Plan of
      Reorganization and has been escrowed. A special stock distribution of shares
      of
      Herborium Group will be 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.


F-20
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


***(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”).  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.





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 annual 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.





On
      June
      3, 2004, 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.




**NOTE
      16.**  **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 $4,051 and $76,882 during the fiscal years 2006 and 2005,
      respectively. At June 30, 2006, the Company owed $1,100 to these
      attorneys.





***(B)
      President, Chief Executive Officer and Chief Financial
      Officer***




Per
      terms
      of the Service Agreement, DPL, for current and prior executive and financial
      services, was paid $362,476 in cash and $140,000 in stock during the fiscal
      year
      2005. Payments made to DPL in fiscal 2006 amounted to $135,700. At June 30,
      2006
      and 2005, the Company owed $257,600 and $0, respectively, to DPL for
      compensatory services.





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. *See
      Note 15(A)* .





On
      April
      24, 2006, the Company issued an unsecured promissory note to the Company’s
      President for loan proceeds of $35,000. *See
      Note 10(B).* On
      September 18, 2006, the Company received $50,000 from this executive for the
      purchase of our Series A-1 Preferred Stock.





***(C)
      Independent Directors***




Certain
      of the Company’s independent directors were contracted to provide business
      services to the Company. The Company paid these independent directors, for
      current and prior business services, an aggregate of $23,406 in cash during
      the
      fiscal year 2005. There was no payment made to these directors in fiscal 2006.
      At June 30, 2006, the Company owed these independent directors a total of
      $125,000 for director services rendered during the year ended June 30, 2006
      and
      for the three months ended June 30, 2005.


F-21
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


**NOTE
      17.**  **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, 2006 and 2005, 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. Pacific Magtron
      International Corp. ceased its operations in fiscal 2005 and its financial
      results have been reclassified as discontinued operations.





**NOTE
      18. RESTATEMENT**





The
      Company has historically classified its issues of Series A and Series B
      convertible preferred stock in stockholders’ equity based on the conclusion that
      each issue’s conversion feature was conventional, as is commonly the case with
      such classes of stock. However, since conversion is at the lower of the fixed
      price of $.01 per share or the three lowest closing bid prices for the ten
      trading days immediately preceding the date of conversion, there is no minimum
      price. Accordingly, the conversion of each of the individual issues of
      convertible preferred stock could result in the conversion into an
      indeterminable number of shares of common stock, and, therefore, under the
      guidance in paragraph 20 of Emerging
      Issues Task Force00-19, *“Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled
      in, a Company's Own Stock”*(“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. The Company thereby is required to reclassify its Series A and
      Series B issues of convertible preferred stock as a liability rather than as
      a
      component of stockholders’ equity. The Company reflected on its consolidated
      balance sheet and consolidated statement of changes in stockholders’ deficiency
      an increase in liabilities and stockholders’ deficiency. These reclassifications
      do not affect the Company’s reported revenues, expenses or cash flows from past
      or future operations.





The
      following table summarizes the changes in the consolidated balance sheets as
      of
      fiscal year end June 30, 2006, 2005 and 2004:





**June
                30,**
              **2006**
            
            **June
                30,**
              **2005**
            
            **June****30,**
              **2004**
              **(Unaudited)**Total
                liabilities, as previously reported
            
            $
            2,974,442
            
            $
            2,043,949
            
            $
            6,571,877Adjustment
                to reclassify preferred stock
            
            
            3,625,200
            
            
            4,300,000
            
            
            4,500,000Total
                liabilities, as restated
            
            $
            6,599,642
            
            $
            6,343,949
            
            $
            11,071,877Total
                stockholders’ equity, as previously reported
            
            $
            2,250,581
            
            $
            2,926,089
            
            $
            1,424,462Adjustment
                to reclassify preferred stock
            
            
            (3,625,200
            )
            
            (4,300,000
            )
            
            (4,500,000
            )Total
                stockholders’ (deficiency), as restated
            
            $
            (1,374,619
            )
            $
            (1,373,911
            )
            $
            (3,075,538
            )





The
      following table summarizes the changes in the unaudited consolidated balance
      sheet as of quarter end March 31, 2006, December 31, 2005 and September 30,
      2005:




**March
                31,**
              **2006**
            
            
            **December
                31,**
              **2005**
            
            
            **September
                30,**
              **2005**Total
                liabilities, as previously reported
            
            $
            2,702,465
            
            $
            2,452,962
            
            $
            2,327,606Adjustment
                to reclassify preferred stock
            
            
            3,875,200
            
            
            4,235,000
            
            
            4,285,000Total
                liabilities, as restated
            
            $
            6,577,665
            
            $
            6,687,962
            
            $
            6,612,606Total
                stockholders’ equity, as previously reported
            
            $
            2,214,314
            
            $
            2,436,436
            
            $
            2,563,618Adjustment
                to reclassify preferred stock
            
            
            (3,875,200
            )
            
            (4,235,000
            )
            
            (4,285,000
            )Total
                stockholders’ (deficiency), as restated
            
            $
            (1,660,886
            )
            $
            (1,798,564
            )
            $
            (1,721,382
            )


F-22
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**


The
      following table summarizes the changes in the unaudited consolidated balance
      sheet as of quarter end March 31, 2005, December 31, 2004 and September 30,
      2004




**March
                31,**
              **2005**
            
            
            **December****31,**
              **2004**
            
            
            **September
                30,**
              **2004**Total
                liabilities, as previously reported
            
            $
            10,576,877
            
            $
            15,154,409
            
            $
            6,514,496Adjustment
                to reclassify preferred stock
            
            
            4,500,000
            
            
            4,500,000
            
            
            4,500,000Total
                liabilities, as restated
            
            $
            15,076,877
            
            $
            19,654,409
            
            $
            11,014,496Total
                stockholders’ equity, as previously reported
            
            $
            2,978,463
            
            $
            4,276,258
            
            $
            1,471,514Adjustment
                to reclassify preferred stock
            
            
            (4,500,000
            )
            
            (4,500,000
            )
            
            (4,500,000
            )Total
                stockholders’ (deficiency), as restated
            
            $
            (1,521,537
            )
            $
            (223,742
            )
            $
            (3,028,486
            )





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





The
      following are the payments made during the fiscal years ended June 30, 2006
      and
      2005 for income taxes and interest:


**2006**
              
              **2005**Income
                  taxes
              
              $
              —
              
              $
              —Interest
              
              $
              16,328
              
              $
              19,481





During
      the fiscal year ended June 30, 2006 and 2005, the Company issued certain common
      shares for consideration other than cash.





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.*See
                Note 6.*




(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.*See
                Note 12(G).*




(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.*See
                Note 12(B).*





Fiscal
      Year Ended June 30, 2005:





(1)
            The
                Company issued 230,026,000 shares of common stock in full payment
                of
                $187,500 of principal and $42,526 of accrued interest on the 10%
                Secured
                Convertible Debenture.




(2)
            The
                Company issued 172,881,526 shares of common stock valued at $100,000
                in
                partial repayment of its short-term promissory
                note.




(3)
            The
                Company issued 5,000,000 shares of common stock valued at $7,500
                for
                professional services.




(4)
            The
                Company issued 400,000,000 shares of common stock valued at $200,000
                to
                various Series B Convertible Preferred shareholders upon conversion
                of
                their shares.


F-23
 ****ADVANCED
          COMMUNICATIONS TECHNOLOGIES, INC. AND
          SUBSIDIARIES****
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF JUNE 30, 2006**




(5)
            The
                Company issued 500,000,000 shares of common stock valued at 350,000
                to
                certain officers and directors as
                compensation.




(6)
            The
                Company issued 12,500,000 shares of common stock as the earned portion
                of
                deferred compensation.




*~
      end
      of filing ~*




F-24