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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 033-303365-C
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CCC GLOBALCOM CORPORATION
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(Name of Small Business Issuer as specified in its charter)
Nevada 36-3693936
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
1250 Wood Branch Park Drive, 6th Floor, Houston, Texas 77079
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(Address of principal executive offices)
Registrant's telephone no., including area code: (281) 529-4600
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Not Applicable
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Former name, former address, and former fiscal year, if
changed since last report.
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 3 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
Common Stock outstanding at April 30, 2003, 32,247,251 shares of $.001 par value
Common Stock.
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FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
CCC GLOBALCOM CORPORATION
For the Quarter ended March 31, 2003
The following financial statements and schedules of the registrant
are submitted herewith:
PART I - FINANCIAL INFORMATION
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Page of
Form 10-QSB
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Item 1. Financial Statements:
Consolidated Balance Sheet - March 31, 2003 and December 31, 2002 3
Consolidated Statement of Operations - for the three
months ended March 31, 2003 and March 31, 2002 4
Consolidated Statement of Cash Flows - for the three
months ended March 31, 2003 and March 31, 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Controls and Procedures 18
PART II - OTHER INFORMATION
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Page
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Item 1. Legal Proceedings 19
Item 2. Changes in the Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to Vote of Security Holders 19
Item 5. Other Information 19
Item 6(a). Exhibits 19
Item 6(b). Reports on Form 8-K 19
Signatures 20
Certifications 21
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CCC GLOBALCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
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Assets 2003 2002
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Current assets:
Cash and cash equivalents $ 341,834 $ 212,730
Restricted cash 375,146 389,138
Accounts receivable, net of allowance for
doubtful accounts of $1,970,002 and $2,435,015, respectively 2,995,778 3,008,240
Prepaid expense and other current assets 268,361 134,525
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Total current assets 3,981,119 3,744,633
Property and equipment, net 1,923,637 2,293,825
Intangibles, net 644,875 1,042,624
Other Assets 204,089 214,089
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Total assets $ 6,753,720 $ 7,295,171
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Liabilities and Stockholders' Deficit
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Current liabilities:
Note payable $ 2,598,613 $ 2,762,609
Accounts payable 15,901,961 14,430,550
Accrued expenses 2,014,347 2,127,858
Excise taxes payable 3,029,548 2,457,696
Accrued compensation and other 240,432 395,684
Current portion of long-term debt, net of discount of $738,150 and
$777,000, respectively 14,555,496 14,684,318
Deferred revenue 222,103 183,843
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Total current liabilities 38,562,500 37,042,558
Long-term debt 549,446 549,446
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Total liabilities 39,111,946 37,592,004
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Commitments and contingencies - -
Stockholders' deficit:
Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding 32,213,918 and 37,213,918, respectively 32,214 37,214
Additional paid-in capital 10,740,325 10,684,656
Accumulated deficit (43,130,765) (41,018,703)
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Total stockholders' deficit (32,358,226) (30,296,833)
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$ 6,753,720 $ 7,295,171
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See accompanying notes to consolidated financial statements.
3
CCC GLOBALCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
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2003 2002
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Net sales $ 5,223,021 $ 7,061,117
Expenses:
Cost of services (3,835,713) (5,891,253)
Selling, general and administrative expenses (2,570,178) (5,196,354)
Depreciation and amortization expense (783,986) (1,015,811)
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Loss from operations (1,966,856) (5,042,301)
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Other income (expense):
Interest income 42 4,551
Interest expense (277,631) (344,485)
Other, net 183,052 (18,230)
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(94,537) (358,164)
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Loss before income taxes (2,061,393) (5,400,465)
Income taxes - -
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Net loss (2,061,393) (5,400,465)
Preferential dividend (50,669) -
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Net loss applicable to common shareholders $ (2,112,062) $ (5,400,465)
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Net loss per share - basic and diluted $ (0.06) $ (0.15)
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Weighted average shares - basic and diluted 33,787,000 35,048,000
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See accompanying notes to consolidated financial statements.
4
CCC GLOBALCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
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2003 2002
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Cash flows from operating activities:
Net loss $ (2,061,393) $ (5,400,465)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 783,986 1,015,811
Bad debt expense - 623,159
Interest and fees added to line of credit - 160,879
Gain from disposal of subsidiary (183,052) -
(Increase) decrease in:
Restricted cash 13,992 (365,029)
Accounts receivable 12,462 238,047
Prepaid expenses (120,784) 415,581
Other assets 10,000 (158,673)
Increase (decrease) in:
Accounts payable 1,471,411 3,079,530
Accrued compensation and other (155,252) (168,510)
Excise taxes payable 571,852 711,848
Accrued expenses (113,511) 251,257
Deferred revenue 38,260 11,535
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Net cash provided by operating activities 267,972 414,970
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Cash flows from investing activities:
Proceeds from sale of subsidiary 170,000 -
Purchase of property and equipment (16,049) (44,901)
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Net cash provided by (used in) investing activities 153,950 (44,901)
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Cash flows from financing activities:
Payments on long-term debt (128,822) (26,151)
Net decrease on line of credit (163,996) (703,830)
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Net cash used in financing activities (292,818) (729,981)
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Net change in cash 129,104 (359,912)
Cash and cash equivalents at beginning of period 212,730 742,761
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Cash and cash equivalents at end of period $ 341,834 $ 382,849
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 245,096 $ 24,500
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Income taxes $ - $ -
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See accompanying notes to consolidated financial statements.
5
CCC GLOBALCOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
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1. Organization CCC GlobalCom Corporation, a Nevada corporation ("CCC
GlobalCom" or the "Company"), conducts operations in the
telecommunications industry though its wholly-owned
subsidiary, Ciera Network Systems, Inc. ("Ciera"). The
Company provides local and long-distance communications
services in the United States.
2. Principles of The consolidated financial statements include the
Consolidation accounts of the Company and its wholly-owned subsidiary,
Ciera Network Systems, Inc. All significnat intercompany
balances and transactions have been eliminated in
consolidation.
3. Basis of The accompanying unaudited consolidated financial
Presentation statements have been prepared by the Company in
accordance with accounting principles generally accepted
in the United States for interim financial information
and are in the form prescribed by the Securities and
Exchange Commission in instructions to Form 10-QSB and
Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
accounting principles generally accepted in the United
States for complete financial statements. The interim
unaudited financial statements should be read in
conjunction with the Company's audited financial
statements as of and for the year ended December 31,
2002. The unaudited financial statements include all
adjustments (consisting of normal recurring items) which
are, in the opinion of management, necessary to fairly
present the financial position as of March 31, 2003 and
the results of operations for the periods ended March
31, 2003 and 2002. Operating results for the three
months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the
year ending December 31, 2003.
4. Loss per The computation of basic earnings (loss) per common
Common Share share is based on the weighted average number of shares
outstanding during each quarter. The computation of
diluted earnings per common share is based on the
weighted average number of shares outstanding during the
year, plus the common stock equivalents that would arise
from the exercise of stock options and warrants
outstanding, using the treasury stock method and the
average market price per share during the year. Options
to purchase 1,503,000 and 915,000 shares of common stock
at a range of $1.00 to $3.75 per share were outstanding
at March 31, 2003 and 2002 respectively, but were not
included in the diluted loss per share calculation
because the effects would have been anti-dilutive.
5. Stock-Based Stock-Based Compensation
Compensation The Company accounts for stock-based compensation under
the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No options were
issued or vested during the quarters ended March 31,
2003 and 2002 therefore, there would be no effect on net
loss and loss per share if the Company had applied the
fair value recognition provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
6
6. Commitments During the quarter ended March 31, 2003, the Company
and Contingencies sold their interest in CCC GlobalTel Columbia S.A. As
part of the agreement, management agreed to indemnify
the new owner against certain claims that could arise up
to $170,000 for a period of one year from the date of
sale and for amounts incurred over $170,000 up to
$190,000 for three years from the date of the sale.
Management is unable to estimate the likelihood or
amount, if any, of the potential liability.
In March 2003, the Company entered into a carrier
agreement with a local service reseller. If the Company
is unable to pay for the services as they are due, the
carrier has the right to assume the corresponding
customer base.
7. Return of Shares During the quarter ended March 31, 2003, a major
and Preferential shareholder of the Company returned 5,000,000 shares of
Dividend the Company's common stock to the Company.
The major shareholder also agreed to give up to
3,000,000 shares of the Company's common stock to
another significant shareholder as reimbursement for
shares given to certain other shareholders who had
purchased shares of the Company's common stock in
previous periods. As of March 31, 2003, approximately
1,815,000 shares had been distributed. The transaction
was treated as a preferential dividend.
8. Supplemental During the quarter ended March 31, 2003, the Company:
Disclosure of
Cash Flow o Had 5,000,000 shares of the Company's common stock
Information returned by a major shareholder causing an increase
in additional paid-in-capital and a decrease in
common stock of $5,000.
o Recorded a preferential dividend of $50,669 caused
by a major shareholder giving shares of stock to
other shareholders. The shares were valued at the
fair market price on the date of the agreement.
o The Company sold its interest in GlobalTel in
exchange for cash of $170,000 and a note receivable
of $20,000 included on the Company's balance sheet
under the caption other assets.
During the three months ended March 31, 2002, the
Company:
o Increased common stock and additional paid in
capital by $366,496 upon the issuance of 112,768
shares of common stock and decreased accounts
payable by the same amount. The services were
provided in 2001.
o Purchased software financed with a $441,119 capital
lease.
o RFC Capital Corp. exercised a warrant and received
125,000 shares of Company stock for a $500,000
reduction in the line of credit.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The following discussion and analysis relates to our financial
condition and results of operations for the three months ended March 31, 2002
and 2003. This information should be read in conjunction with the consolidated
financial statements and notes thereto contained herein, as well as the
"Cautionary Statement Regarding Forward-Looking Statements" in this Form 10-QSB.
We were, prior to June 12, 2000, named Emerald Capital Investments,
Inc. On June 9, 2000 we commenced operations in the telecommunications industry
through the acquisition of CCC GlobalCom Corporation, a Texas corporation ("CCC
Texas"). CCC Texas was formed in 1999 to commence operations in the
telecommunications industry. CCC Texas conducted no operations except for its
acquisition of Ciera Network Systems, Inc. ("Ciera"). Our acquisition of CCC
Texas, and as a result of such acquisition, the acquisition of Ciera was
accounted for as a reverse merger.
The telecommunications industry has experienced a great deal of
instability during the past several years. During the 1990s, forecasts of very
high levels of future demand brought a significant number of new entrants and
new capital investments into the industry. However, many industry participants
have gone through bankruptcy, those forecasts have not materialized,
telecommunications capacity now far exceeds actual demand and, as a result, the
marketplace is characterized by fierce price competition as traditional and next
generation carriers and Integrated Communications Providers compete to secure
market share. Resulting lower prices have eroded margins and have kept many
industry participants, including the Company, from attaining ongoing positive
cash flow from operations. Many industry participants and their customers have
gone and are undergoing reorganizations through bankruptcy, contemplating
bankruptcy, or experiencing significant operating losses while consuming much of
their remaining liquidity. The Company does not know if and when the current
state of aggressive pricing will end.
On March 18, 2003, we entered into an agreement with Teleinversiones
Ltda., a limited liability company organized under the laws of Colombia and
domiciled in Bogota, Colombia, to sell 100% of our interest in CCC GlobalTel de
Colombia. The terms of the agreement call for Teleinversiones to pay CCC
GlobalCom $170,000 (less 15% - Colombian income and remittance tax) immediately
and additional payments of $10,000 on the first and second anniversary dates of
the signed agreement. A gain of approximately $183,000 was recorded in the
financial results for the three months ended March 31, 2003. As part of the
agreement with the new owner, the Company agreed to indemnify the new owner
against certain claims that could arise up to $170,000 for a period of one year
from the date of the sale and for amounts incurred over $170,000 up to $190,000
for three years from the date of the sale. We are unable to estimate the
likelihood or amount, if any, of the potential liability.
The Company has had operating losses for every quarter since it began
operations in June 2000. The auditors' opinion on the consolidated financial
statements as of December 31, 2002, calls attention to substantial doubt about
the Company's ability to continue as a going concern. The Company is
experiencing difficulty in paying its vendors, carriers, taxing entities and
lenders on time, and it may continue to experience this difficulty in the
future. If the Company is unable to pay its vendors, carriers and lenders on
time, they may stop providing critical services or repossess critical equipment
that the Company needs to stay in business.
On December 31, 2002, we signed an Amended and Restated Loan Agreement
with RFC Financial Corporation that provides for a revolving line of credit.
Under the Loan and Security Agreement, RFC has a security interest in and lien
on Ciera Network Systems, Inc. and CCC GlobalCom Corporation's assets, including
inventory, accounts receivable, intangibles, equipment, furniture and fixtures,
trade names and marks, intellectual property, customer base, deposit accounts,
and insurance proceeds. Under the Loan and Security Agreement the principal
amount of the revolving line of credit is not to exceed the lesser of (a)
$6,000,000 and (b) the Availability Formula. The Company has extended the full
amount available under the Availability Formula. In addition, we were able to
refinance $14,000,000 of the line of credit to term notes. The notes have a
number of loan covenants, one of which requires the Company to pay all required
federal and state taxes in a timely manner. The Company is delinquent in the
payment of federal and state excise taxes. Another loan covenant requires the
Company to achieve negative EBITDA results of no greater than $850,000 for the
8
three months ended March 31, 2003. The Company achieved negative EBITDA results
of approximately $1,000,000 for the three months ended March 31, 2003. As a
result, the Company is not in compliance with the loan covenants. RFC has not
notified the Company of an event of default.
During the quarter ended March 31, 2003, a major shareholder of the
Company returned 5,000,000 shares of the Company's common stock to the Company.
The major shareholder also agreed to give up to 3,000,000 shares of the
Company's common stock to another significant shareholder as reimbursement of
shares given to certain other shareholders who had purchased shares of the
Company's common stock in previous periods. As of March 31, 2003, approximately
1,815,000 shares had been distributed. The transaction was treated as a
preferential dividend.
The Company has received disconnection notices for past due balances
from significant carriers. It is our belief that certain amounts included in
these past due balances are in error and are being disputed. As of March 31,
2003, we had disputed approximately $1,189,000 of charges with various carriers.
The consolidated financial statements do not reflect any adjustments to reduce
liabilities for the impact of the unresolved claims. The Company is also in
discussions with the carriers regarding extended payment terms for the
undisputed balances. We believe that ultimately these discussions will result in
lower monthly charges for CCC GlobalCom. However, there can be no assurance that
we can successfully dispute the balances identified as in error or negotiate
favorable payment terms for the remaining undisputed balances.
On March 10, 2003, SBC sent a letter notifying the Company that we had
fifteen calendar days to pay all past due balances owed to SBC. SBC stated in
the letter that they reserved the right to disconnect Ciera Network Systems,
Inc.'s service on all of its Missouri, Texas, Kansas, and Oklahoma UNE and
resale accounts. The Company contracted with a third party vendor to continue
servicing customers in Texas. Ciera Network Systems, Inc.'s service for
customers in Missouri, Kansas, and Oklahoma has been disconnected by SBC. The
Company estimates monthly revenues lost with this disconnection of services at
$250,000.
On March 19, 2003, the Missouri Department of Revenue sent a Revocation
Order to Ciera Network Systems, Inc. The Order, which revokes Ciera's Missouri
retail sales license, was issued because of Ciera's delinquency in reporting and
paying Missouri retail sales tax. The operation of a business without a valid
Missouri retail sales tax license is a Class A misdemeanor and continued
operation will subject the Company to a penalty not to exceed $10,000. The
Company is evaluating choices of action to resolve outstanding issues with
Missouri taxing authorities.
During the three months ended March 31, 2003, the Company paid
consulting fees and expenses to a board member totaling $42,600.
Our consolidated financial statements have been prepared assuming that
we will continue as a going concern. We have incurred losses since inception and
have a working capital deficit as of March 31, 2003. Additionally, we have had
recurring negative cash flows from operations. For the reasons stated in
Liquidity and Capital Resources and subject to the risks referred to in
Liquidity and Capital Resources, we cannot assure you that we can raise the
money necessary to fund future operations.
Our History of Operating Losses and Deficiencies in Cash Flows
We have incurred operating losses and deficiencies in operating cash
flows in each year since our inception and expect our losses to continue through
December 31, 2003. Our operating losses were $15,831,916, $17,881,001 and
$1,816,901 for the years ended December 31, 2002, 2001 and 2000, respectively.
We had an operating loss of $1,966,856 for the first quarter 2003 and a working
capital deficit of $34,581,381 at March 31, 2003.
Results of Operations
THREE MONTHS ENDED March 31, 2003 COMPARED TO March 31, 2002
NET SALES. Revenues primarily consist of billings for long-distance
telephone services, local telephone services, private line circuits, and prepaid
and postpaid calling cards. Revenues for the three months ended March 31, 2003
and 2002, were $5,223,021 and $7,061,117, respectively. Revenues declined for
the three months ended March 31, 2003, compared to the same period 2002, because
9
of the disconnection of services by certain carriers during the fourth quarter
2002 and first quarter 2003 and because of a decline in customer base.
Usage-based revenues are approximately 62% of total revenue and monthly
recurring revenues are approximately 38% of total revenue for the three months
ended March 31, 2003.
COST OF SERVICES. Cost of services includes direct costs for telephone
services. Cost of services for telephone services include the cost of services
provided by other carriers, network costs, and miscellaneous costs incurred to
provide service. Cost of services for the three months ended March 31, 2003 were
$3,835,713 compared to $5,891,253 for the three months ended March 31, 2002.
Cost of services for the three months ended March 31, 2003, includes
approximately $3,722,000 of direct carrier costs. Cost of services declined for
the three months ended March 31, 2003, because of the reduction in associated
revenues and improved cost management that includes disputing incorrect carrier
charges and directing voice traffic to the least cost provider. Gross margin for
the three months ended March 31, 2003 and 2002 was approximately 27% and 17%,
respectively. Gross margin improved because of improved cost management and
billing processes.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative (SG&A) expenses consist of costs to provide billing and
collection of all services, support services for subscribers, cost of the
information systems, commissions and salaries of the personnel to support our
operations. SG&A expenses for quarters ended March 31, 2003 and 2002, were
$2,570,178 and $5,196,354, respectively. The reduction in SG&A expense for the
three months ended March 31, 2003, compared to the three months ended March 31,
2002, was primarily because of the reduction in number of employees, the closing
of facilities in Missouri and California as previously reported and the
reduction of integration costs incurred during the first quarter 2002. SG&A for
the three months ended March 31, 2003, includes: approximately $1,284,000 of
payroll and employee benefit related expenses; approximately $174,000 in
facilities expense; and approximately $454,000 in professional fees and expenses
compared to the three months ended March 31, 2002: approximately $2,889,000 of
payroll related expenses; approximately $293,000 of facilities expenses; and
approximately $805,000 in professional fees.
DEPRECIATION AND AMORTIZATION EXPENSE: Depreciation and amortization
expense for the quarters ended March 31, 2003 and 2002, were $783, 986 and
$1,105,811, respectively. The decrease in depreciation expense is because of the
one-time noncash write off of approximately $2,312,000 for the abandonment of
leasehold improvements related to the closing of facilities in California
recorded during the third quarter 2002.
OTHER INCOME (EXPENSE). For the three months ended March 31, 2003 and
2002, other expense was $94,537 and $358,164, respectively. For the three months
ended March 31, 2003, other expense consists of approximately $278,000 of
interest expense offset with a gain on the sale of our interest in GlobalTel of
approximately $183,000.
Liquidity and Capital Resources
During the three months ended March 31, 2003, we generated positive
cash flow from operations of approximately $268,000. The amount of cash
generated is a result of the net loss incurred during the period offset by the
timing of cash receipts from our customers and the extension of monies owed to
our vendors and excise taxes payable. We have historically operated with
negative cash flows and have sought to fund those losses and deficits through
the issuance of debt and the completion of private equity placements.
During the three months ended March 31, 2003, the Company acquired
approximately $16,000 in equipment that was not financed through capital lease
or financing arrangements. Additional cash outflows included payments of
approximately $129,000 towards our capital lease obligations and notes payable.
In addition, we had cash outflows of approximately $164,000 that reduced our
line of credit with RFC Capital Corporation. RFC Capital Corporation in March
2002, also exercised common stock warrants reducing our line of credit an
additional $500,000.
Altogether, our net operating, investing and financing activities
during the year generated approximately $129,000 in cash. Our working capital
deficit at March 31, 2003 was approximately $34,581,000. This represents an
increase of approximately $1,283,000 from the working capital deficit of
$33,298,000 at December 31, 2002.
10
Our current liabilities include a total of approximately $11,526,000
owed to various carriers, most of which is significantly past credit terms. We
have disputed approximately $1,189,000 of charges with various carriers. The
consolidated financial statements do not reflect any adjustments to reduce
liabilities for the impact of unresolved claims. In addition, our current
liabilities include approximately $4,376,000 of amounts owed to various other
trade vendors, some of which are also past credit terms. We currently do not
have sufficient cash to bring our vendors back to current terms.
Until we produce positive cash flow from operations and reduce or
eliminate our working capital deficit, management will be faced with deciding
whether to use available funds to pay vendors and suppliers for services
necessary for operations, to pay federal and state taxes, to service our debt
requirements, or to purchase equipment to be used in the growth of our business.
We will need to raise additional capital to pay vendors and suppliers, to pay
federal and state taxes, to service debt requirements and purchase equipment. We
do not consistently pay all of our suppliers on time, some of which are critical
to our operations. These suppliers have given us payment extensions in the past,
although there is no guarantee they will do so in the future.
Since we have produced negative EBITDA results during 2002 and for the
three months ended March 31, 2003, we will most likely need to achieve positive
EBITDA in order to obtain any significant amounts of debt funding to meet our
capital expenditure and working capital needs. As such, we will need to complete
additional private placements in order to raise the funds needed. Although
capital markets have been difficult, we have shown an ability to raise funds. In
May 2001, we raised, net of issuance costs, $2,331,706 through a private
placement memorandum. Although we have been successful in raising funds in the
past, there are no assurances that we will be able to continue to do so.
Liquidity Assessment
In addition, we expect our network development will require funds to
develop our comprehensive information technology platform to support and enhance
the provisioning, billing and installation of new and existing customers and to
purchase and install network equipment. We estimate our capital expenditures to
be approximately $200,000 for 2003. We will also be required to fund our
operating losses and working capital and possible expenditures associated with
market expansions and potential acquisitions of businesses or assets. In
addition, we will require funds to pay our current future minimum lease
obligations under noncancelable operating and capital leases and future minimum
commitments under long-term contractual obligations associated with maintenance
and service agreements. Such future minimum commitments are as follows:
Capital Other long-term Total minimum
Period Ending Operating lease lease contractual long-term
March 31, 2003, obligations obligations obligations obligations
----------- ----------- ----------- -----------
2003 $ 549,000 $ 352,000 $ 14,415,000 $ 15,316,000
2004 626,000 145,000 278,000 1,049,000
2005 282,000 28,000 222,000 532,000
2006 249,000 0 0 249,000
2007 31,000 0 0 31,000
Thereafter 0 0 0 0
Total future minimum
long-term obligations $ 1,737,000 $ 525,000 $ 14,915,000 $ 17,177,000
We have limited capital resources available to us, and these resources
may not be available to support our ongoing operations until such time as we are
able to generate positive cash flows from operations. There is no assurance we
will be able to achieve future revenue levels sufficient to support operations
or recover our investment in property and equipment, and other intangible
assets. These matters raise substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is dependent upon the
ongoing support of our stockholders and customers, our ability to obtain capital
resources to support operations and our ability to successfully market our
services.
11
It is the plan of management, in order to continue operations, to seek
additional revenue generating activities and to seek additional capital and
borrowing infusion. There can be no assurance that management will be successful
with this plan.
Inflation
Inflation continues to apply modest, upward pressure on the cost of
services provided by CCC GlobalCom.
Forward Outlook and Risks
From time to time, CCC GlobalCom may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological development, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, CCC GlobalCom notes that a variety of factors
could cause our actual results and experience to differ materially from the
anticipated results or other expectations expressed in any of our
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of CCC GlobalCom's business
include, but are not limited to, the following: (a) the failure to obtain
additional borrowed and/or equity capital on favorable terms for acquisitions
and expansion; (b) adverse changes in federal and state laws, to government
reimbursement policies, to private industry reimbursement policies and to other
matters affecting CCC GlobalCom's industry and business; (c) the availability of
appropriate acquisition candidates and the successful completion of
acquisitions; (d) the demand for our products and services; and (e) other risks
detailed in our Securities and Exchange Commission filings.
This Form 10-QSB contains and incorporates by reference certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act with respect to results of operations
and businesses of CCC GlobalCom. All statements, other than statements of
historical facts, included in this Form 10-QSB, including those regarding market
trends, CCC GlobalCom's financial position, business strategy, projected costs,
and plans and objectives of management for future operations, are
forward-looking statements. In general, such statements are identified by the
use of forward-looking words or phrases including, but not limited to,
"intended", "will", "should", "may", "expects", "expected", "anticipates", and
"anticipated" or the negative thereof or variations thereon or similar
terminology. These forward-looking statements are based on CCC GlobalCom's
current expectations. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, there can be no assurance that
such expectations will prove to be correct. Because forward-looking statements
involve risks and uncertainties, CCC GlobalCom's actual results could differ
materially. Important factors that could cause actual results to differ
materially from our expectations are disclosed hereunder and elsewhere in this
Form 10-QSB. These forward-looking statements represent our judgment as of the
date of this Form 10-QSB. All subsequent written and oral forward-looking
statements attributable to CCC GlobalCom are expressly qualified in their
entirety by the Cautionary Statements. CCC GlobalCom disclaims, however, any
intent or obligation to update its forward-looking statements.
Ability to Continue as a Going Concern. As a result of our financial condition,
our independent auditor included an explanatory paragraph in its report on our
financial statements for the period ended December 31, 2002, with respect to our
ability to continue as a going concern. Our ability to continue in the normal
course of business is dependent upon its access to additional capital and the
success of future operations. Uncertainties as to these matters raised
substantial doubt about our ability to continue as a going concern at the date
of such report.
We Have a History of Operating Losses, and We May Not Be Profitable in the
Future. We have incurred significant operating and net losses in the past and
expect to continue to incur losses in the future as we deploy our network,
expand our service offerings and enter new markets. For the year ended December
31, 2001, the Company had a net loss of $18,790,367. For the year ended December
31, 2002, CCC GlobalCom had a net loss of $19,710,961. For the three months
ended March 31, 2003, the Company had a net loss of $2,061,393. As we expand our
operations, we expect our negative cash flow, operating losses and net losses to
continue for the foreseeable future. We cannot assure that our revenues will
grow or that we will achieve profitability in the future. If we continue to
generate losses without obtaining additional funding, our ability to pursue our
business strategy may be restricted. We have never been profitable and do not
expect to become profitable in the near future. We have invested and will
12
continue to invest significant amounts of money in our network and personnel in
order to maintain and develop the infrastructure we need to compete in the
markets for our services and achieve profitability.
Limited Assets and Working Capital Deficit. As of March 31, 2003, we had, on a
consolidated basis, total assets of approximately $6,754,000 and a working
capital deficit of approximately $34,581,000. There can be no assurance that we
will realize positive cash flow from operations in the foreseeable future. With
limited assets and working capital deficit, we may continue to experience
difficulty in paying our vendors, lenders, and taxing authorities. If we are
unable to pay our vendors, lenders, and taxing authorities they may stop
providing critical services, repossess critical equipment, cease funding on our
revolving line of credit, or revoke taxing authority licenses or permits
required to conduct business. In the past we have had significant carriers
terminate services to the Company, we currently are not in compliance with loan
covenants and we have received a Revocation Order from the State of Missouri
revoking Ciera Network Systems' Missouri retail sales tax license.
Additional Capital Required. Our business plan provides that we will attempt to
complete additional acquisitions. We believe that we will be required to raise
additional capital in order to fund our business plan during the next 24 months.
There can be no assurance that additional financing would be available to us or,
if available, that it could be obtained on acceptable terms. We have financed
our operations almost exclusively through the private sales of securities. Since
we are losing money, we must raise the money we need to continue operations and
expand our network either by selling more securities or borrowing money. If we
are not able to raise additional money we will not be able to implement our
strategy for the future, and we will either have to scale back our operations or
shut down all of our operations. Failure to obtain such financing could result
in the delay or abandonment of some or all of our development and expansion
plans and expenditures and could have a material adverse effect on us.
Limited Operating History. We provide voice and data services through the use of
the networks of other communication providers. We have been operating in the
telecommunications business through our wholly-owned subsidiary, Ciera, for
approximately three years. We have limited assets, limited revenues and limited
customers. Our customer base and revenues are stable to declining on a monthly
basis and we have operated at a loss since its inception. There can be no
assurance that we will ever operate profitably. In order to significantly
increase revenues, we must acquire other companies, as well as grow internally.
Although our management has conducted extensive discussions with the principals
of several acquisition targets, there can be no assurance that we can fund the
acquisitions, that we can complete the acquisitions or that the acquired
businesses will operate at a profit. As a result of our limited operating
history as a facilities-based Integrated Communications Provider, we have
limited operating and financial data on which we can predict our future
performance and base our investment decisions. We cannot assure that we can
successfully operate as a facilities-based Integrated Communications Provider.
We Must Expand and Operate Our Network. Our success and ability to increase our
revenues depends upon our ability to deliver telecommunication services which,
in turn, depends on our ability to successfully integrate new and emerging
technologies and equipment into our network and to increase the number of our
customers significantly.
The Telecommunications Market in Which We Operate is Highly Competitive, and We
May Not Be Able to Compete Effectively Against Companies That Have Significantly
Greater Resources Than We Do, Which Could Cause Us to Lose Customers and Impede
Our Ability to Attract New Customers. The telecommunications industry is highly
competitive and is affected by the introduction of new services by, and the
market activities of, major industry participants. Most of our other current
competitors are substantially larger and have greater financial, technical and
marketing resources than we do. We have not achieved, and do not expect to
achieve, a significant market share for any of the telecommunication services we
offer. Many of our competitors have the following advantages over us:
o long-standing relationships and brand recognition with customers;
o financial, technical, marketing, personnel and other resources
substantially greater than ours;
o more funds to deploy telecommunication services;
o potential to lower prices of competitive telecommunication
services that compete with ours;
13
o fully-deployed and operational networks; and
o benefits from existing regulations that favor the incumbent
telephone companies.
We face, and expect to continue to face, competition from current and
potential market entrants, including:
o long-distance providers seeking to enter, reenter or expand entry
into the local telecommunications marketplace; and
o other domestic and international integrated communication
providers, resellers, Internet companies, cable television
companies, electric utilities and municipalities, which are using
their rights-of-way and other assets to enter the
telecommunication services market. In addition, a continuing trend
toward combinations and strategic alliances in the
telecommunications industry could give rise to significant new
competitors, which could cause us to lose customers and impede our
ability to attract new customers.
Continuing Weakness in the Economy and the Telecommunications Industry May
Impact the Company. The continuation of the downturn in the United States'
economy and, in particular, the telecommunications industry, may have a
significant impact on the Company. Several of the Company's competitors and
customers have filed for protection under the bankruptcy laws and the Company
may be unable to collect receivables due to bankruptcies and business
difficulties among its customers. Competitors who successfully complete
restructuring or bankruptcy reorganization processes or who introduce new
product offerings may put the Company at a competitive disadvantage.
Resistance by Potential Customers to Enter into Service Arrangements With Us May
Reduce Our Ability to Increase Our Revenue. The success of our
telecommunications service offerings will be dependent upon, among other things,
the willingness of customers to accept us as a new provider of voice and data
services. Many of our potential customers have entered into term contracts with
incumbent telephone providers that have penalties for early termination, which
our potential customers may not want to incur. In addition, potential customers
may not want to change their existing service providers for a variety of reasons
such as:
o long-standing service relationships with existing providers;
o potential service interruptions in switching to a new provider;
and
o existing providers having financial, technical, marketing and
other resources that are substantially greater than ours.
We cannot assure that we will be successful in overcoming the
resistance of customers to change their current integrated communication
providers, particularly those that purchase services from incumbent telephone
companies. The lack of such success would reduce our ability to increase our
revenue.
A Default in the RFC Financial Corporation Loan and Security Agreement could
result in the lender seizing the Company's Assets. The Company is in technical
default on its obligations under the RFC Financial Corporation Loan and Security
Agreement because it has failed to achieve certain financial covenants required
by the Loan and Security Agreement. Since the RFC Financial Corporation Loan and
Security Agreement represents debt secured by assets of the Company, if the
Company is not able to comply with the financial covenants contained in the Loan
and Security Agreement or obtain a waiver for the failure to comply with such
covenants from RFC Financial Corporation, the default could potentially result
in the Company's assets being seized by RFC Financial Corporation.
If Our Back Office and Customer Service Systems Are Unable to Meet Our Needs, We
May Not Be Able to Bill Our Customers Efficiently or Provide an Adequate Level
of Customer Service. Sophisticated back office processes and information
management systems are vital to our growth and our ability to bill customers
accurately, initiate service for customers, achieve operating efficiencies and
improve our operating margins. Our plans to develop and implement these back
office and customer service systems rely, for the most part, on choosing
products and services offered by third-party vendors and integrating these
products and services into our operations. We cannot assure that these systems
will perform as expected as we grow our customer base. In addition, our right to
14
use these systems depends upon license agreements with third-party vendors. If
these vendors elect to cancel or not renew some or all of these license
agreements, our business may be adversely affected. Some of the risks associated
with our back office and customer service systems include:
o the failure by third-party vendors to deliver their products and
services in a timely and effective manner and at acceptable costs;
o our failure to identify key information and processing needs;
o our failure to integrate our various information management
systems effectively;
o our failure to maintain and upgrade systems as necessary; and
o our failure to attract and retain qualified systems support
personnel.
Development and Expansion Risk and Possible Inability to Manage Growth. We are
in the early stages of operations. Our success will depend, among other things,
on substantial increases in customer base, on our ability to engage in business
in foreign markets, on the execution of agreements with the owners of
long-distance lines or distribution channels, on obtaining of governmental
permits, and on subsequent developments in state and federal regulations. In
addition, the expansion of our business will involve acquisitions, which could
divert the resources and management time and require integration with our then
existing operations. There can be no assurance that any acquired business will
be successfully integrated into our operations or that any such acquisition will
meet our expectations. Our future performance will depend, in part, upon our
ability to manage our growth effectively, which will require us to implement and
improve our operating, financial and accounting systems, to expand, train and
manage its employee base and to effectively manage the integration of acquired
businesses. These factors, and others, could adversely affect the expansion of
our customer base and service offerings. Our inability either to expand in
accordance with our plans or to manage our growth could have a material adverse
effect on our business, financial condition and results of operations.
We Will Need to Rely on Incumbent Local Exchange Carriers (ILECs) to
Successfully Implement Our Services. Their Failure to Cooperate With Us Could
Adversely Affect the Services We Offer and Cause Us to Lose Customers. We are,
and will continue to be, dependent on the ILECs and, as we expand our network,
on other incumbent telephone companies that operate in our target market areas
to assure that we can provide our customers uninterrupted service and
competitive services. The Telecommunications Act of 1996 requires the largest
incumbent telephone companies to lease or "unbundle" their network elements and
make them available to others and us for purchase, as well as provide their
telecommunications services to others and us at wholesale prices. We cannot,
however, assure that these elements and services will be provided in a
commercially-viable manner or at reasonable prices. Many new integrated
communication providers have experienced difficulties in working with incumbent
telephone companies. Problems have arisen in installing access lines,
implementing interconnection and co-location and integrating the preordering,
ordering, repairing and billing systems used by new integrated communication
providers with the systems of incumbent telephone companies. These problems may
impair our reputation with customers who can easily switch back to incumbent
telephone companies or to other telecommunications service providers.
Coordination and cooperation with incumbent telephone companies are necessary
for new integrated communication providers, such as us, to provide local service
to customers on a timely, cost-effective and competitive basis. In addition, our
ability to implement successfully our switched and enhanced telecommunications
services will require the negotiation of interconnection and co-location
agreements with incumbent telephone companies. Interconnection agreements set
forth the terms and conditions governing how local integrated communication
providers interconnect their networks and/or purchase or lease network
facilities and services. These negotiations may require considerable time,
effort and expense and the agreements will be subject to federal and state
regulation. The terms of interconnection agreements, such as our agreements with
ILECs, typically cover a two- to three-year period, requiring us to renegotiate
them frequently. We cannot assure that we will be able to renegotiate these
interconnection agreements or negotiate new agreements in our existing and new
markets on favorable terms. Delays in obtaining interconnection agreements may
delay our entry into new markets. In addition, the prices set forth in the
interconnection agreements may be subject to significant rate increases at the
discretion of the regulatory authority in each of the states in which we do
business. A significant part of our cost structure depends on these
state-regulated rate structures. We cannot assure that the rates charged to us
under our interconnection agreements will allow us to offer usage rates low
enough to attract a sufficient number of customers to operate our business
profitably.
15
If Third Parties Do Not Provide the Telecommunications Products and the
Installation and Field Services That Are Critical to Our Business We Could Lose
Customers. Because we depend on third-party vendors we do not have guaranteed
capacity or control over delivery schedules, quality assurance, production
yields and costs. If any of our vendors reduces or interrupts its supply of
products, or if any significant installer or field service provider interrupts
its service to us or fails to perform to required specifications, our business
could be disrupted, which could cause us to lose customers. In addition, our
suppliers may be unable to manufacture and deliver the telecommunications
products we require. If this were to occur, we might be unable to deploy our
network in a timely manner, thus reducing our ability to compete.
Declining Prices for Telecommunications Services Could Reduce Our Revenue and
Profitability. The telecommunications business is extremely competitive.
Long-distance prices have decreased substantially in recent years and have shown
signs that the pricing pressure may be easing. In addition, the long-distance
industry has historically experienced high customer attrition, as customers
frequently change their chosen long-distance providers in response to lower
rates or promotional incentives by competitors. We rely on other companies to
provide service for all of our long-distance traffic. As we enter additional
markets we will need to negotiate resale agreements with other telephone
companies to provide us with long-distance services. Such agreements typically
provide for the resale of long-distance services on a per-minute basis and may
contain minimum volume commitments. Negotiation of these agreements involves
estimates of future supply and demand for long-distance services and estimates
of the calling patterns and traffic levels of our customers. If we fail to meet
our minimum volume commitments, we may be obligated to pay under-utilization
charges, and if we underestimate our need for long-distance services, we may be
required to obtain capacity through more expensive means, which would raise our
costs and reduce our revenues. Our failure to achieve acceptable profits from
our long-distance business could have a material adverse effect on us. Trends in
the pricing for long-distance services may be indicative of trends in the
telecommunications industry. If this is the case, revenue from our other service
offerings may be subject to significant price pressure.
An increase in the capacity of our competitors could adversely affect
our business. Furthermore, the marginal cost of carrying an additional call over
existing fiber optic cable is extremely low. As a result, within a few years
there may be dramatic and substantial price reductions.
Our Failure to Integrate Successfully Other Businesses We Acquire May Raise Our
Costs and Reduce Our Revenue. As part of our business strategy, we seek to
expand through investments in or the acquisition of other businesses that we
believe are complementary to our business. Although we regularly engage in
discussions relating to potential acquisitions, we are unable to predict whether
any acquisitions will actually occur. If we acquire companies, networks or other
complementary assets as part of our expansion plan we will be subject to the
risks generally associated with acquisitions. Our ability to complete
acquisitions will depend, in part, on our ability to finance the acquisitions
(including the costs of acquisition and integration). Our ability may be
constrained by our cash flow, the level of our indebtedness at the time,
restrictive covenants in the agreements governing our indebtedness, conditions
in the securities markets and other factors, some of which are not within our
control. If we proceed with one or more acquisitions in which the consideration
consists of cash, we may use a substantial portion of our available cash to
complete the acquisitions. If we finance one or more acquisitions with the
proceeds of indebtedness, our interest expense and debt service requirements
could increase materially. Furthermore, if we use our common stock as
consideration for acquisitions, our stockholders would experience dilution of
their ownership interests represented by their shares of common stock. The
financial impact of acquisitions could materially affect our business and could
cause substantial fluctuations in our quarterly and yearly operating results.
The Telecommunications Industry Is Undergoing Rapid Technological Changes, and
New Technologies May Be Superior to the Technologies We Use. Our Failure to Keep
up with Such Changes Could Adversely Affect Our Business. The telecommunications
industry is subject to rapid and significant changes in technology and in
customer requirements and preferences. We have developed our business based, in
part, on traditional telephone technology. Subsequent technological developments
may reduce the competitiveness of our network and require expensive, unbudgeted
upgrades or additional telecommunication products that could be time consuming
to integrate into our business, and could cause us to lose customers and impede
our ability to attract new customers. We may be required to select one
technology over another at a time when it might be impossible to predict with
any certainty which technology will prove to be more economic, efficient or
16
capable of attracting customers. In addition, even if we acquire new
technologies we may not be able to implement them as effectively as other
companies with more experience with those new technologies.
Marketing Risks. Although we expect to market a variety of telecommunications
services to customers and prospective customers, there can be no assurance that
we will be able to attract and retain new customers or retain and sell
additional services to existing customers.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions about the effect of matters that are inherently
uncertain. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses and disclosure of contingent assets
and liabilities that exist at the date of our financial statements. While we
believe our estimates are appropriate, actual results can, and often do, differ
from those estimates.
Our critical accounting policies are discussed below. Each of these
areas involves complex situations and a high degree of judgment either in the
application and interpretation of existing literature or in the development of
estimates that impact our financial statements.
Revenue Recognition. We recognize revenue in accordance with all applicable U.S.
Generally Accepted Accounting Principles including SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which provides
additional guidance on revenue recognition, as well as criteria for when revenue
is realized and earned and related costs are incurred. The application of SAB
101 requires management's judgment on the amount and timing of revenue
recognition. Should changes in conditions cause management to determine the
revenue recognition criteria are not met for certain future transactions,
revenue recognized for any reporting period could be adversely affected.
The assessment of collectabilty is particularly critical in determining
whether or not revenue should be recognized. A portion of our revenue is for
reciprocal compensation generated by calls placed to Internet Service Providers
who are our customers. In addition, a portion of our revenue is access charge
revenue for connecting our voice service customers to their selected
long-distance carriers for outbound calls or for delivering inbound
long-distance traffic to our voice service customers. Our ability to earn local
reciprocal compensation revenues and access revenues is the subject of numerous
regulatory and legal challenges. Until these issues are ultimately resolved, our
policy is to recognize these revenues only when realization is reasonably
assured.
Accounts Receivable. A considerable amount of judgment is required in assessing
the ultimate realization of our accounts receivable. We evaluate the
collectability of our accounts receivable based on a combination of factors. We
recognize allowances for doubtful accounts based on the length of time the
receivables are past due, the current business environment and our historical
experience. In circumstances where we are aware of a specific customer's or
carrier's inability to meet its financial obligations to us, we record a
specific allowance against amounts due to reduce the net recognized receivable
to the amount we reasonably believe will be collected. If the financial
condition of our customers or carriers were to deteriorate or if economic
conditions worsened, additional allowances may be required in the future.
Goodwill and Intangibles. We had significant intangible assets related to
goodwill and other acquired intangibles. The determination of related estimated
useful lives and whether or not these assets are impaired involves significant
judgment by management. We periodically evaluate acquired businesses for
potential impairment indicators. Our judgments regarding the existence of
impairment are based on market conditions, legal factors and operational
performance of our acquired businesses. Future events could cause us to conclude
that intangibles associated with our acquired businesses are impaired. Any
resulting impairment loss could have a significant impact on our financial
condition and results of operations.
Impairment of Long-Lived Assets. The Company reviews its long-lived assets for
impairment when circumstances indicate that the book value of an asset may not
be fully recovered by the undiscounted net cash flow generated over the
17
remaining life of the related asset or group of assets. If the cash flows
generated by the asset are not sufficient to recover the remaining book value of
the asset, the Company is required to write down the value of the asset. In
evaluating whether the asset will generate sufficient cash flow to recover its
book value, the Company estimates the amount of cash flow that will be generated
by the asset and the remaining life of the asset. In making our estimate, the
Company considers the performance trends related to the asset, the likelihood
that the trends will continue or change, both at the asset level as well as at
the national economic level, and the length of time that we expect to retain the
asset.
Network Expenses. The recognition of network expense and the related liabilities
for network expense requires certain estimates and assumptions to be made by
management. Our accruals for unbilled leased network facilities, network access
charges, and equipment co-location charges are based on circuit counts,
estimated usage, and active co-location sites. Additionally, our accrual
includes charges invoiced by carriers, which are probable network expenses but
have not yet been paid due to rate or volume disputes with other carriers.
Should changes in conditions or facts cause us to revise our estimates our
financial condition and results of operations could be significantly impacted.
Other Matters. We do not have any of the following:
o Off-balance sheet financial arrangements;
o Trading activities that include nonexchange traded contracts
accounted for at fair value; or
o Relationships and transactions with persons or entities that
derive benefits from any nonindependent relationship other than
the related party transactions discussed below.
New Accounting Pronouncements
We continually monitor and revise our accounting policies as
developments occur. The following recently issued accounting pronouncements may
impact the future presentation of our financial condition and results of
operations.
In January 2003 the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities," an interpretation of ARB No. 51. This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation is applied to that enterprise no later than the beginning of the
first interim or annual reporting period beginning after June 15, 2003. The
Company does not expect the adoption of Interpretation No. 46 to have a material
impact on the Company's future results of operations or financial position.
The Emerging Issues Task Force issued EITF No. 00-21, "Revenue
Arrangements with Multiple Deliverables" addressing the allocation of revenue
among products and services in bundled sales arrangements. EITF No. 00-21 is
effective for arrangements entered into in fiscal periods after June 15, 2003.
The Company does not expect the adoption of EITF No. 00-21 to have a material
impact on the Company's future results of operations or financial position.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
18
Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our chief executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our chief executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures were effective.
Changes in Internal Controls
There have not been any significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation. There were no significant deficiencies or material
weaknesses, and therefore no corrective actions were taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MCI WorldCom vs. Ciera Network Systems, Inc., Case No. 03-CV-55-P(C),
in the Federal District Court for the Northern District of Oklahoma, filed
January 15, 2003. MCI has sued Ciera claiming Ciera owes MCI $2,560,000 for
long-distance services which were resold by Ciera. The case was recently filed.
Ciera has denied that it owes MCI the amounts alleged due to over billing
practices and MCI's failure to provide rates and consolidation of three
contracts as promised, which would lower the overall cost of the service.
Management intends to contest the lawsuit vigorously. At this time, it is too
early to ascertain whether Ciera will be successful in the defense of this case.
ITEM 2. Changes in Securities and Use of Proceeds. None.
ITEM 3. Defaults by the Company on its Senior Securities. On December 31, 2002,
we signed an Amended and Restated Loan Agreement with RFC Financial Corporation
that provides for a revolving line of credit. Under the Loan and Security
Agreement, RFC has a security interest in and lien on Ciera Network Systems,
Inc. and CCC GlobalCom Corporation's assets, including inventory, accounts
receivable, intangibles, equipment, furniture and fixtures, trade names and
marks, intellectual property, customer base, deposit accounts, and insurance
proceeds. Under the Loan and Security Agreement the principal amount of the
revolving line of credit is not to exceed the lesser of (a) $6,000,000 and (b)
the Availability Formula. The Company has extended the full amount available
under the Availability Formula. In addition, we were able to refinance
$14,000,000 of the line of credit to term notes. The notes have a number of loan
covenants, one of which requires the Company to pay all required federal and
state taxes in a timely manner. The Company is delinquent in the payment of
federal excise taxes. Another loan covenant requires the Company to achieve
negative EBITDA results of no greater than $850,000 for the three months ended
March 31, 2003. The Company achieved negative EBITDA results of approximately
$1,000,000 for the three months ended March 31, 2003. As a result, the Company
is not in compliance with the loan covenants. RFC has not notified the Company
of an event of default.
ITEM 4. Submission of Matters to Vote of Security Holders. None.
ITEM 5. Other Information. None.
ITEM 6(a). Exhibits. Exhibit 99.1 Certification of Chief Executive officer
Exhibit 99.2 Certification of Principal Financial Officer
ITEM 6(b). Reports on Form 8-K. On April 1, 2003, the Company filed an 8-K
announcing the resignation of Clifford J. Bottoms as the Chief Financial Officer
and as a Director of the Company. The Company also announced the resignations of
Gary Owens and Michael Walsh as Directors of the Company.
19
SIGNATURES
- ----------
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CCC GLOBALCOM CORPORATION
Date May 20, 2003 By /s/ Paul E. Licata
--------------------------
Paul E. Licata
Chief Executive Officer and President
/Principal Executive Officer
Date May 20, 2003 By /s/ Mario H. Hernandez
----------------------------------
Mario H. Hernandez
Controller /Principal
Financial Officer
20
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul E. Licata, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CCC
GlobalCom Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
o designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
o evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (March 31, 2003);
and
o presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
o all significant deficiencies in the design or operation of
internal controls which would adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
o any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By /s/ Paul E. Licata
- --------------------------
Paul E. Licata
Chief Executive Officer
May 20, 2003
21
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mario H. Hernandez, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CCC
GlobalCom Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
o designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
o evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (March31, 2003);
and
o presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
o all significant deficiencies in the design or operation of
internal controls which would adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
o any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By /s/ Mario H. Hernandez
- --------------------------------------
Mario H. Hernandez
Controller/Principal Financial Officer
May 20, 2003
22