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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-30365-C
CCC GLOBALCOM CORPORATION
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 36-3693936
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1250 WOOD BRANCH PARK DRIVE, 6TH FLOOR, HOUSTON, TEXAS 77079
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE: (281) 529-4600
NOT APPLICABLE
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 13 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 November 1, 2001 - 32,786,899 shares of $.001 par
value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
CCC GLOBALCOM CORPORATION
For the Quarter ended September 30, 2001
The following financial statements and schedules of the registrant
are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
-----------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet - September 30, 2001 3
Condensed Consolidated Statements of Operations--for the three months and
nine months ended September 30, 2001 and September 30, 2000 4
Condensed Consolidated Statements of Cash Flows - for the nine months
ended September 30, 2001 and September 30, 2000 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Page
----
Item 1. Legal Proceedings 15
Item 2. Changes in the Securities 15
Item 3. Defaults / Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6(a). Exhibits 15
Item 6(b). Reports on Form 8-K 15
2
CCC GlobalCom Corporation
Condensed Consolidated Balance Sheet
September 30, 2001
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 171,442
Accounts receivable, net 5,957,057
Inventory 375
Prepaid expenses and Deposits 342,930
-------------
Total current assets 6,471,804
Property and equipment, net 2,603,610
Intangible asset, net 8,997,984
-------------
Total assets $ 18,073,398
-------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,379,244
Accrued liabilities 631,847
Deferred income 96,638
Revolving line of credit 16,113,107
-------------
Total current liabilities 18,220,836
Long-term note payable 8,025
-------------
Total liabilities 18,228,861
-------------
Stockholders' deficit:
Common stock - par value $.001 per share. Authorized 100,000,000
shares; issued and outstanding 32,766,079 shares 32,766
Additional paid-in capital 6,475,744
Accumulated deficit (6,663,973)
-------------
Total stockholders' deficit (155,463)
-------------
Total liabilities and stockholders' deficit $ 18,073,398
-------------
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See accompanying Notes to Condensed Consolidated Financial Statements.
3
CCC GlobalCom Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------------------------------
2001 2000 2001 2000
------------------------------------------------------------
Revenue $ 3,087,026 $ 653,822 $ 6,316,100 $ 1,279,458
Cost of goods sold 2,007,495 483,812 3,861,525 924,660
------------------------------------------------------------
Gross margin 1,079,531 170,010 2,454,575 354,798
General and administrative
expenses (3,077,916) (952,839) (6,246,723) (1,414,799)
------------------------------------------------------------
Loss from operations (1,998,385) (782,829) (3,792,148) (1,060,001)
------------------------------------------------------------
Other income (expense):
Interest expense (240,096) - (380,491) (2,575)
Interest income 445 5,792 1,688 7,670
Other income (expense) 1,038 1,592 24,353 (2,817)
------------------------------------------------------------
(238,613) 7,384 (354,450) 2,278
------------------------------------------------------------
Loss before income tax (2,236,998) (775,445) (4,146,598) (1,057,723)
------------------------------------------------------------
Income tax benefit - - - -
------------------------------------------------------------
Net loss $ (2,236,998) $ (775,445) $(4,146,598) $(1,057,723)
------------------------------------------------------------
Net loss per share -
basic and diluted $ (.07) $ (.02) $ (.13) $ (.03)
------------------------------------------------------------
Weighted average shares -
basic and diluted 32,766,079 31,693,000 32,766,079 31,167,000
------------------------------------------------------------
================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
4
CCC GlobalCom Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2001 2000
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,146,598) $(1,057,723)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,159,003 67,610
(Increase) decrease in:
Accounts receivable (494,915) (525,582)
Inventory (375)
Prepaid expenses (338,485) (11,892)
Deposits and other assets 15,000 5,000
Increase (decrease) in:
Accounts payable 1,272,371 562,826
Accrued liabilities 554,481 (13,785)
Deferred income (75,915)
Loss on sale of fixed assets 5,805
--------------------------------
Net cash used in
operating activities (2,049,628) (973,546)
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of property and equipment (104,608) (72,499)
Acquisition of intangible assets (26,000) (116,690)
Purchase of EqualNet assets (8,161,511)
Purchase of Omniplex assets (8,298,704)
Purchase of telephone switching equipment (750,000)
Proceeds from sale of equipment 1,851
--------------------------------
Net cash used in
investing activities (17,338,972) (189,189)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term notes payable (10,000) (43,476)
Proceeds from issuance of stock 2,343,176 1,644,046
Payments on line of credit (6,577,733) (18,364)
Proceeds from line of credit 22,690,840
--------------------------------
Net cash provided by
Financing activities 18,446,283 1,582,206
--------------------------------
Net increase (decrease) in cash (942,317) 419,471
Cash, beginning of period 1,113,759 135,076
--------------------------------
Cash, end of period $ 171,442 $ 554,547
================================
================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
5
CCC GlobalCom Corporation
Condensed Consolidated Statement of Cash Flows
Continued
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 31,
--------------------------------------------
2001 2000
--------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 380,491 $ 2,575
--------------------------------------------
Income taxes paid $ - $ -
--------------------------------------------
================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(1) CCC GlobalCom Corporation (the "Company") was named Emerald Capital
Investments, Inc. prior to June 12, 2000. On June 9, 2000, the Company
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 the acquisition of Ciera Network Systems, Inc., ("Ciera"). Ciera
commenced operations in 1999. The Company's acquisition of CCC Texas,
and as a result of such acquisition, the acquisition of Ciera, is
accounted for as a reverse merger. Accordingly for accounting purposes,
Ciera is deemed to be the survivor of such acquisition and as such, the
financial statements presented are those of the operations of Ciera
from the commencement of Ciera in 1999 to June 9, 2000. These financial
statements include the operations of Equalnet and Omniplex from the
date of acquisition forward. Thereafter the statements are those of the
consolidated statements of CCC GlobalCom Corporation and its wholly
owned subsidiaries.
(2) The unaudited financial statements include the accounts of CCC
GlobalCom Corporation and subsidiaries and include all adjustments
(consisting of normal recurring items) which are, in the opinion of
management, necessary to fairly present the financial position as of
September 30, 2001, and the results of operations and changes in
financial position for the three and nine month periods ended September
30, 2001 and 2000.
(3) Loss per common share is based on the weighted average number of shares
outstanding during the period. Common stock equivalents are not
included in the diluted earnings per share calculation because the
effect would have been anti-dilutive.
(4) The Company raised $2,343,176, net of expenses of $241,526, in proceeds
from a Private Placement Memorandum ("PPM") which closed on May 31,
2001. The Company sold shares for $3.25 with a minimum purchase of
20,000 shares to accredited investors. The Company was offering
2,000,000 shares of its common stock under the PPM. The Company sold
795,293 shares of common stock in the PPM. Approximately $1,250,000 of
the proceeds was used for the EqualNet and d-Tel acquisition. The
balance of the proceeds has been used to fund operations.
(5) On April 5, 2001, the Company acquired certain assets of EqualNet
Communications Corp., EqualNet Corporation and USC Telecom, Inc.
(collectively referred to as the "EqualNet Assets"). The assets
purchased included various fixed assets, contracts, receivables and
other tangible and intangible assets related to EqualNet's long
distance resale business, customer service business, and telephone
debit and sales and service business. The purchase price of $8,161,511
was paid with available cash and proceeds from a revolving credit
facility of $7,500,000 from RFC Capital, a division of Textron
Financial. In a related transaction, CCC GlobalCom purchased three
switches used in the EqualNet long distance business for $750,000 from
d-Tel Network, L.L.C., a company controlled by the Chairman of the
Board of EqualNet.
On September 11, 2001 the Company acquired certain assets of Omniplex
Communications Corporation (collectively referred to as the "Omniplex
Assets"). The assets purchased included various fixed assets,
contracts, receivables and other tangible and intangible assets related
to Omniplex's commercial local and long distance telecommunications
business. The purchase
7
price of $8,298,704 was paid with proceeds of $8,125,000 from a
revolving credit facility from RFC Capital, a division of Textron
Financial, and the balance with available cash. In connection with the
acquisition, the Company and its lender have a term sheet whereby the
lender has agreed in principle to exchange $1,000,000 of its debt for
warrants to purchase the company's common stock at $4.00 per share. The
details of the warrant have not been finalized and are being
negotiated. As such, no accounting for the warrants and debt reduction
has been reflected in these statements.
(6) Prepaid expenses at September 30, 2001, are comprised of consulting
arrangements ($150,000) ranging from three to twenty-seven months, rent
($21,778), carrier deposits ($60,000) and other prepaid expenses
($111,152).
(7) The Company has entered into two $10,000,000 revolving credit
facilities with RFC Capital in connection with the acquisition of
EqualNet and Omniplex. The revolving credit facilities have forty-eight
month terms and an interest rate of prime plus one and three quarter
percent on ten million and prime plus two percent on ten million. The
loans have covenants related to financial performance and cash flow
customary to loans of this type. Advances under the loan are based upon
a multiple of revenue. At September 30, 2001, there was $16,113,107 in
borrowings outstanding under these loans. Approximately $15,800,000 of
advances under the credit facility was used to finance the purchase of
the EqualNet and Omniplex assets with the balance used to fund
operations. Availability under the loan is generated through
collections of accounts receivable deposited directly into lock boxes
of RFC Capital Corporation. At September 30, 2001, the Company had
withdrawn the maximum amount available under the revolving credit
facilities. The amount due under the revolving line of credit has been
classified as current. The Company is in violation of certain covenants
under its loan agreement with its lender. At the present time, the
Lender has not notified the Company of an Event of Default under the
loan and currently is in discussions with the Company regarding the
possibility of restructuring the two revolving credit facilities.
Additionally, the proposed restructure is designed to provide an
additional $2,800,000 in secured and subordinated borrowings for use in
the proposed acquisition of Incomnet (see Proposed Acquisition) and
additional working capital. The restructure is designed to eliminate
the covenant violations and bring the revolving loan agreements in
compliance. Although there can be no assurance, the Company anticipates
a successful restructure of its loan agreements within the next sixty
days.
The Company and its lender have a term sheet whereby the lender has
agreed in principle to exchange $1,000,000 of its debt for warrants to
purchase the company's common stock at $4.00 per share. The details of
the warrant have not been finalized and are being negotiated. As such,
no accounting for the warrants and debt reduction has been reflected in
these statements.
(8) In September 2001, and a subsequent amendment in October 2001, the
Company entered into a Letter of Intent to acquire certain assets of
Incomnet Communications Corp (Incomnet). The assets to be purchased
include various fixed assets, contracts, receivables and other tangible
and intangible assets related to Incomnet's long distance business. The
purchase price of the transaction approximates $3,000,000 payable in a
combination of cash ($2,500,000) and common stock ($500,000) plus the
assumption of certain liabilities yet to be determined. The purchase is
subject to due diligence and the completion of a definitive purchase
agreement. If the acquisition closes, the objective of the combined
companies is to be cash flow neutral subsequent to the closing. This
objective is designed to be accomplished through the increased revenues
from the acquired company along with cost cutting measures in payroll
and other general and administrative expenses.
(9) Included in cash on the balance sheet are certificates of deposits
totaling $166,100 securing letters of credit provided to certain of the
Company's vendors for collateral on their accounts.
8
Accordingly, the certificates of deposit are not available for use in
meeting the Company's working capital needs.
(10) The Company has issued 1,200,000 shares of its common stock to certain
officers and directors to be held in escrow to be released upon the
occurrence of reaching certain performance criteria. An additional
800,000 shares of the Company's common stock is reserved and will be
issued to certain officers and will be held in escrow under the same
terms and conditions. None of these shares can be voted by the
officers, directors or escrow agents. Accordingly, such shares have not
been included in the computation of earnings per share.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CCC GlobalCom Corporation (the "Company") was named Emerald Capital
Investments, Inc. prior to June 12, 2000. On June 9, 2000, the Company 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 has
conducted no operations except for its acquisition of Ciera Network Systems,
Inc. ("Ciera"). Ciera commenced operations in 1999. The Company's acquisition of
CCC Texas, and as a result of such acquisition, the acquisition of Ciera, is
accounted for as a reverse merger. Accordingly for accounting purposes, Ciera is
deemed to be the survivor of such acquisition; and, as such the financial
statements presented are those of the operations of Ciera from January 1, 2000
to June 9, 2000. Thereafter the statements are those of the consolidated
statements CCC GlobalCom Corporation and its wholly owned subsidiaries.
The Company is a facilities based telecommunications company offering
residential and small to medium sized business customers a wide variety of
bundled voice and data telecommunications services. Prior to March 31, 2001, the
Company operated as a switchless provider of telecommunications services. The
Company is a reseller of voice and data telecommunications services including
but not limited to the following:
o local telephone service;
o long distance telephone services;
o internet service;
o paging;
o voice messaging; and,
o archive data backup and recovery.
The Company intends to expand its operations through acquisitions of
other telecommunications companies located in the United States, South and
Central America and elsewhere. The key elements of our business strategy are to:
9
o focus on residential and small to medium-sized business customers in
select United States and foreign markets;
o develop a flexible, technologically advanced telecommunications network
in a capital-efficient manner through reselling telecommunications
services and products in a seamless method;
o provide customers a complete telecommunications solution at a
competitive price with superior customer service;
o maintain customer loyalty;
o employ a team sales approach to cross-sell multiple products and
services; and,
o expand through acquiring other operating telecommunications companies
or their assets.
CALLING CENTERS
Many Colombian residents do not have telephone services in their
residences and are required to make telephone calls at pay phones. The Company
recently formed CCC GlobalTel de Colombia as a wholly owned subsidiary of CCC
GlobalCom Corporation, under the laws of Colombia, to operate calling centers.
These indoor calling centers are designed to serve travelers and the large
population of the country who do not have personal telephones. Calling centers
are a widely recognized and utilized medium in Colombia, Mexico, and other Latin
American countries but do not currently have a real equivalent in the U.S. As
compared to public pay telephones, our centers offer privacy and comfort as well
as the personalized attention needed by customers who are not accustomed to
using a telephone.
The Company has two calling centers operating in Bogota, Colombia. The
focus of the Company at the present time is to franchise with existing calling
centers already operational and combine these centers under one name. The
operations of the Colombian subsidiary will be funded directly from existing
operations and future franchises revenues.
The calling center business is very competitive throughout Colombia,
however this is a very localized business on a neighborhood to neighborhood
basis.
RESULTS OF OPERATIONS
The Company's revenues are derived from the sale of telecommunications
services to residential and business customers. Currently, the Company has a
limited number of customers and is primarily conducting operations in the states
of Texas and Missouri. Although the Company's wholly owned subsidiary Ciera
Network Systems, Inc. commenced operations in 1999, the Company continues to be
in early stages of development and future revenues are dependent upon the
Company's ability to expand its customer base through a combination of
internally generated growth or acquisitions. Effective April 5, 2001, CCC
GlobalCom acquired the long distance customer base of EqualNet and on September
11, 2001, CCC GlobalCom acquired the commercial customer base of Omniplex. These
customer bases consist of approximately 34,000 customers.
The Company has been operating in the telecommunications industry since
January 1999, and is in the early stages of pursuing its business plan.
Therefore, the comparative numbers between 2001 and 2000 may not be a meaningful
indication of future results.
10
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000
REVENUES for the three months ended September 30, 2001, were $3,087,026
compared to $653,822 for the three months ended September 30, 2000. Revenues are
derived from the sale of telecommunications services. The increase in revenues
for the three months ended September 30, 2001, compared to the three month
period ended September 30, 2000, was primarily attributed to implementation of
the Company's marketing efforts throughout the 2000 calendar year and into the
third quarter of 2001 and customers obtained from the Virtual Network
acquisition in June 2000, the EqualNet acquisition in April 2001 and the
Omniplex acquisition in September 2001.
COST OF SALES. For the three months ended September 30, 2001, our cost
of sales was $2,007,495 or 65.0% of sales compared to $483,812 or 74.0% for the
three months ended September 30, 2000. The increase in cost of sales for the
three months ended September 30, 2001, compared to the three months ended
September 30, 2000, was primarily attributed to costs associated with the
revenue growth from third quarter 2000 to third quarter 2001. The variance in
the percentage of cost of sales is indicative of the fact that the third quarter
of 2000 was still being conducted during a start up period and the company's
cost of providing service was higher during this start up period. The Company
expects to aggressively monitor its cost of sales to obtain the lowest cost
possible for providing the services to the customer.
GROSS MARGINS. Gross margins were $1,079,531 for the three months ended
September 30, 2001, compared to $170,010 for the three months ended September
30, 2000. This significant increase is the result of a significant increase in
revenues relating to marketing efforts of the Company and acquisition of the
Virtual Network, EqualNet and Omniplex customer bases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative (G&A)
expenses were $3,077,916 or 99.7% of revenue for the three months ended
September 30, 2001, compared to $952,839 or 145.7% of revenue for the three
months ended September 30, 2000. The increase in G&A expenses was attributed to
an overall increase in operations, other activities, staffing and professional
fees. We anticipate that the total dollar amount of G&A expenses will continue
to increase as operations increase through acquisitions or internal growth.
NET LOSS. We had a net loss of $2,236,998 for the three months ended
September 30, 2001, compared to a net loss of $775,445 for the three months
ended September 30, 2000. The increase in total net loss was due primarily to
the increase in general and administrative expenses for the comparable periods.
This increase in general and administrative expenses was necessary to provide
the infrastructure necessary to continue with the implementation of the
Company's business plan.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO SEPTEMBER 30, 2000
REVENUES for the nine months ended September 30, 2001, were $6,316,100
compared to $1,279,458 for the nine months ended September 30, 2000. Revenues
are derived from the sale of telecommunications services. The increase in
revenues for the nine months ended September 30, 2001, compared to the nine
month period ended September 30, 2000, was primarily attributed to
implementation of the Company's marketing efforts throughout the 2000 calendar
year and into the second quarter of 2001; and customers obtained from the
Virtual Network acquisition in June 2000, the EqualNet acquisition in April 2001
and the Omniplex acquisition in September, 2001.
COST OF SALES. For the nine months ended September 30, 2001, our cost
of sales were $3,861,525 or 61.1% of sales compared to $924,660 or 72.3% for the
nine months ended September 30, 2000. The increase in cost of sales for the nine
months ended September 30, 2001, compared to the nine months ended September 30,
2000, was primarily attributed to costs associated with the revenue growth from
the first nine months of 2000 to the first nine months of 2001. The variance in
the percentage of cost of sales is indicative of the fact that the first nine
months of 2000 was being conducted during a start up period
11
and the Company's cost of providing service was higher during this start up
period. The Company expects to aggressively monitor its cost of sales to obtain
the lowest cost possible for providing the services to the customer.
GROSS MARGINS. Gross margins were $2,454,575 for the nine months ended
September 30, 2001, compared to $354,798 for the nine months ended September 30,
2000. This significant increase is the result of a significant increase in
revenues relating to marketing efforts of the Company and acquisition of the
Virtual Network, EqualNet and Omniplex customer bases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative (G&A)
expenses were $6,246,723 or 98.9% of revenue for the nine months ended September
30, 2001, compared to $1,414,799 or 110.6% of revenue for the nine months ended
September 30, 2000. The increase in G&A expenses was attributed to an overall
increase in operations, other activities, staffing and professional fees. We
anticipate that the total dollar amount of G&A expenses will continue to
increase as operations increase through acquisitions or internal growth.
NET LOSS. We had a net loss of $4,146,598 for the nine months ended
September 30, 2001, compared to a net loss of $1,057,723 for the nine months
ended September 30, 2000. The increase in total net loss was due primarily to
the increase in general and administrative expenses for the comparable periods.
This increase in general and administrative expenses was necessary to provide
the infrastructure necessary to continue with the implementation of the
Company's business plan.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had negative working capital of
$11,749,032, which was primarily the result of the revolving line being
classified as current. During the first nine months of 2001, the company raised
$2,343,176, net of expenses of $216,533, in proceeds from a Private Placement
Memorandum ("PPM") which closed on May 31, 2001. The PPM sold shares for $3.25
with a minimum purchase of 20,000 shares to accredited investors. The Company
sold 795,293 shares of its common stock under the PPM. Approximately $1,250,000
of the proceeds was used for the EqualNet and d-Tel acquisition with the balance
being used to fund operations.
The Company has entered into two $10,000,000 revolving credit
facilities with RFC Capital in connection with the acquisition of EqualNet and
Omniplex. The revolving credit facilities have forty-eight month terms and an
interest rate of prime plus one and three quarter percent on ten million and
prime plus two percent on ten million. The loans have covenants related to
financial performance and cash flow customary to loans of this type. Advances
under the loan are based upon a multiple of revenue. At September 30, 2001,
there was $16,113,107 in borrowings outstanding under this loan. Approximately
$15,800,000 of advances under the credit facility was used to finance the
purchase of the EqualNet and Omniplex assets with the balance used to fund
operations. Availability under the loan is generated through collections of
accounts receivable deposited directly into lock boxes of RFC Capital
Corporation. At September 30, 2001, the Company had withdrawn the maximum amount
available under the revolving credit facility. The amount due under the
revolving line of credit has been classified as current. The Company is in
violation of certain covenants under its loan agreements. At the present time,
the lender has not notified the Company of an Event of Default and is in
discussions with the Company regarding the possibility of restructuring the two
revolving credit facilities. Additionally, the proposed restructure is designed
to provide an additional $2,800,000 in secured and subordinated borrowings for
use in the proposed acquisition of Incomnet and additional working capital. The
restructure is designed to eliminate the covenant violations and bring the
revolving loan agreements in compliance. Although there can be no assurance, the
Company anticipates a successful restructure of its loans within the next sixty
days.
12
The Company and its lender have a term sheet whereby the lender has
agreed in principle to exchange $1,000,000 of its debt for warrants to purchase
the company's common stock at $4.00 per share. The details of the warrant have
not been finalized and are being negotiated. As such, no accounting for the
warrants and debt reduction has been reflected in these statements.
At September 30, 2001, the Company had total assets of $18,073,398,
total liabilities of $18,228,861 and stockholders deficit of ($155,463). Total
assets included $8,997,984 of intangible assets attributable to the purchase of
the customer list from the Virtual Network Company and the assets of EqualNet
and Omniplex.
The Company's primary needs for capital are to fund acquisitions,
purchase equipment, and fund operations until the Company operates at a profit.
The Company anticipates that it will continue to operate at a deficit for at
least through the fourth quarter of fiscal 2001.
The Company currently has negative cash flow approximating $550,000 per
month. Currently, the Company has maximized the amount available under its
credit facility. The Company is actively pursuing the following to reduce its
negative cash flow and fund operations in the future; increase revenues through
acquisitions and internal growth, reduction of general and administrative
expenses, restructuring of its existing credit facility and selling additional
securities. Should the Company not be successful in any of these ongoing
efforts, it could effect its ability to continue operations.
PROPOSED ACQUISITION
In September 2001 and a subsequent amendment in October 2001, the
Company entered into a Letter of Intent to acquire certain assets of Incomnet
Communications Corp (Incomnet). The assets to be purchased include various fixed
assets, contracts, receivables and other tangible and intangible assets related
to Incomnet's long distance business. The purchase price of the transaction
approximates $3,000,000 payable in a combination of cash ($2,500,000) and common
stock ($500,000) plus assumption of certain liabilities yet to be determined.
The purchase is subject to due diligence and the completion of a definitive
purchase agreement. If the acquisition closes, the objective of the combined
companies is to be cash flow neutral subsequent to the closing. This objective
is designed to be accomplished through the increased revenues from the acquired
company along with cost cutting measures in payroll and other general and
administrative expenses.
The acquisition, if completed, will add an additional 60,000 customers
having an approximate revenue of $1,200,000. The assets purchased will include
$1,880,000 in receivables and $4,020,000 in equipment and CCC GlobalCom will
assume certain liabilities to be determined.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations" was issued. SFAS No. 141 eliminates the use of the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method as the only acceptable method. The statement was
effective beginning June 30, 2001. Management has reviewed the requirements of
the statement and does not believe it will have a material impact on the
financial position or results of operations of the Company.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued. SFAS No. 142 changes the treatment of goodwill by no longer amortizing
goodwill, and instead requiring, at least annually, an assessment for impairment
by applying a fair-value based test. However, other identifiable intangible
assets are to be separately recognized and amortized. The statement is effective
for fiscal years beginning after December 15, 2001. The adoption of the
statement will result in the elimination of approximately $3,260,000 of goodwill
amortization, annually, subsequent to December 31, 2001.
13
Additionally, adoption could result in an impairment of goodwill, based on the
new fair-value based test, which would be reflected as a cumulative effect of
change in accounting principle on January 1, 2002.
The Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations" in September 2001. Statement No.
143, which is effective for fiscal years beginning after June 15, 2002,
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. We have not assessed whether the application of these standards will have
a material effect on our financial position, results of operations or liquidity.
The Financial Accounting Standards Board issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" in October
2001. Statement No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets, and is effective for fiscal years
beginning after December 15, 2001. We have not assessed whether the application
of these standards will have a material effect on our financial position,
results of operation or liquidity.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains "forward-looking statements" within the
meaning of the securities laws. These forward-looking statements are subject to
a number of risks and uncertainties, many of which are beyond our control. All
statements included in this Quarterly Report, other than statements of
historical facts, are forward-looking statements, including the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our strategy, future operations, financial position,
projected costs, prospects, plans and objectives of management.
Certain statements contained in the Quarterly Report, including without
limitation, statements containing the words "will," "anticipate," "believe,"
"intend," "estimate," "expect," "project" and words of similar import,
constitute forward-looking statements, although not all forward-looking
statements contain such identifying words. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other factors include,
among others, the following:
o limited operating history and expectation of operating losses;
o availability and terms of the significant additional capital
required to fund our expansion;
o reliance on third party vendors and suppliers;
o extensive competition we expect to face in each of our markets;
o dependence on sophisticated information and processing systems;
o ability to manage growth;
o ability to access markets and obtain any required governmental
authorizations, franchises and permits, in a timely manner, at
reasonable costs and on satisfactory terms and conditions;
o ability to attract customers away from their existing
telecommunications providers;
o technological change; and,
14
o changes in, or the failure to comply with, existing government
regulations.
All forward-looking statements speak only as of the date of this
Quarterly Report. We do not undertake any obligation to update or revise
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Although we believe that our plans, intentions and
expectations reflected in or suggested by the forward-looking statements made in
this Quarterly Report are reasonable, we can give no assurance that such plans,
intentions or expectations will be achieved. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. To the best knowledge of the Company's
management, the Company is not a party to any legal
proceeding or litigation.
Item 2. Changes in Securities and Use of Proceeds. None
Item 3. Defaults / Senior Securities. The Company has entered
into two $10,000,000 revolving credit facilities with RFC
Capital. The revolving credit facilities have forty-eight
month terms and an interest rate of prime plus one and
three quarter percent on ten million and prime plus two
percent on ten million. The loans have covenants related
to financial performance and cash flow customary to loans
of this type. The Company is in violation of certain of
these covenants. Accordingly, the loan balance has been
classified as current on the financial statements. At the
present time, the Lender has not notified the Company of
an Event of Default under the loan and currently is in
discussions with the Company regarding the possibility of
restructuring the two revolving credit facilities.
Additionally, the proposed restructure is designed to
provide an additional $2,800,000 in secured and
subordinated borrowings for use in the proposed
acquisition of Incomnet (see proposed acquisition) and
additional working capital. The restructure is designed to
eliminate the covenant violations and bring the revolving
loan agreements in compliance. Although there can be no
assurance, the Company anticipates a successful
restructure of its loan agreements within the next sixty
days.
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information. None.
Item 6(a). Exhibits.
10.1: Loan and Security Agreement between RFC Capital and
Ciera Network Systems, Inc., a wholly owned subsidiary of
the Company.
Item 6(b). Reports on Form 8-K. On September 23, 2001, the
Company filed an 8-K announcing the acquisition of
selected assets from Omniplex Communications Corporation.
The 8-K will require an amendment to include financial
information of the acquired company.
15
SIGNATURE
Pursuant to the requirements of the Exchange Act, the Company has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: November 14, 2001 CCC GLOBALCOM CORPORATION
By /s/ Z.A. HAKIM
----------------------------
Z.A. Hakim
CEO/Principal Executive Officer
By /s/ GARY A. ALLCORN
----------------------------
Gary A. Allcorn
CFO/Principal Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.1 Loan and Security Agreement between RFC Capital and Ciera Network
Systems, Inc., a wholly owned subsidiary of the Company.